Securities Act File No. 33-72834
Investment Company Act File No. 811-8212
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. __ / /
Post-Effective Amendment No. 4 /X/
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 6 /X/
(Check appropriate box or boxes)
THE CHUBB SERIES TRUST
(Exact Name of Registrant as Specified in Charter)
One Granite Place
Concord, New Hampshire 03301
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (603) 226-5000
Bruce R. Stefany, President
One Granite Place
Concord, New Hampshire 03301
(Name and Address of Agent for Service)
copies to:
Carol R. Schepp, Esq. Thomas H. Elwood, Esq. Stuart H. Coleman, Esq.
J.P. Morgan Investment The Chubb Series Trust Stroock & Stroock & Lavan
Management, Inc. One Granite Place 7 Hanover Square
522 Fifth Avenue Concord, New Hampshire New York, New York 10004-2696
New York, New York 10036 03301
It is proposed that this filing will become effective (check
appropriate box)
____ immediately upon filing pursuant to paragraph (b)
____ on (date) pursuant to paragraph (b)
____ 60 days after filing pursuant to paragraph (a)(i)
_X__ on December 31, 1996 pursuant to paragraph (a)(i)
____ 75 days after filing pursuant to paragraph (a)(ii)
____ on (date) pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
____ this post-effective amendment designates a new
effective date for a previously filed post-effective
amendment.
Registrant has registered an indefinite number of its shares of Beneficial
Interest under the Securities Act of 1933 pursuant to Section 24(f) of the
Investment Company Act of 1940. Registrant's Rule 24f-2 Notice for its fiscal
year ended December 31, 1995 was filed on February 27, 1996.
<PAGE>
THE CHUBB SERIES TRUST
Cross-Reference Sheet Pursuant to Rule 495(a)
Items in
Part A of
FORM N-1A CAPTION PAGE
1 Cover Cover Page
2 Synopsis 5
3 Condensed Financial Information 5
4 General Description of Registrant 7,8
5 Management of the Fund 26
5(a) Management's Discussion of Fund's Performance *
6 Capital Stock and Other Securities 30
7 Purchase of Securities Being Offered 32
8 Redemption or Repurchase 32
9 Pending Legal Proceedings *
Items in
Part B of
FORM N-1A
10 Cover Page B-1
11 Table of Contents B-1
12 General Information and History *
13 Investment Objectives and Policies B-4
14 Management of the Fund B-22, B-26
15 Control Persons and Principal Holders
of Securities B-31
16 Investment Advisory and Other Services B-26
17 Brokerage Allocation B-29
18 Capital Stock and Other Securities B-31
THE CHUBB SERIES TRUST
Cross-Reference Sheet Pursuant to Rule 495(a)
Items in
Part B of
FORM N-1A CAPTION PAGE
19 Purchase, Redemption and Pricing of
Securities Being Offered B-32, B-33
20 Tax Status B-34
21 Underwriters *
22 Calculations of Performance Data B-36
23 Financial Statements B-39
Items in
Part C of
FORM N-1A
24 Financial Statements and Exhibits C-1
25 Persons Controlled by or Under Common
Control with Registrant C-3
26 Number of Holders of Securities C-4
27 Indemnification C-4
28 Business and Other Connections of
Investment Adviser C-6
29 Principal Underwriters C-7
30 Location of Accounts and Records C-7
31 Management Services C-8
32 Undertakings C-8
- ---------
*Omitted since answer is negative or inapplicable.
- ------------------------------------------------------------------------------
PROSPECTUS
JPM SERIES TRUST II
60 STATE STREET
BOSTON, MASSACHUSETTS 02109
1-800-521-5411
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JPM Series Trust II is an open-end diversified management
investment company organized as a Delaware Business Trust (the "Trust"). The
Trust is composed of five separate portfolios (each, a "Portfolio" and
collectively, the "Portfolios") which operate as distinct investment vehicles.
The names and investment objectives of the Portfolios are as follows:
JPM Treasury Money Market Portfolio seeks to provide current
income, maintain a high level of liquidity and preserve capital.
JPM Bond Portfolio seeks to provide a high total return
consistent with moderate risk of capital and maintenance of liquidity.
JPM Equity Portfolio seeks to provide a high total return from
a portfolio comprised of selected equity securities.
JPM Small Company Portfolio seeks to provide a high total
return from a portfolio of equity securities of small companies.
JPM International Equity Portfolio seeks to provide a high
total return from a portfolio of equity securities of foreign corporations.
Each Portfolio is advised by J.P. Morgan Investment
Management, Inc. ("Morgan" or the "Adviser").
Shares of the Portfolios presently are offered only to
variable annuity and variable life insurance separate accounts established by
insurance companies to fund variable annuity contracts and variable life
insurance policies and qualified pension and retirement plans outside the
separate account context. For offers to separate accounts, this Prospectus
should be read in conjunction with the prospectus of the separate accounts of
the specific insurance product which should precede or accompany this
Prospectus.
This Prospectus sets forth concisely information about the Trust and
its Portfolios that a prospective investor should know before investing. This
Prospectus should be retained for future reference. A Statement of Additional
Information for the Trust, dated ____________, 1996 (as supplemented from time
to time), has been filed with the Securities and Exchange Commission and is
incorporated herein by reference. The Statement of Additional Information is
available without charge upon written request from the Trust's Distributor,
Funds Distributor, Inc., 60 State Street, Suite 1300, Boston, Massachusetts
02109, Attention: JPM Series Trust II, or by calling 1-800-221-7930. Inquiries
about the Trust should be directed to the Trust at the same address or telephone
number.
AN INVESTMENT IN JPM TREASURY MONEY MARKET PORTFOLIO IS
NEITHER INSURED NOR GUARANTEED BY THE UNITED STATES GOVERNMENT. INVESTMENTS IN
THE PORTFOLIOS ARE NOT BANK DEPOSITS AND ARE NOT INSURED BY, GUARANTEED BY,
OBLIGATIONS OF, OR OTHERWISE SUPPORTED BY THE FDIC OR ANY BANK. AN INVESTMENT IN
ANY OF THE PORTFOLIOS IS SUBJECT TO RISK THAT MAY CAUSE THE VALUE OF THE
INVESTMENT TO FLUCTUATE, AND WHEN THE INVESTMENT IS REDEEMED, THE VALUE MAY BE
HIGHER OR LOWER THAN THE AMOUNT ORIGINALLY INVESTED BY THE INVESTOR.
JPM Equity, Small Company and International Equity Portfolios
permit investments in any nation, and investments in these Portfolios involve
special considerations and risks.
==============================================================================
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
==============================================================================
THE DATE OF THIS PROSPECTUS IS ___________, 1996.
<PAGE>
TABLE OF CONTENTS
Page
ANNUAL OPERATING EXPENSES.....................................................
FINANCIAL HIGHLIGHTS..........................................................
PERFORMANCE AND YIELD INFORMATION.............................................
PORTFOLIOS....................................................................
INVESTMENT OBJECTIVES AND POLICIES............................................
JPM Treasury Money Market Portfolio.......................................
Investment Objective..................................................
Investment Policies...................................................
Risk Factors..........................................................
JPM Bond Portfolio........................................................
Investment Objective..................................................
Investment Policies...................................................
Risk Factors..........................................................
JPM Equity Portfolio......................................................
Investment Objective..................................................
Investment Policies...................................................
Risk Factors..........................................................
JPM Small Company Portfolio...............................................
Investment Objective..................................................
Investment Policies...................................................
Risk Factors..........................................................
JPM International Equity Portfolio........................................
Investment Objective..................................................
Investment Policies...................................................
Risk Factors..........................................................
ADDITIONAL INVESTMENT INFORMATION.............................................
Convertible Securities for JPM Bond,
Equity, Small Company and International
Equity Portfolios..................................................
When-Issued and Delayed Delivery Securities...............................
Repurchase Agreements.....................................................
Loans and Portfolio Securities............................................
Reverse Repurchase Agreements.............................................
Mortgage Dollar Roll Transactions.........................................
Foreign Investment Information for JPM
Bond, Equity, Small Company and International
Equity Portfolios..................................................
Foreign Currency Exchange Transactions for
JPM Equity, Small Company and International
Equity Portfolios..................................................
Illiquid Investments; Privately Placed and Other
Unregistered Securities............................................
Futures and Options Transactions for JPM
Bond, Equity, Small Company and International
Equity Portfolios..................................................
Money Market Instruments for JPM Equity,
Small Company and International Equity Portfolios..................
PORTFOLIO TURNOVER............................................................
INVESTMENT RESTRICTIONS.......................................................
MANAGEMENT OF THE TRUST AND PORTFOLIOS........................................
CAPITAL SHARES................................................................
TAXES AND DIVIDENDS...........................................................
OFFERING AND REDEMPTION OF SHARES.............................................
OTHER INFORMATION.............................................................
APPENDIX......................................................................
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY STATE IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THE PROSPECTUS.
<PAGE>
ANNUAL OPERATING EXPENSES
(as a percentage of average daily net assets)
<TABLE>
<CAPTION>
JPM Treasury JPM Bond JPM Equity JPM Small JPM International
Money Market Portfolio Portfolio Portfolio Company Portfolio Equity Portfolio
<S> <C> <C> <C> <C> <C>
Management Fees......... .20% .30% .40% .60% .60%
Other Expenses.......... .40% .45% .50% .50% .60%
Total Portfolio
Operating Expenses...... .60% .75% .90% 1.15% 1.20%
</TABLE>
Example:
An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of each time
period:
<TABLE>
<CAPTION>
JPM Treasury JPM Bond JPM Equity JPM Small JPM International
Money Market Portfolio Portfolio Portfolio Company Portfolio Equity Portfolio
<S> <C> <C> <C> <C> <C>
1 year $ 6 $ 8 $ 9 $ 12 $ 12
3 years $19 $24 $ 29 $ 37 $ 38
5 years $33 $42 $ 50 $ 63 $ 66
10 year $75 $93 $111 $140 $145
</TABLE>
THE AMOUNTS LISTED IN THE EXAMPLE SHOULD NOT BE CONSIDERED AS REPRESENTATIVE OF
PAST OR FUTURE EXPENSES OF THE PORTFOLIOS AND ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE INDICATED. MOREOVER, WHILE THE EXAMPLE ASSUMES A 5% ANNUAL
RETURN, EACH PORTFOLIO'S ACTUAL PERFORMANCE WILL VARY AND MAY RESULT IN AN
ACTUAL RETURN GREATER OR LESS THAN 5%.
The purpose of the foregoing table is to assist investors in
understanding the costs and expenses borne by each Portfolio, the payment of
which will reduce investors' annual return. The information in the foregoing
table has been restated to reflect an agreement by Morgan Guaranty Trust Company
of New York ("Morgan Guaranty"), an affiliate of Morgan, to reimburse the Trust
to the extent certain expenses exceed in any fiscal year .60%, .75%, .90%, 1.15%
and 1.20% of the average daily net assets of JPM Treasury Money Market
Portfolio, JPM Bond Portfolio, JPM Equity Portfolio, JPM Small Company Portfolio
and JPM International Equity Portfolio, respectively. The information in the
foregoing table does not reflect deduction of account fees and charges to
separate accounts or related insurance policies that may be imposed by
participating insurance companies. For a further description of the various
costs and expenses incurred in the operation of the Portfolios, as well as
expense reimbursement or waiver arrangements, see "Management of the Trust and
Portfolios."
<PAGE>
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share of
capital stock outstanding for each Portfolio throughout the period from January
3, 1995 (commencement of operations) to December 31, 1995 (audited) and the six
month period ended June 30, 1996 (unaudited).1 The related financial statements
and report of Ernst & Young LLP, independent auditors, for the period ended
December 31, 1995 are incorporated by reference into the Statement of Additional
Information and are available upon request and without charge by calling
1-800-221-7930.
<TABLE>
<CAPTION>
JPM Treasury
Money Market Portfolio JPM Bond Portfolio
Six Month Six Month
January 3, 1995 Period Ended January 3, 1995 Period Ended
through June 30, 1996 through June 30, 1996
December 31, 1995 (Unaudited) December 31, 1995 (Unaudited)
----------------- ----------- ----------------- -----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period.... $ 10.00 $ 10.06 $ 10.00 $ 10.91
INCOME FROM INVESTMENT OPERATIONS
Net investment income............... 0.45 0.22 0.58 0.31
Net realized and unrealized gains
(losses) on securities & foreign
currency.......................... 0.06 0.01 1.11 (0.58)
--------- --------- --------- ---------
Total from investment
operations................... 0.51 0.23 1.69 (0.27)
LESS DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment
income............................ (0.45) (0.58)
Distributions from net capital gains. (0.20) (0.01)
--------- ---------- --------- ---------
Total distributions...................... (0.45) 0.00 (0.78) (0.01)
--------- ---------- --------- ---------
Net asset value, end of period........... $ 10.06 $ 10.29 $ 10.91 $ 10.63
========== ========== ========= =========
Total Return2............................ 5.09% 2.25% 16.85% (2.37%)
Ratios to average net assets:
(Annualized)
Expenses3............................ 0.60% 0.60% 0.75% 0.75%
Net investment income................ 4.95% 4.56% 6.00% 5.87%
Portfolio turnover rate.................. N/A N/A 238.96% 127.90%
Average Commission Rate Paid............. N/A N/A N/A N/A
Net assets, at end of period............. $1,272,932 $1,283,398 $1,416,694 $1,544,150
JPM Equity Portfolio JPM Small Company Portfolio
---------------------------------- ----------------------------------
Six Month Six Month
January 3, 1995 Period Ended January 3, 1995 Period Ended
through June 30, 1996 through June 30, 1996
December 31, 1995 (Unaudited) December 31, 1995 (Unaudited)
----------------- ------------- ------------------ --------------
Net asset value, beginning of period..... $ 10.00 $ 12.63 $ 10.00 $ 11.83
INCOME FROM INVESTMENT OPERATIONS
Net investment income................ 0.12 0.13 0.11 0.04
Net realized and unrealized gains
(losses) on securities & foreign
currency............................ 3.26 1.03 3.18 1.27
---------- --------- -------- --------
Total from investment
operations..................... 3.38 1.16 3.29 1.31
LESS DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment
income.............................. (0.12) (0.11)
Distributions from net capital gains.. (0.63) (0.20) (1.35) (0.46)
---------- --------- --------- ---------
Total distributions....................... (0.75) (0.20) (1.46) (0.46)
---------- --------- --------- ---------
Net asset value, end of period............ $ 12.63 $ 13.59 $ 11.83 $ 12.68
========== ========== ========= =========
Total Return2............................. 33.91% 9.15% 32.91% 11.20%
Ratios to average net assets:
(Annualized)
Expenses3............................. 0.90% 0.90% 1.15% 1.15%
Net investment income................. 1.48% 2.05% 0.99% 0.62%
Portfolio turnover rate................... 65.60% 42.11% 100.43% 54.99%
Average Commission Rate Paid.............. N/A $ 0.0553 N/A $ 0.0507
Net assets, at end of period.............. $4,144,458 $5,096,578 $2,536,258 $3,434,837
JPM International
Equity Portfolio
--------------------------------
Six Month
January 3, 1995 Period Ended
through June 30, 1996
December 31, 1995 (Unaudited)
----------------- -------------
Net asset value, beginning of period...... $ 10.00 $ 10.86
INCOME FROM INVESTMENT OPERATIONS
Net investment income................. 0.15 0.01
Net realized and unrealized gains
(losses) on securities &
foreign currency.................... 1.08 0.73
---------- -------
Total from investment
operations..................... 1.23 0.74
LESS DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment
income.............................. (0.09)
Dividends in excess of net
investment income................... (0.10)
Distributions from net capital gains.. (0.18)
----------
Total distributions....................... (0.37) 0.00
---------- ---------
Net asset value, end of period............. $ 10.86 $ 11.60
========== ==========
Total Return2.............................. 12.38% 6.77%
Ratios to average net assets:
(Annualized)
Expenses3............................... 1.20% 1.20%
Net investment income................... 1.06% 1.90%
Portfolio turnover rate..................... 68.00% 47.55%
Average Commission Rate Paid................ N/A $ 0.0012
Net assets, at end of period................ $3,992,275 $4,770,701
- --------------------
1 From January 3, 1995 (commencement of operations) to __________, 1996,
Chubb Investment Advisory Corporation ("Chubb Investment Advisory"), a
wholly owned subsidiary of Chubb Life Insurance Company of America
("Chubb Life"), served as each Portfolio's investment manager, and
Morgan Guaranty served as each Portfolio's sub-investment adviser.
Effective _____________, 1996, Morgan began serving as each Portfolio's
investment adviser. See "OTHER INFORMATION."
2 Total return assumes reinvestment of all dividends during the period
and does not reflect deduction of account fees and charges to separate
accounts or related insurance policies, which, if reflected, would
reduce the Portfolio's total return for the period indicated.
Investment returns and principal values will fluctuate and shares, when
redeemed, may be worth more or less than their original cost. Total
returns for periods of less than one year have not been annualized.
3 All related party fees have been waived and all other expenses of the
Portfolios have been assumed in part for 1996 and 1995 by Chubb Life
and Morgan Guaranty. Had the fees not been waived and expenses not
been assumed, the ratios of expenses to average net assets would have
been 2.28%, 2.45%, 2.34%, 2.85% and 3.21% in 1996, and 2.77%, 2.90%,
2.70%, 3.22% and 3.16% in 1995, for JPM Treasury Money Market
Portfolio, JPM Bond Portfolio, JPM Equity Portfolio, JPM Small Company
Portfolio and JPM International Equity Portfolio, respectively.
</TABLE>
PERFORMANCE AND YIELD INFORMATION
From time to time the Trust may advertise the yield and/or the average
annual total return of some or all of the Portfolios. These figures are based on
historical earnings and are not intended to indicate future performance. Shares
of the Portfolios presently are offered only to variable annuity and variable
life insurance separate accounts established by affiliated and unaffiliated life
insurance companies ("Participating Insurance Companies") to fund variable
annuity contracts ("VA contracts") and variable life insurance policies ("VLI
policies" and, together with VA contracts, "Policies") and qualified pension and
retirement plans outside the separate account context. None of these performance
figures reflect fees and charges imposed by Participating Insurance Companies,
which fees and charges will reduce the yield and total return to Policy owners;
therefore, these performance figures may be of limited use for comparative
purposes. Policy owners should consult the prospectus for such Policy.
JPM Treasury Money Market Portfolio's yield quotations represent the
Portfolio's investment income, less expenses, expressed as a percentage of
assets on an annualized basis for a seven-day period. The yield is expressed as
both a simple annualized yield and a compounded effective yield. The yield for
the non-money market Portfolios is calculated by dividing the Portfolio's net
investment income per share during a recent 30-day period by the maximum
offering price per share of that Portfolio (which is the net asset value of that
Portfolio) on the last day of the period.
The average annual total return quotations of the non-money market
Portfolios are determined by computing the average annual percentage change in
value of a $10,000 investment, made at the maximum public offering price (which
is net asset value) for certain specified periods. This computation assumes
reinvestment of all dividends and distributions.
Set forth below is historical performance information for JPM
Bond Portfolio, JPM Equity Portfolio, JPM Small Company Portfolio and JPM
International Equity Portfolio and for an appropriate securities index with
respect to each such Portfolio. In addition, set forth below is hypothetical
performance information derived from historical composite performance of Private
Accounts managed by Morgan which have investment objectives, policies and
strategies substantially similar to those of the indicated Portfolios and, thus,
deemed relevant to Portfolio investors. The hypothetical performance information
of the Private Accounts--namely, the Active Fixed Income Composite, Active
Equity Composite, Small Company Composite and International Equity
Composite--does not represent the historical performance of the corresponding
Portfolio and should not be interpreted as indicative of the future performance
of the Portfolio. Moreover, the Private Accounts are not registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), and, therefore, are
not subject to certain investment restrictions, diversification requirements and
other restrictions that are imposed by the 1940 Act and the Internal Revenue
Service, which, if imposed, could have adversely affected the performance of the
Private Accounts. In addition, the Active Fixed Income Composite may include a
higher allocation of investments in private placements of corporate and
mortgage-related securities than JPM Bond Portfolio, and, unlike JPM
International Equity Portfolio, the International Equity Composite does not
limit its country allocations to no more than 25% of its assets and typically
does not invest in emerging markets securities.
The hypothetical performance results of the Private Accounts
set forth below represent the actual performance results of the applicable
composite, adjusted to reflect the deduction of fees and expenses of the
applicable Portfolio. These results are time-weighted rates of return which
include all accrued income and realized and unrealized gains or losses, but do
not reflect the deduction of investment advisory fees actually charged to the
Private Accounts.
<TABLE>
<CAPTION>
Average Annual Total Return
-------------------------------------------------------------------
Name of Portfolio,
Corresponding Private 5 Years or 10 Years or
ACCOUNT AND INDEX 1 YEAR SINCE INCEPTION SINCE INCEPTION
- --------------------- ------ --------------- ---------------
<S> <C> <C> <C>
JPM Bond Portfolio ___% ___%* N/A
Active Fixed Income Composite ___% ___% ___%
[Index]** ___% ___% ___%
JPM Equity Portfolio ___% ___%* N/A
Active Equity Composite ___% ___% ___%
[Index]** ___% ___% ___%
JPM Small Company Portfolio ___% ___%* N/A
Small Company Composite ___% ___% ___%
[Index]** ___% ___% ___%
JPM International Equity Portfolio ___% ___%* N/A
International Equity Composite ___% ___% ___%
[Index]** ___% ___% ___%
- ---------------
* [Inception Dates]
** [Description of Index]
</TABLE>
PORTFOLIOS
The Trust currently consists of five Portfolios: JPM Treasury Money
Market Portfolio, JPM Bond Portfolio, JPM Equity Portfolio, JPM Small Company
Portfolio and JPM International Equity Portfolio. In the future, the Trust may
add or delete portfolios.
The Portfolios are offered as funding vehicles for Policies to be
offered by the Participating Insurance Companies. The Policies are described in
the separate prospectuses issued by the Participating Insurance Companies over
which the Trust assumes no responsibility. Portfolio shares also are offered to
qualified pension and retirement plans outside of the separate account context
(including, without limitation, those trusts, plans, accounts, contracts or
annuities described in Sections 401(a), 403(a), 403(b), 408(a), 408(b), 408(k),
414(d), 457(b), 501(c)(18) of the Internal Revenue Code of 1986, as amended (the
"Code"), and any other trust, plan, account, contract or annuity that is
determined to be within the scope of Treasury Regulation ss.1.817.5(f)(3)(iii))
("Eligible Plans" or "Plans"). The Trust currently does not foresee any
disadvantages to Policy owners or Eligible Plan participants arising from the
fact that the interests of Policy owners and Eligible Plan participants may
differ. Nevertheless, the Trust's Board of Trustees (the "Board") intends to
monitor events in order to identify any material conflicts which may arise and
to determine what action, if any, should be taken in response thereto.
Shares of each Portfolio are both offered and redeemed at their net
asset value without the addition of any sales load or redemption charge. See
"OFFERING AND REDEMPTION OF SHARES."
INVESTMENT OBJECTIVES AND POLICIES
The investment objective and policies of each Portfolio are described
below. The investment objective of a Portfolio, and certain investment
restrictions discussed in the Statement of Additional Information, may be
changed only with the approval of the shareholders of each Portfolio that are
affected by such change. The investment policies of a Portfolio, used in
furtherance of the Portfolio's objective, may be changed by the Board without
the approval of the Portfolio's shareholders.
Because investment involves both opportunities for gain and risks of
loss, no assurance can be given that the Portfolios will achieve their
objectives. The difference in objectives and policies among the various
Portfolios can be expected to affect each Portfolio's investment return as well
as the degree of market and financial risks to which each Portfolio is subject.
