As filed with the Securities and Exchange Commission on March 6, 1997.
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. 33
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 34
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 March 6, 1997 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; Federal 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; European Equity, Japan Equity and Asia Growth Funds (for
their fiscal years ended December 31, 1996) on February 27, 1997; Money Market
Fund (for its fiscal year ended November 30,
<PAGE>
1996) on January 17, 1997; New York Total Return Bond Fund (for its fiscal year
ended March 31, 1996) on May 30, 1996; Equity and Capital Appreciation Funds
(for their fiscal years ended May 31, 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 Small Company Growth Fund (for its fiscal year
ending May 31, 1997) on or before July 30, 1997; Global Strategic Income Fund
(for its fiscal year ending July 31, 1997) on or before September 29, 1997;
International Opportunities and Latin American Equity Funds (for their fiscal
years ending November 30, 1997) on or before January 29, 1998; and Emerging
Markets Debt Fund (for its fiscal year ending December 31, 1997) on or before
February 27, 1998.
The Series Portfolio has also executed this Registration Statement.
<PAGE>
THE JPM PIERPONT FUNDS
(INTERNATIONAL OPPORTUNITIES FUND, GLOBAL STRATEGIC INCOME FUND, LATIN
AMERICAN EQUITY FUND, EMERGING MARKETS DEBT FUND AND SMALL COMPANY GROWTH
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.
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18. CAPITAL STOCK AND OTHER SECURITIES: Massachusetts Trust; Description of
Shares.
19. PURCHASE, REDEMPTION AND PRICING OF SECURITIES BEING OFFERED: Net Asset
Value; Purchase of Shares; Redemption of Shares; Exchange of Shares;
Dividends and Distributions.
20. TAX STATUS: Taxes.
21. UNDERWRITERS: 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. 33 (the "Amendment") to the
Registrant's registration statement on Form N-1A (File nos. 33-54632 and
811-7340) is being filed with respect to the Registrant's following series of
shares: The JPM Pierpont Latin American Equity Fund, The JPM Pierpont Emerging
Markets Debt Fund and The JPM Pierpont Small Company Growth Fund to make certain
non-material changes to the prospectuses and statement of additional information
filed on December 20, 1996 in post-effective amendment no. 29 (Accession No.
1016964-96-69). As a result, the Amendment does not modify or affect any of the
Registrant's currently effective prospectuses or statement of additional
information used in connection with the public offering and sale of any of the
Registrant's other series of shares.
<PAGE>
PROSPECTUS
THE JPM PIERPONT LATIN AMERICAN EQUITY FUND
60 STATE STREET
BOSTON, MASSACHUSETTS 02109
FOR INFORMATION CALL (800) 521-5411
The investment objective of The JPM Pierpont Latin American Equity Fund (the
"Fund") is high total return from a portfolio of equity securities of Latin
American companies. THE FUND SEEKS TO ACHIEVE ITS OBJECTIVE BY INVESTING ALL OF
ITS INVESTABLE ASSETS IN THE LATIN AMERICAN EQUITY 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 equity securities of Latin American
companies.
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 March 6,
1997, 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 March 6, 1997
<PAGE>
TABLE OF CONTENTS
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 9
Shareholder Inquiries and Services 11
Purchase of Shares 12
Redemption of Shares 13
Exchange of Shares 13
Dividends and Distributions 14
Net Asset Value 14
Taxes 14
Organization 15
Additional Information 15
<PAGE>
THE JPM PIERPONT LATIN AMERICAN EQUITY 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..........................................................1.00%
Rule 12b-1 Fees....................................................... None
Other Expenses (after expense limitation)..............................0.75%
Total Operating Expenses (after expense
limitation)............................................................1.75%
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(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 31, 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
0.89% and 1.89%, 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...................................................................$18
3 Years............................. ................................$55
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.
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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 the aggressive investor seeking to diversify an
investment portfolio by investing in Latin American economies. Investments in
equity securities of Latin American companies may be considered speculative and
involve risks not associated with investments in securities of U.S. issuers. An
investment in the Fund, therefore, may offer higher potential for gains and
losses but may be more volatile than an investment in a fund investing primarily
in more developed world markets. THE FUND IS INTENDED FOR INVESTORS WHO CAN
ACCEPT A HIGH DEGREE OF RISK AND IS NOT SUITABLE FOR ALL INVESTORS. THE FUND
DOES NOT REPRESENT A COMPLETE INVESTMENT PROGRAM.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is high total return from a portfolio of equity
securities of Latin American companies. 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. Since the investment characteristics of the
Fund correspond directly to those of the Portfolio, the following is a
discussion of the investment policies and risks of the Portfolio. The Portfolio
invests primarily in equity securities of Latin American companies.
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PRIMARY INVESTMENTS. Under normal market conditions, substantially all and at
least 65% of the Portfolio's total assets will be invested in common stocks and
other equity securities of companies located in or doing business in Latin
America ("Latin Companies"). The Advisor considers Latin America to include
Mexico and the countries of the Caribbean area, Central America and South
America ("Latin Countries"). Latin Companies are those that satisfy at least one
of the following criteria: (i) the equity securities of such companies are
traded principally on stock exchanges in one or more Latin Countries, (ii) the
companies derive 50% or more of their total revenue from goods produced, sales
made or services performed in one or more Latin Countries, (iii) the companies
maintain 50% or more of their assets in one or more Latin Countries, or (iv)
they are organized under the laws of a Latin Country. Equity securities include
exchange-traded, over-the-counter ("OTC") and unlisted common and preferred
stocks, warrants, rights, convertible securities, depository receipts, trust
certificates, limited partnership interests and equity participations. The
Portfolio's investments are primarily in securities denominated in foreign
currencies, but it may also invest in securities denominated in the U.S. dollar
or multinational currency units such as the ECU. The Advisor will not routinely
attempt to manage the Portfolio's foreign currency exposure. However, the
Advisor may from time to time engage in foreign currency exchange transactions
if it believes the transactions would be in the Portfolio's best interest.
HOW INVESTMENTS ARE SELECTED. 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 the returns and volatility of the
Latin American equity markets as represented by the Morgan Stanley Capital
International--Latin America Index (the "Index"). The Advisor believes that
selection of Latin Countries in which to invest the Portfolio's assets and
selection of undervalued securities of Latin Companies in those countries are
the essential components of management of the Portfolio.
Based on fundamental research, quantitative valuation techniques and experienced
judgment, the Advisor identifies those Latin Countries where economic and
political factors, including currency movements, are likely to produce above
average returns for the region. Based on this analysis the Advisor then
allocates the Portfolio's assets among those Latin Countries by under- or
overweighting selected countries in the Index. Currently four Latin Countries -
Argentina, Brazil, Chile and Mexico - represent more than 85% of the market
value of the Index.
To select investments for the Portfolio, the Advisor ranks companies in each
Latin Country within industry sectors according to their relative value. These
valuations are based on the Advisor's fundamental research and use of
quantitative tools to project a company's long-term prospects for earnings
growth and its dividend paying capability. Based on this valuation, the Advisor
then selects the companies which appear most attractive for the Portfolio.
Typically, the Portfolio's sector weightings will be similar to those of the
Index.
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. In addition to changes
affecting securities markets generally, such investments may be affected by
changes in currency exchange 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
3
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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, 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 LATIN AMERICA. The Advisor believes that economic reforms in the
past five years in Latin Countries have created a basis for positive economic
growth in these countries. Inflation in Latin Countries has declined although it
remains high relative to the United States and other developed countries. In
certain Latin Countries, inflation has at times accelerated rapidly to
hyperinflationary rates, creating a volatile interest rate environment and
eroding the value of assets in those countries. Rapid fluctuations in inflation
rates may continue to have negative effects on the economies and securities
markets of certain Latin Countries.
Privatization of public sector Latin Companies has been undertaken and continues
at an accelerated pace. However, the governments of Latin Countries still own or
control many Latin Companies, including some of the largest in the Latin
Countries. Government actions in the future could have a significant effect on
economic conditions in Latin Countries, which could affect private sector Latin
Companies and the value of the securities held by the Portfolio. The emergence
of the Latin American economies and securities markets will require governments
of Latin Countries to show continued economic and fiscal discipline, as well as
stable political and social conditions.
Latin Countries have been and may continue to be subject to a greater degree of
economic, political and social instability that could disrupt the financial
markets in which the Portfolio invests or the ability of Latin Country issuers
to repay their obligations and adversely affect the value of the Portfolio's
assets. There may be the possibility of debt moratoria or repudiations,
expropriations, confiscatory taxation, political, economic or social instability
or military or diplomatic developments which would adversely affect the
Portfolio's investments in securities of Latin Country issuers. The economies of
many Latin Countries are heavily dependent upon international trade and are
accordingly affected by protective trade barriers and the economic conditions of
their trading partners. In addition, the economies of some Latin Countries are
vulnerable to weakness in world prices for their commodity exports. There can be
no assurance that recent favorable economic conditions in the Latin Countries
will continue.
Investing in Latin Countries involves risks in addition to those associated with
investing in economically developed foreign countries. The securities markets of
Latin Countries may be less liquid and subject to greater price volatility than
the securities markets in the United States and other developed countries. The
securities markets in certain Latin Countries are in the early stage of their
development and may be significantly affected by economic developments or events
affecting the region or economy generally. Issuers and securities markets in
Latin Countries are not subject to as extensive and frequent accounting,
financial and other reporting requirements or as comprehensive government
regulation as are issuers and securities markets in the United States. The
limited liquidity of the market for securities of Latin Country issuers may
affect the Portfolio's ability to value accurately its
4
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portfolio securities or to dispose of securities in order to meet redemption
requests. In addition, the settlement systems in certain Latin Countries are
less developed or reliable than in more developed markets, which could impede
the Portfolio's ability to effect portfolio transactions and cause the Portfolio
to miss attractive investment opportunities. Even the markets for relatively
widely traded securities in Latin Countries may not be able to absorb, without
price disruptions, a significant increase in trading volume or trades of a size
customarily undertaken by institutional investors in the securities markets of
developed countries. 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. Transaction costs, including
brokerage commissions or dealer mark-ups, in Latin Countries may be higher than
in the United States and other developed countries.
The Portfolio will be subject to taxes, including withholding taxes, on income
(possibly including, in some cases, capital gains) that are or may be imposed by
certain Latin Countries with respect to the Portfolio's investments in such
countries. These taxes will reduce the return achieved by the Portfolio.
Treaties between the United States and Latin Countries may not be available to
reduce the otherwise applicable tax rates.
CURRENCY RISKS. The Portfolio invests in securities denominated in currencies of
Latin Countries. The U.S. dollar value of foreign securities denominated 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 denominated in those currencies. Some Latin Countries also
may have managed currencies, which are not free floating against the U.S.
dollar. In addition, there is a risk that certain Latin Countries may restrict
the free conversion of their currencies into other currencies. Any devaluations
in the currencies in which the Portfolio's securities are denominated may have a
detrimental impact on the Portfolio's net asset value. The Advisor will not
routinely attempt to manage the Portfolio's foreign currency exposure. However,
the Advisor may from time to time engage in foreign currency exchange
transactions if it believes these transactions would be in the Portfolio's best
interest.
SOVEREIGN AND CORPORATE DEBT OBLIGATIONS. The Portfolio may invest in debt
obligations of governments, government-related entities and companies located in
the Latin Countries on an opportunistic basis when the Advisor determines that
investing in debt obligations offers the potential for higher total return than
investing in equity securities of Latin Companies. Investment in sovereign debt
obligations involves special risks not present in corporate debt obligations.
The issuer of the sovereign debt or the governmental authorities that control
the repayment of the debt may be unable or unwilling to repay principal or
interest when due, and the Portfolio may have limited recourse in the event of a
default. During periods of economic uncertainty, the market prices of sovereign
debt, and the Portfolio's net asset value, may be more volatile than prices of
debt obligations of U.S. issuers. In the past, certain Latin Countries have
encountered difficulties in servicing their debt obligations, withheld payments
of principal and interest and declared moratoria on the payment of principal and
interest on their sovereign debts.
A sovereign debtor's willingness or ability to repay principal and pay interest
in a timely manner may be affected by, among other factors, its cash flow
situation, the extent of its foreign currency reserves, the availability of
sufficient foreign exchange, the relative size of the debt service burden, the
sovereign debtor's policy toward principal international lenders and local
political constraints. Sovereign debtors may also be dependent on expected
disbursements from foreign governments, multilateral agencies and other entities
to reduce principal and interest arrearages on their debt. The failure of a
sovereign debtor to implement economic reforms, achieve specified levels
5
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of economic performance or repay principal or interest when due may result in
the cancellation of third-party commitments to lend funds to the sovereign
debtor, which may further impair such debtor's ability or willingness to service
its debts.
Corporate debt obligations, including obligations of industrial, utility,
banking and other financial issuers, are subject to the risk of an issuer's
inability to meet principal and interest payments on the obligations and may
also be subject to price volatility due to such factors as market interest
rates, market perception of the creditworthiness of the issuer and general
market liquidity.
BRADY BONDS. Brady bonds are securities created through the exchange of existing
commercial bank loans to public and private entities in certain Latin Countries
for new bonds in connection with debt restructurings. Brady bonds have been
issued since 1989 and do not have a long payment history. In light of the
history of defaults of countries issuing Brady bonds on their commercial bank
loans, investments in Brady bonds may be viewed as speculative. Brady bonds may
be fully or partially collateralized or uncollateralized, are issued in various
currencies (but primarily the dollar) and are actively traded in OTC secondary
markets. Incomplete collateralization of interest or principal payment
obligations results in increased credit risk. Dollar-denominated, collateralized
Brady bonds, which may be either fixed-rate or floating-rate bonds, are
generally collateralized by U.S. Treasury zero coupon bonds having the same
maturity as the Brady bonds.
BELOW INVESTMENT GRADE DEBT OBLIGATIONS. Debt obligations in which the Portfolio
may invest will generally be rated below investment grade by one or more
internationally recognized rating agencies such as Standard & Poor's Ratings
Group ("S&P") or Moody's Investors Service, Inc. ("Moody's"). The Portfolio may
invest in debt obligations that are unrated or in default. The prices of these
high yield, below investment grade obligations (known as "junk bonds") can be
very volatile and may decline more steeply following an economic downturn or
increase in interest rates than would the prices of investment grade debt
securities. An adverse economic or interest rate climate may also impair the
ability of high yield bond issuers to repay principal and interest, resulting in
a default or credit downgrade that may substantially reduce the yield on or
value of the Portfolio's investment.
DEPOSITARY RECEIPTS. Depositary 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 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 investments 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. Typically, the Portfolio
will acquire warrants attached to an equity or fixed income security.
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.
INVESTMENTS IN OTHER INVESTMENT COMPANIES. The Portfolio is permitted to
invest up to 10% of its total assets in shares of other investment companies
and up to 5% of its total assets in any one investment company as long as
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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.
RESTRICTED AND ILLIQUID SECURITIES. The Portfolio may acquire securities that
have restrictions on their resale (restricted securities) or securities for
which there is a limited trading market which the Advisor may determine are
illiquid. However, the Portfolio may not purchase an illiquid security if, as a
result, more than 15% of the Portfolio's net assets would be invested in
illiquid investments. 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. In addition, illiquid securities may be
more difficult to value due to the unavailability of reliable broker quotes for
these securities. The Portfolio may experience delays in disposing of illiquid
securities and this may have an adverse effect on the ability of the Fund to
meet redemptions in an orderly manner. The Portfolio may purchase restricted
securities that are eligible for resale to qualified institutional buyers
pursuant to Rule 144A under the Securities Act of 1933, as amended. Restricted
securities eligible for resale under Rule 144A 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 market conditions, 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 judgment 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 and
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.
DERIVATIVE INSTRUMENTS. The Portfolio may purchase derivative securities to
enhance return and enter into derivative contracts to hedge against fluctuations
in securities prices or currency exchange rates, to change the duration of the
Portfolio's fixed income holdings or as a substitute for the purchase or sale of
securities or currency.
All of the Portfolio's transactions in derivative instruments involve a risk of
loss or depreciation due to unanticipated adverse changes in interest rates,
securities prices or currency exchange rates. The loss on derivative contracts
(other than purchased options) may substantially exceed the Portfolio's initial
investment in these contracts. In addition, the Portfolio may lose the entire
premium paid for purchased options that expire before they can be profitably
exercised by the Portfolio.
STRUCTURED SECURITIES. The Portfolio may invest in structured securities,
including currency linked securities. The interest rate or, in some cases, the
principal payable at the maturity of a structured security may change positively
or inversely in relation to one or more interest rates, financial indices,
currency rates or other financial indicators (reference prices). A structured
security may be leveraged to the extent that the magnitude of any change in the
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<PAGE>
interest rate or principal payable on a structured security is a multiple of the
change in the reference price. Thus, structured securities may decline in value
due to adverse market changes in currency exchange rates and other reference
prices.
DERIVATIVE CONTRACTS. The Portfolio may purchase and sell a variety of
derivative contracts, including futures contracts on securities, indices or
currency; options on futures contracts; options on securities, indices or
currency; forward contracts to purchase or sell securities or currency; and
equity, interest rate and currency swaps. The Portfolio incurs liability to a
counterparty in connection with transactions in futures contracts, forward
contracts and swaps and in selling options. The Portfolio pays a premium for
purchased options. In addition, the Portfolio incurs transaction costs in
opening and closing positions in derivative contracts.
RISKS ASSOCIATED WITH DERIVATIVE SECURITIES AND CONTRACTS. The risks associated
with the Portfolio's transactions in derivative securities and contracts may
include some or all of the following: market risk, leverage and volatility risk,
correlation risk, credit risk, and liquidity and valuation risk.
MARKET RISK. Entering into a derivative contract involves a risk that the
applicable market will move against the Portfolio's position and that the
Portfolio will incur a loss. For derivative contracts other than purchased
options, this loss may substantially exceed the amount of the initial investment
made or the premium received by the Portfolio.
LEVERAGE AND VOLATILITY RISK. Derivative instruments may sometimes increase or
leverage the Portfolio's exposure to a particular market risk. Leverage enhances
the price volatility of derivative instruments held by the Portfolio. If the
Portfolio enters into futures contracts, writes options or engages in certain
foreign currency exchange transactions, it is required to maintain a segregated
account consisting of cash or liquid assets, hold offsetting securities or
currency positions or cover written options which may partially offset the
leverage inherent in these transactions.
CORRELATION RISK. 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.
CREDIT RISK. Derivative securities and OTC derivative contracts involve a
risk that the issuer or counterparty will fail to perform its contractual
obligations.
LIQUIDITY AND VALUATION RISK. Some derivative securities are not readily
marketable or may become illiquid under adverse market conditions. In addition,
during periods of extreme market volatility, a commodity 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 OTC derivative contracts may depend on the cooperation of the
counterparties to such contracts. For thinly traded derivative securities and
contracts, the only source of price quotations may be the selling dealer or
counterparty. Segregation of a large percentage of assets could impede portfolio
management or the ability to meet redemption requests.
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
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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 sale. The annual portfolio turnover rate of the
Portfolio is generally not expected to exceed 100%. A high portfolio turnover
rate involves higher transaction costs to the Portfolio in the form of 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 fundamental
and may be changed without shareholder approval. The Portfolio is
non-diversified which means that it may invest more than 5% of its total assets
in the securities of a single issuer. Investing a significant amount of the
Portfolio's assets in the securities of a small number of issuers will cause the
Fund's net asset value to be more sensitive to events affecting those issuers.
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
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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 $208
billion.
Morgan uses a sophisticated, disciplined, collaborative process for managing all
asset classes. 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 (business experience for the past five years is
indicated parenthetically): Alejandro Baez-Sacasa, Vice President (employed by
Morgan since prior to 1992) and Satyen Mehta, Vice President (employed by Morgan
since prior to 1992).
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 1.00% 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
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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 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
the 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 AGREEMENTS. 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 to the Trust, the Portfolio Trust and certain
other registered investment companies subject to similar agreements with PGI for
a fee approximating its reasonable cost.
CUSTODIAN AND TRANSFER AGENT. State Street Bank and Trust Company ("State
Street"), 225 Franklin Street, Boston, Massachusetts 02110, serves as the
custodian, fund accounting and transfer agent for the Fund and the Portfolio and
as the Fund's 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 and filing fees under federal and state securities
laws, respectively. For the Portfolio, such expenses also include brokerage
expenses and registration fees under foreign securities laws.
Morgan has agreed that it will, at least through March 31, 1998, maintain the
Fund's total operating expenses (which include expenses of the Fund and the
Portfolio) at the annual rate of 1.75% 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 business days of the Fund and the Portfolio are the days the New York Stock
Exchange is open.
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PURCHASE OF SHARES
METHOD OF PURCHASE. Investors may open accounts with the Fund only through the
Distributor. All purchase transactions in Fund accounts are processed by Morgan
as shareholder servicing agent and the Fund is authorized to accept any
instructions relating to a Fund account from Morgan as shareholder servicing
agent for the customer. All purchase orders must be accepted by the Fund's
Distributor. Investors must be customers of Morgan or an Eligible Institution.
Investors may also be employer-sponsored retirement plans that have designated
the Fund as an investment option for the plans. Prospective investors who are
not already customers of Morgan may apply to become customers of Morgan for the
sole purpose of Fund transactions. There are no charges associated with becoming
a Morgan customer for this purpose. Morgan reserves the right to determine the
customers that it will accept, and the Fund reserves the right to determine the
purchase orders that it will accept.
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 initial 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 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
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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.
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,
The JPM Institutional Funds or JPM Series Trust 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
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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 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
(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 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 Portfolio 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.
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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.
In addition to federal taxes, a shareholder may be subject to state, local or
other taxes on Fund distributions, redemptions or exchanges of shares of the
Fund, or the value of their Fund investment. Shareholders are urged to consult
their own tax advisors concerning specific questions about federal, state, local
or other taxes.
ORGANIZATION
The Trust was organized on November 4, 1992 as a Massachusetts business trust.
The Trust currently has 20 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
THE MORGAN STANLEY CAPITAL INTERNATIONAL--LATIN AMERICA INDEX. The Index was
designed to provide comparisons among various Latin American stock exchanges.
The Index reflects stock market trends in Latin America by representing the
evolution of an unmanaged portfolio containing a broad selection of companies
listed on Latin American stock exchanges. The Index includes companies from 38
industry groups which in turn are grouped into eight economic sectors. The Index
includes companies based on Morgan Stanley Capital International's analysis of
market capitalization, liquidity of the company's stock, the percentage of the
company's shares that are freely tradeable and cross-ownership of local
companies.
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.
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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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THE
JPM PIERPONT
LATIN AMERICAN
EQUITY FUND
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE TRUST OR THE DISTRIBUTOR. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER BY THE TRUST OR BY THE DISTRIBUTOR TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL FOR THE TRUST OR THE
DISTRIBUTOR TO MAKE SUCH AN OFFER IN SUCH JURISDICTION.
PROS201-973
PROSPECTUS
MARCH 6, 1997
<PAGE>
PROSPECTUS
THE JPM PIERPONT EMERGING MARKETS DEBT FUND
60 STATE STREET
BOSTON, MASSACHUSETTS 02109
FOR INFORMATION CALL (800) 521-5411
The investment objective of The JPM Pierpont Emerging Markets Debt Fund (the
"Fund") is high total return from a portfolio of fixed income securities of
emerging markets issuers. 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 EMERGING MARKETS DEBT 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 a portfolio of debt obligations issued by
governments, government-related agencies and corporate issuers located in
emerging markets around the world.
The Portfolio invests in lower quality debt instruments ("junk bonds"), which
are subject to higher risks of untimely interest and principal payments, default
and price volatility than higher quality securities and may present liquidity
and valuation problems. INVESTMENTS IN SECURITIES OF ISSUERS IN EMERGING
MARKETS, INVESTMENTS IN UNRATED AND LOWER RATED DEBT OBLIGATIONS AND INVESTMENTS
DENOMINATED OR QUOTED IN FOREIGN CURRENCIES, AS WELL AS THE PORTFOLIO'S USE OF
INTEREST RATE AND CURRENCY MANAGEMENT TECHNIQUES, ENTAIL RISKS IN ADDITION TO
THOSE THAT ARE CUSTOMARILY ASSOCIATED WITH INVESTING IN DOLLAR-DENOMINATED FIXED
INCOME SECURITIES OF U.S. ISSUERS. INTEREST RATE AND CURRENCY MANAGEMENT
TECHNIQUES MAY BE UNAVAILABLE OR INEFFECTIVE IN MITIGATING RISKS INHERENT IN THE
PORTFOLIO. THE FUND MAY NOT BE ABLE TO ACHIEVE ITS INVESTMENT OBJECTIVE. THE
FUND IS INTENDED FOR INVESTORS WHO CAN ACCEPT A HIGH DEGREE OF RISK AND IS NOT
SUITABLE FOR ALL INVESTORS.
