<PAGE>
As filed with the Securities and Exchange Commission on September 27, 1996
File No. 811-7880
- ------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 3
THE SELECTED U.S. EQUITY PORTFOLIO
(Exact Name of Registrant as Specified in Charter)
P.O. Box 2508 GT, George Town,
Grand Cayman, Cayman Islands, B.W.I.
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code:
(809) 949-6644
John E. Pelletier, 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
- ------------------------------------------------------------------------------
<PAGE>
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.
<PAGE>
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 Selected U.S. Equity Portfolio (the "Portfolio") is a no-load
diversified open-end management investment company which was organized as a
trust under the laws of the State of New York on January 29, 1993. 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
A-2
<PAGE>
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, Advisor and administrators of the Portfolio, (iii)
portfolio transactions, (iv) rights and liabilities of investors,
and (v) the audited financial statements of the Portfolio at May
31, 1996.
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 a
high total return from a portfolio of selected equity securities.
Total return will consist of realized and unrealized capital
gains and losses plus income. The Portfolio invests primarily in
the common stock of large and medium sized U.S. corporations.
The Portfolio is designed for investors who want an
actively managed portfolio of selected equity securities that
seeks to outperform the Standard & Poor's 500 Stock Index (the
"S&P 500 Index").
The Advisor seeks to enhance the Portfolio's total
return relative to that of the universe of large and medium sized
U.S. companies, typically represented by the S&P 500 Index, through
fundamental analysis, systematic stock valuation and disciplined portfolio
construction. Based on internal fundamental research, the Advisor
uses a dividend discount model to rank companies within economic
sectors according to their relative value. From the universe of
securities this model shows as undervalued, the Advisor selects
stocks for the Portfolio based on a variety of criteria including
the company's managerial strength, prospects for growth and
competitive position. The Advisor may modestly under or over-weight
selected economic sectors against the S&P 500 Index's
sector weightings to seek to enhance the Portfolio's total return
or reduce the fluctuation in its market value relative to the
Index.
The Portfolio intends to manage its portfolio actively in pursuit of
its investment objective. The Portfolio does not intend to respond to
short-term market fluctuations or to acquire securities for the purpose of
short-term trading; however, it may take advantage of short-term trading
opportunities that are consistent with its objective. To the extent the
Portfolio engages in short term trading, it may incur increased transaction
costs. The portfolio turnover rate for the Portfolio for the fiscal year
ended May 31, 1996 was 84.55%.
A-3
<PAGE>
EQUITY INVESTMENTS. During ordinary market conditions,
the Advisor intends to keep the Portfolio essentially fully invested with at
least 65% of the Portfolio's net assets invested in equity
securities consisting of common stocks and other securities with
equity characteristics such as preferred stocks, warrants, rights
and convertible securities. The Portfolio's primary equity
investments are the common stocks of large and medium sized U.S.
corporations and, to a limited extent, similar securities of
foreign corporations. The common stock in which the Portfolio may
invest includes the common stock of any class or series or any
similar equity interest, such as trust or limited partnership
interests. These equity investments may or may not pay dividends
and may or may not carry voting rights. The Portfolio invests in
securities listed on a securities exchange or traded in an over-the-counter
(OTC) market, and may invest in certain restricted or
unlisted securities.
FOREIGN INVESTMENTS. The Portfolio may invest in equity
securities of foreign corporations included in the S&P 500 Index
or listed on a national securities exchange. However, the
Portfolio does not expect to invest more than 5% of its assets at
the time of purchase in securities of foreign issuers . For
further information on foreign investments and foreign currency
exchange transactions see "Additional Investment Information and
Risk Factors."
The Portfolio may also invest in securities on a when-issued
or delayed delivery basis, enter into repurchase and
reverse repurchase agreements, loan its portfolio securities,
purchase certain privately placed securities and money market
instruments and enter into certain hedging transactions that may
involve options on securities and securities indexes, futures
contracts and options on futures contracts. For a discussion of
these investments and investment techniques, see "Additional
Investment Information and Risk Factors."
ADDITIONAL INVESTMENT INFORMATION AND RISK FACTORS
CONVERTIBLE SECURITIES. The Portfolio may invest in
convertible securities of domestic and, subject to the Portfolio's
restrictions, foreign issuers. The convertible securities in
which the Portfolio may invest include any debt securities or
preferred stock which may be converted into common stock or which
carry the right to purchase common stock. Convertible securities
entitle the holder to exchange the securities for a specified
number of shares of common stock, usually of the same company, at
specified prices within a certain period of time.
A-4
<PAGE>
WARRANTS. The Portfolio may invest in warrants that entitle the
holder to buy common stock from the issuer of the warrant at a specific price
(the strike price) for a specific period of time. The market price of
warrants may be substantially lower than the current market price of the
underlying common stock, yet warrants are subject to similar price
fluctuations. As a result, warrants may be more volatile investments than the
underlying common stock.
Warrants generally do not entitle the holder to dividends or voting
rights with respect to the underlying common stock and do not represent any
rights in the assets of the issuer company. A warrant will expire worthless
if it is not exercised on or prior to the expiration date.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may
purchase securities on a when-issued or delayed delivery basis. Delivery of
and payment for these securities may take as long as a month or more after
the date of the purchase commitment. The value of these securities is subject
to market fluctuation during this period and for fixed income investments no
interest accrues to the Portfolio until settlement. At the time of settlement
a when-issued security may be valued at less than its purchase price. The
Portfolio maintains with the Custodian a separate account with a segregated
portfolio of securities in an amount at least equal to these commitments.
When entering into a when-issued or delayed delivery transaction, the
Portfolio will rely on the other party to consummate the transaction; if the
other party fails to do so, the Portfolio may be disadvantaged. It is the
current policy of the Portfolio not to enter into when-issued commitments
exceeding in the aggregate 15% of the market value of the Portfolio's total
assets less liabilities other than the obligations created by these
commitments.
REPURCHASE AGREEMENTS. The Portfolio may engage in repurchase
agreement transactions with brokers, dealers or banks that meet the credit
guidelines established by the Trustees. In a repurchase agreement, the
Portfolio buys a security from a seller that has agreed to repurchase it at a
mutually agreed upon date and price, reflecting the interest rate effective
for the term of the agreement. The term of these agreements is usually from
overnight to one week. A repurchase agreement may be viewed as a fully
collateralized loan of money by the Portfolio to the seller. The Portfolio
always receives securities as collateral with a market value at least equal
to the purchase price plus accrued interest and this value is maintained
during the term of the agreement. If the seller defaults and the collateral
value declines, the Portfolio might incur a loss. If bankruptcy proceedings
are commenced with respect to the seller, the Portfolio's realization upon
the disposition of collateral may be delayed or limited. Investments in
certain repurchase agreements and certain other investments which may be
considered illiquid are limited. See "Illiquid Investments; Privately Placed
and other Unregistered Securities" below.
A-5
<PAGE>
LOANS OF PORTFOLIO SECURITIES. Subject to applicable investment
restrictions, the Portfolio is permitted to lend its securities in an amount
up to 33 1/3% of the value of the Portfolio's net assets. The Portfolio may
lend its securities if such loans are secured continuously by cash or
equivalent collateral or by a letter of credit in favor of the Portfolio at
least equal at all times to 100% of the market value of the securities
loaned, plus accrued interest. While such securities are on loan, the
borrower will pay the Portfolio any income accruing thereon. Loans will be
subject to termination by the Portfolio in the normal settlement time,
generally three business days after notice, or by the borrower on one day's
notice. Borrowed securities must be returned when the loan is terminated. Any
gain or loss in the market price of the borrowed securities which occurs
during the term of the loan inures to the Portfolio and its 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, Advisor ,
Administrator or 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 purposes of the Investment Company Act of 1940 (the "1940
Act"), 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.
FOREIGN INVESTMENT INFORMATION. The Portfolio may invest in certain
foreign securities. Investment in securities of foreign issuers and in
obligations of foreign branches of domestic banks involves somewhat different
investment risks from those affecting securities of U.S. domestic issuers.
There may be limited publicly available information with respect to foreign
issuers, and foreign issuers are not generally subject to uniform accounting,
auditing and financial standards and requirements comparable to those
applicable to domestic companies. Dividends and interest paid by foreign
issuers may be subject to withholding and other foreign taxes which may
decrease the net return on foreign investments as compared to dividends and
interest paid to the Portfolio by domestic companies.
A-6
<PAGE>
Investors should realize that the value of the
Portfolio's investments in foreign securities may be adversely
affected by changes in political or social conditions, diplomatic
relations, confiscatory taxation, expropriation, nationalization,
limitation on the removal of funds or assets, or imposition of
(or change in) exchange control or tax regulations in those
foreign countries. In addition, changes in government
administrations or economic or monetary policies in the United
States or abroad could result in appreciation or depreciation of
portfolio securities and could favorably or unfavorably affect
the Portfolio's operations. Furthermore, the economies of
individual foreign nations may differ from the U.S. economy,
whether favorably or unfavorably, in areas such as growth of
gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position; it
may also be more difficult to obtain and enforce a judgment
against a foreign issuer. Any foreign investments made by the
Portfolio must be made in compliance with U.S. and foreign
currency restrictions and tax laws restricting the amounts and
types of foreign investments.
In addition, while the volume of transactions effected
on foreign stock exchanges has increased in recent years, in most
cases it remains appreciably below that of domestic security
exchanges. Accordingly, the Portfolio's foreign investments may
be less liquid and their prices may be more volatile than
comparable investments in securities of U.S. companies. Moreover,
the settlement periods for foreign securities, which are often
longer than those for securities of U.S. issuers, may affect
portfolio liquidity. In buying and selling securities on foreign
exchanges, purchasers normally pay fixed commissions that are
generally higher than the negotiated commissions charged in the
United States. In addition, there is generally less government
supervision and regulation of securities exchanges, brokers and
issuers located in foreign countries than in the United States.
The Portfolio may invest in securities of foreign
issuers directly or in the form of American Depositary Receipts
("ADRs"), European Depositary Receipts ("EDRs") or other similar
securities of foreign issuers. These securities may not
necessarily be denominated in the same currency as the securities
they represent. ADRs are receipts typically issued by a U.S. bank
or trust company evidencing ownership of the underlying foreign
securities. Certain such institutions issuing ADRs may not be
sponsored by the issuer of the underlying foreign securities. A
non-sponsored depository may not provide the same shareholder
information that a sponsored depository is required to provide
under its contractual arrangements with the issuer of the
underlying foreign securities. EDRs are receipts issued by a
European financial institution evidencing a similar arrangement.
Generally, ADRs, in registered form, are designed for use in the
U.S. securities markets, and EDRs, in bearer form, are designed
for use in European securities markets.
A-7
<PAGE>
Since the Portfolio's investments in foreign securities involve
foreign currencies, the value of its assets as measured in U.S. dollars may
be affected favorably or unfavorably by changes in currency rates and in
exchange control regulations, including currency blockage. See "Foreign
Currency Exchange Transactions".
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Because the Portfolio buys
and sells securities and receives interest and dividends in currencies other
than the U.S. dollar, the Portfolio may from time to time enter into foreign
currency exchange transactions. The Portfolio either enters into these
transactions on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign currency exchange market, or uses forward contracts to purchase or
sell foreign currencies. The cost of the Portfolio's spot currency exchange
transactions is generally the difference between the bid and offer spot rate
of the currency being purchased or sold.
A forward foreign currency exchange contract is an obligation by the
Portfolio to purchase or sell a specific currency at a future date, which may
be any fixed number of days from the date of the contract. Forward foreign
currency exchange contracts establish an exchange rate at a future date.
These contracts are derivative instruments, as their value derives from the
spot exchange rates of the currencies underlying the contract. These
contracts are entered into in the interbank market directly between currency
traders (usually large commercial banks) and their customers. A forward
foreign currency exchange contract generally has no deposit requirement, and
is traded at a net price without commission. The Portfolio will not enter
into forward contracts for speculative purposes. Neither spot transactions
nor forward foreign currency exchange contracts eliminate fluctuations in the
prices of the Portfolio's securities or in foreign exchange rates, or prevent
loss if the prices of these securities should decline.
The Portfolio may enter into foreign currency exchange transactions
in an attempt to protect against changes in foreign currency exchange rates
between the trade and settlement dates of specific securities transactions or
anticipated securities transactions. The Portfolio may also enter into
forward contracts to hedge against a change in foreign currency exchange
rates that would cause a decline in the value of existing investments
denominated or principally traded in a foreign currency. To do this, the
Portfolio would enter into a forward contract to sell the foreign currency in
which the investment is denominated or principally traded in exchange for
U.S. dollars or in exchange for another foreign currency. The Portfolio will
only enter into forward contracts to sell a foreign currency in exchange for
another foreign currency if the Advisor expects the foreign currency
purchased to appreciate against the U.S. dollar.
Although these transactions are intended to minimize the risk of
loss due to a decline in the value of the hedged
A-8
<PAGE>
currency, at the same time they limit any potential gain that might be
realized should the value of the hedged currency increase. In addition,
forward contracts that convert a foreign currency into another foreign
currency will cause the Portfolio to assume the risk of fluctuations in the
value of the currency purchased vis a vis the hedged currency and the U.S.
dollar. The precise matching of the forward contract amounts and the value of
the securities involved will not generally be possible because the future
value of such securities in foreign currencies will change as a consequence
of market movements in the value of such securities between the date the
forward contract is entered into and the date it matures. The projection of
currency market movements is extremely difficult, and the successful
execution of a hedging strategy is highly uncertain.
ILLIQUID INVESTMENTS; PRIVATELY PLACED AND OTHER UNREGISTERED
SECURITIES. The Portfolio may not acquire any illiquid securities if, as a
result thereof, more than 15% of the 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 1933 Act and cannot be offered for public sale in the United States
without first being registered under the 1933 Act. An illiquid investment is
any investment that cannot be disposed of within seven days in the normal
course of business at approximately the amount at which it is valued by the
Portfolio. The price the Portfolio pays for illiquid securities or receives
upon resale may be lower than the price paid or received for similar
securities with a more liquid market. Accordingly the valuation of these
securities will reflect any limitations on their liquidity.
The Portfolio may also purchase Rule 144A securities sold to
institutional investors without registration under the 1933 Act. These
securities may be determined to be liquid in accordance with guidelines
established by the Advisor and approved by the Trustees. The Trustees will
monitor the Advisor's implementation of these guidelines on a periodic basis.
FUTURES AND OPTIONS TRANSACTIONS
The Portfolio may use futures contracts and options transactions
described below for hedging purposes, although not for speculation. For a
more detailed description of these transactions, see "Options and Futures
Transactions" in Item 13 in Part B.
The Portfolio may (a) purchase exchange traded and OTC put and call
options on equity securities or indexes of equity securities, (b) purchase
and sell futures contracts on indexes of equity securities, and (c) purchase
put and call options on futures contracts on indexes of equity securities.
Each of these instruments is a derivative instrument as its value derives from
the underlying asset or index.
The Portfolio may utilize options and futures contracts to manage
its exposure to changing interest rates and/or security
A-9
<PAGE>
prices. Some options and futures strategies, including selling futures
contracts and buying puts, tend to hedge the Portfolio's investments against
price fluctuations. Other strategies, including buying futures contracts,
writing puts and calls, and buying calls, tend to increase market exposure.
Options and futures contracts may be combined with each other or with forward
contracts in order to adjust the risk and return characteristics of the
Portfolio's overall strategy in a manner deemed appropriate to the Advisor
and consistent with the Portfolio's objective and policies. Because combined
options positions involve multiple trades, they result in higher transaction
costs and may be more difficult to open and close out.
The use of options and futures is a highly specialized activity
which involves investment strategies and risks different from those
associated with ordinary portfolio securities transactions, and there can be
no guarantee that their use will increase the Portfolio's return. While the
use of these instruments by a Portfolio may reduce certain risks associated
with owning its portfolio securities, these techniques themselves entail
certain other risks. If the Advisor applies a strategy at an inappropriate
time or judges market conditions or trends incorrectly, options and futures
strategies may lower the Portfolio's return. Certain strategies limit the
Portfolio's possibilities to realize gains as well as limiting its exposure
to losses. The Portfolio could also experience losses if the prices of its
options and futures positions were poorly correlated with its other
investments, or if it could not close out its positions because of an
illiquid secondary market. In addition, the Portfolio will incur transaction
costs, including trading commissions and option premiums, in connection with
its futures and options transactions and these transactions could
significantly increase the Portfolio's turnover rate.
