As filed with the Securities and Exchange Commission on April 30, 1997
Securities Act File No. 33-72834
Investment Company Act File No. 811-8212
======================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. __ /_/
Post-Effective Amendment No. 6 /X/
and
REGISTRATION UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 8 /X/
(Check appropriate box or boxes)
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<PAGE>
JPM SERIES TRUST II
(Exact Name of Registrant as Specified in Charter)
60 State Street, Suite 1300, Boston, Massachusetts 02109
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (800) 221-7930
John E. Pelletier, c/o Funds Distributor, Inc.,
60 State Street, Suite 1300, Boston Massachusetts 02109
(Name and Address of Agent for Service)
Copy to: Steven K. West, Esq.
Sullivan & Cromwell
125 Broad Street
New York, NY 10004
It is proposed that this filing will become effective (check
appropriate box)
--
/_/ immediately upon filing pursuant to paragraph (b)
--
/X/ on April 30, 1997 pursuant to paragraph (b)
--
/_/ 60 days after filing pursuant to paragraph (a)(1)
--
/_/ on (date) pursuant to paragraph (a)(1)
--
/_/ 75 days after filing pursuant to paragraph (a)(2)
--
/_/ on (date) pursuant to paragraph (a)(2) 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, 1996 was filed on February 28, 1997.
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<PAGE>
JPM SERIES TRUST II
Cross-Reference Sheet Pursuant to Rule 495(a)
Items in
Part A of
FORM N-1A
CAPTION
1 COVER PAGE: Cover Page.
2 SYNOPSIS: Annual Operating Expenses.
3 CONDENSED FINANCIAL INFORMATION: Financial Highlights.
4 GENERAL DESCRIPTION OF REGISTRANT: Cover Page; Portfolios; Investment
Objectives and Policies; Additional Investment Information;
Investment Restrictions; Appendix.
5 MANAGEMENT OF THE FUND: Management of the Trust and Portfolios; Other
Information.
5(a) MANAGEMENT' DISCUSSION OF FUND'S PERFORMANCE: *
6 CAPITAL STOCK AND OTHER SECURITIES: Shares of Beneficial Interest;
Taxes and Dividends; Offering and Redemption of Shares.
7 PURCHASE OF SECURITIES BEING OFFERED: Offering and Redemption of
Shares.
8 REDEMPTION OR REPURCHASE: Offering and Redemption of Shares.
9 PENDING LEGAL PROCEEDINGS: *
Items in
Part B of
FORM N-1A
10 COVER PAGE: Cover Page.
11 TABLE OF CONTENTS: Table of Contents.
12 GENERAL INFORMATION AND HISTORY: Business History
13 INVESTMENT OBJECTIVES AND POLICIES: Investment Objectives and Policies;
Foreign Investments; Additional Investments; Quality and
Diversification Requirements; Investment Restrictions; Appendix.
14 MANAGEMENT OF THE FUND: Trustees and Officers; Investment Advisory and
Other Services; Prior Management Arrangements; Payment of Expenses.
15 INVESTMENT ADVISORY AND OTHER SERVICES: Investment Advisory and
Other Services; Investment Advisory Agreement; Administrative Services
Agreement; Prior Management Arrangements; Independent Auditors;
Distributor; Co-Administrator; Custodian; Payment of Expenses.
16 BROKERAGE ALLOCATION: Portfolio Transactions and Brokerage Allocations
17 CONTROL PERSONS AND PRINCIPAL HOLDERS
OF SECURITIES: Shares of Beneficial Interest.
18 CAPITAL STOCK AND OTHER SECURITIES: Shares of Beneficial Interest;
Delaware Business Trust.
- -----------------------
* Omitted since answer is negative or inapplicable.
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19 PURCHASE, REDEMPTION AND PRICING OF
SECURITIES BEING OFFERED: Offering and Redemption of Shares;
Determination of Net Asset Value.
20 TAX STATUS: Taxes.
21 UNDERWRITERS: Distributor and Co-Administrator.
22 CALCULATIONS OF PERFORMANCE DATA: Performance and Yield Information;
Money Market Portfolio; Non-Money Market Portfolios.
23 FINANCIAL STATEMENTS: Financial Statements.
PART C. Information required to be included in Part C is set forth under the
appropriate items, so numbered, in Part C of this Registration Statement.
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PROSPECTUS
JPM Series Trust II
60 State Street
Boston, Massachusetts 02109
1-800-221-7930
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.
JPM Equity, Small Company and International Equity Portfolios permit investments
in any nation, and investments in these Portfolios involve special
considerations and risks.
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 April 30, 1997 (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 NET ASSET VALUE OF THE
PORTFOLIO'S SHARES TO FLUCTUATE, AND WHEN SHARES ARE REDEEMED, THE PROCEEDS MAY
BE HIGHER OR LOWER THAN THE AMOUNT ORIGINALLY INVESTED BY THE INVESTOR.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS APRIL 30, 1997.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Annual Operating Expenses.............................. 1
Financial Highlights................................... 2
Performance and Yield Information...................... 5
Portfolios............................................. 6
Investment Objectives and Policies..................... 7
JPM Treasury Money Market Portfolio.................. 7
Investment Objective............................... 7
Investment Policies................................ 7
Risk Factors....................................... 8
JPM Bond Portfolio................................... 8
Investment Objective............................... 8
Investment Policies................................ 8
Risk Factors....................................... 10
JPM Equity Portfolio................................. 11
Investment Objective............................... 11
Investment Policies................................ 11
Risk Factors....................................... 12
JPM Small Company Portfolio.......................... 12
Investment Objective............................... 12
Investment Policies................................ 12
Risk Factors....................................... 13
JPM International Equity Portfolio................... 13
Investment Objective............................... 13
Investment Policies................................ 13
Risk Factors....................................... 14
Additional Investment Information...................... 14
Convertible Securities for JPM Bond, Equity, Small
Company and International Equity Portfolios......... 14
<CAPTION>
PAGE
<S> <C>
When-Issued and Delayed Delivery Securities.......... 14
Repurchase Agreements................................ 14
Loans of Portfolio Securities........................ 15
Reverse Repurchase Agreements........................ 15
Mortgage Dollar Roll Transactions.................... 15
Foreign Investment Information for JPM Bond,
Equity, Small Company and International
Equity Portfolios.................................. 15
Foreign Currency Exchange Transactions for JPM Bond,
Equity, Small Company and International Equity
Portfolios.......................................... 16
Illiquid Investments, Privately Placed and Other
Unregistered Securities............................. 17
Futures and Options Transactions for JPM Bond,
Equity, Small Company and International Equity
Portfolios.......................................... 18
Money Market Instruments for JPM Bond, Equity, Small
Company and International Equity Portfolios......... 18
Portfolio Turnover..................................... 18
Investment Restrictions................................ 18
Management of the Trust and Portfolios................. 18
Shares of Beneficial Interest.......................... 21
Taxes and Dividends.................................... 22
Offering and Redemption of Shares...................... 23
Other Information...................................... 23
Appendix............................................... A-1
</TABLE>
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
Money Market JPM Bond JPM Equity JPM Small Company JPM International
Portfolio Portfolio Portfolio Portfolio Equity Portfolio
------------ -------- ---------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Management Fees............................ .20% .30% .40% .60% .60%
Other Expenses............................. .40% .45% .50% .55% .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
Money Market Bond JPM Equity JPM Small Company JPM International
Portfolio Portfolio Portfolio Portfolio Equity Portfolio
------------ ----- ---------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
1 year..................................... $ 6 $8 $ 9 $ 12 $ 12
3 years.................................... $19 2$4 $29 $ 37 $ 38
5 years.................................... $33 4$2 $50 $ 63 $ 66
10 years................................... $75 9$3 $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."
1
<PAGE>
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share of beneficial interest
outstanding for each Portfolio for the indicated periods.(1) The related
financial statements and report of Ernst & Young LLP, independent auditors, for
the period ended December 31, 1995 and the fiscal year ended December 31, 1996
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
--------------------------------- ---------------------------------
January 3, January 3,
1995 through 1995 through
Year ended December 31, Year ended December 31,
December 31, 1996 1995 December 31, 1996 1995
----------------- ------------- ----------------- -------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $ 10.06 $ 10.00 $ 10.91 $ 10.00
Income From Investment Operations
Net Investment Income..................................... 0.44 0.45 0.47 0.58
Net Realized and Unrealized Gains (Losses) on Securities &
Foreign Currency......................................... 0.03 0.06 (0.25) 1.11
----------------- ------------- ----------------- -------------
Total from Investment Operations........................ 0.47 0.51 0.22 1.69
Less Distributions to Shareholders
Dividends from Net Investment Income...................... (0.44) (0.45) (0.47) (0.58)
Distributions from Net Capital Gains...................... (0.01) (0.20)
----------------- ------------- ----------------- -------------
Total Distributions......................................... (0.44) (0.45) (0.48) (0.78)
----------------- ------------- ----------------- -------------
Net Asset Value, End of Period.............................. $ 10.09 $ 10.06 $ 10.65 $ 10.91
----------------- ------------- ----------------- -------------
----------------- ------------- ----------------- -------------
Total Return(2)............................................. 4.69% 5.09% 2.09% 16.85%
Ratios to Average Net Assets:
(Annualized)
Expenses(3)............................................... 0.60% 0.60% 0.75% 0.75%
Net Investment Income..................................... 4.56% 4.95% 5.91% 6.00%
Portfolio Turnover Rate..................................... N/A N/A 198.40% 238.96%
Average Commission Rate Paid................................ N/A N/A N/A N/A
Net Assets, at End of Period................................ $1,386,518 $1,272,932 $2,782,079 $1,416,694
</TABLE>
- ------------
(1) From January 3, 1995 (commencement of operations) to December 31, 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 January 1, 1997, 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 2.02%, 2.18%, 2.13%, 2.69% and
3.18% in 1996, and 2.77%, 2.90%, 2.70%, 3.22% and 3.16% in 1995, for the JPM
Treasury Money Market Portfolio, JPM Bond Portfolio, JPM Equity Portfolio, JPM
Small Company Portfolio and JPM International Equity Portfolio, respectively.
2
<PAGE>
<TABLE>
<CAPTION>
JPM Equity Portfolio JPM Small Company Portfolio
--------------------------------- ---------------------------------
Year ended January 3, 1995 Year ended January 3, 1995
December 31, through December December 31, through December
1996 31, 1995 1996 31, 1995
------------- ----------------- ------------- -----------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $ 12.63 $ 10.00 $ 11.83 $ 10.00
Income From Investment Operations
Net Investment Income..................................... 0.20 0.12 0.06 0.11
Net Realized and Unrealized Gains (Losses) on Securities &
Foreign Currency......................................... 2.44 3.26 2.43 3.18
------------- ----------------- ------------- -----------------
Total From Investment Operations........................ 2.64 3.38 2.49 3.29
Less Distributions to Shareholders
Dividends from Net Investment Income...................... (0.20) (0.12) (0.06) (0.11)
Distributions from Net Capital Gains...................... (1.39) (0.63) (1.73) (1.35)
------------- ----------------- ------------- -----------------
Total Distributions......................................... (1.59) (0.75) (1.79) (1.46)
------------- ----------------- ------------- -----------------
Net Asset Value, End of Period.............................. $ 13.68 $ 12.63 $ 12.53 $ 11.83
------------- ----------------- ------------- -----------------
------------- ----------------- ------------- -----------------
Total Return(2)............................................. 21.14% 33.91% 21.74% 32.91%
Ratios to Average Net Assets:
(Annualized)
Expenses(3)............................................... 0.90% 0.90% 1.15% 1.15%
Net Investment Income..................................... 1.49% 1.48% 0.54% 0.99%
Portfolio Turnover Rate..................................... 89.77% 65.60% 144.44% 100.43%
Average Commission Rate Paid................................ $ 0.0534 N/A $ 0.0427 N/A
Net Assets, at End of Period................................ $5,339,283 $4,144,458 $3,867,002 $2,536,258
</TABLE>
- ---------
(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 2.02%, 2.18%, 2.13%, 2.69% and
3.18% in 1996, and 2.77%, 2.90%, 2.70%, 3.22% and 3.16% in 1995, for the JPM
Treasury Money Market Portfolio, JPM Bond Portfolio, JPM Equity Portfolio, JPM
Small Company Portfolio and JPM International Equity Portfolio, respectively.
3
<PAGE>
<TABLE>
<CAPTION>
JPM International Equity
Portfolio
---------------------------------
Year ended January 3, 1995
December 31, through December
1996 31, 1995
------------- -----------------
<S> <C> <C>
Net Asset Value, Beginning of Period........................ $ 10.86 $ 10.00
Income From Investment Operations
Net Investment Income..................................... 0.20 0.15
Net Realized and Unrealized Gains (Losses) on Securities &
Foreign Currency......................................... 1.23 1.08
------------- -----------------
Total from Investment Operations........................ 1.43 1.23
Less Distributions to Shareholders
Dividends from Net Investment Income...................... (0.09) (0.09)
Dividends in Excess of Net Investment Income.............. (0.10)
Distributions from Net Capital Gains...................... (0.47) (0.18)
------------- -----------------
Total Distributions......................................... (0.56) (0.37)
------------- -----------------
Net Asset Value, End of Period.............................. $ 11.73 $ 10.86
------------- -----------------
------------- -----------------
Total Return(2)............................................. 13.12% 12.38%
Ratios to Average Net Assets:
(Annualized)
Expenses(3)............................................... 1.20% 1.20%
Net Investment Income..................................... 1.25% 1.06%
Portfolio Turnover Rate..................................... 71.24% 68.00%
Average Commission Rate Paid................................ $ 0.0020 N/A
Net Assets, at End of Period................................ $6,249,926 $3,992,275
</TABLE>
- ---------
(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 2.02%, 2.18%, 2.13%, 2.69% and
3.18% in 1996, and 2.77%, 2.90%, 2.70%, 3.22% and 3.16% in 1995, for the JPM
Treasury Money Market Portfolio, JPM Bond Portfolio, JPM Equity Portfolio, JPM
Small Company Portfolio and JPM International Equity Portfolio, respectively.
4
<PAGE>
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 all Private Accounts managed by
Morgan which have investment objectives, policies and strategies substantially
similar to those of the indicated Portfolios and, thus, is 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, might 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 audited actual performance results of the applicable composite,
adjusted to reflect the deduction of fees and expenses of the applicable
Portfolio. These results have been calculated in accordance with Performance
Presentation Standards of the Association for Investment Management and
Research. The term "average annual total return" signifies that
5
<PAGE>
cumulative total returns for a stated time period have been annualized over such
period. These returns 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
as of December 31, 1996
------------------------------------------
5 Years or 10 Years or
Name of Portfolio, Corresponding Private Account and Index 1 Year Since Inception Since Inception
- ------------------------------------------------------------ ------ --------------- ---------------
<S> <C> <C> <C>
JPM Bond Portfolio.......................................... 2.09% 9.25%* N/A
Active Fixed Income Composite............................... 4.51% 7.20% 8.65%
Salomon Brothers Broad Investment Grade Bond Index**........ 3.62% 7.13% 8.51%
JPM Equity Portfolio........................................ 21.14% 27.45%* N/A
Active Equity Composite..................................... 21.00% 16.14% 15.86%
Standard & Poor's 500-Registered Trademark- Index**......... 22.96% 15.22% 15.29%
JPM Small Company Portfolio................................. 21.74% 27.29%* N/A
Small Company Composite..................................... 22.25% 16.95% 13.36%
Russell 2000-Registered Trademark- Index**.................. 16.49% 15.64% 12.41%
JPM International Equity Portfolio.......................... 13.12% 12.79%* N/A
International Equity Composite.............................. 8.64% 8.10% 9.49%
Morgan Stanley Capital International Europe, Australia, Far
East (Free) Index**........................................ 6.05% 8.15% 8.42%
</TABLE>
- ------------
* Commenced operations January 3, 1995.
** The Salomon Brothers Broad Investment Grade Bond Index is a market
capitalization-weighted index that includes U.S. Treasury, Government-sponsored,
mortgage and investment grade fixed rate corporate fixed income securities with
a maturity of one year or longer and a minimum of $50 million amount outstanding
at the time of inclusion in the Index. The Standard & Poor's
500-Registered Trademark- Index is a market capitalization-weighted index of 500
common stocks, designed to measure performance of the broad domestic economy
through changes in the aggregate market value of 500 stocks representing all
major industries. The Russell 2000-Registered Trademark- Index is composed of
2,000 common stocks of U.S. companies with an average market capitalization of
approximately $420 million. The Morgan Stanley Capital International Europe,
Australia, Far East (Free) Index is a broadly diversified international index
composed of the equity securities of approximately 1,000 companies located
outside the United States.
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 and statements of additional information 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 Section1.817.5(f)(3)(iii)) ("Eligible
Plans" or "Plans"). Differences in tax treatment or other considerations may
cause the interests of Policy owners and Eligible Plan participants to conflict,
although the Trust currently does not foresee
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any disadvantages to Policy owners or Eligible Plan participants arising
therefrom. 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 397 calendar days or less.
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
calendar 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."
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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
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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,
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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 & Poor's") 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.
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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-Registered Trademark- 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-Registered Trademark- 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-Registered Trademark- 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."
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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-Registered Trademark- 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-Registered Trademark- 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.
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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
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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
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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
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<PAGE>
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 entail a high degree of risk. Investments 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, 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
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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 or reduce to the foreign currency in
an attempt to enhance return.
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.
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<PAGE>
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 1996 were approximately as follows: 198%
for JPM Bond Portfolio, 90% for JPM Equity Portfolio, 144% for JPM Small Company
Portfolio and 71% for JPM International Equity Portfolio. The higher a portfolio
turnover rate is, the greater the likelihood that the Portfolio will realize
gains or losses and pay 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 with respect to a Portfolio without the approval of the
holders of the outstanding shares of such 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 December 31, 1996, J.P. Morgan and its
subsidiaries had total combined assets under management of approximately $208
billion. J.P. Morgan has a long history of service as adviser, underwriter and
18
<PAGE>
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: Robert R. Johnson, Vice
President (since January, 1995, employed by Morgan since prior to 1992); and
Daniel B. Mulvey, Vice President (since August, 1995, employed by Morgan since
1992); JPM Bond Portfolio: William G. Tennille, 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 1992); JPM Equity
Portfolio: William B. Petersen, Managing Director (since January, 1995, employed
by Morgan since prior to 1992) and William M. Riegel, Jr., Managing Director
(since January, 1995, employed by Morgan since prior to 1992); JPM Small Company
Portfolio: James B. Otness, Managing Director (since January, 1995, employed by
Morgan since prior to 1992) and Candice Eggerss, Vice President (since May,
1996, employed by Weiss, Peck & Greer from June, 1993 to May, 1996 and Equitable
Capital Management prior to June, 1993); and JPM International Equity Portfolio:
Paul A. Quinsee, Vice President (since January, 1995, employed by Morgan since
February, 1992, previously Vice President, Citibank), Thomas P. Madsen, Managing
Director (since January, 1995, employed by Morgan since prior to 1992 and Anne
H. Richards, Vice President (since January, 1997, employed by Morgan since May,
1994, employed by Alliance Capital Ltd. from September, 1992 to April, 1994).
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:
<TABLE>
<CAPTION>
JPM Treasury Money Market Portfolio......................................................... .20%
<S> <C>
JPM Bond Portfolio.......................................................................... .30%
JPM Equity Portfolio........................................................................ .40%
JPM Small Company Portfolio................................................................. .60%
JPM International Equity Portfolio.......................................................... .60%
</TABLE>
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,
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<PAGE>
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, registration
fees under federal securities laws and fees under 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:
<TABLE>
<CAPTION>
JPM Treasury Money Market Portfolio......................................................... .40%
<S> <C>
JPM Bond Portfolio.......................................................................... .45%
JPM Equity Portfolio........................................................................ .50%
JPM Small Company Portfolio................................................................. .55%
JPM International Equity Portfolio.......................................................... .60%
</TABLE>
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.
Morgan Guaranty or its affiliates may pay from its own assets Participating
Insurance Companies for providing certain administrative and account-related
services to owners of Policies for which Portfolio shares are the investment
vehicle.
From January 3, 1995 (commencement of operations) to December 31, 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 1, 1996
through December 31, 1996, all investment management fees payable to Chubb
Investment Advisory totaled .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 1, 1996 through December 31, 1996,
sub-investment advisory fees payable by Chubb Investment Advisory to Morgan
Guaranty totaled .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 2.02%, 2.18%,
2.13%, 2.69% and 3.18% for JPM Treasury Money Market Portfolio, JPM Bond
Portfolio, JPM Equity Portfolio, JPM Small Company Portfolio and JPM
International Equity Portfolio, respectively.
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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 on behalf of the Trust in accordance
with state securities laws; (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.
SHARES OF BENEFICIAL INTEREST
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
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
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<PAGE>
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 for any taxable year
following the later of the year in which the participant reaches age 70 1/2 or
the year in which the participant retires 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.
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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 4:15 p.m. (Eastern Standard Time)
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 December 12, 1996, the
resignation of Chubb Investment Advisory as the Portfolios' investment manager
was accepted and Morgan was engaged to serve, effective January 1, 1997, as the
Portfolios' investment adviser pursuant to the Investment Advisory Agreement.
The Trust was organized on October 28, 1993. Prior to December 31, 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.
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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 and
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 contracts 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.
No Portfolio may purchase or sell (write) futures contracts, options on futures
contracts or commodity options for risk management purposes if, as a result, the
aggregate initial margin and options premiums required to establish these
positions exceed 5% of the net assets 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
A-1
<PAGE>
the Portfolio exercises an option on an index, settlement is in cash and does
not involve the actual sale of securities. If an option is American Style, it
may be exercised on any day up to its expiration date. A European style option
may be exercised only on its expiration date.
The buyer of a typical put option can expect to realize a gain if the price of
the underlying instrument falls substantially. However, if the price of the
instrument underlying the option does not fall enough to offset the cost of
purchasing the option, a put buyer can expect to suffer a loss (limited to the
amount of the premium paid, plus related transaction costs).
The features of call options are essentially the same as those of put options,
except that the purchaser of a call option obtains the right to purchase, rather
than sell, the instrument underlying the option at the option's strike price. A
call buyer typically attempts to participate in potential price increases of the
instrument underlying the option with risk limited to the cost of the option if
security prices fall. At the same time, the buyer can expect to suffer a loss if
security prices do not rise sufficiently to offset the cost of the option.
SELLING (WRITING) PUT AND CALL OPTIONS. When a Portfolio writes a put option, it
takes the opposite side of the transaction from the option's purchaser. In
return for receipt of the premium, the Portfolio assumes the obligation to pay
the strike price for the instrument underlying the option if the other party to
the option chooses to exercise it. The Portfolio may seek to terminate its
position in a put option it writes before exercise by purchasing an offsetting
option in the market at its current price. 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 that 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 is settled by cash payment and does not
involve the actual purchase or sale of securities. In addition, these options
are designed to reflect price fluctuations in a group of securities or segment
of the securities market rather than price fluctuations in a single security. A
Portfolio, in purchasing or selling index options, is subject to the risk that
the value of its portfolio securities may not change as much as an index because
the Portfolio's investments generally will not match the composition of an
index.
A-2
<PAGE>
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 a 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.
A-3
<PAGE>
------------------------------------
JPM Series
Trust II
Prospectus
NO DEALER, SALESMAN OR ANY OTHER
PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS, IN
CONNECTION WITH THE OFFER CONTAINED
IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH OTHER INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY
THE TRUST OR THE DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN
OFFER BY THE TRUST OR BY THE
DISTRIBUTOR TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY
ANY OF THE SECURITIES OFFERED
HEREBY IN ANY JURISDICTION TO ANY
PERSON TO WHOM IT IS UNLAWFUL FOR
THE TRUST OR THE DISTRIBUTOR TO
MAKE SUCH OFFER IN SUCH PROSPECTUS
JURISDICTION. APRIL 30, 1997
<PAGE>
PROSPECTUS
JPM Series Trust II
JPM Bond Portfolio
60 State Street
Boston, Massachusetts 02109
1-800-221-7930
JPM Bond Portfolio (the "Portfolio") is a separate diversified portfolio of JPM
Series Trust, an open-end management investment company organized as a Delaware
Business Trust (the "Trust"). The Portfolio seeks to provide a high total return
consistent with moderate risk of capital and maintenance of liquidity.
The Portfolio is advised by J.P. Morgan Investment Management Inc. ("Morgan" or
the "Adviser").
Shares of the Portfolio 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 the
Portfolio 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 April 30, 1997 (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.
INVESTMENTS IN THE PORTFOLIO 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 THE PORTFOLIO IS SUBJECT TO RISK THAT MAY CAUSE THE VALUE OF
THE INVESTMENT TO FLUCTUATE, AND WHEN THE INVESTMENT IS REDEEMED, THE VALUE MAY
BE HIGHER OR LOWER THAN THE AMOUNT ORIGINALLY INVESTED BY THE INVESTOR.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS APRIL 30, 1997.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Annual Operating Expenses.............................. 1
Financial Highlights................................... 2
Performance and Yield Information...................... 3
The Portfolio.......................................... 4
Investment Objective and Policies...................... 5
Investment Objective................................. 5
Investment Policies.................................. 5
Risk Factors......................................... 7
Additional Investment Information...................... 8
Convertible Securities............................... 8
When-Issued and Delayed Delivery
Securities.......................................... 8
Repurchase Agreements................................ 8
Loans of Portfolio Securities........................ 8
Reverse Repurchase Agreements........................ 9
<CAPTION>
PAGE
<S> <C>
Mortgage Dollar Roll Transactions.................... 9
Foreign Investment Information....................... 9
Foreign Currency Exchange Transactions............... 10
Illiquid Investments, Privately Placed and
Other Unregistered Securities....................... 11
Futures and Options Transactions..................... 11
Money Market Instruments............................. 11
Portfolio Turnover..................................... 11
Investment Restrictions................................ 11
Management of the Trust and Portfolio.................. 12
Shares of Beneficial Interest.......................... 14
Taxes and Dividends.................................... 14
Offering and Redemption of Shares...................... 15
Other Information...................................... 16
Appendix............................................... A-1
</TABLE>
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>
<S> <C>
Management Fees............................................................................. .30%
Other Expenses.............................................................................. .45%
---------
Total Portfolio Operating Expenses.......................................................... .75%
</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:
1 Year................................................................ $ 8
3 Years............................................................... $24
5 Years............................................................... $42
10 Years.............................................................. $93
THE AMOUNTS LISTED IN THE EXAMPLE SHOULD NOT BE CONSIDERED AS REPRESENTATIVE OF
PAST OR FUTURE EXPENSES OF THE PORTFOLIO AND ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE INDICATED. MOREOVER, WHILE THE EXAMPLE ASSUMES A 5% ANNUAL
RETURN, THE 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 the 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 .75% of the Portfolio's
average daily net assets. 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 Portfolio, as well as expense reimbursement or waiver
arrangements, see "Management of the Trust and Portfolio."
1
<PAGE>
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share of beneficial interest
outstanding for the Portfolio for the indicated periods.(1) The related
financial statements and report of Ernst & Young LLP, independent auditors, for
the period ended December 31, 1995 and the fiscal year ended December 31, 1996
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>
January 3, 1995
Year Ended through
December 31, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>
Net asset value, beginning of period........................ $ 10.91 $ 10.00
----------------- -----------------
Income From Investment Operations
Net investment income..................................... 0.47 0.58
Net realized and unrealized gains (losses) on securities &
foreign currency......................................... (0.25) 1.11
----------------- -----------------
Total from investment operations........................ 0.22 1.69
----------------- -----------------
Less Distributions to Shareholders
Dividends from net investment income...................... (0.47) (0.58)
Distributions from net capital gains...................... (0.01) (0.20)
----------------- -----------------
Total distributions......................................... (0.48) (0.78)
----------------- -----------------
Net asset value, end of period.............................. $ 10.65 $ 10.91
----------------- -----------------
----------------- -----------------
Total Return(2)............................................. 2.09% 16.85%
----------------- -----------------
----------------- -----------------
Ratios to average net assets:
(Annualized)
Expenses(3)............................................... 0.75% 0.75%
Net investment income..................................... 5.91% 6.00%
Portfolio turnover rate..................................... 198.40% 238.96%
Average commission rate paid................................ N/A N/A
Net assets, at end of period................................ $2,782,079 $1,416,694
</TABLE>
- ---------
(1) From January 3, 1995 (commencement of operations) to December 31, 1996,
Chubb Investment Advisory Corporation ("Chubb Investment Advisory"), a
wholly-owned subsidiary of Chubb Life Insurance Company of America ("Chubb
Life"), served as the Portfolio's investment manager, and Morgan Guaranty
served as the Portfolio's sub-investment adviser. Effective January 1,
1997, Morgan began serving as the 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
Portfolio 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 the Portfolio's expenses to average net assets would have been
2.18% in 1996 and 2.90% in 1995.
2
<PAGE>
PERFORMANCE AND YIELD INFORMATION
From time to time the Trust may advertise the yield and/or the average annual
total return of the Portfolio. These figures are based on historical earnings
and are not intended to indicate future performance. Portfolio shares 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.
The Portfolio's yield is calculated by dividing the Portfolio's net investment
income per share during a recent 30-day period by maximum offering price per
share (which is its net asset value) on the last day of the period.
The Portfolio's average annual total return is 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 the Portfolio and for
an appropriate securities index with respect to the Portfolio. In addition, set
forth below is hypothetical performance information derived from historical
composite performance of all Private Accounts managed by Morgan which have
investment objectives, policies and strategies substantially similar to those of
the Portfolio and, thus, is deemed relevant to Portfolio investors. THE
HYPOTHETICAL PERFORMANCE INFORMATION OF THE PRIVATE ACCOUNTS OF THE ACTIVE FIXED
INCOME COMPOSITE DOES NOT REPRESENT THE HISTORICAL PERFORMANCE OF THE 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, might have adversely affected the performance of the
Private Accounts. In addition, the Private Accounts may include a higher
allocation of investments in private placements of corporate and
mortgage-related securities than the Portfolio.
The hypothetical performance results of the Private Accounts set forth below
represent the audited actual performance results of the composite, adjusted to
reflect the deduction of the Portfolio's fees and expenses. These results have
been calculated in accordance with Performance Presentation Standards of the
Association for Investment Management and Research. The term "average annual
total return" signifies that cumulative total
3
<PAGE>
returns for a stated time period have been annualized over such period. These
returns 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
as of December 31, 1996
------------------------------------------
5 Years or 10 Years or
1 Year Since Inception Since Inception
------ --------------- ---------------
<S> <C> <C> <C>
JPM Bond Portfolio.......................................... 2.09% 9.25%* N/A
Active Fixed Income Composite............................... 4.51% 7.20% 8.65%
Salomon Brothers Broad Investment Grade Bond Index**........ 3.62% 7.13% 8.51%
</TABLE>
- ---------
* Commenced operations January 3, 1995.
** The Salomon Brothers Broad Investment Grade Bond Index is a market
capitalization-weighted index that includes U.S. Treasury,
Government-sponsored, mortgage and investment grade fixed rate corporate
fixed income securities with a maturity of one year or longer and a minimum
of $50 million amount outstanding at the time of inclusion in the Index.
THE PORTFOLIO
The Portfolio is offered as a funding vehicle for Policies to be offered by the
Participating Insurance Companies. The Policies are described in the separate
prospectuses and statements of additional information 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 Section1.817.5(f)(3)(iii)) ("Eligible
Plans" or "Plans"). Differences in tax treatment or other considerations may
cause the interests of Policy owners and Eligible Plan participants to conflict,
although the Trust currently does not foresee any disadvantages to Policy owners
or Eligible Plan participants arising therefrom. 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.
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. By this Prospectus, shares of JPM Bond Portfolio are being
offered.
Portfolio shares 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."
4
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE: The 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.
The 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 greater price fluctuation of longer-term
instruments.
The Portfolio's investment objective, and certain investment restrictions
discussed in the Statement of Additional Information, may be changed only with
the approval of the Portfolio's shareholders. The investment policies of the
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 Portfolio will achieve its objective.
Prospective purchasers of Policies and Plan participants should carefully review
the objective and policies of the Portfolio and consider their ability to assume
the risks involved before allocating amounts for investment therein.
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.
5
<PAGE>
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
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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 & Poor's") 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 the 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
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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.
ADDITIONAL INVESTMENT INFORMATION
CONVERTIBLE SECURITIES. The Portfolio may invest in convertible securities of
domestic and, subject to the Portfolio's restrictions, foreign issuers. The
convertible securities in which the Portfolio may invest include any debt
securities or preferred stock which may be converted into common stock or which
carry the right to purchase common stock. Convertible securities entitle the
holder to exchange the securities for a specified number of shares of common
stock, usually of the same company, at specified prices within a certain period
of time.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. Delivery of and payment
for these securities may take as long as a month or more after the date of the
purchase commitment. The value of these securities is subject to market
fluctuation during this period and 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. The 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 the
Portfolio not to enter into when-issued commitments exceeding in the aggregate
15% of the market value of the Portfolio's total assets less liabilities other
than the obligations created by these commitments.
REPURCHASE AGREEMENTS. The Portfolio may engage in repurchase agreement
transactions with brokers, dealers or banks that meet the credit guidelines
established by the Board. In a repurchase agreement, the Portfolio buys a
security from a seller that has agreed to repurchase it at a mutually agreed
upon date and price, reflecting the interest rate effective for the term of the
agreement. The term of these agreements is usually from overnight to one week. A
repurchase agreement may be viewed as a fully collateralized loan of money by
the Portfolio to the seller. The Portfolio always receives securities as
collateral with a market value at least equal to the purchase price plus accrued
interest and this value is maintained during the term of the agreement. If the
seller defaults and the collateral value declines, the Portfolio might incur a
loss. If bankruptcy proceedings are commenced with respect to the seller, the
Portfolio's realization upon the disposition of collateral may be delayed or
limited. Investments in certain repurchase agreements and certain other
investments which may be considered illiquid are limited. See "Illiquid
Investments, Privately Placed and Other Unregistered Securities" below.
LOANS OF PORTFOLIO SECURITIES. Subject to applicable investment restrictions,
the Portfolio is permitted to lend its securities. The Portfolio may lend its
securities if such loans are secured continuously by cash or equivalent
collateral or by a letter of credit in favor of the Portfolio at least equal at
all times to 100% of the market value of the securities loaned, plus accrued
interest. While such securities are on loan, the borrower will pay the Portfolio
any income accruing thereon. Loans will be subject to termination by the
Portfolio in the normal settlement time, generally 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 Portfolio and its shareholders. The Portfolio may pay reasonable
finders' and custodial fees in connection with a loan. In addition, the
Portfolio will consider all facts and
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circumstances including the creditworthiness of the borrowing financial
institution, and the Portfolio will not make any loans in excess of one year.
The Portfolio will not lend its 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. The Portfolio is permitted to enter into reverse
repurchase agreements. In a reverse repurchase agreement, the Portfolio sells a
security and agrees to repurchase it at a mutually agreed upon date and price,
reflecting the interest rate effective for the term of the agreement. 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. The 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. The Portfolio may invest in certain 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 the
Portfolio by domestic companies.
Investors should realize that the value of the Portfolio's investments in
foreign securities may be adversely affected by changes in political or social
conditions, diplomatic relations, confiscatory taxation, expropriation,
nationalization, limitation on the removal of funds or assets, or imposition of
(or change in) exchange control or tax regulations in those foreign countries.
In addition, changes in government administrations or economic or monetary
policies in the 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 Portfolio 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, the Portfolio's foreign
investments may be less liquid and their prices may be more volatile than
comparable investments in securities of U.S. companies. Moreover, the settlement
periods for foreign securities, which are often longer than those for securities
of U.S. issuers, may affect portfolio liquidity. In buying and selling
securities on foreign exchanges, purchasers normally pay fixed commissions that
are generally higher than the negotiated commissions charged in the 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.
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The 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" below.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Because the Portfolio buys and sells
securities denominated in currencies other than the U.S. dollar, and receives
interest, dividends and sale proceeds in currencies other than the U.S. dollar,
the Portfolio will, from time to time, enter into foreign currency exchange
transactions. The Portfolio either enters into these transactions on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or uses forward contracts to purchase or sell foreign currencies. The
cost of the Portfolio's 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.
The Portfolio 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 or reduce exposure to the foreign
currency in an attempt to enhance return.
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.
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ILLIQUID INVESTMENTS, PRIVATELY PLACED AND OTHER UNREGISTERED
SECURITIES. Subject to the limitations described below, the Portfolio 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 Portfolio is subject to the
following non-fundamental policy. The Portfolio 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. The Portfolio 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. The Portfolio 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. The Portfolio is permitted to invest in money market
instruments, although it intends to stay invested in long-term fixed income
securities to the extent practical in light of its investment objective and
long-term investment perspective. The Portfolio may make money market
investments pending other investment or settlement, for liquidity or in adverse
market conditions. The money market investments permitted for the Portfolio
include obligations of the U.S. Government and its agencies and
instrumentalities, other debt securities, commercial paper, bank obligations and
repurchase agreements. For more detailed information about these money market
instruments, see "INVESTMENT OBJECTIVES AND POLICIES" in the Statement of
Additional Information.
PORTFOLIO TURNOVER
Portfolio turnover for the Portfolio may vary from year to year or within a year
depending upon economic and business conditions. The annual portfolio turnover
rate for the Portfolio in 1996 was approximately 198%. The higher a portfolio
turnover rate is, the greater the likelihood that the Portfolio will realize
gains or losses and pay more brokerage commissions or other transaction related
costs.
INVESTMENT RESTRICTIONS
Investments of the Portfolio are further restricted by certain policies that may
not be changed without the approval of the holders of the Portfolio's
outstanding shares. See "INVESTMENT RESTRICTIONS" in the Statement of Additional
Information.
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MANAGEMENT OF THE TRUST AND PORTFOLIO
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 December 31, 1996, J.P. Morgan and its
subsidiaries had total combined assets under management of approximately $208
billion. J.P. Morgan has a long history of service as adviser, underwriter and
lender to an extensive roster of major companies and as a financial 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 the Portfolio's day-to-day investment
decisions, arranges for the execution of portfolio transactions and generally
manages the 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 Portfolio
(the inception date of each person's responsibility for the Portfolio and their
business experience for the past five years are indicated parenthetically):
William G. Tennille, 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 1992).
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 of .30% of
the Portfolio's average daily net assets.
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, registration
fees under federal securities laws and fees under 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.
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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 of .45% of the Portfolio's average daily net assets.
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.
Morgan Guaranty or its affiliates may pay from its own assets Participating
Insurance Companies for providing certain administrative and account-related
services to owners of Policies for which Portfolio shares are the investment
vehicle.
From January 3, 1995 (commencement of operations) to December 31, 1996, Chubb
Investment Advisory served as the 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 1, 1996
through December 31, 1996, all investment management fees payable by the
Portfolio to Chubb Investment Advisory totaled .50% of the Portfolio's average
daily net assets. For the period January 1, 1996 through December 31, 1996,
sub-investment advisory fees payable by Chubb Investment Advisory to Morgan
Guaranty totaled .30% of the Portfolio's average daily net assets. Because a
portion of the Portfolio's fees and expenses were reimbursed, the ratio of the
Portfolio's operating expenses to average net assets for such period was .75%.
Had a portion of the Portfolio's fees and expenses not been reimbursed, the
ratio of the Portfolio's operating expenses to average net assets for such
period would have been 2.18%.
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 on behalf of the Trust in accordance
with state securities laws; (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.
