<PAGE>
JPM472A
THE JPM ADVISOR FUNDS
THE JPM ADVISOR U.S. FIXED INCOME FUND
THE JPM ADVISOR INTERNATIONAL FIXED INCOME FUND
THE JPM ADVISOR U.S. EQUITY FUND
THE JPM ADVISOR U.S. SMALL CAP EQUITY FUND
THE JPM ADVISOR INTERNATIONAL EQUITY FUND
THE JPM ADVISOR EMERGING MARKETS EQUITY FUND
THE JPM ADVISOR ASIA GROWTH FUND
THE JPM ADVISOR EUROPEAN EQUITY FUND
THE JPM ADVISOR JAPAN EQUITY FUND
STATEMENT OF ADDITIONAL INFORMATION
October 1, 1995
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT
CONTAINS ADDITIONAL INFORMATION, WHICH SHOULD BE READ IN CONJUNCTION
WITH THE PROSPECTUS FOR THE FUND OR FUNDS LISTED ABOVE AS SUPPLEMENTED
FROM TIME TO TIME, WHICH MAY BE OBTAINED UPON REQUEST FROM SIGNATURE
BROKER-DEALER SERVICES, INC., ATTENTION: THE JPM ADVISOR FUNDS (800)
847-9487.
<PAGE>
Table of Contents PAGE
General .................................................... 1
Investment Objectives and Policies ......................... 1
Investment Restrictions .................................... 25
Trustees and Officers ...................................... 35
Investment Advisor ......................................... 39
Administrator and Distributor .............................. 42
Services Agent ............................................. 45
Custodian .................................................. 47
Independent Accountants .................................... 47
Expenses ................................................... 47
Purchase of Shares ......................................... 48
Redemption of Shares ....................................... 48
Exchange of Shares ......................................... 49
Dividends and Distributions ................................ 49
Net Asset Value ............................................ 49
Performance Data ........................................... 51
Portfolio Transactions ..................................... 53
Massachusetts Trust ........................................ 56
Description of Shares ...................................... 57
Taxes ...................................................... 59
Additional Information ..................................... 62
Financial Statements ....................................... 62
Appendix A - Description of Securities
Ratings .................................................... A-1
Appendix B - Investing in Japan
and Asian Growth Markets .................................. B-1
<PAGE>
GENERAL
The JPM Advisor Funds is a family of open-end investment companies,
currently consisting of nine funds: The JPM Advisor U.S. Fixed Income Fund, The
JPM Advisor International Fixed Income Fund, The JPM Advisor U.S. Equity Fund,
The JPM Advisor U.S. Small Cap Equity Fund, The JPM Advisor International Equity
Fund, The JPM Advisor Emerging Markets Equity Fund, The JPM Advisor Asia Growth
Fund, The JPM Advisor European Equity Fund and The JPM Advisor Japan Equity Fund
(collectively, the "Funds"). Each of the Funds is a series of The JPM Advisor
Funds, an open-end management investment company formed as a Massachusetts
business trust (the "Trust") (where appropriate, references to the "Trust" refer
to the Trust acting on behalf of a Fund and references to a "Fund" refer to a
Fund acting through the Trust).
This Statement of Additional Information describes the investment
objectives and policies, management and operation of each of the Funds to enable
investors to select the Funds which best suit their needs. The Funds operate
through Signature Financial Group, Inc.'s Hub and Spoke(R) financial services
method.
This Statement of Additional Information provides additional
information with respect to the Funds, and should be read in conjunction with
the current Prospectuses. Capitalized terms not otherwise defined in this
Statement of Additional Information have the meanings accorded to them in the
Funds' Prospectuses. The Funds' executive offices are located at 6 St. James
Avenue, Boston, Massachusetts 02116.
INVESTMENT OBJECTIVES AND POLICIES
THE JPM ADVISOR U.S. FIXED INCOME FUND (the "U.S. Fixed Income Fund")
is designed to be an economical and convenient means of making substantial
investments in a broad range of corporate and government debt obligations and
related investments of domestic and foreign issuers, subject to certain quality
and other restrictions. See "Quality and Diversification Requirements." The U.S.
Fixed Income Fund'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 the U.S. Fixed Income Fund will fluctuate, the U.S. Fixed
Income Fund attempts to conserve the value of its investments to the extent
consistent with its objective. The U.S. Fixed Income Fund attempts to achieve
its objective by investing all of its investable assets in The U.S. Fixed Income
Portfolio (the "U.S. Fixed Income Portfolio"), a diversified open-end management
investment company having the same investment objective as the U.S. Fixed Income
Fund.
The U.S. Fixed Income Portfolio attempts to achieve its investment
objective by investing primarily in high grade corporate and government debt
obligations and related securities of domestic and foreign issuers described in
the Prospectus and this Statement of Additional Information.