Prospective purchasers of Policies and Plan participants should carefully review
the objectives and policies of the Portfolios and consider their ability to
assume the risks involved before allocating amounts for investment therein.
JPM TREASURY MONEY MARKET PORTFOLIO
INVESTMENT OBJECTIVE: JPM Treasury Money Market Portfolio's investment
objective is to provide current income, maintain a high level of liquidity, and
preserve capital.
The Portfolio seeks to achieve its investment objective by investing
in direct obligations of the United States (U.S.) Treasury and engaging in
repurchase agreement transactions with respect to those obligations. The
Portfolio maintains a dollar-weighted average portfolio maturity of not more
than 90 days and invests in Treasury Securities (as defined below) which have
effective maturities of not more than thirteen months.
INVESTMENT POLICIES: Treasury Securities. The Portfolio will invest in
Treasury Bills, Notes, and Bonds, all of which are backed as to principal and
interest payments by the full faith and credit of the United States of America
("Treasury Securities"). Each such obligation must have a remaining maturity of
397 days or less at the time of purchase by the Portfolio. Treasury Bills have
initial maturities of one year or less; Treasury Notes have initial maturities
of one to ten years; and Treasury Bonds generally have initial maturities of
greater than ten years. The Portfolio will not invest in obligations of U.S.
Government Agencies ("U.S. Government Agency Obligations").
The Portfolio also may purchase Treasury Securities on a when-issued
or delayed delivery basis, loan its portfolio securities and may engage in
repurchase and reverse repurchase agreement transactions involving Treasury
Securities. For a discussion of these transactions, see "ADDITIONAL INVESTMENT
INFORMATION."
RISK FACTORS: Obligations of the U.S. Treasury are guaranteed by the
U.S. Government as to the timely payment of principal and interest, but the
market value of such obligations is not guaranteed and may rise and fall in
response to changes in interest rates. Neither the shares of the Trust nor the
interests in the Portfolio are guaranteed or insured by the U.S. Government.
JPM BOND PORTFOLIO
INVESTMENT OBJECTIVE: JPM Bond Portfolio's investment objective is to
provide a high total return consistent with moderate risk of capital and
maintenance of liquidity. Total return will consist of realized and unrealized
capital gains and losses plus income less expenses. Although the net asset value
of the Portfolio will fluctuate, the Portfolio attempts to preserve the value of
its investments to the extent consistent with its objective.
JPM Bond Portfolio is designed for investors who seek a total return
over time that is higher than that generally available from a portfolio of
short-term obligations while acknowledging the greater price fluctuation of
longer-term instruments.
INVESTMENT POLICIES: The Adviser actively manages the Portfolio's
duration, the allocation of securities across market sectors, and the selection
of specific securities within sectors. Based on fundamental, economic and
capital markets research, the Adviser adjusts the duration of the Portfolio in
light of market conditions and the Adviser's interest rate outlook. For example,
if interest rates are expected to fall, the duration may be lengthened to take
advantage of the expected associated increase in bond prices. The Adviser also
actively allocates the Portfolio's assets among the broad sectors of the fixed
income market including, but not limited to, U.S. Government Agency Obligations,
corporate securities, private placements, asset-backed and mortgage-related
securities. Specific securities which the Adviser believes to be undervalued are
selected for purchase within the sectors using advanced quantitative tools,
analysis of credit risk, the expertise of a dedicated trading desk, and the
judgment of fixed income portfolio managers and analysts. Under normal market
conditions, the Adviser intends to keep the Portfolio essentially fully invested
with at least 65% of the Portfolio's assets invested in bonds, debentures and
other debt instruments. The Portfolio may invest up to 20% of its assets in
securities denominated in foreign currencies, and may invest without limitation
in U.S. dollar-denominated securities of foreign issuers.
Duration is a measure of the weighted average maturity of the
bonds held in the Portfolio and can be used as a measure of the sensitivity of
the Portfolio's market value to changes in interest rates. Under normal market
conditions, the Portfolio's duration will range between one year shorter and one
year longer than the duration of the U.S. investment grade fixed income
universe, as represented by Salomon Brothers Broad Investment Grade Bond Index.
Currently, such Index's duration is approximately 4.5 years. However, the
maturities of the individual securities in the Portfolio may vary widely.
The Adviser intends to manage the Portfolio actively in pursuit
of its investment objective. Portfolio transactions are undertaken principally
to accomplish the Portfolio's objective in relation to expected movements in the
general level of interest rates, but the Portfolio also may engage in short-term
trading consistent with its objective. To the extent the Portfolio engages in
short-term trading, it may incur increased transaction costs.
Corporate Bonds, etc. The Portfolio may invest in a broad range of
debt securities of domestic and foreign issuers. These include debt securities
of various types and maturities, e.g., debentures, notes, mortgage-related
securities, equipment trust certificates and other collateralized securities and
zero coupon securities. Collateralized securities are backed by a pool of assets
such as loans or receivables which generate cash flow to cover the payments due
on the securities. Collateralized securities are subject to certain risks,
including a decline in the value of the collateral backing the security, failure
of the collateral to generate the anticipated cash flow or in certain cases more
rapid prepayment because of events affecting the collateral, such as accelerated
prepayment of mortgages or other loans backing these securities or destruction
of equipment subject to equipment trust certificates. In the event of any such
prepayment the Portfolio will be required to reinvest the proceeds of
prepayments at interest rates prevailing at the time of reinvestment, which may
be lower than at the time of purchase. In addition, the value of zero coupon
securities which do not pay interest is more volatile than that of interest
bearing debt securities with the same maturity. The Portfolio does not intend to
invest in common stock but may invest to a limited extent in convertible debt or
preferred stock. See "ADDITIONAL INVESTMENT INFORMATION" for further information
on foreign investment and convertible securities.
Government Obligations, etc. The Portfolio may invest in obligations
issued or guaranteed by the U.S. Government and backed by the full faith and
credit of the U.S. Government. These securities include Treasury Securities,
obligations of the Government National Mortgage Association ("GNMA"), the
Farmers Home Administration and the Export Import Bank. GNMA Certificates are
mortgage-backed securities which evidence an undivided interest in mortgage
pools. These securities are subject to more rapid repayment than their stated
maturity would indicate because prepayments of principal on mortgages in the
pool are passed through to the holder of the securities. During periods of
declining interest rates, prepayments of mortgages in the pool can be expected
to increase. The pass-through of these prepayments would have the effect of
reducing the Portfolio's positions in these securities and requiring the
Portfolio to reinvest the prepayments at interest rates prevailing at the time
of reinvestment. The Portfolio also may invest in obligations issued or
guaranteed by U.S. Government agencies or instrumentalities where the Portfolio
must look principally to the issuing or guaranteeing agency for ultimate
repayment; some examples of agencies or instrumentalities issuing these
obligations are the Federal Farm Credit System, the Federal Home Loan Banks and
the Federal National Mortgage Association. Although these governmental issuers
are responsible for payments on their obligations, they do not guarantee their
market value. The Portfolio also may invest in municipal obligations which may
be general obligations of the issuer or payable only from specific revenue
sources. However, the Portfolio will invest only in municipal obligations that
have been issued on a taxable basis or have an attractive yield excluding tax
considerations. In addition, the Portfolio may invest in debt securities of
foreign governments and governmental entities. See "ADDITIONAL INVESTMENT
INFORMATION" for further information on foreign investments.
Money Market Instruments. The Portfolio may invest in various types of
money market instruments subject to the quality requirements of the Portfolio.
See "Quality Information" below and "MONEY MARKET INSTRUMENTS" in the Statement
of Additional Information. Under normal circumstances, the Portfolio will
purchase these securities to invest temporary cash balances or to maintain
liquidity to meet redemptions. However, the Portfolio also may invest in money
market instruments as a temporary defensive measure taken during, or in
anticipation of, adverse market conditions.
United States Government Obligations. See "Government Obligations,
etc." above.
Bank Obligations. The Portfolio may invest in high quality negotiable
certificates of deposit, time deposits and bankers' acceptances of (i) banks,
savings and loan associations and savings banks which have more than $2 billion
in total assets and are organized under U.S. federal or state law, (ii) foreign
branches of these banks or of foreign banks of equivalent size (Euros) and (iii)
U.S. branches of foreign banks of equivalent size (Yankees). The Portfolio also
may invest in obligations of international banking institutions designated or
supported by national governments to promote economic reconstruction,
development or trade between nations (e.g., the European Investment Bank, the
Inter-American Development Bank, or the World Bank). These obligations may be
supported by appropriated but unpaid commitments of their member countries, and
there is no assurance these commitments will be undertaken or met in the future.
Commercial Paper; Bonds. The Portfolio may invest in high quality
commercial paper and corporate bonds issued by U.S. corporations. The Portfolio
also may invest in bonds and commercial paper of foreign issuers if the
obligation is not subject to foreign withholding tax.
Asset-Backed Securities. The Portfolio also may invest in securities
generally referred to as asset-backed securities, which directly or indirectly
represent a participation interest in, or are secured by and payable from, a
stream of payments generated by particular assets such as motor vehicle or
credit card receivables. Asset-backed securities provide periodic payments that
generally consist of both interest and principal payments. Consequently, the
life of an asset-backed security varies with the prepayment experience of the
underlying debt instruments.
Quality Information. The Portfolio's current policy is that, under
normal circumstances, at least 65% of its total assets will consist of
securities that are rated at least A by Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Ratings Group ("Standard & Poors") or that are
unrated and in the Adviser's opinion are of comparable quality. The remainder of
the Portfolio's assets may be invested in debt securities that are rated Baa by
Moody's and BBB by Standard & Poor's or, with respect to no more than 10% of its
assets, rated Ba or B by Moody's and BB or B by Standard & Poor's or are unrated
and in the Adviser's opinion are of comparable quality. Securities rated Baa by
Moody's or BBB by Standard & Poor's are considered investment grade, but have
some speculative characteristics. Securities rated Ba or B by Moody's and BB or
B by Standard & Poor's are below investment grade (commonly known as "junk
bonds") and ordinarily provide higher yields but involve greater risk because of
their speculative characteristics. See "Risk Factors" below. These standards
must be satisfied at the time an investment is made. If the quality of the
investment later declines below the quality required for purchase, the Portfolio
may continue to hold the investment. See also "APPENDIX A" in the Statement of
Additional Information for more detailed information on these ratings, and "High
Yield/High Risk Bonds" in the Statement of Additional Information for a
discussion of risks associated with investing in junk bonds.
The Portfolio also may purchase obligations on a when-issued or
delayed delivery basis, enter into repurchase and reverse repurchase agreements,
loan its portfolio securities, purchase certain privately placed securities and
use options on securities and securities indices, futures contracts and options
on futures contracts for hedging and risk management purposes. For a discussion
of these investments and investment techniques, see "ADDITIONAL INVESTMENT
INFORMATION."
RISK FACTORS: If JPM Bond Portfolio disposes of an obligation prior to
maturity, it may realize a loss or a gain. An increase in interest rates will
generally reduce the value of portfolio investments, and a decline in interest
rates will generally increase the value of portfolio investments. As a result,
the level of income under such circumstances may vary. In addition, portfolio
investments (other than Treasury Securities) are dependent upon the ability of
the issuer to make scheduled payments of principal and interest. Certain
securities purchased by the Portfolio, such as those rated Baa or as low as B by
Moody's and BBB or as low as B by S&P, may be subject to such risk with respect
to the issuing entity and to greater market fluctuations than certain lower
yielding, higher rated fixed-income securities. The retail secondary market for
these securities may be less liquid than that of higher rated securities;
adverse conditions could make it difficult at times for the Portfolio to sell
certain lower rated securities or could result in lower prices than those used
in calculating the Portfolio's net asset value.
JPM EQUITY PORTFOLIO
INVESTMENT OBJECTIVE: JPM Equity Portfolio's investment objective is
to provide a high total return from a portfolio comprised of selected equity
securities. Total return will consist of realized and unrealized capital gains
and losses plus income less expenses. The Portfolio invests primarily in the
common stock of U.S. corporations with market capitalizations above $1.5
billion.
JPM Equity Portfolio is designed for investors who want an actively
managed portfolio of selected equity securities that seeks to outperform the S&P
500 Index.
INVESTMENT POLICIES: The Adviser seeks to enhance the Portfolio's
total return relative to that of the universe of large- and medium-sized U.S.
corporations, typically represented by the S&P 500 Index, through fundamental
analysis, systematic stock valuation and disciplined portfolio construction.
Based on internal fundamental research, the Adviser uses a systematic stock
selection process to rank companies within economic sectors according to their
relative value. From the universe of securities this model shows as undervalued,
the Adviser selects stocks for the Portfolio based on a variety of criteria
including the company's managerial strength, prospects for growth and
competitive position. The Adviser may 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.
EQUITY INVESTMENTS. During normal market conditions, the Adviser
intends to keep the Portfolio essentially fully invested with at least 65% of
the Portfolio's 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 similar securities of foreign corporations. The common stock in
which the Portfolio may invest includes the common stock of any class or series
or any similar equity interest, such as trust or limited partnership interests.
These equity investments may or may not pay dividends and may or may not carry
voting rights. The Portfolio invests in securities listed on a securities
exchange or traded in an over-the-counter market, and may invest in certain
restricted or unlisted securities.
Foreign Investments. The Portfolio may invest in equity securities of
foreign corporations which may include American Depositary Receipts ("ADRs").
However, the Portfolio does not expect to invest more than 30% of its assets at
the time of purchase in securities of foreign issuers, nor does it expect more
than 10% of its assets to be invested in securities of foreign issuers not
listed on a national securities exchange or not denominated or principally
traded in U.S. dollars. For further information on foreign investments and
foreign currency exchange transactions, see "ADDITIONAL INVESTMENT INFORMATION."
The Portfolio also may invest in securities on a when-issued or
delayed delivery basis, enter into repurchase and reverse repurchase agreements,
loan its portfolio securities, purchase certain privately placed securities and
money market instruments (see "Money Market Instruments for JPM Equity, Small
Company and International Equity Portfolios" for more information concerning the
types of money market instruments in which JPM Equity Portfolio may invest), and
use options on securities and securities indices, futures contracts and options
on futures contracts for hedging and risk management purposes. For a discussion
of these investments and investment techniques, see "ADDITIONAL INVESTMENT
INFORMATION."
RISK FACTORS: The foreign securities and ADRs in which the Portfolio
may invest involve special considerations and risks. See "ADDITIONAL INVESTMENT
INFORMATION" below. The prices of the types of securities usually purchased by
JPM Equity Portfolio will tend to fluctuate more than the prices of securities
purchased by JPM Treasury Money Market and Bond Portfolios. As a result, the net
asset value of JPM Equity Portfolio may experience greater short-term and
long-term variations than Portfolios that invest primarily in fixed income
securities.
JPM SMALL COMPANY PORTFOLIO
INVESTMENT OBJECTIVE: JPM Small Company Portfolio's investment
objective is to provide a high total return from a portfolio of equity
securities of small companies. Total return will consist of realized and
unrealized capital gains and losses plus income less expenses. The Portfolio
invests at least 65% of the value of its total assets in the common stock of
small U.S. companies primarily with market capitalizations less than $1 billion.
JPM Small Company Portfolio is designed for investors who are willing
to assume the somewhat higher risk of investing in small companies in order to
seek a higher return over time than might be expected from a portfolio of stocks
of large companies.
INVESTMENT POLICIES: The Adviser seeks to enhance the Portfolio's
total return relative to that of the U.S. small company universe. To do so, the
Adviser uses fundamental research, systematic stock valuation and a disciplined
portfolio construction process. The Adviser continually screens the universe of
small capitalization companies to identify for further analysis those companies
which exhibit favorable characteristics such as significant and predictable cash
flow and high quality management. Based on this investment process, as well as
fundamental research, the Adviser ranks these companies within economic sectors
according to their relative value. The Adviser then selects for purchase the
most attractive companies within each economic sector.
The Adviser uses a disciplined portfolio construction process to seek
to enhance returns and reduce volatility in the market value of the Portfolio
relative to that of the U.S. small company universe, typically represented by
the Russell 2000(R) Index. The disciplined portfolio construction process
involves continuously screening the small company universe and consists of three
basic steps: first, calculating each company's internal rate of return ("IRR")
based on projected cash flow; second, sorting those companies within twenty
economic sectors by IRR quintile rank; third, concentrating purchases in the top
three quintiles of each sector and selling fourth and fifth quintiles. Variance
in industry weights from the Russell 2000(R) are minimized to ensure that stock
selection is the principal source of excess return.
The Adviser believes that under normal market conditions the Portfolio
will have sector weightings comparable to that of the U.S. small company
universe, although it may under- or over-weight selected economic sectors. In
addition, as a company moves out of the market capitalization range of the small
company universe, it generally becomes a candidate for sale by the Portfolio.
The Portfolio intends to manage its investments actively to accomplish
its investment objective. Since the Portfolio has a long-term investment
perspective, it does not intend to respond to short-term market fluctuations or
to acquire securities for the purpose of short-term trading; however, it may
take advantage of short-term trading opportunities that are consistent with its
objective. To the extent the Portfolio engages in short-term trading it may
incur increased transaction costs.
Permissible Investments. The Portfolio may invest in the same types of
securities and use the same investment techniques, subject to the same
limitations, as permitted for JPM Equity Portfolio.
RISK FACTORS: The risk factors discussed above in connection with JPM
Equity Portfolio also apply to JPM Small Company Portfolio. The price of the
securities purchased by JPM Small Company Portfolio will tend to fluctuate more
than the prices of securities purchased by JPM Bond and Treasury Money Market
Portfolios.
JPM INTERNATIONAL EQUITY PORTFOLIO
INVESTMENT OBJECTIVE: JPM International Equity Portfolio's investment
objective is to provide a high total return from a portfolio of equity
securities of foreign corporations. Total return will consist of realized and
unrealized capital gains and losses plus income less expenses.
JPM International Equity Portfolio is designed for investors with a
long-term investment horizon who want to diversify their investments by adding
international equities and take advantage of investment opportunities outside
the U.S.
INVESTMENT POLICIES: The Portfolio seeks to achieve its investment
objective through country allocation and stock valuation and selection. Based on
fundamental research, quantitative valuation techniques, and experienced
judgment, the Adviser uses a structured decision-making process to allocate the
Portfolio's investments across the countries of the world outside the United
States.
Under normal market conditions, the Portfolio will invest in a minimum
of three different foreign countries. However, when the Adviser determines that
adverse market conditions exist, the Portfolio may adopt a temporary defensive
position and invest in less than three different foreign countries.
Using a systematic stock selection process and analysts' industry
expertise, securities within each country are ranked within economic sectors
according to their relative value. Based on this valuation, the Adviser selects
the securities which appear the most attractive for the Portfolio. The Adviser
believes that, under normal market conditions, economic sector weightings
generally will be similar to those of one or more relevant equity indices.
Finally, the Adviser actively manages currency exposure, in
conjunction with country and stock allocation, in an attempt to protect and
possibly enhance the Portfolio's market value. Through the use of forward
foreign currency exchange contracts, the Adviser will adjust the Portfolio's
foreign currency weightings to reduce its exposure to currencies deemed
unattractive and, in certain circumstances, increase exposure to currencies
deemed attractive, as market conditions warrant, based on fundamental research,
technical factors, and the judgment of a team of experienced currency managers.
For further information on foreign currency exchange transactions, see
"ADDITIONAL INVESTMENT INFORMATION."
The Portfolio intends to manage its portfolio actively in pursuit of
its investment objective. The Portfolio does not expect to trade in securities
for short-term profits; however, when circumstances warrant, securities may be
sold without regard to the length of time held. To the extent the Portfolio
engages in short-term trading it may incur increased transaction costs.
Equity Investments. Under normal market conditions, the Adviser
intends to keep the Portfolio essentially fully invested with at least 65% of
the value of its total assets in equity securities of foreign issuers,
consisting of common stocks and other securities with equity characteristics
such as preferred stock, warrants, rights and convertible securities which may
be held through ADRs. The Portfolio's primary equity investments are the common
stock of companies based in developed countries outside the U.S. and in
developing countries. The common stock in which the Portfolio may invest
includes the common stock of any class or series or any similar equity interest
such as trust or limited partnership interests. See "ADDITIONAL INVESTMENT
INFORMATION." The Portfolio invests in securities listed on the foreign or
domestic securities exchanges and securities traded in foreign or domestic
over-the-counter markets, and may invest in certain restricted or unlisted
securities.
The Portfolio also may invest in dollar and non-dollar
denominated money market instruments (see "Money Market Instruments for JPM
Equity, Small Company and International Equity Portfolios" for more information
concerning the types of money market instruments in which JPM International
Equity Portfolio may invest) and securities on a when-issued or delayed delivery
basis, enter into repurchase and reverse repurchase agreements, loan its
portfolio securities, purchase certain privately placed securities and enter
into certain hedging transactions, including options on equity securities,
options on foreign stock indices and forward foreign currency exchange
contracts. For a discussion of these investments and investment techniques, see
"ADDITIONAL INVESTMENT INFORMATION."
RISK FACTORS: The risk factors discussed above in connection with JPM
Equity Portfolio also apply to JPM International Equity Portfolio. All or a
significant portion of this Portfolio may be invested in foreign securities and
ADRs, and investors should understand the special considerations and risks
related to such an investment emphasis, including foreign currency risks. See
"ADDITIONAL INVESTMENT INFORMATION."
ADDITIONAL INVESTMENT INFORMATION
Convertible Securities for JPM Bond, Equity, Small Company and
International Equity Portfolios. JPM Bond, Equity, Small Company and
International Equity Portfolios may invest in convertible securities of domestic
and, subject to each Portfolio's restrictions, foreign issuers. The convertible
securities in which the Portfolios may invest include any debt securities or
preferred stock which may be converted into common stock or which carry the
right to purchase common stock. Convertible securities entitle the holder to
exchange the securities for a specified number of shares of common stock,
usually of the same company, at specified prices within a certain period of
time.
When-Issued and Delayed Delivery Securities. Each of the Portfolios
may purchase securities on a when-issued or delayed delivery basis. Delivery of
and payment for these securities may take as long as a month or more after the
date of the purchase commitment. The value of these securities is subject to
market fluctuation during this period and no interest or income accrues to the
Portfolio until settlement. At the time of settlement a when-issued security may
be valued at less than its purchase price. Each Portfolio maintains with the
custodian of the Trust (the "Custodian") a separate account with a segregated
portfolio of securities in an amount at least equal to these commitments. For
more information concerning the Custodian for the Trust, see "INVESTMENT
ADVISORY AND OTHER SERVICES" in the Statement of Additional Information. 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 each
Portfolio not to enter into when-issued commitments exceeding in the aggregate
15% of the market value of the Portfolio's total assets less liabilities other
than the obligations created by these commitments.
Repurchase Agreements. Each of the Portfolios may engage in repurchase
agreement transactions with brokers, dealers or banks that meet the credit
guidelines established by the Board. JPM Treasury Money Market Portfolio will
only enter into repurchase agreements involving U.S. Treasury securities. In a
repurchase agreement, a 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 a Portfolio to the seller. The
Portfolio always receives securities as collateral with a market value at least
equal to the purchase price plus accrued interest and this value is maintained
during the term of the agreement. If the seller defaults and the collateral
value declines, the Portfolio might incur a loss. If bankruptcy proceedings are
commenced with respect to the seller, the Portfolio's realization upon the
disposition of collateral may be delayed or limited. Investments in certain
repurchase agreements and certain other investments which may be considered
illiquid are limited. See "Illiquid Investments; Privately Placed and Other
Unregistered Securities" below.
