As filed with the Securities and Exchange Commission on February 27, 1998
FILE NO. 811-07406
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 8
THE FEDERAL MONEY MARKET PORTFOLIO
(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
Christopher J. Kelley, c/o Funds Distributor, Inc.,
60 State Street, Suite 1300, Boston Massachusetts 02109
(Name and Address of Agent for Service)
Copy to: Steven K. West, Esq.
Sullivan & Cromwell
125 Broad Street
New York, NY 10004
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EXPLANATORY NOTE
This Registration Statement has been filed by the Registrant pursuant
to Section 8(b) of the Investment Company Act of 1940, as amended. However,
beneficial interests in the Registrant are not being registered under the
Securities Act of 1933, as amended (the "1933 Act"), because such interests will
be issued solely in private placement transactions that do not involve any
"public offering" within the meaning of Section 4(2) of the 1933 Act.
Investments in the Registrant may only be made by other investment companies,
insurance company separate accounts, common or commingled trust funds or similar
organizations or entities that are "accredited investors" within the meaning of
Regulation D under the 1933 Act. This Registration Statement does not constitute
an offer to sell, or the solicitation of an offer to buy, any beneficial
interests in the Registrant.
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PART A
Responses to Items 1 through 3 and 5A have been omitted pursuant to
paragraph 4 of Instruction F of the General Instructions to Form N-1A.
ITEM 4. GENERAL DESCRIPTION OF REGISTRANT.
The Federal Money Market Portfolio (the "Portfolio") is a diversified,
open-end management investment company which was organized as a trust under the
laws of the State of New York on November 4, 1992. Beneficial interests in the
Portfolio are issued solely in private placement transactions that do not
involve any "public offering" within the meaning of Section 4(2) of the
Securities Act of 1933, as amended (the "1933 Act"). Investments in the
Portfolio may only be made by other investment companies, insurance company
separate accounts, common or commingled trust funds or similar organizations or
entities that are "accredited investors" within the meaning of Regulation D
under the 1933 Act. This Registration Statement does not constitute an offer to
sell, or the solicitation of an offer to buy, any "security" within the meaning
of the 1933 Act.
The Portfolio is advised by Morgan Guaranty Trust Company of New York
("Morgan" or the "Advisor").
Investments in the Portfolio are not deposits or obligations of, or
guaranteed or endorsed by, Morgan or any other bank. Interests in the Portfolio
are not federally insured by the Federal Deposit Insurance Corporation, the
Federal Reserve Board or any other governmental agency. An investment in the
Portfolio is subject to risk, as the net asset value of the Portfolio will
fluctuate with changes in the value of the Portfolio's holdings. There can be no
assurance that the investment objective of the Portfolio will be achieved.
Part B contains more detailed information about the Portfolio,
including information related to (i) the investment policies and restrictions of
the Portfolio, (ii) the Trustees, officers, investment adviser and
administrators of the Portfolio, (iii) portfolio transactions, (iv) rights and
liabilities of investors and (v) the audited financial statements of the
Portfolio at October 31, 1997.
The investment objective of the Portfolio is described below, together
with the policies employed to attempt to achieve this objective. Additional
information about the investment policies of the Portfolio appears in Part B,
under Item 13.
The Portfolio's investment objective is to provide current income,
maintain a high level of liquidity and preserve capital. The Portfolio is
designed for investors who seek to preserve capital and earn current income from
a portfolio of high quality money market instruments.
The Portfolio seeks to achieve its investment objective by investing in
direct obligations of the U.S. Treasury and in obligations of certain U.S.
Government agencies described below. The market value of obligations in which
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the Portfolio invests is not guaranteed and may rise and fall in response to
changes in interest rates. The Portfolio maintains a dollar-weighted average
portfolio maturity of not more than 90 days and invests in the following
securities which have effective maturities of not more than thirteen months.
TREASURY SECURITIES; CERTAIN U.S. GOVERNMENT AGENCY OBLIGATIONS. The
Portfolio will invest in Treasury Bills, Notes, and Bonds, all of which are
backed as to principal and interest payments by the full faith and credit of the
United States ("Treasury Securities"). Treasury Bills have initial maturities of
one year or less; Treasury Notes have initial maturities of one to ten years;
and Treasury Bonds generally have initial maturities of greater than ten years.
During ordinary market conditions substantially all of the Portfolio's net
assets will be invested in Treasury Securities and obligations issued by U.S.
Government agencies that are generally exempt from state and local income taxes,
where the Portfolio must look to the issuing agency for ultimate repayment,
including the Federal Farm Credit System, the Federal Home Loan Banks, the
Tennessee Valley Authority and the Student Loan Marketing Association
("Permitted Agency Securities"). Each such obligation must have a remaining
maturity of not more than thirteen months at the time of purchase by the
Portfolio.
The Portfolio also may purchase Treasury Securities and Permitted
Agency Securities on a when-issued or delayed delivery basis and, although it
has no current intention to do so, may engage in repurchase and reverse
repurchase agreement transactions involving such securities.
ADDITIONAL INVESTMENT INFORMATION AND RISK FACTORS
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. Delivery of and payment
for these securities may take as long as a month or more after the date of the
purchase commitment. The value of these securities is subject to market
fluctuation during this period and for fixed income securities, no interest
accrues to the Portfolio until settlement. At the time of settlement a
when-issued security may be valued at less than its purchase price. The
Portfolio maintains with the Custodian a separate account with a segregated
portfolio of securities in an amount at least equal to these commitments. When
entering into a when-issued or delayed delivery transaction, the Portfolio will
rely on the other party to consummate the transaction; if the other party fails
to do so, the Portfolio may be disadvantaged. It is the current policy of the
Portfolio not to enter into when-issued commitments exceeding in the aggregate
15% of the market value of the Portfolio's total assets less liabilities other
than the obligations created by these commitments.
REPURCHASE AGREEMENTS. The Portfolio may, although it has no current
intention to do so, engage in repurchase agreements with brokers, dealers or
banks that meet the credit guidelines established by the Trustees. In a
repurchase agreement, the Portfolio buys a Treasury Security from a seller that
has agreed to repurchase it at a mutually agreed upon date and price, reflecting
the interest rate effective for the term of the agreement. The Portfolio may
only enter into repurchase agreements involving Treasury Securities and
Permitted Agency Securities. The term of these agreements is
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usually from overnight to one week. A repurchase agreement may be viewed as a
fully collateralized loan of money by the Portfolio to the seller. The Portfolio
always receives securities as collateral with a market value at least equal to
the purchase price plus accrued interest and this value is maintained during the
term of the agreement. If the seller defaults and the collateral value declines,
the Portfolio might incur a loss. If bankruptcy proceedings are commenced with
respect to the seller, the Portfolio's realization upon the disposition of
collateral may be delayed or limited. Investments in certain repurchase
agreements and certain other investments which may be considered illiquid are
limited. See "Illiquid Investments, Privately Placed and other Unregistered
Securities" below.
LOANS OF PORTFOLIO SECURITIES. Subject to applicable investment
restrictions, the Portfolio is permitted to lend its securities in an amount up
to 33 1/3% of the value of the Portfolio's net assets. The Portfolio may lend
its securities if such loans are secured continuously by cash or equivalent
collateral or by a letter of credit in favor of the Portfolio at least equal at
all times to 100% of the market value of the securities loaned, plus accrued
interest. While such securities are on loan, the borrower will pay the Portfolio
any income accruing thereon. Loans will be subject to termination by the
Portfolio in the normal settlement time, generally three business days after
notice, or by the borrower on one day's notice. Borrowed securities must be
returned when the loan is terminated. Any gain or loss in the market price of
the borrowed securities which occurs during the term of the loan inures to the
Portfolio and its investors. The Portfolio may pay reasonable finders' and
custodial fees in connection with a loan. In addition, the Portfolio will
consider all facts and circumstances including the creditworthiness of the
borrowing financial institution, and the Portfolio will not make any loans in
excess of one year.
Loans of portfolio securities may be considered extensions of credit by
the Portfolio. The risks to the Portfolio with respect to borrowers of its
portfolio securities are similar to the risks to the Portfolio with respect to
sellers in repurchase agreement transactions. See "Repurchase Agreements" above.
The Portfolio will not lend its securities to any officer, Trustee, Director,
employee or other affiliate of the Portfolio, the Advisor or the placement
agent, unless otherwise permitted by applicable law.
REVERSE REPURCHASE AGREEMENTS. The Portfolio is permitted to enter into
reverse repurchase agreements. In a reverse repurchase agreement, the Portfolio
sells a security and agrees to repurchase it at a mutually agreed upon date and
price, reflecting the interest rate effective for the term of the agreement. For
purpose of the Investment Company Act of 1940, as amended (the "1940 Act"), it
is considered a form of borrowing of money by the Portfolio and, therefore, is a
form of leverage. Leverage may cause any gains or losses of the Portfolio to be
magnified. For more information, see Item 13 in Part B.
ILLIQUID INVESTMENTS, PRIVATELY PLACED AND OTHER UNREGISTERED
SECURITIES. The Portfolio may not acquire any illiquid securities if, as a
result thereof, more than 10% of the Portfolio's net assets would be in
illiquid investments. Subject to this non-fundamental policy limitation, the
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Portfolio may acquire investments that are illiquid or have limited liquidity,
such as private placements or investments that are not registered under the 1933
Act and cannot be offered for public sale in the U.S. without first being
registered under the 1933 Act. An illiquid investment is any investment that
cannot be disposed of within seven days in the normal course of business at
approximately the amount at which it is valued by the Portfolio. The price the
Portfolio pays for illiquid securities or receives upon resale may be lower than
the price paid or received for similar securities with a more liquid market.