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 March 6,
1997, 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 MARCH 6, 1997
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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...................................4
Management of the Fund and Portfolio.......... ................10
Shareholder Inquiries and Services.........................................12
Purchase of Shares.................... ...................................13
Redemption of Shares................... ................................14
Exchange of Shares.........................................................14
Dividends and Distributions... ............................................15
Net Asset Value............................................................15
Taxes..................... ............................................15
Organization................ .............................................16
Additional Information.....................................................16
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THE JPM PIERPONT EMERGING MARKETS DEBT 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.............................................................0.70%
Rule 12b-1 Fees...................... .....................................None
Other Expenses (after expense limitation)............... ................0.55%
Total Operating Expenses (after expense limitation)... ............1.25%
(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 April 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
0.74% and 1.44%, 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..................................................................... $13
3 Years.....................................................................$40
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.
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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
An investment in the Fund may offer greater potential for gains and losses but
may be more volatile than an investment in a fund investing primarily in
investment grade fixed income securities. THE FUND IS INTENDED FOR INVESTORS WHO
CAN ACCEPT A HIGH DEGREE OF RISK AND IS NOT SUITABLE FOR ALL INVESTORS. THE FUND
DOES NOT REPRESENT A COMPLETE INVESTMENT PROGRAM.
Investments in high yield and emerging markets securities may be considered
speculative and involve risks not associated with investments in higher-rated
securities. Investments in securities of issuers in emerging markets,
investments in unrated and lower rated debt obligations and investments
denominated or quoted in foreign currencies, as well as the Portfolio's use of
interest rate and currency management techniques, entail risks in addition to
those that are customarily associated with investing in dollar-denominated fixed
income securities of U.S. issuers. Interest rate and currency management
techniques may be unavailable or ineffective in mitigating risks inherent in the
Portfolio. The Fund may not be able to achieve its investment objective.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is high total return from a portfolio of fixed
income securities of emerging markets issuers. 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. Since the investment
characteristics of the Fund correspond directly to those of the Portfolio,
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the following is a discussion of the investment policies and risks of the
Portfolio. The Portfolio invests primarily in a portfolio of debt obligations of
governments, government-related agencies and companies located in emerging
markets around the world.
PRIMARY INVESTMENTS. In normal circumstances, substantially all and at least 65%
of the value of the Portfolio's total assets are invested in debt obligations of
governments, government-related agencies and corporate issuers located in
emerging markets around the world. 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 or 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. An emerging market issuer 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 country; (iii)
derives 50% or more of its total revenue from either goods produced, sales made
or services performed in emerging market countries; (iv) has at least 50% of its
assets located in emerging markets; or (v) is a government, governmental
authority or agency of an emerging market country.
Debt obligations in which the Portfolio may invest include (i) fixed and
floating rate bonds, notes and debentures of corporate issuers, including
convertible securities; (ii) commercial paper and bank certificates of deposit;
(iii) loans and interests therein, including loan participations; (iv)
obligations issued or guaranteed by a foreign government or its agencies,
instrumentalities, political subdivisions and authorities, including obligations
of central banks and Brady bonds; (v) structured notes, bonds and debentures
issued or guaranteed by governmental or corporate issuers; and (vi) any other
debt securities issued or guaranteed by an emerging markets issuer.
Emerging market securities may be denominated in foreign currencies or the U.S.
dollar. The Advisor will not routinely attempt to manage the Portfolio's
exposure to currencies of emerging markets. However, the Portfolio may from time
to time decide to engage in forward foreign currency exchange transactions if
the Advisor believes these transactions would be in the Portfolio's best
interest.
The Portfolio may invest without limit in fixed income securities rated
below investment grade by one or more internationally recognized rating agencies
such as Standard & Poor's Ratings Group ("S&P") or Moody's Investors Service,
Inc. ("Moody's") or in unrated securities determined to be of comparable credit
quality by the Advisor. These below investment grade securities may include
obligations of sovereign and corporate issuers. Under normal circumstances, at
least 95% of the Portfolio's total assets will consis of securities rated B or
better at the time of purchase by S&P or Moody's. The Portfolio is not required
to dispose of securities whose ratings fall below B. Below investment grade
obligations, commonly called "junk bonds," are considered speculative and
include obligations that are unrated or in default. See Additional Investment
Practices and Risks.
For temporary defensive purposes, the Portfolio may invest up to 100% of its
assets in cash and money market instruments or invest all or a portion of its
assets in debt securities of the U.S. government or corporate issuers. The
Portfolio may engage in defensive investing if Morgan determines that economic
or market conditions in emerging markets significantly limit opportunities for
total return or pose undue risk to investors.
HOW INVESTMENTS ARE SELECTED. The Portfolio seeks to achieve its objective by
country allocation and security selection. Morgan believes that an assessment of
the creditworthiness of emerging market issuers is the key element in the
country allocation process. To assess creditworthiness, Morgan measures country
risk, i.e., the risk of a change in the likelihood of repayment by emerging
market issuers, by combining a quantitative analysis of
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economic factors with a qualitative analysis of the political risk for each
country. Morgan then compares that risk to the potential total returns offered
by issuers in that country. The Portfolio will be more heavily invested in the
emerging market countries with higher estimated returns relative to the expected
degree of country risk.
Securities are selected for the Portfolio using fundamental and quantitative
analysis of the general features of specific emerging markets debt securities
including liquidity, volatility, duration and investor participation. The
primary criteria in determining the securities in which the Portfolio will
invest are the instrument's relative value and estimated total return. An
emerging market debt security's expected return and volatility are in large part
determined by the type of security (e.g., Brady bond, sovereign debt or loan
participation) and market characteristics (e.g., liquidity).
The Portfolio's duration will generally be approximately four to six years. The
maturities of the securities in the Portfolio may vary widely, however. In
addition to securities selection, the Advisor may use futures contracts to
adjust the Portfolio's duration. Duration is a measure of the weighted average
maturity of the debt obligations held by the Portfolio and the sensitivity of
the Portfolio's market value to changes in interest rates. Generally, the longer
the duration of the Portfolio, the more sensitive it will be to changes in
interest rates.
ADDITIONAL INVESTMENT PRACTICES AND RISKS
INVESTING IN EMERGING MARKETS. Investing in the securities of emerging market
issuers involves considerations and potential risks not typically associated
with investing in the securities of issuers in the United States and other
developed countries.
MARKET CHARACTERISTICS. The fixed income securities markets of emerging
countries generally have substantially less volume than the markets for similar
securities in the United States and may not be able to absorb, without price
disruptions, a significant increase in trading volume or trade size.
Additionally, market making activities may be less extensive in such markets,
which may contribute to increased volatility and reduced liquidity in those
markets. The less liquid the market, the more difficult it may be for the
Portfolio to accurately price its portfolio securities or to dispose of such
securities at the times determined to be appropriate. The risks associated with
reduced liquidity may be particularly acute to the extent that the Fund needs
cash to meet redemption requests, to pay dividends and other distributions or to
pay expenses.
Investments in foreign issuers may be affected by changes in currency rates,
changes in foreign or U.S. laws or restrictions applicable to these investments
and in exchange control regulations (e.g., currency blockage). In addition,
clearance and settlement procedures may be different in foreign countries and,
in certain markets, these procedures have on occasion been unable to keep pace
with the volume of securities transactions, thus making it difficult to conduct
securities 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
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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.
ECONOMIC, POLITICAL AND SOCIAL FACTORS. Emerging markets may be subject to a
greater degree of economic, political and social instability that could
significantly disrupt the principal financial markets than are markets in the
United States and in Western European countries. Such instability may result
from among other things: (i) authoritarian governments or military involvement
in political and economic decision making, including changes or attempted
changes in government through extraconstitutional means; (ii) popular unrest
associated with demands for improved economic, political and social conditions;
(iii) internal insurgencies; (iv) hostile relations with neighboring countries;
and (v) ethnic, religious and racial disaffection and conflict. Many emerging
markets have experienced in the past, and continue to experience, high rates of
inflation. In certain countries inflation has at times accelerated rapidly to
hyperinflationary levels, creating a negative interest rate environment and
sharply eroding the value of outstanding financial assets in those countries.
The economies of many emerging markets are heavily dependent upon international
trade and are accordingly affected by protective trade barriers and the economic
conditions of their trading partners. In addition, the economies of some
emerging markets are vulnerable to weakness in world prices for their commodity
exports. The economies of emerging markets may differ unfavorably from the U.S.
economy in such respects as growth of gross domestic product, rate of inflation,
capital reinvestment, resources, self-sufficiency and balance of payments
position.
RESTRICTIONS ON INVESTMENT AND REPATRIATION. Certain emerging markets require
governmental approval prior to investments by foreign persons or limit
investments by foreign persons to only a specified percentage of an issuer's
outstanding securities or a specific class of securities which may have less
advantageous terms (including price) than securities of the company available
for purchase by nationals. Repatriation of investment income and capital from
certain emerging markets is subject to certain governmental consents. Even where
there is no outright restriction on repatriation of capital, the mechanics of
repatriation may affect the operation of the Portfolio.
CURRENCY RISKS. The U.S. dollar value of foreign securities denominated 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 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 may restrict the free conversion of their currencies into other
currencies. Any devaluations in the currencies in which the Portfolio's
securities are denominated may have a detrimental impact on the Portfolio's net
asset value.
The Portfolio may invest any portion of its assets in securities denominated in
foreign currencies or in a particular currency. The Portfolio may enter into
forward foreign currency exchange transactions in an attempt to manage the
Portfolio's foreign currency exposure.
INVESTMENT IN LOWER RATED OBLIGATIONS. While generally providing higher coupons
or interest rates than investments in higher quality securities, lower quality
debt securities involve greater risk of loss of principal and income, including
the possibility of default or bankruptcy of the issuers of such securities, and
have greater price volatility, especially during periods of economic uncertainty
or change. These lower quality debt obligations tend to be affected by economic
changes and short-term corporate and industry developments to a greater extent
than
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higher quality securities, which react primarily to fluctuations in the general
level of interest rates. To the extent that the Portfolio invests in such lower
quality securities, the achievement of its investment objective may be more
dependent on the Advisor's own credit analysis.
Lower quality debt obligations are affected by the market's perception of their
credit quality, especially during times of adverse publicity, and the outlook
for economic growth. Economic downturns or an increase in interest rates may
cause a higher incidence of default by the issuers of these securities,
especially issuers that are highly leveraged. The market for these lower quality
fixed income securities is generally less liquid than the market for investment
grade fixed income securities. It may be more difficult to sell these lower
rated securities to meet redemption requests, to respond to changes in the
market, or to value accurately the Portfolio's portfolio holdings for purposes
of determining the Fund's net asset value.
SOVEREIGN AND CORPORATE DEBT OBLIGATIONS. Investment in sovereign debt
obligations involves special risks not present in corporate debt obligations.
The issuer of the sovereign debt or the governmental authorities that control
the repayment of the debt may be unable or unwilling to repay principal or
interest when due, and the Portfolio may have limited recourse in the event of a
default. During periods of economic uncertainty, the market prices of sovereign
debt, and the Portfolio's net asset value, may be more volatile than prices of
U.S. debt obligations. In the past, certain emerging markets have encountered
difficulties in servicing their debt obligations, withheld payments of principal
and interest and declared moratoria on the payment of principal and interest on
their sovereign debts.
A sovereign debtor's willingness or ability to repay principal and pay interest
in a timely manner may be affected by, among other factors, its cash flow
situation, the extent of its foreign currency reserves, the availability of
sufficient foreign exchange, the relative size of the debt service burden, the
sovereign debtor's policy toward principal international lenders and local
political constraints. Sovereign debtors may also be dependent on expected
disbursements from foreign governments, multilateral agencies and other entities
to reduce principal and interest arrearages on their debt. The failure of a
sovereign debtor to implement economic reforms, achieve specified levels of
economic performance or repay principal or interest when due may result in the
cancellation of third-party commitments to lend funds to the sovereign debtor,
which may further impair such debtor's ability or willingness to service its
debts.
Corporate debt obligations, including obligations of industrial, utility,
banking and other financial issuers, are subject to the risk of an issuer's
inability to meet principal and interest payments on the obligations and may
also be subject to price volatility due to such factors as market interest
rates, market perception of the creditworthiness of the issuer and general
market liquidity.
BRADY BONDS. Brady bonds are securities created through the exchange of existing
commercial bank loans to public and private entities in certain emerging markets
for new bonds in connection with debt restructurings. Brady bonds have been
issued since 1989 and do not have a long payment history. In light of the
history of defaults of countries issuing Brady bonds on their commercial bank
loans, investments in Brady bonds may be viewed as speculative. Brady bonds may
be fully or partially collateralized or uncollateralized, are issued in various
currencies (but primarily the dollar) and are actively traded in
over-the-counter ("OTC") secondary markets. Incomplete collateralization of
interest or principal payment obligations results in increased credit risk.
Dollar-denominated collateralized Brady bonds, which may be either fixed-rate or
floating-rate bonds, are generally collateralized by U.S. Treasury zero coupon
bonds having the same maturity as the Brady bonds.
OBLIGATIONS OF SUPRANATIONAL ENTITIES. The Portfolio may invest in
obligations of supranational entities designated or supported by governmental
entities to promote economic reconstruction or development and of
international banking institutions and related government agencies. Examples
include the International Bank for
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Reconstruction and Development (the "World Bank"), the European Coal and Steel
Community, the Asian Development Bank and the Inter-American Development Bank.
Each supranational entity's lending activities are limited to a percentage of
its total capital (including "callable capital" contributed by its governmental
members at the entity's call), reserves and net income. There is no assurance
that participating governments will be able or willing to honor their
commitments to make capital contributions to a supranational entity.
LOAN PARTICIPATIONS. The Portfolio may invest in fixed- and floating-rate loans
arranged through private negotiations between an issuer of emerging market debt
instruments and one or more financial institutions ("lenders"). Generally, the
Portfolio's investments in loans are expected to take the form of loan
participations and assignments of portions of loans from third parties. When
investing in a participation, the Portfolio will have the right to receive
payments only from the lender to the extent the lender receives payments from
the borrower, and not from the borrower itself. Likewise, the Portfolio will be
able to enforce its rights only through the lender, and not directly against the
borrower. As a result, the Portfolio will assume the credit risk of both the
borrower and the lender that is selling the participation. When the Portfolio
purchases assignments from lenders, it will acquire direct rights against the
borrower, but these rights and the Portfolio's obligations may differ from, and
be more limited than, those held by the assigning lender. Loan participations
and assignments may be illiquid and subject to the Portfolio's restrictions
applicable to illiquid securities.
ZERO COUPON, PAY-IN-KIND AND DEFERRED PAYMENT SECURITIES. Zero coupon securities
are securities that are sold at a discount to par value and on which interest
payments are not made during the life of the security. Upon maturity, the holder
is entitled to receive the par value of the security. Pay-in-kind securities are
securities that have interest payable by delivery of additional securities. Upon
maturity, the holder is entitled to receive the aggregate par value of the
securities. The Portfolio accrues income with respect to zero coupon and
pay-in-kind securities prior to the receipt of cash payments. Deferred payment
securities are securities that remain zero coupon securities until a
predetermined date, at which time the stated coupon rate becomes effective and
interest becomes payable at regular intervals. Zero coupon, pay-in-kind and
deferred payment securities may be subject to greater fluctuation in value and
lesser liquidity in the event of adverse market conditions than comparably rated
securities paying cash interest at regular interest payment periods.
MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. The Portfolio may invest up to 5%
of its total assets in mortgage-backed securities and in other asset-backed
securities issued by non-governmental entities, such as banks and other
financial institutions. Mortgage-backed securities include mortgage pass-through
securities and collateralized mortgage obligations ("CMOs"). Asset- backed
securities are collateralized by such assets as automobile or credit card
receivables and are securitized either in a pass-through structure or in a
pay-through structure similar to a CMO.
INVESTMENTS IN OTHER INVESTMENT COMPANIES. Certain sectors of the economies of
emerging markets are closed to investment by foreigners. The Portfolio may be
able to invest in issuers in certain emerging markets solely or primarily
through closed-end investment companies that have been authorized as an investor
in the emerging market by the market's government. The Portfolio may invest up
to 10% of its total assets in shares of other 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 shares of the acquired
investment company. Investments in the securities of other investment companies
may involve duplication of advisory fees and other expenses.
DEPOSITARY RECEIPTS. Depositary 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
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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.
RESTRICTED AND ILLIQUID SECURITIES. The Portfolio may acquire securities that
have restrictions on their resale (restricted securities) or securities for
which there is a limited trading market which the Advisor may determine are
illiquid. However, the Portfolio may not purchase an illiquid security if, as a
result, more than 15% of the Portfolio's net assets would be invested in
illiquid investments. 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. In addition, illiquid securities may be
more difficult to value due to the unavailability of reliable broker quotes for
these securities. The Portfolio may experience delays in disposing of illiquid
securities and this may have an adverse effect on the ability of the Fund to
meet redemptions in an orderly manner. The Portfolio may purchase restricted
securities that are eligible for resale to qualified institutional buyers
pursuant to Rule 144A under the Securities Act of 1933, as amended. Restricted
securities eligible for resale under Rule 144A 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. Under normal circumstances, the Portfolio will
purchase money market instruments only to invest temporary cash balances or to
maintain liquidity to meet redemptions. However, the Portfolio may also invest
in money market instruments without limitation as a temporary defensive measure
taken in the Advisor's judgment during, or in anticipation of, adverse market
conditions. These money market instruments include obligations issued or
guaranteed by the U.S. Government or any of its agencies and 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.
DERIVATIVE INSTRUMENTS. The Portfolio may purchase derivative securities to
enhance return and enter into derivative contracts to hedge against fluctuations
in securities prices or currency exchange rates, to change the duration of the
Portfolio's fixed income portfolio holdings or as a substitute for the purchase
or sale of securities or currency. The Portfolio's investments in derivative
securities may include structured securities.
All of the Portfolio's transactions in derivative instruments involve a risk of
loss or depreciation due to unanticipated adverse changes in interest rates,
securities prices or currency exchange rates. The loss on derivative contracts
(other than purchased options) may substantially exceed the Portfolio's initial
investment in these contracts. In addition, the Portfolio may lose the entire
premium paid for purchased options that expire before they can be profitably
exercised by the Portfolio.
STRUCTURED SECURITIES. The Portfolio may invest in structured securities,
including currency linked securities. The interest rate or, in some cases, the
principal payable at the maturity of a structured security may change positively
or inversely in relation to one or more interest rates, financial indices,
currency rates or other financial indicators (reference prices). A structured
security may be leveraged to the extent that the magnitude of any change in the
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interest rate or principal payable on a structured security is a multiple of the
change in the reference price. Thus, structured securities may decline in value
due to adverse market changes in currency exchange rates and other reference
prices.
DERIVATIVE CONTRACTS. The Portfolio may purchase and sell a variety of
derivative contracts, including futures contracts on securities, indices or
currency; options on futures contracts; options on securities, indices or
currency; forward contracts to purchase or sell securities or currency; and
interest rate, index and currency swaps. The Portfolio incurs liability to a
counterparty in connection with transactions in futures contracts, forward
contracts and swaps and in selling options. The Portfolio pays a premium for
purchased options. In addition, the Portfolio incurs transaction costs in
opening and closing positions in derivative contracts.
RISKS ASSOCIATED WITH DERIVATIVE SECURITIES AND CONTRACTS. The risks associated
with the Portfolio's transactions in derivative securities and contracts may
include some or all of the following: market risk, leverage and volatility risk,
correlation risk, credit risk, and liquidity and valuation risk.
MARKET RISK. Investments in structured securities are subject to the market
risks described above. Entering into a derivative contract involves a risk that
the applicable market will move against the Portfolio's position and that the
Portfolio will incur a loss. For derivative contracts other than purchased
options, this loss may substantially exceed the amount of the initial investment
made or the premium received by the Portfolio.
LEVERAGE AND VOLATILITY RISK. Derivative instruments may sometimes increase or
leverage the Portfolio's exposure to a particular market risk. Leverage enhances
the price volatility of derivative instruments held by the Portfolio. If the
Portfolio enters into futures contracts, writes options or engages in certain
foreign currency exchange transactions, it is required to maintain a segregated
account consisting of cash or liquid assets, hold offsetting portfolio
securities or currency positions or cover written options which may partially
offset the leverage inherent in these transactions.
CORRELATION RISK. 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.
CREDIT RISK. Derivative securities and OTC derivative contracts involve a
risk that the issuer or counterparty will fail to perform its contractual
obligations.
LIQUIDITY AND VALUATION RISK. Some derivative securities are not readily
marketable or may become illiquid under adverse market conditions. In addition,
during periods of extreme market volatility, a commodity 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 OTC derivative contracts may depend on the cooperation of the
counterparties to such contracts. For thinly traded derivative securities and
contracts, the only source of price quotations may be the selling dealer or
counterparty. Segregation of a large percentage of assets could impede portfolio
management or the ability to meet redemption requests.
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.
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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 sale. The annual portfolio turnover rate of the
Portfolio is generally not expected to exceed 100%. A high portfolio turnover
rate involves higher transaction costs to the Portfolio in the form of dealer
spreads. 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 fundamental
and may be changed without shareholder approval.
PORTFOLIO DIVERSIFICATION AND CONCENTRATION. The Portfolio is non-diversified
which means that it may invest more than 5% of its total assets in the
securities of a single issuer. Investing a significant amount of the Portfolio's
assets in the securities of a small number of emerging market issuers will cause
the Fund's net asset value to be more sensitive to events affecting those
issuers. The Portfolio will not concentrate (invest 25% or more of its total
assets) in the securities of issuers in any one industry. For purposes of this
limitation, the staff of the Securities and Exchange Commission (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.
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
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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 $208
billion.
Morgan uses a sophisticated, disciplined, collaborative process for managing all
asset classes. 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 (business experience for the past five years is
indicated parenthetically): Eduardo L. Cortes, Vice President (employed by
Morgan since prior to 1992) and Detlev Schlichter, Vice President (employed by
Morgan since prior to 1992).
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 0.70% 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
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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 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. 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 AGREEMENTS. 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. PGI
provides these services to the Trust, the Portfolio Trust and certain other
registered investment companies subject to similar agreements with PGI for a fee
approximating its reasonable cost.
CUSTODIAN AND TRANSFER AGENT. State Street Bank and Trust Company ("State
Street"), 225 Franklin Street, Boston, Massachusetts 02110, serves as the
custodian, fund accounting and transfer agent for the Fund and the Portfolio and
as the Fund's 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 and filing fees under federal and state securities
laws, respectively. For the Portfolio, such expenses also include brokerage
expenses registration fees under foreign securities laws.
Morgan has agreed that it will, at least through April 30, 1998, maintain the
Fund's total operating expenses (which include expenses of the Fund and the
Portfolio) at the annual rate of 1.25% 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 business days of the Fund and the Portfolio are the days the New York Stock
Exchange is open.
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PURCHASE OF SHARES
METHOD OF PURCHASE. Investors may open accounts with the Fund only through the
Distributor. All purchase transactions in Fund accounts are processed by Morgan
as shareholder servicing agent and the Fund is authorized to accept any
instructions relating to a Fund account from Morgan as shareholder servicing
agent for the customer. All purchase orders must be accepted by the Fund's
Distributor. Investors must be customers of Morgan or an Eligible Institution.
Investors may also be employer-sponsored retirement plans that have designated
the Fund as an investment option for the plans. Prospective investors who are
not already customers of Morgan may apply to become customers of Morgan for the
sole purpose of Fund transactions. There are no charges associated with becoming
a Morgan customer for this purpose. Morgan reserves the right to determine the
customers that it will accept, and the Fund reserves the right to determine the
purchase orders that it will accept.
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 initial 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 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
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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.
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 SEC.
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,
The JPM Institutional Funds or JPM Series Trust 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
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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 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
(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 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 Portfolio 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.
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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.
In addition to federal taxes, a shareholder may be subject to state, local or
other taxes on Fund distributions, redemptions or exchanges of shares of the
Fund, or the value of their Fund investment. Shareholders are urged to consult
their own tax advisors concerning specific questions about federal, state, local
or other taxes.