Loans of Portfolio Securities. Subject to applicable investment
restrictions, each of the Portfolios is permitted to lend its securities. Each
of the Portfolios may lend its securities if such loans are secured continuously
by cash or equivalent collateral or by a letter of credit in favor of the
Portfolio at least equal at all times to 100% of the market value of the
securities loaned, plus accrued interest. While such securities are on loan, the
borrower will pay the Portfolio any income accruing thereon. Loans will be
subject to termination by a Portfolio in the normal settlement time, generally
five 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 is for the account of the relevant Portfolio and its respective
shareholders. The Portfolios may pay reasonable finders' and custodial fees in
connection with a loan. In addition, the Portfolios will consider all facts and
circumstances including the creditworthiness of the borrowing financial
institution, and the Portfolios will not make any loans in excess of one year.
The Portfolios will not lend their securities to any officer, Trustee, Director,
employee, or affiliate of the Trust, the Adviser or Distributor, unless
otherwise permitted by applicable law.
Reverse Repurchase Agreements. Each of the Portfolios is permitted to
enter into reverse repurchase agreements. In a reverse repurchase agreement, the
Portfolio sells a security and agrees to repurchase it at a mutually agreed upon
date and price, reflecting the interest rate effective for the term of the
agreement. It also may be viewed as the 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.
Mortgage Dollar Roll Transactions. JPM Bond Portfolio may engage in
mortgage dollar roll transactions with respect to mortgage-related securities
issued by certain federal government agencies. In a mortgage dollar roll
transaction, the Portfolio sells a mortgage-related security and simultaneously
agrees to purchase a substantially similar security on a specified date at an
agreed upon price. Compensation is derived from the difference of the sales
price and the lower price for the future repurchase as well as by the interest
earned on the reinvestment of the sales proceeds, and in some cases by a
commitment fee.
Foreign Investment Information for JPM Bond, Equity, Small Company and
International Equity Portfolios. JPM Bond, Equity and Small Company Portfolios
may invest in certain securities of foreign issuers. JPM International Equity
Portfolio invests primarily in securities of foreign issuers. Investment in
securities of foreign issuers and in obligations of foreign branches of domestic
banks involves somewhat different investment risks from those affecting
securities of U.S. domestic issuers. There may be limited publicly available
information with respect to foreign issuers, and foreign issuers are not
generally subject to uniform accounting, auditing and financial standards and
requirements comparable to those applicable to domestic companies. Dividends and
interest paid by foreign issuers may be subject to withholding and other foreign
taxes which may decrease the net return on foreign investments as compared to
dividends and interest paid to these Portfolios by domestic companies.
Investors should realize that the value of each Portfolio's
investments in foreign securities may be adversely affected by changes in
political or social conditions, diplomatic relations, confiscatory taxation,
expropriation, nationalization, limitation on the removal of funds or assets, or
imposition of (or change in) exchange control or tax regulations in those
foreign countries. In addition, changes in government administrations or
economic or monetary policies in the U.S. 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 also may be more difficult to obtain and enforce a
judgment against a foreign issuer. Any foreign investments made by the
Portfolios must be made in compliance with the U.S. and foreign currency
restrictions and tax laws restricting the amounts and types of foreign
investments.
In addition, while the volume of transactions effected on foreign
stock exchanges has increased in recent years, in most cases it remains
appreciably below that of domestic security exchanges. Accordingly, a
Portfolio's foreign investments may be less liquid and their prices may be more
volatile than comparable investments in securities of U.S. companies. Moreover,
the settlement periods for foreign securities, which are often longer than those
for securities of U.S. issuers, may affect portfolio liquidity. In buying and
selling securities on foreign exchanges, purchasers normally pay fixed
commissions that are generally higher than the negotiated commissions charged in
the U.S. In addition, there is generally less government supervision and
regulation of securities exchanges, brokers and issuers located in foreign
countries than in the U.S.
JPM International Equity Portfolio may invest in securities of issuers
in "emerging markets." Emerging markets include any country which in the opinion
of the Adviser is generally considered to be an emerging or developing country
by the international financial community. These countries generally include
every country in the world except the U.S., Canada, Japan, Australia, New
Zealand and most countries in Western Europe. Investments in securities of
emerging markets countries entails a high degree of risk. Investment in
securities of issuers in emerging markets carry all of the risks of investing in
securities of foreign issuers outlined in this section to a heightened degree.
These heightened risks include (i) greater risks of expropriation, confiscatory
taxation, nationalization, and less social, political and economic stability;
(ii) the small current size of the markets for securities of emerging markets
issuers and the currently low or non-existent volume of trading, resulting in
lack of liquidity and in price volatility; (iii) certain national policies which
may restrict the Portfolio's investment opportunities including restrictions on
investing in issuers or industries deemed sensitive to relevant national
interests; and (iv) the absence of developed legal structures governing private
or foreign investment and private property.
Each of the Portfolios, other than JPM Treasury Money Market
Portfolio, may invest in securities of foreign issuers directly or in the form
of 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 depositary may not
provide the same shareholder information that a sponsored depositary is required
to provide under its contractual arrangements with the issuer of the underlying
foreign securities. EDRs are receipts issued by a European financial institution
evidencing a similar arrangement. Generally, ADRs, in registered form, are
designed for use in the U.S. securities markets, and EDRs, in bearer form, are
designed for use in European securities markets.
Since investments in foreign securities 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. See "Foreign Currency Exchange
Transactions for JPM Bond, Equity, Small Company and International Equity
Portfolios" below.
Foreign Currency Exchange Transactions for JPM Bond, Equity, Small
Company and International Equity Portfolios. Because JPM Bond, JPM Equity, Small
Company and International Equity Portfolios buy and sell securities denominated
in currencies other than the U.S. dollar, and receive interest, dividends and
sale proceeds in currencies other than the U.S. dollar, JPM Bond, Equity and
Small Company Portfolios may, and JPM International Equity Portfolio will, from
time to time enter into foreign currency exchange transactions. The Portfolios
either enter into these transactions on a spot (i.e., cash) basis at the spot
rate prevailing in the foreign currency exchange market, or use forward
contracts to purchase or sell foreign currencies. The cost of a Portfolio's
currency exchange transactions will generally be 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 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. Neither spot transactions nor forward foreign
currency exchange contracts eliminate fluctuations in the prices of the
Portfolio's securities, or prevent loss if the prices of these securities should
decline.
Each of these Portfolios may enter into foreign currency exchange
transactions for a variety of purposes, including: to fix in U.S. dollars,
between trade and settlement date, the value of a security the Portfolio has
agreed to buy or sell; to hedge the U.S. dollar value of securities the
Portfolio already owns, particularly if it expects a decrease in the value of
the currency in which the foreign security is denominated; or to gain exposure
to the foreign currency in an attempt to realize gains.
As a hedging strategy, although these transactions are intended to
minimize the risk of loss due to a decline in the value of the hedged currency,
at the same time they tend to 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 or
investment strategy is highly uncertain.
Illiquid Investments, Privately Placed and Other Unregistered
Securities. Subject to the limitations described below, each of the Portfolios
may acquire investments that are illiquid or have limited liquidity, such as
investments that are not registered under the Securities Act of 1933, as amended
(the "1933 Act"), and cannot be offered for public sale in the U.S. without
first being registered under the 1933 Act. An illiquid investment is any
investment that cannot be disposed of within seven days in the normal course of
business at approximately the amount at which it is valued by the Portfolio. The
price the Portfolio pays for illiquid securities or receives upon resale may be
lower than the price paid or received for similar securities with a more liquid
market. Accordingly, the valuation of these securities will reflect any
limitations on their liquidity.
Acquisitions of illiquid investments by the Portfolios is subject to
the following non-fundamental policies. JPM Treasury Money Market Portfolio may
not acquire any illiquid securities if, as a result thereof, more than 10% of
the market value of the Portfolio's total assets would be in illiquid
investments. Each of JPM Bond, Equity, Small Company and International Equity
Portfolios may not invest in illiquid securities if, as a result more than 15%
of the market value of its total assets would be invested in illiquid
securities. Each of the Portfolios also may purchase Rule 144A securities sold
to institutional investors without registration under the 1933 Act. These
securities may be determined to be liquid in accordance with guidelines
established by the Adviser and approved by the Trustees. The Trustees will
monitor the Adviser's implementation of these guidelines on a periodic basis.
Futures and Options Transactions for JPM Bond, Equity, Small Company
and International Equity Portfolios. Each of these Portfolios is permitted to
enter into the futures and options transactions described in the "APPENDIX" to
this Prospectus for both hedging and risk management purposes, although not for
speculation. For more detailed information about these transactions, see the
"APPENDIX" to this Prospectus and "OPTIONS AND FUTURES TRANSACTIONS" in the
Statement of Additional Information.
Money Market Instruments for JPM Bond, Equity, Small Company and
International Equity Portfolios. JPM Bond, Equity, Small Company and
International Equity Portfolios are permitted to invest in money market
instruments, although each of these Portfolios intends to stay invested in
equity securities (or in the case of JPM Bond Portfolio, long-term fixed income
securities), to the extent practical in light of its investment objective and
long-term investment perspective. These Portfolios may make money market
investments pending other investment or settlement, for liquidity or in adverse
market conditions. The money market investments permitted for these Portfolios
are the same as for JPM Bond Portfolio and include obligations of the U.S.
Government and its agencies and instrumentalities, other debt securities,
commercial paper, bank obligations and repurchase agreements (see "JPM BOND
PORTFOLIO--Money Market Instruments"). JPM International Equity Portfolio also
may invest in short-term obligations of sovereign foreign governments, their
agencies, instrumentalities and political subdivisions. For more detailed
information about these money market instruments, see "INVESTMENT OBJECTIVES AND
POLICIES" in the Statement of Additional Information.
PORTFOLIO TURNOVER
Portfolio turnover for each Portfolio may vary from year to year or
within a year depending upon economic and business conditions. The annual
portfolio turnover rates for the Portfolios in 1995 were approximately as
follows: 239% for JPM Bond Portfolio, 66% for JPM Equity Portfolio, 100% for JPM
Small Company Portfolio and 68% for JPM International Equity Portfolio. A
Portfolio having a turnover rate more than 100% may realize larger amounts of
gains or losses than it would with a lower portfolio turnover rate. A portfolio
turnover rate of greater than 100% may result in a Portfolio paying more
brokerage commissions or other transaction related costs.
INVESTMENT RESTRICTIONS
Investments of the Portfolios are further restricted by certain
policies that may not be changed without the approval of the holders of the
outstanding shares of each Portfolio. See "INVESTMENT RESTRICTIONS" in the
Statement of Additional Information.
MANAGEMENT OF THE TRUST AND PORTFOLIOS
The Board is responsible for the administration of the affairs of the
Trust. Pursuant to the Declaration of Trust for the Trust, the Trustees of the
Trust decide upon matters of general policy and review the actions of the
Adviser and other service providers.
The Trust's investment adviser is Morgan, a registered investment
adviser which maintains its principal office at 522 Fifth Avenue, New York, New
York 10036. 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
Morgan and its 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. As of September 30,
1996, J.P. Morgan and its subsidiaries had total combined assets under
management of approximately $197 billion, of which Morgan advises over $167
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 adviser to
national governments. The firm, through its predecessor firms, has been in
business for over a century and has been managing investments since 1913.
Morgan supervises and assists in the overall management of the Trust's
affairs under an Investment Advisory Agreement with the Trust. Subject to the
supervision of the Trustees, Morgan makes each Portfolio's day-to-day investment
decisions, arranges for the execution of portfolio transactions and generally
manages each Portfolio's investments.
Morgan uses a sophisticated, disciplined, collaborative process for
managing all asset classes. The following persons are primarily responsible for
the day-to-day management and implementation of Morgan's process for the
respective Portfolios (the inception date of each person's responsibility for a
Portfolio and their business experience for the past five years are indicated
parenthetically): JPM Treasury Money Market Portfolio: James A. Hayes, Vice
President (since January, 1995, employed by Morgan since prior to 1988) and
Robert R. Johnson, Vice President (since January, 1995, employed by Morgan since
1988); JPM Bond Portfolio: William G. Tenille, Vice President (since January,
1995, employed by Morgan since March, 1992, previously Managing Director,
Manufacturers Hanover Trust Company) and Connie J. Plaehn, Managing Director
(since January, 1995, employed by Morgan since prior to 1989); JPM Equity
Portfolio: William B. Petersen, Managing Director (since January, 1995, employed
by Morgan since prior to 1988) and William M. Riegel, Jr., Managing Director
(since January, 1995, employed by Morgan since prior to 1988); JPM Small Company
Portfolio: James B. Otness, Managing Director (since January, 1995, employed by
Morgan since prior to 1988) and Candice Eggerss, Vice President (since May,
1996, employed by Weiss, Peck & Greer prior to May 1996); and JPM International
Equity Portfolio: Paul A. Quinsee, Vice President (since January, 1995, employed
by Morgan since February, 1992, previously Vice President, Citibank) and Thomas
P. Madsen, Managing Director (since January, 1995, employed by Morgan since
prior to 1988).
As compensation for Morgan's services under the Investment Advisory
Agreement, the Trust has agreed to pay Morgan a monthly fee at the annual rate
set forth below as a percentage of the average daily net assets of the relevant
Portfolio:
JPM Treasury Money Market Portfolio........................................20%
JPM Bond Portfolio.........................................................30%
JPM Equity Portfolio.......................................................40%
JPM Small Company Portfolio................................................60%
JPM International Equity Portfolio.........................................60%
Under the terms of an Administrative Services Agreement, Morgan
Guaranty provides or arranges for the provision of certain financial and
administrative services and oversees fund accounting for the Trust, including
services related to taxes, financial statements, calculation of Portfolio
performance data, oversight of service providers, certain regulatory and Board
matters, and shareholder services. Morgan Guaranty, a wholly-owned subsidiary of
J.P. Morgan, is a New York trust company which conducts a general banking and
trust business and maintains its principal office at 60 Wall Street, New York,
New York 10260.
In addition, Morgan Guaranty is responsible for reimbursing the
Trust for certain usual and customary expenses incurred by the Trust including,
without limitation, transfer, registrar and dividend disbursing costs, custody
fees, legal and accounting expenses, fees of the Trust's co-administrator,
insurance premiums, compensation and expenses of the Trust's Trustees, expenses
of printing and mailing reports, notices and proxies to shareholders, and
registration fees under federal or state securities laws. The Trust will pay
these expenses directly and such amounts will be deducted from the fees payable
to Morgan Guaranty under the Administrative Services Agreement as set forth
below. If such amounts are more than the amount of Morgan Guaranty's fees under
the Administrative Services Agreement, Morgan Guaranty will reimburse the Trust
for such excess amounts.
The Trust pays all extraordinary expenses not incurred in the
ordinary course of the Trust's business including, but not limited to,
litigation and indemnification expenses; interest charges; material increases in
Trust expenses due to occurrences such as significant increases in the fee
schedules of the custodian or the transfer agent or a significant decrease in
the Trust's asset level due to changes in tax or other laws or regulations; or
other such extraordinary occurrences outside of the ordinary course of the
Trust's business.
As compensation for Morgan Guaranty's services under the
Administrative Services Agreement, the Trust has agreed to pay Morgan Guaranty a
monthly fee at the annual rate set forth below as a percentage of the average
daily net assets of the relevant Portfolio:
JPM Treasury Money Market Portfolio......................................40%
JPM Bond Portfolio.......................................................45%
JPM Equity Portfolio.....................................................50%
JPM Small Company Portfolio..............................................55%
JPM International Equity Portfolio.......................................60%
Under the terms of the Administrative Services Agreement, Morgan
Guaranty may delegate one or more of its responsibilities to other entities at
Morgan Guaranty's expense.
From January 3, 1995 (commencement of operations) to ____________,
1996, Chubb Investment Advisory served as each Portfolio's investment manager
and Morgan Guaranty served as sub-investment adviser. The compensation to Morgan
Guaranty, as sub-investment adviser, was paid directly from the investment
management fees paid by the Trust to Chubb Investment Advisory. For the period
January 3, 1995 (commencement of operations) through December 31, 1995, all
investment management fees payable to Chubb Investment Advisory totalled .40%,
.50%, .60%, .80% and .80% of average daily net assets for JPM Treasury Money
Market Portfolio, JPM Bond Portfolio, JPM Equity Portfolio, JPM Small Company
Portfolio and JPM International Equity Portfolio, respectively. For the period
January 3, 1995 through December 31, 1995, sub- investment advisory fees payable
by Chubb Investment Advisory to Morgan Guaranty totalled .20%, .30%, .40%, .60%
and .60% of average daily net assets for JPM Treasury Money Market Portfolio,
JPM Bond Portfolio, JPM Equity Portfolio, JPM Small Company Portfolio and JPM
International Equity Portfolio, respectively. Because a portion of the
Portfolios' fees and expenses were reimbursed, the ratio of operating expenses
to average net assets for such period was .60%, .75%, .90%, 1.15% and 1.20% for
JPM Treasury Money Market Portfolio, JPM Bond Portfolio, JPM Equity Portfolio,
JPM Small Company Portfolio and JPM International Equity Portfolio,
respectively. Had a portion of the Portfolios' fees and expenses not been
reimbursed, the ratio of operating expenses to average net assets for such
period would have been 2.77%, 2.90%, 2.70%, 3.22% and 3.16% for JPM Treasury
Money Market Portfolio, JPM Bond Portfolio, JPM Equity Portfolio, JPM Small
Company Portfolio and JPM International Equity Portfolio, respectively.
The Trust's distributor and co-administrator is Funds Distributor,
Inc. ("FDI"), located at 60 State Street, Suite 1300, Boston, Massachusetts
02109. Under a Co-Administration Agreement with the Trust, FDI is responsible
for: (i) providing office space, equipment and clerical personnel for
maintaining the organization and books and records of the Trust; (ii) providing
officers for the Trust; (iii) preparing and filing documents required in
connection with the Trust's state securities law registrations; (iv) reviewing
and filing Trust marketing and sales literature; (v) filing regulatory documents
and mailing communications to Trustees and investors; and (vi) maintaining
related books and records.
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.
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02101, acts as the Trust's custodian and transfer agent and
dividend paying agent and keeps the books of account for the Trust.
For more information concerning the payment of expenses of the Trust,
see "INVESTMENT ADVISORY AND OTHER SERVICES" in the Statement of Additional
Information.
CAPITAL SHARES
The Trust issues a separate series of shares of beneficial interest
for each Portfolio. Each share issued with respect to a Portfolio has a pro rata
interest in all the assets of that Portfolio. Each share is entitled to one vote
on all matters submitted to a vote of all shareholders of the Trust, and
fractional shares are entitled to a corresponding fractional vote. Shares of a
Portfolio will be voted separately from shares of other Portfolios on matters
affecting only that Portfolio, including approval of the Investment Advisory
Agreement, and changes in fundamental investment policies of that Portfolio. The
assets of each Portfolio are charged with the liabilities of that Portfolio and
a proportionate share of the general liabilities of the Trust. All shares may be
redeemed at any time.
As a Delaware Business Trust, the Trust is not required to hold
regular annual shareholder meetings and, in the normal course, does not expect
to hold such meetings. The Trust is, however, required to hold shareholder
meetings for such purposes as, for example: (i) approving certain agreements as
required by the Investment Company Act of 1940, as amended (the "1940 Act");
(ii) changing fundamental investment objectives and restrictions of the
Portfolios; and (iii) filling vacancies on the Board in the event that less than
a majority of the Trustees were elected by shareholders. The Trust expects that
there will be no meetings of shareholders for the purpose of electing trustees
unless and until such time as less than a majority of the trustees holding
office have been elected by shareholders. At such time, the trustees then in
office will call a shareholder meeting for the election of trustees. In
addition, holders of record of not less than two-thirds of the outstanding
shares of the Trust may remove a Trustee from office by a vote cast in person or
by proxy at a shareholder meeting called for that purpose at the request of
holders of 10% or more of the outstanding shares of the Trust. The Trust has the
obligation to assist in any such shareholder communications. Except as set forth
above, Trustees will continue in office and may appoint successor Trustees.
In accordance with current law, the Trust anticipates that Portfolio
shares held in a separate account which are attributable to Policies will be
voted by the Participating Insurance Company in accordance with instructions
received from the owners of Policies. The Trust also anticipates that the shares
held by the Participating Insurance Company, including shares for which no
voting instructions have been received, shares held in the separate account
representing charges imposed by the Participating Insurance Company against the
separate account and shares held by the Participating Insurance Company that are
not otherwise attributable to Policies, also will be voted by the Participating
Insurance Company in proportion to instructions received from the owners of
Policies. For further information on voting rights, Policy owners should consult
the applicable prospectus of the separate account of the Participating Insurance
Company. Under current law, Eligible Plans are not required to provide Plan
participants with the right to give voting instructions. For information on
voting rights, Plan participants should consult their Plan's administrator or
trustee.
TAXES AND DIVIDENDS
Each Portfolio intends to qualify as a "regulated investment company"
under Subchapter M of the Code. It is the Trust's policy to comply with the
provisions of the Code regarding distribution of investment income. Under those
provisions, a Portfolio will not be subject to federal income tax on that
portion of its ordinary income and net capital gains distributed to
shareholders.
The Trust expects that each Portfolio will declare and distribute by
the end of each calendar year all or substantially all ordinary income and net
capital gains, if any, from the sale of investments. Failure to distribute
substantially all ordinary and net capital gains, as described, may subject the
Trust to an excise tax.
Dividends from ordinary income will be declared and distributed with
respect to each Portfolio at least once each year. Ordinary income of each
Portfolio is the investment company taxable income as defined in Section 852(b)
of the Code determined partly (1) by excluding the amount of net capital gain,
if any, and (2) with allowance of the deduction for dividends paid. All
dividends and distributions will be automatically reinvested in additional
shares of the Portfolio with respect to which dividends have been declared, at
net asset value, as of the ex-dividend date of such dividends.
Section 817(h) of the Code and regulations thereunder set standards
for diversification of the investments underlying Policies in order for the
Policies to be treated as life insurance. These requirements, which are in
addition to diversification requirements applicable to the Portfolios under
Subchapter M and the 1940 Act, may affect the composition of a Portfolio's
investments. Since the shares of the Trust are currently sold to segregated
asset accounts underlying such Policies, the Trust intends to comply with the
diversification requirements as set forth in the regulations.
The Secretary of the Treasury may in the future issue additional
regulations or revenue rulings that will prescribe the circumstances in which a
policyowner's control of the investments of a separate account may cause the
policyowner, rather than the insurance company, to be treated as the owner of
assets of the separate account. Failure to comply with Section 817(h) of the
Code or any regulation thereunder, or with any regulations or revenue rulings on
policyowner control, if promulgated, would cause earnings regarding a
policyowner's interest in the separate account to be includable in the
policyowner's gross income in the year earned.
Dividends paid by the Trust to Eligible Plans ordinarily will not be
subject to taxation until the proceeds are distributed from the Plan. The Trust
will not report dividends paid to Plans to the Internal Revenue Service ("IRS").
Generally, distributions from Eligible Plans, except those representing returns
of non-deductible contributions thereto, will be taxable as ordinary income and,
if made prior to the time the participant reaches age 59-1/2, generally will be
subject to an additional tax equal to 10% of the taxable portion of the
distribution. If the distribution from an Eligible Plan (other than certain
governmental or church plans) for any taxable year following the year in which
the participant reaches age 70-1/2 is less than the "minimum required
distribution" for that taxable year, an excise tax equal to 50% of the
deficiency may be imposed by the IRS. The administrator, trustee or custodian of
such a Plan will be responsible for reporting distributions from the Plan to the
IRS. Participants in Eligible Plans will receive a disclosure statement
describing the consequences of a distribution from the Plan from the
administrator, trustee or custodian of the Plan prior to receiving the
distribution. Moreover, certain contributions to an Eligible Plan in excess of
the amounts permitted by law may be subject to an excise tax.
OFFERING AND REDEMPTION OF SHARES
Shares of each Portfolio are currently offered only to separate
accounts of Participating Insurance Companies to which premiums have been
allocated by Policy owners and Eligible Plans. Shares are sold and redeemed at
their net asset value as next determined following receipt of an order or
request by the Trust or its agent. Policy owners should consult the applicable
prospectus of the separate account of the Participating Insurance Company and
Plan participants should consult the Plan's administrator or trustee for more
information on the purchase or redemption of Portfolio shares.