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SHARES OF BENEFICIAL INTEREST
Each Portfolio 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. Portfolio shares will be voted separately from
shares of the Trust's other portfolios on matters affecting only the Portfolio,
including approval of the Investment Advisory Agreement, and changes in
fundamental investment policies of the Portfolio. The assets of the Portfolio
are charged with the liabilities of the 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
1940 Act; (ii) changing fundamental investment objectives and restrictions of
the Portfolio; 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
The 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,
the 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 the 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 at least once
each year. Ordinary income is the investment company taxable income as defined
in Section 852(b) of the Code determined partly (1) by excluding
14
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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 Portfolio shares 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 Portfolio under Subchapter M and
the 1940 Act, may affect the composition of the 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 policy owner's
control of the investments of a separate account may cause the policy owner,
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 policy
owner control, if promulgated, would cause earnings regarding a policy owner's
interest in the separate account to be includable in the policy owner'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 for any taxable year
following the later of the year in which the participant reaches age 70 1/2 or
the year in which the participant retires 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
Portfolio shares 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 the
Portfolio's net assets 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
15
<PAGE>
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 4:15 p.m. (Eastern Standard Time)
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 Portfolio's net
assets (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 the 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 December 12, 1996, the
resignation of Chubb Investment Advisory as the Portfolio's investment manager
was accepted and Morgan was engaged to serve, effective January 1, 1997, as the
Portfolio's investment adviser pursuant to the Investment Advisory Agreement.
The Trust was organized on October 28, 1993. Prior to January 1, 1997, the
Trust's name was The Chubb Series Trust and the Portfolio's name was The
Resolute Bond Portfolio.
16
<PAGE>
APPENDIX
The 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.
The Portfolio may use futures contracts and options for hedging and risk
management purposes. See "RISK MANAGEMENT" in the Statement of Additional
Information. The Portfolio may not use futures contracts and options for
speculation.
The Portfolio may utilize options and futures contracts to manage its exposure
to changing interest rates and/or security prices. Some options and futures
strategies, including selling futures contracts and buying puts, tend to hedge
the Portfolio's investments against price fluctuations. Other strategies,
including buying futures contracts, writing puts and calls, and buying calls,
tend to increase market exposure. Options and futures contracts may be combined
with each other or with forward contracts in order to adjust the risk and return
characteristics of the Portfolio's overall strategy in a manner deemed
appropriate to the Adviser and consistent with the Portfolio's objective and
policies. Because combined options positions involve multiple trades, they
result in higher transaction costs and may be more difficult to open and close
out.
The use of options and futures is a highly specialized activity which involves
investment strategies and risks different from those associated with ordinary
portfolio securities transactions, and there can be no guarantee that their use
will increase the Portfolio's return. While the use of these instruments by the
Portfolio may reduce certain risks associated with owning its portfolio
securities, these techniques themselves entail certain other risks. If the
Adviser applies a strategy at an inappropriate time or judges market conditions
or trends incorrectly, options and futures strategies may lower the Portfolio's
return. Certain strategies limit the Portfolio's possibilities to realize gains
as well as limit its exposure to losses. The Portfolio also could experience
losses if the prices of its options and futures positions were poorly correlated
with its other investments, or if it could not close out its positions because
of an illiquid secondary market. In addition, the Portfolio will incur
transaction costs, including trading commissions and option premiums, in
connection with its futures and options transactions and these transactions
could significantly increase the Portfolio's turnover rate.
The Portfolio may not purchase or sell (write) futures contracts, options on
futures contracts or commodity options for risk management purposes if, as a
result, the aggregate initial margin and options premiums required to establish
these positions exceed 5% of the Portfolio's net assets.
OPTIONS
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, the Portfolio
obtains the right (but not the obligation) to sell the instrument underlying the
option at a fixed strike price. In return for this right, the Portfolio pays the
current market price for the option (known as the option premium). Options have
various types of underlying instruments, including specific securities, indexes
of securities, indexes of securities prices, and futures contracts. The
Portfolio may terminate its position in a put option it has purchased by
allowing it to expire or by exercising the option. The Portfolio also may close
out a put option position by entering into an offsetting transaction, if a
liquid market exists. If the option is allowed to expire, the Portfolio will
lose the entire premium it paid. If the Portfolio exercises a put option on a
security, it will sell the instrument underlying the option at the strike price.
If the Portfolio exercises an option on an index, settlement is in cash and does
not involve the actual sale of securities. If an option is American Style, it
may be exercised on any day up to its expiration date. A European style option
may be exercised only on its expiration date.
A-1
<PAGE>
The buyer of a typical put option can expect to realize a gain if the price of
the underlying instrument falls substantially. However, if the price of the
instrument underlying the option does not fall enough to offset the cost of
purchasing the option, a put buyer can expect to suffer a loss (limited to the
amount of the premium paid, plus related transaction costs).
The features of call options are essentially the same as those of put options,
except that the purchaser of a call option obtains the right to purchase, rather
than sell, the instrument underlying the option at the option's strike price. A
call buyer typically attempts to participate in potential price increases of the
instrument underlying the option with risk limited to the cost of the option if
security prices fall. At the same time, the buyer can expect to suffer a loss if
security prices do not rise sufficiently to offset the cost of the option.
SELLING (WRITING) PUT AND CALL OPTIONS. When the Portfolio writes a put option,
it takes the opposite side of the transaction from the option's purchaser. In
return for receipt of the premium, the Portfolio assumes the obligation to pay
the strike price for the instrument underlying the option if the other party to
the option chooses to exercise it. The Portfolio may seek to terminate its
position in a put option it writes before exercise by purchasing an offsetting
option in the market at its current price. 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 the Portfolio to sell or deliver the option's
underlying instrument in return for the strike price upon exercise of the
option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium a call writer offsets part of the effect of a price decline. At the same
time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is greater,
a call writer gives up some ability to participate in security price increases.
The writer of an exchange traded put or call option on a security, an index of
securities or a futures contract is required to deposit cash or securities or a
letter of credit as margin and to make mark to market payments of variation
margin as the position becomes unprofitable.
OPTIONS ON INDICES. The 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 is settled by cash payment and does not
involve the actual purchase or sale of securities. In addition, these options
are designed to reflect price fluctuations in a group of securities or segment
of the securities market rather than price fluctuations in a single security.
The Portfolio, in purchasing or selling index options, is subject to the risk
that the value of its portfolio securities may not change as much as an index
because the Portfolio's investments generally will not match the composition of
an index.
A-2
<PAGE>
For a number of reasons, a liquid market may not exist and thus the Portfolio
may not be able to close out an option position that it has previously entered
into. When the Portfolio purchases an OTC option, it will be relying on its
counterparty to perform its obligations, and the Portfolio may incur additional
losses if the counterparty is unable to perform.
FUTURES CONTRACTS
When the Portfolio purchases a futures contract, it agrees to purchase a
specified quantity of an underlying instrument at a specified future date or to
make a cash payment based on the value of a securities index. When the Portfolio
sells a futures contract, it agrees to sell a specified quantity of the
underlying instrument at a specified future date or to receive a cash payment
based on the value of a securities index. The price at which the purchase and
sale will take place is fixed when the Portfolio enters into the contract.
Futures can be held until their delivery dates or the position can be (and
normally is) closed out before then. There is no assurance, however, that a
liquid market will exist when the Portfolio wishes to close out a particular
position.
When the Portfolio purchases a futures contract, the value of the futures
contract tends to increase and decrease in tandem with the value of its
underlying instrument. Therefore, purchasing futures contracts will tend to
increase the Portfolio's exposure to positive and negative price fluctuations in
the underlying instrument, much as if it had purchased the underlying instrument
directly. When the Portfolio sells a futures contract, by contrast, the value of
its futures position will tend to move in a direction contrary to the value of
the underlying instrument. Selling futures contracts, therefore, will tend to
offset both positive and negative market price changes, much as if the
underlying instrument 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 the Portfolio buys or sells a futures contract it will be
required to deposit "initial margin" with its custodian in a segregated account
in the name of its futures broker, known as a futures commission merchant
("FCM"). Initial margin deposits are typically equal to a small percentage of
the contract's value. If the value of either party's position declines, that
party will be required to make additional "variation margin" payments equal to
the change in value on a daily basis. The party that has a gain may be entitled
to receive all or a portion of this amount. The Portfolio may be obligated to
make payments of variation margin at a time when it is disadvantageous to do so.
Furthermore, it may not always be possible for the Portfolio to close out its
futures positions. Until it closes out a futures position, the Portfolio will be
obligated to continue to pay variation margin. Initial and variation margin
payments do not constitute purchasing on margin for purposes of the Portfolio's
investment restrictions. In the event of the bankruptcy of an FCM that holds
margin on behalf of the Portfolio, the Portfolio may be entitled to return of
margin owed to it only in proportion to the amount received by FCM's other
customers, potentially resulting in losses to the Portfolio.
The Portfolio will segregate liquid assets in connection with its use of options
and futures contracts to the extent required by the staff of the Securities and
Exchange Commission. Securities held in a segregated account cannot be sold
while the futures contract or option is outstanding, unless they are replaced
with other suitable assets. As a result, there is a possibility that segregation
of a large percentage of the Portfolio's assets could impede portfolio
management or the Portfolio's ability to meet redemption requests or other
current obligations.
For further information about the Portfolio's use of futures and options and a
more detailed discussion of associated risks, see "INVESTMENT OBJECTIVES AND
POLICIES" in the Statement of Additional Information.
A-3
<PAGE>
------------------------------------
JPM Series Trust II
JPM Bond Portfolio
NO DEALER, SALESMAN OR ANY OTHER
PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS, IN
CONNECTION WITH THE OFFER CONTAINED
IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH OTHER INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY
THE TRUST OR THE DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN
OFFER BY THE TRUST OR BY THE
DISTRIBUTOR TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY
ANY OF THE SECURITIES OFFERED
HEREBY IN ANY JURISDICTION TO ANY
PERSON TO WHOM IT IS UNLAWFUL FOR
THE TRUST OR THE DISTRIBUTOR TO
MAKE SUCH OFFER IN SUCH PROSPECTUS
JURISDICTION. APRIL 30, 1997
<PAGE>
PROSPECTUS
JPM Series Trust II
JPM Equity Portfolio
60 State Street
Boston, Massachusetts 02109
1-800-221-7930
JPM Equity Portfolio (the "Portfolio") is a separate diversified portfolio of
JPM Series Trust II, an open-end management investment company organized as a
Delaware Business Trust (the "Trust"). The Portfolio seeks to provide a high
total return from a portfolio comprised of selected equity securities.
The Portfolio is advised by J.P. Morgan Investment Management Inc. ("Morgan" or
the "Adviser").
Shares of the Portfolio 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 the
Portfolio 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 April 30, 1997 (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.
INVESTMENTS IN THE PORTFOLIO 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 THE PORTFOLIO 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.
The Portfolio permits investments in any nation, which 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 APRIL 30, 1997.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Annual Operating Expenses.............................. 1
Financial Highlights................................... 2
Performance and Yield Information...................... 3
The Portfolio.......................................... 4
Investment Objective and Policies...................... 5
Investment Objective................................. 5
Investment Policies.................................. 5
Risk Factors......................................... 6
Additional Investment Information...................... 6
Convertible Securities............................... 6
When-Issued and Delayed Delivery Securities.......... 6
Repurchase Agreements................................ 6
Loans of Portfolio Securities........................ 7
Reverse Repurchase Agreements........................ 7
<CAPTION>
PAGE
<S> <C>
Foreign Investment Information....................... 7
Foreign Currency Exchange Transactions............... 8
Illiquid Investments, Privately Placed and Other
Unregistered Securities............................. 9
Futures and Options Transactions..................... 9
Money Market Instruments............................. 9
Portfolio Turnover..................................... 9
Investment Restrictions................................ 10
Management of the Trust and Portfolio.................. 10
Shares of Beneficial Interest.......................... 12
Taxes and Dividends.................................... 12
Offering and Redemption of Shares...................... 13
Other Information...................................... 14
Appendix............................................... A-1
</TABLE>
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>
<S> <C>
Management Fees................................................................. .40%
Other Expenses.................................................................. .50%
----
Total Portfolio Operating Expenses.............................................. .90%
</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>
<S> <C>
1 Year.......................................................................... $ 9
3 Years......................................................................... $ 29
5 Years......................................................................... $ 50
10 Years........................................................................ $111
</TABLE>
THE AMOUNTS LISTED IN THE EXAMPLE SHOULD NOT BE CONSIDERED AS REPRESENTATIVE OF
PAST OR FUTURE EXPENSES OF THE PORTFOLIO AND ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE INDICATED. MOREOVER, WHILE THE EXAMPLE ASSUMES A 5% ANNUAL
RETURN, THE 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 the 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 .90% of the Portfolio's
average daily net assets. 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 Portfolio, as well as expense reimbursement or waiver
arrangements, see "Management of the Trust and Portfolio."
1
<PAGE>
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share of beneficial interest
outstanding for the Portfolio for the indicated periods.(1) The related
financial statements and report of Ernst & Young LLP, independent auditors, for
the period ended December 31, 1995 and the fiscal year ended December 31, 1996
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>
January 3, 1995
Year Ended through
December 31, December 31,
1996 1995
--------------- ---------------
<S> <C> <C>
Net asset value, beginning of period........................ $ 12.63 $ 10.00
--------------- ---------------
Income From Investment Operations
Net investment income..................................... 0.20 0.12
Net realized and unrealized gains (losses) on securities &
foreign currency......................................... 2.44 3.26
--------------- ---------------
Total from investment operations........................ 2.64 3.38
--------------- ---------------
Less Distributions to Shareholders
Dividends from net investment income...................... (0.20) (0.12)
Distributions from net capital gains...................... (1.39) (0.63)
--------------- ---------------
Total distributions......................................... (1.59) (0.75)
--------------- ---------------
Net asset value, end of period.............................. $ 13.68 $ 12.63
--------------- ---------------
--------------- ---------------
Total Return(2)............................................. 21.14% 33.91%
--------------- ---------------
--------------- ---------------
Ratios to average net assets:
(Annualized)
Expenses(3)............................................... 0.90% 0.90%
Net investment income..................................... 1.49% 1.48%
Portfolio turnover rate..................................... 89.77% 65.60%
Average commission rate paid................................ $ 0.0534 N/A
Net assets, at end of period................................ $5,339,283 $4,144,458
</TABLE>
- ---------
(1) From January 3, 1995 (commencement of operations) to December 31, 1996,
Chubb Investment Advisory Corporation ("Chubb Investment Advisory"), a
wholly-owned subsidiary of Chubb Life Insurance Company of America ("Chubb
Life"), served as the Portfolio's investment manager, and Morgan Guaranty
served as the Portfolio's sub-investment adviser. Effective January 1, 1997,
Morgan began serving as the 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
Portfolio 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 the Portfolio's expenses to average net assets would have been
2.13% in 1996 and 2.70% in 1995.
2
<PAGE>
PERFORMANCE AND YIELD INFORMATION
From time to time the Trust may advertise the yield and/or the average annual
total return of the Portfolio. These figures are based on historical earnings
and are not intended to indicate future performance. Portfolio shares 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.
The Portfolio's yield is calculated by dividing the Portfolio's net investment
income per share during a recent 30-day period by maximum offering price per
share (which is its net asset value) on the last day of the period.
The Portfolio's average annual total return is 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 the Portfolio and for
an appropriate securities index with respect to the Portfolio. In addition, set
forth below is hypothetical performance information derived from historical
composite performance of all Private Accounts managed by Morgan which have
investment objectives, policies and strategies substantially similar to those of
the Portfolio and, thus, is deemed relevant to Portfolio investors. THE
HYPOTHETICAL PERFORMANCE INFORMATION OF THE PRIVATE ACCOUNTS OF THE ACTIVE
EQUITY COMPOSITE DOES NOT REPRESENT THE HISTORICAL PERFORMANCE OF THE 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, might have adversely affected the performance of the
Private Accounts.
3
<PAGE>
The hypothetical performance results of the Private Accounts set forth below
represent the audited actual performance results of the composite, adjusted to
reflect the deduction of the Portfolio's fees and expenses. These results have
been calculated in accordance with Performance Presentation Standards of the
Association for Investment Management and Research. The term "average annual
total return" signifies that cumulative total returns for a stated time period
have been annualized over such period. These returns 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
as of December 31, 1996
------------------------------------------
5 Years or 10 Years or
1 Year Since Inception Since Inception
------ --------------- ---------------
<S> <C> <C> <C>
JPM Equity Portfolio........................................ 21.14% 27.45%* N/A
Active Equity Composite..................................... 21.00% 16.14% 15.86%
Standard & Poor's 500 Index**............................... 22.96% 15.22% 15.29%
</TABLE>
- ---------
* Commenced operations January 3, 1995.
** The Standard & Poor's 500-Registered Trademark- Index is a market
capitalization-weighted index of 500 common stocks, designed to measure
performance of the broad domestic economy through changes in the aggregate
market value of 500 stocks representing all major industries.
THE PORTFOLIO
The Portfolio is offered as a funding vehicle for Policies to be offered by the
Participating Insurance Companies. The Policies are described in the separate
prospectuses and statements of additional information 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 Section1.817.5(f)(3)(iii)) ("Eligible
Plans" or "Plans"). Differences in tax treatment or other considerations may
cause the interests of Policy owners and Eligible Plan participants to conflict,
although the Trust currently does not foresee any disadvantages to Policy owners
or Eligible Plan participants arising therefrom. 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.
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. By this Prospectus, shares of JPM Equity Portfolio are being
offered.
Portfolio shares 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."
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INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE: The 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.
The Portfolio is designed for investors who want an actively managed portfolio
of selected equity securities that seeks to outperform the S&P 500 Index.
The Portfolio's investment objective, and certain investment restrictions
discussed in the Statement of Additional Information, may be changed only with
the approval of the Portfolio's shareholders. The investment policies of the
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 Portfolio will achieve its objective.
Prospective purchasers of Policies and Plan participants should carefully review
the objective and policies of the Portfolio and consider their ability to assume
the risks involved before allocating amounts for investment therein.
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
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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 more information
concerning the types of money market instruments in which the 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
the Portfolio will tend to fluctuate. As a result, the net asset value of the
Portfolio may experience greater short-term and long-term variations than funds
that invest primarily in fixed income securities.
ADDITIONAL INVESTMENT INFORMATION
CONVERTIBLE SECURITIES. The Portfolio may invest in convertible securities of
domestic and, subject to the Portfolio's restrictions, foreign issuers. The
convertible securities in which the Portfolio may invest include any debt
securities or preferred stock which may be converted into common stock or which
carry the right to purchase common stock. Convertible securities entitle the
holder to exchange the securities for a specified number of shares of common
stock, usually of the same company, at specified prices within a certain period
of time.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. Delivery of and payment
for these securities may take as long as a month or more after the date of the
purchase commitment. The value of these securities is subject to market
fluctuation during this period and 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. The 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 the
Portfolio not to enter into when-issued commitments exceeding in the aggregate
15% of the market value of the Portfolio's total assets less liabilities other
than the obligations created by these commitments.
REPURCHASE AGREEMENTS. The Portfolio may engage in repurchase agreement
transactions with brokers, dealers or banks that meet the credit guidelines
established by the Board. In a repurchase agreement, the Portfolio buys a
security from a seller that has agreed to repurchase it at a mutually agreed
upon date and price, reflecting the interest rate effective for the term of the
agreement. The term of these agreements is usually from overnight to one week. A
repurchase agreement may be viewed as a fully collateralized loan of money by
the Portfolio to the seller. The Portfolio always receives securities as
collateral with a market value at least equal to the purchase price plus accrued
interest and this value is maintained during the term of the agreement. If the
seller defaults and the collateral value declines, the Portfolio might incur a
loss. If bankruptcy proceedings are commenced with respect to
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the seller, the Portfolio's realization upon the disposition of collateral may
be delayed or limited. Investments in certain repurchase agreements and certain
other investments which may be considered illiquid are limited. See "Illiquid
Investments, Privately Placed and Other Unregistered Securities" below.
LOANS OF PORTFOLIO SECURITIES. Subject to applicable investment restrictions,
the Portfolio is permitted to lend its securities. The Portfolio may lend its
securities if such loans are secured continuously by cash or equivalent
collateral or by a letter of credit in favor of the Portfolio at least equal at
all times to 100% of the market value of the securities loaned, plus accrued
interest. While such securities are on loan, the borrower will pay the Portfolio
any income accruing thereon. Loans will be subject to termination by the
Portfolio in the normal settlement time, generally 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 Portfolio and its shareholders. The Portfolio may pay reasonable
finders' and custodial fees in connection with a loan. In addition, the
Portfolio will consider all facts and circumstances including the
creditworthiness of the borrowing financial institution, and the Portfolio will
not make any loans in excess of one year. The Portfolio will not lend its
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. The Portfolio is permitted to enter into reverse
repurchase agreements. In a reverse repurchase agreement, the Portfolio sells a
security and agrees to repurchase it at a mutually agreed upon date and price,
reflecting the interest rate effective for the term of the agreement. 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.
FOREIGN INVESTMENT INFORMATION. The Portfolio may invest in certain 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 the
Portfolio by domestic companies.
Investors should realize that the value of the Portfolio's investments in
foreign securities may be adversely affected by changes in political or social
conditions, diplomatic relations, confiscatory taxation, expropriation,
nationalization, limitation on the removal of funds or assets, or imposition of
(or change in) exchange control or tax regulations in those foreign countries.
In addition, changes in government administrations or economic or monetary
policies in the 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 Portfolio 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, the Portfolio's foreign
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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.
The 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" below.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Because the Portfolio buys and sells
securities denominated in currencies other than the U.S. dollar, and receives
interest, dividends and sale proceeds in currencies other than the U.S. dollar,
the Portfolio will, from time to time, enter into foreign currency exchange
transactions. The Portfolio either enters into these transactions on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or uses forward contracts to purchase or sell foreign currencies. The
cost of the Portfolio's 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.
The Portfolio 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 or reduce exposure to the foreign
currency in an attempt to enhance return.
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
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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, the Portfolio 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 Portfolio is subject to the
following non-fundamental policy. The Portfolio 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. The Portfolio 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. The Portfolio 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. The Portfolio is permitted to invest in money market
instruments, although it intends to stay invested in equity securities to the
extent practical in light of its investment objective and long-term investment
perspective. The Portfolio may make money market investments pending other
investment or settlement, for liquidity or in adverse market conditions. The
money market investments permitted for the Portfolio include obligations of the
U.S. Government and its agencies and instrumentalities, other debt securities,
commercial paper, bank obligations and repurchase agreements. For more detailed
information about these money market instruments, see "INVESTMENT OBJECTIVES AND
POLICIES" in the Statement of Additional Information.
PORTFOLIO TURNOVER
Portfolio turnover for the Portfolio may vary from year to year or within a year
depending upon economic and business conditions. Under normal market conditions,
the Portfolio's annual portfolio turnover rate is not expected to exceed 100%.
The annual portfolio turnover rate for the Portfolio in 1996 was approximately
90%.
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INVESTMENT RESTRICTIONS
Investments of the Portfolio are further restricted by certain policies that may
not be changed without the approval of the holders of the Portfolio's
outstanding shares. See "INVESTMENT RESTRICTIONS" in the Statement of Additional
Information.
MANAGEMENT OF THE TRUST AND PORTFOLIO
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 December 31, 1996, J.P. Morgan and its
subsidiaries had total combined assets under management of approximately $208
billion. J.P. Morgan has a long history of service as adviser, underwriter and
lender to an extensive roster of major companies and as a financial 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 the Portfolio's day-to-day investment
decisions, arranges for the execution of portfolio transactions and generally
manages the 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 Portfolio
(the inception date of each person's responsibility for the Portfolio and their
business experience for the past five years are indicated parenthetically):
William B. Petersen, Managing Director (since January, 1995, employed by Morgan
since prior to 1992) and William M. Riegel, Jr., Managing Director (since
January, 1995, employed by Morgan since prior to 1992).
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 of .40% of
the Portfolio's average daily net assets.
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,
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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, registration
fees under federal securities laws and fees under 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 of .50% of the Portfolio's average daily net assets.
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.
Morgan Guaranty or its affiliates may pay from its own assets Participating
Insurance Companies for providing certain administrative and account-related
services to owners of Policies for which Portfolio shares are the investment
vehicle.
From January 3, 1995 (commencement of operations) to December 31, 1996, Chubb
Investment Advisory served as the 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 1, 1996
through December 31, 1996, all investment management fees payable by the
Portfolio to Chubb Investment Advisory totaled .60% of the Portfolio's average
daily net assets. For the period January 1, 1996 through December 31, 1996,
sub-investment advisory fees payable by Chubb Investment Advisory to Morgan
Guaranty totaled .40% of the Portfolio's average daily net assets. Because a
portion of the Portfolio's fees and expenses were reimbursed, the ratio of the
Portfolio's operating expenses to average net assets for such period was .90%.
Had a portion of the Portfolio's fees and expenses not been reimbursed, the
ratio of the Portfolio's operating expenses to average net assets for such
period would have been 2.13%.
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 on behalf of the Trust in accordance
with state securities laws; (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.
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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.
SHARES OF BENEFICIAL INTEREST
Each Portfolio 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. Portfolio shares will be voted separately from
shares of the Trust's other portfolios on matters affecting only the Portfolio,
including approval of the Investment Advisory Agreement, and changes in
fundamental investment policies of the Portfolio. The assets of the Portfolio
are charged with the liabilities of the 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
1940 Act; (ii) changing fundamental investment objectives and restrictions of
the Portfolio; 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
The 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,
the Portfolio will not be subject to federal income tax on that portion of its
ordinary income and net capital gains distributed to shareholders.
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The Trust expects that the 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 at least once
each year. Ordinary income 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 Portfolio shares 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 Portfolio under Subchapter M and
the 1940 Act, may affect the composition of the 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 policy owner's
control of the investments of a separate account may cause the policy owner,
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 policy
owner control, if promulgated, would cause earnings regarding a policy owner's
interest in the separate account to be includable in the policy owner'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 for any taxable year
following the later of the year in which the participant reaches age 70 1/2 or
the year in which the participant retires 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
Portfolio shares 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.
13
<PAGE>
Should any conflict between VA contract holders, VLI policy holders and/or Plan
participants arise which would require that a substantial amount of the
Portfolio's net assets 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 4:15 p.m. (Eastern Standard Time)
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 Portfolio's net
assets (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 the 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 December 12, 1996, the
resignation of Chubb Investment Advisory as the Portfolio's investment manager
was accepted and Morgan was engaged to serve, effective January 1, 1997, as the
Portfolio's investment adviser pursuant to the Investment Advisory Agreement.
The Trust was organized on October 28, 1993. Prior to January 1, 1997, the
Trust's name was The Chubb Series Trust and the Portfolio's name was The
Resolute Equity Portfolio.
14
<PAGE>
APPENDIX
The Portfolio may (a) purchase and sell exchange traded and over-the-counter
("OTC") put and call options on equity securities and 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.
The Portfolio may use futures contracts and options for hedging and risk
management purposes. See "RISK MANAGEMENT" in the Statement of Additional
Information. The Portfolio may not use futures contracts and options for
speculation.
The Portfolio may utilize options and futures contracts to manage its exposure
to changing interest rates and/or security prices. Some options and futures
strategies, including selling futures contracts and buying puts, tend to hedge
the Portfolio's investments against price fluctuations. Other strategies,
including buying futures contracts, writing puts and calls, and buying calls,
tend to increase market exposure. Options and futures contracts may be combined
with each other or with forward contracts in order to adjust the risk and return
characteristics of the Portfolio's overall strategy in a manner deemed
appropriate to the Adviser and consistent with the Portfolio's objective and
policies. Because combined options positions involve multiple trades, they
result in higher transaction costs and may be more difficult to open and close
out.
The use of options and futures is a highly specialized activity which involves
investment strategies and risks different from those associated with ordinary
portfolio securities transactions, and there can be no guarantee that their use
will increase the Portfolio's return. While the use of these instruments by the
Portfolio may reduce certain risks associated with owning its portfolio
securities, these techniques themselves entail certain other risks. If the
Adviser applies a strategy at an inappropriate time or judges market conditions
or trends incorrectly, options and futures strategies may lower the Portfolio's
return. Certain strategies limit the Portfolio's possibilities to realize gains
as well as limit its exposure to losses. The Portfolio also could experience
losses if the prices of its options and futures positions were poorly correlated
with its other investments, or if it could not close out its positions because
of an illiquid secondary market. In addition, the Portfolio will incur
transaction costs, including trading commissions and option premiums, in
connection with its futures and options transactions and these transactions
could significantly increase the Portfolio's turnover rate.
The Portfolio may not purchase or sell (write) futures contracts, options on
futures contracts or commodity options for risk management purposes if, as a
result, the aggregate initial margin and options premiums required to establish
these positions exceed 5% of the Portfolio's net assets.
OPTIONS
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, the Portfolio
obtains the right (but not the obligation) to sell the instrument underlying the
option at a fixed strike price. In return for this right, the Portfolio pays the
current market price for the option (known as the option premium). Options have
various types of underlying instruments, including specific securities, indexes
of securities, indexes of securities prices, and futures contracts. The
Portfolio may terminate its position in a put option it has purchased by
allowing it to expire or by exercising the option. The Portfolio also may close
out a put option position by entering into an offsetting transaction, if a
liquid market exists. If the option is allowed to expire, the Portfolio will
lose the entire premium it paid. If the Portfolio exercises a put option on a
security, it will sell the instrument underlying the option at the strike price.
If the Portfolio exercises an option on an index, settlement is in cash and does
not involve the actual sale of securities. If an option is American Style, it
may be exercised on any day up to its expiration date. A European style option
may be exercised only on its expiration date.
A-1
<PAGE>
The buyer of a typical put option can expect to realize a gain if the price of
the underlying instrument falls substantially. However, if the price of the
instrument underlying the option does not fall enough to offset the cost of
purchasing the option, a put buyer can expect to suffer a loss (limited to the
amount of the premium paid, plus related transaction costs).
The features of call options are essentially the same as those of put options,
except that the purchaser of a call option obtains the right to purchase, rather
than sell, the instrument underlying the option at the option's strike price. A
call buyer typically attempts to participate in potential price increases of the
instrument underlying the option with risk limited to the cost of the option if
security prices fall. At the same time, the buyer can expect to suffer a loss if
security prices do not rise sufficiently to offset the cost of the option.
SELLING (WRITING) PUT AND CALL OPTIONS. When the Portfolio writes a put option,
it takes the opposite side of the transaction from the option's purchaser. In
return for receipt of the premium, the Portfolio assumes the obligation to pay
the strike price for the instrument underlying the option if the other party to
the option chooses to exercise it. The Portfolio may seek to terminate its
position in a put option it writes before exercise by purchasing an offsetting
option in the market at its current price. 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 the Portfolio to sell or deliver the option's
underlying instrument in return for the strike price upon exercise of the
option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium a call writer offsets part of the effect of a price decline. At the same
time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is greater,
a call writer gives up some ability to participate in security price increases.
The writer of an exchange traded put or call option on a security, an index of
securities or a futures contract is required to deposit cash or securities or a
letter of credit as margin and to make mark to market payments of variation
margin as the position becomes unprofitable.
OPTIONS ON INDICES. The 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 is settled by cash payment and does not
involve the actual purchase or sale of securities. In addition, these options
are designed to reflect price fluctuations in a group of securities or segment
of the securities market rather than price fluctuations in a single security.
The Portfolio, in purchasing or selling index options, is subject to the risk
that the value of its portfolio securities may not change as much as an index
because the Portfolio's investments generally will not match the composition of
an index.
A-2
<PAGE>
For a number of reasons, a liquid market may not exist and thus the Portfolio
may not be able to close out an option position that it has previously entered
into. When the Portfolio purchases an OTC option, it will be relying on its
counterparty to perform its obligations, and the Portfolio may incur additional
losses if the counterparty is unable to perform.
FUTURES CONTRACTS
When the Portfolio purchases a futures contract, it agrees to purchase a
specified quantity of an underlying instrument at a specified future date or to
make a cash payment based on the value of a securities index. When the Portfolio
sells a futures contract, it agrees to sell a specified quantity of the
underlying instrument at a specified future date or to receive a cash payment
based on the value of a securities index. The price at which the purchase and
sale will take place is fixed when the Portfolio enters into the contract.
Futures can be held until their delivery dates or the position can be (and
normally is) closed out before then. There is no assurance, however, that a
liquid market will exist when the Portfolio wishes to close out a particular
position.
When the Portfolio purchases a futures contract, the value of the futures
contract tends to increase and decrease in tandem with the value of its
underlying instrument. Therefore, purchasing futures contracts will tend to
increase the Portfolio's exposure to positive and negative price fluctuations in
the underlying instrument, much as if it had purchased the underlying instrument
directly. When the Portfolio sells a futures contract, by contrast, the value of
its futures position will tend to move in a direction contrary to the value of
the underlying instrument. Selling futures contracts, therefore, will tend to
offset both positive and negative market price changes, much as if the
underlying instrument 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 the Portfolio buys or sells a futures contract it will be
required to deposit "initial margin" with its custodian in a segregated account
in the name of its futures broker, known as a futures commission merchant
("FCM"). Initial margin deposits are typically equal to a small percentage of
the contract's value. If the value of either party's position declines, that
party will be required to make additional "variation margin" payments equal to
the change in value on a daily basis. The party that has a gain may be entitled
to receive all or a portion of this amount. The Portfolio may be obligated to
make payments of variation margin at a time when it is disadvantageous to do so.
Furthermore, it may not always be possible for the Portfolio to close out its
futures positions. Until it closes out a futures position, the Portfolio will be
obligated to continue to pay variation margin. Initial and variation margin
payments do not constitute purchasing on margin for purposes of the Portfolio's
investment restrictions. In the event of the bankruptcy of an FCM that holds
margin on behalf of the Portfolio, the Portfolio may be entitled to return of
margin owed to it only in proportion to the amount received by FCM's other
customers, potentially resulting in losses to the Portfolio.
The Portfolio will segregate liquid assets in connection with its use of options
and futures contracts to the extent required by the staff of the Securities and
Exchange Commission. Securities held in a segregated account cannot be sold
while the futures contract or option is outstanding, unless they are replaced
with other suitable assets. As a result, there is a possibility that segregation
of a large percentage of the Portfolio's assets could impede portfolio
management or the Portfolio's ability to meet redemption requests or other
current obligations.
For further information about the Portfolio's use of futures and options and a
more detailed discussion of associated risks, see "INVESTMENT OBJECTIVES AND
POLICIES" in the Statement of Additional Information.
A-3
<PAGE>
------------------------------------
JPM Series Trust II
JPM Equity Portfolio
NO DEALER, SALESMAN OR ANY OTHER
PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS, IN
CONNECTION WITH THE OFFER CONTAINED
IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH OTHER INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY
THE TRUST OR THE DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN
OFFER BY THE TRUST OR BY THE
DISTRIBUTOR TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY
ANY OF THE SECURITIES OFFERED
HEREBY IN ANY JURISDICTION TO ANY
PERSON TO WHOM IT IS UNLAWFUL FOR
THE TRUST OR THE DISTRIBUTOR TO
MAKE SUCH OFFER IN SUCH PROSPECTUS
JURISDICTION. APRIL 30, 1997
<PAGE>
PROSPECTUS
JPM Series Trust II
JPM International Equity Portfolio
60 State Street
Boston, Massachusetts 02109
1-800-221-7930
JPM International Equity Portfolio (the "Portfolio") is a separate diversified
portfolio of JPM Series Trust II, an open-end management investment company
organized as a Delaware Business Trust (the "Trust"). The Portfolio seeks to
provide a high total return from a portfolio of equity securities of foreign
corporations.
The Portfolio is advised by J.P. Morgan Investment Management Inc. ("Morgan" or
the "Adviser").
Shares of the Portfolio 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 the
Portfolio 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 April 30, 1997 (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.
INVESTMENTS IN THE PORTFOLIO 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 THE PORTFOLIO 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.
The Portfolio permits investments in any nation, which 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 APRIL 30, 1997.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Annual Operating Expenses.............................. 1
Financial Highlights................................... 2
Performance and Yield Information...................... 3
The Portfolio.......................................... 4
Investment Objective and Policies...................... 4
Investment Objective................................. 4
Investment Policies.................................. 5
Risk Factors......................................... 6
Additional Investment Information...................... 6
Convertible Securities............................... 6
When-Issued and Delayed Delivery Securities.......... 6
Repurchase Agreements................................ 6
Loans of Portfolio Securities........................ 6
Reverse Repurchase Agreements........................ 7
Foreign Investment Information....................... 7
<CAPTION>
PAGE
<S> <C>
Foreign Currency Exchange Transactions............... 8
Illiquid Investments, Privately Placed and Other
Unregistered Securities............................. 9
Futures and Options Transactions..................... 9
Money Market Instruments............................. 9
Portfolio Turnover..................................... 10
Investment Restrictions................................ 10
Management of the Trust and Portfolio.................. 10
Shares of Beneficial Interest.......................... 12
Taxes and Dividends.................................... 13
Offering and Redemption of Shares...................... 14
Other Information...................................... 14
Appendix............................................... A-1
</TABLE>
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>
<S> <C>
Management Fees............................................................................ .60%
Other Expenses............................................................................. .60%
---------
Total Portfolio Operating Expenses......................................................... 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:
1 Year................................................................ $ 12
3 Years............................................................... $ 38
5 Years............................................................... $ 66
10 Years.............................................................. $145
THE AMOUNTS LISTED IN THE EXAMPLE SHOULD NOT BE CONSIDERED AS REPRESENTATIVE OF
PAST OR FUTURE EXPENSES OF THE PORTFOLIO AND ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE INDICATED. MOREOVER, WHILE THE EXAMPLE ASSUMES A 5% ANNUAL
RETURN, THE 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 the 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 1.20% of the Portfolio's
average daily net assets. 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 Portfolio, as well as expense reimbursement or waiver
arrangements, see "Management of the Trust and Portfolio."
1
<PAGE>
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share of beneficial interest
outstanding for the Portfolio for the indicated periods.(1) The related
financial statements and report of Ernst & Young LLP, independent auditors, for
the period ended December 31, 1995 and the fiscal year ended December 31, 1996
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>
Year Ended January 3, 1995
December 31, through
1996 December 31, 1995
------------- -----------------
<S> <C> <C>
Net asset value, beginning of period........................ $ 10.86 $ 10.00
------------- -----------------
Income From Investment Operations
Net investment income..................................... 0.20 0.15
Net realized and unrealized gains (losses) on securities &
foreign currency......................................... 1.23 1.08
------------- -----------------
Total from investment operations........................ 1.43 1.23
------------- -----------------
Less Distributions to Shareholders
Dividends from net investment income...................... (0.09) (0.09)
Dividends in excess of net investment income.............. (0.10)
Distributions from net capital gains...................... (0.47) (0.18)
------------- -----------------
Total distributions......................................... (0.56) (0.37)
------------- -----------------
Net asset value, end of period.............................. $ 11.73 $ 10.86
------------- -----------------
------------- -----------------
Total Return(2)............................................. 13.12% 12.38%
------------- -----------------
------------- -----------------
Ratios to average net assets:
(Annualized)
Expenses(3)............................................... 1.20% 1.20%
Net investment income..................................... 1.25% 1.06%
Portfolio turnover rate..................................... 71.24% 68.00%
Average commission rate paid................................ $ 0.0020 N/A
Net assets, at end of period................................ $6,249,926 $3,992,275
</TABLE>
- ---------
(1) From January 3, 1995 (commencement of operations) to December 31, 1996,
Chubb Investment Advisory Corporation ("Chubb Investment Advisory"), a
wholly-owned subsidiary of Chubb Life Insurance Company of America ("Chubb
Life"), served as the Portfolio's investment manager, and Morgan Guaranty
served as the Portfolio's sub-investment adviser. Effective January 1, 1997,
Morgan began serving as the 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
Portfolio 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 the Portfolio's expenses to average net assets would have been
3.18% in 1996 and 3.16% in 1995.
2
<PAGE>
PERFORMANCE AND YIELD INFORMATION
From time to time the Trust may advertise the yield and/or the average annual
total return of the Portfolio. These figures are based on historical earnings
and are not intended to indicate future performance. Portfolio shares 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.