ORGANIZATION
The Trust was organized on November 4, 1992 as a Massachusetts business trust.
The Trust currently has 20 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.
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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.
The Fund may advertise its yield. Yield reflects the Fund's rate of income on
portfolio investments as a percentage of its NAV. Yield is computed by
annualizing the result of dividing the net investment income per share over a 30
day period by the NAV on the last day of that period. Yield is calculated by
accounting methods that are standardized for all stock and bond funds and differ
from the methods used for other accounting purposes. Therefore, the yield on the
Fund's shares may not equal the income paid on these shares or the income
reported in the Fund's financial statements.
Performance information may be obtained by calling Morgan at (800) 521-5411.
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THE
JPM PIERPONT
EMERGING MARKETS
DEBT 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.
PROS203-973
PROSPECTUS
MARCH __, 1997
<PAGE>
PROSPECTUS
THE JPM PIERPONT SMALL COMPANY GROWTH FUND
60 STATE STREET
BOSTON, MASSACHUSETTS 02109
FOR INFORMATION CALL (800) 521-5411
The investment objective of The JPM Pierpont Small Company Growth Fund (the
"Fund") is long term capital appreciation from a portfolio of equity securities
of small companies. THE FUND SEEKS TO ACHIEVE ITS OBJECTIVE BY INVESTING ALL OF
ITS INVESTABLE ASSETS IN THE SMALL COMPANY GROWTH 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 the common stock and other equity securities of small U.S.
companies.
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 March __,
1997, 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 MARCH __, 1997
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TABLE OF CONTENTS
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
Performance Information Derived from Private Accounts 6
Management of the Fund and Portfolio 7
Shareholder Inquiries and Services 9
Purchase of Shares 10
Redemption of Shares 11
Exchange of Shares 12
Dividends and Distributions 12
Net Asset Value 12
Taxes 12
Organization 13
Additional Information 13
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THE JPM PIERPONT SMALL COMPANY GROWTH 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%
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Total Operating Expenses (after expense limitation)....................1.20%
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(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 September 30, 1997, after
applicable expense limitation. Without such expense limitation, the estimated
Other Expenses and Total Operating Expenses would be equal on an annual basis to
0.64% and 1.24%, 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.
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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 investors seeking an actively managed portfolio of
equity securities of companies with high growth potential. An investment in the
Fund may offer greater potential for gains and losses but may entail more risk
than an investment in a fund investing primarily in equity securities of large
companies. In addition, the Fund's investments in companies with high growth
potential may make shares of the Fund more volatile than the universe of small
companies as a whole. THE FUND DOES NOT REPRESENT A COMPLETE INVESTMENT PROGRAM
NOR IS THE FUND SUITABLE FOR ALL INVESTORS.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to provide long term capital
appreciation 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 Portfolio, a diversified open-end management investment company
having the same investment objective as the Fund. The Portfolio invests
primarily in the common stocks of small U.S. companies.
PRIMARY INVESTMENTS. Under normal circumstances, substantially all and at least
65% of the Portfolio's total assets are invested in equity securities of small
companies. In general, the Portfolio intends to emphasize equity securities of
companies with a market capitalization at the time of purchase of less than
$1.25 billion. However, the Advisor considers any company with a market
capitalization of less than $2 billion at the time of purchase to be a small
company.
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The Portfolio may also invest up to 10% of its net assets in the common stocks
and other equity securities of large and medium-sized U.S. companies. The
Portfolio is authorized and may from time to time invest in the equity
securities of non-U.S. companies. The equity securities in which the Portfolio
invests consist of exchange-traded, over-the-counter ("OTC") and unlisted common
and preferred stocks, warrants, securities with warrants attached, rights,
convertible securities, trust certificates, limited partnership interests and
equity participations.
HOW INVESTMENTS ARE SELECTED. The Advisor uses fundamental analysis and a
variety of valuation techniques in an effort to determine whether a company's
market price reflects the Advisor's assessment of its long term value. From the
securities identified as undervalued, the Advisor selects investments for the
Portfolio based on several criteria, including the company's managerial
strength, financial flexibility, prospects for growth and competitive position.
Although the Portfolio will be diversified to mitigate sector and economic risk,
the Advisor will weight investments toward those sectors that demonstrate the
greatest growth potential.
ADDITIONAL INVESTMENT PRACTICES AND RISKS
SMALL COMPANIES. Although securities of small companies may offer greater
potential for capital appreciation than securities of larger capitalization
companies, they also involve certain risks. Small companies may have limited
product lines, market and financial resources, or may be dependant on small or
less experienced management groups. In addition, trading volume of securities of
small companies may be limited. Historically, the market price for securities of
small companies has been more volatile than for securities of companies with
greater capitalization.
WARRANTS AND CONVERTIBLE SECURITIES. Warrants acquired by the Portfolio entitle
it to buy common stock 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 investments 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. Typically, the Portfolio
will acquire warrants attached to an equity or fixed income security.
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.
INVESTMENTS IN OTHER INVESTMENT COMPANIES. The Portfolio is permitted to invest
up to 10% of its total assets in shares of other 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.
RESTRICTED AND ILLIQUID SECURITIES. The Portfolio may acquire securities that
have restrictions on their resale (restricted securities) or securities for
which there is a limited trading market which the Advisor may determine are
illiquid. However, the Portfolio may not purchase an illiquid security if, as a
result, more than 15% of the Portfolio's net assets would be invested in
illiquid investments. 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. In addition, illiquid securities may be
more difficult to value due to the unavailability of reliable broker quotes for
these securities. The Portfolio may experience delays in disposing of illiquid
securities and this may have an adverse effect on the ability of the Fund to
meet redemptions in an orderly manner. The Portfolio may purchase restricted
securities that are eligible for resale to qualified institutional buyers
pursuant to Rule 144A under the Securities Act of 1933, as amended. Restricted
securities eligible for resale under Rule 144A 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.
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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 market conditions, 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 judgment 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 and
instrumentalities, 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.
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. In addition to changes
affecting securities markets generally, these investments may be affected by
changes in currency exchange rates, changes in foreign or U.S. laws or
restrictions applicable to these investments and in exchange control regulations
(e.g., currency blockage). Transaction costs for foreign securities may be
higher than those for similar transactions in the United States. In addition,
clearance and settlement procedures may be different in foreign countries and,
in certain markets, these procedures have on occasion been unable to keep pace
with the volume of securities transactions, thus making it difficult to conduct
securities 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, there is
a possibility of nationalization, expropriation or confiscatory taxation,
imposition of withholding taxes on interest payments, limitations on the removal
of funds or other assets, political or social instability or diplomatic
developments which could affect investments in certain foreign countries.
DEPOSITARY RECEIPTS. Depositary 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.
DERIVATIVE INSTRUMENTS. The Portfolio may purchase derivative securities to
enhance return or enter into derivative contracts to hedge against fluctuations
in securities prices or currency exchange rates or as a substitute for the
purchase or sale of securities or currency.
All of the Portfolio's transactions in derivative instruments involve a risk of
loss or depreciation due to unanticipated adverse changes in interest rates,
securities prices or currency exchange rates. The loss on derivative
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contracts (other than purchased options) may substantially exceed the
Portfolio's initial investment in these contracts. In addition, the Portfolio
may lose the entire premium paid for purchased options that expire before they
can be profitably exercised by the Portfolio.
DERIVATIVE CONTRACTS. The Portfolio may purchase and sell a variety of
derivative contracts, including futures contracts on securities, indices or
currency; options on futures contracts; options on securities, indices or
currency; and forward contracts to purchase or sell securities or currency. The
Portfolio incurs liability to a counterparty in connection with transactions in
futures contracts, forward contracts and swaps and in selling options. The
Portfolio pays a premium for purchased options. In addition, the Portfolio
incurs transaction costs in opening and closing positions in derivative
contracts.
RISKS ASSOCIATED WITH DERIVATIVE SECURITIES AND CONTRACTS. The risks associated
with the Portfolio's transactions in derivative securities and contracts may
include some or all of the following: market risk, leverage and volatility risk,
correlation risk, credit risk, and liquidity and valuation risk.
MARKET RISK. Entering into a derivative contract involves a risk that the
applicable market will move against the Portfolio's position and that the
Portfolio will incur a loss. For derivative contracts other than purchased
options, this loss may substantially exceed the amount of the initial investment
made or the premium received by the Portfolio.
LEVERAGE AND VOLATILITY RISK. Derivative instruments may sometimes increase or
leverage the Portfolio's exposure to a particular market risk. Leverage enhances
the price volatility of derivative instruments held by the Portfolio. If the
Portfolio enters into futures contracts, writes options or engages in certain
foreign currency exchange transactions, it is required to maintain a segregated
account consisting of cash or liquid assets, hold offsetting portfolio
securities or cover written options which may partially offset the leverage
inherent in these transactions.
CORRELATION RISK. 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.
CREDIT RISK. Derivative securities and OTC derivative contracts involve a
risk that the issuer or counterparty will fail to perform its contractual
obligations.
LIQUIDITY AND VALUATION RISK. Some derivative securities are not readily
marketable or may become illiquid under adverse market conditions. In addition,
during periods of extreme market volatility, a commodity 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 OTC derivative contracts may depend on the cooperation of the
counterparties to such contracts. For thinly traded derivative securities and
contracts, the only source of price quotations may be the selling dealer or
counterparty. Segregation of a large percentage of assets could impede portfolio
management or the ability to meet redemption requests.
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
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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 sale. 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").
PORTFOLIO DIVERSIFICATION AND CONCENTRATION. The Portfolio is diversified and
therefore may not, with respect to 75% of its total assets (i) 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.
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 fundamental
and may be changed without shareholder approval.
PERFORMANCE INFORMATION DERIVED FROM PRIVATE ACCOUNTS
The Fund has not commenced operations and has no investment performance record.
However, the Fund's investment objective and policies and the Portfolio's
strategies will be substantially similar to those employed by the Advisor and
its affiliates with respect to certain discretionary investment management
accounts under their management ("Private Accounts"). The chart below shows the
historical investment performance for a composite of these Private Accounts
("Private Account Composite").
The investment performance of the Private Account Composite does not represent
the Fund's performance nor should it be interpreted as indicative of the Fund's
future performance. The accounts in the Private Account Composite are not
subject to the investment limitations, diversification requirements and other
restrictions imposed on registered mutual funds by the 1940 Act and the Code. If
the accounts included in the Private Account Composite had been subject to the
requirements imposed on mutual funds, their performance might have been lower.
The investment performance results of the Private Account Composite reflect the
deduction of the Fund's total annual operating expenses, estimated at 1.20%. The
Fund's estimated total annual operating expenses are higher than the highest
investment advisory fee charged to any private account in the Private Account
Composite. The Private Account Composite performance figures are time-weighted
rates of return which include all income and accrued income and realized and
unrealized gains or losses.
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TOTAL AVERAGE
RETURNS ANNUAL TOTAL RETURNS
THREE ONE SINCE
MONTHS YEAR INCEPTION*
AS OF DECEMBER 31, 1996
Private Account Composite................... . % . % . %
Russell 2000 Growth Index................... . % . % . %
AS OF NOVEMBER 30, 1996
Private Account Composite................... . % . % . %
Russell 2000 Growth Index................... . % . % . %
*August 31, 1994.
ANNUAL TOTAL RETURNS
FOR THE YEAR ENDED DECEMBER 31,
1996 1995 1994*
Private Account Composite........ . % . % . %
Russell 2000 Growth Index........ . % . % . %
*Not annualized.
The Private Account Composite includes all discretionary accounts managed by the
Advisor and its affiliates invested solely in equity securities of small
capitalization companies using the same investment strategy that the Advisor
will employ on behalf of the Portfolio. The inception date for the Private
Account Composite was August 31, 1994.
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
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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 $208
billion.
Morgan uses a sophisticated, disciplined, collaborative process for managing all
asset classes. For the Portfolio, this process utilizes fundamental research, a
variety of valuation techniques and stock selection. Morgan believes that the
market price of a security will, over time, move towards its fundamental value,
notwithstanding short-term fluctuations in price. Morgan maintains an active
presence in all of the world's leading financial markets and employs over 100
full-time analysts devoted to economic research for its clients.
The following person has been primarily responsible for the day-to-day
management and implementation of Morgan's investment process for the Portfolio
since its inception (business experience for the past five years is indicated
parenthetically): Marian U. Pardo, Managing Director (employed by Morgan since
prior to 1992).
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.
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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 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. 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 AGREEMENTS. 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 to the Trust, the Portfolio Trust and certain
other registered investment companies subject to similar agreements with PGI for
a fee approximating its reasonable cost.
CUSTODIAN AND TRANSFER AGENT. State Street Bank and Trust Company ("State
Street"), 225 Franklin Street, Boston, Massachusetts 02110, serves as the
custodian, fund accounting and transfer agent for the Fund and the Portfolio and
as the Fund's 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 and filing fees under federal and state securities
laws, respectively. For the Portfolio, such expenses also include brokerage
expenses and registration fees under foreign securities laws.
Morgan has agreed that it will, at least through September 30, 1997, maintain
the Fund's total operating expenses (which include 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
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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 business days of the Fund and the Portfolio are the days the New York Stock
Exchange is open.
PURCHASE OF SHARES
METHOD OF PURCHASE. Investors may open accounts with the Fund only through the
Distributor. All purchase transactions in Fund accounts are processed by Morgan
as shareholder servicing agent and the Fund is authorized to accept any
instructions relating to a Fund account from Morgan as shareholder servicing
agent for the customer. All purchase orders must be accepted by the Fund's
Distributor. Investors must be customers of Morgan or an Eligible Institution.
Investors may also be employer-sponsored retirement plans that have designated
the Fund as an investment option for the plans. Prospective investors who are
not already customers of Morgan may apply to become customers of Morgan for the
sole purpose of Fund transactions. There are no charges associated with becoming
a Morgan customer for this purpose. Morgan reserves the right to determine the
customers that it will accept, and the Fund reserves the right to determine the
purchase orders that it will accept.
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 initial 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 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.
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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.
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.
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EXCHANGE OF SHARES
Shares of the Fund may be exchanged for shares of any of The JPM Pierpont Funds,
The JPM Institutional Funds or JPM Series Trust 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 twice a year. 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 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
(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 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 that are paid to its
corporate shareholders and are attributable to qualifying dividends received by
the Portfolio from U.S. domestic corporations may be eligible, in the hands of
these corporate shareholders, for the corporate dividends-received deduction,
subject to certain holding period requirements and debt financing limitations
under the Code. Shareholders will be informed annually about the amount and
character, for federal income tax purposes, of distributions received from the
Fund.
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The Portfolio 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 will not be eligible to pass through any foreign taxes to
its shareholders, who therefore will not directly take such taxes into account
on their own tax returns.
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.
In addition to federal taxes, a shareholder may be subject to state, local or
other taxes on Fund distributions, redemptions or exchanges of shares of the
Fund, or the value of their Fund investment. Shareholders are urged to consult
their own tax advisors concerning specific questions about federal, state, local
or other taxes.
ORGANIZATION
The Trust was organized on November 4, 1992 as a Massachusetts business trust.
The Trust currently has 20 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.
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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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THE
JPM PIERPONT
SMALL COMPANY
GROWTH FUND
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE TRUST OR THE DISTRIBUTOR. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER BY THE TRUST OR BY THE DISTRIBUTOR TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL FOR THE TRUST OR THE
DISTRIBUTOR TO MAKE SUCH AN OFFER IN SUCH JURISDICTION.
PROS209-973
PROSPECTUS
MARCH __, 1997
<PAGE>
THE JPM PIERPONT FUNDS
THE JPM PIERPONT LATIN AMERICAN EQUITY FUND
STATEMENT OF ADDITIONAL INFORMATION
MARCH 6, 1997
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT CONTAINS
ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS
FOR THE JPM PIERPONT LATIN AMERICAN EQUITY FUND, DATED MARCH 6, 1997, AS
SUPPLEMENTED FROM TIME TO TIME, WHICH MAY BE OBTAINED UPON REQUEST FROM FUNDS
DISTRIBUTOR, INC., ATTENTION: THE JPM PIERPONT FUNDS; (800) 221-7930.
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Table of Contents
PAGE
General...................................................................1
Investment Objective and Policies.........................................1
Investment Restrictions...................................................9
Trustees and Officers....................................................11
Investment Advisor.......................................................15
Distributor..............................................................16
Co-administrator.........................................................17
Services Agent...........................................................17
Custodian and Transfer Agent.............................................18
Shareholder Servicing....................................................18
Independent Accountants..................................................19
Expenses.................................................................19
Purchase of Shares.......................................................19
Redemption of Shares.....................................................19
Exchange of Shares.......................................................20
Dividends and Distributions..............................................20
Net Asset Value..........................................................20
Performance Data.........................................................21
Portfolio Transactions...................................................22
Massachusetts Trust......................................................23
Description of Shares....................................................24
Taxes....................................................................25
Additional Information...................................................29
Appendix A - Description of Security Ratings............................A-1
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GENERAL
This Statement of Additional Information relates only to The JPM
Pierpont Latin American Equity Fund (the "Fund"). The Fund 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"). In
addition to the Fund, the Trust consists of nineteen other series representing
separate investment funds (each a "JPM Pierpont Fund"). The other JPM Pierpont
Funds are covered by separate Statements of Additional Information
This Statement of Additional Information describes the financial
history, investment objective and policies, management and operation of the
Fund. The Fund operates through a two-tier master-feeder investment fund
structure.
This Statement of Additional Information provides additional
information with respect to the Fund and should be read in conjunction with the
Fund's current Prospectus (the "Prospectus"). Capitalized terms not otherwise
defined herein have the meanings accorded to them in the Prospectus. The Fund's
executive offices are located at 60 State Street, Suite 1300, Boston,
Massachusetts 02109.
INVESTMENT OBJECTIVE AND POLICIES
The Fund is designed for aggressive investors seeking to diversity an
investment portfolio by investing in Latin American economies. The Fund's
investment objective is high total return from a portfolio of equity securities
of Latin Companies. The Fund attempts to achieve its objective by investing all
of its investable assets in The Latin American Equity Portfolio (the
"Portfolio"), a non-diversified open-end management investment company having
the same investment objective as the Fund. The Portfolio seeks to achieve its
investment objective by investing primarily in the equity securities of
companies located in or doing business in Latin America. 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 Latin American render investment in such countries inadvisable.
The following discussion supplements the information regarding the
investment objective of the Fund and the policies to be employed to achieve this
objective by the Portfolio as set forth above and in the Prospectus. The
investment objective of the Fund and the investment objective of the Portfolio
are identical. Accordingly, references below to the Fund also include the
Portfolio and references to the Portfolio also include the Fund unless the
context requires otherwise.
MONEY MARKET INSTRUMENTS
As discussed in the Prospectus, the 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 Fund appears below.
U.S. TREASURY SECURITIES. The Fund 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. The Fund may invest in
obligations issued or guaranteed by U.S. Government agencies or
instrumentalities. These obligations may or may not be backed by the "full faith
and credit" of the United States. In the case of securities not backed by the
full faith and credit of the United States, the 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 the Fund may invest that are not backed by the full faith
and credit
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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 the Fund may invest that
are not backed by the full faith and credit of the United States include
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. The Fund may 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 another currency. See "Foreign
Investments."
BANK OBLIGATIONS. The Fund may invest in negotiable certificates of
deposit, time deposits and bankers' acceptances of (i) foreign branches of U.S.
banks and savings and loan associations or of foreign banks (Euros) and (ii)
U.S. branches of foreign banks (Yankees). The Fund will not invest in
obligations for which the Advisor, or any of its affiliated persons, is the
ultimate obligor or accepting bank. The Fund 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. The 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 acting as agent, for no additional fee,
in its capacity as investment advisor to the Portfolio 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
Fund 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 Fund to be liquid because
they are payable upon demand. The Fund does not have any specific percentage
limitation on investments in master demand obligations. It is possible that the
issuer of a master demand obligation could be a client of the Advisor to whom
the Advisor, in its capacity as a commercial bank, has made a loan.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements
with brokers, dealers or banks that meet the credit guidelines approved by the
Trustees. In a repurchase agreement, the 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 the 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 Fund invest in repurchase agreements for more than thirteen
months. The securities which are subject to repurchase agreements, however, may
have maturity dates in excess of thirteen months from the effective date of the
repurchase agreement. The Fund will always receive securities as collateral
whose market value is, and during
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the entire term of the agreement remains, at least equal to 100% of the dollar
amount invested by the Fund in each agreement plus accrued interest, and the
Fund will make payment for such securities only upon physical delivery or upon
evidence of book entry transfer to the account of the Custodian. If the seller
defaults, the 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 the Fund may be delayed or
limited.
The 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.
CORPORATE BONDS AND OTHER DEBT SECURITIES
As discussed in the Prospectus, the Fund may invest in bonds and other
debt securities of domestic and foreign issuers to the extent consistent with
its investment objective 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."
EQUITY INVESTMENTS
As discussed in the Prospectus, the Fund invests primarily in equity
securities consisting of common stocks and other securities with equity
characteristics comprised of preferred stock, warrants, rights, convertible
securities, depository receipts, trust certificates, limited partnership
interests and equity participations (collectively, "Equity Securities") of
issuers in Latin Countries. The Equity Securities in which the Fund invests
include those listed on any domestic or foreign securities exchange or traded in
the OTC market as well as certain restricted or unlisted securities. A
discussion of the various types of equity investments which may be purchased by
the Fund appears in the Prospectus and below. See "Quality and Diversification
Requirements."
EQUITY SECURITIES. The Equity Securities in which the Fund may invest may
or may not pay dividends and may or may not carry voting rights. Common stock
occupies the most junior position in a company's capital structure.
The convertible securities in which the Fund 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 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.
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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 Fund makes substantial investments in foreign countries. 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 the 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 Fund 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 Fund's
currency exposure related to foreign investments. See "Additional Investment
Practices and Risks" in the Prospectus.
The Fund 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 the Fund's investments in those countries and the
availability to the 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 the
Fund's investments in such countries illiquid and more volatile than investments
in more developed countries, and the 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 Practices and Risks" in the Prospectus.
ADDITIONAL INVESTMENTS
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Fund 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 the Fund until settlement takes place. At the time the
Fund makes the commitment to purchase securities on a when-issued or delayed
delivery basis, it will record the transaction and reflect the value each day of
such securities in determining its net asset value. At the time of settlement a
when-issued security may be valued at less than the purchase price. To
facilitate such acquisitions, the Fund 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, the Fund will meet its
obligations from maturities or sales of the securities held in the segregated
account and/or from cash flow. If the Fund 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.
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INVESTMENT COMPANY SECURITIES. Securities of other investment companies
may be acquired by the Fund 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 the Fund's total assets will be invested in the
securities of any one investment company, (ii) not more than 10% of the value of
its total assets will be invested in the aggregate in securities of investment
companies as a group and (iii) not more than 3% of the outstanding voting stock
of any one investment company will be owned by the Fund, provided however, that
the Fund may invest all of its investable assets in an open-end investment
company that has the same investment objective as the Fund. As a shareholder of
another investment company, the Fund would bear, along with other shareholders,
its pro rata portion of the other investment company's expenses, including
advisory fees. These expenses would be in addition to the advisory and other
expenses that the Fund bears directly in connection with its own operations. The
Trust and the Portfolio have applied for exemptive relief from the Securities
and Exchange Commission (the "SEC") to permit investment in affiliated funds. If
the requested relief is granted, the Fund would then be permitted to invest in
affiliated funds, subject to certain conditions specified in the applicable
order.
REVERSE REPURCHASE AGREEMENTS. The Fund may enter into reverse
repurchase agreements. In a reverse repurchase agreement, the Fund sells a
security and agrees to repurchase the same security at a mutually agreed upon
date and price. For purposes of the 1940 Act, a reverse repurchase agreement is
also considered as the borrowing of money by the Fund and, therefore, a form of
leverage. The Fund will invest the proceeds of borrowings under reverse
repurchase agreements. In addition, the Fund 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. The Fund will not invest the proceeds of a reverse repurchase
agreement for a period which exceeds the duration of the reverse repurchase
agreement. The Fund 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. See
"Investment Restrictions" below for the Fund's limitations on reverse repurchase
agreements and bank borrowings.