1
<PAGE>
INVESTMENT PROCESS
Duration/yield curve management: Morgan's duration decision begins with
an analysis of real yields, which its research indicates are generally a
reliable indicator of longer term interest rate trends. Other factors Morgan
studies with regard to interest rates include economic growth and inflation,
capital flows and monetary policy. Based on this analysis, Morgan forms a view
of the most likely changes in the level and shape of the yield curve -- as well
as the timing of those changes -- and sets the Portfolio's duration and maturity
structure accordingly. To help contain interest rate risk, Morgan typically
limits the overall duration of the Portfolio to a range between one year shorter
and one year longer than that of the Salomon Brothers Broad Investment Grade
Bond Index, the benchmark index.
Sector allocations: Sector allocations are driven by Morgan's
fundamental and quantitative analysis of the relative valuation of a broad array
of fixed income sectors. Specifically, Morgan utilizes market and credit
analysts to assess whether the current risk-adjusted yield spreads of various
sectors are likely to widen or narrow. Morgan then overweights (underweights)
those sectors its analysis indicates offer the most (least) relative value,
basing the speed and magnitude of these shifts on valuation considerations.
Security selection: Securities are selected by the portfolio manager,
with substantial input from Morgan's fixed income analysis and traders. Using
quantitative analysis as well as traditional valuation methods, Morgan's
applied-research analysts aim to optimize security selection within the bounds
of the Portfolio's investment objective. In addition, credit analysts --
supported by Morgan's equity analysts -- assess the creditworthiness of issuers
and counterparties. A dedicated trading desk contributes to security selection
by tracking new issuance, monitoring dealer inventories, and identifying
attractively priced bonds. The traders also handle all transactions for the
Portfolio.
THE JPM ADVISOR INTERNATIONAL FIXED INCOME FUND (the "International
Fixed Income Fund") is designed to be an economical and convenient means of
making substantial investments in a broad range of international fixed income
securities. The International Fixed Income Fund's investment objective is to
provide a high total return, consistent with moderate risk of capital, from a
portfolio of international fixed income securities. The International Fixed
Income Fund attempts to achieve its objective by investing all of its investable
assets in The Non-U.S. Fixed Income Portfolio (the "Non-U.S. Fixed Income
Portfolio"), a non-diversified open-end management investment company having the
same investment objective as the International Fixed Income Fund.
The Non-U.S. Fixed Income Portfolio attempts to achieve its investment
objective by investing primarily in high grade, non-dollar-denominated corporate
and government debt obligations of foreign issuers described in the Prospectus
and this Statement of Additional Information.
2
<PAGE>
INVESTMENT PROCESS
Duration management: The duration decision is central to Morgan's
investment process and begins with an analysis of economic conditions and real
yields in the countries that make up the Portfolio's universe. Based on this
analysis, fixed income portfolio managers forecast three potential paths
(optimistic, pessimistic, and most likely) that interest rates in each market
could follow over the next three and twelve months. These forecasts are
converted into return curves that enable Morgan to estimate the risk-return
profile of different portfolio durations. In each market, duration is set at its
"optimal" level-that is, at the level that Morgan believes will generate the
highest excess return per unit of excess risk, as measured against the
benchmark.
Country allocation: Morgan allocates the Portfolio's assets primarily
among the developed countries of the world outside the United States. Country
allocations are determined through and optimization procedure that ranks markets
according to the risks and returns inherent in their "optimal" durations.
Country weightings also reflect liquidity and credit quality considerations. To
help contain risk, Morgan typically limits the country-weighted duration of the
Portfolio to a range between one year shorter and one year longer than that of
the benchmark.
Sector/security selection: Holdings primarily consist of government and
government-guaranteed bonds, but also include publicly and privately traded
corporates, debt obligations of banks and bank holding companies and of
supranational organizations, and convertible securities. Sectors are over- or
under-weighted when Morgan perceives significant valuation distortions in their
yield spreads. Securities are selected by the portfolio manager, with
substantial input from fixed income analysts and traders as well as from
Morgan's extended network of equity analysts. Credit analysts monitor the
quality of current and prospective holdings and, in conjunction with the credit
committee, recommend purchases and sales.
THE JPM ADVISOR U.S. EQUITY FUND (the "U.S. Equity Fund") is designed
for investors who want an actively managed portfolio of selected equity
securities that seeks to outperform the S&P 500 Index. The U.S. Equity Fund's
investment objective is to provide a high total return from a portfolio of
selected equity securities. The Fund attempts to achieve its investment
objective by investing all of its investable assets in The Selected U.S. Equity
Portfolio (the "Selected U.S. Equity Portfolio"), a diversified open-end
management investment company having the same investment objective as the U.S.
Equity Fund.
In normal circumstances, at least 65% of the Selected U.S. Equity
Portfolio's net assets will be invested in equity securities consisting of
common stocks and other securities with equity characteristics comprised of
preferred stock, warrants, rights, convertible securities, trust certificates,
limited partnership interests and equity participations (collectively, "Equity
Securities"). The Selected U.S. Equity Portfolio's primary equity investments
are the common stock of large and medium-sized U.S. corporations and, to a
limited extent, similar securities of foreign corporations.