Should any conflict between VA contract holders, VLI policy
holders and/or Plan participants arise which would require that a substantial
amount of net assets of a Portfolio be withdrawn, orderly portfolio management
could be disrupted to the potential detriment of such contract and policy
holders and/or Plan participants.
Distributions from Eligible Plans, except distributions
representing returns of non-deductible contributions to the Plan, generally are
taxable income to the participant. Distributions from a Plan to a participant
prior to the time the participant reaches age 59-1/2 or becomes permanently
disabled may subject the participant to an additional 10% penalty tax imposed by
the IRS. Participants should consult their tax advisers concerning the timing
and consequences of distributions from an Eligible Plan.
Net asset value is normally determined as of the close of
regular trading on the New York Stock Exchange (presently 4:00 p.m.) on each day
during which the New York Stock Exchange is open for trading. Net asset value
per share is computed by dividing the value of the net assets of each Portfolio
(i.e., the value of its assets less liabilities) by the total number of shares
outstanding. Equity securities typically are valued based on market value, or
where market quotations are not readily available, based on fair value as
determined in good faith by the Board. Debt securities having remaining
maturities of 60 days or less are valued on an amortized cost basis unless the
Board determines that such method does not represent fair value. Other debt
securities are valued using available market quotations or at fair value which
may be determined by one or more pricing services. For further information
regarding the methods employed in valuing each Portfolio's investments, see
"Determination of Net Asset Value" in the Statement of Additional Information.
OTHER INFORMATION
At a Special Meeting of Shareholders of the Trust held on __________,
1996, the resignation of Chubb Investment Advisory as the Portfolios' investment
manager was accepted and Morgan was engaged to serve as the Portfolios'
investment adviser pursuant to the Investment Advisory Agreement. The Trust was
organized on October 28, 1993. Prior to _______, 1996, the Trust's name was The
Chubb Series Trust and the name of each corresponding Portfolio was The Resolute
Treasury Money Market Portfolio, The Resolute Bond Portfolio, The Resolute
Equity Portfolio, The Resolute Small Company Portfolio and The Resolute
International Equity Portfolio.
APPENDIX
JPM Bond Portfolio may (a) purchase and sell exchange traded and over
the counter ("OTC") put and call options on fixed income securities and indices
of fixed income securities, (b) purchase and sell futures contracts on fixed
income securities and indices of fixed income securities and (c) purchase and
sell put and call options on futures contracts on fixed income securities and
indices of fixed income securities.
JPM Equity, Small Company and International Equity Portfolios may (a)
purchase and sell exchange traded and OTC put and call options on equity
securities or indices of equity securities, (b) purchase and sell futures
contracts on indices of equity securities, and (c) purchase and sell put and
call options on futures contracts on indices of equity securities.
Each of these Portfolios may use futures contracts and options for
hedging and risk management purposes. See "RISK MANAGEMENT" in the Statement of
Additional Information. None of the Portfolios may use futures and options for
speculation.
Each of these Portfolios may utilize options and futures contracts to
manage its exposure to changing interest rates and/or security prices. Some
options and futures strategies, including selling futures contracts and buying
puts, tend to hedge a Portfolio's investments against price fluctuations. Other
strategies, including buying futures contracts, writing puts and calls, and
buying calls, tend to increase market exposure. Options and futures contracts
may be combined with each other or with forward contracts in order to adjust the
risk and return characteristics of a Portfolio's overall strategy in a manner
deemed appropriate to the Adviser and consistent with a Portfolio's objective
and policies. Because combined options positions involve multiple trades, they
result in higher transaction costs and may be more difficult to open and close
out.
The use of options and futures is a highly specialized activity which
involves investment strategies and risks different from those associated with
ordinary portfolio securities transactions, and there can be no guarantee that
their use will increase a Portfolio's return. While the use of these instruments
by a Portfolio may reduce certain risks associated with owning its portfolio
securities, these techniques themselves entail certain other risks. If the
Adviser applies a strategy at an inappropriate time or judges market conditions
or trends incorrectly, options and futures strategies may lower a Portfolio's
return. Certain strategies limit a Portfolio's possibilities to realize gains as
well as limiting its exposure to losses. The Portfolio could also experience
losses if the prices of its options and futures positions were poorly correlated
with its other investments, or if it could not close out its positions because
of an illiquid secondary market. In addition, a Portfolio will incur transaction
costs, including trading commissions and option premiums, in connection with its
futures and options transactions and these transactions could significantly
increase the Portfolio's turnover rate.
The Portfolios will not purchase or sell (write) futures contracts,
options, or futures contracts or commodity options for risk management purposes
if, as a result, the aggregate initial margin and options premiums required to
establish these positions exceed 5% of the net asset value of such Portfolio.
OPTIONS
Purchasing Put and Call Options. By purchasing a put option, a
Portfolio obtains the right (but not the obligation) to sell the instrument
underlying the option at a fixed strike price. In return for this right, the
Portfolio pays the current market price for the option (known as the option
premium). Options have various types of underlying instruments, including
specific securities, indexes of securities, indexes of securities prices, and
futures contracts. The Portfolio may terminate its position in a put option it
has purchased by allowing it to expire or by exercising the option. The
Portfolio may also close out a put option position by entering into an
offsetting transaction, if a liquid market exists. If the option is allowed to
expire, the Portfolio will lose the entire premium it paid. If the Portfolio
exercises a put option on a security, it will sell the instrument underlying the
option at the strike price. If the Portfolio exercises an option on an index,
settlement is in cash and does not involve the actual sale or securities. If an
option is American Style, it may be exercised on any day up to its expiration
date. A European style option may be exercised only on its expiration date.
The buyer of a typical put option can expect to realize a gain if the
price of the underlying instrument falls substantially. However, if the price of
the instrument underlying the option does not fall enough to offset the cost of
purchasing the option, a put buyer can expect to suffer a loss (limited to the
amount of the premium paid, plus related transaction costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the instrument underlying the option at the option's
strike price. A call buyer typically attempts to participate in potential price
increases of the instrument underlying the option with risk limited to the cost
of the option if security prices fall. At the same time, the buyer can expect to
suffer a loss if security prices do not rise sufficiently to offset the cost of
the option.
Selling (Writing) Put and Call Options. When a Portfolio writes a put
option, it takes the opposite side of the transaction from the option's
purchaser. In return for receipt of the premium, the Portfolio assumes the
obligation to pay the strike price for the instrument underlying the option if
the other party to the option chooses to exercise it. The Portfolio may seek to
terminate its position in a put option it writes before exercise by purchasing
an offsetting option in the market at its current price. However, if the market
is not liquid for a put option the Portfolio has written, 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. However, this loss should be less than the loss from
purchasing and holding the underlying instrument directly, because the premium
received for writing the option should offset a portion of the decline.
Writing a call option obligates a Portfolio to sell or deliver the
option's underlying instrument in return for the strike price upon exercise of
the option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium a call writer offsets part of the effect of a price decline. At the same
time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is greater,
a call writer gives up some ability to participate in security price increases.
The writer of an exchange traded put or call option on a security, an
index of securities or a futures contract is required to deposit cash or
securities or a letter of credit as margin and to make mark to market payments
of variation margin as the position becomes unprofitable.
Options on Indices. Each Portfolio is permitted to enter into options
transactions may purchase and sell (write) put and call options on any
securities index based on securities in which the Portfolio may invest. Options
on securities indices are similar to options on securities, except that the
exercise of securities index options are settled by cash payment and does not
involve the actual purchase or sale of securities. In addition, these options
are designed to reflect price fluctuations in a group of securities or segment
of the securities market rather than price fluctuations in a single security. A
Portfolio, in purchasing or selling index options, is subject to the risk that
the value of its portfolio securities may not change as much as an index because
the Portfolio's investments generally will not match the composition of an
index.
For a number of reasons, a liquid market may not exist and thus a
Portfolio may not be able to close out an option position that it has previously
entered into. When a Portfolio purchases an OTC option, it will be relying on
its counterparty to perform its obligations, and a Portfolio may incur
additional losses if the counterparty is unable to perform.
FUTURES CONTRACTS
When a Portfolio purchases a futures contract, it agrees to purchase a
specified quantity of an underlying instrument at a specified future date or to
make a cash payment based on the value of a securities index. When a Portfolio
sells a futures contract, it agrees to sell a specified quantity of the
underlying instrument at a specified future date or to receive a cash payment
based on the value of a securities index. The price at which the purchase and
sale will take place is fixed when the Portfolio enters into the contract.
Futures can be held until their delivery dates or the position can be (and
normally is) closed out before then. There is no assurance, however, that a
liquid market will exist when the Portfolio wishes to close out a particular
position.
When a Portfolio purchases a futures contract, the value of the
futures contract tends to increase and decrease in tandem with the value of its
underlying instrument. Therefore, purchasing futures contracts will tend to
increase a Portfolio's exposure to positive and negative price fluctuations in
the underlying instrument, much as if it had purchased the underlying instrument
directly. When a Portfolio sells a futures contract, by contrast, the value of
its futures position will tend to move in a direction contrary to the value of
the underlying instrument. Selling futures contracts, therefore, will tend to
offset both positive and negative market price changes, much as if the
underlying instrument has been sold.
The purchaser or seller of a futures contract is not required to
deliver or pay for the underlying instrument unless the contract is held until
the delivery date. However, when a Portfolio buys or sells a futures contract it
will be required to deposit "initial margin" with its custodian in a segregated
account in the name of its futures broker, known as a futures commission
merchant ("FCM"). Initial margin deposits are typically equal to a small
percentage of the contract's value. If the value of either party's position
declines, that party will be required to make additional "variation margin"
payments equal to the change in value on a daily basis. The party that has a
gain may be entitled to receive all or a portion of this amount. A Portfolio may
be obligated to make payments of variation margin at a time when it is
disadvantageous to do so. Furthermore, it may not always be possible for a
Portfolio to close out its futures positions. Until it closes out a futures
position, a Portfolio will be obligated to continue to pay variation margin.
Initial and variation margin payments do not constitute purchasing on margin for
purposes of the Portfolio's investment restrictions. In the event of the
bankruptcy of an FCM that holds margin on behalf of a Portfolio, the Portfolio
may be entitled to return of margin owed to it only in proportion to the amount
received by FCM's other customers, potentially resulting in losses to the
Portfolio.
Each Portfolio will segregate liquid assets in connection with its use
of options and futures contracts to the extent required by the staff of the
Securities and Exchange Commission. Securities held in a segregated account
cannot be sold while the futures contract or option is outstanding, unless they
are replaced with other suitable assets. As a result, there is a possibility
that segregation of a large percentage of a Portfolio's assets could impede
portfolio management or the Portfolio's ability to meet redemption requests or
other current obligations.
For further information about the Portfolio's use of futures and
options and a more detailed discussion of associated risks, see "INVESTMENT
OBJECTIVES AND POLICIES" in the Statement of Additional Information.
JPM SERIES TRUST II
60 State Street
Boston, Massachusetts 02109
1-800-521-5411
A SERIES TRUST WITH
JPM TREASURY MONEY MARKET PORTFOLIO
JPM BOND PORTFOLIO
JPM EQUITY PORTFOLIO
JPM SMALL COMPANY PORTFOLIO
JPM INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF ADDITIONAL INFORMATION
_____________, 1996
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS BUT
SUPPLEMENTS AND SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS OF THE TRUST.
IT IS INCORPORATED BY REFERENCE INTO THE PROSPECTUS. A COPY OF THE PROSPECTUS
MAY BE OBTAINED BY WRITING OR CALLING THE TRUST AT THE ADDRESS OR TELEPHONE
NUMBER ABOVE.
The date of the Prospectus to which this Statement of
Additional Information relates is ______________, 1996.
<PAGE>
TABLE OF CONTENTS
Page
BUSINESS HISTORY............................................................
INVESTMENT OBJECTIVES AND POLICIES..........................................
JPM Treasury Money Market Portfolio.......................
JPM Bond Portfolio........................................
JPM Equity Portfolio......................................
JPM Small Company Portfolio...............................
JPM International Equity Portfolio........................
Money Market Instruments..................................
U.S. Treasury Securities.........................
Additional U.S. Government Obligations...........
Foreign Government Obligations...................
Bank Obligations.................................
Commercial Paper.................................
Repurchase Agreements............................
Corporate Bonds and Other Debt Securities.................
High-Yield/High-Risk Bonds.......................
Asset-Backed Securities...................................
Equity Investments........................................
Equity Securities................................
Foreign Investments.......................................
Additional Investments....................................
When-Issued and Delayed Delivery Securities......
Investment Company Securities....................
Reverse Repurchase Agreements....................
Mortgage Dollar Roll Transactions................
Loans of Portfolio Securities....................
Privately Placed and Certain Unregistered
Securities..............................................
Quality and Diversification Requirements..................
JPM Treasury Money Market Portfolio..............
JPM Bond Portfolio...............................
JPM Equity, Small Company and
International Equity Portfolios................
Options and Futures Transactions..........................
Exchange Traded and Over the Counter Options.....
Futures Contracts and Options on Futures
Contracts......................................
Combined Activities..............................
Correlation of Price Changes.....................
Liquidity of Options and Futures Contracts.......
Position Limits..................................
Asset Coverage for Futures Contracts and
Option Positions...............................
Risk Management...........................................
INVESTMENT RESTRICTIONS.....................................................
Fundamental Investment Restrictions.......................
Non-Fundamental Investment Restrictions...................
JPM Treasury Money Market
Portfolio......................................
JPM Bond, Equity, Small Company
and International Equity Portfolios............
TRUSTEES AND OFFICERS.......................................................
INVESTMENT ADVISORY AND OTHER SERVICES......................................
Investment Advisory Agreement.............................
Administrative Services Agreement.........................
Independent Auditors......................................
Custodian.................................................
Payment of Expenses.......................................
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATIONS............................
CAPITAL SHARES..............................................................
OFFERING AND REDEMPTION OF SHARES...........................................
DETERMINATION OF NET ASSET VALUE............................................
TAXES.......................................................................
PERFORMANCE AND YIELD INFORMATION...........................................
Money Market Portfolio....................................
Non-Money Market Portfolios...............................
DELAWARE BUSINESS TRUST.....................................................
FINANCIAL STATEMENTS........................................................
ADDITIONAL INFORMATION......................................................
APPENDIX A..................................................................
<PAGE>
BUSINESS HISTORY
JPM Series Trust II (the "Trust"), a Delaware Business Trust, is an
open-end diversified management investment company established to provide for
the investment of assets of separate accounts of life insurance companies
("Participating Insurance Companies") and of qualified pension and retirement
plans outside of the separate account context ("Eligible Plans" or "Plans").
Separate accounts acquire such assets pursuant to the sale of variable annuity
contracts and variable life insurance policies (collectively, the "Policies").
The Trust is composed of five separate portfolios (each, a "Portfolio" and
collectively, the "Portfolios") which operate as distinct investment vehicles.
The Portfolios are JPM Treasury Money Market Portfolio, JPM Bond Portfolio, JPM
Equity Portfolio, JPM Small Company Portfolio and JPM International Equity
Portfolio.
The Trust was organized in Delaware on October 28, 1993 and had no
business history prior to that date. Prior to __________, 1996, the Trust's name
was The Chubb Series Trust and the names of the corresponding Portfolios were
The Resolute Treasury Money Market Portfolio, The Resolute Bond Portfolio, The
Resolute Equity Portfolio, The Resolute Small Company Portfolio and The Resolute
International Equity Portfolio. In the future, the Trust may add or delete
portfolios.
Each Portfolio's investment adviser is J.P. Morgan Investment
Management, Inc. ("Morgan" or the "Adviser").
INVESTMENT OBJECTIVES AND POLICIES
JPM TREASURY MONEY MARKET PORTFOLIO is designed to be a convenient
means of making substantial investments in short-term direct obligations of the
United States Treasury. JPM Treasury Money Market Portfolio's investment
objective is to provide current income, maintain a high level of liquidity, and
preserve capital.
The Portfolio attempts to achieve its investment objective by
maintaining a dollar-weighted average portfolio maturity of not more than 90
days and by investing in U.S. Treasury securities described in the Prospectus
and in this Statement of Additional Information that have effective maturities
of not more than thirteen months.
JPM BOND PORTFOLIO is designed to be a convenient means of making
substantial investments in a broad range of corporate and government debt
obligations and related investments, subject to certain quality and other
restrictions. JPM Bond Portfolio's investment objective is to provide a high
total return consistent with moderate risk of capital and maintenance of
liquidity. Although the net asset value of JPM Bond Portfolio will fluctuate,
the Portfolio attempts to preserve the value of its investments to the extent
consistent with its objective.
The Portfolio attempts to achieve its investment objective by
investing primarily in corporate and government debt obligations and related
securities described in the Prospectus and this Statement of Additional
Information. The Portfolio may purchase or sell financial futures contracts and
options in order to attempt to reduce the volatility of its portfolio, manage
market risk and minimize fluctuations in net asset value. For a discussion of
these investments, see "OPTIONS AND FUTURES TRANSACTIONS."
JPM EQUITY PORTFOLIO is designed for investors who want an actively
managed portfolio of selected equity securities that seeks to outperform the S&P
500 Index. JPM Equity Portfolio's investment objective is to provide a high
total return from a portfolio comprised of selected equity securities.
During normal market conditions, 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 such as preferred stock, warrants,
rights and convertible securities. The Portfolio's primary investments are the
common stock of U.S. corporations with market capitalizations above $1.5
billion.
JPM SMALL COMPANY PORTFOLIO is designed for investors who are willing
to assume the somewhat higher risk of investing in small companies in order to
seek a higher return over time than might be expected from a portfolio of stocks
of large companies. JPM Small Company Portfolio's investment objective is to
provide a high total return from a portfolio of equity securities of small
companies.
The Portfolio may invest in the same types of securities as permitted
for the JPM Equity Portfolio.
JPM INTERNATIONAL EQUITY PORTFOLIO is designed for investors with a
long-term investment horizon who want to diversify their portfolios by adding
international equities and take advantage of investment opportunities outside
the U.S. JPM International Equity Portfolio's investment objective is to provide
a high total return from a portfolio of equity securities of foreign
corporations.
The Portfolio seeks to achieve its investment objective by investing
primarily in the equity securities of foreign corporations, consisting of common
stock and other securities with equity characteristics such as preferred stock,
warrants, rights and convertible securities. Under normal circumstances, the
Portfolio expects to invest at least 65% of its total assets in such securities.
The Portfolio does not intend to invest in U.S. securities (other than
short-term instruments), except temporarily when extraordinary circumstances
prevailing at the same time in a significant number of foreign countries render
investments in such countries inadvisable.
The following discussion supplements the information regarding the
investment objective of each Portfolio and the policies to be employed to
achieve its objective as set forth above and in the Prospectus.
MONEY MARKET INSTRUMENTS
As discussed in the Prospectus, each 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 Portfolios appears below. See "QUALITY AND
DIVERSIFICATION REQUIREMENTS."
U.S. TREASURY SECURITIES. Each of the Portfolios 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 U.S.
ADDITIONAL U.S. GOVERNMENT OBLIGATIONS. Each of the Portfolios, except
the JPM Treasury Money Market 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 U.S. Government.
In the case of securities not backed by the full faith and credit of the U.S.,
each 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 U.S. Government itself in the event the agency or
instrumentality does not meet its commitments. Securities in which each
Portfolio, except the JPM Treasury Money Market Portfolio, may invest that are
not backed by the full faith and credit of the U.S. Government include, but are
not limited to, obligations of the Tennessee Valley Authority, the Federal
National Mortgage Association, and the United States Postal Service, each of
which has the right to borrow 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 U.S. Government include obligations of the Government National Mortgage
Association, the Farmers Home Administration, and the Export-Import Bank.
FOREIGN GOVERNMENT OBLIGATIONS. Each of the Portfolios, except the JPM
Treasury Money Market Portfolio, subject to its applicable investment policies,
also may invest in short-term obligations of foreign sovereign governments or of
their agencies, instrumentalities, authorities or political subdivisions. These
securities may be denominated in U.S. dollars or in another currency. See
"FOREIGN INVESTMENTS."
BANK OBLIGATIONS. Each of the Portfolios, except the JPM Treasury
Money Market Portfolio, unless otherwise noted in the Prospectus or below, may
invest in negotiable certificates of deposit, time deposits and bankers'
acceptances of (i) banks, savings and loan associations and savings banks which
have more than $2 billion in total assets (the "Asset Limitation") and are
organized under the laws of the U.S. 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 Asset Limitation
does not apply to the JPM International Equity Portfolio. See "FOREIGN
INVESTMENTS." The Portfolios will not invest in bank obligations for which the
Adviser, or any of its affiliated persons, is the ultimate obligor or accepting
bank. Each of the Portfolios, other than JPM Treasury Money Market Portfolio,
also may invest in obligations of international banking institutions designated
or supported by national governments to promote economic reconstructions,
development or trade between nations (e.g., the European Investment Bank, the
InterAmerican Development Bank, or the World Bank).
COMMERCIAL PAPER. Each of the Portfolios, except the JPM Treasury
Money Market 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 the Adviser, acting as agent, for no additional fee. The monies
loaned to the borrower come from accounts maintained with or managed by the
Adviser or its affiliates, pursuant to arrangements with such accounts. Interest
and principal payments are credited to such accounts. The Adviser, acting as a
fiduciary on behalf of its clients, has the right to increase or decrease the
amount provided to the borrower under an obligation. The borrower has the right
to pay without penalty all or any part of the principal amount then outstanding
on an obligation together with interest to the date of payment. Since these
obligations typically provide that the interest rate is tied to the Federal
Reserve Commercial Paper Composite Rate, the rate on master demand obligations
is subject to change. Repayment of a master demand obligation to participating
accounts depends on the ability of the borrower to pay the accrued interest and
principal of the obligation on demand which is continuously monitored by the
Adviser. Since master demand obligations typically are not rated by credit
rating agencies, the Portfolios may invest in such unrated obligations only if
at the time of an investment the obligation is determined by the Adviser to have
a credit quality which satisfies the particular 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 Portfolios to be liquid because they are payable upon demand.
The Portfolios do not have any specific percentage limitation on investments in
master demand obligations.
REPURCHASE AGREEMENTS. Each of the Portfolios may enter into
repurchase agreements with brokers, dealers or banks that meet the credit
guidelines approved by the Trust's Board of Trustees (the "Board"). In a
repurchase agreement, a 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 also may be viewed as a fully
collateralized loan of money by a Portfolio to the seller. The period of these
repurchase agreements will usually be short, from overnight to one week, and at
no time will a Portfolio invest in repurchase agreements for more than thirteen
months. The securities which are subject to repurchase agreements, however, may
have maturity dates in excess of thirteen months from the effective date of the
repurchase agreement. JPM Treasury Money Market Portfolio will only enter into
repurchase agreements involving U.S. Treasury securities. The Portfolios 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 Portfolios in each agreement plus accrued interest, and
the Portfolios will make payment for such securities only upon physical delivery
or upon evidence of book entry transfer to the account of the Trust's custodian.
JPM Treasury Money Market Portfolio will be fully collateralized within the
meaning of Rule 2a-7 under the Investment Company Act of 1940, as amended (the
"1940 Act"). If the seller defaults, a 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 a Portfolio may be delayed or limited. See
"INVESTMENT RESTRICTIONS."
Each of the Portfolios (other than JPM Treasury Money Market
Portfolio) may make investments in other debt securities with remaining
effective maturities of not more than thirteen months, including, without
limitation, corporate bonds of foreign and domestic issuers, asset-backed
securities and other obligations described in the Prospectus or this Statement
of Additional Information.