MORTGAGE DOLLAR ROLL TRANSACTIONS. The 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 Fund 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 Fund will not be entitled to receive any
interest or principal paid on the securities sold. The Fund is compensated for
the lost interest on the securities sold by the difference between the sale
price and the lower price for the future repurchase as well as by the interest
earned on the reinvestment of the sale proceeds. The Fund may also be
compensated by receipt of a commitment fee. When the Fund 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
Fund's investment restrictions.
LOANS OF PORTFOLIO SECURITIES. The Fund 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 Fund 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 Fund any income accruing thereon. Loans will
be subject to termination by the Fund 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 Fund. The Fund may pay reasonable finders' and
custodial fees in connection with a loan. In addition, the Fund will consider
all facts and circumstances, including the creditworthiness of the borrowing
financial institution, and the Fund will not make any loans in excess of one
year. The Fund will not lend its securities to any officer, Trustee, Director,
employee or other affiliate of the Fund, the Advisor or the Distributor, unless
otherwise permitted by applicable law.
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PRIVATELY PLACED AND CERTAIN UNREGISTERED SECURITIES. The Fund may
invest in privately placed, restricted, Rule 144A or other unregistered
securities as described in the Prospectus.
As to illiquid investments, the Fund is subject to a risk that should
the Fund decide to sell them when a ready buyer is not available at a price the
Fund deems representative of their value, the value of the Fund's net assets
could be adversely affected. Where an illiquid security must be registered under
the 1933 Act before it may be sold, the Fund 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 Fund may be permitted to sell a
security under an effective registration statement. If, during such a period,
adverse market conditions were to develop, the Fund might obtain a less
favorable price than prevailed when it decided to sell.
SWAPS AND RELATED SWAP PRODUCTS. The Fund may engage in swap transactions,
specifically interest rate, currency, index and total return swaps and in the
purchase or sale of related caps, floors and collars. In a typical interest rate
swap agreement, one party agrees to make payments equal to a floating interest
rate on a specified amount (the "notional amount") in return for payments equal
to a fixed interest rate on the same amount for a specified period. If a swap
agreement provides for payments in different currencies, the parties might agree
to exchange the notional amount as well. The purchaser of an interest rate cap
or floor, upon payment of a fee, has the right to receive payments (and the
seller of the cap is obligated to make payments) to the extent a specified
interest rate exceeds (in the case of a cap) or is less than (in the case of a
floor) a specified level over a specified period of time or at specified dates.
The purchaser of an interest rate collar, upon payment of a fee, has the right
to receive payments (and the seller of the collar is obligated to make payments)
to the extent that a specified interest rate falls outside an agreed upon range
over a specified period of time or at specified dates.
Index and currency swaps, caps, floors, and collars are similar to those
described in the preceding paragraph, except that, rather than being determined
by variations in specified interest rates, the obligations of the parties are
determined by variations in specified interest rate or currency indexes, and, in
the case of total return swaps, variations in the total return of specific
securities.
The amount of the Fund's potential gain or loss on any swap transaction is
not subject to any fixed limit. Nor is there any fixed limit on the Fund's
potential loss if it sells a cap, floor or collar. If the Fund buys a cap, floor
or collar, however, the Fund's potential loss is limited to the amount of the
fee that it has paid. Swaps, caps, floors and collars tend to be more volatile
than many other types of investments. Nevertheless, the Fund will use these
techniques only as a risk management tool and not for purposes of leveraging the
Fund's market exposure or its exposure to changing interest rates, security
values or currency values. The Fund will use these transactions only to preserve
a return or spread on a particular investment or portion of its investments, to
protect against currency fluctuations, as a duration management technique, to
protect against any increase in the price of securities the Fund anticipates
purchasing at a later date, or to gain exposure to certain markets in the most
economical way possible. The Fund will not sell interest rate caps, floors or
collars if it does not own securities providing the interest that the Fund may
be required to pay.
The use of swaps, caps, floors and collars involves investment techniques
and risks different from those associated with other portfolio security
transactions. If the Advisor is incorrect in its forecasts of market values,
interest rates, currency rates and other applicable factors, the investment
performance of the Fund will be less favorable than if these techniques had not
been used. These instruments are typically not traded on exchanges. Accordingly,
there is a risk that the other party to certain of these instruments will not
perform its obligations to the Fund or that the Fund may be unable to enter into
offsetting positions to terminate its exposure or liquidate its investment under
certain of these instruments when it wishes to do so. Such occurrences could
result in losses to the Fund.
The Advisor will, however, consider such risks and will enter into swap,
cap, floor and collar transactions only when it believes that the risks are not
unreasonable.
Provided contracts relative to the Fund's use of swaps, caps, floors and
collars permit, the Fund will usually enter into swaps on a net basis-- that is,
the two payment streams are netted out in a cash settlement on the payment date
or dates specified in the instrument--with the Fund receiving or paying, as the
case may be, only the net amount of the two payments.
The Fund will maintain cash or liquid assets in a segregated account with
its custodian in an amount sufficient at all times to cover its current
obligations under swaps, caps, floors and collars. If the Fund enters into a
swap agreement on a net basis, it will segregate assets with a daily value at
least equal to the excess, if any, of the Fund's accrued obligations under the
swap agreement over the accrued amount the Fund is entitled to receive under the
agreement. If the Fund enters into a swap agreement on other than a net basis,
or sells a cap, floor or collar, it will segregate assets with a daily value at
least equal to the full amount of the Fund's accrued obligations under the
agreement.
The Fund will not enter into any swap, cap, floor, or collar, unless the
counterparty to the transaction is deemed creditworthy by the Advisor. If a
counterparty defaults, the Fund may have contractual remedies pursuant to the
agreements related to the transaction. The swap market has grown substantially
in recent years, with a large number of banks and investment banking firms
acting both as principals and as agents utilizing standardized swap
documentation. As a result, the swap market has become relatively liquid. Caps,
floors and collars are more recent innovations for which standardized
documentation has not yet been fully developed and, for that reason, they are
less liquid than swaps.
The liquidity of swaps, caps, floors and collars will be determined by the
Advisor based on various factors, including (1) the frequency of trades and
quotations, (2) the number of dealers and prospective purchasers in the
marketplace, (3) dealer undertakings to make a market, (4) the nature of the
instrument (including any demand or tender features) and (5) the nature of the
marketplace for trades (including the ability to assign or offset the Fund's
rights and obligations relating to the investment). Such determination will
govern whether the instrument will be deemed within the 15% restriction on
investments in securities that are not readily marketable.
In connection with such transactions, the Fund will segregate cash or
liquid securities to cover any amounts it could owe under swaps that exceed the
amounts it is entitled to receive, and it will adjust that amount daily, as
needed. During the term of a swap, changes in the value of the swap are
recognized as unrealized gains or losses by marking to market to reflect the
market value of the swap. When the swap is terminated, the Fund will record a
realized gain or loss equal to the difference, if any, between the proceeds from
(or cost of) the closing transaction and the Fund's basis in the contract. The
Fund is exposed to credit loss in the event of nonperformance by the other party
to the swap.
The federal income tax treatment with respect to swaps, caps, floors, and
collars may impose limitations on the extend to which the Fund may engage in
such transactions.
QUALITY AND DIVERSIFICATION REQUIREMENTS
Although the Fund is not limited by the diversification requirements of
the 1940 Act, the Fund will comply with the diversification requirements imposed
by the Code for qualification as a regulated investment company.
See "Taxes."
The higher total return sought by the Fund is generally obtainable from
high yield high risk securities in the lower rating categories of the
established rating services. These securities are rated below Baa by Moody's
Investors Service, Inc. ("Moody's) or below BBB by Standard & Poor's Ratings
Group ("Standard & Poor's"). The Fund may invest in securities rated as low as B
by Moody's or Standard & Poor's, which may indicate that the obligations are
speculative to a high degree and in default. Lower rated securities are
generally referred to as junk bonds. See the Appendix attached to this Statement
of Additional Information for a description of the characteristics of the
various ratings categories. The Fund is not obligated to dispose of securities
whose issuers subsequently are in default or which are downgraded below the
minimum ratings noted above. The credit ratings of Moody's and Standard & Poor's
(the "Rating Agencies"), such as those ratings described in this Statement of
Additional Information, may not be changed by the Rating Agencies in a timely
fashion to reflect subsequent economic events. The credit ratings of securities
do not evaluate market risk. The Fund may also invest in unrated securities
which, in the opinion of the Advisor, offer comparable yields and risks to the
rated securities in which the Fund may invest.
Debt securities that are rated in the lower rating categories, or which
are unrated, involve greater volatility of price and risk of loss of principal
and income. In addition, lower ratings reflect a greater possibility of an
adverse change in financial condition affecting the ability of the issuer to
make payments of interest and principal. The market price and liquidity of lower
rated fixed income securities generally respond to short-term corporate and
market developments to a greater extent than the price and liquidity of higher
rated securities, because these developments are perceived to have a more direct
relationship to the ability of an issuer of lower rated securities to meet its
ongoing debt obligations. Although the Advisor seeks to minimize these risks
through diversification, investment analysis and attention to current
developments in interest rates and economic conditions, there can be no
assurance that the Advisor will be successful in limiting the Fund's exposure to
the risks associated with lower rated securities. Because the Fund invests in
securities in the lower rated categories, the achievement of the Fund's
investment objective is more dependent on the Advisor's ability than would be
the case if the Fund were investing in securities in the higher rated
categories.
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Reduced volume and liquidity in the high yield bond market or the
reduced availability of market quotations may make it more difficult to dispose
of the Fund's investments in high yield securities and to value accurately these
assets. The reduced availability of reliable, objective data may increase the
Fund's reliance on management's judgment in valuing high yield bonds. In
addition, the Fund's investments in high yield securities may be susceptible to
adverse publicity and investor perceptions whether or not justified by
fundamental factors.
The Fund may invest in convertible debt securities, for which there are
no specific quality requirements. In addition, at the time the Fund invests in
any commercial paper, bank obligation or repurchase agreement, the issuer must
have outstanding debt rated A or higher by Moody's or Standard & Poor's, the
issuer's parent corporation, if any, must have outstanding commercial paper
rated Prime-1 by Moody's or A-1 by Standard & Poor's, or if no such ratings are
available, the investment must be of comparable quality in the Advisor's
opinion. At the time the Fund invests in any other short-term debt securities,
they must be rated A or higher by Moody's or Standard & Poor's, or if unrated,
the investment must be of comparable quality in the Advisor's opinion.
In determining the suitability of and 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
Fund 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 Trustees. While exchange-traded options are obligations of the Options
Clearing Corporation, in the case of OTC options, the Fund relies on the dealer
from which it purchased the option to perform if the option is exercised. Thus,
when the Fund 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 Fund as well as loss of the expected benefit of the transaction.
Provided that the Fund has arrangements with certain qualified dealers
who agree that the Fund may repurchase any option it writes for a maximum price
to be calculated by a predetermined formula, the Fund 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 Fund may
purchase or sell (write) futures contracts and purchase and sell (write) put and
call options, including put and call options on futures contracts. 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.
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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 the Fund are paid by the Fund 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 Fund may write options 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, the Fund 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 the Fund's
current or anticipated investments exactly. The Fund 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 Fund's other investments.
Options and futures contracts prices can also diverge from the prices
of their underlying instruments, even if the underlying instruments match the
Fund'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. The Fund 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 the Fund'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 that
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 the Fund
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 the Fund to continue to hold a position until delivery or expiration
regardless of changes in its value. As a result, the Fund'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, the Fund 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.
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ASSET COVERAGE FOR FUTURES CONTRACTS AND OPTIONS POSITIONS. The Fund
intends to comply with Section 4.5 of the regulations under the Commodity
Exchange Act, which limits the extent to which the Fund can commit assets to
initial margin deposits and option premiums. In addition, the Fund 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 the Fund's assets could impede portfolio management or the Fund's
ability to meet redemption requests or other current obligations.
RISK MANAGEMENT
The Fund 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
purchase the underlying long term securities, it might cause the Fund 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 Fund 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.
PORTFOLIO TURNOVER
The estimated annual portfolio turnover rate for the Fund generally
should not exceed 100%. A rate of 100% indicates that the equivalent of all of
the Fund'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.
INVESTMENT RESTRICTIONS
The investment restrictions of the Fund and the Portfolio are
identical, unless otherwise specified. Accordingly, references below to the Fund
also include the Portfolio unless the context requires otherwise; similarly,
references to the Portfolio also include the Fund unless the context requires
otherwise.
The investment restrictions below have been adopted by the Trust with
respect to the Fund and by the 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" (as defined in the 1940 Act) 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 the Fund is requested to
vote on a change in the fundamental investment restrictions of the Portfolio,
the Trust will hold a meeting of Fund shareholders and will cast its votes as
instructed by the Fund's shareholders.
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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 Fund and the
Portfolio may not:
1. Purchase any security if, as a result, more than 25% of 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) less liabilities (other
than borrowings) (i) from banks for temporary or short-term 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.1
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, unless acquired as
a result of the ownership of securities or instruments, 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 obligations (including privately issued debt
obligations), 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.
- ----------------
1 Although the Portfolio is permitted to fulfill plans to purchase
additional securities pending the anticipated sale of other portfolio securities
or assets, the Portfolio has no current intention of engaging in this form of
leverage.
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NON-FUNDAMENTAL INVESTMENT RESTRICTIONS. The investment restrictions
described below are not fundamental policies of the Fund and the Portfolio and
may be changed by their respective Trustees. These non-fundamental investment
policies require that the Fund and the 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, except to the extent permitted by the 1940
Act. 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.
Notwithstanding any other fundamental or non-fundamental investment
restriction or policy, the Fund reserves the right, without the approval of
shareholders, to invest all of its assets in the securities of a single open-end
registered investment company with substantially the same investment objective,
restrictions and policies as the Fund.
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, the Advisor 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 the Advisor 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, the
Advisor may classify 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 the Portfolio,
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 since prior 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.
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ARTHUR C. ESCHENLAUER--Trustee; Retired; Former Senior Vice President,
Morgan Guaranty Trust Company of New York. 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., ("Pierpont Group") since prior to 1992. His
address is Pine Tree Club Estates, 10286 Saint Andrews Road, Boynton Beach, FL
33436, and his date of birth is August 23, 1937.
MICHAEL P. MALLARDI--Trustee; Retired; Senior Vice President, Capital
Cities/ABC, Inc. and President, Broadcast Group since 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 the Portfolio as that
term is defined in the 1940 Act.
The Trustees of the Trust are the same as the Trustees of the
Portfolio. 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, the Portfolio 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 for serving as
Trustee of the Trust, each of the Master Portfolios (as defined below), The JPM
Institutional Funds and the JPM Series Trust and is reimbursed for expenses
incurred in connection with service as a Trustee. The Trustees may hold various
other directorships unrelated to these funds.
Trustee compensation expenses accrued by the Trust for the calendar
year ended December 31, 1996 is set forth below.
TOTAL TRUSTEE
COMPENSATION ACCRUED
AGGREGATE BY THE MASTER
TRUSTEE PORTFOLIOS(*), THE JPM
COMPENSATION INSTITUTIONAL FUNDS,
ACCRUED BY THE JPM SERIES TRUST AND
TRUST DURING THE TRUST DURING
NAME OF TRUSTEE 1996 1996 (***)
- --------------- ---- ----------
Frederick S. Addy, Trustee $15,808 $65,000
William G. Burns, Trustee $15,808 $65,000
Arthur C. Eschenlauer, Trustee $15,808 $65,000
Matthew Healey, Trustee (**) $15,808 $65,000
Chairman and Chief Executive
Officer
Michael P. Mallardi, Trustee $15,808 $65,000
(*) Includes the Portfolio, each Portfolio in which a series of the Trust
invests, The Non-U.S. Fixed Income Portfolio and The Disciplined Equity
Portfolio (collectively the "Master Portfolios").
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(**) During 1996, Pierpont Group paid Mr. Healey, in his role as Chairman of
Pierpont Group, compensation in the amount of $140,000, contributed $21,000 to a
defined contribution plan on his behalf and paid $21,500 in insurance premiums
for his benefit.
(***)No investment company within the fund complex has a pension or retirement
plan. Currently there are 18 investment companies (15 investment companies
comprising the Master Portfolios, the Trust, The JPM Institutional Funds and JPM
Series Trust) in the fund complex.
The Trustees, in addition to reviewing actions of the Trust's and the
Portfolio's various service providers, decide upon matters of general policy.
The Portfolio and the Trust have entered into a Fund Services Agreement with
Pierpont Group to assist the Trustees in exercising their overall supervisory
responsibilities over the affairs of the Portfolio and the Trust. Pierpont Group
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. The
Trust and the Portfolio have agreed to pay Pierpont Group a fee in an amount
representing its reasonable costs in performing these services to the Trust, the
Portfolio and certain other registered investment companies with similar
agreements with Pierpont Group. These costs are periodically reviewed by the
Trustees.
OFFICERS
The Trust's and Portfolio's 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 Portfolio. The Trust and the Portfolio have no
employees.
The officers of the Trust and the Portfolio, 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 the 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, since
prior to 1992. His address is Pine Tree Club Estates, 10286 Saint Andrews Road,
Boynton Beach, FL 33436. His date of birth is August 23, 1937.
MARIE E. CONNOLLY; Vice President and Assistant Treasurer. President and
Chief Executive Officer and Director of FDI, Premier Mutual Fund Services, Inc.
("Premier Mutual") and an officer of certain investment companies advised or
administered by the Dreyfus Corporation ("Dreyfus") or its affiliates. From
December 1991 to July 1994, she was President and Chief Compliance Officer of
FDI. 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 or its affiliates. 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, Inc. His date of birth is March 31, 1969.
JACQUELINE HENNING; Assistant Secretary and Assistant Treasurer. 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, BWI. Her date of birth is March 24, 1942.
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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 or Harris Trust and
Savings Bank ("Harris") or their respective affiliates. 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, Inc.
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., Waterhouse Investors Cash Management Fund, Inc. and Harris or their
respective affiliates. From June 1994 to January 1996, Ms. Jacoppo-Wood was a
Manager, SEC Registration, Scudder, Stevens & Clark, Inc. From 1988 to May 1994,
Ms. Jacoppo-Wood was a senior paralegal at The Boston Company Advisors, Inc.
("TBCA"). Her date of birth is December 29, 1966.
ELIZABETH A. KEELEY; Vice President and Assistant Secretary. Vice President
and Senior 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 or
Harris or their respective affiliates. 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.
CHRISTOPHER J. KELLEY; Vice President and Assistant Secretary. Vice
President and Associate General Counsel of FDI and Premier Mutual and an officer
of Waterhouse Investors Cash Management Fund, Inc. and certain investment
companies advised or administered by Harris or its affiliates. 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. Assistant
Vice President, State Street Bank and Trust Company since November 1994.
Assigned as Operations Manager, State Street Cayman Trust Company, Ltd. since
February 1995. Prior to November, 1994, employed by Boston Financial Data
Services, Inc. as Control Group Manager. Address: P.O. Box 2508 GT, Elizabethan
Square, 2nd Floor, Shedden Road, George Town, Grand Cayman, Cayman Islands, BWI.
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., Waterhouse Investors Cash
Management Fund, Inc. and certain investment companies advised or administered
by Dreyfus or Harris or their respective affiliates. From 1989 to 1994, Ms.
Nelson was an Assistant Vice President and client manager for The Boston
Company, Inc. 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 or Harris or
their respective affiliates. 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.
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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, Inc. His
date of birth is June 13, 1962.
INVESTMENT ADVISOR
The investment advisor to the Portfolio 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 $208 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 investment advisory services the Advisor provides to the Portfolio
are not exclusive under the terms of the Advisory Agreement. 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 Portfolio. Such accounts are supervised by officers and employees of the
Advisor who may also be acting in similar capacities for the Portfolio. 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 benchmark for the Portfolio is currently the
Morgan Stanley Capital International Latin American Index.
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.
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J.P. Morgan Investment Management Inc. advises the Advisor on investment of the
commingled pension trust funds.
The Portfolio is managed by officers of the Advisor who, in acting for
their customers, including the Portfolio, 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 has agreed to pay the Advisor a fee, which is computed
daily and may be paid monthly, equal to an annual rate of 1.00% of the
Portfolio's average daily net assets.
The Investment Advisory Agreement provides that it 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. The Investment Advisory Agreement 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 Portfolio contemplated by the Advisory Agreement 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
Portfolio.
If the Advisor were prohibited from acting as investment advisor to the
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 Portfolio 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 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 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.
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The Distribution Agreement shall continue in effect with respect to the
Fund for a period of two years after execution only if it is approved at least
annually thereafter (i) by a vote of the holders of a majority of the Fund's
outstanding shares or by the Trust's Trustees and (ii) by a vote of a majority
of the Trustees of the Trust who are not "interested persons" (as defined by the
1940 Act) of the parties to the Distribution Agreement, cast in person at a
meeting called for the purpose of voting on such approval (see "Trustees and
Officers"). The Distribution Agreement will terminate automatically if assigned
by either party thereto and is terminable at any time without penalty by a vote
of a majority of the Trustees of the Trust, a vote of a majority of the Trustees
who are not "interested persons" of the Trust, or by a vote of the holders of a
majority of the Fund's outstanding shares as defined under "Additional
Information," in any case without payment of any penalty on 60 days' written
notice to the other party. The principal offices of FDI are located at 60 State
Street, Suite 1300, Boston, Massachusetts 02109.
CO-ADMINISTRATOR
Under Co-Administration Agreements with the Trust and the Portfolio
dated August 1, 1996, FDI also serves as the Trust's and the Portfolio's
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 Portfolio, 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 Portfolio, 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, the Fund and
the Portfolio have 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 JPM Institutional Funds,
the Master Portfolios, JPM Series Trust and JPM Series Trust II.
SERVICES AGENT
The Trust, on behalf of the Fund, and the Portfolio have entered into
Administrative Services Agreements (the "Services Agreements") with Morgan
effective December 29, 1995, as amended effective August 1, 1996, pursuant to
which Morgan is responsible for certain administrative and related services
provided to the Fund and the 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, the Fund and the Portfolio have
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 the 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
the Fund and the Portfolio is determined by the proportionate share that its net
assets bear to the total net assets of the Trust, The JPM Institutional Funds,
the Master Portfolios, the other investors in the Master Portfolios for which
Morgan provides similar services and the JPM Series Trust.
Under Administrative Services Agreements in effect from December 29,
1995 through July 31, 1996, with Morgan, the Fund and the 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'
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aggregate average daily net assets, and 0.03% of the Master Portfolios' average
daily net assets in excess of $7 billion.
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02110, serves as the Trust's and the Portfolio's
custodian and fund accounting agent and the 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 the case of foreign
assets held outside the United States, the Custodian employs various
subcustodians who were approved by the Trustees of the Portfolio in accordance
with the regulations of the SEC. The Custodian maintains portfolio transaction
records. As Transfer Agent and Dividend Disbursing Agent, State Street is
responsible for maintaining account records detailing the ownership of Fund
shares and for crediting income, capital gains and other changes in share
ownership to shareholder accounts.
SHAREHOLDER SERVICING
The Trust on behalf of the Fund 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 the 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
Fund's transfer agent; transmitting purchase and redemption orders to the Fund's
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, the Fund has agreed to pay
Morgan for these services a fee at an annual rate of 0.25% of the average daily
net asset value of Fund shares owned by or for shareholders for whom Morgan is
acting as shareholder servicing agent). Morgan acts as shareholder servicing
agent for all shareholders.
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 Fund and the Portfolio under the
Services Agreements and in acting as Advisor to the Portfolio under the
Investment Advisory Agreement, 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 Fund or the Portfolio 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.
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INDEPENDENT ACCOUNTANTS
The independent accountants of the Trust and the Portfolio 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 the Fund
and the Portfolio, assists in the preparation and/or review of the Fund's and
the Portfolio's federal and state income tax returns and consults with the Fund
and the Portfolio as to matters of accounting and federal and state income
taxation.
EXPENSES
In addition to the fees payable to Pierpont Group, Morgan and FDI under
various agreements discussed under "Trustees and Officers," "Investment
Advisor," "Co-Administrator and Distributor," "Services Agent" and "Shareholder
Servicing" above, the Fund and the Portfolio are responsible for usual and
customary expenses associated with their respective operations. Such expenses
include organization expenses, legal fees, accounting expenses, insurance costs,
the compensation and expenses of the Trustees, registration fees under federal
securities laws, and extraordinary expenses applicable to the Fund or the
Portfolio. For the Fund, such expenses also include transfer, registrar and
dividend disbursing costs, the expenses of printing and mailing reports, notices
and proxy statements to Fund shareholders, and registration fees under state
securities laws. For the Portfolio, such expenses also include applicable
registration fees under foreign securities laws, custodian fees and brokerage
expenses. For additional information regarding waivers or expense subsidies, see
"Management of the Fund and Portfolio" 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 the Fund may make transactions in shares of the Fund.