The Portfolio may purchase put and call options on securities,
indexes of securities and futures contracts, or purchase and sell futures
contracts, only if such options are written by other persons and if (i) the
aggregate premiums paid on all such options which are held at any time do not
exceed 20% of the Portfolio's net assets, and (ii) the aggregate margin
deposits required on all such futures or options thereon held at any time do
not exceed 5% of the Portfolio's total assets.
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, the
Portfolio obtains the right (but not the obligation) to sell the instrument
underlying the option at a fixed strike price. In return for this right, the
Portfolio pays the current market price for the option (known as the option
premium). Options have various types of underlying instruments, including
specific securities, indexes of securities, indexes of securities prices, and
futures contracts. The Portfolio may terminate its position in a put option
it has purchased by allowing it to expire or by exercising the option. The
Portfolio may also close out a put option position by entering into an
offsetting
A-10
<PAGE>
transaction, if a liquid market exists. If the option is allowed to expire,
the Portfolio will lose the entire premium it paid. If the Portfolio
exercises a put option on a security, it will sell the instrument underlying
the option at the strike price. If the Portfolio exercises an option on an
index, settlement is in cash and does not involve the actual sale of
securities. An option may be exercised on any day up to its expiration date.
The buyer of a typical put option can expect to realize a gain if
the price of the underlying instrument falls substantially. However, if the
price of the instrument underlying the option does not fall enough to offset
the cost of purchasing the option, a put buyer can expect to suffer a loss
(limited to the amount of the premium paid, plus related transaction costs).
The features of call options are essentially the same as those of
put options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the instrument underlying the option at the
option's strike price. A call buyer typically attempts to participate in
potential price increases of the instrument underlying the option with risk
limited to the cost of the option if security prices fall. At the same time,
the buyer can expect to suffer a loss if security prices do not rise
sufficiently to offset the cost of the option.
SELLING (WRITING) PUT AND CALL OPTIONS. When the Portfolio writes a
put option, it takes the opposite side of the transaction from the option's
purchaser. In return for receipt of the premium, the Portfolio assumes the
obligation to pay the strike price for the instrument underlying the option
if the other party to the option chooses to exercise it. The Portfolio may
seek to terminate its position in a put option it writes before exercise by
purchasing an offsetting option in the market at its current price. If the
market is not liquid for a put option the Portfolio has written, however, the
Portfolio must continue to be prepared to pay the strike price while the
option is outstanding, regardless of price changes, and must continue to post
margin as discussed below.
If the price of the underlying instrument rises, a put writer would
generally expect to profit, although its gain would be limited to the amount
of the premium it received. If security prices remain the same over time, it
is likely that the writer will also profit, because it should be able to
close out the option at a lower price. If security prices fall, the put
writer would expect to suffer a loss. This loss should be less than the loss
from purchasing and holding the underlying instrument directly, however,
because the premium received for writing the option should offset a portion
of the decline.
Writing a call option obligates the Portfolio to sell or deliver the
option's underlying instrument in return for the
A-11
<PAGE>
strike price upon exercise of the option. The characteristics of writing call
options are similar to those of writing put options, except that writing
calls generally is a profitable strategy if prices remain the same or fall.
Through receipt of the option premium a call writer offsets part of the
effect of a price decline. At the same time, because a call writer must be
prepared to deliver the underlying instrument in return for the strike price,
even if its current value is greater, a call writer gives up some ability to
participate in security price increases.
The writer of an exchange traded put or call option on a security,
an index of securities or a futures contract is required to deposit cash or
securities or a letter of credit as margin and to make mark to market
payments of variation margin as the position becomes unprofitable.
OPTIONS ON INDEXES. The Portfolio may purchase put and call options
on any securities index based on securities in which the Portfolio may
invest. Options on securities indexes are similar to options on securities,
except that the exercise of securities index options is settled by cash
payment and does not involve the actual purchase or sale of securities. In
addition, these options are designed to reflect price fluctuations in a group
of securities or segment of the securities market rather than price
fluctuations in a single security. The Portfolio, in purchasing or selling
index options, is subject to the risk that the value of its portfolio
securities may not change as much as an index because the Portfolio's
investments generally will not match the composition of an index.
For a number of reasons, a liquid market may not exist and thus the
Portfolio may not be able to close out an option position that it has
previously entered into. When the Portfolio purchases an OTC option, it will
be relying on its counterparty to perform its obligations, and the Portfolio
may incur additional losses if the counterparty is unable to perform.
FUTURES CONTRACTS. When the Portfolio purchases a futures contract,
it agrees to purchase a specified quantity of an underlying instrument at a
specified future date or to make a cash payment based on the value of a
securities index. When the Portfolio sells a futures contract, it agrees to
sell a specified quantity of the underlying instrument at a specified future
date or to receive a cash payment based on the value of a securities index.
The price at which the purchase and sale will take place is fixed when the
Portfolio enters into the contract. Futures can be held until their delivery
dates or the position can be (and normally is) closed out before then. There
is no assurance, however, that a liquid market will exist when the Portfolio
wishes to close out a particular position.
When the Portfolio purchases a futures contract, the value of the
futures contract tends to increase and decrease in tandem with the value of
its underlying instrument. Therefore, purchasing futures contracts will tend
to increase the
A-12
<PAGE>
Portfolio's exposure to positive and negative price fluctuations in the
underlying instrument, much as if it had purchased the underlying instrument
directly. When the Portfolio sells a futures contract, by contrast, the value
of its futures position will tend to move in a direction contrary to the
value of the underlying instrument. Selling futures contracts, therefore,
will tend to offset both positive and negative market price changes, much as
if the underlying instrument had been sold.
The purchaser or seller of a futures contract is not required to
deliver or pay for the underlying instrument unless the contract is held
until the delivery date. However, when the Portfolio buys or sells a futures
contract it will be required to deposit "initial margin" with its Custodian
in a segregated account in the name of its futures broker, known as a futures
commission merchant (FCM). Initial margin deposits are typically equal to a
small percentage of the contract's value. If the value of either party's
position declines, that party will be required to make additional "variation
margin" payments equal to the change in value on a daily basis. The party
that has a gain may be entitled to receive all or a portion of this amount.
The Portfolio may be obligated to make payments of variation margin at a time
when it is disadvantageous to do so. Furthermore, it may not always be
possible for the Portfolio to close out its futures positions. Until it
closes out a futures position, the Portfolio will be obligated to continue to
pay variation margin. Initial and variation margin payments do not constitute
purchasing on margin for purposes of the Portfolio's investment restrictions.
In the event of the bankruptcy of an FCM that holds margin on behalf of the
Portfolio, the Portfolio may be entitled to return of margin owed to it only
in proportion to the amount received by the FCM's other customers,
potentially resulting in losses to the Portfolio.
The Portfolio will segregate liquid assets in connection with its
use of options and futures contracts to the extent required by the staff of
the Securities and Exchange Commission. Securities held in a segregated
account cannot be sold while the futures contract or option is outstanding,
unless they are replaced with other suitable assets. As a result, there is a
possibility that segregation of a large percentage of the Portfolio's assets
could impede portfolio management or the Portfolio's ability to meet
redemption requests or other current obligations.
For further information about the Portfolio's use of futures and
options and a more detailed discussion of associated risks, see Item 13 in
Part B.
MONEY MARKET INSTRUMENTS. The Portfolio is permitted to invest in
money market instruments, although the Portfolio intends to stay invested in
equity securities to the extent practical in light of its objective and
long-term investment perspective. The Portfolio may make money market
investments pending other investment or settlement, for liquidity or in
A-13
<PAGE>
adverse markets. The money market investments permitted for the Portfolio
include obligations of the U.S. Government and its agencies and
instrumentalities, other debt securities, commercial paper, bank obligations
and repurchase agreements. For more detailed information about these money
market instruments, see Item 13 in Part B.
INVESTMENT RESTRICTIONS
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 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 may not (i) borrow money, except from banks for
extraordinary or emergency purposes and then only in amounts up to 10% of the
value of the Portfolio's total assets, taken at cost at the time of
borrowing, or purchase securities while borrowings exceed 5% of its total
assets, or mortgage, pledge or hypothecate any assets except in connection
with any such borrowings in amounts up to 10% of the value of the Portfolio's
net assets at the time of borrowing; (ii) purchase securities of any issuer
if, as a result of the purchase, more than 5% of the total assets of the
Portfolio would be invested in securities of companies with fewer than three
years of operating history (including predecessors); or (iii) purchase
securities or other obligations of issuers conducting their principal
business activity in the same industry if its investments in such industry
would exceed 25% of the value of the Portfolio's total assets, except this
limitation shall not apply to investments in U.S. Government securities.
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
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 as exclusive placement
agent to the Portfolio.
A-14
<PAGE>
The Portfolio has entered into an Amended and Restated Portfolio
Fund Services Agreement, dated July 11, 1996 with Pierpont Group, Inc. to
assist the Trustees in exercising their overall supervisory responsibilities
for the Portfolio. The fees to be paid under the agreements approximate the
reasonable cost of Pierpont Group, Inc. in providing these services. Pierpont
Group, Inc. was organized in 1989 at the request of the Trustees of the
Pierpont Family of Funds for the purpose of providing these services at cost
to these funds. See Item 14 in Part B. The principal offices of Pierpont
Group, Inc. 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 over $179 billion (of which the Advisor
advises over $28 billion). Morgan provides investment advice and portfolio
management services to the Portfolio. Subject to the supervision of the
Portfolio's Trustees, Morgan, 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 Advisor uses a sophisticated, disciplined, collaborative process
for managing all asset classes. For equity portfolios, this process utilizes
fundamental research, systematic stock selection and disciplined portfolio
construction. Morgan has managed portfolios of equity securities of U.S.
equity securities on behalf of its clients since the 1960s. The portfolio
managers making investments in U.S. equity securities work in conjunction
with Morgan's domestic equity analysts, as well as capital market, credit and
economic research analysts, traders and administrative officers. The U.S.
equity analysts each cover a different industry, monitoring a universe of 700
predominantly large and medium-sized U.S. companies.
The following persons are primarily responsible for the day-to-day
management and implementation of Morgan's process for the Portfolio (the
inception date of each person's responsibility for the Portfolio and his
business experience for the past five years are indicated parenthetically):
William B. Petersen,
A-15
<PAGE>
Managing Director (since February, 1993; employed by Morgan since prior to
1991 as a portfolio manager of U.S. equity investments) and William M.
Riegel, Jr., Vice President (since February, 1993; employed by Morgan since
prior to 1991 as a portfolio manager of U.S. equity investments).
As compensation for the services rendered and related expenses borne
by Morgan under the Investment Advisory Agreement with the Portfolio, the
Portfolio has agreed to pay Morgan a fee which is computed daily and may be
paid monthly at the annual rate of 0.40% of the Portfolio's average daily net
assets.
Under a separate agreement, Morgan also provides administrative and
related services to the Portfolio. See "Administrative Services Agent" below.
CO-ADMINISTRATOR. Under a Co-Administration Agreement with the
Portfolio, FDI serves as the Co-Administrator for the Portfolio and in that
capacity FDI (i) provides office space, equipment and clerical personnel for
maintaining the organization and books and records of the 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.
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 currently provides administration and
distribution services for a number of other registered investment companies.
A-16
<PAGE>
ADMINISTRATIVE SERVICES AGENT. Under the Administrative Services
Agreement with the Portfolio, Morgan is responsible for certain
administrative and related services provided to the Portfolio, including
services related to taxes, financial statements, calculation of performance
data, oversight of service providers and certain regulatory and Board of
Trustees matters. Under the Administrative Services Agreement and the
Co-Administration Agreement, the Portfolio has agreed to pay Morgan and FDI
fees equal to its allocable share of an annual complex-wide charge. This
charge is calculated daily based on the aggregate net assets of the Portfolio
and the other portfolios (collectively the "Master Portfolios") in which
series of The JPM Institutional Funds, The Pierpont Funds or The JPM Advisor
Funds invest in accordance with the following annual schedule: 0.09% on the
first $7 billion of the Master Portfolios' aggregate average daily net assets
and 0.04% of the Master Portfolios' aggregate average daily net assets in
excess of $7 billion.
CUSTODIAN. State Street Bank and Trust Company and transfer agent
("State Street"), Toronto, Ontario, Canada M5H 3Y8 serves as the Portfolio's
Custodian and Transfer Agent. State Street also keeps the books of account
for the Portfolio.
Morgan has agreed that it will reimburse the Portfolio through at
least September 30, 1997 to the extent necessary to maintain the Portfolio's
total operating expenses at the annual rate of 0.60% 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, except as required by the following
sentence. Morgan has agreed to waive fees as necessary, if in any fiscal year
the sum of the Portfolio's expenses exceeds the limits set by applicable
regulations of state securities commissions. Such annual limits are currently
2.5% of the first $30 million of average net assets, 2% of the next $70
million of such net assets and 1.5% of such net assets in excess of $100
million for any fiscal year. For the fiscal year ended May 31, 1996, the
Porfolio's total expenses were 0.46% of its average net assets.
A-17
<PAGE>
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 August 31, 1996, The JPM Institutional Selected U.S. Equity
Fund and The Pierpont Equity Fund (series of The JPM Institutional Funds and
The Pierpont Funds, respectively) owned 33% and 45%, respectively, of the
outstanding 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 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 as of 4:15 p.m. New
York time (the "Valuation Time").
A-18
<PAGE>
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 May 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, in care of State Street
Cayman Trust Company, Ltd. at Elizabethan Square, Shedden Road, George Town,
Grand Cayman, Cayman Islands (809-949-6644).
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.
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.
A-19
<PAGE>
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 Net Asset Value as of the business day
prior to the day the Portfolio receives the securities. Securities may be
accepted in payment for shares only if they are, in the judgment of Morgan,
appropriate investments for the Portfolio. In addition, securities accepted
in payment for shares must: (i) meet the investment objective and policies of
the Portfolio; (ii) be acquired by the 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) if stock, have a value which
is readily ascertainable as evidenced by a listing on a stock exchange, OTC
market or by readily available market quotations from a dealer in such
securities. 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 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
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 at the Valuation Time on the following
Portfolio Business Day.
A-20
<PAGE>
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 1940 Act, if an emergency
exists.
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.
A-21
<PAGE>
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-14
Control Persons and Principal Holder
of Securities . . . . . . . . . . . . . . . . . . . . B-18
Investment Advisory and Other Services . . . . . . . B-19
Brokerage Allocation and Other Practices . . . . . . B-24
Capital Stock and Other Securities . . . . . . . . . B-26
Purchase, Redemption and Pricing of
Securities . . . . . . . . . . . . . . . . . . . . . B-28
Tax Status . . . . . . . . . . . . . . . . . . . . . B-29
Underwriters . . . . . . . . . . . . . . . . . . . . B-31
Calculations of Performance Data . . . . . . . . . . B-31
Financial Statements . . . . . . . . . . . . . . . . B-31
Appendix A . . . . . . . . . . . . . . . . . . . . . Appendix-1
ITEM 12. GENERAL INFORMATION AND HISTORY.
Not applicable.
ITEM 13. INVESTMENT OBJECTIVE AND POLICIES.
The investment objective of The Selected U.S. Equity
Portfolio (the "Portfolio") is to provide a high total return,
consisting of capital gains and losses plus income, from a
portfolio of selected equity securities. In normal circumstances,
at least 65% of the Portfolio's net assets will be invested in
equity securities consisting of common stocks and other
securities with equity characteristics comprised of preferred
stock, warrants, rights , convertible securities, trust
certifications, limited partnership interests and equity
participations (collectively, "Equity Securities"). The
Portfolio's primary equity investments are the common stock of
large and medium sized U.S. corporations and, to a limited
extent, similar securities of foreign corporations.
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 to be employed to
achieve this objective as set forth above and in Part A.