The Portfolio's yield is calculated by dividing the Portfolio's net investment
income per share during a recent 30-day period by maximum offering price per
share (which is its net asset value) on the last day of the period.
The Portfolio's average annual total return is 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 the Portfolio and for
an appropriate securities index with respect to the Portfolio. In addition, set
forth below is hypothetical performance information derived from historical
composite performance of all Private Accounts managed by Morgan which have
investment objectives, policies and strategies substantially similar to those of
the Portfolio and, thus, is deemed relevant to Portfolio investors. THE
HYPOTHETICAL PERFORMANCE INFORMATION OF THE PRIVATE ACCOUNTS OF THE
INTERNATIONAL EQUITY COMPOSITE DOES NOT REPRESENT THE HISTORICAL PERFORMANCE OF
THE 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, might have adversely affected the
performance of the Private Accounts. In addition, unlike the Portfolio, the
Private Accounts do not limit their country allocations to no more than 25% of
their assets and typically do not invest in emerging markets securities.
The hypothetical performance results of the Private Accounts set forth below
represent the audited actual performance results of the composite, adjusted to
reflect the deduction of the Portfolio's fees and expenses. These results have
been calculated in accordance with Performance Presentation Standards of the
Association for Investment Management and Research. The term "average annual
total return" signifies that cumulative total
3
<PAGE>
returns for a stated time period have been annualized over such period. These
returns 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
as of December 31, 1996
------------------------------------------
5 Years or 10 Years or
1 Year Since Inception Since Inception
------ --------------- ---------------
<S> <C> <C> <C>
JPM International Equity Portfolio.......................... 13.12% 12.79%* N/A
International Equity Composite.............................. 8.64% 8.10% 9.49%
Morgan Stanley Capital International Europe, Australia, Far
East (Free) Index**........................................ 6.05% 8.15% 8.42%
</TABLE>
- ---------
* Commenced operations January 3, 1995.
** The Morgan Stanley Capital International Europe, Australia, Far East (Free)
Index is a broadly diversified international index composed of the equity
securities of approximately 1,000 companies located outside the United States.
THE PORTFOLIO
The Portfolio is offered as a funding vehicle for Policies to be offered by the
Participating Insurance Companies. The Policies are described in the separate
prospectuses and statements of additional information 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 Section1.817.5(f)(3)(iii)) ("Eligible
Plans" or "Plans"). Differences in tax treatment or other considerations may
cause the interests of Policy owners and Eligible Plan participants to conflict,
although the Trust currently does not foresee any disadvantages to Policy owners
or Eligible Plan participants arising therefrom. 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.
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. By this Prospectus, shares of JPM International Equity
Portfolio are being offered.
Portfolio shares 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 OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE: The 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.
4
<PAGE>
The 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 American
Depositary Receipts ("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 more information concerning the
types of money market instruments in which the 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
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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: All or a significant portion of the 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." The prices of
the types of securities usually purchased by the Portfolio will tend to
fluctuate. As a result, the net asset value of the Portfolio may experience
greater short-term and long-term variations than funds that invest primarily in
fixed income securities.
ADDITIONAL INVESTMENT INFORMATION
CONVERTIBLE SECURITIES. The Portfolio may invest in convertible securities of
domestic and, subject to the Portfolio's restrictions, foreign issuers. The
convertible securities in which the Portfolio may invest include any debt
securities or preferred stock which may be converted into common stock or which
carry the right to purchase common stock. Convertible securities entitle the
holder to exchange the securities for a specified number of shares of common
stock, usually of the same company, at specified prices within a certain period
of time.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. Delivery of and payment
for these securities may take as long as a month or more after the date of the
purchase commitment. The value of these securities is subject to market
fluctuation during this period and 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. The 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 the
Portfolio not to enter into when-issued commitments exceeding in the aggregate
15% of the market value of the Portfolio's total assets less liabilities other
than the obligations created by these commitments.
REPURCHASE AGREEMENTS. The Portfolio may engage in repurchase agreement
transactions with brokers, dealers or banks that meet the credit guidelines
established by the Board. In a repurchase agreement, the Portfolio buys a
security from a seller that has agreed to repurchase it at a mutually agreed
upon date and price, reflecting the interest rate effective for the term of the
agreement. The term of these agreements is usually from overnight to one week. A
repurchase agreement may be viewed as a fully collateralized loan of money by
the Portfolio to the seller. The Portfolio always receives securities as
collateral with a market value at least equal to the purchase price plus accrued
interest and this value is maintained during the term of the agreement. If the
seller defaults and the collateral value declines, the Portfolio might incur a
loss. If bankruptcy proceedings are commenced with respect to the seller, the
Portfolio's realization upon the disposition of collateral may be delayed or
limited. Investments in certain repurchase agreements and certain other
investments which may be considered illiquid are limited. See "Illiquid
Investments, Privately Placed and Other Unregistered Securities" below.
LOANS OF PORTFOLIO SECURITIES. Subject to applicable investment restrictions,
the Portfolio is permitted to lend its securities. The Portfolio may lend its
securities if such loans are secured continuously by cash or equivalent
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collateral or by a letter of credit in favor of the Portfolio at least equal at
all times to 100% of the market value of the securities loaned, plus accrued
interest. While such securities are on loan, the borrower will pay the Portfolio
any income accruing thereon. Loans will be subject to termination by the
Portfolio in the normal settlement time, generally 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 Portfolio and its shareholders. The Portfolio may pay reasonable
finders' and custodial fees in connection with a loan. In addition, the
Portfolio will consider all facts and circumstances including the
creditworthiness of the borrowing financial institution, and the Portfolio will
not make any loans in excess of one year. The Portfolio will not lend its
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. The Portfolio is permitted to enter into reverse
repurchase agreements. In a reverse repurchase agreement, the Portfolio sells a
security and agrees to repurchase it at a mutually agreed upon date and price,
reflecting the interest rate effective for the term of the agreement. 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.
FOREIGN INVESTMENT INFORMATION. The 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 the Portfolio by
domestic companies.
Investors should realize that the value of the Portfolio's investments in
foreign securities may be adversely affected by changes in political or social
conditions, diplomatic relations, confiscatory taxation, expropriation,
nationalization, limitation on the removal of funds or assets, or imposition of
(or change in) exchange control or tax regulations in those foreign countries.
In addition, changes in government administrations or economic or monetary
policies in the 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 Portfolio 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, the Portfolio's foreign
investments may be less liquid and their prices may be more volatile than
comparable investments in securities of U.S. companies. Moreover, the settlement
periods for foreign securities, which are often longer than those for securities
of U.S. issuers, may affect portfolio liquidity. In buying and selling
securities on foreign exchanges, purchasers normally pay fixed commissions that
are generally higher than the negotiated commissions charged in the 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.
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The 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 entail a high degree of risk. Investments 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.
The 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" below.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Because the Portfolio buys and sells
securities denominated in currencies other than the U.S. dollar, and receives
interest, dividends and sale proceeds in currencies other than the U.S. dollar,
the Portfolio will, from time to time, enter into foreign currency exchange
transactions. The Portfolio either enters into these transactions on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or uses forward contracts to purchase or sell foreign currencies. The
cost of the Portfolio's 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.
The Portfolio 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
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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 or reduce exposure to the foreign
currency in an attempt to enhance return.
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, the Portfolio 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 Portfolio is subject to the
following non-fundamental policy. The Portfolio 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. The Portfolio 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. The Portfolio 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. The Portfolio is permitted to invest in money market
instruments, although it intends to stay invested in equity securities to the
extent practical in light of its investment objective and long-term investment
perspective. The Portfolio may make money market investments pending other
investment or settlement, for liquidity or in adverse market conditions. The
money market investments permitted for the Portfolio include obligations of the
U.S. Government and its agencies and instrumentalities, other debt securities,
commercial paper, bank obligations and repurchase agreements. The 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.
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PORTFOLIO TURNOVER
Portfolio turnover for the Portfolio may vary from year to year or within a year
depending upon economic and business conditions. Under normal market conditions,
the Portfolio's annual portfolio turnover rate is not expected to exceed 100%.
The annual portfolio turnover rate for the Portfolio in 1996 was approximately
71%.
INVESTMENT RESTRICTIONS
Investments of the Portfolio are further restricted by certain policies that may
not be changed without the approval of the holders of the Portfolio's
outstanding shares. See "INVESTMENT RESTRICTIONS" in the Statement of Additional
Information.
MANAGEMENT OF THE TRUST AND PORTFOLIO
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 December 31, 1996, J.P. Morgan and its
subsidiaries had total combined assets under management of approximately $208
billion. J.P. Morgan has a long history of service as adviser, underwriter and
lender to an extensive roster of major companies and as a financial 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 the Portfolio's day-to-day investment
decisions, arranges for the execution of portfolio transactions and generally
manages the 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 Portfolio
(the inception date of each person's responsibility for the Portfolio and their
business experience for the past five years are indicated parenthetically): Paul
A. Quinsee, Vice President (since January, 1995, employed by Morgan since
February, 1992, previously Vice President, Citibank), Thomas P. Madsen, Managing
Director (since January, 1995, employed by Morgan since prior to 1992) and Anne
H. Richards, Vice President (since January, 1997, employed by Morgan since May,
1994, employed by Alliance Capital Ltd. from September, 1992 to April, 1994).
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 of .60% of
the Portfolio's average daily net assets.
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
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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, registration
fees under federal securities laws and fees under 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 of .60% of the Portfolio's average daily net assets.
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.
Morgan Guaranty or its affiliates may pay from its own assets Participating
Insurance Companies for providing certain administrative and account-related
services to owners of Policies for which Portfolio shares are the investment
vehicle.
From January 3, 1995 (commencement of operations) to December 31, 1996, Chubb
Investment Advisory served as the 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 1, 1996
through December 31, 1996, all investment management fees payable by the
Portfolio to Chubb Investment Advisory totaled .80% of the Portfolio's average
daily net assets. For the period January 1, 1996 through December 31, 1996,
sub-investment advisory fees payable by Chubb Investment Advisory to Morgan
Guaranty totaled .60% of the Portfolio's average daily net assets. Because a
portion of the Portfolio's fees and expenses were reimbursed, the ratio of the
Portfolio's operating expenses to average net assets for such period was 1.20%.
Had a portion of the Portfolio's fees and expenses not been reimbursed, the
ratio of the Portfolio's operating expenses to average net assets for such
period would have been 3.18%.
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 on behalf of the Trust in
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accordance with state securities laws; (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.
SHARES OF BENEFICIAL INTEREST
Each Portfolio 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. Portfolio shares will be voted separately from
shares of the Trust's other portfolios on matters affecting only the Portfolio,
including approval of the Investment Advisory Agreement, and changes in
fundamental investment policies of the Portfolio. The assets of the Portfolio
are charged with the liabilities of the 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
1940 Act; (ii) changing fundamental investment objectives and restrictions of
the Portfolio; 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.
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TAXES AND DIVIDENDS
The 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,
the 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 the 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 at least once
each year. Ordinary income 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 Portfolio shares 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 Portfolio under Subchapter M and
the 1940 Act, may affect the composition of the 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 policy owner's
control of the investments of a separate account may cause the policy owner,
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 policy
owner control, if promulgated, would cause earnings regarding a policy owner's
interest in the separate account to be includable in the policy owner'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 for any taxable year
following the later of the year in which the participant reaches age 70 1/2 or
the year in which the participant retires 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.
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OFFERING AND REDEMPTION OF SHARES
Portfolio shares 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 the
Portfolio's net assets 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 4:15 p.m. (Eastern Standard Time)
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 Portfolio's net
assets (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 the 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 December 12, 1996, the
resignation of Chubb Investment Advisory as the Portfolio's investment manager
was accepted and Morgan was engaged to serve, effective January 1, 1997, as the
Portfolio's investment adviser pursuant to the Investment Advisory Agreement.
The Trust was organized on October 28, 1993. Prior to January 1, 1997, the
Trust's name was The Chubb Series Trust and the Portfolio's name was The
Resolute International Equity Portfolio.
14
<PAGE>
APPENDIX
The Portfolio may (a) purchase and sell exchange traded and over-the-counter
("OTC") put and call options on equity securities and 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.
The Portfolio may use futures contracts and options for hedging and risk
management purposes. See "RISK MANAGEMENT" in the Statement of Additional
Information. The Portfolio may not use futures contracts and options for
speculation.
The Portfolio may utilize options and futures contracts to manage its exposure
to changing interest rates and/or security prices. Some options and futures
strategies, including selling futures contracts and buying puts, tend to hedge
the Portfolio's investments against price fluctuations. Other strategies,
including buying futures contracts, writing puts and calls, and buying calls,
tend to increase market exposure. Options and futures contracts may be combined
with each other or with forward contracts in order to adjust the risk and return
characteristics of the Portfolio's overall strategy in a manner deemed
appropriate to the Adviser and consistent with the Portfolio's objective and
policies. Because combined options positions involve multiple trades, they
result in higher transaction costs and may be more difficult to open and close
out.
The use of options and futures is a highly specialized activity which involves
investment strategies and risks different from those associated with ordinary
portfolio securities transactions, and there can be no guarantee that their use
will increase the Portfolio's return. While the use of these instruments by the
Portfolio may reduce certain risks associated with owning its portfolio
securities, these techniques themselves entail certain other risks. If the
Adviser applies a strategy at an inappropriate time or judges market conditions
or trends incorrectly, options and futures strategies may lower the Portfolio's
return. Certain strategies limit the Portfolio's possibilities to realize gains
as well as limit its exposure to losses. The Portfolio also could experience
losses if the prices of its options and futures positions were poorly correlated
with its other investments, or if it could not close out its positions because
of an illiquid secondary market. In addition, the Portfolio will incur
transaction costs, including trading commissions and option premiums, in
connection with its futures and options transactions and these transactions
could significantly increase the Portfolio's turnover rate.
The Portfolio may not purchase or sell (write) futures contracts, options on
futures contracts or commodity options for risk management purposes if, as a
result, the aggregate initial margin and options premiums required to establish
these positions exceed 5% of the Portfolio's net assets.
OPTIONS
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, the Portfolio
obtains the right (but not the obligation) to sell the instrument underlying the
option at a fixed strike price. In return for this right, the Portfolio pays the
current market price for the option (known as the option premium). Options have
various types of underlying instruments, including specific securities, indexes
of securities, indexes of securities prices, and futures contracts. The
Portfolio may terminate its position in a put option it has purchased by
allowing it to expire or by exercising the option. The Portfolio also may 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
A-1
<PAGE>
strike price. If the Portfolio exercises an option on an index, settlement is in
cash and does not involve the actual sale of securities. If an option is
American Style, it may be exercised on any day up to its expiration date. A
European style option may be exercised only on its expiration date.
The buyer of a typical put option can expect to realize a gain if the price of
the underlying instrument falls substantially. However, if the price of the
instrument underlying the option does not fall enough to offset the cost of
purchasing the option, a put buyer can expect to suffer a loss (limited to the
amount of the premium paid, plus related transaction costs).
The features of call options are essentially the same as those of put options,
except that the purchaser of a call option obtains the right to purchase, rather
than sell, the instrument underlying the option at the option's strike price. A
call buyer typically attempts to participate in potential price increases of the
instrument underlying the option with risk limited to the cost of the option if
security prices fall. At the same time, the buyer can expect to suffer a loss if
security prices do not rise sufficiently to offset the cost of the option.
SELLING (WRITING) PUT AND CALL OPTIONS. When the Portfolio writes a put option,
it takes the opposite side of the transaction from the option's purchaser. In
return for receipt of the premium, the Portfolio assumes the obligation to pay
the strike price for the instrument underlying the option if the other party to
the option chooses to exercise it. The Portfolio may seek to terminate its
position in a put option it writes before exercise by purchasing an offsetting
option in the market at its current price. 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 the Portfolio to sell or deliver the option's
underlying instrument in return for the strike price upon exercise of the
option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium a call writer offsets part of the effect of a price decline. At the same
time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is greater,
a call writer gives up some ability to participate in security price increases.
The writer of an exchange traded put or call option on a security, an index of
securities or a futures contract is required to deposit cash or securities or a
letter of credit as margin and to make mark to market payments of variation
margin as the position becomes unprofitable.
OPTIONS ON INDICES. The 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 is settled by cash payment and does not
involve the actual purchase or sale of securities. In addition, these options
are designed to reflect price fluctuations in a group of securities or segment
of the securities market rather than price
A-2
<PAGE>
fluctuations in a single security. The Portfolio, in purchasing or selling index
options, is subject to the risk that the value of its portfolio securities may
not change as much as an index because the Portfolio's investments generally
will not match the composition of an index.
For a number of reasons, a liquid market may not exist and thus the Portfolio
may not be able to close out an option position that it has previously entered
into. When the Portfolio purchases an OTC option, it will be relying on its
counterparty to perform its obligations, and the Portfolio may incur additional
losses if the counterparty is unable to perform.
FUTURES CONTRACTS
When the Portfolio purchases a futures contract, it agrees to purchase a
specified quantity of an underlying instrument at a specified future date or to
make a cash payment based on the value of a securities index. When the Portfolio
sells a futures contract, it agrees to sell a specified quantity of the
underlying instrument at a specified future date or to receive a cash payment
based on the value of a securities index. The price at which the purchase and
sale will take place is fixed when the Portfolio enters into the contract.
Futures can be held until their delivery dates or the position can be (and
normally is) closed out before then. There is no assurance, however, that a
liquid market will exist when the Portfolio wishes to close out a particular
position.
When the Portfolio purchases a futures contract, the value of the futures
contract tends to increase and decrease in tandem with the value of its
underlying instrument. Therefore, purchasing futures contracts will tend to
increase the Portfolio's exposure to positive and negative price fluctuations in
the underlying instrument, much as if it had purchased the underlying instrument
directly. When the Portfolio sells a futures contract, by contrast, the value of
its futures position will tend to move in a direction contrary to the value of
the underlying instrument. Selling futures contracts, therefore, will tend to
offset both positive and negative market price changes, much as if the
underlying instrument 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 the Portfolio buys or sells a futures contract it will be
required to deposit "initial margin" with its custodian in a segregated account
in the name of its futures broker, known as a futures commission merchant
("FCM"). Initial margin deposits are typically equal to a small percentage of
the contract's value. If the value of either party's position declines, that
party will be required to make additional "variation margin" payments equal to
the change in value on a daily basis. The party that has a gain may be entitled
to receive all or a portion of this amount. The Portfolio may be obligated to
make payments of variation margin at a time when it is disadvantageous to do so.
Furthermore, it may not always be possible for the Portfolio to close out its
futures positions. Until it closes out a futures position, the Portfolio will be
obligated to continue to pay variation margin. Initial and variation margin
payments do not constitute purchasing on margin for purposes of the Portfolio's
investment restrictions. In the event of the bankruptcy of an FCM that holds
margin on behalf of the Portfolio, the Portfolio may be entitled to return of
margin owed to it only in proportion to the amount received by FCM's other
customers, potentially resulting in losses to the Portfolio.
The Portfolio will segregate liquid assets in connection with its use of options
and futures contracts to the extent required by the staff of the Securities and
Exchange Commission. Securities held in a segregated account cannot be sold
while the futures contract or option is outstanding, unless they are replaced
with other suitable assets. As a result, there is a possibility that segregation
of a large percentage of the Portfolio's assets could impede portfolio
management or the Portfolio's ability to meet redemption requests or other
current obligations.
A-3
<PAGE>
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.
A-4
<PAGE>
------------------------------------
JPM Series Trust II
JPM International
Equity Portfolio
NO DEALER, SALESMAN OR ANY OTHER
PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS, IN
CONNECTION WITH THE OFFER CONTAINED
IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH OTHER INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY
THE TRUST OR THE DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN
OFFER BY THE TRUST OR BY THE
DISTRIBUTOR TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY
ANY OF THE SECURITIES OFFERED
HEREBY IN ANY JURISDICTION TO ANY
PERSON TO WHOM IT IS UNLAWFUL FOR
THE TRUST OR THE DISTRIBUTOR TO
MAKE SUCH OFFER IN SUCH PROSPECTUS
JURISDICTION. APRIL 30, 1997
<PAGE>
PROSPECTUS
JPM Series Trust II
JPM Small Company Portfolio
60 State Street
Boston, Massachusetts 02109
1-800-221-7930
JPM Small Company Portfolio (the "Portfolio") is a separate diversified
portfolio of JPM Series Trust II, an open-end management investment company
organized as a Delaware Business Trust (the "Trust"). The Portfolio seeks to
provide a high total return from a portfolio of equity securities of small
companies.
The Portfolio is advised by J.P. Morgan Investment Management Inc. ("Morgan" or
the "Adviser").
Shares of the Portfolio 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 the
Portfolio 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 April 30, 1997 (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.
INVESTMENTS IN THE PORTFOLIO 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 THE PORTFOLIO 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.
The Portfolio permits investments in any nation, which 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 APRIL 30, 1997.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Annual Operating Expenses.............................. 1
Financial Highlights................................... 2
Performance and Yield Information...................... 3
The Portfolio.......................................... 4
Investment Objective and Policies...................... 4
Investment Objective................................. 4
Investment Policies.................................. 4
Risk Factors......................................... 5
Additional Investment Information...................... 6
Convertible Securities............................... 6
When-Issued and Delayed Delivery Securities.......... 6
Repurchase Agreements................................ 6
Loans of Portfolio Securities........................ 6
Reverse Repurchase Agreements........................ 7
<CAPTION>
PAGE
<S> <C>
Foreign Investment Information....................... 7
Foreign Currency Exchange Transactions............... 8
Illiquid Investments, Privately Placed and
Other Unregistered Securities....................... 8
Futures and Options Transactions..................... 9
Money Market Instruments............................. 9
Portfolio Turnover..................................... 9
Investment Restrictions................................ 9
Management of the Trust and Portfolio.................. 9
Shares of Beneficial Interest.......................... 11
Taxes and Dividends.................................... 12
Offering and Redemption of Shares...................... 13
Other Information...................................... 14
Appendix............................................... A-1
</TABLE>
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>
<S> <C>
Management Fees.......................................................... .60%
Other Expenses........................................................... .55%
-----
Total Portfolio Operating Expenses....................................... 1.15%
</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:
1 Year................................................................ $ 12
3 Years............................................................... $ 37
5 Years............................................................... $ 63
10 Years.............................................................. $140
THE AMOUNTS LISTED IN THE EXAMPLE SHOULD NOT BE CONSIDERED AS REPRESENTATIVE OF
PAST OR FUTURE EXPENSES OF THE PORTFOLIO AND ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE INDICATED. MOREOVER, WHILE THE EXAMPLE ASSUMES A 5% ANNUAL
RETURN, THE 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 the 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 1.15% of the Portfolio's
average daily net assets. 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 Portfolio, as well as expense reimbursement or waiver
arrangements, see "Management of the Trust and Portfolio."
1
<PAGE>
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share of beneficial interest
outstanding for the Portfolio for the indicated periods.(1) The related
financial statements and report of Ernst & Young LLP, independent auditors, for
the period ended December 31, 1995 and the fiscal year ended December 31, 1996
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>
January 3, 1995
Year Ended through
December 31, 1996 December 31, 1995
------------------ ------------------
<S> <C> <C>
Net asset value, beginning of period............................................... $ 11.83 $ 10.00
---------- ----------
Income From Investment Operations
Net investment income............................................................ 0.06 0.11
Net realized and unrealized gains (losses) on securities & foreign currency...... 2.43 3.18
---------- ----------
Total from investment operations............................................... 2.49 3.29
---------- ----------
Less Distributions to Shareholders
Dividends from net investment income............................................. (0.06) (0.11)
Distributions from net capital gains............................................. (1.73) (1.35)
---------- ----------
Total distributions................................................................ (1.79) (1.46)
---------- ----------
Net asset value, end of period..................................................... $ 12.53 $ 11.83
---------- ----------
---------- ----------
Total Return(2).................................................................... 21.74% 32.91%
---------- ----------
---------- ----------
Ratios to average net assets:
(Annualized)
Expenses(3)...................................................................... 1.15% 1.15%
Net investment income............................................................ 0.54% .99%
Portfolio turnover rate............................................................ 144.44% 100.43%
Average commission rate paid....................................................... $0.0427 N/A
Net assets, at end of period....................................................... $ 3,867,002 $ 2,536,258
</TABLE>
- ---------
(1) From January 3, 1995 (commencement of operations) to December 31, 1996,
Chubb Investment Advisory Corporation ("Chubb Investment Advisory"), a
wholly-owned subsidiary of Chubb Life Insurance Company of America ("Chubb
Life"), served as the Portfolio's investment manager, and Morgan Guaranty
served as the Portfolio's sub-investment adviser. Effective January 1, 1997,
Morgan began serving as the 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
Portfolio 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 the Portfolio's expenses to average net assets would have been
2.69% in 1996 and 3.22% in 1995.
2
<PAGE>
PERFORMANCE AND YIELD INFORMATION
From time to time the Trust may advertise the yield and/or the average annual
total return of the Portfolio. These figures are based on historical earnings
and are not intended to indicate future performance. Portfolio shares 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.
The Portfolio's yield is calculated by dividing the Portfolio's net investment
income per share during a recent 30-day period by maximum offering price per
share (which is its net asset value) on the last day of the period.
The Portfolio's average annual total return is 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 the Portfolio and for
an appropriate securities index with respect to the Portfolio. In addition, set
forth below is hypothetical performance information derived from historical
composite performance of all Private Accounts managed by Morgan which have
investment objectives, policies and strategies substantially similar to those of
the Portfolio and, thus, is deemed relevant to Portfolio investors. THE
HYPOTHETICAL PERFORMANCE INFORMATION OF THE PRIVATE ACCOUNTS OF THE SMALL
COMPANY COMPOSITE DOES NOT REPRESENT THE HISTORICAL PERFORMANCE OF THE 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, might have adversely affected the performance of the
Private Accounts.
The hypothetical performance results of the Private Accounts set forth below
represent the audited actual performance results of the composite, adjusted to
reflect the deduction of the Portfolio's fees and expenses. These results have
been calculated in accordance with Performance Presentation Standards of the
Association for Investment Management and Research. The term "average annual
total return" signifies that cumulative total returns for a stated time period
have been annualized over such period. These returns 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
as of December 31, 1996
------------------------------------------
<S> <C> <C> <C>
5 Years or 10 Years or
Since Since
1 Year Inception Inception
---------- -------------- --------------
JPM Small Company Portfolio...................................................... 21.74% 27.29%* N/A
Small Company Composite.......................................................... 22.25% 16.95% 13.36%
Russell 2000-Registered Trademark- Index**....................................... 16.49% 15.64% 12.41%
</TABLE>
- ---------
* Commenced operations January 3, 1995.
** The Russell 2000-Registered Trademark- Index is composed of 2,000 common
stocks of U.S. companies with an average market capitalization of
approximately $420 million.
3
<PAGE>
THE PORTFOLIO
The Portfolio is offered as a funding vehicle for Policies to be offered by the
Participating Insurance Companies. The Policies are described in the separate
prospectuses and statements of additional information 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 Section1.817.5(f)(3)(iii)) ("Eligible
Plans" or "Plans"). Differences in tax treatment or other considerations may
cause the interests of Policy owners and Eligible Plan participants to conflict,
although the Trust currently does not foresee any disadvantages to Policy owners
or Eligible Plan participants arising therefrom. 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.
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. By this Prospectus, shares of JPM Small Company Portfolio are
being offered.
Portfolio shares 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 OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE: The 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.
The 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-Registered Trademark- 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
4
<PAGE>
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-Registered Trademark- 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.
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 more information
concerning the types of money market instruments in which the 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
the Portfolio will tend to fluctuate. As a result, the net asset value of the
Portfolio may experience greater short-term and long-term variations than funds
that invest primarily in fixed income securities.
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ADDITIONAL INVESTMENT INFORMATION
CONVERTIBLE SECURITIES. The Portfolio may invest in convertible securities of
domestic and, subject to the Portfolio's restrictions, foreign issuers. The
convertible securities in which the Portfolio may invest include any debt
securities or preferred stock which may be converted into common stock or which
carry the right to purchase common stock. Convertible securities entitle the
holder to exchange the securities for a specified number of shares of common
stock, usually of the same company, at specified prices within a certain period
of time.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. Delivery of and payment
for these securities may take as long as a month or more after the date of the
purchase commitment. The value of these securities is subject to market
fluctuation during this period and 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. The 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 the
Portfolio not to enter into when-issued commitments exceeding in the aggregate
15% of the market value of the Portfolio's total assets less liabilities other
than the obligations created by these commitments.
REPURCHASE AGREEMENTS. The Portfolio may engage in repurchase agreement
transactions with brokers, dealers or banks that meet the credit guidelines
established by the Board. In a repurchase agreement, the Portfolio buys a
security from a seller that has agreed to repurchase it at a mutually agreed
upon date and price, reflecting the interest rate effective for the term of the
agreement. The term of these agreements is usually from overnight to one week. A
repurchase agreement may be viewed as a fully collateralized loan of money by
the Portfolio to the seller. The Portfolio always receives securities as
collateral with a market value at least equal to the purchase price plus accrued
interest and this value is maintained during the term of the agreement. If the
seller defaults and the collateral value declines, the Portfolio might incur a
loss. If bankruptcy proceedings are commenced with respect to the seller, the
Portfolio's realization upon the disposition of collateral may be delayed or
limited. Investments in certain repurchase agreements and certain other
investments which may be considered illiquid are limited. See "Illiquid
Investments, Privately Placed and Other Unregistered Securities" below.
LOANS OF PORTFOLIO SECURITIES. Subject to applicable investment restrictions,
the Portfolio is permitted to lend its securities. The Portfolio may lend its
securities if such loans are secured continuously by cash or equivalent
collateral or by a letter of credit in favor of the Portfolio at least equal at
all times to 100% of the market value of the securities loaned, plus accrued
interest. While such securities are on loan, the borrower will pay the Portfolio
any income accruing thereon. Loans will be subject to termination by the
Portfolio in the normal settlement time, generally 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 Portfolio and its shareholders. The Portfolio may pay reasonable
finders' and custodial fees in connection with a loan. In addition, the
Portfolio will consider all facts and circumstances including the
creditworthiness of the borrowing financial institution, and the Portfolio will
not make any loans in excess of one year. The Portfolio will not lend its
securities to any officer, Trustee, Director, employee, or affiliate of the
Trust, the Adviser or Distributor, unless otherwise permitted by applicable law.
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REVERSE REPURCHASE AGREEMENTS. The Portfolio is permitted to enter into reverse
repurchase agreements. In a reverse repurchase agreement, the Portfolio sells a
security and agrees to repurchase it at a mutually agreed upon date and price,
reflecting the interest rate effective for the term of the agreement. 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.
FOREIGN INVESTMENT INFORMATION. The Portfolio may invest in certain 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 the
Portfolio by domestic companies.
Investors should realize that the value of the Portfolio's investments in
foreign securities may be adversely affected by changes in political or social
conditions, diplomatic relations, confiscatory taxation, expropriation,
nationalization, limitation on the removal of funds or assets, or imposition of
(or change in) exchange control or tax regulations in those foreign countries.
In addition, changes in government administrations or economic or monetary
policies in the 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 Portfolio 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, the Portfolio's foreign
investments may be less liquid and their prices may be more volatile than
comparable investments in securities of U.S. companies. Moreover, the settlement
periods for foreign securities, which are often longer than those for securities
of U.S. issuers, may affect portfolio liquidity. In buying and selling
securities on foreign exchanges, purchasers normally pay fixed commissions that
are generally higher than the negotiated commissions charged in the 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.
The 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.
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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" below.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Because the Portfolio buys and sells
securities denominated in currencies other than the U.S. dollar, and receives
interest, dividends and sale proceeds in currencies other than the U.S. dollar,
the Portfolio will, from time to time, enter into foreign currency exchange
transactions. The Portfolio either enters into these transactions on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or uses forward contracts to purchase or sell foreign currencies. The
cost of the Portfolio's 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.
The Portfolio 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 or reduce exposure to the foreign
currency in an attempt to enhance return.
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, the Portfolio 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.
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Acquisitions of illiquid investments by the Portfolio is subject to the
following non-fundamental policy. The Portfolio 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. The Portfolio 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. The Portfolio 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. The Portfolio is permitted to invest in money market
instruments, although it intends to stay invested in equity securities to the
extent practical in light of its investment objective and long-term investment
perspective. The Portfolio may make money market investments pending other
investment or settlement, for liquidity or in adverse market conditions. The
money market investments permitted for the Portfolio include obligations of the
U.S. Government and its agencies and instrumentalities, other debt securities,
commercial paper, bank obligations and repurchase agreements. For more detailed
information about these money market instruments, see "INVESTMENT OBJECTIVES AND
POLICIES" in the Statement of Additional Information.
PORTFOLIO TURNOVER
Portfolio turnover for the Portfolio may vary from year to year or within a year
depending upon economic and business conditions. The annual portfolio turnover
rate for the Portfolio in 1996 was approximately 144%. The higher a portfolio
turnover rate is, the greater the likelihood that the Portfolio will realize
gains or losses and pay more brokerage commissions or other transaction related
costs.
INVESTMENT RESTRICTIONS
Investments of the Portfolio are further restricted by certain policies that may
not be changed without the approval of the holders of the Portfolio's
outstanding shares. See "INVESTMENT RESTRICTIONS" in the Statement of Additional
Information.
MANAGEMENT OF THE TRUST AND PORTFOLIO
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 December 31, 1996, J.P. Morgan and its
subsidiaries had total combined assets under management of approximately $208
billion. J.P. Morgan has a long history of service as adviser, underwriter and
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<PAGE>
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 the Portfolio's day-to-day investment
decisions, arranges for the execution of portfolio transactions and generally
manages the 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 Portfolio
(the inception date of each person's responsibility for the Portfolio and their
business experience for the past five years are indicated parenthetically):
James B. Otness, Managing Director (since January, 1995, employed by Morgan
since prior to 1992) and Candice Eggerss, Vice President (since May, 1996,
employed by Weiss, Peck & Greer from June, 1993 to May, 1996 and Equitable
Capital Management prior to June, 1993).
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 of .60% of
the Portfolio's average daily net assets.
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, registration
fees under federal securities laws and fees under 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 of .55% of the Portfolio's average daily net assets.
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.
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Morgan Guaranty or its affiliates may pay from its own assets Participating
Insurance Companies for providing certain administrative and account-related
services to owners of Policies for which Portfolio shares are the investment
vehicle.
From January 3, 1995 (commencement of operations) to December 31, 1996, Chubb
Investment Advisory served as the 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 1, 1996
through December 31, 1996, all investment management fees payable by the
Portfolio to Chubb Investment Advisory totaled .80% of the Portfolio's average
daily net assets. For the period January 1, 1996 through December 31, 1996,
sub-investment advisory fees payable by Chubb Investment Advisory to Morgan
Guaranty totaled .60% of the Portfolio's average daily net assets. Because a
portion of the Portfolio's fees and expenses were reimbursed, the ratio of the
Portfolio's operating expenses to average net assets for such period was 1.15%.
Had a portion of the Portfolio's fees and expenses not been reimbursed, the
ratio of the Portfolio's operating expenses to average net assets for such
period would have been 2.69%.
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 on behalf of the Trust in accordance
with state securities laws; (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.
SHARES OF BENEFICIAL INTEREST
Each Portfolio 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. Portfolio shares will be voted separately from
shares of the Trust's other portfolios on matters affecting only the Portfolio,
including approval of the Investment Advisory Agreement, and changes in
fundamental investment policies of the Portfolio. The assets of the Portfolio
are charged with the liabilities of the 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
1940 Act; (ii) changing fundamental investment objectives and restrictions of
the Portfolio; 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
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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
The 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,
the 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 the 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 at least once
each year. Ordinary income 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 Portfolio shares 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 Portfolio under Subchapter M and
the 1940 Act, may affect the composition of the 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 policy owner's
control of the investments of a separate account may cause the policy
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owner, 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 policy
owner control, if promulgated, would cause earnings regarding a policy owner's
interest in the separate account to be includable in the policy owner'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 for any taxable year
following the later of the year in which the participant reaches age 70 1/2 or
the year in which the participant retires 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
Portfolio shares 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 the
Portfolio's net assets 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 4:15 p.m. (Eastern Standard Time)
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 Portfolio's net
assets (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 the Portfolio's investments, see
"Determination of Net Asset Value" in the Statement of Additional Information.
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OTHER INFORMATION
At a Special Meeting of Shareholders of the Trust held on December 12, 1996, the
resignation of Chubb Investment Advisory as the Portfolio's investment manager
was accepted and Morgan was engaged to serve, effective January 1, 1997, as the
Portfolio's investment adviser pursuant to the Investment Advisory Agreement.
The Trust was organized on October 28, 1993. Prior to January 1, 1997, the
Trust's name was The Chubb Series Trust and the Portfolio's name was The
Resolute Small Company Portfolio.
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APPENDIX
The Portfolio may (a) purchase and sell exchange traded and over-the-counter
("OTC") put and call options on equity securities and 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.
The Portfolio may use futures contracts and options for hedging and risk
management purposes. See "RISK MANAGEMENT" in the Statement of Additional
Information. The Portfolio may not use futures contracts and options for
speculation.
The Portfolio may utilize options and futures contracts to manage its exposure
to changing interest rates and/or security prices. Some options and futures
strategies, including selling futures contracts and buying puts, tend to hedge
the Portfolio's investments against price fluctuations. Other strategies,
including buying futures contracts, writing puts and calls, and buying calls,
tend to increase market exposure. Options and futures contracts may be combined
with each other or with forward contracts in order to adjust the risk and return
characteristics of the Portfolio's overall strategy in a manner deemed
appropriate to the Adviser and consistent with the Portfolio's objective and
policies. Because combined options positions involve multiple trades, they
result in higher transaction costs and may be more difficult to open and close
out.
The use of options and futures is a highly specialized activity which involves
investment strategies and risks different from those associated with ordinary
portfolio securities transactions, and there can be no guarantee that their use
will increase the Portfolio's return. While the use of these instruments by the
Portfolio may reduce certain risks associated with owning its portfolio
securities, these techniques themselves entail certain other risks. If the
Adviser applies a strategy at an inappropriate time or judges market conditions
or trends incorrectly, options and futures strategies may lower the Portfolio's
return. Certain strategies limit the Portfolio's possibilities to realize gains
as well as limit its exposure to losses. The Portfolio also could experience
losses if the prices of its options and futures positions were poorly correlated
with its other investments, or if it could not close out its positions because
of an illiquid secondary market. In addition, the Portfolio will incur
transaction costs, including trading commissions and option premiums, in
connection with its futures and options transactions and these transactions
could significantly increase the Portfolio's turnover rate.
The Portfolio may not purchase or sell (write) futures contracts, options on
futures contracts or commodity options for risk management purposes if, as a
result, the aggregate initial margin and options premiums required to establish
these positions exceed 5% of the Portfolio's net assets.
OPTIONS
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, the Portfolio
obtains the right (but not the obligation) to sell the instrument underlying the
option at a fixed strike price. In return for this right, the Portfolio pays the
current market price for the option (known as the option premium). Options have
various types of underlying instruments, including specific securities, indexes
of securities, indexes of securities prices, and futures contracts. The
Portfolio may terminate its position in a put option it has purchased by
allowing it to expire or by exercising the option. The Portfolio also may close
out a put option position by entering into an offsetting transaction, if a
liquid market exists. If the option is allowed to expire, the Portfolio will
lose the entire premium it paid. If the Portfolio exercises a put option on a
security, it will sell the instrument underlying the option at the strike price.
If the Portfolio exercises an option on an index, settlement is in cash and does
not involve the actual sale of securities. If an option is American Style, it
may be exercised on any day up to its expiration date. A European style option
may be exercised only on its expiration date.