Accordingly the valuation of these securities will reflect any limitations on
their liquidity.
The Portfolio may also purchase Rule 144A securities sold to
institutional investors without registration under the 1933 Act. These
securities may be determined to be liquid in accordance with guidelines
established by the Advisor and approved by the Trustees. The Trustees will
monitor the Advisor's implementation of these guidelines on a periodic basis.
INVESTMENT RESTRICTIONS
As a diversified investment company, 75% of the assets of the Portfolio
are subject to the following fundamental limitations: (a) the Portfolio may not
invest more than 5% of its total assets in the securities of any one issuer,
except U.S. Government securities, and (b) the Portfolio may not own more than
10% of the outstanding voting securities of any one issuer. The Portfolio is
subject to additional non-fundamental requirements governing non-tax exempt
money market funds. These non-fundamental requirements generally prohibit the
Portfolio from investing more than 5% of its total assets in the securities of
any single issuer, except obligations of the U.S.
Government and its agencies and instrumentalities.
The investment objective of the Portfolio, together with the investment
restrictions described below and in Part B, except as noted, are deemed
fundamental policies, i.e., they may be changed only with the approval of a
majority of the outstanding voting securities of the Portfolio, as defined in
the 1940 Act.
The Portfolio may not (i) enter into reverse repurchase agreements
which together with any other borrowings exceed one-third of the market value of
its total assets, less certain liabilities, (ii) borrow money (not including
reverse repurchase agreements), except from banks for extraordinary or emergency
purposes and then only in amounts up to 10% of the value of the Portfolio's
total assets, taken at cost at the time of borrowing (and provided that such
borrowings and reverse repurchase agreements do not exceed in the aggregate
one-third of the market value of the Portfolio's total assets less liabilities
other than the obligations represented by the bank borrowings and reverse
repurchase agreements), or purchase securities while borrowings exceed 5% of its
total assets; or mortgage, pledge or hypothecate any assets except in connection
with any such borrowings in amounts up to 10% of the value of the Portfolio's
net assets at the time of borrowing, or (iii) make loans, except through
purchasing or holding debt obligations, repurchase agreements, or loans of
portfolio securities in accordance with the Portfolio's investment objectives
and policies.
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For a more detailed discussion of the above investment restrictions, as
well as a description of certain other investment restrictions, see Item 13 in
Part B.
ITEM 5. MANAGEMENT OF THE PORTFOLIO.
The Board of Trustees provides broad supervision over the affairs of
the Portfolio. The Portfolio has retained the services of Morgan as the
investment adviser and administrative services agent. The Portfolio has retained
the services of Funds Distributor Inc. ("FDI") as co-administrator (the
"Co-Administrator").
The Portfolio has not retained the services of a principal underwriter
or distributor, since interests in the Portfolio are offered solely in private
placement transactions. FDI, acting as agent for the Portfolio, serves as
exclusive placement agent of interests in the Portfolio. FDI receives no
additional compensation for serving in this capacity.
The Portfolio has entered into an Amended and Restated Portfolio Fund
Services Agreement dated July 11, 1996, with Pierpont Group, Inc. ("Pierpont
Group") to assist the Trustees in exercising their overall supervisory
responsibilities for the Portfolio. The fees to be paid under the agreement
approximate the reasonable cost of Pierpont Group in providing these services to
the Trust, the Portfolio and certain other registered investment companies
subject to similar agreements with Pierpont Group. Pierpont Group was organized
in 1989 at the request of the Trustees of The Pierpont Family of Funds for the
purpose of providing these services at cost to those funds. See Item 14 in Part
B. The principal offices of Pierpont Group are located at 461 Fifth Avenue, New
York, New York 10017.
INVESTMENT ADVISOR. The Portfolio has retained the services of Morgan
as investment advisor. Morgan, with principal offices at 60 Wall Street, New
York, New York 10260, is a New York trust company which conducts a general
banking and trust business. Morgan is a wholly owned subsidiary of J.P. Morgan &
Co. Incorporated ("J.P. Morgan"), a bank holding company organized under the
laws of Delaware. Through offices in New York City and abroad, J.P. Morgan,
through the Advisor and other subsidiaries, offers a wide range of services to
governmental, institutional, corporate and individual customers and acts as
investment adviser to individual and institutional clients with combined assets
under management of approximately $250 billion. Morgan provides investment
advice and portfolio management services to the Portfolio. Subject to the
supervision of the Portfolio's Trustees, Morgan, as Advisor, makes the
Portfolio's day-to-day investment decisions, arranges for the execution of
portfolio transactions and generally manages the Portfolio's investments. See
Item 16 in Part B.
The following persons are primarily responsible for the day-to-day
management and implementation of Morgan's process for the Portfolio (the
inception date of each person's responsibility for the Portfolio and his
business experience for the past five years are indicated parenthetically):
Robert R. Johnson, Vice President (since January 1993 and employed by Morgan
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since prior to 1993) and Daniel B. Mulvey, Vice President (since October 1996
and employed by Morgan since 1993).
As compensation for the services rendered and related expenses borne by
Morgan under the Investment Advisory Agreement with the Portfolio, the Portfolio
has agreed to pay Morgan a fee, which is computed daily and may be paid monthly,
at the annual rate of 0.20% of the Portfolio's average daily net assets up to $1
billion and 0.10% of average daily net assets in excess of $1 billion.
Under a separate agreement, Morgan also provides administrative and
related services to the Portfolio. See "Administrative Services Agent" below.
CO-ADMINISTRATOR. Pursuant to a Co-Administration Agreement with the
Portfolio, FDI serves as the Co-Administrator for the Portfolio. FDI (i)
provides office space, equipment and clerical personnel for maintaining the
organization and books and records of the Portfolio; (ii) provides officers for
the Portfolio; (iii) files Portfolio regulatory documents and mails Portfolio
communications to Trustees and investors; and (iv) maintains related books and
records. See "Administrative Services Agent" below.
For its services under the Co-Administration Agreement, 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 Portfolio is based on the ratio of its net assets to the aggregate net
assets of the Portfolio and certain other registered investment companies
subject to similar agreements with FDI.
ADMINISTRATIVE SERVICES AGENT. Pursuant to the Administrative Services
Agreement with the Portfolio, Morgan provides certain administrative and related
services to 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 Agreement, 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 J.P. Morgan
Funds invest and J.P. Morgan 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.
PLACEMENT AGENT. FDI, a registered broker-dealer, also serves as
exclusive placement agent for the Portfolio. FDI is a wholly owned indirect
subsidiary of Boston Institutional Group, Inc. FDI's principal business address
is 60 State Street, Suite 1300, Boston, Massachusetts 02109.
CUSTODIAN. State Street Bank and Trust Company, 225 Franklin Street,
Boston, Massachusetts 02110 serves as the Portfolio's custodian and fund
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accounting and transfer agent. State Street keeps the books of account for
the Portfolio.
EXPENSES. In addition to the fees payable to the service providers
identified above, the Portfolio is responsible for usual and customary expenses
associated with its operations. Such expenses include organization expenses,
legal fees, accounting and audit expenses, insurance costs, the compensation and
expenses of the Trustees, registration fees under federal securities laws and
extraordinary expenses.
Morgan has agreed that it will reimburse the Portfolio through at least
February 28, 1998, to the extent necessary to maintain the Portfolio's total
operating expenses at the annual rate of 0.20% of the Portfolio's average daily
net assets. This limit does not cover extraordinary expenses during the period.
There is no assurance that Morgan will continue this waiver beyond the specified
period. For the fiscal year ended October 31, 1997, the Portfolio's total
expenses were 0.20% of its average net assets.
ITEM 6. CAPITAL STOCK AND OTHER SECURITIES.
The Portfolio is organized as a trust under the laws of the State of
New York. Under the Declaration of Trust, the Trustees are authorized to issue
beneficial interests in the Portfolio. Each investor is entitled to a vote in
proportion to the amount of its investment in the Portfolio. Investments in the
Portfolio may not be transferred, but an investor may withdraw all or any
portion of its investment at any time at net asset value. Investors in the
Portfolio (e.g., other investment companies, insurance company separate accounts
and common and commingled trust funds) will each be liable for all obligations
of the Portfolio. However, the risk of an investor in the Portfolio incurring
financial loss on account of such liability is limited to circumstances in which
both inadequate insurance existed and the Portfolio itself was unable to meet
its obligations.
As of January 30, 1998, the J.P. Morgan Institutional Federal Money
Market Fund, J.P. Morgan Institutional Service Federal Money Market Fund and
J.P. Morgan Federal Money Market Fund, series of the J.P. Morgan Institutional
Funds and the J.P. Morgan Funds owned 42%, less than 1% and 57%, respectively,
of the outstanding beneficial interests in the Portfolio. So long as the J.P.
Morgan Institutional and J.P. Morgan Funds control the Portfolio, they may take
action without the approval of any other holder of beneficial interests in the
Portfolio.
Investments in the Portfolio have no preemptive or conversion rights
and are fully paid and nonassessable, except as set forth below. The Portfolio
is not required and has no current intention of holding annual meetings of
investors, but the Portfolio will hold special meetings of investors when in the
judgment of the Trustees it is necessary or desirable to submit matters for an
investor vote. Changes in fundamental policies will be submitted to investors
for approval. Investors have under certain circumstances (e.g., upon application
and submission of certain specified documents to the Trustees by a specified
percentage of the outstanding interests in the Portfolio) the right to
communicate with other investors in connection with requesting a meeting of
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investors for the purpose of removing one or more Trustees. Investors also have
the right to remove one or more Trustees without a meeting by a declaration in
writing by a specified percentage of the outstanding interests in the Portfolio.