CORPORATE BONDS AND OTHER DEBT SECURITIES
As discussed in the Prospectus, JPM Bond Portfolio may invest in bonds
and other debt securities of domestic and foreign issuers to the extent
consistent with its investment objective and policies. A description of these
investments appears in the Prospectus and below. See "QUALITY AND
DIVERSIFICATION REQUIREMENTS." For information on short-term investments in
these securities, see "MONEY MARKET INSTRUMENTS."
HIGH YIELD/HIGH RISK BONDS. High yield/high risk, below investment
grade securities (commonly known as "junk bonds") involve significant credit and
liquidity concerns and fluctuating yields. Lower rated bonds also involve the
risk that the issuer will not make interest or principal payments when due. More
careful analysis of the financial condition of each issuer of lower rated
securities is therefore necessary. During an economic downturn or substantial
period of rising interest rates, highly leveraged issuers may experience
financial stress which would adversely affect their ability to service their
principal and interest payment obligations, to meet projected business goals to
obtain additional financing. The market prices of lower grade securities are
generally less sensitive to interest rate changes than higher rated investments,
but more sensitive to adverse economic or political changes or individual
developments specific to the issuer. Periods of economic or political
uncertainty and change can be expected to result in volatility of prices of
these securities. Lower rated securities also may have less liquid markets than
higher rated securities, and their liquidity as well as their value may be more
severely affected by adverse economic conditions. Adverse publicity and investor
perceptions as well as new proposed laws also may have a greater negative impact
on the market for lower rated bonds.
ASSET-BACKED SECURITIES. Asset-backed securities directly or
indirectly represent a participation interest in, or are secured by and payable
from, a stream of payments generated by particular assets such as motor vehicle
or credit card receivables. Payments of principal and interest may be guaranteed
up to certain amounts and for a certain time period by a letter of credit issued
by a financial institution unaffiliated with the entities issuing the
securities. The asset-backed securities in which a Portfolio may invest are
subject to the Portfolio's overall credit requirements. However, asset-backed
securities, in general, are subject to certain risks. Most of these risks are
related to limited interests in applicable collateral. For example, credit card
debt receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of which
give such debtors the right to set off certain amounts on credit card debt
thereby reducing the balance due. Additionally, if the letter of credit is
exhausted, holders of asset-backed securities also may experience delays in
payments or losses if the full amounts due on underlying sales contracts are not
realized. Because asset-backed securities are relatively new, the market
experience in these securities is limited and the market's ability to sustain
liquidity through all phases of the market cycle has not been tested.
EQUITY INVESTMENTS
As discussed in the Prospectus, JPM Equity, Small Company and
International Equity Portfolios invest primarily in equity securities consisting
of common stock and other securities with equity characteristics. The securities
in which these Portfolios invest include those listed on any domestic or foreign
securities exchange or traded in the over-the-counter markets, as well as
certain restricted or unlisted securities. A discussion of the various types of
equity investments which may be purchased by these Portfolios appears in the
Prospectus and below. See "QUALITY AND DIVERSIFICATION REQUIREMENTS."
EQUITY SECURITIES. The common stocks in which the Portfolios may
invest include the common stock of any class or series of a domestic or foreign
corporation or any similar equity interest, such as trust or partnership
interests. The Portfolios equity investments also may 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 Portfolios may invest include
any debt securities or preferred stock which may be converted into common stock
or which carry the right to purchase common stock. Convertible securities
entitle the holder to exchange the securities for a specified number of shares
of common stock, usually of the same company, at specified prices within a
certain period of time.
The terms of any convertible security determine its ranking in a
company's capital structure. In the case of subordinated convertible debentures,
the holders' claims on assets and earnings are subordinated to the claims of
other creditors, and are senior to the claims of preferred and common
shareholders. In the case of convertible preferred stock, the holders' claims on
assets and earnings are subordinated to the claims of all creditors and are
senior to the claims of common shareholders.
FOREIGN INVESTMENTS
JPM International Equity Portfolio makes substantial investments in
foreign securities. JPM Bond, Equity and Small Company Portfolios may invest in
certain foreign securities. JPM Equity and Small Company Portfolios do not
expect to invest more than 30% and 30%, respectively, of their respective total
assets at the time of purchase in securities of foreign issuers. JPM Bond
Portfolio does not expect more than 20% of its foreign investments to be in
securities which are not U.S. dollar denominated. JPM Equity and Small Company
Portfolios do not expect more than 10% of their respective foreign investments
to be in securities which are not listed on a national securities exchange or
which are not U.S. dollar-denominated. In the case of JPM Bond Portfolio, any
foreign commercial paper must not be subject to foreign withholding tax at the
time of purchase. Foreign investments may be made directly in securities of
foreign issuers or in the form of American Depositary Receipts ("ADRs") and
European Depositary Receipts ("EDRs").
Generally, ADRs and EDRs are receipts issued by a bank or trust
company that evidence ownership of underlying securities issued by a foreign
corporation and that are designed for use in the domestic, in the case of ADRs,
or European, in the case of EDRs, securities markets.
Since investments in foreign securities may involve foreign
currencies, the value of a Portfolio's assets as measured in U.S. dollars may be
affected by changes in currency rates and in exchange control regulations,
including currency blockage. JPM Bond, Equity, Small Company and International
Equity Portfolios may enter into forward commitments for the purchase or sale of
foreign currencies in connection with the settlement of foreign securities
transactions, to hedge the underlying currency exposure related to foreign
investments or to gain exposure to the foreign currency in an attempt to realize
gains. See "ADDITIONAL INVESTMENT INFORMATION" in the Prospectus.
For a description of the risks associated with investing in foreign
securities, see "ADDITIONAL INVESTMENT INFORMATION" in the Prospectus.
ADDITIONAL INVESTMENTS
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. Each Portfolio may
purchase securities on a when-issued or delayed delivery basis. 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 a Portfolio until settlement takes place.
At the time a Portfolio makes the commitment to purchase securities on a
when-issued or delayed delivery basis, it will record the transaction, reflect
the value each day of such securities in determining its net asset value and, if
applicable, calculate the maturity for the purposes of average maturity from
that date. At the time of settlement, a when-issued security may be valued at
less than the purchase price. To facilitate such acquisitions, each Portfolio
will maintain with the Trust's 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. See "INVESTMENT
ADVISORY AND OTHER SERVICES" for more information concerning the Trust's
custodian. On delivery dates for such transactions, each Portfolio will meet its
obligations from maturities or sales of the securities held in the segregated
account and/or from cash flow. If a Portfolio chooses to dispose of the right to
acquire a when-issued security prior to its acquisition, it could, as with the
disposition of any other portfolio obligation, incur a gain or loss due to
market fluctuation. It is the current policy of each Portfolio not to enter into
when-issued commitments exceeding in the aggregate 15% of the market value of
the Portfolio's total assets, less liabilities other than the obligations
created by when-issued commitments.
INVESTMENT COMPANY SECURITIES. Securities of other investment
companies may be acquired by each Portfolio to the extent permitted under the
1940 Act. These limits require that, as determined immediately after a purchase
is made, (i) not more than 5% of the value of the Portfolio's total assets will
be invested in the securities of any one investment company, (ii) not more than
10% of the value of the Portfolio's 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, a
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. Each Portfolio may enter into reverse
repurchase agreements. In a reverse repurchase agreement, a Portfolio sells a
security and agrees to repurchase the same security at a mutually agreed upon
date and price (JPM Treasury Money Market Portfolio will only enter into reverse
repurchase agreements involving Treasury securities). Reverse repurchase
agreements also may be viewed as the borrowing of money by the Portfolio and,
therefore, is a form of leverage. The Portfolios will invest the proceeds of
borrowings under reverse repurchase agreements. In addition, the Portfolios 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 Portfolios will not invest the proceeds of a reverse
repurchase agreement for a period which exceeds the duration of the reverse
repurchase agreement. A Portfolio may not enter into reverse repurchase
agreements exceeding in the aggregate one-third of the market value of its total
assets less liabilities other than the obligations created by reverse repurchase
agreements. Each Portfolio will establish and maintain with the Trust's
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.
MORTGAGE DOLLAR ROLL TRANSACTIONS. JPM Bond Portfolio may engage in
mortgage dollar roll transactions with respect to mortgage-related securities
issued by the Government National Mortgage Association, the Federal National
Mortgage Association and the Federal Home Loan Mortgage Corporation. In a
mortgage dollar roll transaction, the Portfolio sells a mortgage-related
security and simultaneously agrees to repurchase a substantially similar
security on a specified future date at an agreed upon price. During the roll
period, the Portfolio will not be entitled to receive any interest or principal
paid on the securities sold. The Portfolio is compensated for the lost interest
on the securities sold by the difference between the sales price and the lower
price for the future repurchase as well as by the interest earned on the
reinvestment of the sales proceeds. The Portfolio also may be compensated by
receipt of a commitment fee. When the Portfolio enters into a mortgage dollar
roll transaction, liquid assets in an amount sufficient to pay for the future
repurchase are segregated with the Trust's custodian. Mortgage dollar roll
transactions are considered reverse repurchase agreements for purposes of the
Portfolio's investment restrictions.
LOANS OF PORTFOLIO SECURITIES. Each 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 Portfolios in the normal
settlement time, currently five business days after notice, or by the borrower
on one day's notice. Borrowed securities must be returned when the loan is
terminated. Any gain or loss in the market price of the borrowed securities
which occurs during the term of the loan inures to a Portfolio and its
respective shareholders. The Portfolio may pay reasonable finders' and custodial
fees in connection with a loan. In addition, the Portfolios will consider all
facts and circumstances including the creditworthiness of the borrowing
financial institution, and the Portfolios will not make any loans in excess of
one year. The Portfolios will not lend their securities to any officer, Trustee,
Director, employee, or affiliate of the Portfolios, the Adviser or the Trust's
distributor, unless otherwise permitted by applicable law.
PRIVATELY PLACED AND CERTAIN UNREGISTERED SECURITIES. Each Portfolio,
except JPM Treasury Money Market Portfolio, may invest in privately placed,
restricted, Rule 144A or other unregistered securities as described in the
Prospectus.
QUALITY AND DIVERSIFICATION REQUIREMENTS
As a diversified investment company, each Portfolio is subject to the
following fundamental limitations with respect to 75% of its assets: (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 a
Portfolio's assets not subject to the limitations described above, there is no
limitation on investment of these assets under the 1940 Act, so that all of such
assets may be invested in securities of any one issuer, subject to the
limitation of any applicable state securities laws, or with respect to JPM
Treasury Money Market Portfolio, as described below. Investments not subject to
the limitations described above could involve an increased risk to a 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.
JPM TREASURY MONEY MARKET PORTFOLIO. In order to attain its investment
objective, JPM Treasury Money Market Portfolio will limit its investments to
direct obligations of the U.S. Treasury including Treasury Bills, Notes and
Bonds with remaining maturities of thirteen months or less at the time of
purchase and will maintain a dollar-weighted average portfolio maturity of not
more than 90 days.
JPM BOND PORTFOLIO. JPM Bond Portfolio invests principally in a
diversified portfolio of "high quality" and "investment grade" securities.
Investment grade debt is rated, on the date of investment, within the four
highest rating categories of Moody's Investors Service, Inc. ("Moody's"),
currently Aaa, Aa, A and Baa, or of Standard & Poor's Ratings Group ("Standard &
Poor's"), currently AAA, AA, A and BBB, while high grade debt is rated on the
date of the investment within the three highest of such categories. The
Portfolio also may invest up to 35% of its total assets in securities which are
"below investment grade." The Portfolio may invest in debt securities which are
not rated or other debt securities to which these ratings are not applicable if,
in the Adviser's opinion, such securities are of comparable quality to the rated
securities discussed above. 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 or Standard & Poor's, the
issuer's parent corporation, if any, must have outstanding commercial paper
rated Prime-1 by Moody's or A-1 by Standard & Poor's, or if no such ratings are
available, the investment must be of comparable quality in the Adviser's
opinion.
JPM EQUITY, SMALL COMPANY AND INTERNATIONAL EQUITY PORTFOLIOS. JPM
Equity, Small Company and International Equity Portfolios 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 or Standard & Poor's, the issuer's parent
corporation, if any, must have outstanding commercial paper rated Prime-l 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 Adviser'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 be of comparable quality in the Adviser's opinion.
In determining the suitability of investment in a particular unrated
security, the Adviser 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 Portfolios will be traded on a securities exchange or will be
purchased or sold by securities dealers ("over-the-counter" or "OTC" options)
that meet the creditworthiness standards approved by the Board. While
exchange-traded options are obligations of the Options Clearing Corporation, in
the case of OTC options, a Portfolio relies on the dealer from which it
purchased the option to perform if the option is exercised. Thus, when a
Portfolio purchases an OTC option, it relies on the dealer from which it
purchased the option to make or take delivery of the underlying securities.
Failure by the dealer to do so would result in the loss of the premium paid by
the Portfolio as well as loss of the expected benefit of the transaction.
The staff of the Securities and Exchange Commission ("SEC") has taken
the position that, in general, purchased OTC options and the underlying
securities used to cover written OTC options are illiquid securities. However, a
Portfolio may treat as liquid the underlying securities used to cover written
OTC options, provided it has arrangements with certain qualified dealers who
agree that the Portfolio may repurchase any option it writes for a maximum price
to be calculated by a predetermined formula. In these cases, the OTC option
itself would only be considered illiquid to the extent that maximum repurchase
price under the formula exceeds the intrinsic value of the option.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Portfolios may
purchase or sell futures contracts and purchase put and call options and sell
(i.e., write) covered 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 indices of fixed income securities and indices of equity securities.
Unlike a futures contract, which requires the parties to buy and sell
a security or make a cash settlement payment based on changes in a financial
instrument or securities index on an agreed date, an option on a futures
contract entitles its holder to decide on or before a future date whether to
enter into such a contract. If the holder decides not to exercise its option,
the holder may close out the option position by entering into an offsetting
transaction or may decide to let the option expire and forfeit the premium
thereon. The purchaser of an option on a futures contract pays a premium for the
option but makes no initial margin payments or daily payments of cash in the
nature of "variation" margin payments to reflect the change in the value of the
underlying contract as does a purchaser or seller of a futures contract.
The seller of an option on a futures contract receives the premium
paid by the purchaser and may be required to pay initial margin. Amounts equal
to the initial margin and any additional collateral required on any options on
futures contracts sold by a Portfolio are paid by the Portfolio into a
segregated account, in the name of the Futures Commission Merchant ("FCM"), as
required by the 1940 Act and the SEC's interpretations thereunder.
COMBINED POSITIONS. The Portfolios 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, a 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 a
Portfolio's current or anticipated investments exactly. A Portfolio may invest
in options and futures contracts based on securities with different issuers,
maturities, or other characteristics from the securities in which it typically
invests, which involves a risk that the options or futures position will not
track the performance of the Portfolio's other investments.
Options and futures contracts prices can also diverge from the prices
of their underlying instruments, even if the underlying instruments match the
Portfolio's investments well. Options and futures contracts prices are affected
by such factors as current and anticipated short term interest rates, changes in
volatility of the underlying instrument, and the time remaining until expiration
of the contract, which may not affect security prices the same way. Imperfect
correlation also may result from differing levels of demand in the options and
futures markets and the securities markets, structural differences in how
options and futures and securities are traded, or imposition of daily price
fluctuation limits or trading halts. A Portfolio may purchase or sell options
and futures contracts with a greater or lesser value than the securities it
wishes to hedge or intends to purchase in order to attempt to compensate for
differences in volatility between the contract and the securities, although this
may not be successful in all cases. If price changes in a Portfolio's options or
futures positions are poorly correlated with its other investments, the
positions may fail to produce anticipated gains or result in losses that are not
offset by gains in other investments.
LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a
liquid market will exist for any particular options 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 on a given day. On volatile trading days when the price fluctuation
limit is reached or a trading halt is imposed, it may be impossible for a
Portfolio to enter into new positions or close out existing positions. If the
market for a contract is not liquid because of price fluctuation limits or
otherwise, it could prevent prompt liquidation of unfavorable positions, and
could potentially require a Portfolio to continue to hold a position until
delivery or expiration regardless of changes in its value. As a result, the
Portfolio's access to other assets held to cover its options or futures
positions also could 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, a Portfolio or the Adviser may be
required to reduce the size of its futures and options positions or may not be
able to trade a certain futures or options contract in order to avoid exceeding
such limits.
ASSET COVERAGE FOR FUTURES CONTRACTS AND OPTIONS POSITIONS. The
Portfolios intend to comply with Section 4.5 of the regulations under the
Commodity Exchange Act, which limits the extent to which a Portfolio can commit
assets to initial margin deposits and option premiums. In addition, the
Portfolios will comply with guidelines established by the SEC with respect to
coverage of options and futures contracts by mutual funds, and if the guidelines
so require, will set aside appropriate liquid assets in a segregated custodial
account in the amount prescribed. Securities held in a segregated account cannot
be sold while the futures contract or option is outstanding, unless they are
replaced with other suitable assets. As a result, there is a possibility that
segregation of a large percentage of a Portfolio's assets could impede portfolio
management or the Portfolio's ability to meet redemption requests or other
current obligations.
RISK MANAGEMENT
The Portfolios may employ non-hedging risk management techniques.
Examples of such strategies include synthetically altering the duration of a
portfolio or the mix of securities in a portfolio. For example, if the Adviser
wishes to extend maturities in a fixed income portfolio in order to take
advantage of an anticipated decline in interest rates, but does not wish to
purchase the underlying long-term securities, it might cause the Portfolio to
purchase futures contracts on long- term debt securities. Similarly, if the
Adviser wishes to decrease fixed income securities or purchase equities, it
could cause the Portfolio to sell futures contracts on debt securities and
purchase future contracts on a stock index. Such non-hedging risk management
techniques are not speculative, but because they involve leverage include, as do
all leveraged transactions, the possibility of losses as well as gains that are
greater than if these techniques involved the purchase and sale of the
securities themselves rather than their synthetic derivatives.
INVESTMENT RESTRICTIONS
FUNDAMENTAL INVESTMENT RESTRICTIONS
The investment restrictions below have been adopted by
the Trust with respect to each Portfolio. Except where
otherwise noted, these investment restrictions are "fundamental"
policies that, under the 1940 Act, may not be changed without
the vote of a majority of the outstanding voting securities of
the Portfolio to which it relates. A "majority of the
outstanding voting securities" is defined in the 1940 Act as the
lesser of (a) 67% or more of the shares present at a
shareholders meeting if the holders of more than 50% of the
outstanding shares are present and represented by proxy, or (b)
more than 50% of the outstanding shares. The percentage
limitations contained in the restrictions below apply at the
time of the purchase of securities.
Unless Sections 8(b)(1) and 13(a) of the 1940 Act or any SEC or SEC
Staff interpretations thereof are amended or modified, no Portfolio may:
1. Purchase any security if, as a result, more than 25%
of the value of the Portfolio's total assets would be
invested in securities of issuers having their
principal business activities in the same industry.
This limitation shall not apply to obligations issued
or guaranteed by the U.S. Government, its agencies or
instrumentalities;
2. Borrow money, except that the Portfolio may (i) borrow
money from banks for temporary or emergency purposes
(not for leveraging purposes) and (ii) enter into
reverse repurchase agreements for any purpose;
provided that (i) and (ii) in total do not exceed 33-
1/3% of the value of the Portfolio's total assets
(including the amount borrowed) less liabilities
(other than borrowings). If at any time any
borrowings come to exceed 33-1/3% of the value of the
Portfolio's total assets, the Portfolio will reduce
its borrowings within three business days to the
extent necessary to comply with the 33-1/3%
limitation;
3. With respect to 75% of its total assets, purchase any
security if, as a result, (a) more than 5% of the
value of the Portfolio's total assets would be
invested in securities or other obligations of any one
issuer or (b) the Portfolio would hold more than 10%
of the outstanding voting securities of that issuer.
This limitation shall not apply to U.S. Government
securities (as defined in the 1940 Act);
4. Make loans to other persons, except through the
purchase of debt obligations (including privately
placed securities), loans of portfolio securities, and
participation in repurchase agreements;
5. Purchase or sell physical commodities or contracts
thereon, unless acquired as a result of the ownership
of securities or instruments, but the Portfolio may
purchase or sell futures contracts or options
(including options on futures contracts, but excluding
options or futures contracts on physical commodities)
and may enter into foreign currency forward contracts;
6. Purchase or sell real estate, but the Portfolio may
purchase or sell securities that are secured by real
estate or issued by companies (including real estate
investment trusts) that invest or deal in real estate;
7. Underwrite securities of other issuers, except to the
extent the Portfolio, in disposing of portfolio
securities, may be deemed an underwriter within the
meaning of the Securities Act of 1933, as amended; or
8. Issue senior securities, except as permitted under the
1940 Act or any rule, order or interpretation
thereunder.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS
The investment restrictions that follow are not fundamental policies
of the respective Portfolios and may be changed by the Board.
JPM TREASURY MONEY MARKET PORTFOLIO may not:
(i) Acquire any illiquid securities if as a result
thereof, more than 10% of the market value of the Portfolio's
total assets would be in investments that are illiquid.
JPM BOND, EQUITY, SMALL COMPANY AND INTERNATIONAL
EQUITY PORTFOLIOS may not:
(i) Acquire securities of other investment companies,
except as permitted by the 1940 Act or any rule, order or
interpretation thereunder, or in connection with a merger,
consolidation, reorganization, acquisition of assets or an offer
of exchange;
(ii) 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;
(iii) Acquire any illiquid securities 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;
(iv) Purchase any 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;
(v) Sell any security short, unless it owns or has
the right to obtain securities equivalent in kind and amount to
the securities sold or unless it covers such short sales as
required by the current rules or positions of the SEC or its
Staff. Transactions in futures contracts and options shall not
constitute selling securities short;
(vi) Purchase securities on margin, but the Portfolio
may obtain such short-term credits as may be necessary for the
clearance of transactions;
(vii) Purchase securities of any issuer if, to the
knowledge of the Trust, any of the Trust's officers or Trustees
or any officer of the Adviser, would after the Portfolio's
purchase of the securities of such issuer, individually own more
than 1/2 of 1% of the issuer's outstanding securities and such
persons owning more than 1/2 of 1% of such securities together
beneficially would own more than 5% of such securities, all
taken at market; or
(viii) Invest in real estate limited partnerships or
purchase interests in oil, gas or mineral exploration or
development programs or leases.
<PAGE>
TRUSTEES AND OFFICERS
The Trustees and officers of the Trust, their business
addresses, and their principal occupations during the past five
years are set forth below.
<TABLE>
<CAPTION>
Name, Address Position with Principal Occupations
and Age Trust During Past Five Years
<S> <C> <C>
John R. Rettberg Trustee Retired; Consultant, Northrop
79-165 Montego Bay Drive Grumman Corporation
Bermuda Dunes, California 92201 (59) ("Northrop") (since January,
1995); Corporate Vice President
and Treasurer, Northrop (prior to
January, 1995); Director,
Independent Colleges of Southern
California (prior to 1994);
Director, Junior Achievement
(prior to 1993).
John F. Ruffle* Trustee Retired; Consultant, J.P. Morgan
2234 Oyster Catcher Court & Co. Incorporated (since June,
Seabrook Island, South Carolina 29455 (59) 1993); Director and Vice
Chairman of J.P. Morgan & Co.
Incorporated (prior to June, 1993);
Director, Trident Corporation
(since April, 1994); Director,
Bethlehem Steel Corporation
(since September, 1990); Trustee,
Johns Hopkins University (since
April, 1990); Trustee, Overlook
Hospital Foundation (since April,
1990); Director, Student Loan
Marketing Association (since
April, 1990).
Kenneth Whipple, Jr. Trustee Executive Vice President, Ford
1115 Country Club Drive Motor Company, President, Ford
Bloomfield Hills, Michigan 48304 (62) Financial Services Group, and
Director, Ford Motor Credit
Company (since 1988); Director
and President, Ford Holdings, Inc.