The Fund may, at its own option, accept securities in payment for
shares. The securities delivered in such a transaction 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 Portfolio. In addition, securities accepted in payment for
shares must: (i) meet the investment objective and policies of the Portfolio;
(ii) be acquired by the Fund for investment and not for resale (other than for
resale to the Portfolio); (iii) be liquid securities which are not restricted as
to transfer either by law or liquidity of market; and (iv) 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. The
Fund reserves the right to accept or reject at its own option any and all
securities offered in payment for its shares.
Prospective investors may purchase shares with the assistance of an
Eligible Institution, and the Eligible Institution may charge the investor a fee
for this service and other services it provides to its customers.
REDEMPTION OF SHARES
Investors may redeem shares as described in the Prospectus under
"Redemption of Shares."
If the Trust on behalf of the Fund and the Portfolio determine that it
would be detrimental to the best interest of the remaining shareholders of the
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
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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 Trust is in the process of seeking
exemptive relief from the SEC with respect to redemptions in kind by the Fund.
If the requested relief is granted, the Fund would then be permitted to pay
redemptions to greater than 5% shareholders in securities, rather than in cash,
to the extent permitted by the SEC and applicable law. 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 Fund has elected to be governed by Rule 18f-1 under the 1940 Act
pursuant to which the Fund is 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 Portfolio, and
therefore shareholders of the Fund that receive redemptions in kind will receive
Portfolio holdings. The Portfolio has advised the Trust that the Portfolio will
not redeem in kind except in circumstances in which the Fund is permitted to
redeem in kind.
FURTHER REDEMPTION INFORMATION. The Trust, on behalf of the Fund, and
the Portfolio reserves 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 shares of The JPM Institutional Funds or JPM Series
Trust, as described under "Exchange of Shares" in the Prospectus. For complete
information, the prospectus as it relates to a fund into which a transfer is
being made should be read prior to the transfer. Requests for exchange are made
in the same manner as requests for redemptions. See "Redemption of Shares."
Shares of the fund to be acquired are purchased for settlement when the proceeds
from redemption become available. In the case of investors in certain states,
state securities laws may restrict the availability of the exchange privilege.
The Trust reserves the right to discontinue, alter or limit the exchange
privilege at any time.
DIVIDENDS AND DISTRIBUTIONS
The Fund declares and pays dividends and distributions as described
under "Dividends and Distributions" in the Prospectus.
Determination of the net income for the Fund 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
The Fund 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 days 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. The Fund and
the Portfolio may also close for purchases and redemptions at such other times
as may be determined by the Board of Trustees to the extent permitted by
applicable law. The days on which net asset value is determined are the Fund's
business days.
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The net asset value of the Fund is equal to the value of the Fund's
investment in the 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 Fund in
valuing its assets.
Fixed income securities with a maturity of 60 days or more, including
securities that are listed on an exchange or traded over the counter, are valued
using prices supplied daily by an independent pricing service or services that
(i) are based on the last sale price on a national securities exchange or, in
the absence of recorded sales, at the readily available closing bid price on
such exchange or at the quoted bid price in the OTC market, if such exchange or
market constitutes the broadest and most representative market for the security
and (ii) in other cases, take into account various factors affecting market
value, including yields and prices of comparable securities, indication as to
value from dealers and general market conditions. If such prices are not
supplied by the Fund'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.
The value of investments listed on a domestic securities exchange,
other than options on stock indexes, is based on the last sale prices on such
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 Fund was more than
60 days, unless this is determined not to represent fair value by the Trustees.
Trading in securities on most foreign exchanges, OTC markets and
foreign markets is normally completed before the close of trading on the New
York Stock Exchange and in U.S. markets and may also take place on days on which
the New York Stock Exchange and U.S. markets are closed. If events materially
affecting the value of securities occur between the time when the exchange or
market on which they are traded closes and the time when the Fund'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
TOTAL RETURN QUOTATIONS. As required by regulations of the SEC, the
annualized total return of the Fund 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 distributed by the Fund over the period are
reinvested. It is then assumed that
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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.
GENERAL. The Fund's performance will vary from time to time depending
upon market conditions, the composition of the Fund, and its operating expenses.
Consequently, any given performance quotation should not be considered
representative of the 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 the 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 Fund's shares, including appropriate market indices including
the benchmark 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.
From time to time, the Fund may quote performance in terms of, actual
distributions, total return, or capital appreciation in reports, sales
literature, and advertisements published by the Fund. Current performance
information for the Fund 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 the Fund 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 the Fund. See "Investment Objective and Policies."
Fixed income and debt securities 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.
In connection with portfolio transactions for the Fund, 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; and 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 review regularly the
reasonableness of commissions and other transaction costs incurred by the Fund
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 the Fund.
The Advisor believes that the value of research services received is not
determinable and does not
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significantly reduce its expenses. The Fund does not reduce its fee to the
Advisor by any amount that might be attributable to the value of such services.
Subject to the overriding objective of obtaining the best possible
execution of orders, the Advisor may allocate a portion of the Fund's brokerage
transactions to affiliates of the Advisor. In order for affiliates of the
Advisor to effect any portfolio transactions for the Fund, 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, 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 Fund 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 the Fund as well as other customers, 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 the Fund
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
the Fund. In some instances, this procedure might adversely affect the Fund.
If the Fund 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 the
Fund 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 the Fund may write may be affected by options written by the
Advisor for other investment advisory clients. An exchange may order the
liquidation of positions found to be in excess of these limits, and it may
impose certain other sanctions.
MASSACHUSETTS TRUST
The Trust is a trust fund of the type commonly known as a
"Massachusetts business trust" of which the 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.
Effective October 10, 1996, the name of the Trust was changed from "The
Pierpont Funds" to "The JPM Pierpont Funds."
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
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the acts or obligations of any series thereof and that every written agreement,
obligation, instrument or undertaking made on behalf of any series 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 (i) all types of
claims in the latter jurisdictions, (ii) tort claims, (iii) contract claims
where the provision referred to is omitted from the undertaking, (iv) claims for
taxes, and (v) 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 Fund.
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 the Fund is liable to
the 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 the 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
the 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 the 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 the 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 the Fund (or in the assets of other series, if applicable).
To date shares of twenty series have been authorized and are available for sale
to the public. Each share represents an equal proportional interest in the Fund
with each other share. Upon liquidation of the Fund, holders are entitled to
share pro rata in the net assets of the Fund available for distribution to such
shareholders. See "Massachusetts Trust." Shares of the 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 have the power to alter the number and the terms of
office of the Trustees, to lengthen their own terms to make their terms of
unlimited duration subject to certain removal procedures, and to 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.
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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 (i) 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 (ii) 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 twenty series of the Trust. The Trustees have no current intention to
create any classes within the initial series or any subsequent series. The
Trustees may, however, authorize the issuance of shares of additional series and
the creation of classes of shares within any series with such preferences,
privileges, limitations and voting and dividend rights as the Trustees may
determine. The proceeds from the issuance of any additional series would be
invested in separate, independently managed portfolios with distinct investment
objectives, policies and restrictions, and share purchase, redemption and net
asset valuation procedures. Any additional classes would be used to distinguish
among the rights of different categories of shareholders, as might be required
by future regulations or other unforeseen circumstances. All consideration
received by the Trust for shares of any additional series or class, and all
assets in which such consideration is invested, would belong to that series or
class, subject only to the rights of creditors of the Trust and would be subject
to the liabilities related thereto. Shareholders of any additional series or
class will approve the adoption of any management contract or distribution plan
relating to such series or class and of any changes in the investment policies
related thereto, to the extent required by the 1940 Act.
For information relating to mandatory redemption of Fund shares or
their redemption at the option of the Trust under certain circumstances, see
"Redemption of Shares" in the Prospectus.
TAXES
The Fund intends to qualify as a regulated investment company under
Subchapter M of the Code. As a regulated investment company, the 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
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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 the 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, the 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, the 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. The 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 the
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.
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 Fund as ordinary income whether such distributions are taken in cash or
reinvested in additional shares. Distributions to corporate shareholders of the
Fund 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 the 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 the Fund's shares. Additionally, any loss realized on a redemption
or exchange of shares of the 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.
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 the 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 the Portfolio pursuant to the exercise of a put option written by
it, the Portfolio will subtract the premium received from its cost basis in the
securities purchased.
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Under the Code, gains or losses attributable to disposition of foreign
currency or to certain foreign currency contracts, or to fluctuations in
exchange rates between the time the Portfolio accrues income or receivables or
expenses or other liabilities denominated in a foreign currency and the time the
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 the Portfolio, if any, denominated in
foreign currency, to the extent attributable to fluctuations in exchange rates
between the acquisition and disposition dates are also treated as ordinary
income or loss.
Forward currency contracts, options and futures contracts entered into
by the 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, the
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 the
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 Portfolio may invest in Equity Securities of foreign issuers. If
the 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 the Fund or its shareholders in respect of deemed unpaid taxes
arising from such distributions or gains. Alternatively, the 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 Portfolio 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, the Fund may be required to withhold U.S. federal
income tax as "backup withholding" at the rate of 31% from
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distributions treated as long-term capital gains and from the proceeds of
redemptions, exchanges or other dispositions of Fund shares unless IRS Form W-8
is provided. Transfers by gift of shares of the 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 Fund may be subject to foreign
withholding taxes or other foreign taxes with respect to income (possibly
including, in some cases, capital gains) received from sources within foreign
countries. So long as more than 50% in value of the total assets of the Fund
(including its share of the assets of the 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. The Fund will make such an election only if they deem it to be in
the best interest of their respective shareholders. The Fund will notify its
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 the
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 or she itemizes deductions, a deduction for his or
her 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 Fund from its foreign source net investment income will be treated as
foreign source income. The Fund's 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
Fund.
STATE AND LOCAL TAXES. The 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 the 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 the Fund is liable for any
income or franchise tax in The Commonwealth of Massachusetts, provided that the
Fund continues to qualify as a regulated investment company under Subchapter M
of the Code. The Portfolio is organized as a New York trust. The Portfolio is
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 the
Fund in the Portfolio does not cause the Fund to be liable for any income or
franchise tax in the State of New York.
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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 Fund, Morgan or Eligible Institutions as
shareholder servicing agent may be tape recorded. With respect to the securities
offered hereby, this Statement of Additional Information and the Prospectus do
not contain all the information included in the Trust's Registration Statement
filed with the SEC under the 1933 Act and the Trust's and the Portfolio's
Registration Statement 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 Fund or the Distributor. The Prospectus and this Statement of
Additional Information do not constitute an offer by the 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.
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APPENDIX A
DESCRIPTION OF SECURITY RATINGS
STANDARD & POOR'S
CORPORATE 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.
B - An obligation rated B is more vulnerable to nonpayment than obligations
rated BB, but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
CCC - An obligation rated CCC is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
CC - An obligation rated CC is currently highly vulnerable to nonpayment.
C - The C rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments on this obligation
are being continued.
COMMERCIAL PAPER
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.
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MOODY'S
CORPORATE BONDS
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
COMMERCIAL PAPER
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.
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THE JPM PIERPONT FUNDS
THE JPM PIERPONT EMERGING MARKETS DEBT FUND
STATEMENT OF ADDITIONAL INFORMATION
MARCH 6, 1997
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT CONTAINS
ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS
FOR THE JPM PIERPONT EMERGING MARKETS DEBT FUND, DATED MARCH 6, 1997, AS
SUPPLEMENTED FROM TIME TO TIME, WHICH MAY BE OBTAINED UPON REQUEST FROM FUNDS
DISTRIBUTOR, INC., ATTENTION: THE JPM PIERPONT FUNDS; (800) 221-7930.
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Table of Contents
PAGE
General....................................................................1
Investment Objective and Policies..........................................1
Investment Restrictions...................................................10
Trustees and Officers.....................................................12
Investment Advisor........................................................15
Distributor...............................................................17
Co-Administrator..........................................................17
Services Agent............................................................18
Custodian and Transfer Agent..............................................18
Shareholder Servicing.....................................................18
Independent Accountants...................................................19
Expenses..................................................................19
Purchase of Shares........................................................19
Redemption of Shares......................................................20
Exchange of Shares........................................................20
Dividends and Distributions...............................................21
Net Asset Value...........................................................21
Performance Data..........................................................21
Portfolio Transactions....................................................22
Massachusetts Trust.......................................................23
Description of Shares.....................................................24
Taxes.....................................................................25
Additional Information....................................................28
Appendix A - Description of Securities Ratings...........................A-1
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GENERAL
This Statement of Additional Information relates only to The JPM
Pierpont Emerging Markets Debt Fund (the "Fund"). The Fund 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"). In
addition to the Fund, the Trust consists of nineteen other series representing
separate investment funds (each a "JPM Pierpont Fund"). The other JPM Pierpont
Funds are covered by separate Statements of Additional Information
This Statement of Additional Information describes the financial
history, investment objective and policies, management and operation of the
Fund. The Fund operates through a two-tier master-feeder investment fund
structure.
This Statement of Additional Information provides additional
information with respect to the Fund and should be read in conjunction with the
Fund's current Prospectus (the "Prospectus"). Capitalized terms not otherwise
defined herein have the meanings accorded to them in the Prospectus. The Fund's
executive offices are located at 60 State Street, Suite 1300, Boston,
Massachusetts 02109.
INVESTMENT OBJECTIVE AND POLICIES
The Fund is designed for the aggressive investor seeking to diversify
an investment portfolio by investing in fixed income securities of emerging
markets issuers. The Fund's investment objective is high total return from a
portfolio of fixed income securities of emerging markets issuers. The Fund seeks
to achieve its objective by investing all of its investable assets in The
Emerging Markets Debt 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 debt obligations of governments, government-related agencies and
companies located in emerging markets around the world. 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.
The following discussion supplements the information regarding the
investment objective of the Fund and the policies to be employed to achieve this
objective by the Portfolio as set forth above and in the Prospectus. The
investment objective of the Fund and the investment objective of the Portfolio
are identical. Accordingly, references below to the Fund also include the
Portfolio; similarly, references to the Portfolio also include the Fund unless
the context requires otherwise.
MONEY MARKET INSTRUMENTS
As discussed in the Prospectus, the 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 Fund appears below.
U.S. TREASURY SECURITIES. The Fund 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. The Fund may invest in obligations
issued or guaranteed by U.S. Government agencies or instrumentalities. These
obligations may or may not be backed by the "full faith and credit" of the
United States. In the case of securities not backed by the full faith and credit
of the United States,
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the 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 the 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 the
Fund may invest that are not backed by the full faith and credit of the United
States include 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. The Fund, subject to its 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
another currency. See "Foreign Investments."
BANK OBLIGATIONS. The Fund unless otherwise noted in the Prospectus or
below, may invest in negotiable certificates of deposit, time deposits and
bankers' acceptances of (i) foreign branches of U.S. banks and U.S. savings and
loans associations or of foreign banks (Euros) and (ii) U.S. branches of foreign
banks (Yankees). See "Foreign Investments." The Fund will not invest in
obligations for which the Advisor, or any of its affiliated persons, is the
ultimate obligor or accepting bank. The Fund 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. The 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 acting as agent, for no additional fee,
in its capacity as investment advisor to the Portfolio 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
Fund 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 Fund to be liquid because
they are payable upon demand. The Fund does not have any specific percentage
limitation on investments in master demand obligations. It is possible that the
issuer of a master demand obligation could be a client of the Advisor to whom
the Advisor, in its capacity as a commercial bank, has made a loan.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements
with brokers, dealers or banks that meet the credit guidelines approved by the
Trustees. In a repurchase agreement, the 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
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security. A repurchase agreement may also be viewed as a fully collateralized
loan of money by the 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 Fund invest in repurchase agreements for more than thirteen months. The
securities which are subject to repurchase agreements, however, may have
maturity dates in excess of thirteen months from the effective date of the
repurchase agreement. The Fund 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 Fund in each agreement
plus accrued interest, and the Fund will make payment for such securities only
upon physical delivery or upon evidence of book entry transfer to the account of
the Custodian. If the seller defaults, the 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 the Fund may be delayed or
limited.
The 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.
CORPORATE BONDS AND OTHER DEBT SECURITIES
As discussed in the Prospectus, the Fund may invest in bonds and other
debt securities of domestic and foreign issuers to the extent consistent with
its investment objective 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."
MORTGAGE-BACKED SECURITIES. The Fund may invest in mortgage-backed
securities. Each mortgage pool underlying mortgage-backed securities consists of
mortgage loans evidenced by promissory notes secured by first mortgages or first
deeds of trust or other similar security instruments creating a first lien on
owner occupied and non-owner occupied one-unit to four-unit residential
properties, multifamily (i.e., five or more) properties, agriculture properties,
commercial properties and mixed use properties. The investment characteristics
of adjustable and fixed rate mortgage-backed securities differ from those of
traditional fixed income securities. The major differences include the payment
of interest and principal on mortgage-backed securities on a more frequent
(usually monthly) schedule and the possibility that principal may be prepaid at
any time due to prepayments on the underlying mortgage loans or other assets.
These differences can result in significantly greater price and yield volatility
than is the case with traditional fixed income securities. As a result, a faster
than expected prepayment rate will reduce both the market value and the yield to
maturity from those which were anticipated. A prepayment rate that is slower
than expected will have the opposite effect of increasing yield to maturity and
market value.
GOVERNMENT GUARANTEED MORTGAGE-BACKED SECURITIES. Government National
Mortgage Association mortgage-backed certificates ("Ginnie Maes") are supported
by the full faith and credit of the United States. Certain other U.S. Government
securities, issued or guaranteed by federal agencies or government sponsored
enterprises, are not supported by the full faith and credit of the United
States, but may be supported by the right of the issuer to borrow from the U.S.
Treasury. These securities include obligations of instrumentalities such as the
Federal Home Loan Mortgage Corporation ("Freddie Macs") and the Federal National
Mortgage Association ("Fannie Maes"). No assurance can be given that the U.S.
Government will provide financial support to these federal agencies,
authorities, instrumentalities and government sponsored enterprises in the
future.
There are several types of guaranteed mortgage-backed securities
currently available, including guaranteed mortgage pass-through certificates and
multiple class securities, which include guaranteed real estate mortgage
investment conduit certificates ("REMIC Certificates"), other collateralized
mortgage obligations ("CMOs") and stripped mortgage-backed securities.
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Mortgage pass-through securities are fixed or adjustable rate
mortgage-backed securities which provide for monthly payments that are a
"pass-through" of the monthly interest and principal payments (including any
prepayments) made by the individual borrowers on the pooled mortgage loans, net
of any fees or other amounts paid to any guarantor, administrator and/or
servicer of the underlying mortgage loans.
Multiple class securities include CMOs and REMIC Certificates issued by
U.S. Government agencies, instrumentalities (such as Fannie Mae) and sponsored
enterprises (such as Freddie Mac) or by trusts formed by private originators of,
or investors in, mortgage loans, including savings and loan associations,
mortgage bankers, commercial banks, insurance companies, investment banks and
special purpose subsidiaries of the foregoing. In general, CMOs are debt
obligations of a legal entity that are collateralized by, and multiple class
mortgage-backed securities represent direct ownership interests in, a pool of
mortgage loans or mortgaged-backed securities and payments on which are used to
make payments on the CMOs or multiple class mortgage-backed securities.
CMOs and guaranteed REMIC Certificates issued by Fannie Mae and Freddie
Mac are types of multiple class mortgage-backed securities. Investors may
purchase beneficial interests in REMICs, which are known as "regular" interests
or "residual" interests. The Fund does not intend to purchase residual interests
in REMICs. The REMIC Certificates represent beneficial ownership interests in a
REMIC trust, generally consisting of mortgage loans or Fannie Mae, Freddie Mac
or Ginnie Mae guaranteed mortgage-backed securities (the "Mortgage Assets"). The
obligations of Fannie Mae and Freddie Mac under their respective guaranty of the
REMIC Certificates are obligations solely of Fannie Mae and Freddie Mac,
respectively.
CMOs and REMIC Certificates are issued in multiple classes. Each class
of CMOs or REMIC Certificates, often referred to as a "tranche," is issued at a
specific adjustable or fixed interest rate and must be fully retired no later
than its final distribution date. Principal prepayments on the assets underlying
the CMOs or REMIC Certificates may cause some or all of the classes of CMOs or
REMIC Certificates to be retired substantially earlier than their final
scheduled distribution dates. Generally, interest is paid or accrues on all
classes of CMOs or REMIC Certificates on a monthly basis.
STRIPPED MORTGAGE-BACKED SECURITIES. Stripped mortgage-backed
securities ("SMBS") are derivative multiclass mortgage securities, issued or
guaranteed by the U.S. Government, its agencies or instrumentalities or by
private issuers. Although the market for such securities is increasingly liquid,
privately issued SMBS may not be readily marketable and will be considered
illiquid for purposes of the Fund's limitation on investments in illiquid
securities. The Advisor may determine that SMBS which are U.S. Government
securities are liquid for purposes of the Fund's limitation on investments in
illiquid securities in accordance with procedures adopted by the Board of
Trustees. The market value of the class consisting entirely of principal
payments generally is unusually volatile in response to changes in interest
rates. The yields on a class of SMBS that receives all or most of the interest
from Mortgage Assets are generally higher than prevailing market yields on other
mortgage-backed securities because their cash flow patterns are more volatile
and there is a greater risk that the initial investment will not be fully
recouped.
ZERO COUPON, PAY-IN-KIND AND DEFERRED PAYMENT SECURITIES. While
interest payments are not made on such securities, holders of such securities
are deemed to have received "phantom income." Because the Fund will distribute
"phantom income" to shareholders, to the extent that shareholders elect to
receive dividends in cash rather than reinvesting such dividends in additional
shares, the Portfolio will have fewer assets with which to purchase income
producing securities.
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 or other asset-backed securities collateralized by such
assets. 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 the Fund
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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.
FOREIGN INVESTMENTS
The Fund makes substantial investments in foreign countries. 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 the 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 Fund 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 Fund's
currency exposure related to foreign investments. See "Additional Investment
Practices and Risks" in the Prospectus.
The Fund 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 the Fund's investments in those countries and the
availability to the 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 the
Fund's investments in such countries illiquid and more volatile than investments
in more developed countries, and the 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 Practices and Risks" in the Prospectus.
ADDITIONAL INVESTMENTS
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Fund 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 the Fund until settlement takes place. At the time the
Fund 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
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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, the Fund 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, the Fund will meet its
obligations from maturities or sales of the securities held in the segregated
account and/or from cash flow. If the Fund 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.
INVESTMENT COMPANY SECURITIES. Securities of other investment companies
may be acquired by the Fund 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 the Fund's total assets will be invested in the
securities of any one investment company, (ii) not more than 10% of the value of
its total assets will be invested in the aggregate in securities of investment
companies as a group, and (iii) not more than 3% of the outstanding voting stock
of any one investment company will be owned by the Fund, provided however, that
the Fund may invest all of its investable assets in an open-end investment
company that has the same investment objective as the Fund. As a shareholder of
another investment company, the Fund would bear, along with other shareholders,
its pro rata portion of the other investment company's expenses, including
advisory fees. These expenses would be in addition to the advisory and other
expenses that the Fund bears directly in connection with its own operations. The
Trust and the Portfolio have applied for exemptive relief from the Securities
and Exchange Commission ("SEC") to permit investment in affiliated funds. If the
requested relief is granted, the Fund would then be permitted to invest in
affiliated funds, subject to certain conditions specified in the applicable
order.
REVERSE REPURCHASE AGREEMENTS. The Fund may enter into reverse
repurchase agreements. In a reverse repurchase agreement, the Fund sells a
security and agrees to repurchase the same security at a mutually agreed upon
date and price. For purposes of the 1940 Act, a reverse repurchase agreement is
also considered as the borrowing of money by the Fund and, therefore, a form of
leverage. The Fund will invest the proceeds of borrowings under reverse
repurchase agreements. In addition, the Fund 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. The Fund will not invest the proceeds of a reverse repurchase
agreement for a period which exceeds the duration of the reverse repurchase
agreement. The Fund 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. See
"Investment Restrictions" below for the Fund's limitations on reverse repurchase
agreements and bank borrowings.