Upon liquidation of the Portfolio, investors would be entitled to share pro rata
in the net assets of the Portfolio available for distribution to investors.
The net asset value of the Portfolio is determined each business day
other than the holidays listed in Part B ("Portfolio Business Day"). This
determination is made once each Portfolio Business Day at the close of trading
on the New York Stock Exchange (normally 4:00 p.m.)(the "Valuation Time"). See
Item 19 in Part B.
The "net income" of the Portfolio will consist of (i) all income
accrued, less the amortization of any premium, on the assets of the Portfolio,
less (ii) all actual and accrued expenses of the Portfolio determined in
accordance with generally accepted accounting principles. Interest income
includes discount earned (including both original issue and market discount) on
discount paper accrued ratably to the date of maturity and any net realized
gains or losses on the assets of the Portfolio. All the net income of the
Portfolio is allocated pro rata among the investors in the Portfolio.
The end of the Portfolio's fiscal year is October 31.
Under the anticipated method of operation of the Portfolio, the
Portfolio will not be subject to any income tax. However, each investor in the
Portfolio will be taxable on its share (as determined in accordance with the
governing instruments of the Portfolio) of the Portfolio's ordinary income and
capital gain in determining its income tax liability. The determination of such
share will be made in accordance with the Internal Revenue Code of 1986, as
amended (the "Code"), and regulations promulgated thereunder.
It is intended that the Portfolio's assets, income and distributions
will be managed in such a way that an investor in the Portfolio will be able to
satisfy the requirements of Subchapter M of the Code, assuming that the investor
invested all of its assets in the Portfolio.
Investor inquiries may be directed to FDI at 60 State Street, Boston,
Massachusetts 02109, or by calling FDI at (617) 557-0700.
ITEM 7. PURCHASE OF SECURITIES.
Beneficial interests in the Portfolio are issued solely in private
placement transactions that do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. Investments in the Portfolio may only
be made by other investment companies, insurance company separate accounts,
common or commingled trust funds, or similar organizations or entities which are
"accredited investors" as defined in Rule 501 under the 1933 Act. This
Registration Statement does not constitute an offer to sell, or the solicitation
of an offer to buy, any "security" within the meaning of the 1933 Act.
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An investment in the Portfolio may be made without a sales load. All
investments are made at net asset value next determined after an order is
received in "good order" by the Portfolio. The net asset value of the Portfolio
is determined on each Portfolio Business Day.
There is no minimum initial or subsequent investment in the Portfolio.
However, because the Portfolio intends to be as fully invested at all times as
is reasonably practicable in order to enhance the yield on its assets,
investments must be made in federal funds (i.e., monies credited to the account
of the Custodian by a Federal Reserve Bank).
The Portfolio may, at its own option, accept securities in payment for
investments in its beneficial interests. The securities delivered in kind are
valued by the method described in Item 19 of Part B as of the business day prior
to the day the Portfolio receives the securities. Securities may be accepted in
payment for beneficial interests only if they are, in the judgment of Morgan,
appropriate investments for the Portfolio. In addition, securities accepted in
payment for beneficial interests must: (i) meet the investment objective and
policies of the Portfolio; (ii) be acquired by the Portfolio for investment and
not for resale; (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 an exchange, over-the-counter
market or by readily available market quotations from a dealer in such
securities. The Portfolio reserves the right to accept or reject at its own
option any and all securities offered in payment for beneficial interests.
The Portfolio and FDI reserve the right to cease accepting investments
at any time or to reject any investment order.
Each investor in the Portfolio may add to or reduce its investment in
the Portfolio on each Portfolio Business Day. At the Valuation Time on each such
day, the value of each investor's beneficial interest in the Portfolio will be
determined by multiplying the net asset value of the Portfolio by the
percentage, effective for that day, which represents that investor's share of
the aggregate beneficial interests in the Portfolio. Any additions or
reductions, which are to be effected at the Valuation Time on such day, will
then be effected. The investor's percentage of the aggregate beneficial
interests in the Portfolio will then be recomputed as the percentage equal to
the fraction (i) the numerator of which is the value of such investor's
investment in the Portfolio at the Valuation Time on such day plus or minus, as
the case may be, the amount of net additions to or reductions in the investor's
investment in the Portfolio effected at the Valuation Time, and (ii) the
denominator of which is the aggregate net asset value of the Portfolio as of the
Valuation Time on such day, plus or minus, as the case may be, the amount of net
additions to or reductions in the aggregate investments in the Portfolio by all
investors in the Portfolio. The percentage so determined will then be applied to
determine the value of the investor's interest in the Portfolio as of the
Valuation Time on the following Portfolio Business Day.
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ITEM 8. REDEMPTION OR REPURCHASE.
An investor in the Portfolio may reduce all or any portion of its
investment at the net asset value next determined after a request in "good
order" is furnished by the investor to the Portfolio. The proceeds of a
reduction will be paid by the Portfolio in federal funds normally on the next
Portfolio Business Day after the reduction is effected, but in any event within
seven days. Investments in the Portfolio may not be transferred.
The right of any investor to receive payment with respect to any
reduction may be suspended or the payment of the proceeds therefrom postponed
during any period in which the New York Stock Exchange (the "NYSE") is closed
(other than weekends or holidays) or trading on the NYSE is restricted or, to
the extent otherwise permitted by the Investment Company Act of 1940 if an
emergency exists. In the event that trading in the money markets is scheduled to
end earlier than the close of the NYSE, the Portfolio would expect to close for
purchases and withdrawals an hour in advance of the end of trading in the money
markets. The Portfolio may also close for purchases and withdrawals at such
other times as may be determined by the Trustees to the extent permitted by
applicable law.
The Portfolio reserves the right under certain circumstances, such as
accommodating requests for substantial withdrawals or liquidations, to pay
distributions in kind to investors (i.e., to distribute portfolio securities as
opposed to cash). If securities are distributed, an investor could incur
brokerage, tax or other charges in converting the securities to cash. In
addition, distribution in kind may result in a less diversified portfolio of
investments or adversely affect the liquidity of the Portfolio or the investor's
portfolio, as the case may be.
ITEM 9. PENDING LEGAL PROCEEDINGS.
Not applicable.
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PART B
ITEM 10. COVER PAGE.
Not applicable.
ITEM 11. TABLE OF CONTENTS PAGE
General Information and History................ B-1
Investment Objective and Policies.............. B-1
Management of the Portfolio.................... B-6
Control Persons and Principal Holders
of Securities.................................. B-11
Investment Advisory and Other Services......... B-11
Brokerage Allocation and Other Practices....... B-15
Capital Stock and Other Securities............. B-17
Purchase, Redemption and Pricing of
Securities Being Offered....................... B-18
Tax Status..................................... B-19
Underwriters................................... B-20
Calculations of Performance Data............... B-20
Financial Statements........................... B-20
ITEM 12. GENERAL INFORMATION AND HISTORY.
Not applicable.
ITEM 13. INVESTMENT OBJECTIVE AND POLICIES.
The investment objective of The Federal Money Market Portfolio (the
"Portfolio") is to provide current income, maintain a high level of liquidity
and preserve capital. The Portfolio attempts to achieve its investment objective
by maintaining a dollar-weighted average portfolio maturity of not more than 90
days and by investing primarily in U.S. Treasury securities and by investing in
certain U.S. Government securities described in Part A and in this Part B that
have effective maturities of not more than thirteen months.
See "Quality and Diversification Requirements".
The Portfolio is advised by Morgan Guaranty Trust Company of New York
("Morgan" or the "Advisor").
The following discussion supplements the information regarding the
investment objective of the Portfolio and the policies the Portfolio employs to
achieve its objective as set forth above and in Part A.
MONEY MARKET INSTRUMENTS
A description of the types of money market instruments that may be
purchased by the Portfolio appears below. Also, see "Quality and Diversification
Requirements".
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U.S. TREASURY SECURITIES. The Portfolio 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 Portfolio 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. 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. In the case of securities not backed by the full faith and credit of the
United States, the Portfolio 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 Portfolio
may invest that are not backed by the full faith and credit of the United States
include, but are not limited to: (i) obligations of the Tennessee Valley
Authority, the Federal Home Loan Mortgage Corporation, the Federal Home Loan
Banks and the U.S. Postal Service, each of which has the right to borrow from
the U.S. Treasury to meet its obligations; (ii) securities issued by the Federal
National Mortgage Association, which are supported by the discretionary
authority of the U.S. Government to purchase the agency's obligations; and (iii)
obligations of the Federal Farm Credit System and the Student Loan Marketing
Association, each of whose obligations may be satisfied only by the individual
credits of the issuing agency.
REPURCHASE AGREEMENTS. The Portfolio may, although it has no current
intention to do so, enter into repurchase agreements with brokers, dealers or
banks that meet the credit guidelines approved by the Portfolio's Trustees. In a
repurchase agreement, the Portfolio 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 duration of
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 Portfolio to the seller. The period of these repurchase agreements
will usually be short, from overnight to one week, and at no time will the
Portfolio 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 Portfolio will only enter into repurchase agreements
involving U.S. Treasury securities or permitted agency securities. The Portfolio
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 Portfolio in each agreement plus accrued interest and any
other reasonably foreseeable transaction costs if the seller defaults (i.e., the
Portfolio will be fully collateralized within the meaning of paragraph (a)(3) of
Rule 2a-7 under the 1940 Act, and the Portfolio will make payment for such
securities only upon physical delivery or upon evidence of book entry transfer
to the account of
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the Portfolio's Custodian. If the seller defaults, the Portfolio 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 the disposal of the collateral by the
Portfolio may be delayed or limited. See "Investment Restrictions".