INVESTMENT PROCESS
Fundamental research: Morgan's 20 domestic
equity analysts, each an industry specialist with an average of
13 years of experience, follow 700 predominantly large- and
medium-sized U.S. companies -- 500 of which form the universe for
the Portfolio's investments. Their research goal is to forecast
normalized, longer term earnings and dividends for the most
attractive companies among those they cover. In doing this, they
may work in concert with Morgan's international equity
analysts in order to gain a broader perspective for evaluating
industries and companies in today's global economy.
Systematic valuation: The analysts' forecasts are
converted into comparable expected returns by a dividend discount
model, which calculates those expected returns by comparing a
company's current stock price with the "fair value" price
forecasted by its estimated long-term earnings power. Within each
sector,
B-1
<PAGE>
companies are ranked by their expected return and grouped into quintiles:
those with the highest expected returns (Quintile 1) are deemed the most
undervalued relative to their long-term earnings power, while those with the
lowest expected returns (Quintile 5) are deemed the most overvalued.
Disciplined portfolio construction: A diversified portfolio is
constructed using disciplined buy and sell rules. Purchases are concentrated
among first-quintile stocks; the specific names selected reflect the
portfolio manager's judgment concerning the soundness of the underlying
forecasts, the likelihood that the perceived misvaluation will be corrected
within a reasonable time frame, and the magnitude of the risks versus the
rewards. Once a stock falls into the third quintile -- because its price has
risen or its fundamentals have deteriorated -- it generally becomes a
candidate for sale. The portfolio manager seeks to hold sector weightings
close to those of the S&P 500 Index, reflecting Morgan's belief that its
research has the potential to add value at the individual stock level, but
not at the sector level. Sector neutrality is also seen as a way to help
protect the portfolio from macroeconomic risks, and -- together with
diversification -- represents an important element of Morgan's
investment strategy. Morgan's dedicated trading desk handles all transactions
for the Portfolio.
MONEY MARKET INSTRUMENTS
As discussed in Part A, the Portfolio may invest in money market
instruments to the extent consistent with its investment objective and
policies. A description of the various types of money market instruments that
may be purchased by the Portfolio appears below. Also see "Quality and
Diversification Requirements".
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. 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, obligations of the Tennessee Valley Authority, the Federal Home
Loan Mortgage Corporation, and the U.S. Postal Service, each of which has the
right to borrow
B-2
<PAGE>
from the U.S. Treasury to meet its obligations, and obligations
of the Federal Farm Credit System and the Federal Home Loan
Banks, both of whose obligations may be satisfied only by the
individual credits of each issuing agency. Securities which are
backed by the full faith and credit of the United States include
obligations of the Government National Mortgage Association, the
Farmers Home Administration, and the Export-Import Bank.
FOREIGN GOVERNMENT OBLIGATIONS. The Portfolio, subject to its
applicable investment policies, may also invest in short-term obligations of
foreign sovereign governments or of their agencies, instrumentalities,
authorities or political subdivisions. These securities may be denominated in
the U.S. dollar or in another currency. See "Foreign Investments".
BANK OBLIGATIONS. The Portfolio, unless otherwise noted
in Part A or below, may invest in negotiable certificates of
deposit, time deposits and bankers' acceptances of (i) banks,
savings and loan associations and savings banks which have more
than $2 billion in total assets and are organized under the laws
of the United States or any state, (ii) foreign branches of these
banks or of foreign banks of equivalent size (Euros) and (iii)
U.S. branches of foreign banks of equivalent size (Yankees). The
Portfolio will not invest in obligations for which the Advisor,
or any of its affiliated persons, is the ultimate obligor or
accepting bank. The Portfolio may also invest in obligations of
international banking institutions designated or supported by
national governments to promote economic reconstruction,
development or trade between nations (e.g., the European
Investment Bank, the Inter-American Development Bank, or the
World Bank).
COMMERCIAL PAPER. The Portfolio may invest in commercial
paper including master demand obligations. Master demand
obligations are obligations that provide for a periodic
adjustment in the interest rate paid and permit daily changes in
the amount borrowed. Master demand obligations are governed by
agreements between the issuer and Morgan acting as
agent, for no additional fee, in its capacity as investment
advisor to the Portfolio and as fiduciary for other clients for
whom it exercises investment discretion. The monies loaned to the
borrower come from accounts managed by the Advisor or its
affiliates, pursuant to arrangements with such accounts. Interest
and principal payments are credited to such accounts. The
Advisor, acting as a fiduciary on behalf of its clients, has the
right to increase or decrease the amount provided to the borrower
under an obligation. The borrower has the right to pay without
penalty all or any part of the principal amount then outstanding
on an obligation together with interest to the date of payment.
Since these obligations typically provide that the interest rate
is tied to the Federal Reserve commercial paper composite rate,
the rate on master demand obligations is subject to change.
Repayment of a master demand obligation to
B-3
<PAGE>
participating accounts depends on the ability of the borrower to
pay the accrued interest and principal of the obligation on
demand which is continuously monitored by the Portfolio's
Advisor. Since master demand obligations typically are not rated
by credit rating agencies, the Portfolio may invest in such
unrated obligations only if at the time of an investment the
obligation is determined by the Advisor to have a credit quality
which satisfies the Portfolio's quality restrictions. See
"Quality and Diversification Requirements". Although there is no
secondary market for master demand obligations, such obligations
are considered by the Portfolio to be liquid because they are
payable upon demand. The Portfolio does not have any specific
percentage limitation on investments in master demand
obligations.
REPURCHASE AGREEMENTS. The Portfolio may enter into
repurchase agreements with brokers, dealers or banks that meet
the credit guidelines approved by the 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 period of time the Portfolio
is invested in the agreement and is not related to the coupon
rate on the underlying security. A repurchase agreement may also
be viewed as a fully collateralized loan of money by the
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 13 months. The securities which are subject to
repurchase agreements, however, may have maturity dates in excess
of 13 months from the effective date of the repurchase agreement.
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 the
Portfolio will make payment for such securities only upon
physical delivery or upon evidence of book entry transfer to the
account of the Portfolio's custodian (the "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 collateral by the Portfolio may be
delayed or limited.
The Portfolio may make investments in other debt
securities with remaining effective maturities of not more than
13 months, including without limitation corporate and foreign
bonds, asset-backed securities and other obligations described in
Part A or this Part B.
B-4
<PAGE>
EQUITY INVESTMENTS
As discussed in Part A, the Portfolio invests primarily in equity
securities consisting of common stock and other securities with equity
characteristics. The securities in which the Portfolio invests include those
listed on any domestic or foreign securities exchange or traded in the
over-the-counter (OTC) market as well as certain restricted or unlisted
securities. Discussion of the various types of equity investments which may
be purchased by the Portfolio appears in Part A and below.
EQUITY SECURITIES. The common stock in which the Portfolio may
invest include the common stock of any class or series of domestic or foreign
corporations or any similar equity interest, such as trust or partnership
interests. The Portfolio's equity investments may also include preferred
stock, warrants, rights and convertible securities. These investments may or
may not pay dividends and may or may not carry voting rights. Common stock
occupies the most junior position in a company's capital structure.
The convertible securities in which the Portfolio may invest include
any debt securities or preferred stock which may be converted into common
stock or which carry the right to purchase common stock. Convertible
securities entitle the holder to exchange the securities for a specified
number of shares of common stock, usually of the same company, at specified
prices within a certain period of time.
The terms of any convertible security determine its ranking in a
company's capital structure. In the case of subordinated convertible
debentures, the holders' claims on assets and earnings are subordinated to
the claims of other creditors, and are senior to the claims of preferred and
common shareholders. In the case of convertible preferred stock, the holders'
claims on assets and earnings are subordinated to the claims of all creditors
and are senior to the claims of common shareholders.
COMMON STOCK WARRANTS. The Portfolio may invest in common stock
warrants that entitle the holder to buy common stock from the issuer of the
warrant at a specific price (the strike price) for a specific period of time.
The market price of warrants may be substantially lower than the
current market price of the underlying common stock, yet warrants are subject
to similar price fluctuations. As a result, warrants may be more volatile
investments than the underlying common stock.
Warrants generally do not entitle the holder to dividends or voting
rights with respect to the underlying common stock and do not represent any
rights in the assets of the issuer company. A warrant will expire worthless
if it is not exercised on or prior to the expiration date.
FOREIGN INVESTMENTS
The Portfolio may invest in certain foreign securities. The
Portfolio does not expect more than 5% of its investments to be in securities
of foreign issuers which are not included in the S&P 500 Index or which are
not listed on a national securities exchange . Foreign investments may be
made directly in securities of foreign issuers or in the form of American
Depositary Receipts and European Depositary Receipts. Generally, ADRs and
EDRs are receipts issued by a bank or trust company that evidence ownership
of underlying securities issued by a foreign corporation and that are
designed for use in the domestic, in the case of ADRs, or European, in the
case of EDRs, securities markets.
B-5
<PAGE>
Since investments in foreign securities may involve
foreign currencies, the value of the Portfolio's assets as
measured in U.S. dollars may be affected favorably or unfavorably
by changes in currency rates and in exchange control regulations,
including currency blockage. The Portfolio may enter into forward
commitments for the purchase or sale of foreign currencies in
connection with the settlement of foreign securities transactions
or to manage the Portfolio's currency exposure related to foreign
investments. The Portfolio will not enter into such commitments
for speculative purposes.
ADDITIONAL INVESTMENTS
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The
Portfolio may purchase securities on a when-issued or delayed
delivery basis. For example, delivery of and payment for these
securities can take place a month or more after the date of the
purchase commitment. The purchase price and the interest rate
payable, if any, on the securities are fixed on the purchase
commitment date or at the time the settlement date is fixed. The
value of such securities is subject to market fluctuation and 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 Investment Company Act of 1940 (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%
B-6
<PAGE>
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
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.
LOANS OF PORTFOLIO SECURITIES. 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. The Portfolio will not lend their securities to any
officer, Trustee, Director, employee, or affiliate of the Portfolio, Advisor,
Private Placement Agent or Administrator, unless otherwise permitted by
applicable law.
B-7
<PAGE>
PRIVATELY PLACED AND CERTAIN UNREGISTERED SECURITIES. The Portfolio
may invest in privately placed, restricted, Rule 144A or other unregistered
securities as described in Part A.
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 Securities Act of 1933, as amended
(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 is 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. As
for the other 25% of the Portfolio's assets not subject to the
limitation described above, there is no limitation on investment
of these assets under the 1940 Act, so that all of such assets
may be invested in securities of any one issuer, subject to the
limitation of any applicable state securities laws. Investments
not subject to the limitations described above could involve an
increased risk to the Portfolio should an issuer, or a state or
its related entities, be unable to make interest or principal
payments or should the market value of such securities decline.
The Portfolio may invest in convertible debt securities, for which
there are no specific quality requirements. In addition, at the time the
Portfolio invests in any commercial paper, bank obligation or repurchase
agreement, the issuer must have outstanding debt rated A or higher by Moody's
Investors Service, Inc. ("Moody's") or Standard & Poor's Ratings Group
("Standard & Poor's"), the issuer's parent corporation, if any, must have
outstanding commercial paper rated Prime-1 by Moody's or A-1 by Standard &
Poor's, or if no such ratings are available, the investment must be of
comparable quality in the Advisor's opinion. At the time the Portfolio
invests in any other short-term debt securities, they must be rated A or
higher by Moody's or Standard & Poor's, or if unrated, the investment must
B-8
<PAGE>
be of comparable quality in the Advisor's opinion. A description of
illustrative credit ratings is set forth in Appendix A attached to this Part
B.
In determining suitability of investment in a particular unrated
security, the Advisor takes into consideration asset and debt service
coverage, the purpose of the financing, history of the issuer, existence of
other rated securities of the issuer, and other relevant conditions, such as
comparability to other issuers.
OPTIONS AND FUTURES TRANSACTIONS
EXCHANGE TRADED AND OVER-THE-COUNTER OPTIONS. All options purchased
or sold by the Portfolio will be traded on a securities exchange or will be
purchased or sold by securities dealers (OTC options) that meet
creditworthiness standards approved by the Board of Trustees. While
exchange-traded options are obligations of the Options Clearing Corporation,
in the case of OTC options, the Portfolio relies on the dealer from which it
purchased the option to perform if the option is exercised. Thus, when the
Portfolio purchases an OTC option, it relies on the dealer from which it
purchased the option to make or take delivery of the underlying securities.
Failure by the dealer to do so would result in the loss of the premium paid
by the Portfolio as well as loss of the expected benefit of the transaction.
The staff of the SEC has taken the position that, in general,
purchased OTC options and the underlying securities used to cover written OTC
options are illiquid securities. However, the Portfolio may treat as liquid
the underlying securities used to cover written OTC options, provided it has
arrangements with certain qualified dealers who agree that the Portfolio may
repurchase any option it writes for a maximum price to be calculated by a
predetermined formula. In these cases, the OTC option itself would only be
considered illiquid to the extent that the maximum repurchase price under the
formula exceeds the intrinsic value of the option.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. In entering into
futures and options transactions the Portfolio may purchase or sell (write)
futures contracts and purchase put and call options , including put and call
options on futures contracts. Futures contracts obligate the buyer to take
and the seller to make delivery at a future date of a specified quantity of a
financial instrument or an amount of cash based on the value of a securities
index. Currently, futures contracts are available on various types of fixed
income securities, including but not limited to U.S. Treasury bonds, notes
and bills, Eurodollar certificates of deposit and on indexes of fixed income
securities and indexes of equity securities.
B-9
<PAGE>
Unlike a futures contract, which requires the parties to
buy and sell a security or make a cash settlement payment based
on changes in a financial instrument or securities index on an
agreed date, an option on a futures contract entitles its holder
to decide on or before a future date whether to enter into such a
contract. If the holder decides not to exercise its option, the
holder may close out the option position by entering into an
offsetting transaction or may decide to let the option expire and
forfeit the premium thereon. The purchaser of an option on a
futures contract pays a premium for the option but makes no
initial margin payments or daily payments of cash in the nature
of "variation" margin payments to reflect the change in the value
of the underlying contract as does a purchaser or seller of a
futures contract.
The seller of an option on a futures contract receives
the premium paid by the purchaser and may be required to pay
initial margin. Amounts equal to the initial margin and any
additional collateral required on any options on futures
contracts sold by the Portfolio are paid by the Portfolio into a
segregated account, in the name of the Futures Commission
Merchant, as required by the 1940 Act and the SEC's
interpretations thereunder.
COMBINED POSITIONS. The Portfolio may purchase and write
options in combination with each other, or in combination with
futures or forward contracts, to adjust the risk and return
characteristics of the overall position. For example, the
Portfolio may purchase a put option and write a call option on
the same underlying instrument, in order to construct a combined
position whose risk and return characteristics are similar to
selling a futures contract. Another possible combined position
would involve writing a call option at one strike price and
buying a call option at a lower price, in order to reduce the
risk of the written call option in the event of a substantial
price increase. Because combined options positions involve
multiple trades, they result in higher transaction costs and may
be more difficult to open and close out.
CORRELATION OF PRICE CHANGES. Because there are a
limited number of types of exchange-traded options and futures
contracts, it is likely that the standardized options and futures
contracts available will not match the Portfolio's current or
anticipated investments exactly. The Portfolio may invest in
options and futures contracts based on securities with different
issuers, maturities, or other characteristics from the securities
in which it typically invests, which involves a risk that the
options or futures position will not track the performance of the
Portfolio's other investments.
Options and futures contracts prices can also diverge
from the prices of their underlying instruments, even if the
underlying instruments match the Portfolio's investments well.
Options and futures contracts prices are affected by such factors
B-10
<PAGE>
as current and anticipated short term interest rates, changes in
volatility of the underlying instrument, and the time remaining
until expiration of the contract, which may not affect security
prices the same way. Imperfect correlation may also result from
differing levels of demand in the options and futures markets and
the securities markets, from structural differences in how
options and futures and securities are traded, or from imposition
of daily price fluctuation limits or trading halts. The Portfolio
may purchase or sell options and futures contracts with a greater
or lesser value than the securities it wishes to hedge or intends
to purchase in order to attempt to compensate for differences in
volatility between the contract and the securities, although this
may not be successful in all cases. If price changes in the
Portfolio's options or futures positions are poorly correlated
with its other investments, the positions may fail to produce
anticipated gains or result in losses that are not offset by
gains in other investments.
LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no
assurance a liquid market will exist for any particular option or
futures contract at any particular time even if the contract is
traded on an exchange. In addition, exchanges may establish daily
price fluctuation limits for options and futures contracts and
may halt trading if a contract's price moves up or down more than
the limit in a given day. On volatile trading days when the price
fluctuation limit is reached or a trading halt is imposed, it may
be impossible for the Portfolio to enter into new positions or
close out existing positions. If the market for a contract is not
liquid because of price fluctuation limits or otherwise, it could
prevent prompt liquidation of unfavorable positions, and could
potentially require the Portfolio to continue to hold a position
until delivery or expiration regardless of changes in its value.
As a result, the Portfolio's access to other assets held to cover
its options or futures positions could also be impaired. (See
"Exchange Traded and Over -the-Counter Options" above for a
discussion of the liquidity of options not traded on an
exchange.)
POSITION LIMITS. Futures exchanges can limit the number
of futures and options on futures contracts that can be held or
controlled by an entity. If an adequate exemption cannot be
obtained, the Portfolio or the Advisor may be required to reduce
the size of its futures and options positions or may not be able
to trade a certain futures or options contract in order to avoid
exceeding such limits.
ASSET COVERAGE FOR FUTURES CONTRACTS AND OPTIONS
POSITIONS. The Portfolio intends to comply with Section 4.5 of
the regulations under the Commodity Exchange Act, which limits
the extent to which the Portfolio can commit assets to initial
margin deposits and option premiums. In addition, the Portfolio
will comply with guidelines established by the SEC with respect
to coverage of options and futures contracts by mutual funds, and
if the guidelines so require, will set aside appropriate liquid
B-11
<PAGE>
assets in a segregated custodial account in the amount
prescribed. Securities held in a segregated account cannot be
sold while the futures contract or option is outstanding, unless
they are replaced with other suitable assets. As a result, there
is a possibility that segregation of a large percentage of the
Portfolio's assets could impede portfolio management or the
Portfolio's ability to meet redemption requests or other current
obligations.
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 and represented by proxy, or (b) more than 50% of the
outstanding voting securities. The percentage limitations
contained in the restrictions below apply at the time of the
purchase of securities.
The Portfolio may not:
1. Purchase the securities or other obligations of issuers
conducting their principal business activity in the same
industry if, immediately after such purchase the value of its
investments in such industry would exceed 25% of the value of
the Portfolio's total assets. For purposes of industry
concentration, there is no percentage limitation with respect
to investments in U.S. Government securities;
2. Borrow money, except from banks for extraordinary or
emergency purposes and then only in amounts not to exceed 10%
of the value of the Portfolio's total assets, taken at cost,
at the time of such borrowing. Mortgage, pledge, or
hypothecate any assets except in connection with any such
borrowing and in amounts not to exceed 10% of the value of
the Portfolio's net assets at the time of such borrowing. The
Portfolio will not purchase securities while borrowings
exceed 5% of the Portfolio's 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. Collateral arrangements for premium and margin
payments in connection with the Portfolio's hedging
activities are not deemed to be a pledge of assets;
3. Purchase the securities or other obligations of any one
issuer if, immediately after such purchase, more than 5% of
the value of the Portfolio's total assets would be invested
B-12
<PAGE>
in securities or other obligations of any one such issuer.
This limitation shall not apply to issuers of the U.S.
Government, its agencies or instrumentalities and to
permitted investments of up to 25% of the Portfolio's total
assets;
4. Purchase the securities of an issuer if, immediately after
such purchase, the Portfolio owns more than 10% of the
outstanding voting securities of such issuer;
5. Make loans, except through the purchase or holding of debt
obligations (including privately placed securities), or the
entering into of repurchase agreements, or loans of portfolio
securities in accordance with the 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, except for the Portfolio's interests in hedging
activities as described under "Investment Objective and
Policies"; or interests in oil, gas, or mineral exploration
or development programs. However, the Portfolio may purchase
securities or commercial paper issued by companies which
invest in real estate or interests therein, including real
estate investment trusts;
7. Purchase securities on margin, make short sales of
securities, or maintain a short position, except in the
course of the Portfolio's hedging activities, provided that
this restriction shall not be deemed to be applicable to the
purchase or sale of when-issued securities or delayed
delivery securities;
8. Acquire securities of other investment companies, except as
permitted by the 1940 Act;
9. Act as an underwriter of securities;
10. Issue any senior security, except as appropriate to evidence
indebtedness which the Portfolio is permitted to incur
pursuant to Investment Restriction No. 2. The Portfolio's
arrangements in connection with its hedging activities as
described in "Investment Objective and Policies" shall not be
considered senior securities for purposes hereof; or
11. Purchase any equity security if, as a result, the Portfolio
would then have more than 5% of its total assets invested in
securities of companies (including predecessors) that have
been in continuous operation for fewer than three years.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS. The investment restrictions
described below are not fundamental policies of the Portfolio and may be
changed by the Trustees. These non-fundamental investment policies require
that the Portfolio may not:
B-13
<PAGE>
(i) acquire any illiquid securities, such as repurchase
agreements with more than seven days to maturity or fixed
time deposits with a duration of over seven calendar days, if
as a result thereof, more than 15% of the market value of the
Portfolio's total assets would be in investments that are
illiquid;
(ii) invest in real estate limited partnership interests;
(iii) invest in oil, gas or other mineral leases;
(iv) invest in warrants (other than warrants acquired by the
Portfolio as part of a unit or attached to securities at the
time of purchase) if, as a result, the investments (valued at
the lower of cost or market) would exceed 5% of the value of
the Portfolio's net assets or if, as a result, more than 2%
of the Portfolio's net assets would be invested in warrants
not listed on a recognized U.S. or foreign stock exchange, to
the extent permitted by applicable state securities laws; or
(v) invest in any securities issued by an issuer any of whose
officers, directors, trustees or security holders is an
officer or Trustee of the Trust, or is an officer of the
Investment Advisor, if after the Portfolio's purchase of the
securities of such issuer, one or more of such persons owns
beneficially more than 1/2 of 1% of the shares or securities,
or both, all taken at market value, of such issuer, and such
persons owning more than 1/2 of 1% of such shares or
securities together own beneficially more than 5% of such
shares or securities, or both, all taken at market value.
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.
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.
B-14
<PAGE>
Frederick S. Addy -- Trustee; Retired; Executive Vice
President and Chief Financial Officer from January 1990 to April
1994, Amoco Corporation. His address is 5300 Arbutus Cove, Austin,
TX 78746, and his date of birth is January 1, 1932.
William G. Burns -- Trustee; Retired; Former Vice Chairman and Chief
Finanacial Officer, NYNEX. His address is 2200 Alaqua Drive, Longwood, FL
32779, and his date of birth is November 2, 1932.
Arthur C. Eschenlauer -- Trustee; Retired; Senior Vice
President, Morgan Guaranty Trust Company of New York until 1987.
His address is 14 Alta Vista Drive, RD #2, Princeton, NJ 08540, and his date
of birth is May 23, 1934.
Matthew Healey(*) -- Trustee, Chairman and Chief
Executive Officer; Chairman, Pierpont Group, Inc., since 1989.
His address is Pine Tree Club Estates, 10286 Saint Andrews Roads,
Boynton Beach, FL 33436, and his date of birth is August 23, 1937.
Michael P. Mallardi -- Trustee; Retired; Senior Vice President,
Capital Cities/ABC, Inc. and President, Broadcast Group prior to April, 1996.
His address is 10 Charnwood Drive, Suffern, NY 10910, and his date of birth
is March 17, 1934.
Each Trustee is paid an annual fee as follows for serving as Trustee
of the Master Portfolios (as defined below), The Pierpont Funds and The JPM
Institutional Funds and is reimbursed for expenses incurred in connection
with service as a Trustee. The compensation paid to the Trustees for the
calendar year ended December 31, 1995 is set forth below. The Trustees may
hold various other directorships unrelated to the Portfolio.
- -------------------
(*) Mr. Healey is an "interested person" of the Portfolio as that
term is defined in the 1940 Act.
B-15
<PAGE>
<TABLE>
<CAPTION>
TOTAL COMPENSATION FROM
AGGREGATE PENSION OR THE MASTER PORTFOLIOS(*),
COMPENSATION RETIREMENT THE JPM INSTITUTIONAL
FROM THE BENEFITS ACCRUED ESTIMATED FUNDS AND THE PIERPONT
NAME PORTFOLIO AS PART OF ANNUAL BENEFITS FUNDS PAID TO TRUSTEES
OF TRUSTEE DURING 1995 PORTFOLIO EXPENSES UPON RETIREMENT DURING 1995
---------- ----------- ------------------ --------------- -------------------------
<S> <C> <C> <C> <C>
Frederick S. Addy, Trustee $11,709 None None $62,500
William G. Burns, Trustee $11,709 None None $62,500
Arthur C. Eschenlauer, Trustee $11,709 None None $62,500
Matthew Healey, Trustee(**), $11,709 None None $62,500
Chairman and Chief Executive
Officer
Michael P. Mallardi, Trustee $11,709 None None $62,500
</TABLE>
- ------------
(*) Includes the Portfolio and 15 other portfolios (collectively, the
"Master Portfolios") for which Morgan acts as investment adviser.
(**) During 1995, Pierpont Group, Inc. paid Mr. Healey, in his
role as Chairman of Pierpont Group, Inc., compensation in the
amount of $140,000, contributed $21,000 to a defined contribution
plan on his behalf and paid $20,000 in insurance premiums for his
benefit.
As of April 1, 1995 the annual fee paid to each Trustee for
serving as a Trustee of the Master Portfolios, The Pierpont Funds
and The JPM Institutional Funds was adjusted to $65,000. Currenty there are
17 investment companies (14 investment companies comprising the Master
Portfolis, The Pierpont Funds, The JPM Institutional Funds and The JPM
Advisor Funds) in the fund complex. The JPM Advisor Funds has a separate,
unrelated board.
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 Pierpont
Funds and The JPM Institutional Funds, up to and including creating a
separate board of trustees.
The Trustees of the Portfolio, in addition to reviewing
actions of the Portfolios' various service providers, decide upon
matters of general policy. The Portfolio has
B-16
<PAGE>
entered into a Portfolio Fund Services Agreement with Pierpont Group, Inc.
to assist the Trustees in exercising their overall supervisory
responsibilities over the affairs of the Portfolio. Pierpont Group, Inc. was
organized in July 1989 to provide services for The Pierpont Family of Funds
(currently an investor in the Portfolio). The Portfolio has agreed to pay
Pierpont Group, Inc. a fee in an amount representing its reasonable costs in
performing these services. These costs are periodically reviewed by the
Trustees. The aggregate fees paid to Pierpont Group, Inc. by the Portfolio
for the period July 19, 1993 (commencement of Operations) through May 31,
1994 were $20,385. For the fiscal year ended May 31, 1995, they were $52,948.
For the fiscal year ended May 31, 1996, they were $46,626. The Portfolio has
no employees; its executive officers (listed below), other than the Chief
Executive Officer, are provided and compensated by Funds Distributor, Inc.
("FDI"), a wholly owned indirect subsidiary of Boston Institutional Group,
Inc. The 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, Boston, Massachusetts 02109.
Matthew Healey; Chief Executive Officer; Chairman, Pierpont Group, Inc.,
since 1989; Chairman and Chief Executive Officer, Execution Services, Inc.
until October 1991. His address is Pine Tree Club Estates, 10286 Saint Andrews
Road, Boynton Beach, FL 33436. His date of birth is August 23, 1937.
Elizabeth A. Bachman; Vice President and Assistant Secretary. Counsel
FDI and Premier Mutual Fund Services, Inc. ("Premier Mutual") and an officer
of RCM Capital Funds, Inc., RCM Equity Funds, Inc., Waterhouse Investors Cash
Management Fund, Inc. and certain investment companies advised or
administered by the Dreyfus Corporation ("Dreyfus"). Prior to September 1995,
Ms. Bachman was enrolled at Fordham University School of Law and received her
JD in May 1995. Prior to September 1992, Ms. Bachman was an assistant at the
National Association for Public Interest Law. Address: FDI, 200 Park Avenue,
New York, New York 10166. Her date of birth is September 14, 1969.
Marie E. Connolly; Vice President and Assistant Treasurer. President and
Chief Executive Officer and Director of FDI, Premier Mutual and an officer of
RCM Capital Funds, Inc., RCM Equity Funds, Inc. and certain investment
companies advised or administered by Dreyfus. From December 1991 to July
1994, she was President and Chief Compliance Officer of FDI. Prior to
December 1991, she served as Vice President and Controller, and later as
Senior Vice President of The Boston Company Advisors, Inc. ("TBCA"). Her
date of birth is August 1, 1957.
Douglas C. Conroy; Vice President and Assistant Treasurer. Supervisor of
Treasury Services and Administration of FDI and an officer of certain
investment companies advised or administered by Dreyfus. From April 1993 to
January 1995, Mr. Conroy was a Senior Fund Accountant for Investors Bank &
Trust Company. Prior to March 1993, Mr. Conroy was employed as a fund
accountant at The Boston Company. His date of birth is March 31, 1969.
Jacqueline Henning; Assistant Secretary and Assistant Treasurer.
Managing Director, State Street Cayman Trust Company, Ltd. since October
1994. Prior to October 1994, Mrs. Henning was head of mutual funds at Morgan
Grenfell in Cayman and for five years was Managing director of Bank of Nova
Scotia Trust Company (Cayman) Limited from September 1988 to September 1993.
Address: P.O. Box 2508 GT, Elizabethan Square, 2nd Floor, Shedden Road,
George Town, Grand Cayman, Cayman Islands. Her date of birth is March 24,
1942.
Richard W. Ingram; President and Treasurer. Senior Vice President and
Director of Client Services and Treasury Administration of FDI, Senior Vice
President of Premier Mutual and an officer of RCM Capital Funds, Inc., RCM
Equity Funds, Inc., Waterhouse Investors Cash Management Fund, Inc. and
certain investment companies advised or administered by Dreyfus. From March
1994 to November 1995, Mr. Ingram was Vice President and Division Manager of
First Data Investor Services Group, Inc. From 1989 to 1994, Mr. Ingram was
Vice President, Assistant Treasurer and Tax Director -- Mutual Funds of The
Boston Company. His date of birth is September 15, 1955.
Karen Jacoppo-Wood; Vice President and Assistant Secretary. Assistant
Vice President of FDI and an officer of RCM Capital Funds, Inc. and RCM
Equity Funds, Inc. From June 1994 to January 1996, Ms. Jacoppo was a Manager,
SEC Registration, Scudder, Stevens & Clark, Inc. From 1988 to May 1994, Ms.
Jacoppo was a senior paralegal at TBCA. Her date of birth is December 29,
1966.
Christopher J. Kelley; Vice President and Assistant Secretary. Vice
President and Associate General Counsel of FDI. From April 1994 to July 1996,
Mr. Kelly was Assistant Counsel at Forum Financial Group. From 1992 to 1994,
Mr. Kelly 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 J. D. in May 1992. His date of birth is
December 24, 1964.
Lenore J. Mccabe; Assistant Secretary and Assistant Treasurer. Assistant
Vice President, State Street Bank and Trust Company since November 1994.
Assigned as Operations Manager, State Street Cayman Trust Company, Ltd. since
February 1995. Prior to November, 1994, employed by Boston Financial Data
Services, Inc. as Control Group Manager. Address: P.O. Box 2508 GT,
Elizabethan Square, 2nd Floor, Shedden Road, George Town, Grand Cayman,
Cayman Islands. Her date of birth is May 31, 1961.
Mary A. Nelson; Vice President and Assistant Treasurer. Vice President
and Manager of Treasury Services and Administration of FDI, an officer of RCM
Capital Funds, Inc., RCM Equity Funds, Inc. and certain investment companies
advised or administered by Dreyfus. From 1989 to 1994, Ms. Nelson was an
Assistant Vice President and client manager for The Boston Company. Her date
of birth is April 22, 1964.