A-1
<PAGE>
The buyer of a typical put option can expect to realize a gain if the price of
the underlying instrument falls substantially. However, if the price of the
instrument underlying the option does not fall enough to offset the cost of
purchasing the option, a put buyer can expect to suffer a loss (limited to the
amount of the premium paid, plus related transaction costs).
The features of call options are essentially the same as those of put options,
except that the purchaser of a call option obtains the right to purchase, rather
than sell, the instrument underlying the option at the option's strike price. A
call buyer typically attempts to participate in potential price increases of the
instrument underlying the option with risk limited to the cost of the option if
security prices fall. At the same time, the buyer can expect to suffer a loss if
security prices do not rise sufficiently to offset the cost of the option.
SELLING (WRITING) PUT AND CALL OPTIONS. When the Portfolio writes a put option,
it takes the opposite side of the transaction from the option's purchaser. In
return for receipt of the premium, the Portfolio assumes the obligation to pay
the strike price for the instrument underlying the option if the other party to
the option chooses to exercise it. The Portfolio may seek to terminate its
position in a put option it writes before exercise by purchasing an offsetting
option in the market at its current price. 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 the Portfolio to sell or deliver the option's
underlying instrument in return for the strike price upon exercise of the
option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium a call writer offsets part of the effect of a price decline. At the same
time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is greater,
a call writer gives up some ability to participate in security price increases.
The writer of an exchange traded put or call option on a security, an index of
securities or a futures contract is required to deposit cash or securities or a
letter of credit as margin and to make mark to market payments of variation
margin as the position becomes unprofitable.
OPTIONS ON INDICES. The 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 is settled by cash payment and does not
involve the actual purchase or sale of securities. In addition, these options
are designed to reflect price fluctuations in a group of securities or segment
of the securities market rather than price fluctuations in a single security.
The Portfolio, in purchasing or selling index options, is subject to the risk
that the value of its portfolio securities may not change as much as an index
because the Portfolio's investments generally will not match the composition of
an index.
A-2
<PAGE>
For a number of reasons, a liquid market may not exist and thus the Portfolio
may not be able to close out an option position that it has previously entered
into. When the Portfolio purchases an OTC option, it will be relying on its
counterparty to perform its obligations, and the Portfolio may incur additional
losses if the counterparty is unable to perform.
FUTURES CONTRACTS
When the Portfolio purchases a futures contract, it agrees to purchase a
specified quantity of an underlying instrument at a specified future date or to
make a cash payment based on the value of a securities index. When the Portfolio
sells a futures contract, it agrees to sell a specified quantity of the
underlying instrument at a specified future date or to receive a cash payment
based on the value of a securities index. The price at which the purchase and
sale will take place is fixed when the Portfolio enters into the contract.
Futures can be held until their delivery dates or the position can be (and
normally is) closed out before then. There is no assurance, however, that a
liquid market will exist when the Portfolio wishes to close out a particular
position.
When the Portfolio purchases a futures contract, the value of the futures
contract tends to increase and decrease in tandem with the value of its
underlying instrument. Therefore, purchasing futures contracts will tend to
increase the Portfolio's exposure to positive and negative price fluctuations in
the underlying instrument, much as if it had purchased the underlying instrument
directly. When the Portfolio sells a futures contract, by contrast, the value of
its futures position will tend to move in a direction contrary to the value of
the underlying instrument. Selling futures contracts, therefore, will tend to
offset both positive and negative market price changes, much as if the
underlying instrument 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 the Portfolio buys or sells a futures contract it will be
required to deposit "initial margin" with its custodian in a segregated account
in the name of its futures broker, known as a futures commission merchant
("FCM"). Initial margin deposits are typically equal to a small percentage of
the contract's value. If the value of either party's position declines, that
party will be required to make additional "variation margin" payments equal to
the change in value on a daily basis. The party that has a gain may be entitled
to receive all or a portion of this amount. The Portfolio may be obligated to
make payments of variation margin at a time when it is disadvantageous to do so.
Furthermore, it may not always be possible for the Portfolio to close out its
futures positions. Until it closes out a futures position, the Portfolio will be
obligated to continue to pay variation margin. Initial and variation margin
payments do not constitute purchasing on margin for purposes of the Portfolio's
investment restrictions. In the event of the bankruptcy of an FCM that holds
margin on behalf of the Portfolio, the Portfolio may be entitled to return of
margin owed to it only in proportion to the amount received by FCM's other
customers, potentially resulting in losses to the Portfolio.
The Portfolio will segregate liquid assets in connection with its use of options
and futures contracts to the extent required by the staff of the Securities and
Exchange Commission. Securities held in a segregated account cannot be sold
while the futures contract or option is outstanding, unless they are replaced
with other suitable assets. As a result, there is a possibility that segregation
of a large percentage of the Portfolio's assets could impede portfolio
management or the Portfolio's ability to meet redemption requests or other
current obligations.
For further information about the Portfolio's use of futures and options and a
more detailed discussion of associated risks, see "INVESTMENT OBJECTIVES AND
POLICIES" in the Statement of Additional Information.
A-3
<PAGE>
------------------------------------
JPM Series Trust II
JPM Small Company
Portfolio
NO DEALER, SALESMAN OR ANY OTHER
PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS, IN
CONNECTION WITH THE OFFER CONTAINED
IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH OTHER INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY
THE TRUST OR THE DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN
OFFER BY THE TRUST OR BY THE
DISTRIBUTOR TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY
ANY OF THE SECURITIES OFFERED
HEREBY IN ANY JURISDICTION TO ANY
PERSON TO WHOM IT IS UNLAWFUL FOR
THE TRUST OR THE DISTRIBUTOR TO
MAKE SUCH OFFER IN SUCH PROSPECTUS
JURISDICTION. APRIL 30, 1997
<PAGE>
PROSPECTUS
JPM Series Trust II
JPM Treasury Money Market Portfolio
60 State Street
Boston, Massachusetts 02109
1-800-221-7930
JPM Treasury Money Market Portfolio (the "Portfolio") is a separate diversified
portfolio of JPM Series Trust II, an open-end management investment company
organized as a Delaware Business Trust (the "Trust"). The Portfolio seeks to
provide current income, maintain a high level of liquidity and preserve capital.
The Portfolio is advised by J.P. Morgan Investment Management Inc. ("Morgan" or
the "Adviser").
Shares of the Portfolio 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 the
Portfolio 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 April 30, 1997 (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 THE PORTFOLIO IS NEITHER INSURED NOR GUARANTEED BY THE UNITED
STATES GOVERNMENT. INVESTMENTS IN THE PORTFOLIO 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 THE PORTFOLIO IS SUBJECT TO RISK THAT MAY
CAUSE THE NET ASSET VALUE OF THE PORTFOLIO'S SHARES TO FLUCTUATE, AND WHEN
SHARES ARE REDEEMED, THE PROCEEDS MAY BE HIGHER OR LOWER THAN THE AMOUNT
ORIGINALLY INVESTED BY THE INVESTOR.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS APRIL 30, 1997.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Annual Operating Expenses.............................. 1
Financial Highlights................................... 2
Yield Information...................................... 3
The Portfolio.......................................... 3
Investment Objective and Policies...................... 3
Investment Objective................................. 3
Investment Policies.................................. 4
Risk Factors......................................... 4
Additional Investment Information...................... 4
When-Issued and Delayed Delivery Securities.......... 4
<CAPTION>
PAGE
<S> <C>
Repurchase Agreements................................ 4
Loans of Portfolio Securities........................ 4
Reverse Repurchase Agreements........................ 5
Illiquid Investments, Privately Placed and Other
Unregistered Securities............................ 5
Investment Restrictions................................ 5
Management of the Trust and Portfolio.................. 5
Shares of Beneficial Interest.......................... 7
Taxes and Dividends.................................... 8
Offering and Redemption of Shares...................... 9
Other Information...................................... 10
</TABLE>
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>
<S> <C>
Management Fees............................................................................. .20%
Other Expenses.............................................................................. .40%
---------
Total Portfolio Operating Expenses.......................................................... .60%
</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:
1 Year................................................................ $ 6
3 Years............................................................... $19
5 Years............................................................... $33
10 Years.............................................................. $75
THE AMOUNTS LISTED IN THE EXAMPLE SHOULD NOT BE CONSIDERED AS REPRESENTATIVE OF
PAST OR FUTURE EXPENSES OF THE PORTFOLIO AND ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE INDICATED. MOREOVER, WHILE THE EXAMPLE ASSUMES A 5% ANNUAL
RETURN, THE 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 the 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% of the Portfolio's
average daily net assets. 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 Portfolio, as well as expense reimbursement or waiver
arrangements, see "Management of the Trust and Portfolio."
1
<PAGE>
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share of beneficial interest
outstanding for the Portfolio for the indicated periods.(1) The related
financial statements and report of Ernst & Young LLP, independent auditors, for
the period ended December 31, 1995 and the fiscal year ended December 31, 1996
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>
January 3, 1995
Year Ended through
December 31, December 31,
1996 1995
--------------- ---------------
<S> <C> <C>
Net asset value, beginning of period........................ $ 10.06 $ 10.00
--------------- ---------------
Income From Investment Operations
Net investment income..................................... 0.44 0.45
Net realized and unrealized gains (losses) on securities &
foreign currency......................................... 0.03 0.06
--------------- ---------------
Total from investment operations........................ 0.47 0.51
--------------- ---------------
Less Distributions to Shareholders
Dividends from net investment income...................... (0.44) (0.45)
--------------- ---------------
Total distributions......................................... (0.44) (0.45)
--------------- ---------------
Net asset value, end of period.............................. $ 10.09 $ 10.06
--------------- ---------------
--------------- ---------------
Total Return(2)............................................. 4.69% 5.09%
--------------- ---------------
--------------- ---------------
Ratios to average net assets:
(Annualized)
Expenses(3)............................................... 0.60% 0.60%
Net investment income..................................... 4.56% 4.95%
Portfolio turnover rate..................................... N/A N/A
Average commission rate paid................................ N/A N/A
Net assets, at end of period................................ $1,386,518 $1,272,932
</TABLE>
- ---------
(1) From January 3, 1995 (commencement of operations) to December 31, 1996,
Chubb Investment Advisory Corporation ("Chubb Investment Advisory"), a
wholly-owned subsidiary of Chubb Life Insurance Company of America ("Chubb
Life"), served as the Portfolio's investment manager, and Morgan Guaranty
served as the Portfolio's sub-investment adviser. Effective January 1, 1997,
Morgan began serving as the 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
Portfolio 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 the Portfolio's expenses to average net assets would have been
2.02% in 1996 and 2.77% in 1995.
2
<PAGE>
YIELD INFORMATION
From time to time the Trust may advertise the Portfolio's yield, which
represents 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.
These figures are based on historical earnings and are not intended to indicate
future performance. Portfolio shares 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.
THE PORTFOLIO
The Portfolio is offered as a funding vehicle for Policies to be offered by the
Participating Insurance Companies. The Policies are described in the separate
prospectuses and statements of additional information 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 Section1.817.5(f)(3)(iii)) ("Eligible
Plans" or "Plans"). Differences in tax treatment or other considerations may
cause the interests of Policy owners and Eligible Plan participants to conflict,
although the Trust currently does not foresee any disadvantages to Policy owners
or Eligible Plan participants arising therefrom. 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.
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. By this Prospectus, shares of JPM Treasury Money Market
Portfolio are being offered.
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE: The Portfolio's investment objective is to provide current
income, maintain a high level of liquidity, and preserve capital. The
Portfolio's investment objective, and certain investment restrictions discussed
in the Statement of Additional Information, may be changed only with the
approval of the Portfolio's shareholders. The investment policies of the
Portfolio, used in furtherance of the Portfolio's objective, may be changed by
the Board without the approval of the Portfolio's shareholders.
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 397 calendar days or less.
3
<PAGE>
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
calendar 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.
ADDITIONAL INVESTMENT INFORMATION
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. Delivery of and payment
for these securities may take as long as a month or more after the
date of the purchase commitment. The value of these securities is subject to
market fluctuation during this period and 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. The 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 the
Portfolio not to enter into when-issued commitments exceeding in the aggregate
15% of the market value of the Portfolio's total assets less liabilities other
than the obligations created by these commitments.
REPURCHASE AGREEMENTS. The Portfolio may engage in repurchase agreement
transactions with brokers, dealers or banks that meet the credit guidelines
established by the Board. The Portfolio will only enter into repurchase
agreements involving U.S. Treasury securities. In a repurchase agreement, the
Portfolio buys a security from a seller that has agreed to repurchase it at a
mutually agreed upon date and price, reflecting the interest rate effective for
the term of the agreement. The term of these agreements is usually from
overnight to one week. A repurchase agreement may be viewed as a fully
collateralized loan of money by the Portfolio to the seller. The Portfolio
always receives securities as collateral with a market value at least equal to
the purchase price plus accrued interest and this value is maintained during the
term of the agreement. If the seller defaults and the collateral value declines,
the Portfolio might incur a loss. If bankruptcy proceedings are commenced with
respect to the seller, the Portfolio's realization upon the disposition of
collateral may be delayed or limited. Investments in certain repurchase
agreements and certain other investments which may be considered illiquid are
limited. See "Illiquid Investments, Privately Placed and Other Unregistered
Securities" below.
4
<PAGE>
LOANS OF PORTFOLIO SECURITIES. Subject to applicable investment restrictions,
the Portfolio is permitted to lend its securities. The Portfolio may lend its
securities if such loans are secured continuously by cash or equivalent
collateral or by a letter of credit in favor of the Portfolio at least equal at
all times to 100% of the market value of the securities loaned, plus accrued
interest. While such securities are on loan, the borrower will pay the Portfolio
any income accruing thereon. Loans will be subject to termination by the
Portfolio in the normal settlement time, generally 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 Portfolio and its respective shareholders. The Portfolio may pay
reasonable finders' and custodial fees in connection with a loan. In addition,
the Portfolio will consider all facts and circumstances including the
creditworthiness of the borrowing financial institution, and the Portfolio will
not make any loans in excess of one year. The Portfolio will not lend its
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. The Portfolio is permitted to enter into reverse
repurchase agreements. In a reverse repurchase agreement, the Portfolio sells a
security and agrees to repurchase it at a mutually agreed upon date and price,
reflecting the interest rate effective for the term of the agreement. 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.
ILLIQUID INVESTMENTS, PRIVATELY PLACED AND OTHER UNREGISTERED
SECURITIES. Subject to the limitations described below, the Portfolio 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 Portfolio is subject to the
following non-fundamental policy. The 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. The Portfolio 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.
INVESTMENT RESTRICTIONS
Investments of the Portfolio are further restricted by certain policies that may
not be changed without the approval of the holders of the Portfolio's
outstanding shares. See "INVESTMENT RESTRICTIONS" in the Statement of Additional
Information.
MANAGEMENT OF THE TRUST AND PORTFOLIO
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.
5
<PAGE>
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 December 31, 1996, J.P. Morgan and its
subsidiaries had total combined assets under management of approximately $208
billion. J.P. Morgan has a long history of service as adviser, underwriter and
lender to an extensive roster of major companies and as a financial 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 the Portfolio's day-to-day investment
decisions, arranges for the execution of portfolio transactions and generally
manages the 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 Portfolio
(the inception date of each person's responsibility for the Portfolio and their
business experience for the past five years are indicated parenthetically):
Robert R. Johnson, Vice President (since January, 1995, employed by Morgan since
prior to 1992) and Daniel B. Mulvey, Vice President (since August, 1995,
employed by Morgan since September, 1992).
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 of .20% of
the value of the Portfolio's average daily net assets.
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, registration
fees under federal securities laws and fees under 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.
6
<PAGE>
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 of .40% of the value of the Portfolio's average daily net assets.
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.
Morgan Guaranty or its affiliates may pay from its own assets Participating
Insurance Companies for providing certain administrative and account-related
services to owners of Policies for which Portfolio shares are the investment
vehicle.
From January 3, 1995 (commencement of operations) to December 31, 1996, Chubb
Investment Advisory served as the 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 1, 1996
through December 31, 1996, all investment management fees payable by the
Portfolio to Chubb Investment Advisory totaled .40% of the Portfolio's average
daily net assets. For the period January 1, 1996 through December 31, 1996,
sub-investment advisory fees payable by Chubb Investment Advisory to Morgan
Guaranty totaled .20% of the Portfolio's average daily net assets. Because a
portion of the Portfolio's fees and expenses were reimbursed, the ratio of the
Portfolio's operating expenses to average net assets for such period was .60%.
Had a portion of the Portfolio's fees and expenses not been reimbursed, the
ratio of the Portfolio's operating expenses to average net assets for such
period would have been 2.02%.
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 on behalf of the Trust in accordance
with state securities laws; (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.
SHARES OF BENEFICIAL INTEREST
Each Portfolio 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. Portfolio shares will be voted separately from
shares of the Trust's other portfolios on matters affecting only the Portfolio,
including approval of the Investment Advisory
7
<PAGE>
Agreement, and changes in fundamental investment policies of the Portfolio. The
assets of the Portfolio are charged with the liabilities of the 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 Portfolio; 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
The 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,
the 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 the 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 at least once
each year. Ordinary income of the 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 Portfolio shares with respect to which
dividends have been declared, at net asset value, as of the ex-dividend date of
such dividends.
8
<PAGE>
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 Portfolio under Subchapter M and
the 1940 Act, may affect the composition of the 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 policy owner's
control of the investments of a separate account may cause the policy owner,
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 policy
owner control, if promulgated, would cause earnings regarding a policy owner's
interest in the separate account to be includable in the policy owner'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 for any taxable year
following the later of the year in which the participant reaches age 70-1/2 or
the year in which the participant retires 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
Portfolio shares 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 the
Portfolio's net assets 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.
9
<PAGE>
Net asset value is normally determined as of 4:15 p.m. (Eastern Standard Time)
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 Portfolio's net
assets (i.e., the value of its assets less liabilities) by the total number of
shares outstanding. 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 December 12, 1996, the
resignation of Chubb Investment Advisory as the Portfolio's investment manager
was accepted and Morgan was engaged to serve, effective January 1, 1997, as the
Portfolio's investment adviser pursuant to the Investment Advisory Agreement.
The Trust was organized on October 28, 1993. Prior to January 1, 1997, the
Trust's name was The Chubb Series Trust and the Portfolio's name was The
Resolute Treasury Money Market Portfolio.
10
<PAGE>
------------------------------------
JPM Series Trust II
JPM Treasury
Money Market
Portfolio
NO DEALER, SALESMAN OR ANY OTHER
PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS, IN
CONNECTION WITH THE OFFER CONTAINED
IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH OTHER INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY
THE TRUST OR THE DISTRIBUTOR. THIS
PROSPECTUS DOES NOT CONSTITUTE AN
OFFER BY THE TRUST OR BY THE
DISTRIBUTOR TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY
ANY OF THE SECURITIES OFFERED
HEREBY IN ANY JURISDICTION TO ANY
PERSON TO WHOM IT IS UNLAWFUL FOR
THE TRUST OR THE DISTRIBUTOR TO
MAKE SUCH OFFER IN SUCH PROSPECTUS
JURISDICTION. APRIL 30, 1997
<PAGE>
JPM SERIES TRUST II
60 State Street
Boston, Massachusetts 02109
1-800-221-7930
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
April 30, 1997
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 April 30, 1997.
<PAGE>
TABLE OF CONTENTS
Page
BUSINESS HISTORY B-1
INVESTMENT OBJECTIVES AND POLICIES B-1
JPM Treasury Money Market Portfolio B-1
JPM Bond Portfolio B-1
JPM Equity Portfolio B-2
JPM Small Company Portfolio B-2
JPM International Equity Portfolio B-2
Money Market Instruments B-3
U.S. Treasury Securities B-3
Additional U.S. Government Obligations B-3
Foreign Government Obligations B-3
Bank Obligations B-3
Commercial Paper B-4
Repurchase Agreements B-4
Corporate Bonds and Other Debt Securities B-5
High-Yield/High-Risk Bonds B-5
Asset-Backed Securities B-6
Equity Investments B-6
Equity Securities B-6
Foreign Investments B-7
Additional Investments B-7
When-Issued and Delayed Delivery Securities B-7
Investment Company Securities B-8
Reverse Repurchase Agreements B-8
Mortgage Dollar Roll Transactions B-9
Loans of Portfolio Securities B-9
Privately Placed and Certain
Unregistered Securities B-9
Quality and Diversification Requirements B-9
JPM Treasury Money Market Portfolio B-10
JPM Bond Portfolio B-10
JPM Equity, Small Company and
International Equity Portfolios B-10
Options and Futures Transactions B-11
Exchange Traded and Over the Counter Options B-11
Futures Contracts and Options on Futures
Contracts B-11
Combined Positions B-12
Correlation of Price Changes B-12
Liquidity of Options and Futures Contracts B-12
Position Limits B-13
Asset Coverage for Futures Contracts and
Option Positions B-13
Risk Management B-13
INVESTMENT RESTRICTIONS B-14
Fundamental Investment Restrictions B-14
Non-Fundamental Investment Restrictions B-15
JPM Treasury Money Market
Portfolio B-15
<PAGE>
JPM Bond, Equity, Small Company
and International Equity Portfolios B-15
TRUSTEES AND OFFICERS B-16
INVESTMENT ADVISORY AND OTHER SERVICES B-20
Investment Advisory Agreement B-20
Administrative Services Agreement B-21
Prior Management Arrangements B-22
Independent Auditors B-23
Distributor B-23
Co-Administrator B-24
Custodian B-24
Payment of Expenses B-24
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATIONS B-25
SHARES OF BENEFICIAL INTEREST B-26
OFFERING AND REDEMPTION OF SHARES B-27
DETERMINATION OF NET ASSET VALUE B-28
TAXES B-29
PERFORMANCE AND YIELD INFORMATION B-31
Money Market Portfolio B-31
Non-Money Market Portfolios B-31
DELAWARE BUSINESS TRUST B-33
FINANCIAL STATEMENTS B-34
ADDITIONAL INFORMATION B-34
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 January 1, 1997, 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 397 calendar days or less.
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
B-1
<PAGE>
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.
B-2
<PAGE>
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
B-3
<PAGE>
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 397
calendar days. The securities which are subject to repurchase agreements,
however, may have maturity dates in excess of 397 calendar days from the
effective date of the repurchase agreement. JPM Treasury Money Market Portfolio
will only enter into repurchase agreements involving U.S.
B-4
<PAGE>
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 397 calendar days or less, 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.
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ASSET-BACKED SECURITIES. Asset-backed securities directly or indirectly
represent a participation interest in, or are secured by and payable from, a
stream of payments generated by particular assets such as motor vehicle or
credit card receivables or other asset-backed securities collateralized by such
assets. Payments of principal and interest may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution unaffiliated with the entities issuing the securities. The
asset-backed securities in which 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
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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
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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.
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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
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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 397 calendar days 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 10% 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
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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.
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The seller of an option on a futures contract receives the premium paid
by the purchaser and may be required to pay initial margin. Amounts equal to the
initial margin and any additional collateral required on any options on futures
contracts sold by 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.
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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
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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;
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(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.
TRUSTEES AND OFFICERS
The Trustees and officers of the Trust, their business addresses, dates
of birth and their principal occupations during the past five years are set
forth below.
Name, Address Position with Principal Occupations
and Date of Birth Trust During Past Five Years
John N. Bell Trustee Retired; Assistant
462 Lenox Avenue Treasurer at
South Orange, New Jersey Consolidated Edison
07079 Company of New York,
Date of Birth: 06/09/31 Inc.(since prior to
1992).
John R. Rettberg Trustee Retired; Consultant,
79-165 Montego Bay Drive Northrop Grumman
Bermuda Dunes, California Corporation ("Northrop")
92201 (since January, 1995;)
Date of Birth: 09/01/37 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).
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Name, Address Position with Principal Occupations
and Date of Birth Trust During Past Five Years
John F. Ruffle* Trustee Retired; Consultant,
2234 Oyster Catcher J.P. Morgan & Co.
Court Seabrook Island, Incorporated (since
South Carolina 29455 June, 1993); Director
Date of Birth: 03/28/37 and Vice Chairman of
J.P. Morgan & Co.
Incorporated (prior to
June, 1993); Director
Trident Corporation
(since April, 1994);
Director, Bethlehem
Steel Corporation
(since prior to 1992);
Trustee, Johns Hopkins
University (since prior
to 1992); Trustee,
Overlook Hospital
Foundation (since prior
to 1992; Director,
Student Loan Marketing
Association (since prior
to 1992).
Kenneth Whipple, Jr. Trustee Executive Vice
1115 Country Club Drive President, Ford Motor
Bloomfield Hills, Michigan Company, President,
48304 Ford Financial Services
Date of Birth: 09/28/34 Group, and Chairman,
Ford Motor Credit
Company; Director and
President, Ford
Holdings, Inc. (since
prior to 1992);
Director, CMS Energy
Corporation and
Consumers Power Company
(since January, 1993);
Director, Detroit
Country Day School
(since January, 1993);
Director, Granite
Management Corporation
- ----------------------
* "Interested person" within the meaning of Section 2(a)(19) of the 1940 Act.
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<PAGE>
Name, Address Position with Principal Occupations
and Date of Birth Trust During Past Five Years
(formerly First
Nationwide Financial
Corporation) and
Granite Savings Bank
(formerly First
Nationwide Bank)
(since prior to
1992); Director,
United Way of
Southeastern Michigan
(since prior to
1992); Director, USL
Capital Corporation
(since prior to
1992); Chairman,
Director and First
Vice President,
WTVS-TV (since
prior to 1992).
The Trust will pay its Trustees an annual retainer of $20,000 and
reimburse them for their related expenses. The estimated aggregate amount of
compensation to be paid to each Trustee by the Trust for the fiscal year ending
December 31, 1997 is as follows:
Estimated
Compensation
Name of Trustee From Trust
John N. Bell $20,000
John R. Rettberg $20,000
John F. Ruffle $20,000
Kenneth Whipple, Jr. $20,000
OFFICERS OF THE TRUST
MARIE E. CONNOLLY; Vice President and Assistant Treasurer. President,
Chief Executive Officer, Chief Compliance Officer and Director of FDI and
Premier Mutual Fund Services, Inc., an affiliate of FDI ("Premier Mutual") and
an officer of certain investment companies advised or administered by the
Dreyfus Corporation ("Dreyfus") or is affiliates. From December 1991 to July
1994, Ms. Connolly was President and Chief Compliance Officer of FDI. Her date
of birth is August 1, 1957.
DOUGLAS C. CONROY; Vice President and Assistant Treasurer. Supervisor
of Treasury Services and Administration of FDI and an officer of certain
investment companies advised or administered by Dreyfus or its affiliates.
From April 1993 to January 1995, Mr. Conroy was a Senior Fund Accountant for
Investors Bank & Trust Company. From December 1991 to March 1993, Mr. Conroy
was employed as a fund accountant at The Boston Company, Inc. His date of
birth is March 31, 1969.
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<PAGE>
RICHARD W. INGRAM; President and Treasurer. Executive Vice President
and Director of Client Services and Treasury Administration of FDI, Senior
Vice President of Premier Mutual and an officer of RCM Capital Funds, Inc.,
RCM Equity Funds, Inc. (together "RCM"), Waterhouse Investors Cash Management
Fund, Inc. ("Waterhouse") and certain investment companies advised or
administered by Dreyfus or Harris Trust and Savings Bank ("Harris") or their
respective affiliates. Prior to April 1997, Mr. Ingram was Senior Vice
President and Director of Client Services and Treasury Administration of FDI.
From March 1994 to November 1995, Mr. Ingram was Vice President and Division
Manager of First Data Investor Services Group, Inc. From 1989 to 1994, Mr.
Ingram was Vice President, Assistant Treasurer and Tax Director - Mutual Funds
of The Boston Company, Inc. His date of birth is September 15, 1955.
KAREN JACOPPO-WOOD; Vice President and Assistant Secretary. Assistant
Vice President of FDI and an officer of RCM, Waterhouse and Harris or their
respective affiliates. From June 1994 to January 1996, Ms. Jacoppo-Wood was
a Manager, SEC Registration, Scudder, Stevens & Clark, Inc. From 1988 to May
1994, Ms. Jacoppo-Wood was a senior paralegal at The Boston Company Advisors,
Inc. ("TBCA"). Her date of birth is December 29, 1966.
ELIZABETH A. KEELEY; Vice President and Assistant Secretary. Vice
President and Senior Counsel of FDI and Premier Mutual and an officer of RCM,
Waterhouse and certain investment companies advised or administered by Dreyfus
or Harris or their respective affiliates. Prior to August 1996, Ms. Keeley
was Assistant Vice President and Counsel of FDI and Premier Mutual. Prior to
September 1995, Ms. Keeley was enrolled at Fordham University School of Law
and received her JD in May 1995. Prior to September 1992, Ms. Keeley was an
assistant at the National Association for Public Interest Law. Address: 200
Park Avenue, New York, New York 10166. Her date of birth is September 14,
1969.
CHRISTOPHER J. KELLEY; Vice President and Assistant Secretary. Vice
President and Associate General Counsel of FDI and Premier Mutual and an
officer of Waterhouse and certain investment companies advised or administered
by Harris or its affiliates. From April 1994 to July 1996, Mr. Kelley was
Assistant Counsel at Forum Financial Group. From 1992 to 1994, Mr. Kelley was
employed by Putnam Investments in legal and compliance capacities. Prior to
September 1992, Mr. Kelley was enrolled at Boston College Law School and
received his JD in May 1992. His date of birth is December 24, 1964.
MARY A. NELSON; Vice President and Assistant Treasurer. Vice President
and Manager of Treasury Services and Administration of FDI and Premier Mutual,
an officer of RCM, Waterhouse and certain investment companies advised or
administered by Dreyfus or Harris or their respective affiliates. From 1989 to
1994, Ms. Nelson was an Assistant Vice President and Client Manager for The
Boston Company, Inc. Her date of birth is April 22, 1964.
JOHN E. PELLETIER; Vice President and Secretary. Senior Vice President,
General Counsel, Secretary and Clerk of FDI and Premier Mutual and an officer
of RCM, Waterhouse and certain investment companies advised or administered by
Dreyfus or Harris or their respective affiliates. From February 1992 to April
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<PAGE>
1994, Mr. Pelletier served as Counsel for TBCA. From August 1990 to February
1992, Mr. Pelletier was employed as an Associate at Ropes & Gray. His date of
birth is June 24, 1964.
MICHAEL S. PETRUCELLI; Vice President and Assistant Secretary. Senior
Vice President and Director of Strategic Client Initiatives for FDI since
December 1996. From December 1989 through November 1996, Mr. Petrucelli was
employed with GE Investments where he held various financial, business
development and compliance positions. He also served as Treasurer of the GE
Funds and as Director of GE Investment Services. Address: FDI, 200 Park
Avenue, New York, New York 10166. His date of birth is May 18, 1961.
JOSEPH F. TOWER III; Vice President and Assistant Treasurer. Executive
Vice President, Treasurer and Chief Financial Officer, Chief Administrative
Officer and Director of FDI. Senior Vice President, Treasurer, Chief
Financial Officer, Chief Administrative Officer and Director of Premier Mutual
and an officer of Waterhouse and certain investment companies advised or
administered by Dreyfus or its affiliates. Prior to April 1997, Mr. Tower was
Senior Vice President, Treasurer and Chief Financial Officer, Chief
Administrative Officer and Director of FDI. From July 1988 to November 1993,
Mr. Tower was Financial Manager of The Boston Company, Inc. His date of birth
is June 13, 1962.
The business address of each of the officers, unless otherwise noted,
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
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<PAGE>
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 December 12, 1996. Unless earlier terminated,
the Agreement will remain in effect as to the applicable Portfolio until
December 31, 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 "SHARES OF BENEFICIAL INTEREST" 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 January 1, 1997. 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, registration fees under federal securities laws and filing fees
under 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 December 31, 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
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<PAGE>
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 December 31, 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 "SHARES OF BENEFICIAL INTEREST" 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 December 31,
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 January 1, 1997, 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 1, 1996 through December 31, 1996, management fees amounted to $5,312,
$10,394, $31,027, $28,464 and $42,034 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 (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. For the period January 1, 1996 through
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<PAGE>
December 31, 1996, sub-advisory fees amounted to $2,656, $6,237, $20,685,
$21,347 and $31,526 for JPM Treasury Money Market Portfolio, JPM Bond Portfolio,
JPM Equity Portfolio, JPM Small Company Portfolio and JPM International Equity
Portfolio, respectively.
INDEPENDENT AUDITORS
Ernst & Young LLP, 200 Clarendon Street, Boston, Massachusetts 02116,
had served as the independent auditors of the Trust prior to fiscal 1997. 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 and
for the fiscal year ended December 31, 1996 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.
DISTRIBUTOR
Funds Distributor, Inc. ("FDI") serves as the Trust's Distributor and
holds itself available to receive purchase orders for each of the Portfolio's
shares. In that capacity, FDI has been granted the right, as agent of the Trust,
to solicit and accept orders for the purchase of each of the Portfolio's shares
in accordance with the terms of the Distribution Agreement between the Trust and
FDI. Under the terms of the Distribution Agreement between FDI and the Trust,
FDI receives no compensation in its capacity as the Trust's distributor.
The Distribution Agreement shall continue in effect with respect to
each of the Portfolios for a period of two years after execution only if it is
approved at least annually thereafter (i) by a vote of the holders of a majority
of the Trust's outstanding shares or by its Trustees and (ii) by a vote of a
majority of the Trustees of the Trust who are not "interested persons" (as
defined by the 1940 Act) of the parties to the Distribution Agreement, cast in
person at a meeting called for the purpose of voting on such approval (see
"Trustees and Officers"). The Distribution Agreement will terminate
automatically if assigned by either party thereto and is terminable at any time
without penalty by a vote of a majority of the Trustees of the Trust, a vote of
a majority of the Trustees who are not "interested persons" of the Trust, or by
a vote of (i) 67% or more of the Trust's shares or the Portfolios' outstanding
voting securities present at a meeting, if the holders of more than 50% of the
Trust's outstanding shares or the Portfolios' outstanding voting securities are
present or represented by proxy, or (ii) more than 50% of the Trust's
outstanding shares or the Portfolios' outstanding voting securities, whichever
is less and in any case without payment of any penalty on 60 days' written
notice to the other party. The principal offices
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of FDI are located at 60 State Street, Suite 1300, Boston, Massachusetts 02109.
CO-ADMINISTRATOR
Under the Co-Administration Agreement with the Trust dated January 1,
1997, FDI also serves as the Trust's Co-Administrator. The Co-Administration
Agreement may be renewed or amended by the Trustees without a shareholder vote.
The Co-Administration Agreement is terminable at any time without penalty by a
vote of a majority of the Trustees of the Trust on not more than 60 days'
written notice nor less than 30 days' written notice to the other party. The
Co-Administrator may subcontract for the performance of its obligations,
provided, however, that unless the Trust expressly agrees in writing, the
Co-Administrator shall be fully responsible for the acts and omissions of any
subcontractor as it would for its own acts or omissions.
For its services under the Co-Administration Agreement, each Portfolio
has agreed to pay FDI fees equal to its allocable share of an annual complex-
wide charge of $425,000 plus FDI's out-of-pocket expenses. The amount allocable
to each Portfolio is based on the ratio of its net assets to the aggregate net
assets of the Trust and certain other registered investment companies subject to
similar agreements with FDI. Under the terms of the Administrative Services
Agreement with Morgan Guaranty, Morgan Guaranty is responsible for the payment
of the fees and expenses of FDI as Co- Administrator.
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
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<PAGE>
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
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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, 1996, JPM Equity Portfolio held 1,500 shares of Dean
Witter Discover & Co. with a value of $99,375; 900 shares of Nations Bank with a
value of $87,975; 1,800 shares of First Chicago NBD Corp. with a value of
$96,750 and 1,200 shares of Salomon, Inc. with a value of $56,550; JPM Small
Company Portfolio held 300 shares of Hambrecht and Quist Group with a value of
$6,487; and JPM International Equity Portfolio held 1,000 shares of Daiwa
Securities Co. with a value of $8,874, all of which are regular brokers of the
Trust.
For the year ended December 31, 1996, the Trust paid in the aggregate
$22,032 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 1996 were approximately as
follows: 198% for JPM Bond Portfolio, 90% for JPM Equity Portfolio, 144% for JPM
Small Company Portfolio and 71% 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.
SHARES OF BENEFICIAL INTEREST
The Trust consists of an unlimited number of outstanding shares of
beneficial interest 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
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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 March 31, 1997, Chubb Life owned as of record and beneficially
the following percentages of the Trust's Portfolios in its General Account:
99.99% of JPM Treasury Money Market Portfolio, 99.99% of JPM Bond Portfolio,
99.99% of JPM Equity Portfolio, 99.99% of JPM Small Company Portfolio, and
99.99% 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, 1997 the following percentages of the Trust's Portfolios: 99.99% of
JPM Treasury Money Market Portfolio, 99.99% of JPM Bond Portfolio, 99.99% of JPM
Equity Portfolio, 99.99% of JPM Small Company Portfolio, and 99.99% 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 March 31, 1997, the amount of shares owned by the officers and Trustees as
a group was less than 1% of each Portfolio.
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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 as of 4:15 p.m (Eastern Standard Time), 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 Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. On days when
U.S. trading markets close early in observance of these holidays, the Portfolios
would expect to close for purchases and redemptions at the same time. The
Portfolios may also close for purchases and redemptions at such other times as
may be determined by the Trustees to the extent permitted by applicable law. The
days on which net asset value is determined are the Portfolios business days.
The net asset value per share of each Portfolio is computed by dividing the sum
of the value of the securities held by that
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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.
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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, assuming 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
ss1.817-5(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 ss1.817-5(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);
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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 a
specified 30-day (or one month) period assuming semi-annual reinvestment and
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:
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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
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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 2000(r), 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 2000(r) 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 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 2000(r) 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 and Russell 2000(r).
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
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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,
1996 Annual Report to Shareholders are incorporated herein by reference.
ADDITIONAL INFORMATION
The Annual report containing financial statements of the Trust will be
sent to all Trust shareholders.
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APPENDIX A
DESCRIPTION OF SECURITY RATINGS
STANDARD & POOR'S
Corporate and Municipal Bonds
AAA Debt rated AAA have the highest ratings assigned by Standard & Poor's
to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
AA Debt rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in a small
degree.
A Debt rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than 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.
Appendix-1
<PAGE>
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
Appendix-2
<PAGE>
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.
Appendix-3
<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 the period ended
December 31, 1996.
Included in Part B of the Registration Statement:
The Financial Statements contained in the Registrant's
Annual Report for the year ended December 31, 1996, Notes to Financial
Statements and Report of Ernst & Young LLP, Independent Auditors, dated December
31, 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. 2
(4) Specimen Share Certificates. 1
(5) Investment Advisory Agreement between JPM Series Trust II
and J.P. Morgan Investment Management Inc. ("Morgan"). 3
(6) Distribution Agreement between JPM Series Trust II and Funds
Distributor, Inc. ("FDI"). 3
(8) Custodian Contract between JPM Series Trust II and State
Street Bank and Trust Company ("State Street"). 3
(9)(a) Transfer Agency and Service Agreement between JPM Series
Trust II and State Street. 3
(9)(b) Administrative Services Agreement between JPM Series Trust
II and Morgan Guaranty Trust Company of New York. 3
(9)(c) Co-Administration Agreement between JPM Series Trust II and
FDI. 3
(9)(d) Form of Fund Participation Agreement. 3
(11) Consent of Ernst & Young LLP, Independent Auditors. 3
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(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
(24) Powers of Attorney. 3
(27.1) Financial Data Schedule for JPM Bond Portfolio. 3
(27.2) Financial Data Schedule for JPM Equity Portfolio. 3
(27.3) Financial Data Schedule for JPM International Equity Portfolio. 3
(27.4) Financial Data Schedule for JPM Treasury Money Market Portfolio. 3
(27.5) Financial Data Schedule for JPM Small Company Portfolio. 3
- -------------------------------
1 Incorporated by reference to exhibit of same designation filed with the
Registration Statement on Form N-1A for the Registrant on December 10,
1993.