ADDITIONAL INVESTMENTS
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase
Treasury 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 fixed income securities, no interest
accrues to the Portfolio until settlement takes place. At the time the Portfolio
makes the commitment to purchase securities on a when-issued or delayed delivery
basis, it will record the transaction, reflect the value each day of such
securities in determining its net asset value and, if applicable, calculate the
maturity for the purposes of average maturity from that date. At the time of
settlement, a when-issued security may be valued at less than the purchase
price. To facilitate such acquisitions, the Portfolio will maintain with the
Custodian a segregated account with liquid assets, consisting of cash, U.S.
government securities or other appropriate securities, in an amount at least
equal to such commitments. On delivery dates for such transactions, the
Portfolio will meet its obligations from maturities or sales of the securities
held in the segregated account and/or from cash flow. If the Portfolio chooses
to dispose of the right to acquire a when-issued security prior to its
acquisition, it could, as with the disposition of any other portfolio
obligation, incur a gain or loss due to market fluctuation. It is the current
policy of the Portfolio not to enter into when-issued commitments exceeding in
the aggregate 15% of the market value of the Portfolio's total assets, less
liabilities other than the obligations created by when-issued commitments.
INVESTMENT COMPANY SECURITIES. Securities of other investment companies
may be acquired by the Portfolio 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 Portfolio'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
Portfolio. As a shareholder of another investment company, the Portfolio would
bear, along with other shareholders, its PRO RATA portion of the other
investment company's expenses, including advisory fees. These expenses would be
in addition to the advisory and other expenses that the Portfolio bears directly
in connection with its own operations.
REVERSE REPURCHASE AGREEMENTS. The Portfolio may enter into reverse
repurchase agreements. In a reverse repurchase agreement, the Portfolio sells
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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 Portfolio and, therefore, a
form of leverage. The Portfolio will invest the proceeds of borrowings under
reverse repurchase agreements. In addition, the Portfolio will enter into a
reverse repurchase agreement only when the interest income to be earned from the
investment of the proceeds is greater than the interest expense of the
transaction. The Portfolio will not invest the proceeds of a reverse repurchase
agreement for a period which exceeds the duration of the reverse repurchase
agreement. The Portfolio will establish and maintain with the Custodian a
separate account with a segregated portfolio of securities in an amount at least
equal to its purchase obligations under its reverse repurchase agreements. If
interest rates rise during the term of a reverse repurchase agreement, the
Portfolio's entering into the reverse repurchase agreement may have a negative
impact on the ability of investors in the Portfolio to maintain a net asset
value of $1.00 per share.
LOANS OF PORTFOLIO SECURITIES. Subject to applicable investment
restrictions, the Portfolio is permitted to lend its securities in an amount up
to 33 1/3% of the value of the Portfolio's net assets. The Portfolio may lend
its securities if such loans are secured continuously by cash or equivalent
collateral or by a letter of credit in favor of the Portfolio at least equal at
all times to 100% of the market value of the securities loaned, plus accrued
interest. While such securities are on loan, the borrower will pay the Portfolio
any income accruing thereon. Loans will be subject to termination by the
Portfolio in the normal settlement time, generally three business days after
notice, or by the borrower on one day's notice. Borrowed securities must be
returned when the loan is terminated. Any gain or loss in the market price of
the borrowed securities which occurs during the term of the loan inures to the
Portfolio and its respective investors. The Portfolio may pay reasonable
finders' and custodial fees in connection with a loan. In addition, the
Portfolio will consider all facts and circumstances including the
creditworthiness of the borrowing financial institution, and will not make any
loans in excess of one year. Loans of portfolio securities may be considered
extensions of credit by the Portfolio. The risks to the Portfolio with respect
to borrowers of its portfolio securities are similar to the risks to the
Portfolio with respect to sellers in repurchase agreement transactions. See
"Repurchase Agreements". The Portfolio will not lend its securities to any
officer, Trustee, Director, employee or other affiliate of the Portfolio, the
Advisor or the Distributor, unless otherwise permitted by applicable law.
ILLIQUID INVESTMENTS, PRIVATELY PLACED AND CERTAIN UNREGISTERED SECURITIES. The
Portfolio may invest in privately placed, restricted, Rule 144A or other
unregistered securities. The Portfolio may not acquire any illiquid holdings if,
as a result thereof, more than 10% of the Portfolio's net assets would be in
illiquid investments. Subject to this non-fundamental policy limitation, the
Portfolio may acquire investments that are illiquid or have limited liquidity,
such as private placements or investments that are not registered under the
Securities Act of 1933, as amended (the "1933 Act") and cannot be offered for
public sale in the United States without first being registered under the 1933
Act. An illiquid investment is any investment that cannot be disposed of within
seven days in the normal course of business at
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approximately the amount at which it is valued by the Portfolios. The price the
Portfolio pays for illiquid holdings or receives upon resale may be lower than
the price paid or received for similar securities with a more liquid market.
Accordingly the valuation of these holdings will reflect any limitations on
their liquidity.
The Portfolio may purchase Rule 144A securities sold to institutional
investors without registration under the 1933 Act. These securities may be
determined to be liquid in accordance with guidelines established by the Advisor
and approved by the Trustees. The Trustees will monitor the Advisor's
implementation of these guidelines on a periodic basis.
As to illiquid investments, The Portfolio is subject to a risk that
should the Portfolio decide to sell them when a ready buyer is not available at
a price the Portfolio deems representative of their value, the value of the
Portfolio's net assets could be adversely affected. Where an illiquid security
must be registered under the 1933 Act, before it may be sold, the Portfolio may
be obligated to pay all or part of the registration expenses, and a considerable
period may elapse between the time of the decision to sell and the time the
Portfolio may be permitted to sell a security under an effective registration
statement. If, during such a period, adverse market conditions were to develop,
the Portfolio might obtain a less favorable price than prevailed when it decided
to sell.
QUALITY AND DIVERSIFICATION REQUIREMENTS
The Portfolio intends to meet the diversification requirements
of the 1940 Act. To meet these requirements, 75% of the assets of the Portfolio
are subject to the following fundamental limitations: (1) the Portfolio 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 Portfolio may not own more than 10% of the outstanding voting
securities of any one issuer.
In order to maintain a stable net asset value, the Portfolio
will limit its investments to direct obligations of the U.S. Treasury, including
Treasury bills, notes and bonds, and certain U.S. Government securities with
remaining maturities of thirteen months or less at the time of purchase and will
maintain a dollar-weighted average portfolio maturity of not more than 90 days.
INVESTMENT RESTRICTIONS
The investment restrictions below have been adopted 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 Portfolio. 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 security holders 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
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percentage limitations contained in the restrictions below apply at the time
of the purchase of securities.
The Portfolio may not:
1. Enter into reverse repurchase agreements which together with
any other borrowing exceed in the aggregate one-third of the
market value of the Portfolio's total assets, less liabilities
other than the obligations created by reverse repurchase
agreements;
2. Borrow money (not including reverse repurchase agreements), except from
banks for temporary or extraordinary or emergency purposes and then only in
amounts up to 10% of the value of the Portfolio's total assets, taken at cost at
the time of such borrowing (and provided that such borrowings and reverse
repurchase agreements do not exceed in the aggregate one-third of the market
value of the Portfolio's total assets less liabilities other than the
obligations represented by the bank borrowings and reverse repurchase
agreements). Mortgage, pledge, or hypothecate any assets except in connection
with any such borrowing and in amounts not to exceed 10% of the value of the
Portfolio's net assets at the time of such borrowing. The Portfolio will not
purchase securities while borrowings exceed 5% of its total assets. This
borrowing provision is included to facilitate the orderly sale of portfolio
securities, for example, in the event of abnormally heavy redemption requests,
and is not for investment purposes;
3. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the Portfolio's
total assets would be invested in securities or other obligations of any one
such issuer. This limitation also shall not apply to issues of the U.S.
Government, its agencies or instrumentalities and repurchase agreements related
thereto, and to permitted investments of up to 25% of the Portfolio's total
assets;
4. Purchase the securities or other obligations of issuers conducting their
principal business activity in the same industry if, immediately after such
purchase, the value of its investment in such industry would exceed 25% of the
value of the Portfolio's total assets. For purposes of industry concentration,
there is no percentage limitation with respect to investments in U.S. Government
securities and repurchase agreements related thereto;
5. Make loans, except through purchasing or holding debt obligations,
repurchase agreements, or loans of portfolio securities in accordance with the
Portfolio's investment objective and policies (see "Investment Objective and
Policies");
6. Purchase or sell puts, calls, straddles, spreads, or any combination
thereof; real estate; commodities; or commodity contracts or interests in oil,
gas, or mineral exploration or development programs;
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7. Purchase securities on margin, make short sales of securities, or
maintain a short position, provided that this restriction shall not be deemed to
be applicable to the purchase or sale of when-issued securities or of securities
for delivery at a future date;
8. Acquire securities of other investment companies, except as permitted by
the 1940 Act or in connection with a merger, consolidation, reorganization,
acquisition of assets or an offer of exchange;
9. Act as an underwriter of securities.
10. Issue senior securities, except as may otherwise be permitted by the
foregoing investment restrictions or under the 1940 Act or any rule, order or
interpretation thereunder.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS. The investment restriction
described below is not a fundamental policy of the Portfolio and may be changed
by its trustees. This non-fundamental investment policy requires that the
Portfolio may not:
(i) acquire any illiquid securities, such as repurchase
agreements with more than seven days to maturity or
fixed time deposits with a duration of over seven
calendar days, if as a result thereof, more than 10%
of the market value of the Portfolio's net assets
would be in investments that are illiquid.