MORTGAGE DOLLAR ROLL TRANSACTIONS. The 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 Fund 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 Fund will not be entitled to receive any
interest or principal paid on the securities sold. The Fund is compensated for
the lost interest on the securities sold by the difference between the sale
price and the lower price for the future repurchase as well as by the interest
earned on the reinvestment of the sale proceeds. The Fund may also be
compensated by receipt of a commitment fee. When the Fund 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
Fund's investment restrictions.
LOANS OF PORTFOLIO SECURITIES. The Fund 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 Fund 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 Fund any income accruing thereon. Loans will
be subject to termination by the Fund in the normal
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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 Fund. The Fund may pay
reasonable finders' and custodial fees in connection with a loan. In addition,
the Fund will consider all facts and circumstances, including the
creditworthiness of the borrowing financial institution, and the Fund will not
make any loans in excess of one year. The Fund will not lend its securities to
any officer, Trustee, Director, employee or other affiliate of the Fund, the
Advisor or the Distributor, unless otherwise permitted by applicable law.
PRIVATELY PLACED AND CERTAIN UNREGISTERED SECURITIES. The Fund may
invest in privately placed, restricted, Rule 144A or other unregistered
securities as described in the Prospectus.
As to illiquid investments, the Fund is subject to a risk that should
the Fund decide to sell them when a ready buyer is not available at a price the
Fund deems representative of their value, the value of the Fund'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,
the Fund 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 Fund may be permitted to sell a security under an effective
registration statement. If, during such a period, adverse market conditions were
to develop, the Fund might obtain a less favorable price than prevailed when it
decided to sell.
SYNTHETIC INSTRUMENTS. The Fund may invest in certain synthetic
instruments. Such instruments generally involve the deposit of asset-backed
securities in a trust arrangement and the issuance of certificates evidencing
interests in the trust. The certificates are generally sold in private
placements in reliance on Rule 144A.
SWAPS AND RELATED SWAP PRODUCTS. The Fund may engage in swap transactions,
specifically interest rate, currency, index and total return swaps and in the
purchase or sale of related caps, floors and collars. In a typical interest rate
swap agreement, one party agrees to make payments equal to a floating interest
rate on a specified amount (the "notional amount") in return for payments equal
to a fixed interest rate on the same amount for a specified period. If a swap
agreement provides for payments in different currencies, the parties might agree
to exchange the notional amount as well. The purchaser of an interest rate cap
or floor, upon payment of a fee, has the right to receive payments (and the
seller of the cap is obligated to make payments) to the extent a specified
interest rate exceeds (in the case of a cap) or is less than (in the case of a
floor) a specified level over a specified period of time or at specified dates.
The purchaser of an interest rate collar, upon payment of a fee, has the right
to receive payments (and the seller of the collar is obligated to make payments)
to the extent that a specified interest rate falls outside an agreed upon range
over a specified period of time or at specified dates.
Index and currency swaps, caps, floors, and collars are similar to those
described in the preceding paragraph, except that, rather than being determined
by variations in specified interest rates, the obligations of the parties are
determined by variations in specified interest rate or currency indexes, and, in
the case of total return swaps, variations in the total return of specific
securities.
The amount of the Fund's potential gain or loss on any swap transaction is
not subject to any fixed limit. Nor is there any fixed limit on the Fund's
potential loss if it sells a cap, floor or collar. If the Fund buys a cap, floor
or collar, however, the Fund's potential loss is limited to the amount of the
fee that it has paid. Swaps, caps, floors and collars tend to be more volatile
than many other types of investments. Nevertheless, the Fund will use these
techniques only as a risk management tool and not for purposes of leveraging the
Fund's market exposure or its exposure to changing interest rates, security
values or currency values. The Fund will use these transactions only to preserve
a return or spread on a particular investment or portion of its investments, to
protect against currency fluctuations, as a duration management technique, to
protect against any increase in the price of securities the Fund anticipates
purchasing at a later date, or to gain exposure to certain markets in the most
economical way possible. The Fund will not sell interest rate caps, floors or
collars if it does not own securities providing the interest that the Fund may
be required to pay.
The use of swaps, caps, floors and collars involves investment techniques
and risks different from those associated with other portfolio security
transactions. If the Advisor is incorrect in its forecasts of market values,
interest rates, currency rates and other applicable factors, the investment
performance of the Fund will be less favorable than if these techniques had not
been used. These instruments are typically not traded on exchanges. Accordingly,
there is a risk that the other party to certain of these instruments will not
perform its obligations to the Fund or that the Fund may be unable to enter into
offsetting positions to terminate its exposure or liquidate its investment under
certain of these instruments when it wishes to do so. Such occurrences could
result in losses to the Fund.
The Advisor will, however, consider such risks and will enter into swap,
cap, floor and collar transactions only when it believes that the risks are not
unreasonable.
Provided contracts relative to the Fund's use of swaps, caps, floors and
collars permit, the Fund will usually enter into swaps on a net basis-- that is,
the two payment streams are netted out in a cash settlement on the payment date
or dates specified in the instrument--with the Fund receiving or paying, as the
case may be, only the net amount of the two payments.
The Fund will maintain cash or liquid assets in a segregated account with
its custodian in an amount sufficient at all times to cover its current
obligations under swaps, caps, floors and collars. If the Fund enters into a
swap agreement on a net basis, it will segregate assets with a daily value at
least equal to the excess, if any, of the Fund's accrued obligations under the
swap agreement over the accrued amount the Fund is entitled to receive under the
agreement. If the Fund enters into a swap agreement on other than a net basis,
or sells a cap, floor or collar, it will segregate assets with a daily value at
least equal to the full amount of the Fund's accrued obligations under the
agreement.
The Fund will not enter into any swap, cap, floor, or collar, unless the
counterparty to the transaction is deemed creditworthy by the Advisor. If a
counterparty defaults, the Fund may have contractual remedies pursuant to the
agreements related to the transaction. The swap market has grown substantially
in recent years, with a large number of banks and investment banking firms
acting both as principals and as agents utilizing standardized swap
documentation. As a result, the swap market has become relatively liquid. Caps,
floors and collars are more recent innovations for which standardized
documentation has not yet been fully developed and, for that reason, they are
less liquid than swaps.
The liquidity of swaps, caps, floors and collars will be determined by the
Advisor based on various factors, including (1) the frequency of trades and
quotations, (2) the number of dealers and prospective purchasers in the
marketplace, (3) dealer undertakings to make a market, (4) the nature of the
instrument (including any demand or tender features) and (5) the nature of the
marketplace for trades (including the ability to assign or offset the Fund's
rights and obligations relating to the investment). Such determination will
govern whether the instrument will be deemed within the 15% restriction on
investments in securities that are not readily marketable.
In connection with such transactions, the Fund will segregate cash or
liquid securities to cover any amounts it could owe under swaps that exceed the
amounts it is entitled to receive, and it will adjust that amount daily, as
needed. During the term of a swap, changes in the value of the swap are
recognized as unrealized gains or losses by marking to market to reflect the
market value of the swap. When the swap is terminated, the Fund will record a
realized gain or loss equal to the difference, if any, between the proceeds from
(or cost of) the closing transaction and the Fund's basis in the contract. The
Fund is exposed to credit loss in the event of nonperformance by the other party
to the swap.
The federal income tax treatment with respect to swaps, caps, floors, and
collars may impose limitations on the extend to which the Fund may engage in
such transactions.
QUALITY AND DIVERSIFICATION REQUIREMENTS
Although the Fund is not limited by the diversification requirements of
the 1940 Act, the Fund will comply with the diversification requirements imposed
by the Code for qualification as a regulated investment company.
See "Taxes."
The higher total return sought by the Fund is generally obtainable from
high yield high risk securities in the lower rating categories of the
established rating services. These securities are rated below Baa by Moody's
Investors Service, Inc. ("Moody's") or below BBB by Standard & Poor's Ratings
Group ("Standard & Poor's"). The Fund may invest in securities rated as low as B
by Moody's or Standard & Poor's, which may indicate that the obligations are
speculative to a high degree and in default. Lower rated securities are
generally referred to as junk bonds. See the Appendix attached to this Statement
of Additional Information for a description of the characteristics of the
various ratings categories. The Fund is not obligated to dispose of securities
whose issuers subsequently are in default or which are downgraded below the
minimum ratings noted above. The credit ratings of Moody's and Standard & Poor's
(the "Rating Agencies"), such as those ratings described in this Statement of
Additional Information, may not be changed by the Rating Agencies in a timely
fashion to reflect subsequent economic events. The credit ratings of securities
do not evaluate market risk. The Fund may also invest in unrated securities
which, in the opinion of the Advisor, offer comparable yields and risks to the
rated securities in which the Fund may invest.
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Debt securities that are rated in the lower rating categories, or which
are unrated, involve greater volatility of price and risk of loss of principal
and income. In addition, lower ratings reflect a greater possibility of an
adverse change in financial condition affecting the ability of the issuer to
make payments of interest and principal. The market price and liquidity of lower
rated fixed income securities generally respond to short-term corporate and
market developments to a greater extent than the price and liquidity of higher
rated securities, because these developments are perceived to have a more direct
relationship to the ability of an issuer of lower rated securities to meet its
ongoing debt obligations. Although the Advisor seeks to minimize these risks
through diversification, investment analysis and attention to current
developments in interest rates and economic conditions, there can be no
assurance that the Advisor will be successful in limiting the Fund's exposure to
the risks associated with lower rated securities. Because the Fund invests in
securities in the lower rated categories, the achievement of the Fund's
investment objective is more dependent on the Advisor's ability than would be
the case if the Fund were investing in securities in the higher rated
categories.
Reduced volume and liquidity in the high yield bond market or the
reduced availability of market quotations may make it more difficult to dispose
of the Fund's investments in high yield securities and to value accurately these
assets. The reduced availability of reliable, objective data may increase the
Fund's reliance on management's judgment in valuing high yield bonds. In
addition, the Fund's investments in high yield securities may be susceptible to
adverse publicity and investor perceptions whether or not justified by
fundamental factors.
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
Fund 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 Trustees. While exchange-traded options are obligations of the Options
Clearing Corporation, in the case of OTC options, the Fund relies on the dealer
from which it purchased the option to perform if the option is exercised. Thus,
when the Fund 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 Fund as well as loss of the expected benefit of the transaction.
Provided that the Fund has arrangements with certain qualified dealers
who agree that the Fund may repurchase any option it writes for a maximum price
to be calculated by a predetermined formula, the Fund 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 Fund may
purchase or sell (write) futures contracts and purchase and sell (write) put and
call options, including put and call options on futures contracts. 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
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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 the Fund are paid by the Fund 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 Fund may write options 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, the Fund 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 the Fund's
current or anticipated investments exactly. The Fund 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 Fund's other investments.
Options and futures contracts prices can also diverge from the prices
of their underlying instruments, even if the underlying instruments match the
Fund'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. The Fund 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 the Fund'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 that
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 the Fund
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 the Fund to continue to hold a position until delivery or expiration
regardless of changes in its value. As a result, the Fund'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.
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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, the Fund 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 Fund
intends to comply with Section 4.5 of the regulations under the Commodity
Exchange Act, which limits the extent to which the Fund can commit assets to
initial margin deposits and option premiums. In addition, the Fund 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 the Fund's assets could impede portfolio management or the Fund's
ability to meet redemption requests or other current obligations.
RISK MANAGEMENT
The Fund 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
purchase the underlying long term securities, it might cause the Fund 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 Fund 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.
PORTFOLIO TURNOVER
The estimated annual portfolio turnover rate for the Fund generally
should not exceed 100%. A rate of 100% indicates that the equivalent of all of
the Fund'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.
INVESTMENT RESTRICTIONS
The investment restrictions of the Fund and the Portfolio are
identical, unless otherwise specified. Accordingly, references below to the Fund
also include the Portfolio unless the context requires otherwise; similarly,
references to the Portfolio also include the Fund unless the context requires
otherwise.
The investment restrictions below have been adopted by the Trust with
respect to the Fund and by the 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" (as defined in the 1940 Act) 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 the Fund is requested to
vote on a change in the fundamental investment
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restrictions of the Portfolio, the Trust will hold a meeting of Fund
shareholders and will cast its votes as instructed by the Fund's shareholders.
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 Fund and the
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. 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) less liabilities (other
than borrowings) (i) from banks for temporary or short-term 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 agreement
entered into by the Fund.1
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) make direct investments in mortgages, (v) purchase and sell
mortgage-related securities and (vi) hold and sell real estate acquired
by the Fund as a result of the ownership of securities including
mortgages.
6. Purchase or sell commodities or commodity contracts, unless acquired as
a result of the ownership of securities or instruments, 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 obligations (including privately issued debt obligations
and direct investments in mortgages), 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.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS - The investment restrictions
described below are not fundamental policies of the Fund and the Portfolio and
may be changed by their respective Trustees. These non- fundamental investment
policies require that the Fund may not:
- --------
1Although the Fund is permitted to fulfill plans to purchase additional
securities pending the anticipated sale of other portfolio securities
or assets, the Fund has no current intention of engaging in this form
of leverage.
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(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;
Notwithstanding any other fundamental or non-fundamental investment
restriction or policy, the Fund reserves the right, without the approval of
shareholders, to invest all of its assets in the securities of a single open-end
registered investment company with substantially the same investment objective,
restrictions and policies as the Fund.
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, the Advisor 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 the Advisor 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, the
Advisor may classify 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 the Portfolio,
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 since prior 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; Former Senior Vice President,
Morgan Guaranty Trust Company of New York. His address is 14 Alta Vista Drive,
RD #2, Princeton, NJ 08540, and his date of birth is May 23, 1934.
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MATTHEW HEALEY (*)--Trustee, Chairman and Chief Executive Officer;
Chairman, Pierpont Group, Inc., ("Pierpont Group") since prior to 1992. His
address is Pine Tree Club Estates, 10286 Saint Andrews Road, Boynton Beach, FL
33436, and his date of birth is August 23, 1937.
MICHAEL P. MALLARDI--Trustee; Retired; Senior Vice President, Capital
Cities/ABC, Inc. and President, Broadcast Group since prior to April 1996. His
address is 10 Charnwood Drive, Suffern, NY 10910, and his date of birth is March
17, 1934.
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(*) Mr. Healey is an "interested person" of the Trust and the Portfolio as
that term is defined in the 1940 Act.
The Trustees of the Trust are the same as the Trustees of the
Portfolio. 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, the Portfolio 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 for serving as
Trustee of the Trust, each of the Master Portfolios (as defined below), The JPM
Institutional Funds and the JPM Series Trust and is reimbursed for expenses
incurred in connection with service as a Trustee. The Trustees may hold various
other directorships unrelated to these funds.
Trustee compensation expenses accrued by the Trust for the calendar
year ended December 31, 1996 is set forth below.
TOTAL TRUSTEE
COMPENSATION ACCRUED
BY THE MASTER
AGGREGATE PORTFOLIOS(*), THE JPM
TRUSTEE INSTITUTIONAL FUNDS,
COMPENSATION JPM SERIES TRUST AND
ACCRUED BY THE THE TRUST DURING
NAME OF TRUSTEE TRUST DURING 1996 (***)
1996
Frederick S. Addy, Trustee $15,808 $65,000
William G. Burns, Trustee $15,808 $65,000
Arthur C. Eschenlauer, Trustee $15,808 $65,000
Matthew Healey, Trustee (**) $15,808 $65,000
Chairman and Chief Executive
Officer
Michael P. Mallardi, Trustee $15,808 $65,000
(*) Includes the Portfolio, each Portfolio in which a series of the Trust
invests, The Non-U.S. Fixed Income Portfolio and The Disciplined Equity
Portfolio (collectively the "Master Portfolios").
(**) During 1996, Pierpont Group paid Mr. Healey, in his role as Chairman
of Pierpont Group, compensation in the amount of $140,000, contributed $21,000
to a defined contribution plan on his behalf and paid $21,500 in insurance
premiums for his benefit.
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(***)No investment company within the fund complex has a pension or retirement
plan. Currently there are 18 investment companies (15 investment companies
comprising the Master Portfolios, the Trust, The JPM Institutional Funds and JPM
Series Trust) in the fund complex.
The Trustees, in addition to reviewing actions of the Trust's and the
Portfolio's various service providers, decide upon matters of general policy.
The Portfolio and the Trust have entered into a Fund Services Agreement with
Pierpont Group to assist the Trustees in exercising their overall supervisory
responsibilities over the affairs of the Portfolio and the Trust. Pierpont Group
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. The
Trust and the Portfolio have agreed to pay Pierpont Group a fee in an amount
representing its reasonable costs in performing these services to the Trust, the
Portfolio and certain other registered investment companies with similar
agreements with Pierpont Group. These costs are periodically reviewed by the
Trustees.
OFFICERS
The Trust's and Portfolio's 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 Portfolio.
The Trust and the Portfolio have no employees.
The officers of the Trust and the Portfolio, 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 the 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, since
prior to 1992. His address is Pine Tree Club Estates, 10286 Saint Andrews Road,
Boynton Beach, FL 33436. His date of birth is August 23, 1937.
MARIE E. CONNOLLY; Vice President and Assistant Treasurer. President and
Chief Executive Officer and Director of FDI, Premier Mutual Fund Services, Inc.
("Premier Mutual") and an officer of certain investment companies advised or
administered by the Dreyfus Corporation ("Dreyfus") or its affiliates. From
December 1991 to July 1994, she was President and Chief Compliance Officer of
FDI. 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 or its affiliates. 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, Inc. His date of birth is March 31, 1969.
JACQUELINE HENNING; Assistant Secretary and Assistant Treasurer. 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, BWI. 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 or Harris Trust and
Savings Bank ("Harris") or their respective affiliates. From March 1994 to
November 1995, Mr. Ingram was Vice President and Division Manager of First
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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, Inc. 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., Waterhouse Investors Cash Management Fund, Inc. and Harris or their
respective affiliates. From June 1994 to January 1996, Ms. Jacoppo-Wood was a
Manager, SEC Registration, Scudder, Stevens & Clark, Inc. From 1988 to May 1994,
Ms. Jacoppo-Wood was a senior paralegal at The Boston Company Advisors, Inc.
("TBCA"). Her date of birth is December 29, 1966.
ELIZABETH A. KEELEY; Vice President and Assistant Secretary. Vice President
and Senior 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 or
Harris or their respective affiliates. 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.
CHRISTOPHER J. KELLEY; Vice President and Assistant Secretary. Vice
President and Associate General Counsel of FDI and Premier Mutual and an officer
of Waterhouse Investors Cash Management Fund, Inc. and certain investment
companies advised or administered by Harris or its affiliates. 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. Assistant
Vice President, State Street Bank and Trust Company since November 1994.
Assigned as Operations Manager, State Street Cayman Trust Company, Ltd. since
February 1995. Prior to November, 1994, employed by Boston Financial Data
Services, Inc. as Control Group Manager. Address: P.O. Box 2508 GT, Elizabethan
Square, 2nd Floor, Shedden Road, George Town, Grand Cayman, Cayman Islands, BWI.
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., Waterhouse Investors Cash
Management Fund, Inc. and certain investment companies advised or administered
by Dreyfus or Harris or their respective affiliates. From 1989 to 1994, Ms.
Nelson was an Assistant Vice President and client manager for The Boston
Company, Inc. 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 or Harris or
their respective affiliates. 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, Inc. His
date of birth is June 13, 1962.
INVESTMENT ADVISOR
The investment advisor to the Portfolio 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
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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 $208 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 investment advisory services the Advisor provides to the Portfolio
are not exclusive under the terms of the Advisory Agreement. 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 Portfolio. Such accounts are supervised by officers and employees of the
Advisor who may also be acting in similar capacities for the Portfolio. See
"Portfolio Transactions."
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 Portfolio is managed by officers of the Advisor who, in acting for
their customers, including the Portfolio, 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 has agreed to pay the Advisor a fee, which is computed
daily and may be paid monthly, equal to an annual rate of 0.70% of the
Portfolio's average daily net assets.
The Investment Advisory Agreement provides that it 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. The Investment Advisory Agreement will terminate
automatically if assigned and is terminable
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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 Portfolio contemplated by the Advisory Agreement 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
Portfolio.
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If the Advisor were prohibited from acting as investment advisor to the
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 Portfolio 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 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 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 the
Fund for a period of two years after execution only if it is approved at least
annually thereafter (i) by a vote of the holders of a majority of the Fund's
outstanding shares or by the Trust's Trustees and (ii) by a vote of a majority
of the Trustees of the Trust who are not "interested persons" (as defined by the
1940 Act) of the parties to the Distribution Agreement, cast in person at a
meeting called for the purpose of voting on such approval (see "Trustees and
Officers"). The Distribution Agreement will terminate automatically if assigned
by either party thereto and is terminable at any time without penalty by a vote
of a majority of the Trustees of the Trust, a vote of a majority of the Trustees
who are not "interested persons" of the Trust, or by a vote of the holders of a
majority of the Fund's outstanding shares as defined under "Additional
Information," in any case without payment of any penalty on 60 days' written
notice to the other party. The principal offices of FDI are located at 60 State
Street, Suite 1300, Boston, Massachusetts 02109.
CO-ADMINISTRATOR
Under Co-Administration Agreements with the Trust and the Portfolio
dated August 1, 1996, FDI also serves as the Trust's and the Portfolio's
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 Portfolio, 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 Portfolio, 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, the Fund and
the Portfolio have 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 JPM Institutional Funds,
the Master Portfolios, JPM Series Trust and JPM Series Trust II.
SERVICES AGENT
The Trust, on behalf of the Fund, and the Portfolio have entered into
Administrative Services Agreements (the "Services Agreements") with Morgan
effective December 29, 1995, as amended effective August 1, 1996, pursuant to
which Morgan is responsible for certain administrative and related services
provided to the Fund and the 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.
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Under the amended Services Agreements, the Fund and the Portfolio have
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 the 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
the Fund and the Portfolio is determined by the proportionate share that its net
assets bear to the total net assets of the Trust, The JPM Institutional Funds,
the Master Portfolios, the other investors in the Master Portfolios for which
Morgan provides similar services and the JPM Series Trust.
Under Administrative Services Agreements in effect from December 29,
1995 through July 31, 1996, with Morgan, the Fund and the 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.
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02110, serves as the Trust's and the Portfolio's
custodian and fund accounting agent and the 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 the case of foreign
assets held outside the United States, the Custodian employs various
subcustodians who were approved by the Trustees of the Portfolio in accordance
with the regulations of the SEC. The Custodian maintains portfolio transaction
records. As Transfer Agent and Dividend Disbursing Agent, State Street is
responsible for maintaining account records detailing the ownership of Fund
shares and for crediting income, capital gains and other changes in share
ownership to shareholder accounts.
SHAREHOLDER SERVICING
The Trust on behalf of the Fund 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 the 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
Fund's transfer agent; transmitting purchase and redemption orders to the Fund's
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, the Fund has agreed to pay
Morgan for these services a fee at an annual rate of 0.25% of the average daily
net asset value of Fund shares owned by or for shareholders for whom Morgan is
acting as shareholder servicing agent). Morgan acts as shareholder servicing
agent for all shareholders.
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 Fund and the Portfolio under the
Services Agreements and in acting as Advisor to the Portfolio under the
Investment Advisory Agreement,
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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 Fund or the Portfolio 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 Portfolio 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 the Fund
and the Portfolio, assists in the preparation and/or review of the Fund's and
the Portfolio's federal and state income tax returns and consults with the Fund
and the Portfolio as to matters of accounting and federal and state income
taxation.
EXPENSES
In addition to the fees payable to Pierpont Group, Morgan and FDI under
various agreements discussed under "Trustees and Officers," "Investment
Advisor," "Co-Administrator and Distributor," "Services Agent" and "Shareholder
Servicing" above, the Fund and the Portfolio are responsible for usual and
customary expenses associated with their respective operations. Such expenses
include organization expenses, legal fees, accounting expenses, insurance costs,
the compensation and expenses of the Trustees, registration fees under federal
securities laws, and extraordinary expenses applicable to the Fund or the
Portfolio. For the Fund, such expenses also include transfer, registrar and
dividend disbursing costs, the expenses of printing and mailing reports, notices
and proxy statements to Fund shareholders, and registration fees under state
securities laws. For the Portfolio, such expenses also include applicable
registration fees under foreign securities laws, custodian fees and brokerage
expenses. For additional information regarding waivers or expense subsidies, see
"Management of the Fund and Portfolio" 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 the Fund may make transactions in shares of the Fund.