2 Incorporated by reference to exhibit of same designation filed with the
Registration Statement on Form N-1A for the Registrant on December 31,
1996.
3 Filed herewith.
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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.
Shares of the Registrant are currently also offered and sold to Separate
Accounts formed by other insurance companies which are not affiliated with Chubb
Life and The Chubb Corporation.
Item 26. Number of Holders of Securities
As of March 31, 1997:
(1) (2)
Title Number of Record Holders
JPM Treasury Money Market
Portfolio; $.01 par value 2
JPM Bond Portfolio;
$.01 par value 2
JPM Equity Portfolio;
$.01 par value 2
JPM Small Company Portfolio;
$.01 par value 2
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(1) (2)
Title Number of Record Holders
JPM International Equity Portfolio;
$.01 par value 2
Item 27. Indemnification
Reference is made to the Registrant's By-Laws (Article VI) previously
filed as Exhibit 2 to the Registrant's Registration Statement filed with the
Securities and Exchange Commission.
The Trustees and officers of the Registrant and the personnel of the
Registrant's co-administrator are insured under an errors and omissions
liability insurance policy. The Registrant and its officers are also insured
under the fidelity bond required by Rule 17g-1 under the Investment Company Act
of 1940, as amended.
Item 28. Business and Other Connections of Investment Adviser
Morgan, a registered investment adviser, is a wholly-owned subsidiary
of J.P. Morgan & Co. Incorporated. Morgan manages employee benefit plans for
corporations and unions. Morgan also provides investment management services
for a broad spectrum of other institutional investors, including foundations,
endowments, sovereign governments, and insurance companies.
To the knowledge of the Registrant, none of the directors or executive
officers of Morgan is or has been during the past two fiscal years engaged in
any other business, profession, vocation or employment of a substantial nature,
except that certain officers and directors of Morgan also hold various positions
with, and engage in business for, J.P. Morgan & Co. Incorporated or Morgan
Guaranty, a New York trust company which is also a wholly-owned subsidiary of
J.P. Morgan & Co. Incorporated.
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) FDI, located at 60 State Street, Suite 1300, Boston, Massachusetts 02109, is
the principal underwriter of the Registrant's shares.
FDI acts as principal underwriter of the following investment companies other
than the Registrant:
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BJB Investment Funds
Burridge Funds
Foreign Fund, Inc.
Fremont Mutual Funds, Inc.
Harris Insight Funds Trust
H.T. Insight Funds, Inc. d/b/a Harris Insight Funds
LKCM Fund
Monetta Fund, Inc.
Monetta Trust
The Munder Framlington Funds Trust
The Munder Funds, Inc.
The Munder Funds Trust
The PanAgora Institutional Funds
RCM Capital Funds, Inc.
RCM Equity Funds, Inc.
The Skyline Funds
St. Clair Money Market Fund
Waterhouse Investors Cash Management Funds, Inc.
The JPM Institutional Funds
JPM Series Trust
JPM Series Trust II
FDI does not act as depositor or investment adviser of any investment companies.
FDI is registered with the Securities and Exchange Commission as a broker-dealer
and is a member of the National Association of Securities Dealers. FDI is an
indirect wholly-owned subsidiary of Boston Institutional Group, Inc., a holding
company all of whose outstanding shares are owned by key employees.
(b) The information required by this Item 29(b) with respect to each director,
officer and partner of FDI is incorporated herein by reference to Schedule A of
Form BD filed by FDI with the Securities and Exchange Commission pursuant to the
Securities Act of 1934 (SEC File No. 8-20518).
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
The accounts and records of the Registrant are located, in whole or in
part, at the office of the Registrant and the following locations:
J.P. Morgan Investment Management Inc., 522 Fifth Avenue, New York, NY
10036 (records relating to its functions as investment adviser).
Morgan Guaranty Trust Company of New York, 60 Wall Street, New York,
New York 10260-0060 or 522 Fifth Avenue, New York, NY 10035 (records relating to
its functions as administrative services agent).
I:\dsfndlgl\JPMST2.txt
C-5
<PAGE>
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110 (records relating to its functions as custodian and transfer
and dividend disbursing agent).
Funds Distributor, Inc., 60 State Street, Boston, Massachusetts 02109
(records relating to its functions as co-administrator and distributor).
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 or 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 16c 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.
I:\dsfndlgl\JPMST2.txt
C-6
<PAGE>
SIGNATURES
pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for the effectiveness of this Amendment to the Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and 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 Boston, and the
State of Massachusetts on the 28th day of April, 1997.
JPM SERIES TRUST II
By: /s/Richard W. Ingram
----------------------
Richard W. Ingram
President and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below by the following
persons in the capacities indicated on the 28th day of April, 1997.
/s/RICHARD W. INGRAM
Richard W. Ingram President and
Treasurer
(Principal
Executive,
Financial and
Accounting
Officer)
JOHN N. BELL* Trustee
John N. Bell
JOHN R. RETTBERG* Trustee
John R. Rettberg
JOHN F. RUFFLE* Trustee
John F. Ruffle
KENNETH WHIPPLE, JR.* Trustee
Kenneth Whipple, Jr.
- ----------------------------
*By: Richard W. Ingram
Richard W. Ingram
As attorney-in-fact pursuant to powers of attorney filed herewith.
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C-7
<PAGE>
INDEX OF EXHIBITS
Ex-99.5 Investment Advisory Agreement between JPM Series Trust II
and J.P. Morgan Investment Management Inc.
Ex-99.6 Distribution Agreement between JPM Series Trust II and Funds
Distributor, Inc. ("FDI").
Ex-99.8 Custodian Contract between JPM Series Trust II and State
Street Bank and Trust Company ("State Street").
Ex-99.9a Transfer Agency and Service Agreement between JPM Series
Trust II and State Street.
Ex-99.9b Administrative Services Agreement between JPM Series Trust II
and Morgan Guaranty Trust Company of New York.
Ex-99.9c Co-Administration Agreement between JPM Series Trust II and
FDI.
Ex-99.9d Form of Fund Participation Agreement.
Ex-99.11 Consent of Ernst & Young LLP, Independent Auditors.
Ex-99.16 Schedule of Computation of Performance Data.
Ex-24 Powers of Attorney
Ex-27 Financial Data Schedules.
I:\dsfndlgl\JPMST2.txt
FORM OF
JPM SERIES TRUST II
INVESTMENT ADVISORY AGREEMENT
Investment Advisory Agreement, made as of the 1st day of
January 1997, 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;
<PAGE>
(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;
2
<PAGE>
(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
3
<PAGE>
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.
4
<PAGE>
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: Richard W. Ingram
J.P. MORGAN INVESTMENT
MANAGEMENT, INC.
By: George Gatch
5
<PAGE>
Schedule A
JPM SERIES TRUST II
Annual Fee As
A Percentage of
Name of Portfolio Average Daily
Net Assets Reapproval Date Reapproval Day
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 __________
JPM SERIES TRUST II
DISTRIBUTION AGREEMENT
DISTRIBUTION AGREEMENT, made as of this 1st day of January, 1997,
between JPM SERIES TRUST II, an unincorporated business trust organized under
the laws of Delaware (the "Trust"), and FUNDS DISTRIBUTOR, INC., a Massachusetts
corporation (the "Distributor").
WITNESSETH:
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end diversified management
investment company;
WHEREAS, The Trust issues a separate series of Shares of Beneficial
Interest (the "Shares") for each Portfolio (the "Portfolio" or "Portfolios" as
the context requires) of the Trust;
WHEREAS, it is in the interest of the Trust to be able to offer Shares
of each Portfolio for sale continuously and to appoint a broker registered under
the Securities Exchange Act of 1934 and various state broker registration
statutes for the purpose of facilitating such offers and sales;
WHEREAS, the Trust and the Distributor wish to enter into an agreement
with each other with respect to the continuous offering of Shares of the
Portfolios;
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor. The Trust hereby appoints
the Distributor its exclusive agent in connection with the offering and sale of
the Shares on the terms set forth in this Agreement and the Distributor hereby
accepts such appointment and agrees to act hereunder.
Section 2. Services and Duties of the Distributor.
(a) The Distributor agrees to offer and sell, as agent for the Trust,
from time to time during the term of this Agreement, Shares upon the terms
described in the Prospectus relating to such Shares. As used in this Agreement,
the term "Prospectus" shall mean the prospectus, including any information
incorporated by reference therein, relating to such Shares included as part of
the Trust's Registration Statement, as such prospectus may be amended or
supplemented from time to time, and the term "Registration Statement" shall mean
the Registration Statement most recently filed from time to time by the Trust
with the Securities and Exchange Commission and effective under the Securities
Act of 1933, as
1
<PAGE>
amended (the "1933 Act"), and the 1940 Act, as such Registration Statement may
be amended by any amendments thereto at the time in effect.
(b) The Distributor will hold itself available to receive orders,
satisfactory to the Distributor, for the purchase of Shares and will establish
procedures for the acceptance and transmission of orders on behalf of the Trust,
which procedures shall be reasonably acceptable to the Trust. The Distributor
shall promptly forward to the Trust's custodian funds received in respect of
purchases of Shares. Purchase orders shall be deemed effective at the time and
in the manner set forth in the Prospectus relating to such Shares.
(c) The offering price of the Shares shall be the net asset value per
Share (as defined in or pursuant to the Declaration of Trust of the Trust and
determined as set forth in the Prospectus relating to such Shares) next
determined following receipt of an order. The Trust shall furnish the
Distributor, with all possible promptness, an advice of each computation of net
asset value of Shares of each Portfolio or class of Shares.
(d) The Distributor shall not be obligated to sell any certain number
of Shares and nothing herein contained shall prevent the Distributor from
entering into like distribution arrangements with other investment companies.
Section 3. Duties of the Trust.
(a) The Trust agrees to sell Shares of each Portfolio so long as it has
Shares available for sale and to cause the Trust's transfer agent to record on
its books the ownership of (or deliver certificates, if any, for) such Shares
registered in such names and amounts as the Distributor has requested in writing
or other means of data transmission, as promptly as practicable after receipt by
the Trust of the net asset value thereof and written request of the Distributor
therefor.
(b) The Trust shall keep the Distributor fully informed with regard to
the Trust's affairs and shall furnish to the Distributor copies of all
information, financial statements and other papers which may be necessary for
use in connection with the sale of Shares of the Portfolios, and this shall
include one certified copy, upon request by the Distributor, of all financial
statements prepared for the Trust by independent accountants and such number of
copies of its most current Prospectuses as may be necessary to accompany
confirmation of sales and annual and interim reports and Prospectuses for
delivery to existing shareholders.
(c) The Trust shall take, from time to time, such steps, including
payment of the related filing fee, as may be necessary to register its Shares
under the 1933 Act to the end that there will be available for sale such number
of Shares as the Distributor may be expected to sell. The Trust agrees to file
from time to time such amendments, reports and other documents as may be
necessary in order that there may be no untrue statement of a material fact in a
Registration Statement or Prospectus, or necessary in order that there may be no
omission to state a material fact in the Registration Statement or Prospectus
which omission would make the statements therein misleading.
2
<PAGE>
(d) The Trust, through Funds Distributor, Inc. as Co-Administrator,
shall use its best efforts to qualify and maintain the qualification of any
appropriate number of the Shares of each Portfolio for sale under the securities
laws of such states as the Distributor and the Trust may approve, and, if
necessary or appropriate in connection therewith, to qualify and maintain the
qualification of the Trust as a broker or dealer in such states; provided that
the Trust shall not be required to amend its Declaration of Trust or By-laws to
comply with the laws of any state, to maintain an office in any state, to change
the terms of the offering of the Shares in any state from the terms set forth in
its Registration Statement and Prospectus, to qualify as a foreign corporation
in any state or to consent to service of process in any state other than with
respect to claims arising out of the offering of the Shares. The Distributor
shall furnish such information and other material relating to its affairs and
activities as may be required by such Co-Administrator in connection with such
qualifications.
Section 4. Expenses. The Trust shall bear all costs and expenses
necessary for the continuous sale of the Shares such as: (i) fees and
disbursements of its counsel and independent accountants; (ii) the preparation,
filing and printing of any registration statements and/or prospectuses required
to be filed by and under the Federal and state securities laws; (iii) the
preparation and mailing of annual and interim reports, prospectuses and proxy
materials to shareholders; and (iv) the qualifications of Shares for sale and of
the Trust as a broker or dealer under the securities laws of such states or
other jurisdictions as shall be selected by the Trust and the Distributor
pursuant to Section 3(d) hereof and the cost and expenses payable to each such
state for continuing qualification therein in connection with such sale. Since
the Trust has not adopted a plan under Rule 12b-1 of the 1940 Act, the
Distributor is directed and agrees that it will not incur any expenses which
would require the Trust to adopt a plan under Rule 12b-1.
Section 5. Indemnification. The Trust agrees to indemnify, defend and
hold the Distributor, its officers and directors and any person who controls the
Distributor within the meaning of Section 15 of the 1933 Act, free and harmless
from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which the
Distributor, its officers, directors or any such controlling person may incur
under the 1933 Act, or under common law or otherwise, arising out of or based
upon any untrue statement of a material fact contained in the Registration
Statement or Prospectus or arising out of or based upon any alleged omission to
state a material fact required to be stated in either thereof or necessary to
make the statements in either thereof not misleading, except insofar as such
claims, demands, liabilities or expenses arise out of or are based upon any such
untrue statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with information furnished in writing by the
Distributor to the Trust for use in the Registration Statement or Prospectus;
provided, however, that this indemnity agreement, to the extent that it might
require indemnity of any person who is also an officer or Trustee of the Trust
or who controls the Trust within the meaning of Section 15 of the 1933 Act,
shall not inure to the benefit of such officer, Trustee or controlling person
unless a court of competent jurisdiction shall determine, or it shall have been
determined by controlling precedent, that such result would not be against
public policy as
3
<PAGE>
expressed in the 1933 Act; and further provided that in no event shall anything
contained herein be so construed as to protect the Distributor against any
liability to the Trust or to its securities holders to which the Distributor
would otherwise be subject by reason of willful misfeasance, bad faith, or gross
negligence in the performance of its duties, or by reason of its reckless
disregard of its obligations under this Agreement. The Trust's agreement to
indemnify the Distributor, its officers and directors and any such controlling
person, as aforesaid is expressly conditioned upon the Trust's being promptly
notified of any action brought against the Distributor, its officers or
directors, or any such controlling person, such notification to be given to the
Trust in accordance with Section 9, with a copy to Stephen K. West, Sullivan &
Cromwell, 125 Broad Street, New York, New York 10004. The Trust agrees promptly
to notify the Distributor of the commencement of any litigation or proceedings
against it or any of its officers or Trustees in connection with the issue and
sale of any Shares.
The Distributor agrees to indemnify, defend and hold the Trust, its
Trustees and officers and any person who controls the Trust, if any, within the
meaning of Section 15 of the 1933 Act, free and harmless from and against any
and all claims, demands, liabilities and expenses (including the cost of
investigating or defending against such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Trust, its Trustees or
officers of any such controlling person may incur under the 1933 Act or under
common law or otherwise, but only to the extent that such liability or expense
incurred by the Trust, its Trustees or officers or such controlling person
resulting from such claims or demands shall arise out of or be based upon any
alleged untrue statement of a material fact contained in information furnished
in writing by the Distributor to the Trust for use in the preparation of the
Registration Statement or Prospectus or shall arise out of or be based upon any
alleged omission to state a material fact in such information or a fact
necessary to make such information not misleading, it being understood that the
Trust will rely upon the information provided by the Distributor for use in the
preparation of the Registration Statement and Prospectus. The Distributor's
agreement to indemnify the Trust, its Trustees and officers, and any such
controlling person as aforesaid is expressly conditioned upon the Distributor's
being promptly notified of any action brought against the Trust, its Trustees or
officers or any such controlling person, such notification to be given to the
Distributor in accordance with Section 9.
Section 6. Limitation of Liability. The Distributor shall not be liable
for any error of judgment or for any loss suffered by the Trust in connection
with the matters to which this Agreement relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or for reckless disregard by it of its obligations and
duties under this Agreement.
Section 7. Compliance with Securities Laws. The Trust represents that
it is registered as an open-end management investment company under the 1940
Act, and agrees that it will comply with the provisions of the 1940 Act and of
the rules and regulations thereunder. The Trust and the Distributor each agree
to comply with the applicable terms and provisions of the 1940 Act, the 1933 Act
and, subject to the provisions of Section 3(d), applicable state securities
laws.
4
<PAGE>
The Distributor agrees to comply with the applicable terms and provisions of the
Securities Exchange Act of 1934.
Section 8. Term of Agreement; Termination. This Agreement shall
commence on the date first set forth above. This Agreement shall continue in
effect for a period more than two years from the date hereof only so long as
such continuance is specifically approved at least annually in conformity with
the requirements of the 1940 Act.
This Agreement shall terminate automatically in the event of its
assignment (as defined in the 1940 Act). In addition, this Agreement may be
terminated by either party at any time, without penalty, on not less than sixty
(60) days' written notice to the other party.
Section 9. Notices. Any notice required to be given pursuant to this
Agreement shall be deemed duly given if delivered or mailed by registered mail,
postage prepaid: (1) to the Distributor at Funds Distributor, Inc., 60 State
Street, 13th Floor, Boston, Massachusetts 02109, Attention: President with a
copy to General Counsel; or (2) to the Trust at JPM Series Trust II, at its
address as set forth in its Prospectus, Attention: Treasurer, with a copy to
Morgan Guaranty Trust Company of New York, 522 Fifth Avenue, New York, New York
10036, Attention: Funds Management or at such other address as either party may
from time to time specify to the other party pursuant to this Section 9.
Section 10. Confidentiality. The Distributor agrees on behalf of itself
and its employees to treat confidentially and as proprietary information of the
Trust all records and other information not otherwise publicly available
relative to the Trust and its prior, present or potential shareholders and not
to use such records and information for any purpose other than performance of
its responsibilities and duties hereunder, except after prior notification to
and approval in writing by the Trust, which approval shall not be unreasonably
withheld and may not be withheld where the Distributor may be exposed to civil
or criminal contempt proceedings for failure to comply, when requested to
divulge such information by duly constituted authorities, or when so requested
by the Trust.
Section 11. No Liability of Shareholders, Trustees, etc. The Trustees
have authorized the execution of this Agreement in their capacity as Trustees
and not individually and the Distributor agrees that neither the shareholders
nor the Trustees nor any officer, employee, representative or agent of the Trust
shall be personally liable upon, nor shall resort be had to their private
property for the satisfaction of, obligations given, executed or delivered on
behalf of or by the Trust, that the shareholders, Trustees, officers, employees,
representatives and agents of the Trust shall not be personally liable
hereunder, and that it shall look solely to the property of the Trust for the
satisfaction of any claim hereunder.
Section 12. Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of New York.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
JPM SERIES TRUST II
By Richard W. Ingram
Name: Richard W. Ingram
Title: President and Treasurer
FUNDS DISTRIBUTOR, INC.
By John E. Pelletier
Name: John E. Pelletier
Title: Vice President and Secretary
6
CUSTODIAN CONTRACT
Between
JPM SERIES TRUST II
and
STATE STREET BANK AND TRUST COMPANY
Global/Series/Trust
21E593
<PAGE>
TABLE OF CONTENTS
Page
1. Employment of Custodian and Property to be Held By
It...................................................................1
2. Duties of the Custodian with Respect to Property
of the Fund Held by the Custodian in the United States...............2
2.1 Holding Securities..........................................2
2.2 Delivery of Securities......................................2
2.3 Registration of Securities..................................4
2.4 Bank Accounts...............................................4
2.5 Availability of Federal Funds...............................5
2.6 Collection of Income........................................5
2.7 Payment of Fund Monies......................................5
2.8 Liability for Payment in Advance of Receipt of
Securities Purchased........................................6
2.9 Appointment of Agents.......................................7
2.10 Deposit of Fund Assets in U.S. Securities System............7
2.11 Fund Assets Held in the Custodian's Direct
Paper System................................................8
2.12 Segregated Account..........................................9
2.13 Ownership Certificates for Tax Purposes.....................9
2.14 Proxies.....................................................10
2.15 Communications Relating to Portfolio
Securities..................................................10
3. Duties of the Custodian with Respect to Property of
the Fund Held Outside of the United States...........................10
3.1 Appointment of Foreign Sub-Custodians.......................10
3.2 Assets to be Held...........................................10
3.3 Foreign Securities Systems..................................11
3.4 Holding Securities..........................................11
3.5 Agreements with Foreign Banking Institutions................11
3.6 Access of Independent Accountants of the Fund...............11
3.7 Reports by Custodian........................................11
3.8 Transactions in Foreign Custody Account.....................12
3.9 Liability of Foreign Sub-Custodians.........................12
3.10 Liability of Custodian......................................12
3.11 Reimbursement for Advances..................................13
3.12 Monitoring Responsibilities.................................13
3.13 Branches of U.S. Banks......................................13
3.14 Tax Law.....................................................14
4. Payments for Sales or Repurchases or Redemptions
of Shares of the Fund................................................14
5. Proper Instructions..................................................14
6. Actions Permitted Without Express Authority..........................15
<PAGE>
7. Evidence of Authority................................................15
8. Duties of Custodian With Respect to the Books of Account
and Calculation of Net Asset Value and Net Income....................15
9. Records..............................................................16
10. Opinion of Fund's Independent Accountants............................16
11. Reports to Fund by Independent Public Accountants....................16
12. Compensation of Custodian............................................17
13. Responsibility of Custodian..........................................17
14. Effective Period, Termination and Amendment..........................18
15. Successor Custodian..................................................19
16. Interpretive and Additional Provisions...............................19
17. Additional Funds.....................................................20
18. Massachusetts Law to Apply...........................................20
19. Prior Contracts......................................................20
20. Reproduction of Documents............................................20
21. Shareholder Communications Election..................................20
22. Limitation of Liability..............................................21
<PAGE>
CUSTODIAN CONTRACT
This Contract between JPM Series Trust II, a business trust organized
and existing under the laws of Delaware, having its principal place of business
at 60 State Street, Suite 1300, Boston, Massachusetts 02109 hereinafter called
the "Fund", and State Street Bank and Trust Company, a Massachusetts trust
company, having its principal place of business at 225 Franklin Street, Boston,
Massachusetts, 02110, hereinafter called the "Custodian",
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate series,
with each such series representing interests in a separate portfolio of
securities and other assets; and
WHEREAS, the Fund offers shares in five Portfolios, JPM Treasury Money
Market Portfolio, JPM Bond Portfolio, JPM Equity Portfolio, JPM Small Company
Portfolio and JPM International Portfolio (such Portfolios together with all
other series subsequently established by the Fund and made subject to this
Contract in accordance with paragraph 17, being herein referred to as the
"Portfolio(s)");
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of the assets of
the Portfolios of the Fund, including securities which the Fund, on behalf of
the applicable Portfolio desires to be held in places within the United States
("domestic securities") and securities it desires to be held outside the United
States ("foreign securities") pursuant to the provisions of the Declaration of
Trust. The Fund on behalf of the Portfolio(s) agrees to deliver to the Custodian
all securities and cash of the Portfolios, and all payments of income, payments
of principal or capital distributions received by it with respect to all
securities owned by the Portfolio(s) from time to time, and the cash
consideration received by it for such new or treasury shares of beneficial
interest of the Fund representing interests in the Portfolios, ("Shares") as may
be issued or sold from time to time. The Custodian shall not be responsible for
any property of a Portfolio held or received by the Portfolio and not delivered
to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Article
5), the Custodian shall on behalf of the applicable Portfolio(s) from time to
time employ one or more sub-custodians, located in the United States but only in
accordance with an applicable vote by the Board of Trustees of the Fund on
behalf of the applicable Portfolio(s), and provided that the Custodian shall
have no more or less responsibility or liability to the Fund on account of any
actions or omissions of any sub-custodian so employed than any such
sub-custodian has to the Custodian. The Custodian may employ as sub-custodian
for the Fund's foreign securities on behalf of the applicable Portfolio(s) the
foreign banking institutions and foreign securities depositories designated in
Schedule A hereto but only in accordance with the provisions of Article 3.
<PAGE>
2. Duties of the Custodian with Respect to Property of the Fund Held By the
Custodian in the United States
2.1 Holding Securities. The Custodian shall hold and physically segregate
for the account of each Portfolio all non-cash property, to be held by
it in the United States including all domestic securities owned by such
Portfolio, other than (a) securities which are maintained pursuant to
Section 2.10 in a clearing agency which acts as a securities depository
or in a book-entry system authorized by the U.S. Department of the
Treasury (each, a U.S. Securities System") and (b) commercial paper of
an issuer for which State Street Bank and Trust Company acts as issuing
and paying agent ("Direct Paper") which is deposited and/or maintained
in the Direct Paper System of the Custodian (the "Direct Paper System")
pursuant to Section 2.11.
2.2 Delivery of Securities. The Custodian shall release and deliver
domestic securities owned by a Portfolio held by the Custodian or in a
U.S. Securities System account of the Custodian or in the Custodian's
Direct Paper book entry system account ("Direct Paper System Account")
only upon receipt of Proper Instructions from the Fund on behalf of the
applicable Portfolio, which may be continuing instructions when deemed
appropriate by the parties, and only in the following cases:
1) Upon sale of such securities for the account of the Portfolio and
receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Portfolio;
3) In the case of a sale effected through a U.S. Securities System, in
accordance with the provisions of Section 2.10 hereof;
4) To the depository agent in connection with tender or other similar
offers for securities of the Portfolio;
5) To the issuer thereof or its agent when such securities are called,
redeemed, retired or otherwise become payable; provided that, in any
such case, the cash or other consideration is to be delivered to the
Custodian;
6) To the issuer thereof, or its agent, for transfer into the
name of the Portfolio or into the name of any nominee or
nominees of the Custodian or into the name or nominee name of
any agent appointed pursuant to Section 2.9 or into the name
or nominee name of any sub-custodian appointed pursuant to
Article 1; or for exchange for a different number of bonds,
certificates or other evidence representing the same aggregate
face amount or number of units; provided that, in any such
case, the new securities are to be delivered to the Custodian;
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7) Upon the sale of such securities for the account of the
Portfolio, to the broker or its clearing agent, against a
receipt, for examination in accordance with "street delivery"
custom; provided that in any such case, the Custodian shall
have no responsibility or liability for any loss arising from
the delivery of such securities prior to receiving payment for
such securities except as may arise from the Custodian's own
negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion contained
in such securities, or pursuant to any deposit agreement;
provided that, in any such case, the new securities and cash,
if any, are to be delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that,
in any such case, the new securities and cash, if any, are to
be delivered to the Custodian;
10) For delivery in connection with any loans of securities made
by the Portfolio, but only against receipt of adequate
collateral as agreed upon from time to time by the Custodian
and the Fund on behalf of the Portfolio, which may be in the
form of cash or obligations issued by the United States
government, its agencies or instrumentalities, except that in
connection with any loans for which collateral is to be
credited to the Custodian's account in the book-entry system
authorized by the U.S. Department of the Treasury, the
Custodian will not be held liable or responsible for the
delivery of securities owned by the Portfolio prior to the
receipt of such collateral;
11) For delivery as security in connection with any borrowings by
the Fund on behalf of the Portfolio requiring a pledge of
assets by the Fund on behalf of the Portfolio, but only
against receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any
agreement among the Fund on behalf of the Portfolio, the
Custodian and a broker-dealer registered under the Securities
Exchange Act of 1934 (the "Exchange Act") and a member of The
National Association of Securities Dealers, Inc. ("NASD"),
relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities
exchange, or of any similar organization or organizations,
regarding escrow or other arrangements in connection with
transactions by the Portfolio of the Fund;
13) For delivery in accordance with the provisions of any agreement
3
<PAGE>
among the Fund on behalf of the Portfolio, the Custodian, and
a Futures Commission Merchant registered under the Commodity
Exchange Act, relating to compliance with the rules of the
Commodity Futures Trading Commission and/or any Contract
Market, or any similar organization or organizations,
regarding account deposits in connection with transactions by
the Portfolio of the Fund;
14) Upon receipt of instructions from the transfer agent
("Transfer Agent") for the Fund, for delivery to such Transfer
Agent or to the holders of shares in connection with
distributions in kind, as may be described from time to time
in the currently effective prospectus and statement of
additional information of the Fund, related to the Portfolio
("Prospectus"), in satisfaction of requests by holders of
Shares for repurchase or redemption; and
15) For any other proper corporate purpose, but only upon receipt
of, in addition to Proper Instructions from the Fund on behalf
of the applicable Portfolio, a certified copy of a resolution
of the Board of Trustees or of the Executive Committee signed
by an officer of the Fund and certified by the Secretary or an
Assistant Secretary, specifying the securities of the
Portfolio to be delivered, setting forth the purpose for which
such delivery is to be made, declaring such purpose to be a
proper corporate purpose, and naming the person or persons to
whom delivery of such securities shall be made.
2.3 Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Portfolio or in the name of any nominee of the Fund on behalf of the
Portfolio or of any nominee of the Custodian which nominee shall be
assigned exclusively to the Portfolio, unless the Fund has authorized
in writing the appointment of a nominee to be used in common with other
registered investment companies having the same investment adviser as
the Portfolio, or in the name or nominee name of any agent appointed
pursuant to Section 2.9 or in the name or nominee name of any
sub-custodian appointed pursuant to Article 1. All securities accepted
by the Custodian on behalf of the Portfolio under the terms of this
Contract shall be in "street name" or other good delivery form. If,
however, the Fund directs the Custodian to maintain securities in
"street name", the Custodian shall utilize its best efforts only to
timely collect income due the Fund on such securities and to notify the
Fund on a best efforts basis only of relevant corporate actions
including, without limitation, pendency of calls, maturities, tender or
exchange offers.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of each Portfolio
of the Fund, subject only to draft or order by the Custodian acting
pursuant to the terms of this Contract, and shall hold in such account
or accounts, subject to the provisions hereof, all cash received by it
from or for the account of the Portfolio, other than cash maintained by
the Portfolio in a bank account established and used in accordance with
Rule 17f-3 under the Investment Company Act of 1940. Funds held by the
Custodian for a
4
<PAGE>
Portfolio may be deposited by it to its credit as Custodian in the
Banking Department of the Custodian or in such other banks or trust
companies as it may in its discretion deem necessary or desirable;
provided, however, that every such bank or trust company shall be
qualified to act as a custodian under the Investment Company Act of
1940 and that each such bank or trust company and the funds to be
deposited with each such bank or trust company shall on behalf of each
applicable Portfolio be approved by vote of a majority of the Board of
Trustees of the Fund. Such funds shall be deposited by the Custodian in
its capacity as Custodian and shall be withdrawable by the Custodian
only in that capacity.
2.5 Availability of Federal Funds. Upon mutual agreement between the Fund
on behalf of each applicable Portfolio and the Custodian, the Custodian
shall, upon the receipt of Proper Instructions from the Fund on behalf
of a Portfolio, make federal funds available to such Portfolio as of
specified times agreed upon from time to time by the Fund and the
Custodian in the amount of checks received in payment for Shares of
such Portfolio which are deposited into the Portfolio's account.
2.6 Collection of Income. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other payments
with respect to registered domestic securities held hereunder to which
each Portfolio shall be entitled either by law or pursuant to custom in
the securities business, and shall collect on a timely basis all income
and other payments with respect to bearer domestic securities if, on
the date of payment by the issuer, such securities are held by the
Custodian or its agent thereof and shall credit such income, as
collected, to such Portfolio's custodian account. Without limiting the
generality of the foregoing, the Custodian shall detach and present for
payment all coupons and other income items requiring presentation as
and when they become due and shall collect interest when due on
securities held hereunder. Income due each Portfolio on securities
loaned pursuant to the provisions of Section 2.2 (10) shall be the
responsibility of the Fund. The Custodian will have no duty or
responsibility in connection therewith, other than to provide the Fund
with such information or data as may be necessary to assist the Fund in
arranging for the timely delivery to the Custodian of the income to
which the Portfolio is properly entitled.
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions from the
Fund on behalf of the applicable Portfolio, which may be continuing
instructions when deemed appropriate by the parties, the Custodian
shall pay out monies of a Portfolio in the following cases only:
1) Upon the purchase of domestic securities, options, futures
contracts or options on futures contracts for the account of
the Portfolio but only (a) against the delivery of such
securities or evidence of title to such options, futures
contracts or options on futures contracts to the Custodian (or
any bank, banking firm or trust company doing business in the
United States or abroad which is qualified under the
Investment Company Act of 1940, as amended, to act as a
custodian and has been designated by the Custodian as its
5
<PAGE>
agent for this purpose) registered in the name of the
Portfolio or in the name of a nominee of the Custodian
referred to in Section 2.3 hereof or in proper form for
transfer; (b) in the case of a purchase effected through a
U.S. Securities System, in accordance with the conditions set
forth in Section 2.10 hereof; (c) in the case of a purchase
involving the Direct Paper System, in accordance with the
conditions set forth in Section 2.11; (d) in the case of
repurchase agreements entered into between the Fund on behalf
of the Portfolio and the Custodian, or another bank, or a
broker-dealer which is a member of NASD, (i) against delivery
of the securities either in certificate form or through an
entry crediting the Custodian's account at the Federal Reserve
Bank with such securities or (ii) against delivery of the
receipt evidencing purchase by the Portfolio of securities
owned by the Custodian along with written evidence of the
agreement by the Custodian to repurchase such securities from
the Portfolio or (e) for transfer to a time deposit account of
the Fund in any bank, whether domestic or foreign; such
transfer may be effected prior to receipt of a confirmation
from a broker and/or the applicable bank pursuant to Proper
Instructions from the Fund as defined in Article 5;
2) In connection with conversion, exchange or surrender of securities
owned by the Portfolio as set forth in Section 2.2 hereof;
3) For the redemption or repurchase of Shares issued by the Portfolio
as set forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by the
Portfolio, including but not limited to the following payments
for the account of the Portfolio: interest, taxes, management,
accounting, transfer agent and legal fees, and operating
expenses of the Fund whether or not such expenses are to be in
whole or part capitalized or treated as deferred expenses;
5) For the payment of any dividends on Shares of the Portfolio declared
pursuant to the governing documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short;
7) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions from the Fund on behalf of the
Portfolio, a certified copy of a resolution of the Board of
Trustees or of the Executive Committee of the Fund signed by
an officer of the Fund and certified by its Secretary or an
Assistant Secretary, specifying the amount of such payment,
setting forth the purpose for which such payment is to be
made, declaring such purpose to be a proper purpose, and
naming the person or persons to whom such payment is to be
made.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased.
6
<PAGE>
Except as specifically stated otherwise in this Contract, in any and
every case where payment for purchase of domestic securities for the
account of a Portfolio is made by the Custodian in advance of receipt
of the securities purchased in the absence of specific written
instructions from the Fund on behalf of such Portfolio to so pay in
advance, the Custodian shall be absolutely liable to the Fund for such
securities to the same extent as if the securities had been received by
the Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act of
1940, as amended, to act as a custodian, as its agent to carry out such of
the provisions of this Article 2 as the Custodian may from time to time
direct; provided, however, that the appointment of any agent shall not
relieve the Custodian of its responsibilities or liabilities hereunder.
2.10 Deposit of Fund Assets in U.S. Securities Systems. The Custodian may
deposit and/or maintain securities owned by a Portfolio in a clearing
agency registered with the Securities and Exchange Commission under
Section 17A of the Securities Exchange Act of 1934, which acts as a
securities depository, or in the book-entry system authorized by the
U.S. Department of the Treasury and certain federal agencies,
collectively referred to herein as "U.S. Securities System" in
accordance with applicable Federal Reserve Board and Securities and
Exchange Commission rules and regulations, if any, and subject to the
following provisions:
1) The Custodian may keep securities of the Portfolio in a U.S.
Securities System provided that such securities are
represented in an account ("Account") of the Custodian in the
U.S. Securities System which shall not include any assets of
the Custodian other than assets held as a fiduciary, custodian
or otherwise for customers;
2) The records of the Custodian with respect to securities of the
Portfolio which are maintained in a U.S. Securities System shall
identify by book-entry those securities belonging to the Portfolio;
3) The Custodian shall pay for securities purchased for the
account of the Portfolio upon (i) receipt of advice from the
U.S. Securities System that such securities have been
transferred to the Account, and (ii) the making of an entry on
the records of the Custodian to reflect such payment and
transfer for the account of the Portfolio. The Custodian shall
transfer securities sold for the account of the Portfolio upon
(i) receipt of advice from the U.S. Securities System that
payment for such securities has been transferred to the
Account, and (ii) the making of an entry on the records of the
Custodian to reflect such transfer and payment for the account
of the Portfolio. Copies of all advices from the U.S.
Securities System of transfers of securities for the account
of the Portfolio shall identify the Portfolio, be maintained
for the Portfolio by the Custodian and be provided to the Fund
at its request. Upon request,
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<PAGE>
the Custodian shall furnish the Fund on behalf of the
Portfolio confirmation of each transfer to or from the account
of the Portfolio in the form of a written advice or notice and
shall furnish to the Fund on behalf of the Portfolio copies of
daily transaction sheets reflecting each day's transactions in
the U.S. Securities System for the account of the Portfolio;
4) The Custodian shall provide the Fund for the Portfolio with any
report obtained by the Custodian on the U.S. Securities System's
accounting system, internal accounting control and procedures for
safeguarding securities deposited in the U.S. Securities System;
5) The Custodian shall have received from the Fund on behalf of the
Portfolio the initial or annual certificate, as the case may be,
required by Article 14 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for the benefit of the
Portfolio for any loss or damage to the Portfolio resulting
from use of the U.S. Securities System by reason of any
negligence, misfeasance or misconduct of the Custodian or any
of its agents or of any of its or their employees or from
failure of the Custodian or any such agent to enforce
effectively such rights as it may have against the U.S.
Securities System; at the election of the Fund, it shall be
entitled to be subrogated to the rights of the Custodian with
respect to any claim against the U.S. Securities System or any
other person which the Custodian may have as a consequence of
any such loss or damage if and to the extent that the
Portfolio has not been made whole for any such loss or damage;
provided, that the Custodian shall, notwithstanding such
subrogation, reimburse the Portfolio for its reasonable
expenses in connection with such claims.
2.11 Fund Assets Held in the Custodian's Direct Paper System. The Custodian
may deposit and/or maintain securities owned by a Portfolio in the Direct
Paper System of the Custodian subject to the following provisions:
1) No transaction relating to securities in the Direct Paper System
will be effected in the absence of Proper Instructions from the Fund
on behalf of the Portfolio;
2) The Custodian may keep securities of the Portfolio in the
Direct Paper System only if such securities are represented in
an account ("Account") of the Custodian in the Direct Paper
System which shall not include any assets of the Custodian
other than assets held as a fiduciary, custodian or otherwise
for customers;
3) The records of the Custodian with respect to securities of the
Portfolio which are maintained in the Direct Paper System shall
identify by book-entry those securities belonging to the Portfolio;
8
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4) The Custodian shall pay for securities purchased for the
account of the Portfolio upon the making of an entry on the
records of the Custodian to reflect such payment and transfer
of securities to the account of the Portfolio. The Custodian
shall transfer securities sold for the account of the
Portfolio upon the making of an entry on the records of the
Custodian to reflect such transfer and receipt of payment for
the account of the Portfolio;
5) The Custodian shall furnish the Fund on behalf of the
Portfolio confirmation of each transfer to or from the account
of the Portfolio, in the form of a written advice or notice,
of Direct Paper on the next business day following such
transfer and shall furnish to the Fund on behalf of the
Portfolio copies of daily transaction sheets reflecting each
day's transaction in the U.S. Securities System for the
account of the Portfolio;
6) The Custodian shall provide the Fund on behalf of the
Portfolio with any report on its system of internal accounting
control as the Fund may reasonably request from time to time.