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.
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ITEM 14. MANAGEMENT OF THE PORTFOLIO.
The Trustees of the Portfolio, their business addresses, principal
occupations during the past five years, and dates of birth are set forth below.
TRUSTEES
FREDERICK S. ADDY -- Trustee; Retired; Prior to April 1994, Executive
Vice President and Chief Financial Officer, 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.
MATTHEW HEALEY (1)) -- Trustee; Chairman and Chief Executive Officer;
Chairman, Pierpont Group, Inc. since prior to 1993. 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; Prior to April 1996, Senior
Vice President, Capital Cities/ABC, Inc. and President, Broadcast Group. His
address is 10 Charnwood Drive, Suffern, NY 10910, and his date of birth is
March 17, 1934.
Each Trustee is currently paid an annual fee of $75,000 for serving as
Trustee of the Master Portfolios (as defined below), J.P. Morgan Funds, J.P.
Morgan Institutional Funds and J.P. Morgan Series Trust and is reimbursed for
expenses incurred in connection with service as a Trustee. The Trustees may hold
various other directorships unrelated to the Portfolio.
--------------------------
(1) Mr. Healey is an "interested person" of the Portfolio and the
Advisor as that term is defined in the 1940 Act.
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Trustee compensation expenses paid by the Portfolio for the calendar
year ended December 31, 1997 is set forth below.
TOTAL TRUSTEE
COMPENSATION
ACCRUED BY THE MASTER
AGGREGATE TRUSTEE PORTFOLIOS(*), J.P. MORGAN
COMPENSATION PAID BY THE INSTITUTIONAL FUNDS, J.P.
NAME OF TRUSTEE PORTFOLIO DURING 1997 MORGAN FUNDS AND J.P. MORGAN
SERIES TRUST DURING 1997(**)
Frederick S. Addy, $837.50 $72,500
Trustee
William G. Burns, $837.50 $72,500
Trustee
Arthur C. Eschenlauer, $837.50 $72,500
Trustee
Matthew Healey,
Trustee(***), Chairman and
Chief Executive Officer $837.50 $72,500
Michael P. Mallardi, $837.50 $72,500
Trustee
- ------------------------------ -------------------------- ------------------
(*) Includes the Portfolio and 21 other portfolios (collectively,
the "Master Portfolios") for which Morgan acts as investment
adviser.
(**) 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 J.P. Morgan Funds, the J.P.
Morgan Institutional Funds and J.P. Morgan Series Trust) in the fund complex.
(***) During 1997, Pierpont Group paid Mr. Healey, in his role as
Chairman of Pierpont Group, compensation in the amount of
$147,500,contributed $22,100 to a defined contribution plan on
his behalf and paid $20,500 in insurance premiums for his
benefit.
The Trustees of the Portfolio are the same as the Trustees of each of
the other Master Portfolios, the J.P. Morgan Funds, J.P. Morgan Institutional
Funds and J.P. Morgan Series Trust. 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 Master
Portfolios, the J.P. Morgan Funds and the J.P. Morgan Institutional Funds, up to
and including creating a separate board of trustees.
The Trustees of the Portfolio, in addition to reviewing actions of the
Portfolio's various service providers, decide upon matters of general policy.
The Portfolio has entered into a Portfolio Fund Services Agreement with Pierpont
Group to assist the Trustees in exercising their overall supervisory
responsibilities over the affairs of the Portfolio. Pierpont Group was
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organized in July 1989 to provide services for the J.P. Morgan Funds (formerly,
"The Pierpont Family of Funds") (currently an investor in the Portfolio). The
Portfolio has agreed to pay Pierpont Group a fee in an amount representing its
reasonable costs in performing these services. These costs are periodically
reviewed by the Trustees. The aggregate fees paid to Pierpont Group by the
Portfolio for the fiscal years ended October 31, 1995, 1996 and 1997 were:
$22,791, $16,144 and $12,004, respectively. The Portfolio has no employees; its
executive officers (listed below), other than the Chief Executive Officer and
the officers who are employees of the Advisor, are provided and compensated by
Funds Distributor, Inc. ("FDI"), a wholly-owned, indirect subsidiary of Boston
Institutional Group, Inc. The Portfolio's officers conduct and supervise the
business operations of the Portfolio.
The officers of the Portfolio, their principal occupations during the
past five years and their dates of birth are set forth below. The business
address of each of the officers unless otherwise noted is 60 State Street, Suite
1300, Boston, Massachusetts 02109.
MATTHEW HEALEY; Chief Executive Officer; Chairman, Pierpont Group,
since prior to 1993. 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,
Chief Executive Officer, Chief Compliance Officer and Director of FDI and
Premier Mutual Fund Services, Inc., an affiliate of FDI ("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. Assistant
Vice President and Manager of Treasury Services and Administration of FDI and
an officer of certain investment companies advised or administered by Dreyfus
or its affiliates. Prior to April 1997, Mr. Conroy was Supervisor of Treasury
Services and Administration of FDI. 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.
RICHARD W. INGRAM; President and Treasurer. Executive 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. (together "RCM"), Waterhouse Investors Cash Management
Fund, Inc. ("Waterhouse") and certain investment companies advised or
administered by Dreyfus or Harris Trust and Savings Bank ("Harris") or their
respective affiliates. Prior to April 1997, Mr. Ingram was Senior Vice
President and Director of Client Services and Treasury Administration of FDI.
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.
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KAREN JACOPPO-WOOD; Vice President and Assistant Secretary. Assistant
Vice President of FDI and an officer of RCM, Waterhouse 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.
CHRISTOPHER J. KELLEY; Vice President and Assistant Secretary. Vice
President and Associate General Counsel of FDI and Premier Mutual and an
officer of Waterhouse 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.
MARY A. NELSON; Vice President and Assistant Treasurer. Vice President
and Manager of Treasury Services and Administration of FDI and Premier Mutual,
an officer of RCM, Waterhouse 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.
MARY JO PACE; Assistant Treasurer. Vice President, Morgan Guaranty
Trust Company of New York. Ms. Pace serves in the Funds Administration group
as a Supervisor for the Budgeting and Expense Division. Prior to September
1995, Ms. Pace served as a Funds Administrator for Morgan Guaranty Trust
Company of New York. Her address is 60 Wall Street, New York, New York 10260.
Her date of birth is March 13, 1966.
MICHAEL S. PETRUCELLI; Vice President and Assistant Secretary. Senior
Vice President and Director of Strategic Client Initiatives for FDI since
December 1996. From December 1989 through November 1996, Mr. Petrucelli was
employed with GE Investments where he held various financial, business
development and compliance positions. He also served as Treasurer of the GE
Funds and as Director of GE Investment Services. Address: 200 Park Avenue,
New York, New York, 10166. His date of birth is May 18, 1961.
CHRISTINE ROTUNDO; Assistant Treasurer. Vice President, Morgan Guaranty
Trust Company of New York. Ms. Rotundo serves in the Funds Administration
group and is responsible for U.S. mutual fund tax matters. Prior to September
1995, Ms. Rotundo served as a Senior Tax Manager in the Investment Company
Services Group of Deloitte & Touche LLP. Her address is 60 Wall Street, New
York, New York 10260. Her date of birth is September 26, 1965.
JOSEPH F. TOWER III; Vice President and Assistant Treasurer. Executive
Vice President, Treasurer and Chief Financial Officer, Chief Administrative
Officer and Director of FDI. Senior Vice President, Treasurer and Chief
Financial Officer, Chief Administrative Officer and Director of Premier Mutual
and an officer of Waterhouse and certain investment companies advised or
administered by Dreyfus or its affiliates. Prior to April 1997, Mr. Tower was
Senior Vice President, Treasurer and Chief Financial Officer, Chief
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Administrative Officer and Director of FDI. From July 1988 to November 1993,
Mr. Tower was Financial Manager of The Boston Company, Inc. His date of birth
is June 13, 1962.
The Portfolio's Declaration of Trust provides that it will indemnify
its Trustees and officers against liabilities and expenses incurred in
connection with litigation in which they may be involved because of their
offices with the Portfolio, unless, as to liability to the Portfolio or its
investors, it is finally adjudicated that they engaged in willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in
their offices, or unless with respect to any other matter it is finally
adjudicated that they did not act in good faith in the reasonable belief that
their actions were in the best interests of the Portfolio. In the case of
settlement, such indemnification will not be provided unless it has been
determined by a court or other body approving the settlement or other
disposition, or by a reasonable determination, based upon a review of readily
available facts, by vote of a majority of disinterested Trustees or in a written
opinion of independent counsel, that such officers or Trustees have not engaged
in willful misfeasance, bad faith, gross negligence or reckless disregard of
their duties.
ITEM 15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.
As of January 30, 1998, the J.P. Morgan Institutional Federal Money
Market Fund, J.P. Morgan Institutional Service Federal Money Market Fund and
J.P. Morgan Federal Money Market Fund, series of the J.P. Morgan Institutional
Funds and the J.P. Morgan Funds owned 42%, less than 1% and 57%, respectively,
of the outstanding beneficial interests in the Portfolio. So long as the J.P.