John E. Pelletier; Vice President and Secretary. Senior Vice President
and General Counsel of FDI and Premier Mutual and an officer of RCM Capital
Funds, Inc., RCM Equity Funds, Inc., Waterhouse Investors Cash Management
Fund, Inc. and certain investment companies advised or administered by
Dreyfus. From February 1992 to April 1994, Mr. Pelletier served as Counsel
for TBCA. From August 1990 to February 1992, Mr. Pelletier was employed as an
Associate at Ropes & Gray. His date of birth is June 24, 1964.
Joseph F. Tower III; Vice President and Assistant Treasurer. Senior Vice
President, Treasurer and Chief Financial Officer of FDI and Premier Mutual
and an officer of Waterhouse Investors Cash Management Fund, Inc. and certain
investment companies advised or administered by Dreyfus. From July 1988 to
November 1993, Mr. Tower was Financial Manager of The Boston Company. His
date of birth is June 13, 1962.
B-17
<PAGE>
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 wilful 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 wilful misfeasance, bad
faith, gross negligence or reckless disregard of their duties.
ITEM 15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.
As of August 31, 1996, The JPM Institutional Selected U.S. Equity
Fund and The Pierpont Equity Fund (series of The JPM Institutional Funds and
The Pierpont Funds, respectively) (the "Funds") owned 33% and 45%,
respectively, of the outstanding beneficial interests in the Portfolio. So
long as
B-18
<PAGE>
the Funds control the Portfolio, they may take actions 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.
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. 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
$179 billion (of which the Advisor advises over $28 billion).
J.P. Morgan has a long history of service as adviser,
underwriter and lender to an extensive roster of major companies
and as a financial advisor to national governments. The firm,
through its predecessor firms, has been in business for over a
century and has been managing investments since 1913.
The basis of the Advisor's investment process is
fundamental investment research as the firm believes that
fundamentals should determine an asset's value over the long
term. J.P. Morgan currently employs over 100 full time research
analysts, among the largest research staffs in the money
management industry, in its investment management divisions
located in New York, London, Tokyo, Frankfurt, Melbourne and
Singapore to cover companies, industries and countries on site.
In addition, the investment management divisions employ
approximately 300 capital market researchers, portfolio managers
and traders. The conclusions of the equity analysts' fundamental
research is quantified into a set of projected returns for
individual companies through the use of a dividend discount
model. These returns are projected for 2 to 5 years to enable
B-19
<PAGE>
analysts to take a longer term view. These returns, or normalized earnings,
are used to establish relative values among stocks in each industrial sector.
These values may not be the same as the markets' current valuations of these
companies. This provides the basis for ranking the attractiveness of the
companies in an industry according to five distinct quintiles or rankings.
This ranking is one of the factors considered in determining the stocks
purchased and sold in each sector. The Advisor's fixed income investment
process is based on analysis of real rates, sector diversification and
quantitative and credit analysis.
The investment advisory services the Advisor provides to
the 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 benchmark with the
emphasis on security selection as the method to achieve investment
performance superior to the benchmark. The benchmark for the Portfolio is
currently the S&P 500 Index.
J.P. Morgan Investment Management Inc., also a wholly-owned
subsidiary of J.P. Morgan , is a registered investment adviser under the
Investment Advisers Act of 1940, as amended, which manages employee benefit
funds of corporations, labor unions and state and local governments and the
accounts of other institutional investors, including investment companies.
Certain of the assets of employee benefit accounts under its management are
invested in commingled pension trust funds for which the Advisor serves as
trustee. J.P. Morgan Investment Management Inc. advises the Advisor on
investment of the commingled pension trust funds.
The Portfolio is managed by officers of the Advisor who, in acting
for their customers, including the Portfolio, do not discuss their investment
decisions with any personnel of J.P. Morgan or any personnel of other
divisions of the Advisor or with any of its affiliated persons, with the
exception of J.P. Morgan Investment Management Inc.
B-20
<PAGE>
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 0.60%
of the Portfolio's average daily net assets. For the period from July 19,
1993 (commencement of operations) through May 31, 1994, the Portfolio paid
$1,263,048 in advisory fees. For the fiscal year ended May 31, 1995, the
Portfolio paid Morgan $2,025,936 in advisory fees. For the fiscal year ended
May 31, 1996, the Portfolio paid Morgan $2,744,054 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 of the Portfolio 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 shares, 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
B-21
<PAGE>
decisions and interpretations of present and future statutes and regulations,
might prevent the Advisor from continuing to perform such services for the
Portfolio.
If the Advisor were prohibited from acting as investment advisor to
the Portfolio, it is expected that the Trustees of the Portfolio would
recommend to investors that they approve the Portfolio's entering into a new
investment advisory agreement with another qualified investment advisor
selected by the Trustees.
Under separate agreements, Morgan also provides certain financial
fund accounting and administration services to the Portfolio. See
"Administrative Services Agent" in Part A above.
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 or the Portfolio on
not more than 60 days' written notice nor less than 30 days' written notice to
the other party. The Co-Administrator may, subject to the consent of the
Trustees of the Portfolio, 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.
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 period July 19, 1993 (commencement of operations) through May 31,
1994: $19,348. For the fiscal year ended May 31, 1995: $32,670. For the fiscal
year ended May 31, 1996: $62,404.
ADMINISTRATIVE SERVICES AGENT. The Portfolio has entered into an
Administrative Services Agreement (the "Administrative Services Agreement")
with Morgan effective December 29, 1995, as amended August 1, 1996, pursuant
to which Morgan is responsible for certain administrative and related
services provided to the Portfolio.
Under the amended Administrative Services Agreement and the
Co-Administration Agreement, the Portfolio has agreed to pay Morgan and FDI
fees equal to its allocable share of an annual complex-wide charge. This
charge is calculated daily based on the aggregate net assets of the Master
Portfolios in accordance with the following annual schedule: 0.09% on the
first $7 billion of the Master Portfolios' aggregate average daily net assets
and 0.04% of the Master Portfolios' aggregate average daily net assets in
excess of $7 billion.
Under administrative services agreements in effect with Morgan from
December 29, 1995 through July 31, 1996, the Portfolio paid Morgan a fee
equal to it 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.
B-22
<PAGE>
For the period from July 19, 1993 (commencement of
operations) through May 31, 1994, the Portfolio paid $155,348 in
fees under the services agreement. For the fiscal year ended May
31, 1995: $236,537(*). For the fiscal year ended May 31, 1996: $138,134.
- ----------------
(*) Reflects fees paid to Morgan by the Portfolio, net of fee waivers and
reimbursements, under the services agreement prior to its termination.
CUSTODIAN. State Street Bank and Trust Company ("State Street"), 40
King Street West, Toronto, Ontario, Canada M5H 3Y8, serves as the Portfolio's
Custodian 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 portfolio securities and cash. In the case
of foreign assets held outside the United States, the Custodian employs
various sub-custodians, who were approved by the Trustees of the Portfolio in
accordance with the regulations of the SEC. As Transfer Agent, State Street
is responsible for maintaining account records detailing the ownership of
interests in the Portfolio. The Portfolio is responsible for the fees of
State Street as custodian for the Portfolio. The Custodian maintains
portfolio transaction records, calculates book and tax allocations for the
Portfolio, and computes the value of the interest of each investor.
INDEPENDENT ACCOUNTANTS. The independent accountants of the
Portfolio are Price Waterhouse LLP, 1177 Avenue of the Americas, New York,
New York 10036.
B-23
<PAGE>
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 Pierpont Group, Inc.,
Morgan and FDI under various agreements discussed under "Trustees and
Officers", "Investment Advisor", "Co-Administrator" and "Administrative
Services Agent", 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.
Such expenses also include applicable registration fees under foreign
securities laws, custodian fees and brokerage expenses. Under fee
arrangements prior to September 1, 1995 that included higher fees for
financial and fund accounting services, Morgan as services 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).
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 and debt securities and municipal bonds and notes are
generally traded at a net price with dealers acting as principal for their
own accounts without a stated commission. The price of the security usually
includes profit to the dealers. In underwritten offerings, securities are
purchased at a fixed price which includes an amount of compensation to the
underwriter, generally referred to as the underwriter's concession or
discount. On occasion, certain securities may be purchased directly from an
issuer, in which case no commissions or discounts are paid.
In connection with portfolio transactions for the Portfolio, the
Advisor intends to seek the best price and execution on a competitive basis
for both purchases and sales of securities.
In selecting a broker, the Advisor considers a number of factors
including: the price per unit of the security; the broker's reliability for
prompt, accurate confirmations and on-time delivery of securities; the firm's
B-24
<PAGE>
financial condition; as well as the commissions charged. A broker may be paid
a brokerage commission in excess of that which another broker might have
charged for effecting the same transaction if, after considering the
foregoing factors, the Advisor decides that the broker chosen will provide
the best possible execution. The Advisor monitors the reasonableness of the
brokerage commissions paid in light of the execution received. The Trustees
of the Portfolio review regularly the reasonableness of commissions and other
transaction costs incurred by the Portfolio in light of facts and
circumstances deemed relevant from time to time, and, in that connection,
will receive reports from the Advisor and published data concerning
transaction costs incurred by institutional investors generally. Research
services provided by brokers to which the Advisor has allocated brokerage
business in the past include economic statistics and forecasting services,
industry and company analyses, portfolio strategy services, quantitative
data, and consulting services from economists and political analysts.
Research services furnished by brokers are used for the benefit of all the
Advisor's clients and not solely or necessarily for the benefit of the
Portfolio. The Advisor believes that the value of research services received
is not determinable and does not significantly reduce its expenses. The
Portfolio does not reduce its fee to the Advisor by any amount that might be
attributable to the value of such services.
The Portfolio paid the following approximate brokerage commissions
for the indicated fiscal years: For the period July 19, 1993 (commencement of
operations) through May 31, 1994 1994: $744,676; For the fiscal year ended
May 31, 1995: $1,179,132; For the fiscal year ended May 31, 1996: $1,376,000.
Subject to the overriding objective of obtaining the best possible
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
B-25
<PAGE>
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.
If the Portfolio effects a closing purchase transaction
with respect to an option written by it, normally such
transaction will be executed by the same broker-dealer who
executed the sale of the option. The writing of options by the
Portfolio will be subject to limitations established by each of
the exchanges governing the maximum number of options in each
class which may be written by a single investor or group of
investors acting in concert, regardless of whether the options
are written on the same or different exchanges or are held or
written in one or more accounts or through one or more brokers.
The number of options which the Portfolio may write may be
affected by options written by the Advisor for other investment
advisory clients. An exchange may order the liquidation of
positions found to be in excess of these limits, and it may
impose certain other sanctions.
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.
B-26
<PAGE>
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 wilful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of his
B-27
<PAGE>
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.
The value of investments listed on a domestic securities exchange,
other than options on stock indexes, is generally based on the last sale
prices on the New York Stock Exchange at 4:00 P.M. or, in the absence of
recorded sales, at the average of readily available closing bid and asked
prices on such exchange. Securities listed on a foreign exchange are valued
at the last quoted sale price available before the time when net assets are
valued. Unlisted securities are valued at the average of the quoted bid and
asked prices in the over-the-counter market. The value of each security for
which readily available market quotations exist is based on a decision as to
the broadest and most representative market for such security. For purposes
of calculating net asset value per share, all assets and liabilities
initially expressed in foreign currencies will be converted into United
States dollars at the prevailing market rates available at the time of
valuation.
Options on stock indexes traded on national securities exchanges are
valued at the close of options trading on such exchanges which is currently
4:10 P.M., New York time. Stock index futures and related options, which are
traded on commodities exchanges, are valued at their last sales price as of
the close of such commodities exchanges which is currently 4:15 P.M., New
York time. Securities or other assets for which market quotations are not
readily available are valued at fair value in accordance with procedures
established by and under the general supervision and responsibility of the
Trustees. Such procedures include the use of independent pricing services
which use prices based upon yields or prices of securities of comparable
quality, coupon, maturity and type; indications as to values from dealers;
and general market conditions. Short-term investments which mature in 60 days
or less are valued at amortized cost if their original maturity was 60 days
or less, or by amortizing their value on the 61st day prior to maturity, if
their original maturity when acquired by the Portfolio was more than 60 days,
unless this is determined not to represent fair value by the Trustees.
Trading in securities on most foreign exchanges and OTC markets is
normally completed before the close of trading on the New York Stock Exchange
and may also take place on days on which the New York Stock Exchange is
closed. If events materially affecting the value of securities occur between
the time when the exchange on which they are traded closes and the time when
the Portfolio's net asset value is calculated, such securities will be valued
at fair value in accordance with procedures established by and under the
general supervision of the Trustees.
B-28
<PAGE>
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.
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 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 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, including,
among other things, a requirement that the Portfolio derive less than 30% of
its gross income from the sale of stock, securities, options, futures or
forward contracts held less than three months.
Gains or losses on sales of portfolio securities will be treated as
long-term capital gains or losses if the securities have been held for more
than one year except in certain cases where, if applicable, a put is acquired
or a call option is written thereon. Other gains or losses on the sale of
securities will be short-term capital gains or losses. Gains and losses on
the sale, lapse or other termination of options on securities will be treated
as gains and losses from the sale of securities. If an option written by the
Portfolio lapses or is terminated through a closing transaction, such as a
repurchase by the Portfolio of the option from its holder, the Portfolio will
realize a short-term capital gain or loss, depending on whether the premium
income is
B-29
<PAGE>
greater or less than the amount paid by the Portfolio in the closing
transaction. If securities are purchased by the Portfolio pursuant to the
exercise of a put option written by it, the Portfolio will subtract the
premium received from its cost basis in the securities purchased.
Under the Code, gains or losses attributable to disposition of
foreign currency or to foreign currency contracts, or to fluctuations in
exchange rates between the time the Portfolio accrues income or receivables
or expenses or other liabilities denominated in a foreign currency and the
time the Portfolio actually collects such income or pays such liabilities,
are treated as ordinary income or ordinary loss. Similarly, gains or losses
on the disposition of debt securities held by the Portfolio, if any,
denominated in foreign currency, to the extent attributable to fluctuations
in exchange rates between the acquisition and disposition dates are also
treated as ordinary income or loss.
Forward currency contracts, options and futures contracts entered
into by the Portfolio may create "straddles" for U.S. federal income tax
purposes and this may affect the character and timing of gains or losses
realized by the Portfolio on forward currency contracts, options and futures
contracts or on the underlying securities. Straddles may also result in the
loss of the holding period of underlying securities for purposes of the 30%
of gross income test described above, and therefore, the Portfolio's ability
to enter into forward currency contracts, options and futures contracts may
be limited.
Certain options, futures and foreign currency contracts held by the
Portfolio at the end of each fiscal year will be required to be "marked to
market" for federal income tax purposes--i.e., treated as having been sold at
market value. For options and futures contracts, 60% of any gain or loss
recognized on these deemed sales and on actual dispositions will be treated
as long-term capital gain or loss, and the remainder will be treated as
short-term capital gain or loss regardless of how long the Portfolio has held
such options or futures. Any gain or loss recognized on foreign currency
contracts will be treated as ordinary income.
The Portfolio may invest in equity securities of foreign issuers. If
the Portfolio purchases shares in certain foreign investment funds (referred
to as passive foreign investment companies ("PFICs") under the Code),
investors who are U.S. persons generally would be subject to special rules on
any "excess distribution" from such foreign investment fund or gain from the
disposition of such shares. Under these special rules, (i) the gain or excess
distribution would be allocated ratably over the investor's holding period
for such shares, (ii) the amount allocated to the taxable year in which the
gain or excess distribution was realized would be taxable as ordinary income,
(iii) the amount allocated to each prior year, with certain exceptions, would
be subject to tax at the highest tax rate in effect for that year and (iv)
the interest charge generally applicable to underpayments of tax would be
imposed in respect of the tax attributable to each such year. Alternatively,
an investor may, if certain conditions are met, include in its income each
year a pro rata portion of the foreign investment fund's income, whether or
not distributed to the Portfolio.
B-30
<PAGE>
FOREIGN INVESTORS. It is intended that the Portfolio will conduct
its affairs such that its income and gains will not be effectively connected
with the conduct of a U.S. trade or business. Provided the Portfolio
conducts its affairs in such a manner, allocations of U.S. source dividend
income to an investor who, as to the United States, is a foreign trust,
foreign corporation or other foreign investor will be subject to U.S.
witholding tax at the rate of 30% (or lower treaty rate), and allocations of
portfolio interest (as defined in the Code) or short term or net long term
capital gains to such investors generally will not be subject to U.S. tax.