The Fund may, at its own option, accept securities in payment for
shares. The securities delivered in such a transaction 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 Portfolio. In addition, securities accepted in payment for
shares must: (i) meet the investment objective and policies of the Portfolio;
(ii) be acquired by the Fund for investment and not for resale (other than for
resale to the Portfolio); (iii) be liquid securities which are not restricted as
to transfer either by law or liquidity of market; and (iv) 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. The
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."
If the Trust on behalf of the Fund and the Portfolio determine that it
would be detrimental to the best interest of the remaining shareholders of the
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 Trust is in the
process of seeking exemptive relief from the SEC with respect to redemptions in
kind by the Fund. If the requested relief is granted, the Fund would then be
permitted to pay redemptions to greater than 5% shareholders in securities,
rather than in cash, to the extent permitted by the SEC and applicable law. 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 Fund has elected to be governed by Rule 18f-1
under the 1940 Act pursuant to which the Fund is 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 Portfolio, and therefore shareholders of the Fund that receive
redemptions in kind will receive Portfolio holdings. The Portfolio has advised
the Trust that the Portfolio will not redeem in kind except in circumstances in
which the Fund is permitted to redeem in kind.
FURTHER REDEMPTION INFORMATION. The Trust, on behalf of the Fund, and
the Portfolio reserves 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 shares of The JPM Institutional Funds or JPM Series
Trust, as described under "Exchange of Shares" in the Prospectus. For complete
information, the prospectus as it relates to a fund into which a transfer is
being made should be read prior to the transfer. Requests for exchange are made
in the same manner as requests for redemptions. See "Redemption of Shares."
Shares of the fund to be acquired are purchased for settlement when the proceeds
from redemption become available. In the case of investors in certain states,
state securities laws may restrict the availability of the exchange privilege.
The Trust reserves the right to discontinue, alter or limit the exchange
privilege at any time.
DIVIDENDS AND DISTRIBUTIONS
The Fund declares and pays dividends and distributions as described
under "Dividends and Distributions" in the Prospectus.
Determination of the net income for the Fund 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.
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NET ASSET VALUE
The Fund 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 days 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. The Fund and
the Portfolio may also close for purchases and redemptions at such other times
as may be determined by the Board of Trustees to the extent permitted by
applicable law. The days on which net asset value is determined are the Fund's
business days.
The net asset value of the Fund is equal to the value of the Fund's
investment in the 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 Fund in
valuing its assets.
Fixed income securities with a maturity of 60 days or more, including
securities that are listed on an exchange or traded over the counter, are valued
using prices supplied daily by an independent pricing service or services that
(i) are based on the last sale price on a national securities exchange or, in
the absence of recorded sales, at the readily available closing bid price on
such exchange or at the quoted bid price in the OTC market, if such exchange or
market constitutes the broadest and most representative market for the security
and (ii) in other cases, take into account various factors affecting market
value, including yields and prices of comparable securities, indication as to
value from dealers and general market conditions. If such prices are not
supplied by the Fund'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.
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 the Fund'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
As required by regulations of the SEC, the annualized yield for Fund is
computed by dividing the 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.
TOTAL RETURN QUOTATIONS. As required by regulations of the SEC, the
annualized total return of the Fund 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 distributed 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.
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GENERAL. The Fund's performance will vary from time to time depending
upon market conditions, the composition of the Fund, and its operating expenses.
Consequently, any given performance quotation should not be considered
representative of the 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 the 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 Fund's shares, including appropriate market indices including
the benchmark 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.
From time to time, the Fund may quote performance in terms of yield,
actual distributions, total return, or capital appreciation in reports, sales
literature, and advertisements published by the Fund. Current performance
information for the Fund 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 the Fund 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 the Fund. See "Investment Objective and Policies."
Fixed income and debt securities 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.
Portfolio transactions for the Fund will be undertaken principally to
accomplish the Fund's objective in relation to expected movements in the general
level of interest rates. The Fund may engage in short-term trading consistent
with its objective. See "Investment Objective and Policies -- Portfolio
Turnover."
In connection with portfolio transactions for the Fund, the Advisor
intends to seek best price and execution on a competitive basis for both
purchases and sales of securities.
Subject to the overriding objective of obtaining the best possible
execution of orders, the Advisor may allocate a portion of the Fund's brokerage
transactions to affiliates of the Advisor. In order for affiliates of the
Advisor to effect any portfolio transactions for the Fund, 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, 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 Fund 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.
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On those occasions when the Advisor deems the purchase or sale of a
security to be in the best interests of the Fund as well as other customers, 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 the Fund
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
the Fund. In some instances, this procedure might adversely affect the Fund.
If the Fund 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 the
Fund 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 the Fund may write may be affected by options written by the
Advisor for other investment advisory clients. An exchange may order the
liquidation of positions found to be in excess of these limits, and it may
impose certain other sanctions.
MASSACHUSETTS TRUST
The Trust is a trust fund of the type commonly known as a
"Massachusetts business trust" of which the 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.
Effective October 10, 1996, the name of the Trust was changed from "The
Pierpont Funds" to "The JPM Pierpont Funds.
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 series thereof and that
every written agreement, obligation, instrument or undertaking made on behalf of
any series 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 (i) all types of
claims in the latter jurisdictions, (ii) tort claims, (iii) contract claims
where the provision referred to is omitted from the undertaking, (iv) claims for
taxes and (v) 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 Fund.
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 the Fund is liable to
the 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 the 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
the 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 the Fund.
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The Trust shall continue without limitation of time subject to the
provisions in the Declaration of Trust concerning termination by action of the
shareholders or by action of the Trustees upon notice to the shareholders.
DESCRIPTION OF SHARES
The Trust is an open-end management investment company organized as a
Massachusetts business trust in which the 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 the Fund (or in the assets of other series, if applicable).
To date shares of twenty series have been authorized and are available for sale
to the public. Each share represents an equal proportional interest in the Fund
with each other share. Upon liquidation of the Fund, holders are entitled to
share pro rata in the net assets of the Fund available for distribution to such
shareholders. See "Massachusetts Trust." Shares of the 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 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 to 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 (i) 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 (ii) 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,
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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 twenty series of the Trust. The Trustees have no current intention to
create any classes within the initial series or any subsequent series. The
Trustees may, however, authorize the issuance of shares of additional series and
the creation of classes of shares within any series with such preferences,
privileges, limitations and voting and dividend rights as the Trustees may
determine. The proceeds from the issuance of any additional series would be
invested in separate, independently managed portfolios with distinct investment
objectives, policies and restrictions, and share purchase, redemption and net
asset valuation procedures. Any additional classes would be used to distinguish
among the rights of different categories of shareholders, as might be required
by future regulations or other unforeseen circumstances. All consideration
received by the Trust for shares of any additional series or class, and all
assets in which such consideration is invested, would belong to that series or
class, subject only to the rights of creditors of the Trust and would be subject
to the liabilities related thereto. Shareholders of any additional series or
class will approve the adoption of any management contract or distribution plan
relating to such series or class and of any changes in the investment policies
related thereto, to the extent required by the 1940 Act.
For information relating to mandatory redemption of Fund shares or
their redemption at the option of the Trust under certain circumstances, see
"Redemption of Shares" in the Prospectus.
TAXES
The Fund intends to qualify as a regulated investment company under
Subchapter M of the Code. As a regulated investment company, the 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 the 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, the 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, the 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. The 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 the
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
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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.
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 Fund as ordinary income whether such distributions are taken in cash or
reinvested in additional shares. Distributions to corporate shareholders of the
Fund 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 the 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 the Fund's shares. Additionally, any loss realized on a redemption
or exchange of shares of the 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.
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 the 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 the 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 the Portfolio accrues income or receivables or
expenses or other liabilities denominated in a foreign currency and the time the
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 the Portfolio, if any, denominated in
foreign currency, to the extent attributable to fluctuations in exchange rates
between the acquisition and disposition dates are also treated as ordinary
income or loss.
Forward currency contracts, options and futures contracts entered into
by the 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, the
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 the
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.
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
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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, the 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 dispositions of Fund shares unless IRS Form W-8 is provided. Transfers by
gift of shares of the 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 Fund may be subject to foreign
withholding taxes or other foreign taxes with respect to income (possibly
including, in some cases, capital gains) received from sources within foreign
countries. So long as more than 50% in value of the total assets of the Fund
(including its share of the assets of the 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. The Fund will make such an election only if they deem it to be in
the best interest of their respective shareholders. The Fund will notify its
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 the
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 or she itemizes deductions, a deduction for his or
her 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 Fund from its foreign source net investment income will be treated as
foreign source income. The Fund's 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
Fund.
STATE AND LOCAL TAXES. The 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 the 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 the Fund is liable for any income
or franchise tax in The Commonwealth of Massachusetts, provided
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that the Fund continues to qualify as a regulated investment company under
Subchapter M of the Code. The Portfolio is organized as a New York trust. The
Portfolio is 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 the Fund in the 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 Fund, Morgan or Eligible Institutions as
shareholder servicing agent may be tape recorded. With respect to the securities
offered hereby, this Statement of Additional Information and the Prospectus do
not contain all the information included in the Trust's Registration Statement
filed with the SEC under the 1933 Act and the Trust's and the Portfolio's
Registration Statement 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 Fund or the Distributor. The Prospectus and this Statement of
Additional Information do not constitute an offer by the 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.
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APPENDIX A
DESCRIPTION OF SECURITY RATINGS
STANDARD & POOR'S
CORPORATE 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.
B - An obligation rated B is more vulnerable to nonpayment than obligations
rated BB, but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
CCC - An obligation rated CCC is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
CC - An obligation rated CC is currently highly vulnerable to nonpayment.
C - The C rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments on this obligation
are being continued.
COMMERCIAL PAPER
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.
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MOODY'S
CORPORATE BONDS
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well- assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
COMMERCIAL PAPER
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.
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THE JPM PIERPONT FUNDS
THE JPM PIERPONT SMALL COMPANY GROWTH FUND
STATEMENT OF ADDITIONAL INFORMATION
MARCH _, 1997
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT CONTAINS
ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS
FOR THE JPM PIERPONT SMALL COMPANY GROWTH FUND, DATED MARCH _, 1997, AS
SUPPLEMENTED FROM TIME TO TIME, WHICH MAY BE OBTAINED UPON REQUEST FROM FUNDS
DISTRIBUTOR, INC., ATTENTION: THE JPM PIERPONT FUNDS; (800) 221-7930.
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Table of Contents
PAGE
General...............................................................1
Investment Objective and Policies.....................................1
Investment Restrictions...............................................8
Trustees and Officers.................................................10
Investment Advisor....................................................14
Distributor...........................................................15
Co-Administrator......................................................16
Services Agent........................................................16
Custodian and Transfer Agent..........................................17
Shareholder Servicing.................................................17
Independent Accountants...............................................27
Expenses..............................................................28
Purchase of Shares....................................................18
Redemption of Shares..................................................18
Exchange of Shares....................................................19
Dividends and Distributions...........................................19
Net Asset Value.......................................................19
Performance Data......................................................20
Portfolio Transactions................................................21
Massachusetts Trust...................................................22
Description of Shares.................................................23
Taxes.................................................................24
Additional Information................................................27
Appendix A - Description of Security Ratings..........................A-1
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GENERAL
This Statement of Additional Information relates only to The JPM
Pierpont Small Company Growth Fund (the "Fund"). The Fund 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"). In
addition to the Fund, the Trust consists of nineteen other series representing
separate investment funds (each a "JPM Pierpont Fund"). The other JPM Pierpont
Funds are covered by separate Statements of Additional Information
This Statement of Additional Information describes the financial
history, investment objective and policies, management and operation of the
Fund. The Fund operates through a two-tier master-feeder investment fund
structure.
This Statement of Additional Information provides additional
information with respect to the Fund and should be read in conjunction with the
Fund's current Prospectus (the "Prospectus"). Capitalized terms not otherwise
defined herein have the meanings accorded to them in the Prospectus. The Fund's
executive offices are located at 60 State Street, Suite 1300, Boston,
Massachusetts 02109.
INVESTMENT OBJECTIVE AND POLICIES
The Fund is designed for investors seeking an actively managed
portfolio of equity securities of companies with high growth potential. The
Fund's investment objective is long term capital appreciation from a portfolio
of exchange-traded, over-the-counter ("OTC") and unlisted common and preferred
stocks, warrants, securities with warrants attached, rights, convertible
securities, trust certificates, limited partnership interests, depository
receipts and equity participations (collectively, "Equity Securities") of small
companies. The Fund attempts to achieve its investment objective by investing
all of its investable assets in The Small Company Growth Portfolio (the
"Portfolio"), a diversified open-end management investment company having the
same investment objective as the Fund.
The following discussion supplements the information regarding the
investment objective of the Fund and the policies to be employed to achieve this
objective by the Portfolio as set forth above and in the Prospectus. The
investment objective of the Fund and the investment objective of the Portfolio
are identical. Accordingly, references below to the Fund also include the
Portfolio and references to the Portfolio also include the Fund unless the
context requires otherwise.
MONEY MARKET INSTRUMENTS
As discussed in the Prospectus, the 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 Fund appears below.
U.S. TREASURY SECURITIES. The Fund 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. The Fund may invest in
obligations issued or guaranteed by U.S. Government agencies or
instrumentalities. These obligations may or may not be backed by the "full faith
and credit" of the United States. In the case of securities not backed by the
full faith and credit of the United States, the 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 the 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
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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 the Fund may invest that are not backed by the full faith and credit of
the United States include 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. The Fund may 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 another currency. See "Foreign
Investments."
BANK OBLIGATIONS. The Fund 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). See "Foreign Investments." The Fund will not invest in
obligations for which the Advisor, or any of its affiliated persons, is the
ultimate obligor or accepting bank. The Fund 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. The 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 acting as agent, for no additional fee,
in its capacity as investment advisor to the Portfolio 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
Fund 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 Fund to be liquid because
they are payable upon demand. The Fund does not have any specific percentage
limitation on investments in master demand obligations. It is possible that the
issuer of a master demand obligation could be a client of the Advisor to whom
the Advisor, in its capacity as a commercial bank, has made a loan.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements
with brokers, dealers or banks that meet the credit guidelines approved by the
Trustees. In a repurchase agreement, the 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 the 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 Fund invest in repurchase agreements for more than thirteen
months. The securities which are subject to repurchase agreements, however, may
have maturity dates in excess of thirteen months from the effective date of
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the repurchase agreement. The Fund 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 Fund in each agreement
plus accrued interest, and the Fund will make payment for such securities only
upon physical delivery or upon evidence of book entry transfer to the account of
the Custodian. If the seller defaults, the 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 the Fund may be delayed or
limited.
The 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.
EQUITY INVESTMENTS
As discussed in the Prospectus, the Fund invests primarily in Equity
Securities. The Equity Securities in which the Fund invests include those listed
on any domestic or foreign securities exchange or traded in the OTC market as
well as certain restricted or unlisted securities. A discussion of the various
types of equity investments which may be purchased by the Fund appears in the
Prospectus and below. See "Quality and Diversification Requirements."
EQUITY SECURITIES. The Equity Securities in which the Fund may invest may
or may not pay dividends and may or may not carry voting rights. Common stock
occupies the most junior position in a company's capital structure.
The convertible securities in which the Fund 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 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.
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FOREIGN INVESTMENTS
The 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 Fund does not expect to invest more than 5% of its total
assets at the time of purchase in securities of foreign issuers. 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 the 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 Fund 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 Fund's
currency exposure related to foreign investments. See "Additional Investment
Practices and Risks" in the Prospectus.
ADDITIONAL INVESTMENTS
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Fund 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 the Fund until settlement takes place. At the time the
Fund makes the commitment to purchase securities on a when-issued or delayed
delivery basis, it will record the transaction and reflect the value each day of
such securities in determining its net asset value. At the time of settlement a
when-issued security may be valued at less than the purchase price. To
facilitate such acquisitions, the Fund 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, the Fund will meet its
obligations from maturities or sales of the securities held in the segregated
account and/or from cash flow. If the Fund 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.
INVESTMENT COMPANY SECURITIES. Securities of other investment companies
may be acquired by the Fund 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 the Fund's total assets will be invested in the
securities of any one investment company, (ii) not more than 10% of the value of
its total assets will be invested in the aggregate in securities of investment
companies as a group and (iii) not more than 3% of the outstanding voting stock
of any one investment company will be owned by the Fund, provided however, that
the Fund may invest all of its investable assets in an open-end investment
company that has the same investment objective as the Fund (the Portfolio). As a
shareholder of another investment company, the Fund would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that the Fund bears directly in connection with its own
operations. The Trust and the Portfolio have applied for exemptive relief from
the Securities and Exchange Commission (the "SEC") to permit investment in
affiliated funds. If the requested relief is granted, the Fund would then be
permitted to invest in affiliated funds, subject to certain conditions specified
in the applicable order.
REVERSE REPURCHASE AGREEMENTS. The Fund may enter into reverse
repurchase agreements. In a reverse repurchase agreement, the Fund sells a
security and agrees to repurchase the same security at a mutually agreed upon
date and price. For purposes of the 1940 Act, a reverse repurchase agreement is
also considered as the
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borrowing of money by the Fund and, therefore, a form of leverage. The Fund will
invest the proceeds of borrowings under reverse repurchase agreements. In
addition, the Fund 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. The Fund will not invest the proceeds
of a reverse repurchase agreement for a period which exceeds the duration of the
reverse repurchase agreement. The Fund 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. See "Investment Restrictions" below for the Fund's limitations on
reverse repurchase agreements and bank borrowings.
MORTGAGE DOLLAR ROLL TRANSACTIONS. The 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 Fund 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 Fund will not be entitled to receive any
interest or principal paid on the securities sold. The Fund 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 Fund may also be
compensated by receipt of a commitment fee. When the Fund 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
Fund's investment restrictions.
LOANS OF PORTFOLIO SECURITIES. The Fund 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 Fund 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 Fund any income accruing thereon. Loans will
be subject to termination by the Fund 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 Fund. The Fund may pay reasonable finders' and
custodial fees in connection with a loan. In addition, the Fund will consider
all facts and circumstances, including the creditworthiness of the borrowing
financial institution, and the Fund will make any loans in excess of one year.
The Fund will not lend its securities to any officer, Trustee, Director,
employee or other affiliate of the Fund, the Advisor or the Distributor, unless
otherwise permitted by applicable law.
PRIVATELY PLACED AND CERTAIN UNREGISTERED SECURITIES. The Fund may
invest in privately placed, restricted, Rule 144A or other unregistered
securities as described in the Prospectus.
As to illiquid investments, the Fund is subject to a risk that should
the Fund decide to sell them when a ready buyer is not available at a price the
Fund deems representative of their value, the value of the Fund's net assets
could be adversely affected. Where an illiquid security must be registered under
the 1933 Act before it may be sold, the Fund 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 Fund may be permitted to sell a
security under an effective registration statement. If, during such a period,
adverse market conditions were to develop, the Fund might obtain a less
favorable price than prevailed when it decided to sell.
SYNTHETIC VARIABLE RATE INSTRUMENTS. The Fund may invest in certain
synthetic variable rate instruments. 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, and (ii) the risk to the
Fund will be that of holding a long-term bond.
QUALITY AND DIVERSIFICATION REQUIREMENTS
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The Fund intends to meet the diversification requirements of the 1940
Act. To meet these requirements, 75% of the assets of the Fund 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. Investments
not subject to the limitations described above could involve an increased risk
to the Fund should an issuer be unable to make interest or principal payments or
should the market value of such securities decline.
The Fund may invest in convertible debt securities, for which there are
no specific quality requirements. In addition, at the time the Fund invests in
any commercial paper, bank obligation or repurchase agreement, the issuer must
have outstanding debt rated A or higher by Moody's Investor's Service, Inc.
("Moody's") or Standard & Poor's Ratings Group ("Standard & Poor's"), the
issuer's parent corporation, if any, must have outstanding commercial paper
rated Prime-1 by Moody's or A-1 by Standard & Poor's, or if no such ratings are
available, the investment must be of comparable quality in the Advisor's
opinion. At the time the Fund invests in any other short-term debt securities,
they must be rated A or higher by Moody's or Standard & Poor's, or if unrated,
the investment must be of comparable quality in the Advisor's opinion.
In determining the suitability of an 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
Fund 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 Trustees. While exchange-traded options are obligations of the Options
Clearing Corporation, in the case of OTC options, the Fund relies on the dealer
from which it purchased the option to perform if the option is exercised. Thus,
when the Fund 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 Fund as well as loss of the expected benefit of the transaction.
Provided that the Fund has arrangements with certain qualified dealers
who agree that the Fund may repurchase any option it writes for a maximum price
to be calculated by a predetermined formula, the Fund 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 Fund may
purchase or sell (write) futures contracts and purchase and sell (write) put and
call options, including put and call options on futures contracts. 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
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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 the Fund are paid by the Fund 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 Fund may write options 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, the Fund 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 the Fund's
current or anticipated investments exactly. The Fund 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 Fund's other investments.
Options and futures contracts prices can also diverge from the prices
of their underlying instruments, even if the underlying instruments match the
Fund'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. The Fund 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 the Fund'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 that
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 the Fund
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 the Fund to continue to hold a position until delivery or expiration
regardless of changes in its value. As a result, the Fund'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.
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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, the Fund 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 Fund
intends to comply with Section 4.5 of the regulations under the Commodity
Exchange Act, which limits the extent to which the Fund can commit assets to
initial margin deposits and option premiums. In addition, the Fund 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 the Fund's assets could impede portfolio management or the Fund's
ability to meet redemption requests or other current obligations.
RISK MANAGEMENT
The Fund may employ non-hedging risk management techniques. An example
of a risk management strategy includes synthetically altering the mix of
securities in a portfolio. Non-hedging risk management techniques are not
speculative, but because they may involve leverage, the possibility of losses as
well as gains are greater than if these techniques involved the purchase and
sale of the securities themselves rather than their synthetic derivatives.
PORTFOLIO TURNOVER
The portfolio turnover rate for the Fund is not expected to exceed 100%
per annum. A rate of 100% indicates that the equivalent of all of the Fund'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.
INVESTMENT RESTRICTIONS
The investment restrictions of the Fund and the Portfolio are
identical, unless otherwise specified. Accordingly, references below to the Fund
also include the Portfolio unless the context requires otherwise; similarly,
references to the Portfolio also include the Fund unless the context requires
otherwise.
The investment restrictions below have been adopted by the Trust with
respect to the Fund and the 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" (as defined in the 1940 Act") 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 the Fund is requested to
vote on a change in the fundamental investment restrictions of the Portfolio,
the Trust will hold a meeting of Fund shareholders and will cast its votes as
instructed by the Fund's shareholders.
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 Fund and the
Portfolio may not:
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1. Purchase any security if, as a result, more than 25% of 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) less liabilities (other
than borrowings) (i) from banks for temporary or short-term 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.1
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, unless acquired as
a result of the ownership of securities or instruments, 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 obligations (including privately issued debt
obligations), 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.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS. The investment restrictions
described below are not fundamental policies of the Fund and the Portfolio and
may be changed by their respective Trustees. These non-fundamental investment
policies require that the Fund and the Portfolio may not:
- --------
1Although the Fund is permitted to fulfill plans to purchase additional
securities pending the anticipated sale of other portfolio securities
or assets, the Fund has no current intention of engaging in this form
of leverage.
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(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; or
(iv) Purchase securities on margin, but the Fund may obtain such short term
credits as may be necessary for the clearance of transactions.
Notwithstanding any other fundamental or non-fundamental investment
restriction or policy, the Fund reserves the right, without the approval of
shareholders, to invest all of its assets in the securities of a single open-end
registered investment company with substantially the same investment objective,
restrictions and policies as the Fund.
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, the Advisor 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 the Advisor 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, the
Advisor may classify 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 the Portfolio,
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 since prior 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; Former Senior Vice President,
Morgan Guaranty Trust Company of New York. His address is 14 Alta Vista Drive,
RD #2, Princeton, NJ 08540, and his date of birth is May 23, 1934.
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MATTHEW HEALEY (*)--Trustee, Chairman and Chief Executive Officer;
Chairman, Pierpont Group, Inc., ("Pierpont Group") since prior to 1992. His
address is Pine Tree Club Estates, 10286 Saint Andrews Road, Boynton Beach, FL
33436, and his date of birth is August 23, 1937.
MICHAEL P. MALLARDI--Trustee; Retired; Senior Vice President, Capital
Cities/ABC, Inc. and President, Broadcast Group since 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 the Portfolio as
that term is defined in the 1940 Act.