Morgan Institutional and J.P. Morgan Funds control the Portfolio, they may take
action without the approval of any other holder of beneficial interests in the
Portfolio.
Each of the funds has informed the Portfolio that whenever it is
requested to vote on matters pertaining to the Portfolio (other than a vote by
the Portfolio to continue the operation of the Portfolio upon the withdrawal of
another investor in the Portfolio), it will hold a meeting of its shareholders
and will cast its vote as instructed by those shareholders.
The officers and Trustees of the Portfolio own none of the outstanding
beneficial interests in the Portfolio.
ITEM 16. INVESTMENT ADVISORY AND OTHER SERVICES.
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.
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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 U.S. 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 approximately $250 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 Advisor's fixed income investment process is based on analysis or real
rates, sector diversification and quantitative and credit analysis.
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 Item
17 below.
Sector weightings are generally similar to a fund's benchmark with the
emphasis on security selection as the method to achieve investment performance
superior to the benchmark. The benchmark for the Portfolio is currently IBC's
U.S. Government & Agency Money Market Fund Average.
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.
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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. and certain other
investment management affiliates of J.P. Morgan.
As compensation for the services rendered and related expenses such as
salaries of advisory personnel borne by the Advisor under the Investment
Advisory Agreement, the Portfolio has agreed to pay the Advisor a fee, which is
computed daily and may be paid monthly, equal to the annual rate of 0.20% of the
Portfolio's average daily net assets up to $1 billion and 0.10% of the
Portfolio's average daily net assets in excess of $1 billion. For the fiscal
years ended October 31, 1995, 1996 and 1997, the Portfolio paid Morgan $492,941,
$653,326 and $659,707, respectively, in advisory fees.
The Investment Advisory Agreement provides that it will continue in
effect for a period of two years after execution only if specifically approved
annually thereafter (i) by a vote of the holders of a majority of the
Portfolio's outstanding securities or by its Trustees and (ii) by a vote of a
majority of the Trustees who are not parties to the Advisory Agreement or
"interested persons" as defined by the 1940 Act cast in person at a meeting
called for the purpose of voting on such approval. 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 Trustees, or by a vote of the
holders of a majority of the Portfolio's voting securities, on 60 days' written
notice to the Advisor and by the Advisor on 90 days' written notice to the
Portfolio.
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 securities, such
as the Portfolio. 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 a separate agreement, Morgan also provides administrative and
related services to the Portfolio. See "Administrative Services Agreement" in
Part A above.
PLACEMENT AGENT. FDI, a registered broker-dealer, also serves as
exclusive placement agent for the Portfolio. FDI is a wholly owned indirect
subsidiary of Boston Institutional Group, Inc. FDI's principal business address
is 60 State Street, Suite 1300, Boston, Massachusetts 02109.
CO-ADMINISTRATOR. Under the Portfolio's Co-Administration Agreement
dated August 1, 1996, FDI serves as the Portfolio's Co-Administrator. The
Co-Administration Agreement may be renewed or amended by the Trustees without an
investor vote. The Co-Administration Agreement is terminable at any time without
penalty by a vote of a majority of the Trustees of the Portfolio on not more
than 60 days' written notice nor less than 30 days' written notice to the other
party. The Co-Administrator, subject to the consent of the Trustees of the
Portfolio may, subcontract for the performance of its obligations, provided,
however, that unless the Portfolio 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 "Administrative
Services Agent" below.
FDI (i) provides office space, equipment and clerical personnel for
maintaining the organization and books and records of the Trust and the
Portfolio; (ii) provides officers for the Trust and the Portfolio; (iii)
prepares and files documents required 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 Agreement, 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 Portfolio is based on the ratio of its net assets to the aggregate net
assets of the J.P. Morgan Funds, the J.P. Morgan Institutional Funds, the Master
Portfolios and certain other investment companies subject to similar agreements
with FDI. For the period from August 1, 1996 through October 31, 1996
administrative fees of $1,663 were paid by the Portfolio to FDI. For the fiscal
year ended October 31, 1997: $6,218.
The following administrative fees were paid by the Portfolio to
Signature Broker-Dealer Services, Inc. ("SBDS") (which provided placement agent
and administrative services to the Portfolio prior to August 1, 1996): For the
fiscal year ended October 31, 1995: $17,480. For the period from November 1,
1995 through July 31, 1996: $28,623.
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ADMINISTRATIVE SERVICES AGENT. The Portfolio has entered into a
Restated Administrative Services Agreement (the "Services Agreement") with
Morgan, pursuant to which Morgan is responsible for certain administrative and
related services provided to the Portfolio.
Under the Services Agreement effective August 1, 1996, 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 Master Portfolios and J.P. Morgan 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 Portfolio is determined by the proportionate share that
its net assets bear to the total net assets of the J.P. Morgan Funds, the J.P.
Morgan Institutional Funds, The Master Portfolios, the other investors in the
Master Portfolios for which Morgan provides similar services and J.P. Morgan
Series Trust.
Under administrative services agreements in effect with Morgan from
December 29, 1995 through July 31, 1996, 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' aggregate average daily net assets in excess of $7 billion. Prior to
December 29, 1995, the Portfolio had entered into a financial and fund
accounting services agreement with Morgan, the provisions of which included
certain of the activities described above and, prior to September 1, 1995, also
included reimbursement of usual and customary expenses.
For the fiscal years ended October 31, 1995, 1996 and 1997, the
Portfolio paid Morgan $(146,180)*, $(165,137)* and $101,963, respectively, in
administrative services fees.
See "Expenses" below for applicable expense limitations.
CUSTODIAN. State Street Bank and Trust Company ("State Street"), 225
Franklin Street, Boston, Massachusetts 02110, serves as the Portfolio's
custodian and fund accounting and transfer agent. Pursuant to the Custodian
Contract, State Street is responsible for maintaining the books of account and
records of portfolio transactions and holding the portfolio securities and cash.
In addition, the Custodian has entered into a subcustodian agreement with Morgan
Guaranty Trust Company of New York for the purpose of holding participations in
master demand obligations. The Custodian maintains portfolio transaction
records, calculates book and tax allocation for the Portfolio, and computes the
value of the interest of each investors.
--------------------
* Indicates a reimbursement by Morgan for expenses in excess of its
fees under the Services Agreements. No fees were paid for the fiscal period.
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INDEPENDENT ACCOUNTANTS. The independent accountants of 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
Portfolio, assists in the preparation and/or review of each of the Portfolio's
federal and state income tax returns and consults with the Portfolio as to
matters of accounting and federal and state income taxation.
EXPENSES. In addition to the fees payable to the service providers
identified above, the Portfolio is responsible for usual and customary expenses
associated with its operations. Such expenses include organization expenses,
legal fees, accounting and audit expenses, insurance costs, the compensation and
expenses of the Trustees, registration fees under federal securities laws, and
extraordinary expenses, applicable to the Portfolio. Under fee arrangements
prior to September 1, 1995, Morgan as service agent was responsible for
reimbursements to the Portfolio for SBDS's fees as Administrator and the usual
and customary expenses described above (excluding organization and extraordinary
expenses, custodian fees and brokerage expenses).
Morgan has agreed that it will reimburse the Portfolio through February
28, 1998 to the extent necessary to maintain the Portfolio's total operating
expenses at the annual rate of 0.20% of the Portfolio's average daily net
assets. This limit does not cover extraordinary expenses during the period.
There is no assurance that Morgan will continue this waiver beyond the specified
period.
ITEM 17. BROKERAGE ALLOCATION AND OTHER PRACTICES.
The Advisor places orders for the Portfolio 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 Portfolio. See Item 13 above.
Fixed income 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 Portfolio will be undertaken principally
to accomplish the Portfolio's objective in relation to expected movements in the
general level of interest rates. The Portfolio may engage in short term trading
consistent with its objective.
In connection with portfolio transactions for the Portfolio, the
Advisor intends to seek best execution on a competitive basis for both purchases
and sales of securities.
The Portfolio's policy of investing only in securities with maturities
of less than thirteen months will result in high portfolio turnover. Since
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brokerage commissions are not normally paid on investments which the Portfolio
makes, turnover resulting from such investments should not adversely affect the
net asset value or net income of the Portfolio.
Subject to the overriding objective of obtaining the best execution of
orders, the Advisor may allocate a portion of the Portfolio's portfolio
brokerage transactions to affiliates of the Advisor. In order for affiliates of
the Advisor to effect any portfolio transactions for the Portfolio, the
commissions, fees or other remuneration received by such affiliates must be
reasonable and fair compared to the commissions, fees, or other remuneration
paid to other brokers in connection with comparable transactions involving
similar securities being purchased or sold on a securities exchange during a
comparable period of time. Furthermore, the Trustees of the Portfolio, including
a majority of the Trustees who are not "interested persons," have adopted
procedures which are reasonably designed to provide that any commissions, fees,
or other remuneration paid to such affiliates are consistent with the foregoing
standard.
The Portfolio's portfolio securities will not be purchased from or
through or sold to or through the Exclusive Placement Agent or Advisor or any
other "affiliated person" (as defined in the 1940 Act), of the Exclusive
Placement Agent or Advisor when such entities are acting as principals, except
to the extent permitted by law. In addition, the Portfolio 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 Portfolio as well as other
customers, including other Portfolios, the Advisor, to the extent permitted by
applicable laws and regulations, may, but is not obligated to, aggregate the
securities to be sold or purchased for the Portfolio with those to be sold or
purchased for other customers in order to obtain best execution, including lower
brokerage commissions if appropriate. In such event, allocation of the
securities so purchased or sold as well as any expenses incurred in the
transaction will be made by the Advisor in the manner it considers to be most
equitable and consistent with its fiduciary obligations to the Portfolio. In
some instances, this procedure might adversely affect the Portfolio.