STATE AND LOCAL TAXES. The Portfolio may be subject to state or
local taxes in jurisdictions in which the Portfolio is deemed to be doing
business. In addition, the treatment of the Portfolio and its investors in
those states which have income tax laws might differ from treatment under the
federal income tax laws. Investors should consult their own tax advisors with
respect to any state or local taxes.
FOREIGN TAXES. The Portfolio may be subject to foreign withholding
taxes with respect to income received from sources within foreign countries.
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 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.
The Portfolio's current report to investors filed with the SEC
pursuant to Section 30(b) of the 1940 Act and Rule 30b2-1 thereunder is
incorporated herein by reference.
B-31
<PAGE>
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 debts 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 debts in this
category than for debts in higher rated categories.
BB - Debt rated BB is regarded as having less near-term
vulnerability to default than other speculative issues. However,
it faces major ongoing uncertainties or exposure to adverse
business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal
payments.
COMMERCIAL PAPER, INCLUDING TAX EXEMPT
A - Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are
further refined with the designations 1, 2, and 3 to indicate the
relative degree of safety.
A-1 - This designation indicates that the degree of safety regarding
timely payment is very strong.
Appendix-1
<PAGE>
SHORT-TERM TAX-EXEMPT NOTES
SP-1 - The short-term tax-exempt note rating of SP-1 is the highest
rating assigned by Standard & Poor's and has a very strong or
strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics are
given a "plus" (+) designation.
SP-2 - The short-term tax-exempt note rating of SP-2 has a
satisfactory capacity to pay principal and interest.
MOODY'S
CORPORATE AND MUNICIPAL BONDS
Aaa - Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are
generally referred to as "gilt edge". Interest payments are
protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
Aa - Bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large
as in Aaa securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which
make the long term risks appear somewhat larger than in Aaa
securities.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest
are considered adequate but elements may be present which suggest
a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate
for the present but certain protective elements may be lacking or
may be characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics and
in fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well-assured.
Often the protection of interest and principal payments may be
very moderate, and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position
characterizes bonds in this class.
COMMERCIAL PAPER, INCLUDING TAX EXEMPT
Prime-1 - Issuers rated Prime-1 (or related supporting institutions)
have a superior capacity for repayment of short-term
promissory obligations. Prime-1 repayment capacity will
normally be evidenced by the following characteristics:
- Leading market positions in well established industries.
- High rates of return on funds employed.
- Conservative capitalization structures with moderate
reliance on debt and ample asset protection.
- Broad margins in earnings coverage of fixed financial
charges and high internal cash generation.
- Well established access to a range of financial markets
and assured sources of alternate liquidity.
Appendix-2
<PAGE>
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.
Appendix-3
<PAGE>
PART C
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS
The audited financial statements included in Part B, Item 23
of this Registration Statement are as follows:
Schedule of Investments at May 31, 1996
Statement of Assets and Liabilities at May 31, 1996
Statement of Operations for the period ended May 31, 1996
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements at May 31, 1996
(B) EXHIBITS
1 Declaration of Trust of the Registrant.(3)
2 By-Laws of the Registrant.(3)
5 Investment Advisory Agreement between the Registrant
and Morgan Guaranty Trust Company of New York
("Morgan").(3)
8 Custodian Contract between the Registrant and State
Street Bank and Trust Company ("State Street").(1)
8(b) Amendment (dated July 1, 1996) to Custodian
Contract between the Registrant and State Street.(4)
9(a) Co-administration Agreement between the Registrant
and Funds Distributor, Inc. (dated August 1, 1996).(4)
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).(4)
9(d) Amended and Restated Portfolio Fund Services Agreement
between the Registrant and Pierpont Group, Inc.
(dated July 11, 1996).(4)
13 Investment representation letters of initial
investors.(1)
17 Financial Data Schedule.(4)
(1) Incorporated herein by reference from the Registrant's
registration statement on form N-1A (the "Registration
Statement") as filed with the Securities and Exchange
Commission on April 1, 1994.
(2) Incorporated herein by reference from the Registrant's
registration statement as filed with the Securities and
Exchange Commission on September 28, 1994.
(3) Incorporated herein by reference from the Registrant's
registration statement as filed with the Securities and
Exchange Commission on October 2, 1995.
(4) Filed herewith.
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 : 4 (as of September 16, 1996)
ITEM 27. INDEMNIFICATION.
Reference is hereby made to Article V of the Registrant's Declaration
C-1
<PAGE>
of Trust, filed as an Exhibit 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, as amended.
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.
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.
Martin Feldstein: President and Chief Executive Officer, National
Bureau of Economic Research, Inc.; (national research institution). His address
is National Bureau of Economic Research, Inc., 1050 Massachusetts Avenue,
Cambridge, MA 02138-5398.
Hanna H. Gray: President Emeritus, The University of Chicago (Academic
Institution). Her address is Department of History, The University of Chicago,
1126 East 59th Street, Chicago, IL 60637.
James R. Houghton: Retired Chairman, 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 Tenneco,
Inc., P.O. Box 2511, Houston, TX 77252-2511.
Lee R. Raymond: Chairman 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: 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 85007-3014.
C-2
<PAGE>
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:
Pierpont Group, Inc., 461 Fifth Avenue, New York, New York
10017. (records relating to its assisting the Trustees in carrying out their
duties in supervising the Registrant's affairs).
Morgan Guaranty Trust Company of New York, 60 Wall Street, New York,
NY 10260-0060 or 522 Fifth Avenue, New York, NY 10036. (records relating to
its functions as investment advisor and administrative services agent).
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02109 or 40 King Street West, Toronto, Ontario , Canada M5H
3Y8. (records relating to its functions as custodian and transfer agent).
Funds Distributor, Inc., Elizabeth Square, Shedden Road, George
Town, Grand Cayman, Caman Islands. (records relating to its functions as
co-administrator and exclusive placement agent).
ITEM 31. MANAGEMENT SERVICES.
Not applicable.
ITEM 32. UNDERTAKINGS.
Not applicable.
C-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940,
as amended, the Registrant has duly caused this Registration Statement on
Form N-1A to be signed on its behalf by the undersigned, thereto duly
authorized, in George Town, Grand Cayman, BWI, on the 27th day of September,
1996.
THE SELECTED U.S. EQUITY PORTFOLIO
By /s/ LEONORE J. MCCABE
________________________________
Leonore J. McCabe
Assistant Secretary and Assistant Treasurer
C-4
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT
EX-99.B8(b) Amendment to Custodian Contract
EX-99.B9(a) Co-Administration Agreement
EX-99.B9(c) Restated Administrative Services Agreement
EX-99.B9(d) Amended and Restated Portfolio Fund Services Agreement
EX-27 Financial Data Schedule
<PAGE>
AMENDMENT TO CUSTODIAN CONTRACT
Agreement made by and between State Street Bank and Trust Company (the
"Custodian") and the funds listed on Exhibit A hereto (each, a "Fund")
WHEREAS, the Custodian and the Fund are parties to a custodian contract
dated and, as applicable amended, as of the date set forth on Exhibit A (each,
the "Custodian Contract");
WHEREAS, the Custodian and the Fund desire to amend the terms and
conditions [of the] Custodian Contract pursuant to which the custodian provides
services to the Fund;
NOW, THEREFORE, in consideration of the promises and covenants contained
herein, the Custodian and the Fund hereby agree as follows:
1. The existing Section 3.13 of the Custodian Contract shall be amended and
restated in its entirety to read as follows:
3.13 TAX LAW.
(a) UNITED STATES TAXES. The Custodian shall have no responsibility
or liability for any obligations now or hereafter imposed on the Fund
or the Custodian as custodian of the Fund by the tax law of the United
States of America or any state or political subdivision [t]hereof.
The Custodian will be responsible for informing the Fund of the income
received by the Fund which is United States source income and which is
not United States source income.
(b) CLAIMING FOR EXEMPTION OR REFUND UNDER THE TAX LAWS OF NONUNITED
STATES JURISDICTIONS. The sole responsibility of the Custodian with
regard to the tax laws of non-United States jurisdictions shall be to
identify the income of the Fund which has been subject to withholding
and other tax assessments or other governmental charges by such
jurisdictions and the amount thereof and to use reasonable efforts to
assist the Fund or its investors with respect to any claim for
exemption or refund of such charges that can be made on behalf of the
Fund or its investors.
2. The existing Article 8 of the Custodian Contract shall be amended and
restated in its entirety to read as follows:
8. DUTIES OF CUSTODIAN WITH RESPECT TO THE BOOKS OF ACCOUNT AND
CALCULATION OF NET INCOME. The Custodian shall keep the books of
account of the Fund and shall perform the following duties as
described
<PAGE>
in Part A of its Registration Statement under the 1940 Act and in
accordance with written procedures as may be agreed upon by the Fund
and the Custodian from time to time:
(a) record general ledger entries;
(b) calculate daily net income;
(c) reconcile activity to the trial balance;
(d) calculate book capital account balances;
(e) calculate and provide to the Fund the daily net asset value
of the Fund and the SEC yield of the Fund and the allocation
of its various components to investors of the Fund;
(f) prepare capital allocation reports in accordance with
Regulation 1.704-3(e)(3) (special aggregation rule for
securities partnerships) under the U.S. Internal Revenue
Code, based upon tax adjustments supplied by the Fund; and
(g) prepare account balances.
The Custodian shall advise the Fund daily of the total amounts of such
net income, including the categorization of such net income by source.
The calculation of the Fund's net income and its components shall
include, but may not be limited to, accounting for purchases and sales
of portfolio securities, calculation of realized and unrealized gains
and losses, accruals of income on portfolio investments, [Portfolio
level] expense accruals and calculations of market value of portfolio
securities. All accounting functions to be performed by the Custodian
hereunder shall be performed outside the United States.
3. Except as specifically superseded or modified herein, the terms and
provisions of the Custodian contract shall continue to apply with full force and
effect.
IN WITNESS WHEREOF, each of the parties has caused this amendment to be
executed as a sealed instrument in its name and behalf by its duly authorized
representative as of this first day of July, 1996.
STATE STREET BANK AND TRUST
COMPANY
BY: /s/ Ronald E. Logue
[Ronald E. Logue
Executive Vice President]
EACH OF THE PORTFOLIOS OF THE
FUNDS LISTED ON EXHIBIT A
BY: /s/ Matthew Healey
[Matthew Healey
Chief Executive Officer]
[W:\Morin\offshore.96\jpm-am2.mto
JPM525]
<PAGE>
Exhibit A
Master Funds
advised by J.P. Morgan
The Money Market Portfolio
The Short Term Bond Portfolio
The U.S. Fixed Income Portfolio
The Selected U.S. Equity Portfolio
The U.S. Small Company Portfolio
The Non-U.S. Equity Portfolio
The Diversified Portfolio
The Non-U.S. Fixed Income Portfolio
The Emerging Markets Equity Portfolio
The Asia Growth Portfolio, a series of The Series Portfolio
The Japan Equity Portfolio, a series of The Series Portfolio
The European Equity Portfolio, a series of The Series Portfolio
<PAGE>
PORTFOLIOS LISTED IN EXHIBIT I
CO-ADMINISTRATION AGREEMENT
CO-ADMINISTRATION AGREEMENT, dated as of August 1, 1996 by and between each
of the Portfolios listed on Exhibit I, each a New York trust (a "Portfolio"),
and Funds Distributor, Inc., a Massachusetts corporation (the "Co-
Administrator").
W I T N E S S E T H:
WHEREAS, each Portfolio is engaged in business as an open-end investment
company registered under the Investment Company Act of 1940 (collectively with
the rules and regulations promulgated thereunder, the "1940 Act");
WHEREAS, each Portfolio wishes to engage the Co-Administrator to provide
certain administrative and management services, and the Co-Administrator is
willing to provide such administrative and management services to the Portfolio,
on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and agreements of
the parties hereto as herein set forth, the parties covenant and agree as
follows:
1. DUTIES OF CO-ADMINISTRATOR FOR EACH PORTFOLIO. Subject to the general
direction and control of the Board of Trustees of the Portfolio, the Co-
Administrator shall perform the following administrative and management
services: (a) providing or obtaining office space, equipment and clerical
personnel necessary for maintaining the organization of the Portfolio and for
performing the administrative and management functions herein set forth; (b)
arranging for Directors, officers and employees of the Co-Administrator or its
agents, reasonably acceptable to the Trustees, to serve as Trustees, officers or
agents of the Portfolio and perform the duties incident to their office if duly
elected or appointed to such positions and subject to their individual consent
and to any limitations imposed by law; (c) filing documents with regulatory
authorities or mailing documents to investors in or Trustees of the Portfolio to
the extent requested by the Portfolio; (d) maintaining books and records of the
Portfolio related to the foregoing. In the performance of its duties under this
Agreement, the Co-Administrator will comply with the provisions of the
Declaration of Trust and By-Laws of the Portfolio and the Portfolio's stated
investment objective, policies and restrictions, and will use its best efforts
to safeguard and promote the welfare of the Portfolio, and to comply with other
policies which the Board of Trustees may from time to time determine.
Notwithstanding the foregoing, the Co-Administrator shall not be deemed to have
assumed any duties not specified in this Agreement, including, without
limitation, any responsibility for the management of the Portfolio's assets or
the rendering of investment advice and supervision with respect thereto, nor
shall the Co-Administrator be deemed to have assumed or have any responsibility
with respect to functions specifically assumed by any transfer agent, custodian
or other administrative service provider of the Portfolio. The Co-Administrator
undertakes to comply with all applicable requirements
1
<PAGE>
of the U.S. federal securities laws and any other laws, rules and regulations of
governmental authorities having jurisdiction with respect to the duties to be
performed by it hereunder. Where the Portfolio's address is outside the United
States as indicated on Exhibit 1, the Co-Administrator further undertakes to
perform its duties, or cause its duties to be performed, outside of the United
States, as requested by the Trustees.
2. BOOKS AND RECORDS. In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Co-Administrator hereby agrees that all records which it
maintains for a Portfolio are the property of the Portfolio and further agrees
to surrender promptly to the Portfolio any such records upon the Portfolio's
request.
3. ALLOCATION OF CHARGES AND EXPENSES. The Co-Administrator shall pay
the entire salaries and wages of all of the Portfolio's Trustees, officers and
agents who devote part or all of their time to the affairs of the Co-
Administrator or its affiliates, and the wages and salaries of such persons
shall not be deemed to be expenses incurred by the Portfolio for purposes of
this Section 3. Except as provided in the foregoing sentence, the Co-
Administrator shall not pay other expenses relating to the Portfolio including,
without limitation, compensation of Trustees not affiliated with the Co-
Administrator; governmental fees; interest charges; taxes; membership dues in
the Investment Company Institute allocable to the Portfolio; fees and expenses
of the Portfolio's independent auditors, of legal counsel and of any transfer
agent or registrar of the Portfolio; expenses of preparing, printing and mailing
reports, notices, proxy statements and reports to investors and government
officers and commissions; expenses of preparing and mailing agendas and
supporting documents for meetings of Trustees and committees of Trustees;
expenses connected with the execution, recording and settlement of security
transactions; insurance premiums; fees and expenses of the Portfolio's custodian
for all services to the Portfolio, including safekeeping of funds and securities
and maintaining required books and accounts; expenses of calculating the net
asset value of the Portfolio; expenses of meetings of investors in the
Portfolio; and expenses relating to the issuance, registration and qualification
of interests in the Portfolio.
4. COMPENSATION OF CO-ADMINISTRATOR. For the services to be rendered and
the facilities to be provided by the Co-Administrator hereunder, the Co-
Administrator will receive a fee from each Portfolio as agreed by the Co-
Administrator and the Portfolio from time to time as set forth on Schedule A
attached hereto. This fee will be payable as agreed by the Portfolio and the
Co-Administrator, but not more frequently than monthly.