(since 1989); Director, CMS
Energy Corporation and
Consumers Power Company (since
January, 1933); Director, Detroit
Country Day School (since
January, 1993); Director Granite
Management Corporation
(formerly First Nationwide
Financial Corporation) and Granite
Savings Bank (formerly First
Nationwide Bank) (since 1988);
Director, United Way of
Southeastern Michigan (since
1988); Director, USL Capital
Corporation (since 1988);
Chairman, Director and First Vice
President, WTVS-TV (since
1988).
</TABLE>
[Other Trustee To Be Provided]
- --------
* "Interested person" within the meaning of Section 2(a)(19) of the 1940 Act.
The Trust will pay its Trustees who are not interested persons of the
Trust an annual retainer of $20,000 and reimburse them for their expenses. The
estimated aggregate amount of compensation to be paid to each Trustee by the
Trust and by all other funds serviced and advised by Morgan or its affiliates
for which such person is a Board member (the number of which is set forth in
parenthesis next to each Trustee's total compensation) for the fiscal year
ending December 31, 1997 is as follows:
Estimated Total
Compensation from Trust
and Other Funds Serviced
Estimated and Advised By Morgan
Compensation or its Affiliates Paid
Name of Trustee From Trust to Trustees
John R. Rettberg $20,000 $36,000 (9)
John F. Ruffle $20,000 $36,000 (9)
Kenneth Whipple, Jr. $20,000 $36,000 (9)
[Other Trustee To Be Provided]
Officers of the Trust
RICHARD W. INGRAM; 40; President and Treasurer. Senior Vice President
and Director of Client Services and Treasury Administration of FDI, Senior Vice
President of Premier Mutual Fund Services, Inc., an affiliate of FDI ("Premier
Mutual"), and an officer of other investment companies advised or administered
by Morgan or its affiliates. From March 1994 to November 1995, Mr. Ingram was
Vice President and Division Manager of First Data Investor Services Group, Inc.
From 1989 to 1994, Mr. Ingram was Vice President, Assistant Treasurer and Tax
Director - Mutual Funds of The Boston Company, Inc.
MARIE E. CONNOLLY; 38; Vice President and Assistant Treasurer.
President and Chief Executive Officer and Director of FDI, Premier Mutual and an
officer of other investment companies advised or administered by Morgan or its
affiliates. 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").
JOHN E. PELLETIER; 32; Vice President and Secretary. Senior Vice
President and General Counsel of FDI and Premier Mutual and an officer of other
investment companies advised or administered by Morgan or its affiliates. From
February 1992 to April 1994, Mr. Pelletier served as Counsel for TBCA. From
August 1990 to February 1992, Mr. Pelletier was employed as an Associate at
Ropes & Gray.
JOSEPH F. TOWER III; 34; Vice President and Assistant Treasurer.
Senior Vice President, Treasurer and Chief Financial Officer of FDI and Premier
Mutual and an officer of other investment companies advised or administered by
Morgan or its affiliates. From July 1988 to November 1993, Mr. Tower was
Financial Manager of The Boston Company, Inc.
CHRISTOPHER J. KELLEY; 31; Vice President and Assistant Secretary.
Vice President and Assistant General Counsel of FDI and an officer of other
investment companies advised or administered by Morgan or its affiliates. From
April 1994 to July 1996, Mr. Kelley was Assistant Counsel at Forum Financial
Group. From 1992 to 1994, Mr. Kelley was employed by Putnam Investments in the
Global Fixed Income Group of the Legal Department. Prior to 1992, Mr. Kelley
served as a law clerk for the firm of Murphy, DeMarco & O'Neill.
ELIZABETH A. BACHMAN; 27; Vice President and Assistant Secretary.
Assistant Vice President of FDI and Premier Mutual and an officer of other
investment companies advised or administered by Morgan or its affiliates. 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.
MARY A. NELSON; 32; Vice President and Assistant Treasurer. Vice
President and Manager of Treasury Services and Administration of FDI and an
officer of other investment companies advised or administered by Morgan or its
affiliates. From 1989 to 1994, Ms. Nelson was an Assistant Vice President and
client manager for The Boston Company, Inc.
KAREN JACOPPO-WOOD; 29; Vice President and Assistant Secretary.
Assistant Vice President of FDI and an officer of other investment companies
advised or administered by Morgan or its affiliates. From June 1994 to January
1996, Ms. Jacoppo was a Manager, SEC Registration, Scudder, Stevens & Clark,
Inc. From 1988 to May 1994, Ms. Jacoppo-Wood was a senior paralegal at TBCA.
DOUGLAS C. CONROY; 27; Vice President and Assistant Treasurer.
Supervisor of Treasury Services and Administration of FDI and an officer of
other investment companies advised or administered by Morgan or its affiliates.
From April 1993 to January 1995, Mr. Conroy was a Senior Fund Accountant for
Investors Bank & Trust Company. From December 1993 to March 1993, Mr. Conroy was
employed as a fund accountant at The Boston Company, Inc.
The business address of each of the officers is 60 State Street,
Boston, Massachusetts 02109.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISORY AGREEMENT
The Trust has entered into an Investment Advisory Agreement with
Morgan with respect to each of the Portfolios. Morgan is a wholly-owned
subsidiary of J.P. Morgan & Co. Incorporated ("J.P. Morgan"). See "MANAGEMENT OF
TRUST AND PORTFOLIOS" in the Prospectus.
The Investment Advisory Agreement provides that Morgan, subject to
control and review by the Board, is responsible for the overall management and
supervision of each Portfolio. Morgan makes each Portfolio's day-to-day
investment decisions to buy, sell or hold any particular security or other
instrument.
Morgan and its affiliates provide investment advice to other clients,
including, but not limited to, mutual funds, individuals, pension funds and
other institutional investors. Some of the advisory accounts of Morgan and its
affiliates may have investment objectives and investment programs similar to
those of the Portfolios. Accordingly, occasions may arise when securities that
are held by other advisory accounts, or that are currently being purchased or
sold for other advisory accounts, are also being selected for purchase or sale
for a Portfolio. It is the practice of Morgan and its affiliates to allocate
such purchases or sales insofar as feasible among their several clients in a
manner they deem equitable, to all accounts involved. While in some cases this
procedure may adversely affect the price or number of shares involved in the
Trust's transaction, it is believed that the equitable allocation of purchases
and sales generally contributes to better overall execution of the Trust's
portfolio transactions. It also is the policy of Morgan and its affiliates not
to favor any one account over the other.
For providing investment advisory and management services to the
Trust, Morgan receives monthly compensation from the Trust at annual rates
computed as described under "MANAGEMENT OF THE TRUST AND PORTFOLIOS" in the
Prospectus.
The Investment Advisory Agreement was approved by the Board on October
25, 1996 and by shareholders on ____________________, 1996. Unless earlier
terminated, the Agreement will remain in effect as to the applicable Portfolio
until _______, 1997 and thereafter from year to year with respect to each such
Portfolio, if approved annually (1) by the Board or by a majority of the
outstanding shares of the Portfolio, and (2) by a majority of members of the
Board who are not interested persons, within the meaning of the 1940 Act, of any
party to such Agreement. The Agreement is not assignable and may be terminated
without penalty, with respect to any Portfolio, by vote of a majority of the
Trust's Trustees or by the requisite vote of the shareholders of that Portfolio
on 60 days' written notice to Morgan, or by Morgan on 90 days' written notice to
the Trust. See "CAPITAL SHARES" in this Statement of Additional Information.
ADMINISTRATIVE SERVICES AGREEMENT
The Trust has entered into an Administrative Services Agreement with
Morgan Guaranty Trust Company of New York ("Morgan Guaranty"), an affiliate of
Morgan, effective ________, 1996. Pursuant to the Administrative Services
Agreement, Morgan Guaranty provides or arranges for the provision of certain
financial and administrative services and oversees fund accounting for the
Trust. The services to be provided by Morgan Guaranty under the Administrative
Services Agreement include, but are not limited to, services related to taxes,
financial statements, calculation of Portfolio performance data, oversight of
service providers, certain regulatory and Board of Trustees matters, and
shareholder services. In addition, Morgan Guaranty is responsible for
reimbursing the Trust for certain usual and customary expenses incurred by the
Trust including, without limitation, transfer, registrar and dividend disbursing
costs, custody fees, legal and accounting expenses, fees of the Trust's
co-administrator, insurance premiums, compensation and expenses of the Trust's
Trustees, expenses of printing and mailing reports, notices and proxies to
shareholders, and registration fees under federal and state securities laws. See
"MANAGEMENT OF TRUST AND PORTFOLIOS" in the Prospectus.
For providing its services under the Administrative Services
Agreement, Morgan Guaranty receives monthly compensation from the Trust at
annual rates computed as described under "MANAGEMENT OF THE TRUST AND
PORTFOLIOS" in the Prospectus. However, the Administrative Services Agreement
also provides that until __________, 1998, the aggregate fees, expressed in
dollars, paid by a Portfolio under the Administrative Services Agreement and the
Investment Advisory Agreement will not exceed the expenses (excluding
extraordinary expenses) that would be payable by such Portfolio assuming (i) the
prior management agreement remained in effect in accordance with its terms, (ii)
the asset levels were the same, (iii) no effect was given to the voluntary
expense reimbursement arrangements or other limitation on expenses under such
prior agreement and (iv) the expenses the Portfolio would have been charged were
adjusted to reflect differences in services provided under the prior management
agreement, on the one hand, and the Administrative Services Agreement and
Investment Advisory Agreement, on the other.
The Administrative Services Agreement may be amended only by mutual
written consent; provided, however, that until __________, 1998, no amendment
shall be made to (a) increase the fees payable by the Trust, on behalf of a
Portfolio, to Morgan Guaranty or (b) change the types of services to be rendered
or expenses to be borne under the Agreement by Morgan Guaranty without the vote
of a majority (as defined in the 1940 Act) of the outstanding voting securities
of the relevant Portfolio(s). See "CAPITAL SHARES" in this Statement of
Additional Information.
The Administrative Services Agreement was approved by the Board on
October 25, 1996. The Agreement may be terminated as to any Portfolio at any
time, without the payment of any penalty, by the Board or, after _____________,
1998, by Morgan Guaranty on not more than 60 days' nor less than 30 days'
written notice to the other party.
PRIOR MANAGEMENT ARRANGEMENTS
Prior to __________, 1996, Chubb Investment Advisory Corporation
("Chubb Investment Advisory") provided investment advisory and management
services to the Trust pursuant to separate management agreements with each
Portfolio. Chubb Investment Advisory engaged Morgan Guaranty to provide sub-
investment advisory services to the Portfolios pursuant to separate
Sub-Investment Advisory Agreements with each Portfolio. The fees payable to
Morgan Guaranty for its sub-advisory services were paid by Chubb Investment
Advisory.
For the period January 3, 1995 (commencement of operations) through
December 31, 1995, the management fees payable to Chubb Investment Advisory for
JPM Treasury Money Market Portfolio, JPM Bond Portfolio, JPM Equity Portfolio,
JPM Small Company Portfolio and JPM International Equity Portfolio amounted to
$4,520, $6,224, $16,451, $19,131 and $24,543, respectively, which amounts were
reduced pursuant to an undertaking by Chubb Investment Advisory.
For the period January 3, 1995 (commencement of operations) through
December 31, 1995, the sub-advisory fees payable by Chubb Investment Advisory to
Morgan Guaranty for JPM Treasury Money Market Portfolio, JPM Bond Portfolio, JPM
Equity Portfolio, JPM Small Company Portfolio and JPM International Equity
Portfolio amounted to $2,260, $3,734, $10,967, $14,348 and $18,407,
respectively, which amounts were reduced pursuant to an undertaking by Morgan
Guaranty.
INDEPENDENT AUDITORS
Ernst & Young LLP, 200 Clarendon Street, Boston, Massachusetts 02116,
currently serves as the independent auditors of the Trust. Price Waterhouse LLP
has been selected as the independent auditors of the Trust for the fiscal year
commencing January 1, 1997. The financial statements of the Trust incorporated
by reference in this Statement of Additional Information and the related
financial highlights included in the Prospectus for the period January 3, 1995
(commencement of operations) to December 31, 1995 have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report thereon, which
also is incorporated by reference herein, and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
CUSTODIAN
State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02101, serves as the Trust's Custodian and
Transfer and Dividend Disbursing Agent. Pursuant to the Custodian Contract with
the Trust, State Street is responsible for maintaining the books and records of
portfolio transactions and holding portfolio securities and cash. State Street
also keeps the books of account for the Trust.
The Trust has also appointed, with the approval of the Board, and in
the future may appoint from time to time, sub-custodians, qualified under Rule
17f-5 of the 1940 Act, with respect to certain foreign securities. The Trust may
authorize State Street to enter into an agreement with any U.S. banking
institution or trust company to act as a sub-custodian pursuant to a resolution
of the Board. Securities owned by the Trust subject to repurchase agreements may
be held in the custody of other U.S. banks.
PAYMENT OF EXPENSES
Morgan Guaranty is obligated to assume the cost of certain
administrative expenses for the Trust, as described in the Prospectus under the
heading "MANAGEMENT OF THE TRUST AND PORTFOLIOS." The Trust is responsible for
Morgan's fees as investment adviser pursuant to the Investment Advisory
Agreement and for Morgan Guaranty's services pursuant to the Administrative
Services Agreement. In addition, the Trust pays all extraordinary expenses not
incurred in the ordinary course of the Trust's business including, but not
limited to, litigation and indemnification expenses; interest charges; material
increases in Trust expenses due to occurrences such as significant increases in
the fee schedules of the Custodian or the Transfer Agent or a significant
decrease in the Trust's asset level due to changes in tax or other laws or
regulations; or other such extraordinary occurrences outside of the ordinary
course of the Trust's business. See "OFFERING AND REDEMPTION OF SHARES" below.
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATIONS
Under the Investment Advisory Agreement, Morgan has ultimate authority
to select broker-dealers through which securities are to be purchased and sold,
subject to the general control of the Board.
Money market instruments usually will be purchased on a principal
basis directly from issuers, underwriters or dealers. Accordingly, minimal
brokerage charges are expected to be paid on such transactions. Purchases from
an underwriter generally include a commission or concession paid by the issuer,
and transactions with a dealer usually include the dealer's mark-up.
Insofar as known to management, no trustee, director or officer of the
Trust, Morgan or any person affiliated with any of them has any material direct
or indirect interest in any broker-dealer employed by or on behalf of the Trust.
In selecting broker-dealers to execute transactions for the Trust,
Morgan is obligated to use its best effort to obtain for each Portfolio the most
favorable overall price and execution available, considering all the
circumstances. Such circumstances include the price of the security, the size of
the broker-dealer's "spread" or commission, the willingness of the broker-dealer
to position the trade, the reliability, financial strength and stability and
operational capabilities of the broker-dealer, the ability to effect the
transaction at all where a large block is involved, the availability of the
broker-dealer to stand ready to execute possibly difficult transactions in the
future, including broker-dealers who specialize in any Canadian or foreign
securities held by the Portfolios. Such considerations are judgmental and are
weighed by Morgan in seeking the most favorable overall economic result for the
Trust, including past experience as to choosing qualified broker-dealers.
Notwithstanding the foregoing, however, and subject to appropriate
policies and procedures as then approved by the Board, Morgan is authorized to
allocate portfolio transactions to broker-dealers who have provided brokerage
and research services, as such services are defined in Section 28(e) of the
Securities and Exchange Act of 1934, for the Portfolios or other advisory
accounts as to which Morgan may cause the Portfolios to pay a broker-dealer a
commission for effecting a securities transaction in excess of the amount
another broker-dealer would have charged for effecting the same transaction, if
Morgan determines in good faith that such amount of commission is reasonable in
relation to the value of the brokerage and research services, as defined above,
provided by such broker-dealer viewed in terms of either that particular
transaction or the overall responsibilities of Morgan with respect to the
Portfolios or their other advisory accounts. Such brokerage and research
services may include, among other things, analyses and reports concerning
issuers, industries, securities, economic factors and trends, and, portfolio
strategy. Such brokerage and research services may be used by Morgan in
connection with any other advisory accounts managed by it. Conversely, research
services for any other advisory accounts may be used by Morgan in managing the
investments of a Portfolio. Morgan also may receive from such broker-dealers
quotations for Portfolio valuation purposes, provided that this results in no
additional cost to the Trust.
As of December 31, 1995, JPM Equity Portfolio held 1,200 shares of
Dean Witter Discover & Co. with a value of $56,400; JPM Small Company Portfolio
held 100 shares of Donaldson, Lufkin, Jenrette with a value of $3,125; and JPM
International Equity Portfolio held 500 shares of Deutsche Bank with a value of
$23,791; 4,000 shares of Daiwa Bank with a value of $31,740; 2,000 shares of
Nomura Securities Corp. Ltd. with a value of $43,625; 2,750 shares of HSBC
Holdings with a value of $42,372 and 1,000 shares of Barclays Bank with a value
of $11,475, all of which are regular brokers of the Trust.
For the year ended December 31, 1995, the Trust paid in the aggregate
$39,294 as brokerage commissions. No commissions were allocated for research.
Portfolio turnover for each Portfolio may vary from year to year or
within a year depending upon economic and business conditions. The annual
portfolio turnover rates for the Portfolios in 1995 were approximately as
follows: 239% for JPM Bond Portfolio, 66% for JPM Equity Portfolio, 100% for JPM
Small Company Portfolio and 68% for JPM International Equity Portfolio. A
Portfolio having a turnover rate in excess of 100% may realize larger amounts of
gains or losses than it would with a lower portfolio turnover rate. A Portfolio
turnover rate in excess of 100% may result in a Portfolio paying more brokerage
commissions or other transaction related costs. A Portfolio turnover in excess
of 100% may be considered high due to the following factors: (1) the need to
restructure the Portfolio due to changing market and/or economic conditions; (2)
the need to rebalance the Portfolio as securities age down the yield curve; (3)
the need to trade securities whose characteristics are affected by moderate to
large changes in interest rates and (4) value added to trading opportunities.
CAPITAL SHARES
The authorized capital of the Trust consists of an unlimited number of
outstanding shares which are divided into five series: JPM Treasury Money Market
Portfolio, JPM Bond Portfolio, JPM Equity Portfolio, JPM Small Company Portfolio
and JPM International Equity Portfolio. The Trust has the right to issue
additional shares without the consent of shareholders, and may allocate its
additional shares to new series or to one or more of the five existing series.
The assets received by the Trust for the issuance or sale of shares of
each Portfolio and all income, earnings, profits and proceeds thereof are
specifically allocated to each Portfolio. They constitute the underlying assets
of each Portfolio, are required to be segregated on the books of accounts and
are to be charged with the expenses of such Portfolio. Any assets which are not
clearly allocable to a particular Portfolio or Portfolios are allocated in a
manner determined by the Board. Accrued liabilities which are not clearly
allocable to one or more Portfolios would generally be allocated among the
Portfolios in proportion to their relative net assets before adjustment for such
unallocated liabilities. Each issued and outstanding share in a Portfolio is
entitled to participate equally in dividends and distributions declared with
respect to such Portfolio and in the net assets of such Portfolio upon
liquidation or dissolution remaining after satisfaction of outstanding
liabilities.
The shares of each Portfolio are fully paid and non-assessable, will
have no preference, preemptive, conversion, exchange or similar rights, and will
be freely transferable. Shares do not have cumulative voting rights.
As of October 28, 1996, Chubb Life owned as of record and beneficially
the following percentages of the Trust's Portfolios in its General Account:
[87.15% of JPM Treasury Money Market Portfolio, 73.99% of JPM Bond Portfolio,
28.67% of JPM Equity Portfolio, 86.09% of JPM Small Company Portfolio, and
50.27% of JPM International Equity Portfolio. Chubb Life's ownership of more
than 25% of the shares of each of the Trust's Portfolios may result in Chubb
Life being deemed to be a controlling entity of each Portfolio. Chubb Separate
Account C, a separate account established by Chubb Life, owned of record as of
March 31, 1996 the following percentages of the Trust's Portfolios: 12.85% of
JPM Treasury Money Market Portfolio, 26.01% of JPM Bond Portfolio, 71.33% of JPM
Equity Portfolio, 13.91% of JPM Small Company Portfolio, and 49.73% of JPM
International Equity Portfolio].
The shares held by Chubb Life or its affiliated insurance companies,
including shares for which no voting instructions have been received, shares
held in a separate account representing charges imposed by Chubb Life or its
affiliates and shares held by Chubb Life that are not otherwise attributable to
Policies, will be voted by Chubb Life or its affiliated insurance companies in
proportion to instructions received from the owners of Policies. Chubb Life and
its affiliated insurance companies reserve the right to vote any or all such
shares at their discretion to the extent consistent with then current
interpretations of the 1940 Act and rules thereunder.
The officers and Trustees cannot directly own shares of the Trust
without purchasing a Policy or investing as a participant in an Eligible Plan.
As of ______, 1996, the amount of shares owned by the officers and Trustees as a
group was less than 1% of each Portfolio.
OFFERING AND REDEMPTION OF SHARES
The Trust offers shares of each Portfolio only for purchase by
separate accounts established by Participating Insurance Companies or by
Eligible Plans. It thus will serve as an investment medium for the Policies
offered by Participating Insurance Companies and for participants in Eligible
Plans. The offering is without a sales charge and is made at each Portfolio's
net asset value per share, which is determined in the manner set forth below
under "DETERMINATION OF NET ASSET VALUE."
The Trust redeems all full and fractional shares of the Trust at the
net asset value per share applicable to each Portfolio. See "DETERMINATION OF
NET ASSET VALUE" below.
Redemptions ordinarily are made in cash, but the Trust has authority,
at its discretion, to make full or partial payment by assignment to the separate
account of Portfolio securities at their value used in determining the
redemption price. The Trust, nevertheless, pursuant to Rule 18f-1 under the 1940
Act, has filed a notification of election on Form N-18f-1, by which the Trust
has committed itself to pay to the separate account in cash, all such separate
account's requests for redemption made during any 90-day period, up to the
lesser of $250,000 or 1% of the applicable Portfolio's net asset value at the
beginning of such period. The securities, if any, to be paid in-kind to the
separate account will be selected in such manner as the Board deems fair and
equitable. In such cases, the separate account or Eligible Plan might incur
brokerage costs should it wish to liquidate these portfolio securities.
The right to redeem shares or to receive payment with respect to any
redemption of shares of any Portfolio may only be suspended (1) for any period
during which trading on the New York Stock Exchange is restricted or such
Exchange is closed, other than customary weekend and holiday closings, (2) for
any period during which an emergency exists as a result of which disposal of
securities or determination of the net asset value of that Portfolio is not
reasonably practicable, or (3) for such other periods as the SEC may by order
permit for the protection of shareholders of the Portfolio.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of each Portfolio of the Trust is
normally determined immediately after the declaration by the Trust of dividends,
if any, as of the close of regular trading on the New York Stock Exchange
(presently 4:00 P.M.), on each day during which the New York Stock Exchange is
open for trading. The New York Stock Exchange is open from Monday through Friday
except on the following national holidays: New Years Day, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day. In the event that any of the above holidays falls on a Saturday
or Sunday, it is regularly observed on the preceding Friday or following Monday,
respectively. The net asset value per share of each Portfolio is computed by
dividing the sum of the value of the securities held by that Portfolio, plus any
cash or other assets and minus all liabilities by the total number of
outstanding shares of the Portfolio at such time. Any expenses borne by the
Trust, including the investment advisory fee payable to the Adviser, are accrued
daily except for extraordinary or non-recurring expenses. See "INVESTMENT
ADVISORY AND OTHER SERVICES" above.