ITEM 18. CAPITAL STOCK AND OTHER SECURITIES.
Under the Declaration of Trust, the Trustees are authorized to issue
beneficial interests in the Portfolio. Investors are entitled to participate pro
rata in distributions of taxable income, loss, gain and credit of the Portfolio.
Upon liquidation or dissolution of the Portfolio, investors are entitled to
share pro rata in the Portfolio's net assets available for distribution to its
investors. Investments in the Portfolio have no preference, preemptive,
conversion or similar rights and are fully paid and nonassessable, except as set
forth below. Investments in the Portfolio may not be transferred. Certificates
representing an investor's beneficial interest in the Portfolio are issued only
upon the written request of an investor.
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Each investor is entitled to a vote in proportion to the amount of its
investment in the Portfolio. Investors in the Portfolio do not have cumulative
voting rights, and investors holding more than 50% of the aggregate beneficial
interest in the Portfolio may elect all of the Trustees if they choose to do so
and in such event the other investors in the Portfolio would not be able to
elect any Trustee. The Portfolio is not required and has no current intention to
hold annual meetings of investors but the Portfolio will hold special meetings
of investors when in the judgment of the Portfolio's Trustees it is necessary or
desirable to submit matters for an investor vote. No material amendment may be
made to the Portfolio's Declaration of Trust without the affirmative majority
vote of investors (with the vote of each being in proportion to the amount of
its investment).
The Portfolio may enter into a merger or consolidation, or sell all or
substantially all of its assets, if approved by the vote of two thirds of its
investors (with the vote of each being in proportion to its percentage of the
beneficial interests in the Portfolio), except that if the Trustees recommend
such sale of assets, the approval by vote of a majority of the investors (with
the vote of each being in proportion to its percentage of the beneficial
interests of the Portfolio) will be sufficient. The Portfolio may also be
terminated (i) upon liquidation and distribution of its assets if approved by
the vote of two thirds of its investors (with the vote of each being in
proportion to the amount of its investment) or (ii) by the Trustees by written
notice to its investors.
The Portfolio is organized as a trust under the laws of the State of
New York. Investors in the Portfolio will be held personally liable for its
obligations and liabilities, subject, however, to indemnification by the
Portfolio in the event that there is imposed upon an investor a greater portion
of the liabilities and obligations of the Portfolio than its proportionate
beneficial interest in the Portfolio. The Declaration of Trust also provides
that the Portfolio shall maintain appropriate insurance (for example, fidelity
bonding and errors and omissions insurance) for the protection of the Portfolio,
its investors, Trustees, officers, employees and agents covering possible tort
and other liabilities. Thus, the risk of an investor incurring financial loss on
account of investor liability is limited to circumstances in which both
inadequate insurance existed and the Portfolio itself was unable to meet its
obligations.
The Portfolio's Declaration of Trust further provides that obligations
of the Portfolio are not binding upon the Trustees individually but only upon
the property of the Portfolio and that the Trustees will not be liable for any
action or failure to act, but nothing in the Declaration of Trust protects a
Trustee against any liability to which he would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence, or reckless disregard of
the duties involved in the conduct of his office.
ITEM 19. PURCHASE, REDEMPTION AND PRICING OF SECURITIES
Beneficial interests in the Portfolio are issued solely in private
placement transactions that do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act.
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All portfolio securities for the Portfolio are valued by the amortized
cost method, as permitted by a rule adopted by the SEC. The purpose of this
method of calculation is to allow certain investors in the Portfolio to maintain
a constant net asset value. No assurances can be given that this goal can be
attained. The amortized cost method of valuation values a security at its cost
at the time of purchase and thereafter assumes a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. If a difference of more
than 1/2 of 1% occurs between valuation based on the amortized cost method and
valuation based on market value, the Trustees will take steps necessary to
reduce such deviation, such as shortening the average portfolio maturity,
realizing gains or losses, or reducing the aggregate outstanding interests. Any
reduction of outstanding interests will be effected by having each investor in
the Portfolio contribute to the Portfolio's capital the necessary amounts on a
pro rata basis. Each investor in the Portfolio will be deemed to have agreed to
such a contribution in these circumstances by his investment in the Portfolio.
If the Portfolio determines that it would be detrimental to the best
interest of the remaining investors in the Portfolio 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 interests are redeemed in
kind, the redeeming investor might incur transaction costs in converting the
assets into cash. The method of valuing portfolio securities is described above
and such valuation will be made as of the same time the redemption price is
determined. The Portfolio has elected to be governed by Rule 18f-1 under the
1940 Act pursuant to which the Portfolio is obligated to redeem interests solely
in cash up to the lesser of $250,000 or 1% of the net asset value of the
Portfolio during any 90 day period for any one investor. The Portfolio will not
redeem in kind except in circumstances in which an investor is permitted to
redeem in kind.
The net asset value of the Portfolio will not be computed on a day on
which no orders to purchase or withdraw beneficial interests in the Portfolio
has been received or on the days the following legal holidays are observed: New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Veteran's Day, Columbus Day, Thanksgiving Day,
and Christmas Day. In the event that trading in the money markets is scheduled
to end earlier than the close of the New York Stock Exchange in observance of
these holidays, the Portfolio would expect to close for purchases and
withdrawals an hour in advance of the end of trading in the money markets. The
Portfolio may also close for purchases and withdrawals at such other times as
may be determined by the Trustees to the extent permitted by applicable law. The
days on which net asset value is determined are the Portfolio's business days.
ITEM 20. TAX STATUS.
The Portfolio is organized as a New York trust. The Portfolio is not
subject to any income or franchise tax in the State of New York. However, each
investor in the Portfolio will be subject to U.S. Federal income tax in the
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manner described below on its share (as determined in accordance with the
governing instruments of the Portfolio) of the Portfolio's ordinary income and
capital gain in determining its income tax liability. The determination of such
share will be made in accordance with the Code, and regulations promulgated
thereunder.
Although, as described above, the Portfolio will not be subject to
federal income tax, it will file appropriate income tax returns.
It is intended that the Portfolio's assets will be managed in such a
way that an investor in the Portfolio will be able to satisfy the requirements
of Subchapter M of the Code. To ensure that investors will be able to satisfy
the requirements of subchapter M, the Portfolio must satisfy certain gross
income and diversification requirements.
For the Portfolio to qualify as a regulated investment company under
Subchapter M of the Code, the Portfolio limits its investments so that at the
close of each quarter of its taxable year (a) no more than 25% of its total
assets are invested in the securities of any one issuer, except government
securities, and (b) with regard to 50% of its total assets, no more than 5% of
its total assets are invested in the securities of a single issuer, except U.S.
Government securities.
Gains or losses on sales of portfolio securities will be treated as
long-term capital gains or losses if the securities have been held by it for
more than one year. Long-term capital gain of individual investors will be
subject to a reduced rate of tax if the portfolio securities have been held by
the Portfolio for more than one year at the time of sale and will be subject to
a further reduced rate of tax if the portfolio securities have been held by the
Portfolio for more than eighteen months at the time of sale. Other gains or
losses on the sale of securities will be short-term capital gains or losses.
OTHER TAXATION. The investment by an investor in the Portfolio does not
cause the investor to be liable for any income or franchise tax in the State of
New York. Investors are advised to consult their own tax advisors with respect
to the particular tax consequences to them of an investment in the Portfolio.
ITEM 21. UNDERWRITERS.
The exclusive placement agent for the Portfolio is FDI, which receives
no additional compensation for serving in this capacity. Investment companies,
insurance company separate accounts, common and commingled trust funds and
similar organizations and entities may continuously invest in the Portfolio.
ITEM 22. CALCULATIONS OF PERFORMANCE DATA.
Not applicable.
ITEM 23. FINANCIAL STATEMENTS.
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The Portfolio's October 31, 1997 annual report filed with the
Securities and Exchange Commission pursuant to Section 30(b) of the 1940 Act and
Rule 30b2-1 thereunder is incorporated herein by reference (Accession
No.0001016969-97-100, filed December 24, 1997).
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APPENDIX A
Description of Security Ratings
STANDARD & POOR'S
CORPORATE AND MUNICIPAL BONDS
AAA- Debt rated AAA have 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 have a very strong capacity to pay interest
and repay principal and differ from the highest rated issues
only in a small degree.
A - Debt rated A have a strong capacity to pay interest and
repay principal although they are somewhat more susceptible to
the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB- Debt rated BBB are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally
exhibit 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 are regarded as having less near-term
vulnerability to default than other speculative issues.
However, they face major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could
lead to inadequate capacity to meet timely interest and
principal payments.
COMMERCIAL PAPER, INCLUDING TAX EXEMPT
A - Issues assigned this highest rating are regarded as having
the greatest capacity for timely payment. Issues in this
category are further refined with the designations 1, 2, and 3
to indicate the relative degree of safety.
A-1 - This designation indicates that the degree of safety
regarding timely payment is very strong.
SHORT-TERM TAX-EXEMPT NOTES
SP-1 - The short-term tax-exempt note rating of SP-1 is the highest rating
assigned by Standard & Poor's and has a very strong or strong capacity to pay
principal and interest. Those issues determined to possess overwhelming safety
characteristics are given a "plus" (+) designation.
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SP-2 - The short-term tax-exempt note rating of SP-2 has a
satisfactory capacity to pay principal and interest.