5. LIMITATION OF LIABILITY OF THE CO-ADMINISTRATOR. The Co-Administrator
shall not be liable for any error of judgment or mistake of law or for any act
or omission in the administration or management of any Portfolio or the
performance of its duties hereunder, except for wilful misfeasance, bad faith or
gross negligence in the performance of its duties, or by reason of the reckless
disregard of its obligations and duties hereunder. As used in this Section 5,
the term "Co-Administrator" shall include Funds Distributor, Inc. and/or any of
its affiliates and the Directors, officers and employees of Funds Distributor,
Inc. and/or of its affiliates.
6. ACTIVITIES OF THE CO-ADMINISTRATOR. The services of the Co-
Administrator to the Portfolios are not to be deemed to be exclusive, the Co-
Administrator being free to render administrative and/or other services to other
parties. It is understood that Trustees, officers, and
2
<PAGE>
investors of a Portfolio are or may become interested in the Co-Administrator
and/or any of its affiliates as Directors, officers, employees, or otherwise,
and that Directors, officers and employees of the Co-Administrator and/or any of
its affiliates are or may become similarly interested in the Portfolio and that
the Co-Administrator and/or any of its affiliates may be or become interested in
the Portfolio as an investor or otherwise.
7. TERMINATION. This Agreement may be terminated at any time with
respect to a Portfolio, without the payment of any penalty, by the Board of
Trustees of the Portfolio or by the Co-Administrator, in each case on not more
than 60 days' nor less than 30 days' written notice to the other party.
8. SUBCONTRACTING BY THE CO-ADMINISTRATOR. The Co-Administrator may
subcontract for the performance of its obligations hereunder with any one or
more persons; PROVIDED, HOWEVER, that the Co-Administrator may subcontract
hereunder only with the prior consent of the Trustees of the Portfolio; and
PROVIDED, FURTHER, that, unless the Portfolio otherwise expressly agrees in
writing, the Co-Administrator shall be as fully responsible to the Portfolio for
the acts and omissions of any subcontractor as it would be for its own acts or
omissions.
9. FURTHER ACTIONS. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
10. AMENDMENTS. This Agreement may be amended only by mutual written
consent.
11. CONFIDENTIALITY. The Co-Administrator agrees on behalf of itself and
its employees to treat confidentially and as proprietary information of each
Portfolio all records and other information not otherwise publicly available
relative to the Portfolio and its prior, present or potential investors and not
to use such records and information for any purpose other than performance of
its responsibilities and duties hereunder, except after prior notification to
and approval in writing by the Portfolio, which approval shall not be
unreasonably withheld and may not be withheld where the Co-Administrator may be
exposed to civil or criminal contempt proceedings for failure to comply, when
requested to divulge such information by duly constituted authorities, or when
so requested by the Portfolio.
12. MISCELLANEOUS. This Agreement embodies the entire agreement and
understanding between the parties hereto and supersedes all prior agreements and
understandings relating to the subject matter hereof. The captions in this
Agreement are included for convenience of reference only and in no way define or
delimit any of the provisions hereof or otherwise affect their construction or
effect. Should any part of this Agreement be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement shall not
be affected thereby. This Agreement shall be binding and shall inure to the
benefit of the parties hereto and their respective successors, to the extent
permitted by law.
13. NOTICE. Any notice or other communication required to be given
pursuant to this Agreement shall be deemed duly given if delivered or mailed by
registered mail, postage prepaid, (1) to the Co-Administrator at 60 State
Street, 13th Floor, Boston, Massachusetts 02109, Attention: President with a
copy to General Counsel; or (2) to the Portfolio at the Portfolio's address
listed on Exhibit I, Attention: Treasurer, or at such other address as either
3
<PAGE>
party may from time to time specify to the other party pursuant to this section,
with a copy to Morgan Guaranty Trust Company of New York, 522 Fifth Avenue, New
York, New York 10036, Attention: Funds Management.
14. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written. The
undersigned officer of each Portfolio has executed this Agreement not
individually, but as an officer of the Portfolio under the Portfolio's
Declaration of Trust, dated as set forth on Exhibit I, and the obligations of
this Agreement are not binding upon any of the Trustees or investors of the
Portfolio individually, but bind only the trust estate.
EACH PORTFOLIO LISTED ON EXHIBIT I
By /s/ John E. Pelletier
John E. Pelletier, Vice President
and Secretary
Attest: /s/ L. McCabe
Lenore J. McCabe
FUNDS DISTRIBUTOR, INC.
By /s/ Marie E. Connolly
Marie E. Connolly, President and
Chief Executive Officer
MASADMI[N]2
4
<PAGE>
SCHEDULE A
The Co-Administrator's annual fee charged to and payable by each Covered
Entity as defined below is its share of an annual complex-wide charge. The
annual complex-wide charge is:
(a) $425,000 for all Covered Entities, PROVIDED that such charge shall be
increased by $5,000 for each Covered Entity in excess of 100, plus
(b) out-of-pocket charges for any services subcontracted pursuant to co-
administration agreements with Covered Entities.
The portion of this charge payable by each Covered Entity is (i) in the case of
any charges described in paragraph (b) directly attributable to a particular
Covered Entity, the amount attributable to such Covered Entity, plus (ii) in the
case of all other amounts, the amount determined by the proportionate share that
such Covered Entity's net assets bear to the total net assets of the Covered
Entities.
A Covered Entity is any series of The Pierpont Funds, The JPM Institutional
Funds, The JPM Advisor Funds, the Portfolios in which they invest, and each
other current or future mutual fund (or series thereof) for which both (1) a tax
return is filed with the Internal Revenue Service under United States tax law
and (2) Morgan Guaranty Trust Company of New York provides investment advice
and/or administrative services and the Co-Administrator provides administration
services.
Approved: July 11, 1996
Effective August 1, 1996
MASADMI[N]2
<PAGE>
EXHIBIT I
<TABLE>
<CAPTION>
DATE OF DECLARATION
PORTFOLIO OF TRUST ADDRESS EFFECTIVE DATE
<S> <C> <C> <C>
The Treasury Money Market Portfolio . . . . . . . . . 11/4/92 60 State Street, Boston, MA 02109 8/1/96
The Money Market Portfolio . . . . . . . . . . . . . 1/29/93 P.O. Box 2508 GT 8/1/96
Grand Cayman, Cayman Islands, BWI
The Tax Exempt Money Market Portfolio . . . . . . . . 1/29/93 60 State Street, Boston, MA 02109 8/1/96
The Short Term Bond Portfolio . . . . . . . . . . . . 1/29/93 P.O. Box 2508 GT 8/1/96
Grand Cayman, Cayman Islands, BWI
The U.S. Fixed Income Portfolio . . . . . . . . . . . 1/29/93 P.O. Box 2508 GT 8/1/96
Grand Cayman, Cayman Islands, BWI
The Tax Exempt Bond Portfolio . . . . . . . . . . . . 1/29/93 60 State Street, Boston, MA 02109 8/1/96
The Selected U.S. Equity Portfolio . . . . . . . . . 1/29/93 P.O. Box 2508 GT 8/1/96
Grand Cayman, Cayman Islands, BWI
The U.S. Small Company Portfolio . . . . . . . . . . 1/29/93 P.O. Box 2508 GT 8/1/96
Grand Cayman, Cayman Islands, BWI
The Non-U.S. Equity Portfolio . . . . . . . . . . . . 1/29/93 P.O. Box 2508 GT 8/1/96
Grand Cayman, Cayman Islands, BWI
The Diversified Portfolio . . . . . . . . . . . . . . 1/29/93 P.O. Box 2508 GT 8/1/96
Grand Cayman, Cayman Islands, BWI
The Non-U.S. Fixed Income Portfolio . . . . . . . . . 6/16/93 P.O. Box 2508 GT 8/1/96
Grand Cayman, Cayman Islands, BWI
The Emerging Markets Equity Portfolio . . . . . . . . 6/16/93 P.O. Box 2508 GT 8/1/96
Grand Cayman, Cayman Islands, BWI
The New York Total Return Bond Portfolio . . . . . . 6/16/93 60 State Street, Boston, MA 02109 8/1/96
The Series Portfolio--The Asia Growth Portfolio* . . 6/24/94 P.O. Box 2508 GT 8/1/96
Grand Cayman, Cayman Islands, BWI
The Series Portfolio--The Japan Equity Portfolio* . . 6/24/94 P.O. Box 2508 GT 8/1/96
Grand Cayman, Cayman Islands, BWI
The Series Portfolio--The European Equity Portfolio* 6/24/94 P.O. Box 2508 GT 8/1/96
Grand Cayman, Cayman Islands, BWI
</TABLE>
*In the case of The Series Portfolio, references to the "Portfolio" refer to its
individual series as the context requires.
<PAGE>
PORTFOLIOS LISTED ON EXHIBIT I
RESTATED ADMINISTRATIVE SERVICES AGREEMENT
RESTATED ADMINISTRATIVE SERVICES AGREEMENT, dated as of August 1, 1996, by
and between each of the Portfolios listed on Exhibit I, each a New York trust (a
"Portfolio"), and Morgan Guaranty Trust Company of New York, a New York trust
company ("Morgan").
W I T N E S S E T H:
WHEREAS, each Portfolio is engaged in business as an open-end investment
company registered under the Investment Company Act of 1940 (collectively with
the rules and regulations promulgated thereunder, the "1940 Act");
WHEREAS, each Portfolio wishes to engage Morgan to provide certain
administrative services for the Portfolio, and Morgan is willing to provide such
services for the Portfolio, on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and agreements of
the parties hereto as herein set forth, the parties covenant and agree as
follows:
1. DUTIES OF MORGAN. Subject to the general direction and control of the
Board of Trustees of the Portfolio, Morgan shall perform such administrative and
related services as may from time to time be reasonably requested by the
Portfolio, which shall include without limitation: a) arranging for the
preparation and filing of the Portfolio's tax returns and preparing financial
statements and other financial reports for review by the Portfolio's independent
auditors; b) coordinating the Portfolio's annual audit; c) developing the
Portfolio's budget and establishing its rate of expense accrual; d) overseeing
the Portfolio's custodian (the "Custodian") and transfer agent and other service
providers, including monitoring the daily income accrual and collection, expense
accrual and disbursement, and computation of the Portfolio's net asset value;
verifying the calculation of performance data for the Portfolio; monitoring the
trade reporting for portfolio securities transactions; monitoring the pricing of
portfolio securities and compliance with amortized cost procedures, if
applicable; monitoring the computation of the Portfolio's income and capital
gains (losses) and confirming that they have been properly allocated to the
holders of record; and monitoring services provided by the Custodian under
Article 8 of its Custodian Contract; e) taking responsibility for compliance
with all applicable federal securities and other regulatory requirements; f)
taking responsibility for monitoring the tax status of the Portfolio so that its
investors can qualify as regulated investment companies under the Internal
Revenue Code of 1986; g) arranging for preparation of agendas and
1
<PAGE>
supporting documents for and minutes of meetings of Trustees, committees of
Trustees, and investors; h) maintaining books and records relating to such
services; and i) providing such other related services as the Portfolio may
reasonably request, to the extent permitted by applicable law. Morgan shall
provide all personnel and facilities necessary in order for it to provide the
services contemplated by this paragraph.
Morgan assumes no responsibilities under this Agreement other than to
render the services called for hereunder, on the terms and conditions provided
herein. In the performance of its duties under this Agreement, Morgan will
comply with the provisions of the Declaration of Trust and By-Laws of the
Portfolio and the Portfolio's stated investment objective, policies and
restrictions, and will use its best efforts to safeguard and promote the welfare
of the Portfolio, and to comply with other policies which the Board of Trustees
may from time to time determine.
2. BOOKS AND RECORDS. Morgan shall with respect to each Portfolio create
and maintain all records relating to its activities and obligations under this
Agreement in such manner as will meet the obligations of the Portfolio under the
1940 Act, with particular attention to Section 31 thereof and Rules 31a-1 and
31a-2 thereunder. All such records shall be the property of the Portfolio and
shall at all times during the regular business hours of Morgan be open for
inspection by duly authorized officers, employees or agents of the Securities
and Exchange Commission. In compliance with the requirements of Rule 31a-3
under the 1940 Act, Morgan hereby agrees that all records which it maintains for
the Portfolio are the property of the Portfolio and further agrees to surrender
promptly to the Portfolio any such records upon the Portfolio's request.
3. LIAISON WITH AND OPINION OF THE PORTFOLIO'S INDEPENDENT PUBLIC
ACCOUNTANTS.
3.1. Morgan shall act as liaison with the Portfolio's independent public
accountants and shall provide, upon request, account analyses, fiscal year
summaries and other audit-related schedules. Morgan shall take all reasonable
action in the performance of its obligations under this Agreement to assure that
the necessary information is made available to such accountants for the
expression of their opinion, as such may be required by the Portfolio from time
to time.
3.2. Morgan shall take all reasonable action, as the Portfolio may from
time to time request, to obtain from year to year favorable opinions from the
Portfolio's independent public accountants with respect to its activities
hereunder in connection with the preparation of the Portfolio's registration
statement on Form N-1A, reports on Form N-SAR or other periodic reports to the
Securities and Exchange Commission and with respect to any other requirements of
such Commission.
4. ALLOCATION OF CHARGES AND EXPENSES. Morgan shall bear all of the
expenses incurred in connection with carrying out its duties hereunder. The
Portfolio shall pay the usual, customary or extraordinary expenses incurred by
the Portfolio, including without limitation
2
<PAGE>
compensation of Trustees; federal and state governmental fees; interest charges;
taxes; membership dues in the Investment Company Institute allocable to the
Portfolio; fees and expenses of any provider other than Morgan of services to
the Portfolio under a co-administration agreement (the "Co-Administrator"),
Morgan pursuant to the Investment Advisory Agreement and this Agreement,
Pierpont Group, Inc. pursuant to the Portfolio Fund Services Agreement, the
Custodian for all services to the Portfolio (including safekeeping of funds and
securities and maintaining required books and accounts), independent auditors,
legal counsel and of any transfer agent, registrar or dividend disbursing agent
of the Portfolio; brokerage expenses; expenses of preparing, printing and
mailing reports, notices, proxy statements and reports to investors and
governmental offices and commissions; expenses of preparing, printing and
mailing agendas and supporting documents for meetings of Trustees and committees
of Trustees; insurance premiums; expenses of calculating the net asset value of
interests in the Portfolio; expenses of meetings of investors in the Portfolio;
expenses relating to the issuance of interests in the Portfolio; and litigation
and indemnification expenses.
5. COMPENSATION OF MORGAN. For the services to be rendered and the
expenses to be borne by Morgan hereunder, the Portfolio shall pay Morgan a fee
at an annual rate as set forth on Schedule A attached hereto. This fee will be
computed daily and payable as agreed by the Portfolio and Morgan, but no more
frequently than monthly.
6. LIMITATION OF LIABILITY OF MORGAN. Morgan shall not be liable for any
error of judgment or mistake of law or for any act or omission in the
performance of its duties hereunder, except for willful misfeasance, bad faith
or gross negligence in the performance of its duties, or by reason of the
reckless disregard of its obligations and duties hereunder.
7. ACTIVITIES OF MORGAN. The services of Morgan to the Portfolio are not
to be deemed to be exclusive, Morgan being free to engage in any other business
or to render services of any kind to any other corporation, firm, individual or
association.
8. TERMINATION. This Agreement may be terminated at any time, without the
payment of any penalty, by the Board of Trustees of the Portfolio or by Morgan,
in each case on not more than 60 days' nor less than 30 days' written notice to
the other party.
9. SUBCONTRACTING BY MORGAN. Morgan may subcontract for the performance
of its obligations hereunder with any one or more persons; PROVIDED, HOWEVER,
that, unless the Portfolio otherwise expressly agrees in writing, Morgan shall
be as fully responsible to the Portfolio for the acts and omissions of any
subcontractor as it would be for its own acts or omissions.
10. FURTHER ACTIONS. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
11. AMENDMENTS. This Agreement may be amended only by mutual written
consent.
3
<PAGE>
12. MISCELLANEOUS. This Agreement embodies the entire agreement and
understanding between the parties hereto and supersedes all prior agreements,
terminations, extensions or other understandings relating to Morgan's provision
of financial, fund accounting oversight or administrative services for the
Portfolio. The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. Should any part of this
Agreement be held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected thereby. This
Agreement shall be binding and shall inure to the benefit of the parties hereto
and their respective successors, to the extent permitted by law.