The value of investments listed on a domestic securities exchange,
other than options on stock indexes, generally is based on the last sale prices
on the New York Stock Exchange at 4:00 p.m. or, in the absence of recorded
sales, at the average of readily available closing bid and asked prices on such
exchange. Securities listed on a foreign exchange are valued at the last quoted
sale price available before the time when net assets are valued. Unlisted
securities are valued at the average of the quoted bid and asked prices in the
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
normally is completed before the close of trading on the New York Stock Exchange
and also may 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.
TAXES
In order for each Portfolio of the Trust to qualify for federal income
tax treatment as a regulated investment company, at least 90% of its gross
income for a taxable year must be derived from qualifying income, i.e.,
dividends, interest, income derived from loans of securities, and gains from the
sale of securities. In addition, in general, gains realized on the sale or other
disposition of securities held for less than three months must be limited to
less than 30% of each Portfolio's annual gross income. It is the Trust's policy
to comply with the provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), regarding distribution of investment income and capital gains so
that each Portfolio will not be subject to federal income tax on amounts
distributed and undistributed or an excise tax on certain undistributed income
or capital gains. For these purposes, if a regulated investment company declares
a dividend in December to shareholders of record in December and pays such
dividends before the end of January they will be treated as paid in the
preceding calendar year and to have been received by such shareholder in
December.
Federal Tax Matters. A Policy owner's interest in earnings on assets
held in a separate account and invested in the Trust are not includable in the
Policy owner's gross income because the Policies presently qualify as life
insurance contracts for federal income tax purposes.
The Trust intends that each Portfolio comply with Section 817(h) of
the Code and the regulations thereunder. Pursuant to that Section, the only
shareholders of the Trust and its Portfolios will be separate accounts funding
variable annuities and variable life insurance policies established by one or
more insurance companies and, pursuant to Treasury Regulation
Section 1.817-5(f)(3)(iii), qualified pension and retirement plans.
The Internal Revenue Service defines the term "qualified pension or
retirement plan" for the purposes of such Regulation Section 1.817-5(f)(3)(iii).
It provides in pertinent part, as follows:
1. A plan described in Section 401(a) that
includes a trust exempt from tax under Section 501(a);
2. An annuity plan described in Section 403(a);
3. An annuity contract described in Section
403(b), including a custodial account described in
Section 403(b)(7);
4. An individual retirement account described
in Section 408(a);
5. An individual retirement annuity described
in Section 408(b);
6. A governmental plan within the meaning of
Section 414(d) or an eligible deferred compensation
plan within the meaning of Section 457(b);
7. A simplified employee pension of an employer
that satisfies the requirements of Section 408(k);
8. A plan described in Section 501(c)(18); and
9. Any other trust, plan, account, contract or
annuity that the Internal Revenue Service has
determined in a letter ruling to be within the scope
of such Regulation.
In addition, Section 817(h) of the Code and the regulations thereunder
impose diversification requirements on the separate accounts and on the
Portfolios. These diversification requirements are in addition to the
diversification requirements imposed by the Code for the Portfolios to be
treated as regulated investment companies. Failure to meet the requirements of
Section 817(h) could result in taxation to the Participating Insurance Companies
and the immediate taxation of the owners of the Policies funded by the Trust.
PERFORMANCE AND YIELD INFORMATION
MONEY MARKET PORTFOLIO
JPM Treasury Money Market Portfolio's yield is its investment income,
less expenses, expressed as a percentage of assets on an annualized basis for a
seven-day period. The yield does not reflect the fees and charges imposed on the
assets of separate account.
The simple annualized yield is computed by determining the net change
(exclusive of realized gains and losses from the sale of securities and
unrealized appreciation and depreciation) in the value of a hypothetical
pre-existing account having a balance of one share at the beginning of the
seven-day period, dividing the net change in account value by the value of the
account at the beginning of the period, and annualizing the resulting quotient
(base period return) on a 365-day basis. The net change in account value
reflects the value of additional shares purchased with dividends from the
original shares in the account during the seven-day period, dividends declared
on such additional shares during the period, and expenses accrued during the
period.
The compounded effective yield is computed by determining the
unannualized base period return, adding one to the base period return, raising
the sum to a power equal to 365 divided by seven and subtracting one from the
result.
NON-MONEY MARKET PORTFOLIOS
This yield figure represents the net annualized yield based on
specified 30-day (or one month) period assuming a reinvestment semiannual
compounding of income. Yield is calculated by dividing the average daily net
investment income per share earned during the specified period by the maximum
offering price, which is net asset value per share on the last day of the
period, and annualizing the result according to the following formula:
Yield = 2 [(A-B + 1)6 - 1]
CD
where A equals dividends and interest earned during the period, B
equals expenses accrued for the period (net of waiver and
reimbursements), C equals the average daily number of shares
outstanding during the period that were entitled to receive
dividends, and D equals the maximum offering price per share on
the last day of the period.
The average annual total return figures represent the average annual
compounded rate of return for the stated period. Average annual total return
quotations reflect the percentage change between the beginning value of a static
account in the Portfolio and the ending value of that account measured by the
then current net asset value of that Portfolio assuming that all dividends and
capital gains distributions during the stated period were reinvested in shares
of the Portfolio when paid. Total return is calculated by finding the average
annual compounded rates of return of a hypothetical investment that would
compare the initial amount to the ending redeemable value of such investment
according to the following formula:
P (1 + T)n = ERV
where T equals average annual total return, where ERV, the ending
redeemable value, is the value, at the end of the applicable
period, of a hypothetical $10,000 payment made at the beginning
of the applicable period, where P equals a hypothetical initial
payment of $10,000, and where N equals the number of years.
From time to time, in reports and sales literature: (1) each
Portfolio's performance or P/E ratio may be compared to, as applicable: (i) the
S&P 500 Index and Dow Jones Industrial Average so that, as applicable, an
investor may compare that Portfolio's results with those of a group of unmanaged
securities widely regarded by investors as representative of the U.S. stock
market in general; (ii) other groups of mutual funds tracked by: (A) Lipper
Analytical Services, a widely-used independent research firm which ranks mutual
funds by overall performance, investment objectives, and asset size; (B) Forbes
Magazine's Annual Mutual Funds Survey and Mutual Fund Honor Roll; or (C) other
financial or business publications, such as the Wall Street Journal, Business
Week, Money Magazine, and Barron's, which provide similar information; (iii)
indexes of stocks comparable to those in which the particular Portfolio invests;
(2) the Consumer Price Index; (3) other U.S. government statistics such as GNP,
and net import and export figures derived from governmental publications, e.g.,
The Survey of Current Business, may be used to illustrate investment attributes
of each Portfolio or the general economic, business, investment, or financial
environment in which each Portfolio operates; and (4) the effect of tax-deferred
compounding on the particular Portfolio's investment returns, or on returns in
general, may be illustrated by graphs, charts, etc. where such graphs or charts
would compare, at various points in time, the return from an investment in the
particular Portfolio (or returns in general) on a tax-deferred basis (assuming
reinvestment of capital gains and dividends and assuming one or more tax rates)
with the return on a taxable basis. Each Portfolio's performance may also be
compared to the performance of other mutual funds by Morningstar, Inc. which
ranks mutual funds on the basis of historical risk and total return. Morningstar
rankings are calculated using the mutual fund's performance relative to
three-month Treasury bill monthly returns. Morningstar's rankings range from
five stars (highest) to one star (lowest) and represent Morningstar's assessment
of the historical risk level and total return of a mutual fund as a weighted
average for 1, 3, 5, and 10-year periods. In each category, Morningstar limits
its five star rankings to 10% of the funds it follows and its four star rankings
to 22.5% of the funds it follows. Rankings are not absolute or necessarily
predictive of future performance.
The performance of the Portfolios may be compared, for example, to the
record of the Salomon Investment Grade Bond Index, IDC/Donoghue, S&P 500 Index,
the Russell 2000R, the Russell 2500TM, the NASDAQ Composite Index, the Morgan
Stanley Capital International and the Europe, Australia, Far Eastern (EAFE)
Index. The S&P 500 Index is a well known measure of the price performance of 500
leading larger domestic stocks which represent approximately 80% of the market
capitalization of the U.S. Equity market. The Russell 2000R Small Stock Index is
designed to be a comprehensive representation of the U.S. small cap equity
market. It is composed of 2,000 issues of smaller domestic stocks which
represent nearly 7% of U.S. market capitalization. The Russell 2500TM Index is
comprised of the Russell 2000R small cap companies plus the next 500 largest
companies in the Russell 3000R universe. The NASDAQ Composite Index is comprised
of all stocks on NASDAQ's National Market Systems, as well as other NASDAQ
domestic equity securities. The NASDAQ Composite Index has typically included
smaller, less mature companies representing 10% to 15% of the capitalization of
the entire domestic equity market. The EAFE Index is comprised of more than 900
companies in Europe, Australia and the Far East. All of these indices are
unmanaged and capitalization weighted. In general, the securities comprising the
Russell 2000R, the Russell 2500TM and NASDAQ Composite Index are more growth
oriented and have a somewhat higher volatility than those in the S&P 500 Index.
The total returns of all of these indices will show the changes in
prices for the stocks in each index. All indices include the reinvestment of all
capital gains distributions and dividends paid by the stocks in each data base.
Tax consequences will not be included in such illustration, nor will brokerage
or other fees or expenses of investing be reflected in the NASDAQ Composite, S&P
500, EAFE Index, Russell 2000R and Russell 2500TM.
DELAWARE BUSINESS TRUST
The Trust is a business organization of the type commonly known as a
"Delaware Business Trust" of which each Portfolio is a series. The Trust has
filed a certificate of trust with the office of the Secretary of State of
Delaware. Except to the extent otherwise provided in the governing instrument of
the business trust, the beneficial owners shall be entitled to the same
limitation of personal liability extended to stockholders of private
corporations for profit organized under the general corporation law of the State
of Delaware.
The Trust provides for the establishment of designated series of
beneficial interests (the Portfolios) having separate rights, powers or duties
with respect to specified property or obligations of the Trust or profits and
losses associated with specified property or obligations, and, to the extent
provided in the Declaration of Trust, any such series may have a separate
business purpose or investment objective.
The Trust shall continue without limitation of time
subject to the provisions in the Declaration of Trust concerning
termination by action of the shareholders or by action of the
Trustees upon notice to the shareholders.
FINANCIAL STATEMENTS
The audited financial statements contained in the Trust's December 31,
1995 Annual Report to Shareholders and the unaudited financial statements
contained in the Trust's June 30, 1996 Semi-Annual Report to Shareholders are
incorporated herein by reference.
ADDITIONAL INFORMATION
Annual and semi-annual reports containing financial statements of the
Trust, as well as voting instruction soliciting material for the Trust, will be
sent to all Trust shareholders.
<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.
B Debt rated B is regarded as having a greater
vulnerability to default but presently as having the
capacity to meet interest payments and principal
repayments. Adverse business, financial or economic
conditions would likely impair capacity or willingness to
pay interest and repay principal.
CCC Debt rated CCC is regarded as having a current
identifiable vulnerability to default, and is dependent
upon favorable business, financial and economic
conditions to meet timely payments of principal. In the
event of adverse business, financial or economic
conditions, it is not likely to have the capacity to pay
interest and repay principal.
CC The rating CC is typically applied to debt subordinated
to senior debt which is assigned an actual or implied CCC
rating.
C The rating C is typically applied to debt subordinated to
senior debt which is assigned an actual or implied CCC-
debt rating.
D Bonds rated D are in default, and payment of interest
and/or repayment of principal is in arrears.
Plus (+) or minus (-): The ratings from AA to CCC may be
modified by the addition of a plus or minus sign to show relative
standing within the major ratings categories.
Commercial Paper
A Issues assigned this highest rating are regarded as
having the greatest capacity for timely payment. Issues
in this category are further refined with the
designations 1, 2, and 3 to indicate the relative degree
of safety.
A-1 This designation indicates that the degree of safety
regarding timely payment is very strong.
Short-Term Tax-Exempt Notes
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.
MOODY'S
Corporate and Municipal Bonds
Aaa Bonds which are rated Aaa are judged to be the best
quality. They carry the smallest degree of investment
risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure.
While the various protective elements are likely to
change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of
such issues.
Aa Bonds which are rated Aa are judged to be of high quality
by all standards. Together with the Aaa group they
comprise what are generally known as high grade bonds.
They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater
amplitude or there may be other elements present which
make the long term risks appear somewhat larger than in
Aaa securities.
A Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and
interest are considered adequate but elements may be
present which suggest a susceptibility to impairment
sometime in the future.
Baa Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor
poorly secured. Interest payments and principal security
appear adequate for the present but certain protective
elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact
have speculative characteristics as well.
Ba Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as
well-assured. Often the protection of interest and
principal payments may be very moderate, and thereby not
well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in
this class.
B Bonds which are rated B generally lack characteristics of
the desirable investment. Assurance of interest and
principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Caa Bonds which are rated Caa are of poor standing. Such
issues may be in default or there may be present elements
of danger with respect to principal or interest.
Ca Bonds which are rated Ca present obligations which are
speculative in a high degree. Such issues are often in
default or have other marked shortcomings.
C Bonds which are rated C are the lowest rated class of
bonds, and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real
investment standing.
Moody's applies the numerical modifiers 1, 2 and 3 to show relative
standing within the major rating categories, except in the Aaa category and in
categories below B. The modifier 1 indicates a ranking for the security in the
higher end of a rating category; the modifier 2 indicates a mid-range ranking;
and the modifier 3 indicates a ranking in the lower end of a rating category.
Commercial Paper
Prime-1 Issuers rated Prime-1 (or related supporting
institutions) have a superior capacity for repayment of
short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following
characteristics:
- Leading market positions in well established
industries.
- High rates of return on funds employed.
- Conservative capitalization structures with moderate
reliance on debt and ample asset protection.
- Broad margins in earnings coverage of fixed financial
charges and high internal cash generation.
- Well established access to a range of financial markets
and assured sources of alternate liquidity.
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A of the Registration Statement:
Financial Highlights--for the period January 3, 1995
(commencement of operations) to December 31, 1995 and
for the six-month period ended June 30, 1996
(unaudited).
Included in Part B of the Registration Statement:
The Financial Statements contained in the Registrant's
Semi-Annual Report for the six months ended June 30, 1996 (unaudited) and in the
Registrant's Annual Report for the year ended December 31, 1995, Notes to
Financial Statements and Report of Ernst & Young LLP, Independent Auditors,
dated February 16, 1996 are incorporated by reference in the Registrant's
Statement of Additional Information.
(b) Exhibits:
(1)(a) Agreement and Declaration of Trust.1
(1)(b) Amendment to Agreement and Declaration of Trust.3
(2) By-Laws, as amended.3
(4) Specimen Share Certificates.1
(5)(a) Investment Management Agreement between The Chubb
Series Trust and Chubb Investment Advisory
Corporation with respect to The Resolute Treasury Money Market
Portfolio.2
(5)(b) Investment Management Agreement between The Chubb
Series Trust and Chubb Investment Advisory
Corporation with respect to The Resolute Bond Portfolio.2
(5)(c) Investment Management Agreement between The Chubb
Series Trust and Chubb Investment Advisory
Corporation with respect to The Resolute Equity Portfolio.2
(5)(d) Investment Management Agreement between The Chubb
Series Trust and Chubb Investment Advisory
Corporation with respect to The Resolute Small Company
Portfolio.2
(5)(e) Investment Management Agreement between The Chubb
Series Trust and Chubb Investment Advisory
Corporation with respect to The Resolute International Equity
Portfolio.2
(5)(f) Sub-Investment Advisory Agreement among The Chubb
Series Trust, Chubb Investment Advisory Corporation
and Morgan Guaranty Trust Company of New York with
respect to The Resolute Treasury Money Market
Portfolio.2
(5)(g) Sub-Investment Advisory Agreement among The Chubb
Series Trust, Chubb Investment Advisory Corporation
and Morgan Guaranty Trust Company of New York with
respect to The Resolute Bond Portfolio.2
(5)(h) Sub-Investment Advisory Agreement among The Chubb
Series Trust, Chubb Investment Advisory Corporation
and Morgan Guaranty Trust Company of New York with
respect to The Resolute Equity Portfolio.2
(5)(i) Sub-Investment Advisory Agreement among The Chubb
Series Trust, Chubb Investment Advisory Corporation
and Morgan Guaranty Trust Company of New York with
respect to The Resolute Small Company Portfolio.2
(5)(j) Sub-Investment Advisory Agreement among The Chubb
Series Trust, Chubb Investment Advisory Corporation
and Morgan Guaranty Trust Company of New York with
respect to The Resolute International Equity
Portfolio.2
(5)(k) Form of proposed Investment Advisory Agreement
between JPM Series Trust II and J.P. Morgan Investment
Management, Inc.
(6) Buy-Sell Agreement between The Chubb Series Trust and
Chubb Life Insurance Company of America.2
(8) Custodial Services Agreement between The Chubb Series
Trust and Morgan Guaranty Trust Company of New York.1
(9) Form of proposed Administrative Services Agreement
between JPM Series Trust II and Morgan Guaranty Trust
Company of New York.
(10) Opinion and Consent of Counsel as to legality of
securities being registered.2
(11) Consent of Ernst & Young LLP, independent auditors.
(13) Share Subscription Agreement between The Chubb Series
Trust and Chubb Life Insurance Company of America.1
(16) Schedule of Computation of Performance Data.3
(17) Financial Data Schedule.3
(19) Form of agreement regarding use of name and service
mark between The Chubb Corporation and The Chubb
Series Trust.1
- -------------------------------------
1 Incorporated by reference to earlier filing on December
10, 1993, SEC File No. 33-72834, to the exhibit number
indicated on that Form N-1A Registration Statement.
2 Incorporated by reference to earlier filing on July 22,
1994, SEC File No. 33-72834, to the exhibit number
indicated on that Form N-1A Registration Statement.
3 To be filed by amendment.
Item 25. Persons Controlled by or under Common Control with
Registrant
Initially, shares of the Registrant were offered and sold only to Chubb
Life Insurance Company of America ("Chubb Life"), a stock life insurance company
organized under the laws of New Hampshire. The purchasers of variable life
insurance contracts issued in connection with separate accounts established by
Chubb Life or its affiliated insurance companies have the right to instruct
Chubb Life or its affiliated insurance companies with respect to the voting of
the Registrant's shares held by such separate accounts on behalf of
policyowners. The shares held by Chubb Life or its affiliated insurance
companies, including shares for which no voting instructions have been received,
shares held in the separate account representing charges imposed by Chubb Life
or its affiliated insurance companies against the separate accounts and shares
held by Chubb Life or its affiliated insurance companies that are not otherwise
attributable to Policies, also will be voted by Chubb Life or its affiliated
insurance companies in proportion to instructions received from owners of
Policies. Chubb Life or its affiliated insurance companies reserves the right to
vote any or all such shares at its discretion to the extent consistent with the
then current interpretations of the Investment Company Act of 1940 and rules
thereunder. Subject to such voting instruction rights, Chubb Life or its
affiliated insurance companies currently directly control the Registrant.
Subsequently, shares of the Registrant were offered and sold to other
separate accounts formed by Chubb Life, its successors or assigns, and by other
insurance companies which, along with Chubb Life, are subsidiaries of The Chubb
Corporation, a New Jersey corporation, or subsidiaries of such subsidiaries.
Item 26. Number of Holders of Securities
As of September 30, 1996:
(1) (2)
Title of Class Number of Record Holders
The Resolute Treasury Money
Market Portfolio; $.01 par value 9
The Resolute Bond Portfolio;
$.01 par value 20
The Resolute Equity Portfolio;
$.01 par value 23
The Resolute Small Company
Portfolio; $.01 par value 25
The Resolute International Equity
Portfolio; $.01 par value 23
Chubb Life has purchased 100,001 shares of The Resolute Treasury Money
Market Portfolio, 100,001 shares of The Resolute Bond Portfolio, 100,001 shares
of The Resolute Equity Portfolio, 200,001 shares of The Resolute Small Company
Portfolio and 200,001 shares of The Resolute International Equity Portfolio.
Item 27. Indemnification
Reference is made to the Registrant's By-Laws (Article VI) filed herein as
Exhibit 2 to this Registration Statement. The By-Laws provide that the
Registrant will indemnify its trustees and officers to the extent permitted or
required by Delaware law. A resolution of the Board of Trustees specifically
approving payment or advancement of expenses to an officer is required by the
By-Laws. Indemnification may not be made if the trustee or officer has incurred
liability by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of duties in the conduct of his office ("Disabling Conduct").
The means of determining whether indemnification shall be made are (l) a final
decision by a court or other body before whom the proceeding is brought that the
trustee or officer was not liable by reason of Disabling Conduct, or (2) in the
absence of such a decision, a reasonable determination, based on a review of the
facts, that the trustee or officer was not liable by reason of Disabling
Conduct. Such latter determination may be made either by (a) vote of a majority
of trustees who are neither interested persons (as defined in the Investment
Company Act of 1940) nor parties to the proceeding or (b) independent legal
counsel in a written opinion. The advancement of legal expenses may not occur
unless the trustee or officer agrees to repay the advance (if it is determined
that he is not entitled to the indemnification) and one of three other
conditions is satisfied: (l) the trustee or officer provides security for the
agreement to repay, (2) the Registrant is insured against loss by reason of
lawful advances, or (3) the trustees who are not interested persons and are not
parties to the proceedings, or independent counsel in a written opinion,
determine that there is reason to believe that the trustee or officer will be
found entitled to indemnification.
The By-Laws of Chubb Life also provide that persons who serve as
directors/trustees or officers of another corporation at the request of Chubb
Life shall be indemnified by Chubb Life for liabilities incurred in their
capacities as such directors/trustees if they have acted in good faith. All of
the present trustees and officers of the Registrant have been advised that they
are considered to be serving at the request of Chubb Life within the meaning of
this provision, and have whatever protection such provision affords, to the
extent permitted by law.
Insofar as indemnification for liability arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to trustees, officers,
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a trustee, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such trustee, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser
Chubb Investment Advisory Corporation ("Chubb Investment Advisory") was
formed in 1984 and had not been previously engaged in any other business. The
other businesses, professions, vocations and employment of a substantial nature
of its directors and officers during the past two years are as follows:
<PAGE>
<TABLE>
<CAPTION>
Name of Director or
Officer of Chubb Positions with
Investment Chubb Investment Other Business, Profession, Vocation
ADVISORY ADVISORY OR EMPLOYMENT DURING PAST TWO YEARS
<S> <C> <C>
Ronald R. Angarella President Senior Vice President of Chubb Life;
President and a director of Chubb Securities
Corporation, Hampshire Funding Inc., and
Chubb America Fund, Inc.; Senior Vice
President and Director of Chubb Investment
Funds, Inc.
Michael O'Reilly Senior Vice President and Senior Vice President and Chief Investment
Director Officer of The Chubb Corporation; President,
Chief Operating Officer and a director of
Chubb Asset Managers, Inc.; President and a
director of Chubb Investment Funds, Inc.;
Senior Vice President, Chubb & Son Inc. and
Federal Insurance Company
Charles C. Cornelio Secretary Senior Vice President, Chief Administrative
Officer, Counsel and Assistant Secretary of
Chubb Life; Vice President and General
Counsel of Chubb America Fund, Inc., Chubb
Investment Funds, Inc. and Hampshire
Funding, Inc.
John A. Weston Treasurer Assistant Vice President and Mutual Fund
Accounting Officer of Chubb Life; Treasurer
of Chubb Securities Corporation, Chubb
America Fund, Inc., Chubb Investment Funds,
Inc. and Hampshire Funding Inc.; previously,
Financial Reporting Officer of Chubb Life
Richard V. Werner Director Executive Vice President and Chief Financial
Officer of Chubb Life, Colonial Life
Insurance Company of America and Chubb
Sovereign Life Insurance Company; Vice
President of the Chubb Corporation; Senior
Vice President and a director of Chubb
America Fund, Inc.; President of Chubb
Health Holdings, Inc.; Chairman of the Board
of Chubb Health, Inc.