2.12 Segregated Account. The Custodian shall upon receipt of Proper
Instructions from the Fund on behalf of each applicable Portfolio
establish and maintain a segregated account or accounts for and on
behalf of each such Portfolio, into which account or accounts may be
transferred cash and/or securities, including securities maintained in
an account by the Custodian pursuant to Section 2.10 hereof, (i) in
accordance with the provisions of any agreement among the Fund on
behalf of the Portfolio, the Custodian and a broker-dealer registered
under the Exchange Act and a member of the NASD (or any futures
commission merchant registered under the Commodity Exchange Act),
relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities exchange (or the
Commodity Futures Trading Commission or any registered contract
market), or of any similar organization or organizations, regarding
escrow or other arrangements in connection with transactions by the
Portfolio, (ii) for purposes of segregating cash or government
securities in connection with options purchased, sold or written by the
Portfolio or commodity futures contracts or options thereon purchased
or sold by the Portfolio, (iii) for the purposes of compliance by the
Portfolio with the procedures required by Investment Company Act
Release No. 10666, or any subsequent release or releases of the
Securities and Exchange Commission relating to the maintenance of
segregated accounts by registered investment companies and (iv) for
other proper corporate purposes, but only, in the case of clause (iv),
upon receipt of, in addition to Proper Instructions from the Fund on
behalf of the applicable Portfolio, a certified copy of a resolution of
the Board of Trustees or of the Executive Committee signed by an
officer of the Fund and certified by the Secretary or an Assistant
Secretary, setting forth the purpose or purposes of such segregated
account and declaring such purposes to be proper corporate purposes.
2.13 Ownership Certificates for Tax Purposes. The Custodian shall execute
9
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ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other
payments with respect to domestic securities of each Portfolio held by
it and in connection with transfers of securities.
2.14 Proxies. The Custodian shall, with respect to the domestic securities
held hereunder, cause to be promptly executed by the registered holder
of such securities, if the securities are registered otherwise than in
the name of the Portfolio or a nominee of the Portfolio, all proxies,
without indication of the manner in which such proxies are to be voted,
and shall promptly deliver to the Portfolio such proxies, all proxy
soliciting materials and all notices relating to such securities.
2.15 Communications Relating to Portfolio Securities. Subject to the
provisions of Section 2.3, the Custodian shall transmit promptly to the
Fund for each Portfolio all written information (including, without
limitation, pendency of calls and maturities of domestic securities and
expirations of rights in connection therewith and notices of exercise
of call and put options written by the Fund on behalf of the Portfolio
and the maturity of futures contracts purchased or sold by the
Portfolio) received by the Custodian from issuers of the securities
being held for the Portfolio. With respect to tender or exchange
offers, the Custodian shall transmit promptly to the Portfolio all
written information received by the Custodian from issuers of the
securities whose tender or exchange is sought and from the party (or
his agents) making the tender or exchange offer. If the Portfolio
desires to take action with respect to any tender offer, exchange offer
or any other similar transaction, the Portfolio shall notify the
Custodian at least three business days prior to the date on which the
Custodian is to take such action.
3. Duties of the Custodian with Respect to Property of the Fund Held Outside
of the United States
3.1 Appointment of Foreign Sub-Custodians. The Fund hereby authorizes and
instructs the Custodian to employ as sub-custodians for the Portfolio's
securities and other assets maintained outside the United States the
foreign banking institutions and foreign securities depositories
designated on Schedule A hereto ("foreign sub-custodians"). Upon
receipt of "Proper Instructions", as defined in Section 5 of this
Contract, together with a certified resolution of the Fund's Board of
Trustees, the Custodian and the Fund may agree to amend Schedule A
hereto from time to time to designate additional foreign banking
institutions and foreign securities depositories to act as
sub-custodian. Upon receipt of Proper Instructions, the Fund may
instruct the Custodian to cease the employment of any one or more such
sub-custodians for maintaining custody of the Portfolio's assets.
3.2 Assets to be Held. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to: (a)
"foreign securities", as defined in paragraph (c)(1) of Rule 17f-5 under
the Investment Company Act of 1940, and (b) cash and cash equivalents in
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such amounts as the Custodian or the Fund may determine to be
reasonably necessary to effect the Portfolio's foreign securities
transactions. The Custodian shall identify on its books as belonging to
the Fund, the foreign securities of the Fund held by each foreign
sub-custodian.
3.3 Foreign Securities Systems. Except as may otherwise be agreed upon in
writing by the Custodian and the Fund, assets of the Portfolios shall
be maintained in a clearing agency which acts as a securities
depository or in a book-entry system for the central handling of
securities located outside the United States (each a "Foreign
Securities System") only through arrangements implemented by the
foreign banking institutions serving as sub-custodians pursuant to the
terms hereof (Foreign Securities Systems and U.S. Securities Systems
are collectively referred to herein as the "Securities Systems"). Where
possible, such arrangements shall include entry into agreements
containing the provisions set forth in Section 3.5 hereof.
3.4 Holding Securities. The Custodian may hold securities and other
non-cash property for all of its customers, including the Fund, with a
Foreign Sub-custodian in a single account that is identified as
belonging to the Custodian for the benefit of its customers, provided
however, that (i) the records of the Custodian with respect to
securities and other non-cash property of the Fund which are maintained
in such account shall identify by book-entry those securities and other
non-cash property belonging to the Fund and (ii) the Custodian shall
require that securities and other non-cash property so held by the
foreign sub-custodian be held separately from any assets of the foreign
sub-custodian or of others.
3.5 Agreements with Foreign Banking Institutions. Each agreement with a
foreign banking institution shall provide that: (a) the assets of each
Portfolio will not be subject to any right, charge, security interest,
lien or claim of any kind in favor of the foreign banking institution
or its creditors or agent, except a claim of payment for their safe
custody or administration; (b) beneficial ownership for the assets of
each Portfolio will be freely transferable without the payment of money
or value other than for custody or administration; (c) adequate records
will be maintained identifying the assets as belonging to each
applicable Portfolio; (d) officers of or auditors employed by, or other
representatives of the Custodian, including to the extent permitted
under applicable law the independent public accountants for the Fund,
will be given access to the books and records of the foreign banking
institution relating to its actions under its agreement with the
Custodian; and (e) assets of the Portfolios held by the foreign
sub-custodian will be subject only to the instructions of the Custodian
or its agents.
3.6 Access of Independent Accountants of the Fund. Upon request of the
Fund, the Custodian will use its best efforts to arrange for the
independent accountants of the Fund to be afforded access to the books
and records of any foreign banking institution employed as a foreign
sub-custodian insofar as such books and records relate to the
performance of such foreign banking institution under its agreement
with the Custodian.
11
<PAGE>
3.7 Reports by Custodian. The Custodian will supply to the Fund from time
to time, as mutually agreed upon, statements in respect of the
securities and other assets of the Portfolio(s) held by foreign
sub-custodians, including but not limited to an identification of
entities having possession of the Portfolio(s) securities and other
assets and advices or notifications of any transfers of securities to
or from each custodial account maintained by a foreign banking
institution for the Custodian on behalf of each applicable Portfolio
indicating, as to securities acquired for a Portfolio, the identity of
the entity having physical possession of such securities.
3.8 Transactions in Foreign Custody Account. (a) Except as otherwise
provided in paragraph (b) of this Section 3.8, the provision of
Sections 2.2 and 2.7 of this Contract shall apply, mutatis mutandis to
the foreign securities of the Fund held outside the United States by
foreign sub-custodians.
(b) Notwithstanding any provision of this Contract to the contrary,
settlement and payment for securities received for the account of each
applicable Portfolio and delivery of securities maintained for the
account of each applicable Portfolio may be effected in accordance with
the customary established securities trading or securities processing
practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivering
securities to the purchaser thereof or to a dealer therefor (or an
agent for such purchaser or dealer) against a receipt with the
expectation of receiving later payment for such securities from such
purchaser or dealer.
(c) Securities maintained in the custody of a foreign sub-custodian may
be maintained in the name of such entity's nominee to the same extent
as set forth in Section 2.3 of this Contract, and the Fund agrees to
hold any such nominee harmless from any liability as a holder of record
of such securities.
3.9 Liability of Foreign Sub-Custodians. Each agreement pursuant to which
the Custodian employs a foreign banking institution as a foreign
sub-custodian shall require the institution to exercise reasonable care
in the performance of its duties and to indemnify, and hold harmless,
the Custodian and the Fund from and against any loss, damage, cost,
expense, liability or claim arising out of or in connection with the
institution's performance of such obligations. At the election of the
Fund, it shall be entitled to be subrogated to the rights of the
Custodian with respect to any claims against a foreign banking
institution as a consequence of any such loss, damage, cost, expense,
liability or claim if and to the extent that the Fund has not been made
whole for any such loss, damage, cost, expense, liability or claim.
3.10 Liability of Custodian. The Custodian shall be liable for the acts or
omissions of a foreign banking institution to the same extent as set
forth with respect to sub-custodians generally in this Contract and,
regardless of whether assets are maintained in the custody of a foreign
banking
12
<PAGE>
institution, a foreign securities depository or a branch of a U.S. bank
as contemplated by paragraph 3.13 hereof, the Custodian shall not be
liable for any loss, damage, cost, expense, liability or claim
resulting from nationalization, expropriation, currency restrictions,
or acts of war or terrorism or any loss where the sub-custodian has
otherwise exercised reasonable care. Notwithstanding the foregoing
provisions of this paragraph 3.10, in delegating custody duties to
State Street London Ltd., the Custodian shall not be relieved of any
responsibility to the Fund for any loss due to such delegation, except
such loss as may result from (a) political risk (including, but not
limited to, exchange control restrictions, confiscation, expropriation,
nationalization, insurrection, civil strife or armed hostilities) or
(b) other losses (excluding a bankruptcy or insolvency of State Street
London Ltd. not caused by political risk) due to Acts of God, nuclear
incident or other losses under circumstances where the Custodian and
State Street London Ltd. have exercised reasonable care.
3.11 Reimbursement for Advances. If the Fund requires the Custodian to
advance cash or securities for any purpose for the benefit of a
Portfolio including the purchase or sale of foreign exchange or of
contracts for foreign exchange, or in the event that the Custodian or
its nominee shall incur or be assessed any taxes, charges, expenses,
assessments, claims or liabilities in connection with the performance
of this Contract, except such as may arise from its or its nominee's
own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the applicable
Portfolio shall be security therefor and should the Fund fail to repay
the Custodian promptly, the Custodian shall be entitled to utilize
available cash and to dispose of such Portfolio's assets to the extent
necessary to obtain reimbursement.
3.12 Monitoring Responsibilities. The Custodian shall furnish annually to
the Fund, during the month of June, information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be
similar in kind and scope to that furnished to the Fund in connection
with the initial approval of this Contract. In addition, the Custodian
will promptly inform the Fund in the event that the Custodian learns of
a material adverse change in the financial condition of a foreign
sub-custodian or any material loss of the assets of the Fund or in the
case of any foreign sub-custodian not the subject of an exemptive order
from the Securities and Exchange Commission is notified by such foreign
sub-custodian that there appears to be a substantial likelihood that
its shareholders' equity will decline below $200 million (U.S. dollars
or the equivalent thereof) or that its shareholders' equity has
declined below $200 million (in each case computed in accordance with
generally accepted U.S. accounting principles).
3.13 Branches of U.S. Banks. (a) Except as otherwise set forth in this
Contract, the provisions hereof shall not apply where the custody of the
Portfolios assets are maintained in a foreign branch of a banking
institution which is a "bank" as defined by Section 2(a)(5) of the
Investment Company Act of 1940 meeting the qualification set forth in
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<PAGE>
Section 26(a) of said Act. The appointment of any such branch as a
sub-custodian shall be governed by paragraph 1 of this Contract.
(b) Cash held for each Portfolio of the Fund in the United Kingdom
shall be maintained in an interest bearing account established for the
Fund with the Custodian's London branch, which account shall be subject
to the direction of the Custodian, State Street London Ltd. or both.
3.14 Tax Law.
(a) United States Taxes. The Custodian shall have no responsibility or
liability for any obligations now or hereafter imposed on the Fund or
the Custodian as custodian of the Fund by the tax law of the United
States of America or any state or political subdivision thereof. The
Custodian will be responsible for informing the Fund of the income
received by the Fund which is United States source income and which is
not United States source income.
(b) Claiming for Exemption or Refund under the Tax Laws of Non-United
States Jurisdictions. The sole responsibility of the Custodian with
regard to the tax laws of non-United States jurisdictions shall be to
identify the income of the Fund which has been subject to withholding
and other tax assessments or other governmental charges by such
jurisdictions and the amount thereof and to use reasonable efforts to
assist the Fund with respect to any claim for exemption or refund of
such charges that can be made on behalf of the Fund.
4. Payments for Sales or Repurchases or Redemptions of Shares of the Fund
The Custodian shall receive from the distributor for the Shares or from
the Transfer Agent of the Fund and deposit into the account of the appropriate
Portfolio such payments as are received for Shares of that Portfolio issued or
sold from time to time by the Fund. The Custodian will provide timely
notification to the Fund on behalf of each such Portfolio and the Transfer Agent
of any receipt by it of payments for Shares of such Portfolio.
From such funds as may be available for the purpose but subject to the
limitations of the Declaration of Trust and any applicable votes of the Board of
Trustees of the Fund pursuant thereto, the Custodian shall, upon receipt of
instructions from the Transfer Agent, make funds available for payment to
holders of Shares who have delivered to the Transfer Agent a request for
redemption or repurchase of their Shares. In connection with the redemption or
repurchase of Shares of a Portfolio, the Custodian is authorized upon receipt of
instructions from the Transfer Agent to wire funds to or through a commercial
bank designated by the redeeming shareholders. In connection with the redemption
or repurchase of Shares of the Fund, the Custodian shall honor checks drawn on
the Custodian by a holder of Shares, which checks have been furnished by the
Fund to the holder of Shares, when presented to the Custodian in accordance with
such procedures and controls as are mutually agreed upon from time to time
between the Fund and the Custodian.
14
<PAGE>
5. Proper Instructions
Proper Instructions as used throughout this Contract means a writing
signed or initialled by one or more person or persons as the Board of Trustees
shall have from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested. Oral instructions
will be considered Proper Instructions if the Custodian reasonably believes them
to have been given by a person authorized to give such instructions with respect
to the transaction involved. The Fund shall cause all oral instructions to be
confirmed in writing. Upon receipt of a certificate of the Secretary or an
Assistant Secretary as to the authorization by the Board of Trustees of the Fund
accompanied by a detailed description of procedures approved by the Board of
Trustees, Proper Instructions may include communications effected directly
between electro-mechanical or electronic devices provided that the Board of
Trustees and the Custodian are satisfied that such procedures afford adequate
safeguards for the Portfolios' assets. For purposes of this Section, Proper
Instructions shall include instructions received by the Custodian pursuant to
any three - party agreement which requires a segregated asset account in
accordance with Section 2.12.
6. Actions Permitted without Express Authority
The Custodian may in its discretion, without express authority from the
Fund on behalf of each applicable Portfolio:
1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this
Contract, provided that all such payments shall be accounted for to
the Fund on behalf of the Portfolio;
2) surrender securities in temporary form for securities in definitive
form;
3) endorse for collection, in the name of the Portfolio, checks, drafts
and other negotiable instruments; and
4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase,
transfer and other dealings with the securities and property
of the Portfolio except as otherwise directed by the Board of
Trustees of the Fund.
7. Evidence of Authority
The Custodian shall be protected in acting upon any instructions,
notice, request, consent, certificate or other instrument or paper believed by
it to be genuine and to have been properly executed by or on behalf of the Fund.
The Custodian may receive and accept a certified copy of a vote of the Board of
Trustees of the Fund as conclusive evidence (a) of the authority of any person
to act in accordance with such vote or (b) of any determination or of any action
by the Board of Trustees pursuant to the Declaration of Trust as described in
15
<PAGE>
such vote, and such vote may be considered as in full force and effect until
receipt by the Custodian of written notice to the contrary.
8. Duties of Custodian with Respect to the Books of Account and Calculation
of Net Asset Value and Net Income
The Custodian shall cooperate with and supply necessary information to
the entity or entities appointed by the Board of Trustees of the Fund to keep
the books of account of each Portfolio and/or compute the net asset value per
share of the outstanding shares of each Portfolio or, if directed in writing to
do so by the Fund on behalf of the Portfolio, shall itself keep such books of
account and/or compute such net asset value per share. If so directed, the
Custodian shall also calculate daily the net income of the Portfolio as
described in the Fund's currently effective prospectus related to such Portfolio
and shall advise the Fund and the Transfer Agent daily of the total amounts of
such net income and, if instructed in writing by an officer of the Fund to do
so, shall advise the Transfer Agent periodically of the division of such net
income among its various components. The calculations of the net asset value per
share and the daily income of each Portfolio shall be made at the time or times
described from time to time in the Fund's currently effective prospectus related
to such Portfolio.
9. Records
The Custodian shall with respect to each Portfolio create and maintain
all records relating to its activities and obligations under this Contract in
such manner as will meet the obligations of the Fund under the Investment
Company Act of 1940, with particular attention to Section 31 thereof and Rules
31a-1 and 31a-2 thereunder. All such records shall be the property of the Fund
and shall at all times during the regular business hours of the Custodian be
open for inspection by duly authorized officers, employees or agents of the Fund
and employees and agents of the Securities and Exchange Commission. The
Custodian shall, at the Fund's request, supply the Fund with a tabulation of
securities owned by each Portfolio and held by the Custodian and shall, when
requested to do so by the Fund and for such compensation as shall be agreed upon
between the Fund and the Custodian, include certificate numbers in such
tabulations.
10. Opinion of Fund's Independent Accountant
The Custodian shall take all reasonable action, as the Fund on behalf
of each applicable Portfolio may from time to time request, to obtain from year
to year favorable opinions from the Fund's independent accountants with respect
to its activities hereunder in connection with the preparation of the Fund's
Form N-1A, and Form N-SAR or other annual reports to the Securities and Exchange
Commission and with respect to any other requirements of such Commission.
11. Reports to Fund by Independent Public Accountants
The Custodian shall provide the Fund, on behalf of each of the
Portfolios at such times as the Fund may reasonably require, with reports by
independent public accountants on the accounting system, internal accounting
control and
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<PAGE>
procedures for safeguarding securities, futures contracts and options on futures
contracts, including securities deposited and/or maintained in a Securities
System, relating to the services provided by the Custodian under this Contract;
such reports, shall be of sufficient scope and in sufficient detail, as may
reasonably be required by the Fund to provide reasonable assurance that any
material inadequacies would be disclosed by such examination, and, if there are
no such inadequacies, the reports shall so state.
12. Compensation of Custodian
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between the
Fund on behalf of each applicable Portfolio and the Custodian.
13. Responsibility of Custodian
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Contract and shall be held harmless in acting
upon any notice, request, consent, certificate or other instrument reasonably
believed by it to be genuine and to be signed by the proper party or parties,
including any futures commission merchant acting pursuant to the terms of a
three-party futures or options agreement. The Custodian shall be held to the
exercise of reasonable care in carrying out the provisions of this Contract, but
shall be kept indemnified by and shall be without liability to the Fund for any
action taken or omitted by it in good faith without negligence. It shall be
entitled to rely on and may act upon advice of counsel (who may be counsel for
the Fund) on all matters, and shall be without liability for any action
reasonably taken or omitted pursuant to such advice.
Except as may arise from the Custodian's own negligence or willful
misconduct or the negligence or willful misconduct of a sub-custodian or agent,
the Custodian shall be without liability to the Fund for any loss, liability,
claim or expense resulting from or caused by; (i) events or circumstances beyond
the reasonable control of the Custodian or any sub-custodian or Securities
System or any agent or nominee of any of the foregoing, including, without
limitation, nationalization or expropriation, imposition of currency controls or
restrictions, the interruption, suspension or restriction of trading on or the
closure of any securities market, power or other mechanical or technological
failures or interruptions, computer viruses or communications disruptions, acts
of war or terrorism, riots, revolutions, work stoppages, natural disasters or
other similar events or acts; (ii) errors by the Fund or the Investment Advisor
in their instructions to the Custodian provided such instructions have been in
accordance with this Contract; (iii) the insolvency of or acts or omissions by a
Securities System; (iv) any delay or failure of any broker, agent or
intermediary, central bank or other commercially prevalent payment or clearing
system to deliver to the Custodian's sub-custodian or agent securities purchased
17
<PAGE>
or in the remittance or payment made in connection with securities sold; (v) any
delay or failure of any company, corporation, or other body in charge of
registering or transferring securities in the name of the Custodian, the Fund,
the Custodian's sub-custodians, nominees or agents or any consequential losses
arising out of such delay or failure to transfer such securities including non-
receipt of bonus, dividends and rights and other accretions or benefits; (vi)
delays or inability to perform its duties due to any disorder in market
infrastructure with respect to any particular security or Securities System; and
(vii) any provision of any present or future law or regulation or order of the
United States of America, or any state thereof, or any other country, or
political subdivision thereof or of any court of competent jurisdiction.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution to the same extent as set forth with respect to
sub-custodians generally in this Contract.
If the Fund requires the Custodian to take any action with respect to
securities, which action involves the payment of money or which action may, in
the opinion of the Custodian, result in the Custodian or its nominee assigned to
the Fund being liable for the payment of money or incurring liability of some
other form, the Fund, as a prerequisite to requiring the Custodian to take such
action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.
If the Fund requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but not limited
to securities settlements, foreign exchange contracts and assumed settlement) or
in the event that the Custodian or its nominee shall incur or be assessed any
taxes, charges, expenses, assessments, claims or liabilities in connection with
the performance of this Contract, except such as may arise from its or its
nominee's own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the Fund shall be security
therefor and should the Fund fail to repay the Custodian promptly, the Custodian
shall be entitled to utilize available cash and to dispose of the Fund assets to
the extent necessary to obtain reimbursement.
In no event shall the Custodian be liable for indirect, special or
consequential damages.
14. Effective Period, Termination and Amendment
This Contract shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter provided, may
be amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than thirty (30) days after the date of such delivery or mailing; provided,
however that the Custodian shall not with respect to a Portfolio act under
Section 2.10 hereof in the absence of receipt of an initial certificate of the
Secretary or an Assistant Secretary that the Board of Trustees of the Fund has
approved the initial use of a particular Securities System by such Portfolio, as
required by Rule 17f-4 under
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<PAGE>
the Investment Company Act of 1940, as amended and that the Custodian shall not
with respect to a Portfolio act under Section 2.11 hereof in the absence of
receipt of an initial certificate of the Secretary or an Assistant Secretary
that the Board of Trustees has approved the initial use of the Direct Paper
System by such Portfolio ; provided further, however, that the Fund shall not
amend or terminate this Contract in contravention of any applicable federal or
state regulations, or any provision of the Declaration of Trust, and further
provided, that the Fund on behalf of one or more of the Portfolios may at any
time by action of its Board of Trustees (i) substitute another bank or trust
company for the Custodian by giving notice as described above to the Custodian,
or (ii) immediately terminate this Contract in the event of the appointment of a
conservator or receiver for the Custodian by the Comptroller of the Currency or
upon the happening of a like event at the direction of an appropriate regulatory
agency or court of competent jurisdiction.
Upon termination of the Contract, the Fund on behalf of each applicable
Portfolio shall pay to the Custodian such compensation as may be due as of the
date of such termination and shall likewise reimburse the Custodian for its
costs, expenses and disbursements.
15. Successor Custodian
If a successor custodian for the Fund, of one or more of the Portfolios
shall be appointed by the Board of Trustees of the Fund, the Custodian shall,
upon termination, deliver to such successor custodian at the office of the
Custodian, duly endorsed and in the form for transfer, all securities of each
applicable Portfolio then held by it hereunder and shall transfer to an account
of the successor custodian all of the securities of each such Portfolio held in
a Securities System.
If no such successor custodian shall be appointed, the Custodian shall,
in like manner, upon receipt of a certified copy of a vote of the Board of
Trustees of the Fund, deliver at the office of the Custodian and transfer such
securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Trustees shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act of 1940,
doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian on behalf of each applicable Portfolio and all
instruments held by the Custodian relative thereto and all other property held
by it under this Contract on behalf of each applicable Portfolio and to transfer
to an account of such successor custodian all of the securities of each such
Portfolio held in any Securities System. Thereafter, such bank or trust company
shall be the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
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<PAGE>
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Trustees to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
16. Interpretive and Additional Provisions
In connection with the operation of this Contract, the Custodian and
the Fund on behalf of each of the Portfolios, may from time to time agree on
such provisions interpretive of or in addition to the provisions of this
Contract as may in their joint opinion be consistent with the general tenor of
this Contract. Any such interpretive or additional provisions shall be in a
writing signed by both parties and shall be annexed hereto, provided that no
such interpretive or additional provisions shall contravene any applicable
federal or state regulations or any provision of the Declaration of Trust of the
Fund. No interpretive or additional provisions made as provided in the preceding
sentence shall be deemed to be an amendment of this Contract.
17. Additional Funds
In the event that the Fund establishes one or more series of Shares in
addition to JPM Treasury Money Market Portfolio, JPM Bond Portfolio, JPM Equity
Portfolio, JPM Small Company Portfolio and JPM International Portfolio with
respect to which it desires to have the Custodian render services as custodian
under the terms hereof, it shall so notify the Custodian in writing, and if the
Custodian agrees in writing to provide such services, such series of Shares
shall become a Portfolio hereunder.
18. Massachusetts Law to Apply
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
19. Prior Contracts
This Contract supersedes and terminates, as of the date hereof, all
prior contracts between the Fund on behalf of each of the Portfolios and the
Custodian relating to the custody of the Fund's assets.
20. Reproduction of Documents
This Contract and all schedules, exhibits, attachments and amendments
hereto may be reproduced by any photographic, photostatic, microfilm,
micro-card, miniature photographic or other similar process. The parties hereto
all/each agree that any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding, whether or not the
original is in existence and whether or not such reproduction was made by a
party in the regular course of business, and that any enlargement, facsimile or
further
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reproduction of such reproduction shall likewise be admissible in evidence.
21. Shareholder Communications Election
Securities and Exchange Commission Rule 14b-2 requires banks which hold
securities for the account of customers to respond to requests by issuers of
securities for the names, addresses and holdings of beneficial owners of
securities of that issuer held by the bank unless the beneficial owner has
expressly objected to disclosure of this information. In order to comply with
the rule, the Custodian needs the Fund to indicate whether it authorizes the
Custodian to provide the Fund's name, address, and share position to requesting
companies whose securities the Fund owns. If the Fund tells the Custodian "no",
the Custodian will not provide this information to requesting companies. If the
Fund tells the Custodian "yes" or does not check either "yes" or "no" below, the
Custodian is required by the rule to treat the Fund as consenting to disclosure
of this information for all securities owned by the Fund or any funds or
accounts established by the Fund. For the Fund's protection, the Rule prohibits
the requesting company from using the Fund's name and address for any purpose
other than corporate communications. Please indicate below whether the Fund
consents or objects by checking one of the alternatives below.
YES [ ] The Custodian is authorized to release the Fund's
name, address, and share positions.
NO [ X ] The Custodian is not authorized to release the
Fund's name, address, and share positions.
22. Limitation of Liability
The references to the Trustees of the Fund are to the Trustees of the
Fund as trustees and not individually or personally. The obligations of the Fund
entered into on behalf of the Fund by any of the Trustees are not made
individually but in their capacity as trustees and are not binding on any of the
Trustees personally. All persons dealing with the Fund must look solely to the
assets of the Fund for enforcement of any claims against the Fund.
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<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the 17th day of December, 1996.
ATTEST JPM SERIES TRUST II
John E. Pelletier By Richard W. Ingram
ATTEST STATE STREET BANK AND TRUST COMPANY
Francine Hayes By Ronald E. Logue
Executive Vice President
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<PAGE>
Schedule A
The following foreign banking institutions and foreign securities
depositories have been approved by the Board of Trustees of JPM Series Trust II
for use as sub-custodians for the Fund's securities and other assets:
Fund
Officer
Initials Country Subcustodian Central Depository
/s/ RWI State Street's entire Global Custody Network listed below
________ Argentina Citibank, N.A. Caja de Valores S.A.
________ Australia Westpac Banking Austraclear Limited;
Corporation
Reserve Bank Information
and Transfer System (RITS)
________ Austria GiroCredit Bank Oesterreichische
Aktiengesellschaft Kontrollbank AG
der Sparkassen (Wertpapiersammelbank
Division)
________ Bangladesh Standard Chartered Bank None
________ Belgium Generale Bank Caisse Interprofessionnelle
de Depots et de Virements
de Titres S.A. (CIK);
Banque Nationale de
Belgique
________ Botswana Barclays Bank of Botswana None
Limited
________ Brazil Citibank, N. A. Bolsa de Valores de Sao
Paulo (Bovespa);
Banco Central do Brasil,
Systema Especial de
Liquidacao e Custodia
(SELIC)
________ Canada Canada Trustco Mortgage The Canadian Depository
Company for Securities Limited
(CDS)
<PAGE>
Fund
Officer
Initials Country Subcustodian Central Depository
________ Chile Citibank, N.A. None
________ People's The Hongkong and Shanghai Securities Central
Republic Shanghai Banking Clearing and Registration
of China Corporation Limited, Corporation (SSCCRC);
Shanghai and
Shenzhen branches Shenzhen Securities Central
Clearing Co., Ltd. (SSCC)
________ Colombia Cititrust Colombia S.A. None
Sociedad
Fiduciaria
________ Cyprus Barclays Bank PLC None
Cyprus Offshore Banking
Unit
________ Czech Ceskoslovenska Obchodni Stredisko cennych
Republic Banka A.S. papiru(SCP);
Czech National Bank (CNB)
________ Denmark Den Danske Bank Vaerdipapircentralen - The
Danish Securities Center
(VP)
________ Ecuador Citibank, N.A. None
________ Egypt National Bank of Egypt None
________ Finland Merita Bank Limited The Central Share Register
of Finland
________ France Banque Paribas Societe
Interprofessionnelle
pour la Compensation des
Valeurs Mobilieres
(SICOVAM);
Banque de France,
Saturne System
________ Germany Dresdner Bank AG The Deutscher Kassenverein
AG
________ Ghana Barclays Bank of Ghana None
Limited
<PAGE>
Fund
Officer
Initials Country Subcustodian Central Depository
________ Greece National Bank of Greece The Central Securities
S.A. Depository (Apothetirion
Titlon A.E.)
________ Hong Kong Standard Chartered Bank The Central Clearing and
Settlement System (CCASS)
________ Hungary Citibank Budapest Rt. The Central Depository and
Clearing House (Budapest)
Ltd. (KELER Ltd.)
________ India Deutsche Bank AG None
The Hongkong and None
Shanghai Banking
Corporation Limited
________ Indonesia Standard Chartered Bank None
________ Ireland Bank of Ireland None;
The Central Bank of
Ireland, The Gilt
Settlement Office (GSO)
________ Israel Bank Hapoalim B.M. The Clearing House of the
Tel Aviv Stock Exchange
________ Italy Morgan Guaranty Trust Monte Titoli S.p.A.;
Company
(Present Subcustodian) Banca d'Italia
________ Banque Paribas Monte Titoli S.p.A.;
(Future Subcustodian)
Banca d'Italia
________ Ivory Societe Generale de None
Coast Banques en Cote d'Ivoire
________ Japan The Daiwa Bank, Limited Japan Securities Depository
Center (JASDEC);
Bank of Japan Net System
________ The Fuji Bank, Limited Japan Securities Depository
Center (JASDEC);
<PAGE>
Fund
Officer
Initials Country Subcustodian Central Depository
Bank of Japan Net System
________ The Sumitomo Trust & Japan Securities Depository
Banking Co., Ltd. Center (JASDEC);
Bank of Japan Net System
________ Jordan The British Bank of the None
Middle East
________ Kenya Barclays Bank of Kenya None
Limited
________ Republic SEOULBANK Korea Securities Depository
of Korea (KSD)
________ Malaysia Standard Chartered Bank Malaysian Central
Malaysia Berhad Depository Sdn.
Bhd. (MCD)
________ Mauritius The Hongkong and None
Shanghai Banking
Corporation Limited
________ Mexico Citibank Mexico, S.A. S.D. INDEVAL, S.A. de C.V.
(Instituto para el Deposito
de Valores);
Banco de Mexico
________ Morocco Banque Commerciale du None
Maroc
________ Netherlands MeesPierson N.V. Nederlands Centraal
Instituut voor
Giraal Effectenverkeer B.V.
(NECIGEF;)
________ New Zealand ANZ Banking Group New Zealand Central
(New Zealand) Limited Securities Depository
Limited (NZCSD)
________ Norway Christiania Bank og Verdipapirsentralen - The
Kreditkasse Norwegian Registry of
Securities (VPS)
________ Pakistan Deutsche Bank AG None
<PAGE>
Fund
Officer
Initials Country Subcustodian Central Depository
________ Peru Citibank, N.A. Caja de Valores (CAVAL)
________ Philippines Standard Chartered Bank None
________ Poland Citibank Poland S.A. The National Depository of
Securities (Krajowy Depozyt
Papierow Wartosciowych);
National Bank of Poland
________ Portugal Banco Comercial Central de Valores
Portugues Mobiliarios (Central)
________ Russia Credit Suisse, Zurich None
via Credit Suisse
(Moscow) Limited
________ Singapore The Development Bank The Central Depository
of Singapore Ltd. (Pte) Limited (CDP)
________ Slovak Ceskoslovenska Obchodna Stredisko Cennych Papierov
Republic Banka A.S. (SCP);
National Bank of Slovakia
________ South Standard Bank of South The Central Depository
Africa Africa Limited Limited
________ Spain Banco Santander, S. A. Servicio de Compensacion y
Liquidacion de Valores,
S.A. (SCLV);
Banco de Espana,
Anotaciones en Cuenta
________ Sri Lanka The Hongkong and Central Depository System
Shanghai Banking (Pvt) Limited
Corporation Limited
________ Swaziland Barclays Bank of None
Swaziland Limited
________ Sweden Skandinaviska Enskilda Vardepapperscentralen VPC
Banken AB - The Swedish Central
Securities Depository
<PAGE>
Fund
Officer
Initials Country Subcustodian Central Depository
________ Switzerland Union Bank of Schweizerische Effekten -
Switzerland Giro AG (SEGA)
________ Taiwan - Central Trust of China The Taiwan Securities
R.O.C. Central Depository
or Company, Ltd. (TSCD)
-----------------------
(Client Designated
Subcustodian)
________ Thailand Standard Chartered Bank Thailand Securities
Depository Company Limited
(TSD)
________ Turkey Citibank, N.A. Takas ve Saklama Bankasi
A.S.(TAKASBANK);
Central Bank of Turkey
________ United State Street Bank None;
Kingdom and Trust Company
The Bank of England,
The Central Gilts Office
CGO);
The Central Moneymarkets
Office (CMO)
________ Uruguay Citibank, N.A. None
________ Venezuela Citibank, N.A. None
________ Zambia Barclays Bank of Zambia Lusaka Central Depository
Limited (LCD)
________ Zimbabwe Barclays Bank of None
Zimbabwe Limited
________ Euroclear (The Euroclear System)/State Street London Limited[)]
________ Cedel (Cedel Bank, societe anonyme)/State Street London Limited[)]
Certified:
Richard W. Ingram
Fund's Authorized Officer
Date: December 17, 1996
TRANSFER AGENCY AND SERVICE AGREEMENT
between
JPM SERIES TRUST II
and
STATE STREET BANK AND TRUST COMPANY
1C-Domestic Trust/Series
<PAGE>
TABLE OF CONTENTS
Page
1. Terms of Appointment; Duties of the Bank...................1
2. Fees and Expenses..........................................3
3. Representations and Warranties of the Bank.................4
4. Representations and Warranties of the Fund.................4
5. Data Access and Proprietary Information....................4
6. Indemnification............................................6
7. Standard of Care...........................................7
8. Covenants of the Fund and the Bank.........................8
9. Termination of Agreement...................................9
10. Additional Funds...........................................9
11. Assignment.................................................9
12. Amendment..................................................9
13. Massachusetts Law to Apply.................................10
14. Force Majeure..............................................10
15. Consequential Damages......................................10
16. Merger of Agreement........................................10
17. Limitations of Liability of the Trustees
or Shareholders............................................10
18. Counterparts...............................................10
19. Reproduction of Documents..................................11
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the17th day of December , 1996, by and between JPM SERIES
TRUST II (formerly Chubb Series Trust), a Delaware business trust, having its
principal office and place of business at 60 State Street, Suite 1300, Boston,
Massachusetts 02109 (the "Fund"), and STATE STREET BANK AND TRUST COMPANY, a
Massachusetts trust company having its principal office and place of business at
225 Franklin Street, Boston, Massachusetts 02110 (the "Bank").
WHEREAS, the Fund is authorized to issue shares in separate series, with each
such series representing interests in a separate portfolio of securities and
other assets; and
WHEREAS, the Fund offers shares of beneficial interest ("Shares") of the Fund
representing interest in five series, the JPM Treasury Money Market Portfolio,
JPM Bond Portfolio, JPM Equity Portfolio, JPM Small Company Portfolio and JPM
International Equity Portfolio (each such series, together with all other series
subsequently established by the Fund and made subject to this Agreement in
accordance with Article 10, being herein referred to as a "Portfolio", and
collectively as the "Portfolios");
WHEREAS, the Fund on behalf of the Portfolios desires to appoint the Bank as its
transfer agent, dividend disbursing agent, custodian of certain retirement plans
and agent in connection with certain other activities, and the Bank desires to
accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein contained, the
parties hereto agree as follows:
l. Terms of Appointment; Duties of the Bank
1.1 Subject to the terms and conditions set forth in this Agreement, the
Fund, on behalf of the Portfolios, hereby employs and appoints the
Bank to act as, and the Bank agrees to act as its transfer agent for
the Fund's authorized and issued Shares and dividend disbursing agent
for 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
("Shareholders") as set forth in the currently effective prospectus
and statement of additional information ("prospectus") of the Fund on
behalf of the applicable Portfolio, including without limitation any
periodic investment plan or periodic withdrawal program.
1.2 The Bank agrees that it will perform the following services:
(a) In accordance with procedures established from time to time
by agreement between the Fund on behalf of each of the
Portfolios, as applicable and the Bank, the Bank shall:
(i) Receive for acceptance, orders for the purchase of
Shares, and promptly deliver payment and
appropriate documentation thereof to the Custodian
of the Fund authorized pursuant to the Declaration
of Trust of the Fund (the "Custodian");
<PAGE>
(ii) Pursuant to purchase orders, issue the appropriate number of
Shares and hold such Shares in the appropriate Shareholder
account;
(iii) Receive for acceptance redemption requests and redemption
directions and deliver the appropriate documentation thereof
to the Custodian;
(iv) In respect to the transactions in items (i), (ii)
and (iii) above, the Bank shall execute
transactions directly with broker-dealers
authorized by the Fund who shall thereby be deemed
to be acting on behalf of the Fund;
(v) At the appropriate time as and when it receives
monies paid to it by the Custodian with respect to
any redemption, pay over or cause to be paid over
in the appropriate manner such monies as instructed
by the redeeming Shareholders;
(vi) If applicable, effect transfers of Shares by the registered
owners thereof upon receipt of appropriate instructions;
(vii) Prepare and transmit payments for dividends and distributions
declared by the Fund on behalf of the applicable Portfolio;
(viii) Maintain records of account for and advise the Fund and
its Shareholders as to the foregoing; and
(ix) Record the issuance of Shares of the Fund and maintain
pursuant to SEC Rule 17Ad-10(e) a record of the total number
of Shares of the Fund which are authorized, based upon data
provided to it by the Fund, and issued and outstanding. The
Bank shall also provide the Fund on a regular basis with the
total number of Shares which are authorized and issued and
outstanding and shall have no obligation, when recording the
issuance of Shares, to monitor the issuance of such Shares
or to take cognizance of any laws relating to the issue or
sale of such Shares, which functions shall be the sole
responsibility of the Fund.