MOODY'S
CORPORATE AND MUNICIPAL BONDS
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest
are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well-assured.
Often the protection of interest and principal payments may be
very moderate, and thereby not well safeguarded during both
good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
COMMERCIAL PAPER, INCLUDING TAX EXEMPT
Prime-1- Issuers rated Prime-1 (or related supporting
institutions) have a superior capacity for repayment
of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the
following characteristics:
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Appendix-2
<PAGE>
- - Leading market positions in well established
industries.
- - High rates of return on funds employed.
- - Conservative capitalization structures with moderate
reliance on debt and ample asset protection.
- - Broad margins in earnings coverage of fixed financial
charges and high internal cash generation.
- - Well established access to a range of financial
markets and assured sources of alternate liquidity.
SHORT-TERM TAX EXEMPT NOTES
MIG-1 - The short-term tax-exempt note rating MIG-1 is the highest rating
assigned by Moody's for notes judged to be the best quality. Notes with this
rating enjoy strong protection from established cash flows of funds for their
servicing or from established and broad-based access to the market for
refinancing, or both.
MIG-2 - MIG-2 rated notes are of high quality but with margins of
protection not as large as MIG-1.
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Appendix-3
<PAGE>
PART C
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS INCLUDED IN PART A:
Not applicable.
FINANCIAL STATEMENTS INCORPORATED BY REFERENCE INTO PART B:
The audited financial statements included in Item 23 are as
follows:
Schedule of Investments at October 31, 1997
Statement of Assets and Liabilities at October 31, 1997
Statement of Operations for the fiscal year ended October 31, 1997
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements, October 31, 1997
(B) EXHIBITS
1 Declaration of Trust, as amended, of the Registrant. 4
2 Restated By-Laws of the Registrant. 2
5 Investment Advisory Agreement between the Registrant and Morgan
Guaranty Trust Company of New York ("Morgan"). 4
8 Custodian Contract between the Registrant and State Street Bank
and Trust Company ("State Street"). 3
9(a) Co-Administration Agreement between the Registrant and Funds
Distributor, Inc. dated August 1, 1996 ("Co-Administration
Agreement").1
9(a)1 Amended Exhibit I to Co-Administration Agreement. 2
9(b) Transfer Agency and Service Agreement between the Registrant and
State Street. 2
9(c) Restated Administrative Services Agreement between the
Registrant and Morgan dated August 1, 1996 ("Administrative
Services Agreement").
1
9(c)(1) Amended Exhibit I to Administrative Services Agreement. 2
9(d) Amended and Restated Portfolio Fund Services Agreement between the
Registrant and Pierpont Group, Inc. dated July 11, 1996. 1
13 Investment representation letters of initial investors. 4
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<PAGE>
27 Financial Data Schedule. 5
- ------------------------
1 Incorporated herein by reference from Amendment No. 5 to the
Registrant's registration statement on Form N-1A as filed with
the Securities and Exchange Commission (the "Commission") on
October 9, 1996 (Accession No. 0000912057-96-022173).
2. Incorporated by reference from Amendment No. 6 to the registration
statement on Form N-1A for The U.S. Fixed Income Portfolio as
filed with the Commission on February 14, 1997 (Accession No.
0001016964-97-000020).
3. Incorporated by reference from Amendment No. 4 to the registration
statement on Form N-1A for The Tax Exempt Bond Portfolio as filed
with the Commission on October 7, 1996 (Accession No. 0000912057-
96-022171).
4. Incorporated by reference from Amendment No. 6 to the Registrant's
registration statement on Form N-1A filed with the Commission on
February 28, 1997 (Accession No. 0001016964-97-000028).
5. Filed herewith.
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<PAGE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
REGISTRANT.
Not applicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
Title of Class: Beneficial Interests
Number of Record Holders: 3 (as of January 30, 1998)
ITEM 27. INDEMNIFICATION.
Reference is hereby made to Article V of the Registrant's Declaration
of Trust, filed as an Exhibit to its Registration Statement on Form N-1A hereto.
The Trustees and officers of the Registrant and the personnel of the
Registrant's co-administrator are insured under an errors and omissions
liability insurance policy. The Registrant and its officers are also insured
under the fidelity bond required by Rule 17g-1 under the Investment Company Act
of 1940.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Morgan is a New York trust company which is a wholly-owned subsidiary
of J.P. Morgan & Co. Incorporated. Morgan conducts a general banking and
trust business.
To the knowledge of the Registrant, none of the directors, except those
set forth below, or executive officers of Morgan is or has been during the past
two fiscal years engaged in any other business, profession, vocation or
employment of a substantial nature, except that certain officers and directors
of Morgan also hold various positions with, and engage in business for, J.P.
Morgan & Co. Incorporated, which owns all the outstanding stock of Morgan. Set
forth below are the names, addresses, and principal business of each director of
Morgan Guaranty who is engaged in another business, profession, vocation or
employment of a substantial nature.
Paul A. Allaire: Chairman and Chief Executive Officer, Xerox Corporation
(office imaging systems). His address is Xerox Corporation, P.O. Box 1600, 800
Long Ridge Road, Stamford, CT 06904.
Riley P. Bechtel: Chairman and Chief Executive Officer, Bechtel Group,
Inc. (architectural design and construction). His address is Bechtel Group,
Inc., P.O. Box 193965, San Francisco, CA 94119-3965.
Lawrence A. Bossidy: Chairman and Chief Executive Officer, Allied Signal
Inc. (advanced technology and manufacturing company). His address is Allied
Signal Inc., P.O. Box 3000, Morristown, N.J. 07962-2245.
Martin Feldstein: President and Chief Executive Officer, National Bureau
of Economic Research, Inc. (national research institution). His address is
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<PAGE>
National Bureau of Economic Research, Inc., 1050 Massachusetts Avenue,
Cambridge, MA 02138-5398.
Ellen V. Futter: President, American Museum of Natural History (not-for-
profit organization). Her address is American Museum of Natural History, Central
Park West at 79th Street, New York, NY 10024.
Hanna H. Gray: President Emeritus and Harry Pratt Judson Distinguished
Service Professor of History, The University of Chicago (academic
institution). Her address is The University of Chicago, Department of History,
1126 East 59th Street, Chicago, IL 60637.
James R. Houghton: Retired Chairman of the Board, Corning Incorporated
(glass products). His address is R.D. #2 Spencer Hill Road, Corning, NY 14830.
James L. Ketelsen: Retired Chairman and Chief Executive Officer, Tenneco
Inc. (oil, pipe-lines, and manufacturing). His address is 10 South Briar Hollow
7, Houston, TX 77027.
John A. Krol: President and Chief Executive Officer, E.I. du Pont de
Nemours and Company (chemicals and energy company). His address is E.I. du
Pont de Nemours and Company, 1007 Market Street, Wilmington, DE 19898.
Lee R. Raymond: Chairman of the Board and Chief Executive Officer, Exxon
Corporation (oil, natural gas, and other petroleum products). His address is
Exxon Corporation, 5959 Las Colinas Boulevard, Irving, TX 75039-2298.
Richard D. Simmons: Retired; Former President, The Washington Post
Company and International Herald Tribune (newspapers). His address is P.O. Box
242, Sperryville, VA 22740.
Douglas C. Yearley: Chairman, President and Chief Executive Officer,
Phelps Dodge Corporation (chemicals). His address is Phelps Dodge Corporation,
2600 N. Central Avenue, Phoenix, AZ 85004-3014.
ITEM 29. PRINCIPAL UNDERWRITERS.
Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
The accounts and records of the Registrant are located, in whole or in
part, at the office of the Registrant and the following locations:
Morgan Guaranty Trust Company of New York, 60 Wall Street, New York,
New York 10260- 0060 or 522 Fifth Avenue, New York, New York 10036 (records
relating to its functions as investment adviser and administrative services
agent).
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110 or 40 King Street West, Toronto, Ontario, Canada M5H 3Y8
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C-4
<PAGE>
(records relating to its functions as custodian and fund accounting and
transfer agent).
Funds Distributor, Inc., 60 State Street, Suite 1300 Boston,
Massachusetts 02109 (records relating to its functions as co-administrator and
exclusive placement agent).
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).
ITEM 31. MANAGEMENT SERVICES.
Not applicable.
ITEM 32. UNDERTAKINGS.
Not applicable.
C-5
<PAGE>
SIGNATURE
Pursuant to the requirements of the Investment Company Act of
1940, as amended, the Registrant has duly caused this Amendment to its
Registration Statement on Form N-1A to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of
Massachusetts, on the 26th day of February, 1998.
THE FEDERAL MONEY MARKET PORTFOLIO
By /S/CHRISTOPHER J. KELLEY
--------------------------------------
Christopher J. Kelley
Vice President and Assistant Secretary
I:\dsfndlgl\fmm\amend8.txt
C-6
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO: DESCRIPTION OF EXHIBIT
27 Financial Data Schedule.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial data extracted from the annual report
dated 10/31/97 for The Federal Money Market Portfolio and is qualified in its
entirety by reference to such annual report
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 376240
<INVESTMENTS-AT-VALUE> 376240
<RECEIVABLES> 831
<ASSETS-OTHER> 34
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 377105
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 121
<TOTAL-LIABILITIES> 121
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 376984
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 17760
<OTHER-INCOME> 0
<EXPENSES-NET> 660
<NET-INVESTMENT-INCOME> 17100
<REALIZED-GAINS-CURRENT> 36
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 17136
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 82048
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 660
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 910
<AVERAGE-NET-ASSETS> 329884
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