Marjorie Raines Director Vice President of The
Chubb Corporation, Federal
Insurance Company and
Chubb & Son Inc.; Senior
Vice President of Chubb
Asset Managers, Inc.
Mary Toumpas Assistant Vice President and Assistant Vice President and Assistant
Compliance Officer Secretary of Chubb Securities Corporation and
Hampshire Funding, Inc.; Assistant Vice
President of Chubb Life
Carol R. Hardiman Assistant Vice President Vice President of Chubb Securities
Corporation and Hampshire Funding, Inc.
Shari J. Lease Assistant Secretary Counsel and Assistant Vice President of
Chubb Life; Secretary of Chubb America
Fund Inc. and Chubb Investment Funds, Inc.
</TABLE>
Item 29. Principal Underwriters
Not Applicable.
Item 30. Location of Accounts and Records
1. Morgan Guaranty Trust Company of New York
522 Fifth Avenue
New York, New York 10036
2. Chubb Securities Corporation
One Granite Place Concord
New Hampshire 03301
3. Chubb Investment Advisory Corporation
One Granite Place
Concord, New Hampshire 03301
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
Registrant hereby undertakes
(1) to call a meeting of shareholders for the purpose of
voting upon the question of removal of a trustee or
trustees when requested in writing to do so by the
holders of at least 10% of the Registrant's
outstanding shares of beneficial interest and in
connection with such meeting to comply with the
provisions of Section 16(c) of the Investment Company
Act of 1940 relating to shareholder communications.
(2) To furnish each person to whom a prospectus is delivered with
a copy of the Trust's latest Annual Report to Shareholders,
upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it has duly caused
this Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Concord, and the State of
New Hampshire on the 25th day of October, 1996.
THE CHUBB SERIES TRUST
By: /S/ RONALD R. ANGARELLA
Ronald R. Angarella
President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to Registration Statement has been signed below by the following
persons in the capacities and on the date indicated.
/s/ RONALD ANGARELLA* President October 25, 1996
Ronald Angarella
/s/ JOHN A. WESTON* Treasurer, Principal October 25, 1996
John A. Weston Financial Officer and
Principal Accounting
Officer
/s/ HARRY H. BIRD* Trustee October 25, 1996
Harry H. Bird
/s/ CHARLES E. CLOUGH* Trustee October 25, 1996
Charles E. Clough
/s/ CHARLES F. LEAHY* Trustee October 25, 1996
Charles F. Leahy
/s/ PEGGY A. STOCK* Trustee October 25, 1996
Peggy A. Stock
* BY:
Ronald Angarella,
Attorney-in-Fact
Shari Lease,
Attorney-in-Fact
Charles C. Cornelio,
Attorney-in-Fact
<PAGE>
INDEX OF EXHIBITS
(5)(K) Form of proposed Invetment Advisory Agreement between
JPM Series Trust II and J.P. Morgan Investment
Management, Inc.
(9) Form of proposed Administrative Services Agreement
between JPM Series Trust II and Morgan Guaranty Trust
Company of New York.
(11) Consent of Ernst & Young LLP, independent auditors.
EXHIBIT (5)(K)
FORM OF
JPM SERIES TRUST II
INVESTMENT ADVISORY AGREEMENT
Investment Advisory Agreement, made as of the _____ day of
__________, 1996, between JPM Series Trust II, a Delaware Business Trust (the
"Trust"), and J.P. Morgan Investment Management, Inc., a Delaware corporation
(the "Adviser").
WITNESSETH:
WHEREAS, the Trust is an open-end, management investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Trust desires to retain the Adviser to render investment
advisory services to the Trust's series set forth in Schedule A hereto, as such
may be revised from time to time (each, a "Portfolio"), and the Adviser is
willing to render such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
hereinafter set forth, the parties hereto agree as follows:
1. The Trust hereby appoints the Adviser to act as investment
adviser to the Portfolios for the period and on the terms set forth in this
Agreement. The Adviser accepts such appointment and agrees to render the
services herein set forth for the compensation herein provided.
2. Subject to the general supervision of the Trustees of the
Trust, the Adviser shall manage the investment operations of each Portfolio and
the composition of the Portfolio's holdings of securities and investments,
including cash, the purchase, retention and disposition thereof and agreements
relating thereto, in accordance with the Portfolio's investment objectives and
policies as stated in the Trust's registration statement on Form N-1A, as such
may be amended from time to time (the "Registration Statement"), with respect to
the Portfolio, under the 1940 Act and subject to the following understandings:
(a) The Adviser shall furnish a continuous investment program
for each Portfolio and determine from time to time what investments or
securities will be purchased, retained, sold or lent by the Portfolio,
and what portion of the assets will be invested or held uninvested as
cash;
(b) The Adviser shall use the same skill and care in the
management of each Portfolio's investments as it uses in the management
of other accounts for which it has investment responsibility as agent;
(c) The Adviser, in the performance of its duties and
obligations under this Agreement, shall act in conformity with the
Trust's Agreement and Declaration of Trust (such Agreement and
Declaration of Trust, as presently in effect and as amended from time to
time, is herein called the "Declaration of Trust"), the Trust's By-Laws
(such By-Laws, as presently in effect and as amended from time to time,
are herein called the "By-Laws") and the Registration Statement and with
the instructions and directions of the Trustees of the Trust and will
conform to and comply with the requirements of the 1940 Act and all
other applicable federal and state laws and regulations;
(d) The Adviser shall determine the securities to be purchased,
sold or lent by each Portfolio and as agent for the Portfolio will
effect portfolio transactions pursuant to its determinations either
directly with the issuer or with any broker and/or dealer in such
securities; in placing orders with brokers and/or dealers the Adviser
intends to seek best price and execution for purchases and sales; the
Adviser also shall determine whether the Portfolio shall enter into
repurchase or reverse repurchase agreements;
On occasions when the Adviser deems the purchase or sale of a
security to be in the best interest of one of the Portfolios as well as
other customers of the Adviser, including any other of the Portfolios,
the Adviser may, to the extent permitted by applicable laws and
regulations, but shall not be obligated to, aggregate the securities to
be so sold or purchased in order to obtain best execution, including
lower brokerage commissions, if applicable. In such event, allocation of
the securities so purchased or sold, as well as the expenses incurred in
the transaction, will be made by the Adviser in the manner it considers
to be the most equitable and consistent with its fiduciary obligations
to the Portfolio;
(e) The Adviser shall maintain books and records with respect to
each Portfolio's securities transactions and shall render to the
Trustees of the Trust such periodic and special reports as the Trustees
may reasonably request; and
(f) The investment management services of the Adviser to any of
the Portfolios under this Agreement are not to be deemed exclusive, and
the Adviser shall be free to render similar services to others.
3. The Trust has delivered copies of each of the following
documents to the Adviser and will promptly notify and deliver to it all future
amendments and supplements, if any:
(a) The Declaration of Trust;
(b) The By-Laws;
(c) Certified resolutions of the Trustees of the
Trust authorizing the appointment of the Adviser and approving
the form of this Agreement; and
(d) The Trust's Notification of Registration on Form N-8A and
Registration Statement as filed with the Securities and Exchange
Commission (the "Commission").
4. The Adviser shall keep each Portfolio's books and records
required to be maintained by it pursuant to paragraph 2(e) of this Agreement.
The Adviser agrees that all records which it maintains for any Portfolio are the
property of the Trust and it will promptly surrender any of such records to the
Trust upon the Trust's request. The Adviser further agrees to preserve for the
periods prescribed by Rule 31a-2 of the Commission under the 1940 Act any such
records as are required to be maintained by the Adviser with respect to any
Portfolio by Rule 31a-1 of the Commission under the 1940 Act.
5. During the term of this Agreement, the Adviser will pay all
expenses incurred by it in connection with its activities under this Agreement,
other than the cost of securities and investments purchased for a Portfolio
(including taxes and brokerage commissions, if any) and interest and other
borrowing costs.
6. For the services provided and the expenses borne pursuant to
this Agreement, each Portfolio will pay to the Adviser as full compensation
therefor a fee at an annual rate set forth on Schedule A attached hereto. Such
fee will be computed daily and payable as agreed by the Trust and the Adviser,
but no more frequently than monthly.
7. The Adviser shall not be liable for any error of judgment or
mistake of law or for any loss suffered by any Portfolio in connection with the
matters to which this Agreement relates, except a loss resulting from a breach
of fiduciary duty with respect to the receipt of compensation for services (in
which case any award of damages shall be limited to the period and the amount
set forth in Section 36(b)(3) of the 1940 Act) or a loss resulting from willful
misfeasance, bad faith or gross negligence on its part in the performance of its
duties or from reckless disregard by it of its obligations and duties under this
Agreement.
8. This Agreement shall continue in effect with respect to each
Portfolio until the date set forth opposite such Portfolio's name on Schedule A
hereto (the "Reapproval Date"), and thereafter shall continue automatically for
successive annual periods ending on the day of each year set forth opposite the
Portfolio's name on Schedule A hereto (the "Reapproval Day"), provided such
continuance is specifically approved as to the Portfolio at least annually in
conformity with the requirements of the 1940 Act; provided, however, that this
Agreement may be terminated with respect to each Portfolio at any time, without
the payment of any penalty, by vote of a majority of all the Trustees of the
Trust or by vote of a majority of the outstanding voting securities of that
Portfolio on 60 days' written notice to the Adviser or by the Adviser at any
time, without the payment of any penalty, on 90 days' written notice to the
Trust. This Agreement will automatically and immediately terminate in the event
of its "assignment" (as defined in the 1940 Act).
9. The Adviser shall for all purposes herein be deemed to be an
independent contractor and shall, unless otherwise expressly provided herein or
authorized by the Trustees of the Trust from time to time, have no authority to
act for or represent the Trust in any way or otherwise be deemed an agent of the
Portfolios.
10. This Agreement may be amended, with respect to any
Portfolio, by mutual consent, but the consent of the Trust must be approved (a)
by vote of a majority of those Trustees of the Trust who are not parties to this
Agreement or interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such amendment, and (b) if required by
applicable law, by vote of a majority of the outstanding voting securities of
the Portfolio.
11. 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 Adviser at J.P. Morgan Investment
Management, Inc., 522 Fifth Avenue, New York, New York 10036, Attention: Funds
Management, or (2) to the Trust at JPM Series Trust II addressed to its
principal place of business as provided to the Adviser, Attention: Treasurer.
12. The Trustees of the Trust have authorized the execution of
this Agreement in their capacity as Trustees and not individually, and the
Adviser agrees that neither the Trustees nor any officer or employee of the
Trust nor any Portfolio's investors nor any representative or agent of the Trust
or of the Portfolio(s) shall be personally liable upon, or shall resort be had
to their private property for the satisfaction of, obligations given, executed
or delivered on behalf of or by the Trust or the Portfolio(s), that such
Trustees, officers, employees, investors, representatives and agents shall not
be personally liable hereunder, and that it shall look solely to the trust
property for the satisfaction of any claim hereunder.
13. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original.
14. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated below as of the day and
year first above written.
JPM SERIES TRUST II
By: ______________________
J.P. MORGAN INVESTMENT
MANAGEMENT, INC.
By: _____________________
<PAGE>
Schedule A
JPM SERIES TRUST II
<TABLE>
<CAPTION>
Annual Fee As
A Percentage of
Average Daily
NAME OF PORTFOLIO NET ASSETS REAPPROVAL DATE REAPPROVAL DAY
<S> <C> <C> <C>
JPM Treasury Money Market Portfolio .20% __________, 1997 __________
JPM Bond Portfolio .30% __________, 1997 __________
JPM Equity Portfolio .40% __________, 1997 __________
JPM Small Company Portfolio .60% __________, 1997 __________
JPM International Equity Portfolio .60% __________, 1997 __________
</TABLE>
EXHIBIT 9
FORM OF
JPM SERIES TRUST II
ADMINISTRATIVE SERVICES AGREEMENT
ADMINISTRATIVE SERVICES AGREEMENT, dated as of __________,
1996, between JPM Series Trust II, a Delaware Business Trust (the "Trust"), and
Morgan Guaranty Trust Company of New York, a New York trust company ("Morgan
Guaranty").
WITNESSETH:
WHEREAS, the Trust is an open-end management investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), and
consisting of the series set forth on Schedule A hereto, as such Schedule may be
revised from time to time (each, a "Portfolio"); and
WHEREAS, the Trust wishes to engage Morgan Guaranty to provide or arrange
for the provision of certain financial, fund accounting and administrative
services, and Morgan Guaranty is willing to provide or arrange for the provision
of such services to the Trust and each Portfolio, on the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
hereinafter set forth, the parties hereto agree as follows:
1. APPOINTMENT. Morgan Guaranty hereby agrees to
provide or arrange for the provision of certain financial and
administrative services and to oversee fund accounting for the Trust as
hereinafter set forth.
2. SERVICES.
2.1 Morgan Guaranty shall be responsible for performing the
following services: a) arranging for the preparation and filing of the Trust's
tax returns and preparing financial statements and other financial reports for
review by the Trust's independent public accountants; b) coordinating the annual
audit of each Portfolio; c) developing the budget and establishing the rate of
expense accrual for each Portfolio; d) overseeing the preparation by the Trust's
transfer agent (the "Transfer Agent") of Portfolio tax information for
shareholders; e) overseeing the Trust's custodian (the "Custodian") and the
Transfer Agent and other service providers, including verifying the calculation
of Portfolio performance data and the reporting thereof to appropriate tracking
services, computing the amount and monitoring the frequency of distributing
Portfolio dividends and capital gains distributions and confirming that they
have been properly distributed to the shareholders of record, and monitoring the
calculation of each Portfolio's net asset value per share by the Custodian; f)
taking responsibility for compliance with all applicable federal securities and
other regulatory requirements (other than state securities registration and
filing requirements); g) taking responsibility for monitoring each Portfolio's
status as a regulated investment company under the Internal Revenue Code of
1986, as amended (the "Code"); h) taking responsibility for monitoring state and
federal insurance law diversification requirements necessary for the Trust to
qualify as an appropriate underlying fund investment for variable annuity and
variable life insurance separate accounts investing in Portfolio shares; i)
arranging for the preparation of agendas and supporting documents for and
minutes of meetings of Trustees, committees of Trustees, and shareholders; j)
maintaining books and records relating to such services; and k) being
responsible for the Trust's usual and customary expenses as defined in Section
5.1 of this Agreement.
2.2 Morgan Guaranty, shall act as liaison with the Trust's
independent public accountants and shall provide, upon request, account
analyses, fiscal year summaries and other audit-related schedules. Morgan
Guaranty shall take all reasonable action in the performance of its obligations
under this Agreement to assure that the necessary information is made available
to such accountants for the expression of their opinion, as such may be required
by the Trust from time to time.
2.3 Morgan Guaranty shall provide such other related services
as the Trust may reasonably request, to the extent permitted by applicable law.
Morgan Guaranty shall provide all personnel and facilities necessary in order
for it to provide the services contemplated by this paragraph.
Morgan Guaranty 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 Guaranty will comply with the provisions of the Declaration of
Trust and By-Laws of the Trust and the stated investment objective, policies and
restrictions of each Portfolio, and will use its best efforts to safeguard and
promote the welfare of the Trust, and to comply with other policies which the
Trust's Board of Trustees may from time to time determine.
3. BOOKS AND RECORDS. Morgan Guaranty 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 Trust under the 1940 Act, with particular attention to Section 31 thereof
and Rules 31a-1 and 31a-2 thereunder. All such records shall be the property of
the Trust and shall at all times during the regular business hours of Morgan
Guaranty 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 Guaranty hereby agrees that all records
which it maintains for the Portfolios are the property of the Trust and further
agrees to surrender promptly to the Trust any such record upon the Trust's
request.
4. OPINION OF TRUST'S INDEPENDENT PUBLIC Accountants. Morgan
Guaranty shall take all reasonable action, as the Trust on behalf of each
applicable Portfolio may from time to time request, to obtain from year to year
favorable opinions from the Trust's independent public accountants with respect
to its activities hereunder in connection with the preparation of the Trust's
registration statement on Form N-1A, reports on Form N-SAR or other periodic
reports to the Securities and Exchange Commission and with respect to any other
requirements of such Commission.
5. ALLOCATION OF CHARGES AND EXPENSES.
5.1 Morgan Guaranty shall bear all of the expenses incurred in
connection with carrying out its duties hereunder. In addition, Morgan Guaranty
is responsible for certain usual and customary expenses incurred by the Trust.
These expenses include compensation and expenses of Trustees; federal and state
governmental fees; taxes; membership dues in the Investment Company Institute
allocable to the Trust; fees and expenses of the Trust's co-administrator,
independent auditors, legal counsel and transfer, registrar or dividend
disbursing agent; expenses of preparing, printing and mailing prospectuses and
statements of additional information, reports, notices, proxy statements and
reports to shareholders and governmental offices and commissions; expenses of
preparing and mailing agendas and supporting documents for meetings of Trustees
and committees of Trustees; insurance premiums; fees and expenses of the
Custodian for all services to the Trust, including safekeeping of funds and
securities and maintaining required books and accounts; expenses of shareholder
meetings; and expenses relating to the issuance, registration and qualification
of the Portfolio's shares.
When such services are provided by third parties and the Trust
pays for the services directly, such amounts will be deducted from the fee to be
paid Morgan Guaranty under this Agreement. If such amounts are more than the
amount of Morgan Guaranty's fee under this Agreement, Morgan Guaranty will
reimburse the Trust for such excess amounts.
Morgan Guaranty will report to the Trustees regularly on the
payments it has made pursuant to this Section 5.1.
5.2 The Trust will pay all extraordinary expenses not incurred
in the ordinary course of the Trust's business including, but not limited to,
litigation and indemnification expenses; interest charges; material increases in
Trust expenses due to occurrences such as significant increases in the fee
schedules of the Custodian or the Transfer Agent or a significant decrease in
the Trust's asset level due to changes in tax or other laws or regulations; or
other such extraordinary occurrences outside of the ordinary course of the
Trust's business.
6. COMPENSATION OF MORGAN GUARANTY. For the services to be
rendered and the fees and expenses to be borne by Morgan Guaranty hereunder and
subject to the last sentence of this Section 6, the Trust shall pay Morgan
Guaranty a fee at an annual rate as set forth on Schedule A attached hereto from
each Portfolio. This fee will be computed daily and will be payable as agreed by
the Trust and Morgan Guaranty, but no more frequently than monthly. Morgan
Guaranty agrees, as to each Portfolio, until __________, 1998, that the
aggregate fees, expressed in dollars, payable by such Portfolio under this
Agreement and the Trust's Investment Advisory Agreement of even date with J.P.
Morgan Investment Management, Inc. (the "New Investment Advisory Agreement")
shall not exceed the expenses (excluding extraordinary expenses) that would have
been payable by such Portfolio, assuming (i) the Portfolio's Investment
Management Agreement with Chubb Investment Advisory Corporation dated June 3,
1994 (the "Prior Management Agreement") remained in effect in accordance with
its terms, (ii) the same average daily net assets for the relevant periods,
(iii) no voluntary expense limitation or other limitation on expenses under such
Agreement was in effect and (iv) the expenses the Portfolio would have been
charged were adjusted to render comparable the extent and level of services
provided under the Prior Management Agreement, on the one hand, and this
Agreement and the New Investment Advisory Agreement, on the other.
7. LIMITATION OF LIABILITY OF MORGAN GUARANTY.
Morgan Guaranty 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 and
subject to the last sentence of this Section 6, 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. IF, at any time
during the two year period from the date hereof, the aggregate fees payable by a
Portfolio to Morgan Guaranty hereunder and to J.P. Morgan Investment Management,
Inc. (the "Adviser") under the Investment Advisory Agreement, dated as of
__________, 1996, between the Trust and the Adviser, exceed the fee that would
have been payable by such Portfolio to Chubb Investment Advisory Corporation
under the Portfolio's prior Investment Management Agreement due to an increase
in the net assets of such Portfolio, then the fee payable by such Portfolio to
Morgan Guaranty hereunder shall be reduced by such excess.
8. ACTIVITIES OF MORGAN GUARANTY. The services of Morgan
Guaranty to the Trust are not to be deemed to be exclusive, Morgan Guaranty
being free to engage in any other business or to render services of any kind to
any other corporation, firm, individual or association.
9. SUBCONTRACTING BY MORGAN GUARANTY. Morgan Guaranty may
subcontract for the performance of its obligations hereunder with any one or
more persons, including but not limited to any one or more persons which is an
affiliate of Morgan Guaranty; PROVIDED, HOWEVER, unless the Trust otherwise
expressly agrees in writing, Morgan Guaranty shall be as fully responsible to
the Trust for the acts and omissions of any subcontractor as it would be for its
own acts or omissions.
10. TERMINATION. This Agreement may be terminated as to any
Portfolio at any time, without the payment of any penalty, by the Board of
Trustees of the Trust or, after __________, 1998, by Morgan Guaranty, in each
case on not more than 60 days' nor less than 30 days' written notice to the
other party.
11. FURTHER ACTIONS. Each party agrees to perform such
further acts and execute such further documents as are necessary to effectuate
the purposes hereof.
12. AMENDMENTS. This Agreement may be amended only by mutual
written consent; provided, however, that for the two year period from the date
hereof, no amendment to this Agreement shall be made to (a) increase the fees
set forth on Schedule A attached hereto payable by the Trust, on behalf of each
Portfolio, to Morgan Guaranty or (b) change the types of services to be rendered
or expenses to be borne hereunder by Morgan Guaranty without the vote of a
majority (as defined in the 1940 Act) of the outstanding voting securities of
the relevant Portfolio(s).
13. ENTIRE AGREEMENT; SEVERABILITY. 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.
14. NOTICE. Any notice or other communication required to be
given pursuant to this Agreement shall be deemed duly given if delivered or
mailed by registered mail, postage prepaid (1) to Morgan Guaranty at Morgan
Guaranty Trust Company of New York, 522 Fifth Avenue, New York, New York 10036,
Attention: Managing Director, Funds Management, or (2) to the Trust at JPM
Series Trust II addressed to its principal place of business as provided to
Morgan Guaranty, Attention: Treasurer.
15. GOVERNING LAW. This Agreement shall be governed
by and construed in accordance with the laws of the State of
New York.
16. MISCELLANEOUS. The Trustees of the Trust have authorized
the execution of this Agreement in their capacity as Trustees and not
individually, and Morgan Guaranty agrees that neither the Trustees nor any
officer or employee of the Trust nor any Portfolio's investors nor any
representative or agent of the Trust or of the Portfolio(s) shall be personally
liable upon, or shall resort be had to their private property for the
satisfaction of, obligations given, executed or delivered on behalf of or by the
Trust or the Portfolio(s), that such Trustees, officers, employees, investors,
representatives and agents shall not be personally liable hereunder, and that it
shall look solely to the trust property for the satisfaction of any claim
hereunder.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their officers designated below as of the day and
year first above written.
JPM SERIES TRUST II
By: _________________________
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By: _________________________
<PAGE>
Schedule A
Fees under Administrative Services Agreement
Annual Fee As A
Percentage of Average
Name of Portfolio Daily Net Assets
JPM Treasury Money Market Portfolio .40%
JPM Bond Portfolio .45%
JPM Equity Portfolio .50%
JPM Small Company Portfolio .55%
JPM International Equity Portfolio .60%
EXHIBIT (11)
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Financial
Highlights" in the Prospectus and "Independent Auditors" in the Statement of
Additional Information and to the incorporation by reference of our report dated
February 16, 1996 included in Post-Effective Amendment Number 4 to the
Registration Statement (Form N-1A No. 33-72834) of Chubb Series Trust.
ERNST & YOUNG LLP
Boston, Massachusetts
October 24, 1996