(b) In addition to and neither in lieu nor in contravention of the
services set forth in the above paragraph (a), the Bank shall: (i)
perform the customary services of a transfer agent and dividend
disbursing agent for Shareholders, including but not limited to:
maintaining all Shareholder accounts, preparing Shareholder meeting
lists, mailing proxies, mailing Shareholder reports and
prospectuses to current Shareholders, withholding taxes on U.S.
resident and non-resident alien accounts, preparing and filing U.S.
Treasury Department Forms 1099 and other appropriate forms required
with respect to dividends and distributions by federal authorities
for all Shareholders, preparing and mailing confirmation forms and
statements of account to Shareholders for all purchases and
redemptions of Shares and other confirmable transactions in
2
<PAGE>
Shareholder accounts, preparing and mailing activity
statements for Shareholders, and providing Shareholder
account information.
(c) Procedures as to who shall provide certain of these services
in Section 1 may be established from time to time by
agreement between the Fund on behalf of each Portfolio and
the Bank per the attached service responsibility schedule.
The Bank may at times perform only a portion of these
services and the Fund or its agent may perform these
services on the Fund's behalf.
(d) The Bank shall provide additional services on behalf of the
Fund (e.g., escheatment services) which may be agreed upon
in writing between the Fund and the Bank.
2. Fees and Expenses
2.1 For the performance by the Bank pursuant to this Agreement, the Fund
agrees on behalf of each of the Portfolios to pay the Bank an annual
maintenance fee for each Shareholder account as set out in the
initial fee schedule attached hereto. Such fees and out-of-pocket
expenses and advances identified under Section 2.2 below may be
changed from time to time subject to mutual written agreement between
the Fund and the Bank.
2.2 In addition to the fee paid under Section 2.1 above, the Fund agrees
on behalf of each of the Portfolios to reimburse the Bank for
out-of-pocket expenses, including but not limited to confirmation
production, postage, forms, telephone, microfilm, microfiche,
tabulating proxies, records storage, or advances incurred by the Bank
for the items set out in the fee schedule attached hereto. In
addition, any other expenses incurred by the Bank at the request or
with the consent of the Fund, will be reimbursed by the Fund on
behalf of the applicable Portfolio.
2.3 The Fund agrees on behalf of each of the Portfolios to pay all fees
and reimbursable expenses within five days following the receipt of
the respective billing notice. Postage for mailing of dividends,
proxies, Fund reports and other mailings to all Shareholder accounts
shall be advanced to the Bank by the Fund at least seven (7) days
prior to the mailing date of such materials.
3. Representations and Warranties of the Bank
The Bank represents and warrants to the Fund that:
3.1 It is a trust company duly organized and existing and in good
standing under the laws of The Commonwealth of Massachusetts.
3.2 It is duly qualified to carry on its business in The Commonwealth of
Massachusetts.
3.3 It is empowered under applicable laws and by its Charter and By-Laws
to enter into and perform this Agreement.
3
<PAGE>
3.4 All requisite corporate proceedings have been taken to authorize it
to enter into and perform this Agreement.
3.5 It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under
this Agreement.
4. Representations and Warranties of the Fund
The Fund represents and warrants to the Bank that:
4.1 It is a business trust duly organized and existing and in good standing
under the laws of the State of Delaware.
4.2 It is empowered under applicable laws and by its Agreement and
Declaration of Trust and By-Laws to enter into and perform this
Agreement.
4.3 All corporate proceedings required by said Declaration of Trust and
By-Laws have been taken to authorize it to enter into and perform
this Agreement.
4.4 It is an open-end and diversified management investment company
registered under the Investment Company Act of 1940, as amended.
4.5 A registration statement under the Securities Act of 1933, as amended
on behalf of each of the Portfolios is currently effective and will
remain effective.
5. Data Access and Proprietary Information
5.1 The Fund acknowledges that the data bases, computer programs, screen
formats, report formats, interactive design techniques, and
documentation manuals furnished to the Fund by the Bank as part of
the Fund's ability to access certain Fund-related data ("Customer
Data") maintained by the Bank on data bases under the control and
ownership of the Bank or other third party ("Data Access Services")
constitute copyrighted, trade secret, or other proprietary
information (collectively, "Proprietary Information") of substantial
value to the Bank or other third party. In no event shall Proprietary
Information be deemed Customer Data. The Fund agrees to treat all
Proprietary Information as proprietary to the Bank and further agrees
that it shall not divulge any Proprietary Information to any person
or organization except as may be provided hereunder. Without limiting
the foregoing, the Fund agrees for itself and its employees and
agents:
(a) to access Customer Data solely from locations as may be designated
in writing by the Bank and solely in accordance with the Bank's
applicable user documentation;
(b) to refrain from copying or duplicating in any way the Proprietary
Information;
4
<PAGE>
(c) to refrain from obtaining unauthorized access to any portion
of the Proprietary Information, and if such access is
inadvertently obtained, to inform in a timely manner of such
fact and dispose of such information in accordance with the
Bank's instructions;
(d) to refrain from causing or allowing the data acquired
hereunder from being retransmitted to any other computer
facility or other location, except with the prior written
consent of the Bank;
(e) that the Fund shall have access only to those authorized
transactions agreed upon by the parties;
(f) to honor all reasonable written requests made by the Bank to
protect at the Bank's expense the rights of the Bank in
Proprietary Information at common law, under federal
copyright law and under other federal or state law.
Each party shall take reasonable efforts to advise its employees of their
obligations pursuant to this Section 5. The obligations of this Section shall
survive any earlier termination of this Agreement.
5.2 If the Fund notifies the Bank that any of the Data Access Services do
not operate in material compliance with the most recently issued user
documentation for such services, the Bank shall endeavor in a timely
manner to correct such failure. Organizations from which the Bank may
obtain certain data included in the Data Access Services are solely
responsible for the contents of such data and the Fund agrees to make
no claim against the Bank arising out of the contents of such
third-party data, including, but not limited to, the accuracy
thereof. DATA ACCESS SERVICES AND ALL COMPUTER PROGRAMS AND SOFTWARE
SPECIFICATIONS USED IN CONNECTION THEREWITH ARE PROVIDED ON AN AS IS,
AS AVAILABLE BASIS. THE BANK EXPRESSLY DISCLAIMS ALL WARRANTIES
EXCEPT THOSE EXPRESSLY STATED HEREIN INCLUDING, BUT NOT LIMITED TO,
THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
5.3 If the transactions available to the Fund include the ability to
originate electronic instructions to the Bank in order to (i) effect
the transfer or movement of cash or Shares or (ii) transmit
Shareholder information or other information, then in such event the
Bank shall be entitled to rely on the validity and authenticity of
such instruction without undertaking any further inquiry as long as
such instruction is undertaken in conformity with security procedures
established by the Bank from time to time.
6. Indemnification
6.1 The Bank shall not be responsible for, and the Fund shall on behalf
of the applicable Portfolio indemnify and hold the Bank harmless from
and against, any and all losses, damages, costs, charges, counsel
fees, payments, expenses and liability arising out of or attributable
to any claim, demand, action or suit in connection with:
(a) All actions of the Bank or its agents or subcontractors required
5
<PAGE>
to be taken pursuant to this Agreement, provided that such
actions are taken in good faith and without negligence or
willful misconduct.
(b) The Fund's lack of good faith, negligence or willful
misconduct which arise out of the breach of any
representation or warranty of the Fund hereunder.
(c) The reliance on or use by the Bank or its agents or
subcontractors of information, records, documents or
services which (i) are received by the Bank or its agents or
subcontractors, and (ii) have been prepared, maintained or
performed by the Fund or any other person or firm on behalf
of the Fund including but not limited to any previous
transfer agent or registrar.
(d) The reliance on, or the carrying out by the Bank or its agents or
subcontractors of any instructions or requests of the Fund on
behalf of the applicable Portfolio.
(e) The offer or sale of Shares in violation of any requirement
under the federal securities laws or regulations or in
violation of any stop order or other determination or ruling
by any federal agency with respect to the offer or sale of
such Shares.
(f) The negotiation and processing by the Bank of checks not
made payable to the order of the Bank, the Fund, the Fund's
management company, transfer agent or distributor, which
checks are tendered to the Bank for the purchase of Shares
(i.e., checks made payable to prospective or existing
Shareholders, such checks are commonly known as "third party
checks").
6.2 The Bank shall indemnify and hold the Fund harmless from and against
any and all losses, damages, costs, charges, reasonable counsel fees,
payments, expenses and liability arising out of or attributable to
any action or failure or omission to act by the Bank as a result of
the Bank's lack of good faith, negligence or willful misconduct.
6.3 At any time the Bank may apply to any officer of the Fund for
instructions, and may consult with legal counsel with respect to any
matter arising in connection with the services to be performed by the
Bank under this Agreement, and the Bank and its agents or
subcontractors shall not be liable and shall be indemnified by the
Fund on behalf of the applicable Portfolio for any action taken or
omitted by it in reliance upon such instructions or upon the opinion
of such counsel. The Bank, its agents and subcontractors shall be
protected and indemnified in acting upon any paper or document
furnished by or on behalf of the Fund, reasonably believed to be
genuine and to have been signed by the proper person or persons, or
upon any instruction, information, data, records or documents
provided the Bank or its agents or subcontractors by machine readable
input, telex, CRT data entry or other similar means authorized by the
Fund, and shall not be held to have notice of any change of authority
of any person, until receipt of written notice thereof from the Fund.
The Bank, its agents and subcontractors shall also be protected
6
<PAGE>
and indemnified in recognizing stock certificates which are
reasonably believed to bear the proper manual or facsimile signatures
of the officers of the Fund, and the proper countersignature of any
former transfer agent or former registrar, or of a co-transfer agent
or co-registrar.
6.4 In order that the indemnification provisions contained in this
Section 6 shall apply, upon the assertion of a claim for which either
party may be required to indemnify the other, the party seeking
indemnification shall promptly notify the other party of such
assertion, and shall keep the other party advised with respect to all
developments concerning such claim. The party who may be required to
indemnify shall have the option to participate with the party in the
defense of such claim. The party seeking indemnification shall in no
case confess any claim or make any compromise in any case in which
the other party may be required to indemnify it except with the other
party's prior written consent.
7. Standard of Care
The Bank shall at all times act in good faith and agrees to use its
best efforts within reasonable limits to insure the accuracy of all
services performed under this Agreement, but assumes no
responsibility and shall not be liable for loss or damage due to
errors unless said errors are caused by its negligence, bad faith, or
willful misconduct or that of its employees.
8. Covenants of the Fund and the Bank
8.1 The Fund shall on behalf of each of the Portfolios promptly furnish to
the Bank the following:
(a) A certified copy of the resolution of the Board of Trustees of the
Fund authorizing the appointment of the Bank and the execution and
delivery of this Agreement.
(b) A copy of the Agreement and Declaration of Trust and By-Laws of the
Fund and all amendments thereto.
8.2 The Bank hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Fund for safekeeping of stock
certificates, check forms and facsimile signature imprinting devices,
if any; and for the preparation or use, and for keeping account of,
such certificates, forms and devices.
8.3 The Bank shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable. To the
extent required by Section 31 of the Investment Company Act of 1940,
as amended, and the Rules thereunder, the Bank agrees that all such
records prepared or maintained by the Bank relating to the services
to be performed by the Bank hereunder are the property of the Fund
and will be
7
<PAGE>
preserved, maintained and made available in accordance with such
Section and Rules, and will be surrendered promptly to the Fund on
and in accordance with its request.
8.4 The Bank and the Fund agree that all books, records, information and
data pertaining to the business of the other party which are
exchanged or received pursuant to the negotiation or the carrying out
of this Agreement shall remain confidential, and shall not be
voluntarily disclosed to any other person, except as may be required
by law.
8.5 In case of any requests or demands for the inspection of the
Shareholder records of the Fund, the Bank will endeavor to notify the
Fund and to secure instructions from an authorized officer of the
Fund as to such inspection. The Fund will ,within two business days,
furnish instructions to the Bank. Pending receipt of such
instructions, the Bank will not disclose such Shareholder records and
upon receipt by the Bank will abide by such instructions.
Notwithstanding any other provision of this Agreement, in the event
that (i) the Fund instructs the Bank not to disclose such Shareholder
records and the Bank has furnished the Fund with an opinion of
counsel that the Bank disclose such Shareholder records, the Fund
will indemnify the Bank for any such liability, or (ii) the Bank
discloses such Shareholder records without proper instructions from
the Fund, the Bank shall indemnify and hold the Fund harmless from
and against any and all losses, damages, costs, charges, reasonable
counsel fees, payments, expenses and liability arising out of or
attributable to such disclosure. The provision of Section 6.4 shall
govern such indemnification.
9. Termination of Agreement
9.1 This Agreement may be terminated by either party upon one hundred
twenty (120) days written notice to the other.
9.2 Should the Fund exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and material will be
borne by the Fund on behalf of the applicable Portfolio(s).
Additionally, the Bank reserves the right to charge for any other
reasonable expenses associated with such termination and/or a charge
equivalent to the average of three (3) months' fees.
10. Additional Funds
In the event that the Fund establishes one or more series of Shares
in addition to JPM Treasury Money Market Portfolio, JPM Bond
Portfolio, JPM Equity Portfolio, JPM Small Company Portfolio and JPM
International Equity Portfolio with respect to which it desires to
have the Bank render services as transfer agent under the terms
hereof, it shall so notify the Bank in writing, and if the Bank
agrees in writing to provide such services, such series of Shares
shall become a Portfolio hereunder.
11. Assignment
11.1 Except as provided in Section 11.3 below, neither this Agreement nor any
8
<PAGE>
rights or obligations hereunder may be assigned by either party
without the written consent of the other party.
11.2 This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
11.3 The Bank may, without further consent on the part of the Fund,
subcontract for the performance hereof with (i) Boston Financial Data
Services, Inc., a Massachusetts corporation ("BFDS") which is duly
registered as a transfer agent pursuant to Section 17A(c)(2) of the
Securities Exchange Act of 1934, as amended ("Section 17A(c)(2)"),
(ii) a BFDS subsidiary duly registered as a transfer agent pursuant
to Section 17A(c)(2) or (iii) a BFDS affiliate; provided, however,
that the Bank shall be as fully responsible to the Fund for the acts
and omissions of any subcontractor as it is for its own acts and
omissions.
12. Amendment
This Agreement may be amended or modified by a written agreement
executed by both parties and authorized or approved by a resolution
of the Board of Trustees of the Fund.
13. Massachusetts Law to Apply
This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of The Commonwealth
of Massachusetts.
14. Force Majeure
In the event either party is unable to perform its obligations under
the terms of this Agreement because of acts of God, strikes,
equipment or transmission failure or damage reasonably beyond its
control, or other causes reasonably beyond its control, such party
shall not be liable for damages to the other for any damages
resulting from such failure to perform or otherwise from such causes.
15. Consequential Damages
Neither party to this Agreement shall be liable to the other party
for consequential damages under any provision of this Agreement or
for any consequential damages arising out of any act or failure to
act hereunder.
16. Merger of Agreement
This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject
matter hereof whether oral or written.
17. Limitations of Liability of the Trustees and Shareholders
A copy of the Certificate of Trust of the Fund is on file with the
Secretary of State of the State of Delaware, and notice is hereby
given
9
<PAGE>
that the Fund's Agreement and Declaration of Trust is executed on
behalf of the Trustees of the Fund as Trustees and not individually
and that the obligations of this instrument are not binding upon any
of the Trustees or Shareholders individually but are binding only
upon the assets and property of the Fund.
18. Counterparts
This Agreement may be executed by the parties hereto on any number of
counterparts, and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
19. Reproduction of Documents
This Agreement and all schedules, exhibits, attachments and
amendments hereto may be reproduced by any photographic, photostatic,
microfilm, micro-card, miniature photographic or other similar
process. The parties hereto all/each agree that any such reproduction
shall be admissible in evidence as the original itself in any
judicial or administrative proceeding, whether or not the original is
in existence and whether or not such reproduction was made by a party
in the regular course of business, and that any enlargement,
facsimile or further reproduction of such reproduction shall likewise
be admissible in evidence.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in their names and on their behalf by and through their duly authorized
officers, as of the day and year first above written.
JPM SERIES TRUST II
BY:Richard W. Ingram
ATTEST:
John E. Pelletier
STATE STREET BANK AND TRUST COMPANY
BY:Ronald E. Logue
Executive Vice President
ATTEST:
Francine Hayes
11
<PAGE>
STATE STREET BANK & TRUST COMPANY
FUND SERVICE RESPONSIBILITIES*
Service Performed Responsibility
Bank Fund
1. Receives orders for the purchase X
of Shares.
2. Record Share, issuance and hold Shares in
Shareholders accounts. X
3. Receive redemption requests. X
4. Effect transactions 1-3 above
directly with broker-dealers. X
5. Pay over monies to redeeming
Shareholders. X
6. Effect transfers of Shares. X
7. Prepare and transmit dividends
and distributions. X
8. Issue Replacement Certificates. X
9. Reporting of abandoned property. X
10. Maintain records of account. X
11. Maintain and keep a current and
accurate control book for each
issue of securities. X
12. Mail proxies. X
13. Mail Shareholder reports. X
14. Mail prospectuses to current
Shareholders. X
15. Withhold taxes on U.S. resident
and non-resident alien accounts. X
<PAGE>
Service Performed Responsibility
Bank Fund
16. Prepare and file U.S. Treasury
Department forms. X
17. Prepare and mail account and
confirmation statements for
Shareholders. X
18. Provide Shareholder account
information. X
19. Blue sky reporting. N/A
* Such services are more fully described in Section 1.2 (a), (b) and (c)
of the Agreement.
JPM SERIES TRUST II
BY: Richard W. Ingram
ATTEST:
John E. Pelletier
STATE STREET BANK AND TRUST COMPANY
BY: Ronald E. Logue
Executive Vice President
ATTEST:
Francine Hayes
FORM OF
JPM SERIES TRUST II
ADMINISTRATIVE SERVICES AGREEMENT
ADMINISTRATIVE SERVICES AGREEMENT, dated as of January 1, 1997, 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 shareholder 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 provisions of certain financial and administrative services, to oversee
fund accounting for the Portfolios, and to perform certain shareholder
services 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
<PAGE>
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 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; k) being responsible for the Trust's usual and
customary expenses as defined in Section 5.1 of this Agreement; l) answering
inquiries regarding account status and history, the manner in which purchases
and redemptions of shares may be effected, and certain other matters pertaining
to the Trust; m) assisting investors in designating and changing dividend
options, account designations and addresses; n) providing necessary personnel
and facilities to coordinate the establishment and maintenance of shareholder
accounts and records with the Transfer Agent; o) receiving purchase and
redemption orders on behalf of, and transmitting such orders to, the Transfer
Agent; p) arranging for the wiring or other transfer of funds to and from
shareholder accounts in connection with orders to purchase or redeem shares; q)
verifying purchase and redemption orders, transfers among and changes in
shareholder-designated accounts; r) informing the distributor of the Trust of
the gross amount of purchase and redemption orders for shares; and s) monitoring
the activities of the Transfer Agent related to shareholder accounts and to
statements, confirmations or other reports furnished to shareholders by the
Transfer Agent.
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 is 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 Agreement and 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
<PAGE>
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 Charqes 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.
<PAGE>
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 Morqan 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; provided, however, that the portion of such fee attributable to
Morgan Guaranty's shareholder services for the shareholders of any Portfolio
shall not exceed the amount payable at an annual rate of 0.25% of the daily net
asset values of such Portfolio's shares owned by or for shareholders. 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 the Prior Management 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 Morqan 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, 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.
During the term of this Agreement, the Trust agrees to furnish Morgan
Guaranty all prospectuses, statements of additional information, proxy
statements, reports to shareholders, sales literature, or other material the
Trust will distribute to shareholders of each Portfolio or the public, which
refer in any way to Morgan Guaranty or any of its affiliates, prior to use
thereof, and not to use such material if Morgan Guaranty reasonably objects in
<PAGE>
writing within five business days (or such other time as may be mutually agreed
in writing) after receipt thereof. In the event of termination of this
Agreement, the Trust will continue to furnish to Morgan Guaranty copies of any
of the above-mentioned materials which refer in any way to Morgan Guaranty or
any of its affiliates. The Trust shall furnish or otherwise make available to
Morgan Guaranty such other information relating to the business affairs of the
Trust as Morgan Guaranty at any time, or from time to time, reasonably requests
in order to discharge its obligations hereunder.
8. Activities of Morqan 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. Subcontractinq by Morqan 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 until _________, 1998, 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 a 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 Aqreement: 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.
<PAGE>
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. Governinq 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 of 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: Richard W. Ingram
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By: Stephen H. Hopkins
<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 Portfol .55%
JPM International Equity .60%
JPM SERIES TRUST II
CO-ADMINISTRATION AGREEMENT
CO-ADMINISTRATION AGREEMENT, dated as of January 1, 1997, by and
between JPM Series Trust II, an unincorporated business trust organized under
the laws of Delaware (the "Trust"), and Funds Distributor, Inc., a Massachusetts
corporation (the "Co-Administrator").
W I T N E S S E T H:
WHEREAS, the Trust is engaged in business as an open-end diversified
management investment company registered under the Investment Company Act of
1940 (collectively with the rules and regulations promulgated thereunder, the
"1940 Act");
WHEREAS, The Trust issues a separate series of Shares of Beneficial
Interest (the "Shares") for each Portfolio (the "Portfolio" or "Portfolios" as
the context requires) of the Trust; and
WHEREAS, the Trust wishes to engage the Co-Administrator to provide
certain administrative and management services, and the Co-Administrator is
willing to provide such administrative and management services to the Trust and
each Portfolio, on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
of the parties hereto as herein set forth, the parties covenant and agree as
follows:
1. Duties of the Co-Administrator. Subject to the general direction and
control of the Board of Trustees of the Trust, the Co-Administrator shall
perform the following administrative and management services: (a) providing or
obtaining office space, equipment and clerical personnel necessary for
maintaining the organization of the Trust, including a principal office in
Massachusetts, and for performing the administrative and management functions
herein set forth; (b) arranging for Directors, officers and employees of the
Co-Administrator or its agents, reasonably acceptable to the Trustees, to serve
as Trustees, officers or agents of the Trust and perform the duties incident to
their office, if duly elected or appointed to such positions and subject to
their individual consent and to any limitations imposed by law; (c) preparing
such reports, applications and documents (including reports regarding the sale
and redemption of Shares as reported by the Trust's transfer agent as may be
required in order to comply with state securities laws) as may be necessary or
desirable to register Shares with state securities authorities, monitoring the
sale of Shares as reported by the Trust's transfer agent for compliance with
state securities laws, and filing with the appropriate state securities
authorities the registration statements and reports for the Trust and the Shares
and all amendments thereto, as may be necessary or convenient to register and
keep effective the Trust and the Shares
<PAGE>
with state securities authorities to enable the Trust to make a continuous
offering of Shares; (d) filing documents with regulatory authorities or mailing
documents to investors in or Trustees of the Trust to the extent requested by
the Trust; (e) reviewing and filing with the National Association of Securities
Dealers all marketing and sales literature provided to the Co-Administrator on
behalf of the Trust; and (f) maintaining books and records of the Trust related
to the foregoing. In the performance of its duties under this Agreement, the Co-
Administrator will comply with the provisions of the Declaration of Trust and
By-Laws of the Trust and the Trust's stated investment objectives, policies and
restrictions and will use its best efforts to safeguard and promote the welfare
of the Trust and to comply with other policies which the Board of Trustees may
from time to time determine. Notwithstanding the foregoing, the Co-Administrator
shall not be deemed to have assumed any duties with respect to this Agreement,
including, without limitation, any responsibility for the management of the
Trust's assets or the rendering of investment advice and supervision with
respect thereto, nor shall the Co-Administrator be deemed to have assumed or
have any responsibility with respect to functions specifically assumed by any
transfer agent, custodian or other administrative service provider of the Trust.
The Co-Administrator undertakes to comply with all applicable requirements of
the U.S. federal securities laws and any other laws, rules and regulations of
governmental authorities having jurisdiction with respect to the duties to be
performed by it hereunder.
2. Books and Records. In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Co-Administrator hereby agrees that all records which it
maintains for the Trust are the property of the Trust and further agrees to
surrender promptly to the Trust any such records upon the Trust's request.
3. Allocation of Charges and Expenses. The Co-Administrator shall pay
the entire salaries and wages of all of the Trust's Trustees, officers and
agents who devote part or all of their time to the affairs of the
Co-Administrator or its affiliates, and the wages and salaries of such persons
shall not be deemed to be expenses incurred by the Trust for purposes of this
Section 3. Except as provided in the foregoing sentence, the Co-Administrator
shall not pay other expenses relating to the Trust including, without
limitation, compensation of Trustees not affiliated with the Co-Administrator;
governmental fees; interest charges; taxes; membership dues in the Investment
Company Institute allocable to the Trust; fees and expenses of the Trust's
independent auditors, of legal counsel and of any transfer agent, distributor,
shareholder servicing agent, registrar or dividend disbursing agent of the
Trust; expenses of distributing and redeeming Shares and servicing shareholder
accounts; expenses of preparing, printing and mailing prospectuses and
statements of additional information, reports, notices, proxy statements and
reports to shareholders and governmental officers and commissions; expenses of
preparing and mailing agendas and supporting documents for meetings of Trustees
and committees of Trustees; expenses connected with the execution, recording and
settlement of portfolio security transactions; insurance premiums; fees and
expenses of the Trust's custodian for all services to the Trust, including
safekeeping of funds and securities and maintaining required books and accounts;
expenses of calculating the net asset value of the Shares; expenses of
shareholder meetings; and expenses relating to the issuance, registration and
qualification of Shares.
2
<PAGE>
4. Compensation of Co-Administrator. For the services to be rendered
and the facilities to be provided by the Co-Administrator hereunder, the
Co-Administrator shall receive a fee from each such Portfolio of the Trust as
agreed by the Trust and the Co-Administrator from time to time as set forth on
Schedule A attached hereto. This fee will be payable as agreed by the Trust and
the Co-Administrator, but no more frequently than monthly.
5. Limitation of Liability of the Co-Administrator. The
Co-Administrator shall not be liable for any error of judgment or mistake of law
or for any act or omission in the administration or management of the Trust or
the performance of its duties hereunder, except for willful misfeasance, bad
faith or gross negligence in the performance of its duties, or by reason of the
reckless disregard of its obligations and duties hereunder. As used in this
Section 5, the term "Co-Administrator" shall include Funds Distributor, Inc.
and/or any of its affiliates and the Directors, officers and employees of Funds
Distributor, Inc. and/or of its affiliates.
6. Activities of the Co-Administrator. The services of the
Co-Administrator to the Trust are not to be deemed to be exclusive, the
Co-Administrator being free to render administrative and/or other services to
other parties. It is understood that Trustees, officers, and shareholders of the
Trust are or may become interested in the Co-Administrator and/or any of its
affiliates, as Directors, officers, employees, or otherwise, and that Directors,
officers and employees of the Co-Administrator and/or any of its affiliates are
or may become similarly interested in the Trust and that the Co-Administrator
and/or any of its affiliates may be or become interested in the Trust as a
shareholder or otherwise.
7. Termination. This Agreement may be terminated as to any Portfolio at
any time, without the payment of any penalty, by the Board of Trustees of the
Trust or by the Co-Administrator, in each case on not more than 60 days' nor
less than 30 days' written notice to the other party.
8. Sub-contracting by the Co-Administrator. The Co-Administrator may
subcontract for the performance of its obligations hereunder with any one or
more persons; provided, however, that the Co-Administrator may sub-contract
hereunder only with the prior consent of the Trustees of the Trust; and
provided, further, that, unless the Trust otherwise expressly agrees in writing,
the Co-Administrator shall be as fully responsible to the Trust for the acts and
omissions of any sub-contractor as it would be for its own acts or omissions.
9. Further Actions. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
10. Amendments. This Agreement may be amended by only mutual written
consent.
11. Confidentiality. The Co-Administrator agrees on behalf of itself
and its employees to treat confidentially and as proprietary information of the
Trust all records and other information not otherwise publicly available
relative to the Trust and its prior, present or potential shareholders and not
to use such records and information for any purpose other than performance of
3
<PAGE>
its responsibilities and duties hereunder, except after prior notification to
and approval in writing by the Trust, which approval shall not be unreasonably
withheld and may not be withheld where the Co-Administrator may be exposed to
civil or criminal contempt proceedings for failure to comply, when requested to
divulge such information by duly constituted authorities, or when so requested
by the Trust.
12. Miscellaneous. This Agreement embodies the entire agreement and
understanding between the parties hereto and supersedes all prior agreements and
understandings relating to the subject matter hereof. The captions in this
Agreement are included for convenience of reference only and in no way define or
delimit any of the provisions hereof or otherwise affect their construction or
effect. Should any part of this Agreement be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement shall not
be affected thereby. This Agreement shall be binding and shall inure to the
benefit of the parties hereto and their respective successors, to the extent
permitted by law.
13. Notice. Any notice or other communication required to be given
pursuant to this Agreement shall be deemed duly given if delivered or mailed by
registered mail, postage prepaid, (1) to the Co-Administrator at 60 State
Street, 13th Floor, Boston, Massachusetts 02109, Attention: President with a
copy to General Counsel; or (2) to the Trust at 60 State Street, Suite 1300,
Boston, Massachusetts 02109, Attention: Treasurer, or at such other address as
either party may from time to time specify to the other party pursuant to this
section, with a copy to Morgan Guaranty Trust Company of New York, 522 Fifth
Avenue, New York, New York 10036, Attention: Funds Management.
14. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written. The
undersigned officer of the Trust has executed this Agreement not individually,
but as an officer of the Trust under the Trust's Declaration of Trust, dated
October 27, 1993, as amended, and the obligations of this Agreement are not
binding upon any of the Trustees or shareholders of the Trust individually, but
bind only the Trust estate.
JPM SERIES TRUST II
By Richard W. Ingram
Name:Richard W. Ingram
Title: President and Treasurer
FUNDS DISTRIBUTOR, INC.
By John E. Pelletier
Name: John E. Pelletier
Title: Vice President and Secretary
4
<PAGE>
Schedule A
The Co-Administrator's annual fee charged to and payable by each Covered
Entity as defined below is its share of an annual complex-wide charge. The
annual complex-wide charge is:
(a) $425,000 for all Covered Entities, provided that such charge
shall be increased by $5,000 for each Covered Entity in excess of 100,
plus
(b) out-of-pocket charges for any services subcontracted pursuant to co-
administration agreements with Covered Entities.
The portion of this charge payable by each Covered Entity is (i) in the case of
any charges described in paragraph (b) directly attributable to a particular
Covered Entity, the amount attributable to such Covered Entity, plus (ii) in the
case of all other amounts, the amount determined by the proportionate share that
such Covered Entity's net assets bear to the total net assets of the Covered
Entities.
A Covered Entity is any Portfolio of JPM Series Trust II and each other current
or future mutual fund (or series thereof) for which both (1) a tax return is
filed with the Internal Revenue Service under United States tax law and (2)
Morgan Guaranty Trust Company of New York provides administrative services and
the Co-Administrator provides administration services.
Approved: December 16, 1996 1996
Effective Date: January 1, 1997
FUND PARTICIPATION AGREEMENT
This Agreement is entered into as of the ___ day of _____, 199_, between
___________________________________________ ("Insurance Company"), a life
insurance company organized under the laws of the State of ________, and JPM
Series Trust II ("Fund"), a business trust organized under the laws of Delaware,
with respect to the Fund's portfolio or portfolios set forth on Schedule 1
hereto, as such Schedule may be revised from time to time (the "Series"; if
there are more than one Series to which this Agreement applies, the provisions
herein shall apply severally to each such Series).
ARTICLE I 1.
DEFINITIONS
1.1 "Act" shall mean the Investment Company Act of 1940, as amended.
1.2 "Board" shall mean the Board of Trustees of the Fund having the
responsibility for management and control of the Fund.
1.3 "Business Day" shall mean any day for which the Fund calculates net
asset value per share as described in the Fund's Prospectus.
1.4 "Commission" shall mean the Securities and Exchange Commission.
1.5 "Contract" shall mean a variable annuity or variable life insurance
contract that uses the Fund as an underlying investment medium.
Individuals who participate under a group Contract are "Participants".
1.6 "Contractholder" shall mean any entity that is a party to a
Contract with a Participating Company.
1.7 "Disinterested Board Members" shall mean those members of the Board
that are not deemed to be "interested persons" of the Fund, as defined
by the Act.
1.8 "Participating Companies" shall mean any insurance company
(including Insurance Company), which offers variable annuity and/or
variable life insurance contracts to the public and which has entered
into an agreement with the Fund for the purpose of making Fund shares
available to serve as the underlying investment medium for the
aforesaid Contracts.
1.9 "Plans" shall mean qualified pension and retirement benefit plans.
<PAGE>
1.10 "Prospectus" shall mean the Fund's current prospectus and
statement of additional information, as most recently filed with the
Commission, with respect to the Series.
1.11 "Separate Account" shall mean _____________________ Company
Variable Annuity Separate Account, a separate account established by
Insurance Company in accordance with the laws of the State of
----------.
1.12 "Software Program" shall mean the software program used by the
Fund for providing Fund and account balance information including net
asset value per share.
1.13 "Insurance Company's General Account(s)" shall mean the general
account(s) of Insurance Company and its affiliates which invest in the
Fund.
ARTICLE II 2.
REPRESENTATIONS
2.1 Insurance Company represents and warrants that (a) it is an
insurance company duly organized and in good standing under applicable
law; (b) it has legally and validly established the Separate Account
pursuant to the __________ Insurance Code for the purpose of offering
to the public certain individual variable annuity contracts; (c) it has
registered the Separate Account as a unit investment trust under the
Act to serve as the segregated investment account for the Contracts;
(d) each Separate Account is eligible to invest in shares of the Fund
without such investment disqualifying the Fund as an investment medium
for insurance company separate accounts supporting variable annuity
contracts or variable life insurance contracts; and (e) each Separate
Account shall comply with all applicable legal requirements.
2.2 Insurance Company represents and warrants that (a) the Contracts
will be described in a registration statement filed under the
Securities Act of 1933, as amended ("1933 Act"); (b) the Contracts will
be issued and sold in compliance in all material respects with all
applicable federal and state laws; and (c) the sale of the Contracts
shall comply in all material respects with state insurance law
requirements. Insurance Company agrees to inform the Fund promptly of
any investment restrictions imposed by state insurance law and
applicable to the Fund.
2.3 Insurance Company represents and warrants that the income, gains
and losses, whether or not realized, from assets allocated to the
Separate Account are, in accordance with the applicable Contracts, to
be credited to or charged against such Separate Account without regard
to other income, gains or losses from assets allocated to any other
accounts of Insurance Company. Insurance Company represents and
warrants that the assets of the Separate Account
<PAGE>
are and will be kept separate from Insurance Company's General Account
and any other separate accounts Insurance Company may have, and will
not be charged with liabilities from any business that Insurance
Company may conduct or the liabilities of any companies affiliated with
Insurance Company.
2.4 Fund represents that the Fund is registered with the Commission
under the Act as an open-end management investment company and
possesses, and shall maintain, all legal and regulatory licenses,
approvals, consents and/or exemptions required for the Fund to operate
and offer its shares as an underlying investment medium for
Participating Companies. The Fund has established five portfolios and
may in the future establish other portfolios.
2.5 Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"), and that it will make every effort to
maintain such qualification (under Subchapter M or any successor or
similar provision) and that it will notify Insurance Company
immediately upon having a reasonable basis for believing that it has
ceased to so qualify or that it might not so qualify in the future.
2.6 Insurance Company represents and agrees that the Contracts are
currently, and at the time of issuance will be, treated as life
insurance policies or annuity contracts, whichever is appropriate,
under applicable provisions of the Code, and that it will make every
effort to maintain such treatment and that it will notify the Fund and
its investment adviser immediately upon having a reasonable basis for
believing that the Contracts have ceased to be so treated or that they
might not be so treated in the future. Insurance Company agrees that
any prospectus offering a Contract that is a "modified endowment
contract," as that term is defined in Section 7702A of the Code, will
identify such Contract as a modified endowment contract (or policy).
2.7 Fund agrees that the Fund's assets shall be managed and invested in
a manner that complies with the requirements of Section 817(h) of the
Code.
2.8 Insurance Company agrees that the Fund shall be permitted (subject
to the other terms of this Agreement) to make Series' shares available
to other Participating Companies and contractholders and to Plans.
2.9 Fund represents and warrants that any of its trustees, officers,
employees, investment advisers, and other individuals/entities who deal
with the money and/or securities of the Fund are and shall continue to
be at all times covered by a blanket fidelity bond or similar coverage
for the benefit of the Fund in an amount not less than that required by
Rule 17g-1 under the Act. The aforesaid
<PAGE>
Bond shall include coverage for larceny and embezzlement and shall be
issued by a reputable bonding company.
2.10 Insurance Company represents and warrants that all of its
employees and agents who deal with the money and/or securities of the
Fund are and shall continue to be at all times covered by a blanket
fidelity bond or similar coverage in an amount not less than the
coverage required to be maintained by the Fund. The aforesaid Bond
shall include coverage for larceny and embezzlement and shall be issued
by a reputable bonding company.
2.11 Insurance Company agrees that the Fund's investment adviser shall
be deemed a third party beneficiary under this Agreement and may
enforce any and all rights conferred by virtue of this Agreement.
ARTICLE III 3.
FUND SHARES
3.1 The Contracts funded through the Separate Account will provide for
the investment of certain amounts in the Series' shares.
3.2 Fund agrees to make the shares of its Series available for purchase
at the then applicable net asset value per share by Insurance Company
and the Separate Account on each Business Day pursuant to rules of the
Commission. Notwithstanding the foregoing, the Fund may refuse to sell
the shares of any Series to any person, or suspend or terminate the
offering of the shares of any Series if such action is required by law
or by regulatory authorities having jurisdiction or is, in the sole
discretion of the Board, acting in good faith and in light of its
fiduciary duties under federal and any applicable state laws, necessary
and in the best interests of the shareholders of such Series.
3.3 Fund agrees that shares of the Fund will be sold only to
Participating Companies and their separate accounts and to the general
accounts of those Participating Companies and their affiliates and to
Plans. No shares of any Series will be sold to the general public.
3.4 Fund shall use its best efforts to provide closing net asset value,
dividend and capital gain information for each Series available on a
per-share and Series basis to Insurance Company by 7:00 p.m. Eastern
Time on each Business Day. Any material errors in the calculation of
net asset value, dividend and capital gain information shall be
reported immediately upon discovery to Insurance Company. Non-material
errors will be corrected in the next Business Day's net asset value per
share for the Series in question.
3.5 At the end of each Business Day, Insurance Company will use the
information described in Sections 3.2 and 3.4 to calculate the
<PAGE>
Separate Account unit values for the day. Using this unit value,
Insurance Company will process the day's Separate Account transactions
received by it by the close of trading on the floor of the New York
Stock Exchange (currently 4:00 p.m. Eastern time) to determine the net
dollar amount of Series shares which will be purchased or redeemed at
that day's closing net asset value per share for such Series. The net
purchase or redemption orders will be transmitted to the Fund by
Insurance Company by 9:00 a.m. Eastern Time on the Business Day next
following Insurance Company's receipt of that information. Subject to
Sections 3.6 and 3.8, all purchase and redemption orders for Insurance
Company's General Accounts shall be effected at the net asset value per
share of the relevant Series next calculated after receipt of the order
by the Fund or its Transfer Agent.