13. NOTICE. Any notice or other communication required to be given
pursuant to this Agreement shall be deemed duly given if delivered or mailed by
registered mail, postage prepaid (1) to Morgan at Morgan Guaranty Trust Company
of New York, 522 Fifth Avenue, New York, New York 10036, Attention: Funds
Management, or (2) to the Portfolio at its principal place of business as
provided to Morgan, Attention: Treasurer.
14. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
15. ADDITIONAL PORTFOLIOS. This agreement may be made applicable to any
additional Portfolio from time to time by agreement of Morgan and each such
Portfolio and the adding of such Portfolio to Exhibit I.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written. The
undersigned officer of each Portfolio has executed this Agreement not
individually, but as an officer of the Portfolio under the Portfolio's
Declaration of Trust, dated as set forth on Exhibit I, and the obligations of
this Agreement are not binding upon any of the Trustees or investors of the
Portfolio individually, but bind only the trust estate.
EACH PORTFOLIO LISTED ON EXHIBIT I
By /s/ John E. Pelletier
John E. Pelletier, Vice President
and Secretary
Attest: /s/ L. McCabe
Lenore J. McCabe
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
By /s/ Stephen H. Hopkins
Stephen H. Hopkins, Vice President
RMMFFAS5
4
<PAGE>
SCHEDULE A
ADMINISTRATIVE SERVICES FEES
PORTFOLIOS LISTED ON EXHIBIT I
The annual administrative services fee charged to and payable by each
Portfolio listed on Exhibit I, as amended from time to time (the "Master
Portfolios"), is equal to its proportionate share of an annual complex-wide
charge. This charge is calculated daily based on the aggregate net assets of
the Master Portfolios and in accordance with the following annual schedule:
0.09% on the first $7 billion of the Master Portfolios' aggregate
average daily net assets; and
0.04% of the Master Portfolios' aggregate average daily net assets in
excess of $7 billion
LESS the complex-wide charge of the Co-Administrator.
The portion of this charge payable by each Master Portfolio is determined by the
proportionate share that its net assets bear to the total of the net assets of
the Master Portfolios, The Pierpont Funds, The JPM Institutional Funds, The JPM
Advisor Funds and other investors in the Master Portfolios for which Morgan
provides similar services.
Approved: July 11, 1996
Effective August 1, 1996
RMMFFAS5
<PAGE>
EXHIBIT I
DATE OF EFFECTIVE
PORTFOLIO DECLARATION OF TRUST DATE
- --------- -------------------- ----
The Treasury Money Market Portfolio 11/4/92 8/1/96
The Money Market Portfolio 1/29/93 8/1/96
The Tax Exempt Money Market Portfolio 1/29/93 8/1/96
The Short Term Bond Portfolio 1/29/93 8/1/96
The U.S. Fixed Income Portfolio 1/29/93 8/1/96
The Tax Exempt Bond Portfolio 1/29/93 8/1/96
The Selected U.S. Equity Portfolio 1/29/93 8/1/96
The U.S. Small Company Portfolio 1/29/93 8/1/96
The Non-U.S. Equity Portfolio 1/29/93 8/1/96
The Diversified Portfolio 1/29/93 8/1/96
The Non-U.S. Fixed Income Portfolio 6/16/93 8/1/96
The Emerging Markets Equity Portfolio 6/16/93 8/1/96
The New York Total Return Bond Portfolio 6/16/93 8/1/96
The Series Portfolio* 6/24/94 8/1/96
The Asia Growth Portfolio
The Japan Equity Portfolio
The European Equity Portfolio
*In the case of The Series Portfolio, references to the "Portfolio" refer to its
individual series as the context requires.
<PAGE>
PORTFOLIOS LISTED ON EXHIBIT I
RESTATED ADMINISTRATIVE SERVICES AGREEMENT
RESTATED ADMINISTRATIVE SERVICES AGREEMENT, dated as of August 1, 1996, by
and between each of the Portfolios listed on Exhibit I, each a New York trust (a
"Portfolio"), and Morgan Guaranty Trust Company of New York, a New York trust
company ("Morgan").
W I T N E S S E T H:
WHEREAS, each Portfolio is engaged in business as an open-end investment
company registered under the Investment Company Act of 1940 (collectively with
the rules and regulations promulgated thereunder, the "1940 Act");
WHEREAS, each Portfolio wishes to engage Morgan to provide certain
administrative services for the Portfolio, and Morgan is willing to provide such
services for the Portfolio, on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and agreements of
the parties hereto as herein set forth, the parties covenant and agree as
follows:
1. DUTIES OF MORGAN. Subject to the general direction and control of the
Board of Trustees of the Portfolio, Morgan shall perform such administrative and
related services as may from time to time be reasonably requested by the
Portfolio, which shall include without limitation: a) arranging for the
preparation and filing of the Portfolio's tax returns and preparing financial
statements and other financial reports for review by the Portfolio's independent
auditors; b) coordinating the Portfolio's annual audit; c) developing the
Portfolio's budget and establishing its rate of expense accrual; d) overseeing
the Portfolio's custodian (the "Custodian") and transfer agent and other service
providers, including monitoring the daily income accrual and collection, expense
accrual and disbursement, and computation of the Portfolio's net asset value;
verifying the calculation of performance data for the Portfolio; monitoring the
trade reporting for portfolio securities transactions; monitoring the pricing of
portfolio securities and compliance with amortized cost procedures, if
applicable; monitoring the computation of the Portfolio's income and capital
gains (losses) and confirming that they have been properly allocated to the
holders of record; and monitoring services provided by the Custodian under
Article 8 of its Custodian Contract; e) taking responsibility for compliance
with all applicable federal securities and other regulatory requirements; f)
taking responsibility for monitoring the tax status of the Portfolio so that its
investors can qualify as regulated investment companies under the Internal
Revenue Code of 1986; g) arranging for preparation of agendas and
1
<PAGE>
supporting documents for and minutes of meetings of Trustees, committees of
Trustees, and investors; h) maintaining books and records relating to such
services; and i) providing such other related services as the Portfolio may
reasonably request, to the extent permitted by applicable law. Morgan shall
provide all personnel and facilities necessary in order for it to provide the
services contemplated by this paragraph.
Morgan assumes no responsibilities under this Agreement other than to
render the services called for hereunder, on the terms and conditions provided
herein. In the performance of its duties under this Agreement, Morgan will
comply with the provisions of the Declaration of Trust and By-Laws of the
Portfolio and the Portfolio's stated investment objective, policies and
restrictions, and will use its best efforts to safeguard and promote the welfare
of the Portfolio, and to comply with other policies which the Board of Trustees
may from time to time determine.
2. BOOKS AND RECORDS. Morgan shall with respect to each Portfolio create
and maintain all records relating to its activities and obligations under this
Agreement in such manner as will meet the obligations of the Portfolio under the
1940 Act, with particular attention to Section 31 thereof and Rules 31a-1 and
31a-2 thereunder. All such records shall be the property of the Portfolio and
shall at all times during the regular business hours of Morgan be open for
inspection by duly authorized officers, employees or agents of the Securities
and Exchange Commission. In compliance with the requirements of Rule 31a-3
under the 1940 Act, Morgan hereby agrees that all records which it maintains for
the Portfolio are the property of the Portfolio and further agrees to surrender
promptly to the Portfolio any such records upon the Portfolio's request.
3. LIAISON WITH AND OPINION OF THE PORTFOLIO'S INDEPENDENT PUBLIC
ACCOUNTANTS.
3.1. Morgan shall act as liaison with the Portfolio's independent public
accountants and shall provide, upon request, account analyses, fiscal year
summaries and other audit-related schedules. Morgan shall take all reasonable
action in the performance of its obligations under this Agreement to assure that
the necessary information is made available to such accountants for the
expression of their opinion, as such may be required by the Portfolio from time
to time.
3.2. Morgan shall take all reasonable action, as the Portfolio may from
time to time request, to obtain from year to year favorable opinions from the
Portfolio's independent public accountants with respect to its activities
hereunder in connection with the preparation of the Portfolio's registration
statement on Form N-1A, reports on Form N-SAR or other periodic reports to the
Securities and Exchange Commission and with respect to any other requirements of
such Commission.
4. ALLOCATION OF CHARGES AND EXPENSES. Morgan shall bear all of the
expenses incurred in connection with carrying out its duties hereunder. The
Portfolio shall pay the usual, customary or extraordinary expenses incurred by
the Portfolio, including without limitation
2
<PAGE>
compensation of Trustees; federal and state governmental fees; interest charges;
taxes; membership dues in the Investment Company Institute allocable to the
Portfolio; fees and expenses of any provider other than Morgan of services to
the Portfolio under a co-administration agreement (the "Co-Administrator"),
Morgan pursuant to the Investment Advisory Agreement and this Agreement,
Pierpont Group, Inc. pursuant to the Portfolio Fund Services Agreement, the
Custodian for all services to the Portfolio (including safekeeping of funds and
securities and maintaining required books and accounts), independent auditors,
legal counsel and of any transfer agent, registrar or dividend disbursing agent
of the Portfolio; brokerage expenses; expenses of preparing, printing and
mailing reports, notices, proxy statements and reports to investors and
governmental offices and commissions; expenses of preparing, printing and
mailing agendas and supporting documents for meetings of Trustees and committees
of Trustees; insurance premiums; expenses of calculating the net asset value of
interests in the Portfolio; expenses of meetings of investors in the Portfolio;
expenses relating to the issuance of interests in the Portfolio; and litigation
and indemnification expenses.
5. COMPENSATION OF MORGAN. For the services to be rendered and the
expenses to be borne by Morgan hereunder, the Portfolio shall pay Morgan a fee
at an annual rate as set forth on Schedule A attached hereto. This fee will be
computed daily and payable as agreed by the Portfolio and Morgan, but no more
frequently than monthly.
6. LIMITATION OF LIABILITY OF MORGAN. Morgan shall not be liable for any
error of judgment or mistake of law or for any act or omission in the
performance of its duties hereunder, except for willful misfeasance, bad faith
or gross negligence in the performance of its duties, or by reason of the
reckless disregard of its obligations and duties hereunder.
7. ACTIVITIES OF MORGAN. The services of Morgan to the Portfolio are not
to be deemed to be exclusive, Morgan being free to engage in any other business
or to render services of any kind to any other corporation, firm, individual or
association.
8. TERMINATION. This Agreement may be terminated at any time, without the
payment of any penalty, by the Board of Trustees of the Portfolio or by Morgan,
in each case on not more than 60 days' nor less than 30 days' written notice to
the other party.
9. SUBCONTRACTING BY MORGAN. Morgan may subcontract for the performance
of its obligations hereunder with any one or more persons; PROVIDED, HOWEVER,
that, unless the Portfolio otherwise expressly agrees in writing, Morgan shall
be as fully responsible to the Portfolio for the acts and omissions of any
subcontractor as it would be for its own acts or omissions.
10. FURTHER ACTIONS. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
11. AMENDMENTS. This Agreement may be amended only by mutual written
consent.
3
<PAGE>
12. MISCELLANEOUS. This Agreement embodies the entire agreement and
understanding between the parties hereto and supersedes all prior agreements,
terminations, extensions or other understandings relating to Morgan's provision
of financial, fund accounting oversight or administrative services for the
Portfolio. The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. Should any part of this
Agreement be held or made invalid by a court decision, statute, rule or
otherwise, the remainder of this Agreement shall not be affected thereby. This
Agreement shall be binding and shall inure to the benefit of the parties hereto
and their respective successors, to the extent permitted by law.
13. NOTICE. Any notice or other communication required to be given
pursuant to this Agreement shall be deemed duly given if delivered or mailed by
registered mail, postage prepaid (1) to Morgan at Morgan Guaranty Trust Company
of New York, 522 Fifth Avenue, New York, New York 10036, Attention: Funds
Management, or (2) to the Portfolio at its principal place of business as
provided to Morgan, Attention: Treasurer.
14. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
15. ADDITIONAL PORTFOLIOS. This agreement may be made applicable to any
additional Portfolio from time to time by agreement of Morgan and each such
Portfolio and the adding of such Portfolio to Exhibit I.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written. The
undersigned officer of each Portfolio has executed this Agreement not
individually, but as an officer of the Portfolio under the Portfolio's
Declaration of Trust, dated as set forth on Exhibit I, and the obligations of
this Agreement are not binding upon any of the Trustees or investors of the
Portfolio individually, but bind only the trust estate.
EACH PORTFOLIO LISTED ON EXHIBIT I
By /s/ John E. Pelletier
John E. Pelletier, Vice President
and Secretary
Attest: /s/ L. McCabe
Lenore J. McCabe
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
By /s/ Stephen H. Hopkins
Stephen H. Hopkins, Vice President
RMMFFAS5
4
<PAGE>
SCHEDULE A
ADMINISTRATIVE SERVICES FEES
PORTFOLIOS LISTED ON EXHIBIT I
The annual administrative services fee charged to and payable by each
Portfolio listed on Exhibit I, as amended from time to time (the "Master
Portfolios"), is equal to its proportionate share of an annual complex-wide
charge. This charge is calculated daily based on the aggregate net assets of
the Master Portfolios and in accordance with the following annual schedule:
0.09% on the first $7 billion of the Master Portfolios' aggregate
average daily net assets; and
0.04% of the Master Portfolios' aggregate average daily net assets in
excess of $7 billion
LESS the complex-wide charge of the Co-Administrator.
The portion of this charge payable by each Master Portfolio is determined by the
proportionate share that its net assets bear to the total of the net assets of
the Master Portfolios, The Pierpont Funds, The JPM Institutional Funds, The JPM
Advisor Funds and other investors in the Master Portfolios for which Morgan
provides similar services.
Approved: July 11, 1996
Effective August 1, 1996
RMMFFAS5
<PAGE>
EXHIBIT I
DATE OF EFFECTIVE
PORTFOLIO DECLARATION OF TRUST DATE
- --------- -------------------- ----
The Treasury Money Market Portfolio 11/4/92 8/1/96
The Money Market Portfolio 1/29/93 8/1/96
The Tax Exempt Money Market Portfolio 1/29/93 8/1/96
The Short Term Bond Portfolio 1/29/93 8/1/96
The U.S. Fixed Income Portfolio 1/29/93 8/1/96
The Tax Exempt Bond Portfolio 1/29/93 8/1/96
The Selected U.S. Equity Portfolio 1/29/93 8/1/96
The U.S. Small Company Portfolio 1/29/93 8/1/96
The Non-U.S. Equity Portfolio 1/29/93 8/1/96
The Diversified Portfolio 1/29/93 8/1/96
The Non-U.S. Fixed Income Portfolio 6/16/93 8/1/96
The Emerging Markets Equity Portfolio 6/16/93 8/1/96
The New York Total Return Bond Portfolio 6/16/93 8/1/96
The Series Portfolio* 6/24/94 8/1/96
The Asia Growth Portfolio
The Japan Equity Portfolio
The European Equity Portfolio
*In the case of The Series Portfolio, references to the "Portfolio" refer to its
individual series as the context requires.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial data extracted from the report on
Form N-SAR dated May 31, 1996 for The Selected U.S. Equity Portfolio and is
qualified in its entirety by reference to such report.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-01-1995
<PERIOD-END> MAY-31-1996
<INVESTMENTS-AT-COST> 595,380
<INVESTMENTS-AT-VALUE> 703,684
<RECEIVABLES> 16,605
<ASSETS-OTHER> 9
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 720,298
<PAYABLE-FOR-SECURITIES> 740
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 346
<TOTAL-LIABILITIES> 1,086
<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> 719,212
<DIVIDEND-INCOME> 16,423
<INTEREST-INCOME> 1,820
<OTHER-INCOME> 0
<EXPENSES-NET> 3,176
<NET-INVESTMENT-INCOME> 15,067
<REALIZED-GAINS-CURRENT> 78,377
<APPREC-INCREASE-CURRENT> 63,227
<NET-CHANGE-FROM-OPS> 156,671
<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> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,744
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,177
<AVERAGE-NET-ASSETS> 684,949
<PER-SHARE-NAV-BEGIN> 0
<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> 0
<EXPENSE-RATIO> 0.46
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