The Trustees of the Trust are the same as the Trustees of the
Portfolio. 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, the Portfolio 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 for serving as
Trustee of the Trust, each of the Master Portfolios (as defined below), The JPM
Institutional Funds and the JPM Series Trust and is reimbursed for expenses
incurred in connection with service as a Trustee. The Trustees may hold various
other directorships unrelated to these funds.
Trustee compensation expenses accrued by the Trust for the calendar
year ended December 31, 1996 is set forth below.
TOTAL TRUSTEE
COMPENSATION ACCRUED
BY THE MASTER
AGGREGATE PORTFOLIOS(*), THE JPM
TRUSTEE INSTITUTIONAL FUNDS,
COMPENSATION JPM SERIES TRUST AND
ACCRUED BY THE THE TRUST DURING
NAME OF TRUSTEE TRUST DURING 1996 (***)
1996
Frederick S. Addy, Trustee $15,808 $65,000
William G. Burns, Trustee $15,808 $65,000
Arthur C. Eschenlauer, Trustee $15,808 $65,000
Matthew Healey, Trustee (**) $15,808 $65,000
Chairman and Chief Executive
Officer
Michael P. Mallardi, Trustee $15,808 $65,000
(*) Includes the Portfolio, each Portfolio in which a series of the Trust
invests, The Non-U.S. Fixed Income Portfolio and The Disciplined Equity
Portfolio (collectively the "Master Portfolios").
(**) During 1996, Pierpont Group paid Mr. Healey, in his role as Chairman of
Pierpont Group, compensation in the amount of $140,000, contributed $21,000 to a
defined contribution plan on his behalf and paid $21,500 in insurance premiums
for his benefit.
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(***)No investment company within the fund complex has a pension or retirement
plan. Currently there are 18 investment companies (15 investment companies
comprising the Master Portfolios, the Trust, The JPM Institutional Funds and JPM
Series Trust) in the fund complex.
The Trustees, in addition to reviewing actions of the Trust's and the
Portfolio's various service providers, decide upon matters of general policy.
The Portfolio and the Trust have entered into a Fund Services Agreement with
Pierpont Group to assist the Trustees in exercising their overall supervisory
responsibilities over the affairs of the Portfolio and the Trust. Pierpont Group
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. The
Trust and the Portfolio have agreed to pay Pierpont Group a fee in an amount
representing its reasonable costs in performing these services to the Trust, the
Portfolio and certain other registered investment companies with similar
agreements with Pierpont Group. These costs are periodically reviewed by the
Trustees.
OFFICERS
The Trust's and Portfolio's 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 Portfolio.
The Trust and the Portfolio have no employees.
The officers of the Trust and the Portfolio, 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 the 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,
since prior to 1992. His address is Pine Tree Club Estates, 10286 Saint Andrews
Road, Boynton Beach, FL 33436. His date of birth is August 23, 1937.
MARIE E. CONNOLLY; Vice President and Assistant Treasurer. President and
Chief Executive Officer and Director of FDI, Premier Mutual Fund Services, Inc.
("Premier Mutual") and an officer of certain investment companies advised or
administered by the Dreyfus Corporation ("Dreyfus") or its affiliates. From
December 1991 to July 1994, she was President and Chief Compliance Officer of
FDI. 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 or its affiliates. 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, Inc. His date of birth is March 31, 1969.
JACQUELINE HENNING; Assistant Secretary and Assistant Treasurer. 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, BWI. 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 or Harris Trust and
Savings Bank ("Harris") or their respective
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affiliates. 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, Inc. 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., Waterhouse Investors Cash Management Fund, Inc. and Harris or their
respective affiliates. From June 1994 to January 1996, Ms. Jacoppo-Wood was a
Manager, SEC Registration, Scudder, Stevens & Clark, Inc. From 1988 to May 1994,
Ms. Jacoppo-Wood was a senior paralegal at The Boston Company Advisors, Inc.
("TBCA"). Her date of birth is December 29, 1966.
ELIZABETH A. KEELEY; Vice President and Assistant Secretary. Vice President
and Senior 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 or
Harris or their respective affiliates. 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.
CHRISTOPHER J. KELLEY; Vice President and Assistant Secretary. Vice
President and Associate General Counsel of FDI and Premier Mutual and an officer
of Waterhouse Investors Cash Management Fund, Inc. and certain investment
companies advised or administered by Harris or its affiliates. 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. Assistant
Vice President, State Street Bank and Trust Company since November 1994.
Assigned as Operations Manager, State Street Cayman Trust Company, Ltd. since
February 1995. Prior to November, 1994, employed by Boston Financial Data
Services, Inc. as Control Group Manager. Address: P.O. Box 2508 GT, Elizabethan
Square, 2nd Floor, Shedden Road, George Town, Grand Cayman, Cayman Islands, BWI.
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., Waterhouse Investors Cash
Management Fund, Inc. and certain investment companies advised or administered
by Dreyfus or Harris or their respective affiliates. From 1989 to 1994, Ms.
Nelson was an Assistant Vice President and client manager for The Boston
Company, Inc. 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 or Harris or
their respective affiliates. 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, Inc. His
date of birth is June 13, 1962.
INVESTMENT ADVISOR
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The investment advisor to the Portfolio 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 $208 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 investment advisory services the Advisor provides to the Portfolio
are not exclusive under the terms of the Advisory Agreement. 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 Portfolio. Such accounts are supervised by officers and employees of the
Advisor who may also be acting in similar capacities for the Portfolio. 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 benchmark for the Fund is currently the Russell
2000 Growth Index.
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 Portfolio is managed by officers of the Advisor who, in acting for
their customers, including the Portfolio, 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.
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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 has agreed to pay the Advisor a fee, which is computed
daily and may be paid monthly, equal to an annual rate of 0.60% of the
Portfolio's average daily net assets.
The Investment Advisory Agreement provides that it 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. The Investment Advisory Agreement 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 Portfolio contemplated by the Advisory Agreement 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
Portfolio.
If the Advisor were prohibited from acting as investment advisor to the
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 Portfolio 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 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 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 the
Fund for a period of two years after execution only if it is approved at least
annually thereafter (i) by a vote of the holders of a majority of the Fund's
outstanding shares or by the Trust's Trustees and (ii) by a vote of a majority
of the Trustees of the Trust who are not "interested persons" (as defined by the
1940 Act) of the parties to the Distribution Agreement, cast in person at a
meeting called for the purpose of voting on such approval (see "Trustees and
Officers"). The Distribution Agreement will terminate automatically if assigned
by either party thereto and is terminable at any time without penalty by a vote
of a majority of the Trustees of the Trust, a vote of a majority of the Trustees
who are not "interested persons" of the Trust, or by a vote of the holders of a
majority of the Fund's outstanding shares as
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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 Portfolio
dated August 1, 1996, FDI also serves as the Trust's and the Portfolio's
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 Portfolio, 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 Portfolio, 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, the Fund and
the Portfolio have 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 JPM Institutional Funds,
the Master Portfolios, JPM Series Trust and JPM Series Trust II.
SERVICES AGENT
The Trust, on behalf of the Fund, and the Portfolio have entered into
Administrative Services Agreements (the "Services Agreements") with Morgan
effective December 29, 1995, as amended effective August 1, 1996, pursuant to
which Morgan is responsible for certain administrative and related services
provided to the Fund and the 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, the Fund and the Portfolio have
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 the 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
the Fund and the Portfolio is determined by the proportionate share that its net
assets bear to the total net assets of the Trust, The JPM Institutional Funds,
the Master Portfolios, the other investors in the Master Portfolios for which
Morgan provides similar services and the JPM Series Trust.
Under Administrative Services Agreements in effect from December 29,
1995 through July 31, 1996, with Morgan, the Fund and the 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.
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02110, serves as the Trust's and the Portfolio's
custodian and fund accounting agent and the 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 the case of foreign
assets held outside the United States, the Custodian employs various
subcustodians who were approved by the Trustees
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of the Portfolio in accordance with the regulations of the SEC. The Custodian
maintains portfolio transaction records. As Transfer Agent and Dividend
Disbursing Agent, State Street is responsible for maintaining account records
detailing the ownership of Fund shares and for crediting income, capital gains
and other changes in share ownership to shareholder accounts.
SHAREHOLDER SERVICING
The Trust on behalf of the Fund 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 the 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
Fund's transfer agent; transmitting purchase and redemption orders to the Fund's
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, the Fund has agreed to pay
Morgan for these services a fee at an annual rate of 0.25% of the average daily
net asset value of Fund shares owned by or for shareholders for whom Morgan is
acting as shareholder servicing agent). Morgan acts as shareholder servicing
agent for all shareholders.
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 Fund and the Portfolio under the
Services Agreements and in acting as Advisor to the Portfolio under the
Investment Advisory Agreement, 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 Fund or the Portfolio 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 Portfolio 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 the Fund
and the Portfolio, assists in the preparation and/or review of the Fund's and
the Portfolio's federal and state income tax returns and consults with the Fund
and the Portfolio as to matters of accounting and federal and state income
taxation.
EXPENSES
In addition to the fees payable to Pierpont Group, Morgan and FDI under
various agreements discussed under "Trustees and Officers," "Investment
Advisor," "Co-Administrator and Distributor," "Services Agent" and
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"Shareholder Servicing" above, the Fund and the Portfolio are responsible for
usual and customary expenses associated with their respective operations. Such
expenses include organization expenses, legal fees, accounting expenses,
insurance costs, the compensation and expenses of the Trustees, registration
fees under federal securities laws, and extraordinary expenses applicable to the
Fund or the Portfolio. For the Fund, such expenses also include transfer,
registrar and dividend disbursing costs, the expenses of printing and mailing
reports, notices and proxy statements to Fund shareholders, and registration
fees under state securities laws. For the Portfolio, such expenses also include
applicable registration fees under foreign securities laws, custodian fees and
brokerage expenses. For additional information regarding waivers or expense
subsidies, see "Management of the Fund and Portfolio" 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 the Fund may make transactions in shares of the Fund.
The Fund may, at its own option, accept securities in payment for
shares. The securities delivered in such a transaction 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 Portfolio. In addition, securities accepted in payment for
shares must: (i) meet the investment objective and policies of the Portfolio;
(ii) be acquired by the Fund for investment and not for resale (other than for
resale to the Portfolio); (iii) be liquid securities which are not restricted as
to transfer either by law or liquidity of market; and (iv) 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. The
Fund reserves the right to accept or reject at its own option any and all
securities offered in payment for its shares.
Prospective investors may purchase shares with the assistance of an
Eligible Institution, and the Eligible Institution may charge the investor a fee
for this service and other services it provides to its customers.
REDEMPTION OF SHARES
Investors may redeem shares as described in the Prospectus under
"Redemption of Shares."
If the Trust on behalf of the Fund and the Portfolio determine that it
would be detrimental to the best interest of the remaining shareholders of the
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 Trust is in the
process of seeking exemptive relief from the SEC with respect to redemptions in
kind by the Fund. If the requested relief is granted, the Fund would then be
permitted to pay redemptions to greater than 5% shareholders in securities,
rather than in cash, to the extent permitted by the SEC and applicable law. 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 Fund has elected to be governed by Rule 18f-1
under the 1940 Act pursuant to which the Fund is 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 Portfolio, and therefore shareholders of the Fund that receive
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redemptions in kind will receive Portfolio holdings. The Portfolio has advised
the Trust that the Portfolio will not redeem in kind except in circumstances in
which the Fund is permitted to redeem in kind.
FURTHER REDEMPTION INFORMATION. The Trust, on behalf of the Fund, and
the Portfolio reserves 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 shares of The JPM Institutional Funds or JPM Series
Trust, as described under "Exchange of Shares" in the Prospectus. For complete
information, the prospectus as it relates to a fund into which a transfer is
being made should be read prior to the transfer. Requests for exchange are made
in the same manner as requests for redemptions. See "Redemption of Shares."
Shares of the fund to be acquired are purchased for settlement when the proceeds
from redemption become available. In the case of investors in certain states,
state securities laws may restrict the availability of the exchange privilege.
The Trust reserves the right to discontinue, alter or limit the exchange
privilege at any time.
DIVIDENDS AND DISTRIBUTIONS
The Fund declares and pays dividends and distributions as described
under "Dividends and Distributions" in the Prospectus.
Determination of the net income for the Fund 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
The Fund 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 days 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. The Fund and
the Portfolio may also close for purchases and redemptions at such other times
as may be determined by the Board of Trustees to the extent permitted by
applicable law. The days on which net asset value is determined are the Fund's
business days.
The net asset value of the Fund is equal to the value of the Fund's
investment in the 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 Fund in
valuing its assets.
The value of investments listed on a domestic securities exchange,
other than options on stock indexes, is based on the last sale prices on such
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
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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 Fund was more than
60 days, unless this is determined not to represent fair value by the Trustees.
Trading in securities on most foreign exchanges and OTC markets is
normally completed before the close of the New York Stock Exchange and may also
take place on days on which the New York Stock Exchange is closed. If events
materially affecting the value of securities occur between the time when the
exchange on which they are traded closes and the time when the Fund'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
TOTAL RETURN QUOTATIONS. As required by regulations of the SEC, the
annualized total return of the Fund 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 distributed 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.
GENERAL. The Fund's performance will vary from time to time depending
upon market conditions, the composition of the Fund, and its operating expenses.
Consequently, any given performance quotation should not be considered
representative of the 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 the 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 Fund's shares, including appropriate market indices including
the benchmark 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.
From time to time, the Fund may quote performance in terms of, actual
distributions, total return or capital appreciation in reports, sales literature
and advertisements published by the Trust. Current performance information for
the Fund 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
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The Advisor places orders for the Fund 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 the Fund. See "Investment Objective and Policies."
Fixed income and debt securities 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.
In connection with portfolio transactions for the Fund, 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; and 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 review regularly the
reasonableness of commissions and other transaction costs incurred by the Fund
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 the Fund.
The Advisor believes that the value of research services received is not
determinable and does not significantly reduce its expenses. The Fund does not
reduce its fee to the Advisor by any amount that might be attributable to the
value of such services.
Subject to the overriding objective of obtaining the best possible
execution of orders, the Advisor may allocate a portion of the Fund's brokerage
transactions to affiliates of the Advisor. In order for affiliates of the
Advisor to effect any portfolio transactions for the Fund, 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, 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 Fund 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 the Fund as well as other customers, 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 the Fund
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
the Fund. In some instances, this procedure might adversely affect the Fund.
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If the Fund 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 the
Fund 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 the Fund may write may be affected by options written by the
Advisor for other investment advisory clients. An exchange may order the
liquidation of positions found to be in excess of these limits, and it may
impose certain other sanctions.
MASSACHUSETTS TRUST
The Trust is a trust fund of the type commonly known as a
"Massachusetts business trust" of which the 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.
Effective October 10, 1996, the name of the Trust was changed from "The
Pierpont Funds" to "The JPM Pierpont Funds."
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 series thereof and that
every written agreement, obligation, instrument or undertaking made on behalf of
any series 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 (i) all types of
claims in the latter jurisdictions, (ii) tort claims, (iii) contract claims
where the provision referred to is omitted from the undertaking, (iv) claims for
taxes and (v) 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 Fund.
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 the Fund is liable to
the 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 the 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
the 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 the 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 the Fund represents a separate series of
shares of beneficial interest. See "Massachusetts Trust."
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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 the Fund (or in the assets of other series, if applicable).
To date shares of twenty series have been authorized and are available for sale
to the public. Each share represents an equal proportional interest in the Fund
with each other share. Upon liquidation of the Fund, holders are entitled to
share pro rata in the net assets of the Fund available for distribution to such
shareholders. See "Massachusetts Trust." Shares of the 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 have the power to alter the number and the terms of
office of the Trustees, to lengthen their own terms, to make their terms of
unlimited duration subject to certain removal procedures and to 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 (i) 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 (ii) 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 twenty series of the Trust. The Trustees have no current intention to
create any classes within the initial series or any subsequent series. The
Trustees may, however, authorize the issuance of shares of additional series and
the creation of classes of shares
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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.
TAXES
The Fund intends to qualify as a regulated investment company under
Subchapter M of the Code. As a regulated investment company, the 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 the 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, the 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, the 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. The 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 the
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.
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 Fund as ordinary income whether such distributions are taken in cash or
reinvested in additional shares. Distributions to corporate shareholders of the
Fund are not eligible for the dividends received deduction.
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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 the 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 the Fund's shares. Additionally, any loss realized on a
redemption or exchange of shares of the 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.
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 the 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 the 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 the Portfolio accrues income or receivables or
expenses or other liabilities denominated in a foreign currency and the time the
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 the Portfolio, if any, denominated in
foreign currency, to the extent attributable to fluctuations in exchange rates
between the acquisition and disposition dates are also treated as ordinary
income or loss.
Forward currency contracts, options and futures contracts entered into
by the 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, the
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 the
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 PORTFOLIO MAY INVEST IN EQUITY SECURITIES OF FOREIGN ISSUERS. IF
THE 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 THE FUND OR ITS SHAREHOLDERS IN RESPECT OF DEEMED UNPAID TAXES
ARISING FROM SUCH DISTRIBUTIONS OR GAINS. ALTERNATIVELY, THE 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.
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PURSUANT TO PROPOSED REGULATIONS, OPEN-END REGULATED INVESTMENT
COMPANIES SUCH AS THE PORTFOLIO 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, the 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 dispositions of Fund shares unless IRS Form W-8 is provided. Transfers by
gift of shares of the 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 Fund may be subject to foreign
withholding taxes or other foreign taxes with respect to income (possibly
including, in some cases, capital gains) received from sources within foreign
countries. So long as more than 50% in value of the total assets of the Fund
(including its share of the assets of the 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. The Fund will make such an election only if they deem it to be in
the best interest of their respective shareholders. The Fund will notify its
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 the
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 Fund from its foreign source net investment income will be treated as
foreign source income. The Fund's 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
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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
Fund.
STATE AND LOCAL TAXES. The 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 the 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 the Fund is liable for any
income or franchise tax in The Commonwealth of Massachusetts, provided that the
Fund continues to qualify as a regulated investment company under Subchapter M
of the Code. The Portfolio is organized as a New York trust. The Portfolio is
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 the
Fund in the 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 Fund, Morgan or Eligible Institutions as
shareholder servicing agent may be tape recorded. With respect to the securities
offered hereby, this Statement of Additional Information and the Prospectus do
not contain all the information included in the Trust's Registration Statement
filed with the SEC under the 1933 Act and the Trust's and the Portfolio's
Registration Statement 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 Fund or the Distributor. The Prospectus and this Statement of
Additional Information do not constitute an offer by the 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.
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APPENDIX A
DESCRIPTION OF SECURITY RATINGS
STANDARD & POOR'S
CORPORATE 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.
B - An obligation rated B is more vulnerable to nonpayment than obligations
rated BB, but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
CCC - An obligation rated CCC is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
CC - An obligation rated CC is currently highly vulnerable to nonpayment.
C - The C rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments on this obligation
are being continued.
COMMERCIAL PAPER
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.
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MOODY'S
CORPORATE BONDS
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well- assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
COMMERCIAL PAPER
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.
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PART C
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) None
(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.*
1(b). Amendment No. 6 to Declaration of Trust; Amendment and Fifth Amended
and Restated Establishment and Designation of Series of Shares of
Beneficial Interest is incorporated herein by reference to Post-
Effective Amendment No. 32 to the Registration Statement on Form N-1A
filed on February 28, 1997 (Accession Number 0001016964-97-000038
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.*
9(b). Restated Shareholder Servicing Agreement between Registrant and Morgan
Guaranty Trust Company of New York ("Morgan Guaranty").
(Filed herewith)
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. (not applicable)
13. Purchase agreements with respect to Registrant's initial shares.*
16. Schedule for computation of performance quotations.*
17. Financial Data Schedules. (not applicable)
18. Powers of Attorney.*
- -------------------------
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* Incorporated herein by reference to Post-Effective Amendment No. 30 to
the Registration Statement on Form N-1A filed on December 27, 1996 (Accession
Number 0001016964-96-000066)
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 January 31, 1997.
The JPM Pierpont Money Market Fund: 4,886
The JPM Pierpont Tax Exempt Money Market Fund: 2,357
The JPM Pierpont Federal Money Market Fund: 520
The JPM Pierpont Short Term Bond Fund: 130
The JPM Pierpont Bond Fund: 781
The JPM Pierpont Tax Exempt Bond Fund: 1,275
The JPM Pierpont New York Total Return Bond Fund 198
The JPM Pierpont Diversified Fund: 506
The JPM Pierpont Equity Fund: 2,237
The JPM Pierpont Capital Appreciation Fund: 1,932
The JPM Pierpont International Equity Fund: 2,130
The JPM Pierpont Emerging Markets Equity Fund: 1,725
The JPM Pierpont European Equity Fund: 50
The JPM Pierpont Asia Growth Fund: 46
The JPM Pierpont Japan Equity Fund: 43
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.
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.
C-2
<PAGE>
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 acts as principal underwriter of the following investment companies other
than the Registrant:
BJB Investment Funds
Burridge Funds
Foreign Fund, Inc.
Fremont Mutual Funds, Inc.
Harris Insight Funds Trust
H.T. Insight Funds, Inc. d/b/a Harris Insight Funds
LKCM Fund
Monetta Fund, Inc.
Monetta Trust
The Munder Framlington Funds Trust
The Munder Funds, Inc.
The Munder Funds Trust
The PanAgora Institutional Funds
RCM Capital Funds, Inc.
RCM Equity Funds, Inc.
The Skyline Funds
St. Clair Money Market Fund
Waterhouse Investors Cash Management Funds, Inc.
The JPM Institutional Funds
JPM Series Trust
JPM Series Trust II
FDI does not act as depositor or investment adviser of any investment companies.
FDI is registered with the Securities and Exchange Commission as a broker-dealer
and is a member of the National Association of Securities Dealers. FDI is an
indirect wholly-owned subsidiary of Boston Institutional Group, Inc., a holding
company all of whose outstanding shares are owned by key employees.
(b) The information required by this Item 29(b) with respect to each director,
officer and partner of FDI is incorporated herein by reference to Schedule A of
Form BD filed by FDI with the Securities and Exchange Commission pursuant to the
Securities Act of 1934 (SEC File No. 8-20518).
(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 or 40 King Street West, Toronto, Ontario, Canada M5H 3Y8
C-3
<PAGE>
(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.
(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-4
<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 4th
day of March, 1997.
THE JPM PIERPONT FUNDS
By /s/ Richard W. Ingram
-----------------------
Richard W. Ingram
President and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed below by the following persons in the capacities
indicated on March 4, 1997.
/s/ 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/ Richard W. Ingram
----------------------------
Richard W. Ingram
as attorney-in-fact pursuant to a power of attorney previously filed.
C-5
<PAGE>
SIGNATURES
The Series Portfolio (the "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 4th
day of March, 1997.
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 March 4, 1997.
Richard W. Ingram*
- ----------------------------
Richard W. Ingram
President and Treasurer (Principal Financial and Accounting Officer) of the
Portfolio
Matthew Healey*
- ----------------------------
Matthew Healey
Trustee, Chairman and Chief Executive Officer (Principal Executive Officer) of
the Portfolio
Frederick S. Addy*
- ----------------------------
Frederick S. Addy
Trustee of the Portfolio
William G. Burns*
- ----------------------------
William G. Burns
Trustee of the Portfolio
Arthur C. Eschenlauer*
- ----------------------------
Arthur C. Eschenlauer
Trustee of the Portfolio
Michael P. Mallardi*
- ----------------------------
Michael P. Mallardi
Trustee of the Portfolio
/s/ Lenore J. McCabe
*By ------------------------
Lenore J. McCabe
as attorney-in-fact pursuant to a power of attorney previously filed.
C-6
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
- ------------- ----------------------
EX-99.9b Restated Shareholder Servicing Agreement between Registrant
and Morgan Guaranty Trust Company of New York.
C-7
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:
(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
<PAGE>
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, 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
<PAGE>
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 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.
<PAGE>
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.
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.
<PAGE>
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).
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
<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 Disciplined Equity Fund
The JPM Pierpont Global Strategic Income Fund
The JPM Pierpont International Opportunities Fund
The JPM Pierpont Latin American Equity Fund
The JPM Pierpont Emerging Markets Debt Fund
The JPM Pierpont Small Company Growth Fund
0.25% of the average daily net asset value of Fund shares owned by or
for Customers
Approved 1/9/97
Effective 3/6/97
(supersedes 12/27/96 schedule approved 10/10/96)