3.6 Fund appoints Insurance Company as its agent for the limited
purpose of accepting orders for the purchase and redemption of shares
of each Series for the Separate Account. Fund will execute orders for
any Series at the applicable net asset value per share determined as of
the close of trading on the day of receipt of such orders by Insurance
Company acting as agent ("effective trade date"), provided that the
Fund receives notice of such orders by 9:00 a.m. Eastern Time on the
next following Business Day and, if such orders request the purchase of
Series shares, the conditions specified in Section 3.8, as applicable,
are satisfied. A redemption or purchase request for any Series that
does not satisfy the conditions specified above and in Section 3.8, as
applicable, will be effected at the net asset value computed for such
Series on the Business Day immediately preceding the next following
Business Day upon which such conditions have been satisfied.
3.7 Insurance Company will make its best efforts to notify Fund in
advance of any unusually large purchase or redemption orders.
3.8 If Insurance Company's order requests the purchase of Series
shares, Insurance Company will pay for such purchases by wiring Federal
Funds to Fund or its designated custodial account on the day the order
is transmitted. Insurance Company shall make all reasonable efforts to
transmit to the Fund payment in Federal Funds by 12:00 noon Eastern
Time on the Business Day the Fund receives the notice of the order
pursuant to Section 3.5. Fund will execute such orders at the
applicable net asset value per share determined as of the close of
trading on the effective trade date if Fund receives payment in Federal
Funds by 12:00 noon Eastern Time on the Business Day the Fund receives
the notice of the order pursuant to Section 3.5. If payment in Federal
Funds for any purchase is not received or is received by the Fund after
12:00 noon Eastern Time on such Business Day, Insurance Company shall
promptly upon the Fund's request, reimburse the Fund for any charges,
costs, fees, interest or other expenses incurred by the Fund in
connection with any advances to, or borrowings or
<PAGE>
overdrafts by, the Fund, or any similar expenses incurred by the Fund,
as a result of portfolio transactions effected by the Fund based upon
such purchase request. If Insurance Company's order requests the
redemption of Series shares valued at or greater than $1 million
dollars, the Fund may wire such amount to Insurance Company within
seven days of the order.
3.9 Fund has the obligation to ensure that Series shares are registered
with applicable federal agencies at all times.
3.10 Fund will confirm each purchase or redemption order made by
Insurance Company. Transfer of Series shares will be by book entry
only. No share certificates will be issued to Insurance Company.
Insurance Company will record shares ordered from Fund in an
appropriate title for the corresponding account.
3.11 Fund shall credit Insurance Company with the appropriate number of
shares.
3.12 On each ex-dividend date of the Fund or, if not a Business Day, on
the first Business Day thereafter, Fund shall communicate to Insurance
Company the amount of dividend and capital gain, if any, per share of
each Series. All dividends and capital gains of any Series shall be
automatically reinvested in additional shares of the relevant Series at
the applicable net asset value per share of such Series on the payable
date. Fund shall, on the day after the payable date or, if not a
Business Day, on the first Business Day thereafter, notify Insurance
Company of the number of shares so issued.
ARTICLE IV 4.
STATEMENTS AND REPORTS
4.1 Fund shall provide monthly statements of account as of the end of
each month for all of Insurance Company's accounts by the fifteenth
(15th) Business Day of the following month.
4.2 Fund shall distribute to Insurance Company copies of the Fund's
Prospectuses, proxy materials, notices, periodic reports and other
printed materials (which the Fund customarily provides to its
shareholders) in quantities as Insurance Company may reasonably request
for distribution to each Contractholder and Participant.
4.3 Fund will provide to Insurance Company at least one complete copy
of all registration statements, Prospectuses, reports, proxy
statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the Fund or its shares,
contemporaneously with the filing of such document with the Commission
or other regulatory authorities.
<PAGE>
4.4 Insurance Company will provide to the Fund at least one copy of all
registration statements, Prospectuses, reports, proxy statements, sales
literature and other promotional materials, applications for
exemptions, requests for no-action letters, and all amendments to any
of the above, that relate to the Contracts or the Separate Account,
contemporaneously with the filing of such document with the Commission.
ARTICLE V 5.
EXPENSES
5.1 The charge to the Fund for all expenses and costs of the Series,
including but not limited to management fees, administrative expenses
and legal and regulatory costs, will be made in the determination of
the relevant Series' daily net asset value per share so as to
accumulate to an annual charge at the rate set forth in the Fund's
Prospectus. Excluded from the expense limitation described herein shall
be brokerage commissions and transaction fees and extraordinary
expenses.
5.2 Except as provided in this Article V and, in particular in the next
sentence, Insurance Company shall not be required to pay directly any
expenses of the Fund or expenses relating to the distribution of its
shares. Insurance Company shall pay the following expenses or costs:
a. Such amount of the production expenses of any Fund
materials, including the cost of printing the Fund's
Prospectus, or marketing materials for prospective Insurance
Company Contractholders and Participants as the Fund's
investment adviser and Insurance Company shall agree from
time to time.
b. Distribution expenses of any Fund materials or marketing
materials for prospective Insurance Company Contractholders
and Participants.
c. Distribution expenses of Fund materials or marketing
materials for Insurance Company Contractholders and
Participants.
Except as provided herein, all other Fund expenses shall not be borne
by Insurance Company.
ARTICLE VI 6.
EXEMPTIVE RELIEF
6.1 Insurance Company has reviewed a copy of the order dated December,
1996 of the Securities and Exchange Commission under Section 6(c) of
the Act and, in particular, has reviewed the conditions to the relief
set forth in the related Notice. As set forth therein,
<PAGE>
Insurance Company agrees to report any potential or existing conflicts
promptly to the Board, and in particular whenever contract voting
instructions are disregarded, and recognizes that it will be
responsible for assisting the Board in carrying out its
responsibilities under such application. Insurance Company agrees to
carry out such responsibilities with a view to the interests of
existing Contractholders.
6.2 If a majority of the Board, or a majority of Disinterested Board
Members, determines that a material irreconcilable conflict exists with
regard to Contractholder investments in the Fund, the Board shall give
prompt notice to all Participating Companies. If the Board determines
that Insurance Company is responsible for causing or creating said
conflict, Insurance Company shall at its sole cost and expense, and to
the extent reasonably practicable (as determined by a majority of the
Disinterested Board Members), take such action as is necessary to
remedy or eliminate the irreconcilable material conflict. Such
necessary action may include, but shall not be limited to:
a. Withdrawing the assets allocable to the Separate Account
from the Series and reinvesting such assets in a different
investment medium, or submitting the question of whether
such segregation should be implemented to a vote or all
affected Contractholders; and/or
b.Establishing a new registered management investment company.
6.3 If a material irreconcilable conflict arises as a result of a
decision by Insurance Company to disregard Contractholder voting
instructions and said decision represents a minority position or would
preclude a majority vote by all Contractholders having an interest in
the Fund, Insurance Company may be required, at the Board's election,
to withdraw the Separate Account's investment in the Fund.
6.4 For the purpose of this Article, a majority of the Disinterested
Board Members shall determine whether or not any proposed action
adequately remedies any irreconcilable material conflict, but in no
event will the Fund be required to bear the expense of establishing a
new funding medium for any Contract. Insurance Company shall not be
required by this Article to establish a new funding medium for any
Contract if an offer to do so has been declined by vote of a majority
of the Contractholders materially adversely affected by the
irreconcilable material conflict.
6.5 No action by Insurance Company taken or omitted, and no action by
the Separate Account or the Fund taken or omitted as a result of any
act or failure to act by Insurance Company pursuant to this Article VI
shall relieve Insurance Company of its obligations under, or otherwise
affect the operation of, Article V.
<PAGE>
ARTICLE VII 7.
VOTING OF FUND SHARES
7.1 Fund shall provide Insurance Company with copies at no cost to
Insurance Company, of the Fund's proxy material, reports to
shareholders and other communications to shareholders in such quantity
as Insurance Company shall reasonably require for distributing to
Contractholders or Participants.
Insurance Company shall:
(a) solicit voting instructions from Contractholders or
Participants on a timely basis and in accordance with
applicable law;
(b) vote the Series shares in accordance with instructions
received from Contractholders or Participants; and
(c) vote Series shares for which no instructions have been
received in the same proportion as Series shares for which
instructions have been received.
Insurance Company agrees at all times to votes its General Account
shares in the same proportion as Series shares for which instructions
have been received from Contractholders or Participants. Insurance
Company further agrees to be responsible for assuring that voting
Series shares for the Separate Account is conducted in a manner
consistent with other Participating Companies.
7.2 Insurance Company agrees that it shall not, without the prior
written consent of the Fund and its investment adviser, solicit, induce
or encourage Contractholders to (a) change or supplement the Fund's
current investment adviser or (b) change, modify, substitute, add to or
delete the Fund from the current investment media for the Contracts.
ARTICLE VIII 8.
MARKETING AND REPRESENTATIONS
8.1 The Fund or its underwriter shall periodically furnish Insurance
Company with the following documents, in quantities as Insurance
Company may reasonably request:
a. Current Prospectus and any supplements thereto;
b. other marketing materials.
<PAGE>
Expenses for the production of such documents shall be borne by
Insurance Company in accordance with Section 5.2 of this Agreement.
8.2 Insurance Company shall designate certain persons or entities which
shall have the requisite licenses to solicit applications for the sale
of Contracts. No representation is made as to the number or amount of
Contracts that are to be sold by Insurance Company. Insurance Company
shall make reasonable efforts to market the Contracts and shall comply
with all applicable federal and state laws in connection therewith.
8.3 Insurance Company shall furnish, or shall cause to be furnished, to
the Fund, each piece of sales literature or other promotional material
in which the Fund, its investment adviser or the administrator is
named, at least fifteen Business Days prior to its use. No such
material shall be used unless the Fund approves such material. Such
approval (if given) must be in writing and shall be presumed not given
if not received within ten Business Days after receipt of such
material. The Fund shall use all reasonable efforts to respond within
ten days of receipt.
8.4 Insurance Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the
Fund or any Series in connection with the sale of the Contracts other
than the information or representations contained in the registration
statement or Prospectus, as may be amended or supplemented from time to
time, or in reports or proxy statements for the Fund, or in sales
literature or other promotional material approved by the Fund.
8.5 Fund shall furnish, or shall cause to be furnished, to Insurance
Company, each piece of the Fund's sales literature or other promotional
material in which Insurance Company or the Separate Account is named,
at least fifteen Business Days prior to its use. No such material shall
be used unless Insurance Company approves such material. Such approval
(if given) must be in writing and shall be presumed not given if not
received within ten Business Days after receipt of such material.
Insurance Company shall use all reasonable efforts to respond within
ten days of receipt.
8.6 Fund shall not, in connection with the sale of Series shares, give
any information or make any representations on behalf of Insurance
Company or concerning Insurance Company, the Separate Account, or the
Contracts other than the information or representations contained in a
registration statement or prospectus for the Contracts, as may be
amended or supplemented from time to time, or in published reports for
the Separate Account which are in the public domain or approved by
Insurance Company for distribution to Contractholders or Participants,
or in sales literature or other promotional material approved by
Insurance Company.
<PAGE>
8.7 For purposes of this Agreement, the phrase "sales literature or
other promotional material" or words of similar import include, without
limitation, advertisements (such as material published, or designed for
use, in a newspaper, magazine or other periodical, radio, television,
telephone or tape recording, videotape display, signs or billboards,
motion pictures or other public media), sales literature (such as any
written communication distributed or made generally available to
customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, or reprints or
excerpts of any other advertisement, sales literature, or published
article), educational or training materials or other communications
distributed or made generally available to some or all agents or
employees, registration statements, prospectuses, statements of
additional information, shareholder reports and proxy materials, and
any other material constituting sales literature or advertising under
National Association of Securities Dealers, Inc. rules, the Act or the
1933 Act.
<PAGE>
ARTICLE IX 9.
INDEMNIFICATION
9.1 Insurance Company agrees to indemnify and hold harmless the Fund,
its investment adviser, any sub-investment adviser of a Series, and
their affiliates, and each of their directors, trustees, officers,
employees, agents and each person, if any, who controls or is
associated with any of the foregoing entities or persons within the
meaning of the 1933 Act (collectively, the "Indemnified Parties" for
purposes of Section 9.1), against any and all losses, claims, damages
or liabilities joint or several (including any investigative, legal and
other expenses reasonably incurred in connection with, and any amounts
paid in settlement of, any action, suit or proceeding or any claim
asserted) for which the Indemnified Parties may become subject, under
the 1933 Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect to thereof) (i) arise out of or are
based upon any untrue statement or alleged untrue statement of any
material fact contained in information furnished by Insurance Company
for use in the registration statement or Prospectus or sales literature
or advertisements of the Fund or with respect to the Separate Account
or Contracts, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading;
(ii) arise out of or as a result of conduct, statements or
representations (other than statements or representations contained in
the Prospectus and sales literature or advertisements of the Fund) of
Insurance Company or its agents, with respect to the sale and
distribution of Contracts for which Series shares are an underlying
investment; (iii) arise out of the wrongful conduct of Insurance
Company or persons under its control with respect to the sale or
distribution of the Contracts or Series shares; (iv) arise out of
Insurance Company's incorrect calculation and/or untimely reporting of
net purchase or redemption orders; or (v) arise out of any breach by
Insurance Company of a material term of this Agreement or as a result
of any failure by Insurance Company to provide the services and furnish
the materials or to make any payments provided for in this Agreement.
Insurance Company will reimburse any Indemnified Party in connection
with investigating or defending any such loss, claim, damage, liability
or action; provided, however, that with respect to clauses (i) and (ii)
above Insurance Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or
is based upon any untrue statement or omission or alleged omission made
in such registration statement, prospectus, sales literature, or
advertisement in conformity with written information furnished to
Insurance Company by the Fund specifically for use therein. This
indemnity agreement will be in addition to any liability which
Insurance Company may otherwise have.
<PAGE>
9.2 The Fund agrees to indemnify and hold harmless Insurance Company
and each of its directors, officers, employees, agents and each person,
if any, who controls Insurance Company within the meaning of the 1933
Act against any losses, claims, damages or liabilities to which
Insurance Company or any such director, officer, employee, agent or
controlling person may become subject, under the 1933 Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) (1) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in
the registration statement or Prospectus or sales literature or
advertisements of the Fund; (2) arise out of or are based upon the
omission to state in the registration statement or Prospectus or sales
literature or advertisements of the Fund any material fact required to
be stated therein or necessary to make the statements therein not
misleading; or (3) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the
registration statement or Prospectus or sales literature or
advertisements with respect to the Separate Account or the Contracts
and such statements were based on information provided to Insurance
Company by the Fund; and the Fund will reimburse any legal or other
expenses reasonably incurred by Insurance Company or any such director,
officer, employee, agent or controlling person in connection with
investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the Fund will not be liable in any such
case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or omission or
alleged omission made in such Registration Statement, Prospectus, sales
literature or advertisements in conformity with written information
furnished to the Fund by Insurance Company specifically for use
therein; and provided, further, that the Fund shall not be liable for
special, consequential or incidental damages. This indemnity agreement
will be in addition to any liability which the Fund may otherwise have.
9.3 The Fund shall indemnify and hold Insurance Company harmless
against any and all liability, loss, damages, costs or expenses which
Insurance Company may incur, suffer or be required to pay due to the
Fund's (1) incorrect calculation of the daily net asset value, dividend
rate or capital gain distribution rate of a Series; (2) incorrect
reporting of the daily net asset value, dividend rate or capital gain
distribution rate; and (3) untimely reporting of the net asset value,
dividend rate or capital gain distribution rate; provided that the Fund
shall have no obligation to indemnify and hold harmless Insurance
Company if the incorrect calculation or incorrect or untimely reporting
was the result of incorrect information furnished by Insurance Company
or information furnished untimely by Insurance Company or otherwise as
a result of or relating to a breach of this Agreement by Insurance
Company; and provided, further, that the Fund shall not be liable for
special, consequential or incidental damages.
<PAGE>
9.4 Promptly after receipt by an indemnified party under this Article
of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the
indemnifying party under this Article, notify the indemnifying party of
the commencement thereof. The omission to so notify the indemnifying
party will not relieve the indemnifying party from any liability under
this Article IX, except to the extent that the omission results in a
failure of actual notice to the indemnifying party and such
indemnifying party is damaged solely as a result of the failure to give
such notice. In case any such action is brought against any indemnified
party, and it notified the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein
and, to the extent that it may wish, assume the defense thereof, with
counsel reasonably satisfactory to such indemnified party, and to the
extent that the indemnifying party has given notice to such effect to
the indemnified party and is performing its obligations under this
Article, the indemnifying party shall not be liable for any legal or
other expenses subsequently incurred by such indemnified party in
connection with the defense thereof, other than reasonable costs of
investigation. Notwithstanding the foregoing, in any such proceeding,
any indemnified party shall have the right to retain its own counsel,
but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless (i) the indemnifying party and the
indemnified party shall have mutually agreed to the retention of such
counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the
indemnified party and representation of both parties by the same
counsel would be inappropriate due to actual or potential differing
interests between them. The indemnifying party shall not be liable for
any settlement of any proceeding effected without its written consent.
A successor by law of the parties to this Agreement shall be entitled
to the benefits of the indemnification contained in this Article IX.
9.5 Insurance Company shall indemnify and hold the Fund, its investment
adviser and any sub-investment adviser of a Series harmless against any
tax liability incurred by the Fund under Section 851 of the Code
arising from purchases or redemptions by Insurance Company's General
Accounts or the account of its affiliates.
ARTICLE X 10.
COMMENCEMENT AND TERMINATION
10.1 This Agreement shall be effective as of the date hereof and shall
continue in force until terminated in accordance with the provisions
herein.
<PAGE>
10.2 This Agreement shall terminate without penalty as to one or more
Series at the option of the terminating party:
a. At the option of Insurance Company or the Fund at any time
from the date hereof upon 180 days' notice, unless a shorter
time is agreed to by the parties;
b. At the option of Insurance Company, if shares of any Series
are not reasonably available to meet the requirements of the
Contracts as determined by Insurance Company. Prompt notice of
election to terminate shall be furnished by Insurance Company,
said termination to be effective ten days after receipt of
notice unless the Fund makes available a sufficient number of
shares to meet the requirements of the Contracts within said
ten-day period;
c. At the option of Insurance Company, upon the institution of
formal proceedings against the Fund by the Commission,
National Association of Securities Dealers or any other
regulatory body, the expected or anticipated ruling, judgment
or outcome of which would, in Insurance Company's reasonable
judgment, materially impair the Fund's ability to meet and
perform the Fund's obligations and duties hereunder. Prompt
notice of election to terminate shall be furnished by
Insurance Company with said termination to be effective upon
receipt of notice;
d. At the option of the Fund, upon the institution of formal
proceedings against Insurance Company by the Commission,
National Association of Securities Dealers or any other
regulatory body, the expected or anticipated ruling, judgment
or outcome of which would, in the Fund's reasonable judgment,
materially impair Insurance Company's ability to meet and
perform Insurance Company's obligations and duties hereunder.
Prompt notice of election to terminate shall be furnished by
the Fund with said termination to be effective upon receipt of
notice;
e. At the option of the Fund, if the Fund shall determine, in
its sole judgment reasonably exercised in good faith, that
Insurance Company has suffered a material adverse change in
its business or financial condition or is the subject of
material adverse publicity and such material adverse change or
material adverse publicity is likely to have a material
adverse impact upon the business and operation of the Fund or
its investment adviser, the Fund shall notify Insurance
Company in writing of such determination and its intent to
terminate this Agreement, and after considering the actions
taken by Insurance Company and any other changes in
circumstances since the giving of such notice, such
determination of the Fund shall continue to apply on the
<PAGE>
sixtieth (60th) day following the giving of such notice,
which sixtieth day shall be the effective date of
termination;
f. Upon termination of the Investment Advisory Agreement
between the Fund and its investment adviser or its successors
unless Insurance Company specifically approves the selection
of a new Fund investment adviser. The Fund shall promptly
furnish notice of such termination to Insurance Company;
g.In the event the Fund's shares are not registered, issued or
sold in accordance with applicable federal law, or such law
precludes the use of such shares as the underlying
investment medium of Contracts issued or to be issued by
Insurance Company. Termination shall be effective
immediately upon such occurrence without notice;
h. At the option of the Fund upon a determination by the Board
in good faith that it is no longer advisable and in the best
interests of shareholders for the Fund to continue to operate
pursuant to this Agreement. Termination pursuant to this
Subsection (h) shall be effective upon notice by the Fund to
Insurance Company of such termination;
i.At the option of the Fund if the Contracts cease to qualify
as annuity contracts or life insurance policies, as
applicable, under the Code, or if the Fund reasonably
believes that the Contracts may fail to so qualify;
j.At the option of either party to this Agreement, upon
another party's breach of any material provision of this
Agreement;
k.At the option of the Fund, if the Contracts are not
registered, issued or sold in accordance with applicable
federal and/or state law; or
l.Upon assignment of this Agreement, unless made with the
written consent of the non-assigning party.
Any such termination pursuant to Section 10.2a, 10.2d, 10.2e, 10.2f or
10.2k herein shall not affect the operation of Article V of this
Agreement. Any termination of this Agreement shall not affect the
operation of Article IX of this Agreement.
10.3 Notwithstanding any termination of this Agreement pursuant to
Section 10.2 hereof, the Fund and its investment adviser may, at the
option of the Fund, continue to make available additional Series shares
for so long as the Fund desires pursuant to the terms and conditions of
this Agreement as provided below, for all Contracts in effect on the
effective date of termination of this
<PAGE>
Agreement (hereinafter referred to as "Existing Contracts").
Specifically, without limitation, if the Fund so elects to make
additional Series shares available, the owners of the Existing
Contracts or Insurance Company, whichever shall have legal authority to
do so, shall be permitted to reallocate investments in the Series,
redeem investments in the Fund and/or invest in the Fund upon the
making of additional purchase payments under the Existing Contracts. In
the event of a termination of this Agreement pursuant to Section 10.2
hereof, the Fund, as promptly as is practicable under the
circumstances, shall notify Insurance Company whether the Fund will
continue to make Series shares available after such termination. If
Series shares continue to be made available after such termination, the
provisions of this Agreement shall remain in effect and thereafter
either the Fund or Insurance Company may terminate the Agreement, as so
continued pursuant to this Section 10.3, upon prior written notice to
the other party, such notice to be for a period that is reasonable
under the circumstances but, if given by the Fund, need not be for more
than six months.
ARTICLE XI 11.
AMENDMENTS
11.1 Any other changes in the terms of this Agreement shall be made by
agreement in writing between Insurance Company and Fund.
ARTICLE XII 12.
NOTICE
12.1 Each notice required by this Agreement shall be given by certified
mail, return receipt requested, to the appropriate parties at the
following addresses:
Insurance Company:
Fund:
JPM Series Trust II
c/o Morgan Guaranty Trust Company
522 Fifth Avenue
New York, New York 10036
Attention: Sharon J. Weinberg
<PAGE>
Notice shall be deemed to be given on the date of receipt by the
addresses as evidenced by the return receipt.
ARTICLE XIII 13.
MISCELLANEOUS
13.1 This Agreement has been executed on behalf of the Fund by the
undersigned officer of the Fund in his capacity as an officer of the
Fund. The obligations of this Agreement shall only be binding upon the
assets and property of the Fund and shall not be binding upon any
Trustee, officer or shareholder of the Fund individually.
ARTICLE XIV 14.
LAW
14.1 This Agreement shall be construed in accordance with the internal
laws of the State of New York, without giving effect to principles of
conflict of laws.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be duly
executed and attested as of the date first above written.
INSURANCE COMPANY
By:_______________________________
Its:
Attest:_____________________
JPM SERIES TRUST II
By:
Its:
Attest:_____________________
<PAGE>
SCHEDULE 1
Name of Series
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 use of our report dated February 14, 1997,
incorporated by reference in Post-Effective Amendment Number 6 to the
Registration Statement (Form N-1A No. 33-72834) of JPM Series Trust II.
Ernst & Young LLP
Boston, Massachusetts
April 28, 1997
Exhibit 16
JPM SERIES TRUST II
SCHEDULE FOR COMPUTATION OF PERFORMANCE DATA
TREASURY MONEY MARKET PORTFOLIO
7-Day Yield
Quotations of "yield" will be based on the net investment income per
share generated over a seven-day period. The income is then "annualized".
BASE PERIOD RETURN = Net Change in Account Value
---------------------------
Beginning Account Value
CURRENT YIELD = Base Period Return x (365/7)
7-Day Effective Yield
The "effective yield" is calculated similarly, but when annualized, the
income earned by the investment during that seven-day period is assumed to be
reinvested. The effective yield will be slightly higher than the yield
because of the compounding effect of this assumed reinvestment.
EFFECTIVE YIELD = [(Base Period Return + 1)365/7 [superscript]] - 1
TREASURY MONEY MARKET AND BOND PORTFOLIOS
30-Day Yield
Quotations of yield will be based on a Portfolio's investment income per
share earned during a particular 30-day period, less expenses accrued during
the period ("net investment income") and will be computed by dividing net
investment income by the maximum offering price per share on the last day of
the period, according to the following formula:
30-DAY YIELD = 2[(a-b + 1)6 [superscript] - 1]
---
cd
(where a = dividends and interest earned during the period, b = expenses
accrued for the period (net of any reimbursements), c = the average daily
number of shares outstanding during the period that were entitled to receive
dividends and d = the maximum offering price per share on the last day of the
period).
ALL PORTFOLIOS
Annual Total Return
Quotations of a Portfolio's average annual total return will be expressed
in terms of the average annual compounded rate of return of a hypothetical
investment in such Portfolio over periods of 1, 5 and 10 years (up to the life
of the Portfolio), calculated pursuant to the following formula:
P (1 + T)n [superscript] = ERV
(where P = a hypothetical initial payment of $1,000, T = the average annual
total return, n = the number of years and ERV = the ending redeemable value of
a hypothetical $1,000 payment made at the beginning of the period). All total
return figures will reflect the deduction of fund expenses (net of certain
expenses reimbursed) on an annual basis and will assume that all dividends and
distributions are reinvested when paid.
Aggregate Total Return
A Portfolio's aggregate total return, reflecting the cumulative percentage
change over a measuring period, is calculated according to the following
formula:
P (1 + T) = ERV
(where P = a hypothetical initial payment of $1,000 and T = total return).
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Richard W. Ingram, John E.
Pelletier, Marie E. Connolly, Joseph F. Tower III, Douglas C. Conroy, Mary A.
Nelson, Elizabeth A. Keeley, Karen Jacoppo-Wood and Christopher J. Kelley,
and each of them, with full powers of substitution as his true and lawful
attorneys and agents to execute in his name and on his behalf in any and all
capacities any and all amendments to the Registration Statement on Form N-1A,
filed by Chubb Series Trust (to be renamed "JPM Series Trust II") (the "Trust")
with the Securities and Exchange Commission under the Investment Company Act of
1940, as amended, and the Securities Act of 1933, as amended, and any and all
instruments which such attorneys and agents, or any of them, deem necessary or
advisable to enable the Trust to comply with such Acts, the rules, regulations
and requirements of the Securities and Exchange Commission, and the securities
or Blue Sky laws of any state or other jurisdiction, and the undersigned hereby
ratifies and confirms as his own act and deed any and all acts that such
attorneys and agents, or any of them, shall do or cause to be done by virtue
hereof. Any one of such attorneys and agents have, and may exercise, all of the
powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 16th
day of December, 1996.
/s/John N. Bell
John N. Bell
<PAGE>
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Richard W. Ingram,
John E. Pelletier, Marie E. Connolly, Joseph F. Tower III, Douglas C. Conroy,
Mary A. Nelson, Elizabeth A. Keeley, Karen Jacoppo-Wood and Christopher J.
Kelley, and each of them, with full powers of substitution as his true and
lawful attorneys and agents to execute in his name and on his behalf in any and
all capacities any and all amendments to the Registration Statement on Form
N-1A, filed by Chubb Series Trust (to be renamed "JPM Series Trust II") (the
"Trust") with the Securities and Exchange Commission under the Investment
Company Act of 1940, as amended, and the Securities Act of 1933, as amended, and
any and all instruments which such attorneys and agents, or any of them, deem
necessary or advisable to enable the Trust to comply with such Acts, the rules,
regulations and requirements of the Securities and Exchange Commission, and
the securities or Blue Sky laws of any state or other jurisdiction, and the
undersigned hereby ratifies and confirms as his own act and deed any and all
acts that such attorneys and agents, or any of them, shall do or cause to be
done by virtue hereof. Any one of such attorneys and agents have, and may
exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 16th
day of December, 1996.
/s/John R. Rettberg
John R. Rettberg
<PAGE>
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Richard W. Ingram,
John E. Pelletier, Marie E. Connolly, Joseph F. Tower III, Douglas C. Conroy,
Mary A. Nelson, Elizabeth A. Keeley, Karen Jacoppo-Wood and Christopher J.
Kelley, and each of them, with full powers of substitution as his true and
lawful attorneys and agents to execute in his name and on his behalf in any and
all capacities any and all amendments to the Registration Statement on Form
N-1A, filed by Chubb Series Trust (to be renamed "JPM Series Trust II") (the
"Trust") with the Securities and Exchange Commission under the Investment
Company Act of 1940, as amended, and the Securities Act of 1933, as amended, and
any and all instruments which such attorneys and agents, or any of them, deem
necessary or advisable to enable the Trust to comply with such Acts, the rules,
regulations and requirements of the Securities and Exchange Commission, and
the securities or Blue Sky laws of any state or other jurisdiction, and the
undersigned hereby ratifies and confirms as his own act and deed any and all
acts that such attorneys and agents, or any of them, shall do or cause to be
done by virtue hereof. Any one of such attorneys and agents have, and may
exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 16th
day of December, 1996.
/s/John F. Ruffle
John F. Ruffle
<PAGE>
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Richard W. Ingram,
John E. Pelletier, Marie E. Connolly, Joseph F. Tower III, Douglas C. Conroy,
Mary A. Nelson, Elizabeth A. Keeley, Karen Jacoppo-Wood and Christopher J.
Kelley, and each of them, with full powers of substitution as his true and
lawful attorneys and agents to execute in his name and on his behalf in any and
all capacities any and all amendments to the Registration Statement on Form
N-1A, filed by Chubb Series Trust (to be renamed "JPM Series Trust II") (the
"Trust") with the Securities and Exchange Commission under the Investment
Company Act of 1940, as amended, and the Securities Act of 1933, as amended, and
any and all instruments which such attorneys and agents, or any of them, deem
necessary or advisable to enable the Trust to comply with such Acts, the rules,
regulations and requirements of the Securities and Exchange Commission, and
the securities or Blue Sky laws of any state or other jurisdiction, and the
undersigned hereby ratifies and confirms as his own act and deed any and all
acts that such attorneys and agents, or any of them, shall do or cause to be
done by virtue hereof. Any one of such attorneys and agents have, and may
exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 16th
day of December, 1996.
/s/Kenneth Whipple, Jr.
Kenneth Whipple, Jr.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REPORT
ON FORM N-SAR DATED DECEMBER 31, 1996 FOR JPM BOND PORTFOLIO AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK>916118
<NAME> JPM SERIES TRUST II
<SERIES>
<NUMBER> 2
<NAME> JPM BOND PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 2835260
<INVESTMENTS-AT-VALUE> 2876775
<RECEIVABLES> 282064
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 5920
<TOTAL-ASSETS> 3164759
<PAYABLE-FOR-SECURITIES> 100440
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 282240
<TOTAL-LIABILITIES> 382680
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2719590
<SHARES-COMMON-STOCK> 261269
<SHARES-COMMON-PRIOR> 129900
<ACCUMULATED-NII-CURRENT> 1024
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 19950
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 41515
<NET-ASSETS> 2782079
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 139491
<OTHER-INCOME> 0
<EXPENSES-NET> 15592
<NET-INVESTMENT-INCOME> 123899
<REALIZED-GAINS-CURRENT> 19950
<APPREC-INCREASE-CURRENT> (52031)
<NET-CHANGE-FROM-OPS> 91818
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 122875
<DISTRIBUTIONS-OF-GAINS> 2043
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 146230
<NUMBER-OF-SHARES-REDEEMED> 24337
<SHARES-REINVESTED> 9476
<NET-CHANGE-IN-ASSETS> 1365385
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 2043
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 10395
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 45250
<AVERAGE-NET-ASSETS> 2061915
<PER-SHARE-NAV-BEGIN> 10.91
<PER-SHARE-NII> .47
<PER-SHARE-GAIN-APPREC> (.25)
<PER-SHARE-DIVIDEND> .47
<PER-SHARE-DISTRIBUTIONS> .01
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.65
<EXPENSE-RATIO> .75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REPORT
ON FORM N-SAR DATED DECEMBER 31, 1996 FOR JPM EQUITY PORTFOLIO AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 916118
<NAME> JPM SERIES TRUST II
<SERIES>
<NUMBER> 3
<NAME> JPM EQUITY PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 5114125
<INVESTMENTS-AT-VALUE> 5867270
<RECEIVABLES> 24481
<ASSETS-OTHER> 10245
<OTHER-ITEMS-ASSETS> 5920
<TOTAL-ASSETS> 5907916
<PAYABLE-FOR-SECURITIES> 10900
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 557733
<TOTAL-LIABILITIES> 568633
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4524782
<SHARES-COMMON-STOCK> 390317
<SHARES-COMMON-PRIOR> 328070
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 61356
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 753145
<NET-ASSETS> 5339283
<DIVIDEND-INCOME> 113121
<INTEREST-INCOME> 10624
<OTHER-INCOME> 0
<EXPENSES-NET> 46541
<NET-INVESTMENT-INCOME> 77204
<REALIZED-GAINS-CURRENT> 530898
<APPREC-INCREASE-CURRENT> 363239
<NET-CHANGE-FROM-OPS> 971341
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 77204
<DISTRIBUTIONS-OF-GAINS> 542542
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 119491
<NUMBER-OF-SHARES-REDEEMED> 82429
<SHARES-REINVESTED> 25185
<NET-CHANGE-IN-ASSETS> 1194825
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 73000
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 31027
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 109985
<AVERAGE-NET-ASSETS> 5129065
<PER-SHARE-NAV-BEGIN> 12.63
<PER-SHARE-NII> .20
<PER-SHARE-GAIN-APPREC> 2.44
<PER-SHARE-DIVIDEND> .20
<PER-SHARE-DISTRIBUTIONS> 1.39
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.68
<EXPENSE-RATIO> .90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REPORT
ON FORM N-SAR DATED DECEMBER 31, 1996 FOR JPM INTERNATIONAL EQUITY PORTFOLIO
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 916118
<NAME> JPM SERIES TRUST II
<SERIES>
<NUMBER> 5
<NAME> JPM INTERNATIONAL EQUITY PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 5923086
<INVESTMENTS-AT-VALUE> 6455586
<RECEIVABLES> 50985
<ASSETS-OTHER> 54172
<OTHER-ITEMS-ASSETS> 5920
<TOTAL-ASSETS> 6566663
<PAYABLE-FOR-SECURITIES> 6427
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 310310
<TOTAL-LIABILITIES> 316737
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5603442
<SHARES-COMMON-STOCK> 532907
<SHARES-COMMON-PRIOR> 367556
<ACCUMULATED-NII-CURRENT> 32138
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 64086
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 550260
<NET-ASSETS> 6249926
<DIVIDEND-INCOME> 124584
<INTEREST-INCOME> 3432
<OTHER-INCOME> 0
<EXPENSES-NET> 63052
<NET-INVESTMENT-INCOME> 64964
<REALIZED-GAINS-CURRENT> 338690
<APPREC-INCREASE-CURRENT> 295017
<NET-CHANGE-FROM-OPS> 698671
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 48894
<DISTRIBUTIONS-OF-GAINS> 248948
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 172202
<NUMBER-OF-SHARES-REDEEMED> 19591
<SHARES-REINVESTED> 12740
<NET-CHANGE-IN-ASSETS> 2257651
<ACCUMULATED-NII-PRIOR> 17118
<ACCUMULATED-GAINS-PRIOR> 7530
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 42035
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 167179
<AVERAGE-NET-ASSETS> 5213994
<PER-SHARE-NAV-BEGIN> 10.86
<PER-SHARE-NII> .20
<PER-SHARE-GAIN-APPREC> 1.23
<PER-SHARE-DIVIDEND> .09
<PER-SHARE-DISTRIBUTIONS> .47
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.73
<EXPENSE-RATIO> 1.20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REPORT
ON FORM N-SAR DATED DECEMBER 31, 1996 FOR JPM TREASURY MONEY MARKET PORTFOLIO
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 916118
<NAME> JPM SERIES TRUST II
<SERIES>
<NUMBER> 1
<NAME> JPM TREASURY MONEY MARKET PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 1462090
<INVESTMENTS-AT-VALUE> 1462307
<RECEIVABLES> 0
<ASSETS-OTHER> 1449
<OTHER-ITEMS-ASSETS> 5920
<TOTAL-ASSETS> 1469676
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 83158
<TOTAL-LIABILITIES> 83158
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1386299
<SHARES-COMMON-STOCK> 137375
<SHARES-COMMON-PRIOR> 126500
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 217
<NET-ASSETS> 1386518
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 68554
<OTHER-INCOME> 0
<EXPENSES-NET> 7968
<NET-INVESTMENT-INCOME> 60586
<REALIZED-GAINS-CURRENT> 70
<APPREC-INCREASE-CURRENT> (422)
<NET-CHANGE-FROM-OPS> 60234
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 60586
<DISTRIBUTIONS-OF-GAINS> 68
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 130402
<NUMBER-OF-SHARES-REDEEMED> 125133
<SHARES-REINVESTED> 5606
<NET-CHANGE-IN-ASSETS> 113586
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5312
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 26880
<AVERAGE-NET-ASSETS> 1317096
<PER-SHARE-NAV-BEGIN> 10.06
<PER-SHARE-NII> .44
<PER-SHARE-GAIN-APPREC> .03
<PER-SHARE-DIVIDEND> .44
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.09
<EXPENSE-RATIO> .60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REPORT
ON FORM N-SAR DATED DECEMBER 31, 1996 FOR JPM SMALL COMPANY PORTFOLIO AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 916118
<NAME> JPM SERIES TRUST II
<SERIES>
<NUMBER> 4
<NAME> JPM SMALL COMPANY PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 3928684
<INVESTMENTS-AT-VALUE> 4286215
<RECEIVABLES> 28310
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 5920
<TOTAL-ASSETS> 4320445
<PAYABLE-FOR-SECURITIES> 23055
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 430388
<TOTAL-LIABILITIES> 453443
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3289067
<SHARES-COMMON-STOCK> 308651
<SHARES-COMMON-PRIOR> 214324
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 220404
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 357531
<NET-ASSETS> 3867002
<DIVIDEND-INCOME> 50295
<INTEREST-INCOME> 9828
<OTHER-INCOME> 0
<EXPENSES-NET> 40914
<NET-INVESTMENT-INCOME> 19209
<REALIZED-GAINS-CURRENT> 619860
<APPREC-INCREASE-CURRENT> 105584
<NET-CHANGE-FROM-OPS> 744653
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 19209
<DISTRIBUTIONS-OF-GAINS> 518489
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 143575
<NUMBER-OF-SHARES-REDEEMED> 85441
<SHARES-REINVESTED> 36193
<NET-CHANGE-IN-ASSETS> 1330744
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 119033
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 28462
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 95856
<AVERAGE-NET-ASSETS> 3528690
<PER-SHARE-NAV-BEGIN> 11.83
<PER-SHARE-NII> .06
<PER-SHARE-GAIN-APPREC> 2.43
<PER-SHARE-DIVIDEND> .06
<PER-SHARE-DISTRIBUTIONS> 1.73
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.53
<EXPENSE-RATIO> 1.15
<AVG-DEBT-OUTSTANDING> 0
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</TABLE>