3
<PAGE>
INVESTMENT PROCESS
Fundamental research: Morgan's 20 domestic equity analysts, each an
industry specialist with an average of 13 years of experience, follow 700
predominantly large- and medium-sized U.S. companies -- 500 of which form the
universe for the Portfolio's investments. Their research goal is to forecast
normalized, longer term earnings and dividends for the most attractive companies
among those they cover. In doing this, they may work in concert with Morgan's
international equity analysts in order to gain a broader perspective for
evaluating industries and companies in today's global economy.
Systematic valuation: The analysts' forecasts are converted into
comparable expected returns by a dividend discount model, which calculates those
expected returns by comparing a company's current stock price with the "fair
value" price forecasted by its estimated long-term earnings power. Within each
sector, companies are ranked by their expected return and grouped into
quintiles; those with the highest expected returns (Quintile 1) are deemed the
most undervalued relative to their long-term earnings power, while those with
the lowest expected returns (Quintile 5) are deemed the most overvalued.
Disciplined portfolio construction: A diversified portfolio is
constructed using disciplined buy and sell rules. Purchases are concentrated
among first- quintile stocks; the specific names selected reflect the portfolio
manager's judgment concerning the soundness of the underlying forecasts, the
likelihood that the perceived misvaluation will be corrected within a reasonable
time frame, and the magnitude of the risks versus the rewards. Once a stock
falls into the third quintile -- because its price has risen or its fundamentals
have deteriorated -- it generally becomes a sale candidate. The portfolio
manager seeks to hold sector weightings close to those of the S&P 500 Index,
reflecting Morgan's belief that its research has the potential to add value at
the individual stock level, but not at the sector level. Sector neutrality is
also seen as a way to help to protect the portfolio from macroeconomic risks,
and -- together with diversification -- represents an important element of
Morgan's risk control strategy. Morgan's dedicated trading desk handles all
transactions for the Portfolio.
THE JPM ADVISOR U.S. SMALL CAP EQUITY FUND (the "U.S. Small Cap Equity
Fund") 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. The U.S.
Small Cap Equity Fund's investment objective is to provide a high total return
from a portfolio of Equity Securities of small companies. The Fund attempts to
achieve its investment objective by investing all of its investable assets in
The U.S. Small Company Portfolio (the "U.S. Small Company Portfolio"), a
diversified open-end management investment company having the same investment
objective as the U.S. Small Cap Equity Fund.
The U.S. Small Company Portfolio attempts to achieve its investment
objective by investing primarily in the common stock of small U.S. companies
included in the Russell 2500 Index, which is composed of 2,500 common stocks of
4
<PAGE>
U.S. companies with market capitalizations ranging between $100 million and $1.5
billion.
INVESTMENT PROCESS
Fundamental research: Morgan's 20 domestic equity analysts -- each an
industry specialist with an average of 13 years of experience -- continuously
monitor the small cap stocks in their respective sectors with the aim of
identifying companies that exhibit superior financial strength and operating
returns. Meetings with management and on-site visits play a key role in shaping
their assessments. Their research goal is to forecast normalized, long-term
earnings and dividends for the most attractive small cap companies among those
they monitor -- a universe that generally contains a total of 300-350 names.
Because Morgan's analysts follow both the larger and smaller companies in their
industries -- in essence, covering their industries from top to bottom -- they
are able to bring broad perspective to the research they do on both.
Systematic valuation: The analysts' forecasts are converted into
comparable expected returns by Morgan's dividend discount model, which
calculates those returns by comparing a company's current stock price with the
"fair value" price forecasted by its estimated long-term earnings power. Within
each industry, companies are ranked by their expected returns and grouped into
quintiles; those with the highest expected returns (Quintile 1) are deemed the
most undervalued relative to their long-term earnings power, while those with
the lowest expected returns (Quintile 5) are deemed the most overvalued.
Disciplined portfolio construction: A diversified portfolio is
constructed using disciplined buy and sell rules. Purchases are concentrated
among the stocks in the top two quintiles of the rankings; the specific names
selected reflect the portfolio manager's judgment concerning the soundness of
the underlying forecasts, the likelihood that the perceived misevaluation will
soon be corrected, and the magnitude of the risks versus the rewards. Once a
stock falls into the third quintile -- because its price has risen or its
fundamentals have deteriorated -- it generally becomes a sale candidate. The
portfolio manager seeks to hold sector weightings close to those of the Russell
2500 Index, the Portfolio's benchmark, reflecting Morgan's belief that its
research has the potential to add value at the individual stock level, but not
at the sector level. Sector neutrality is also seen as a way to help to protect
the portfolio from macroeconomic risks, and -- together with diversification --
represents an important element of Morgan's risk control strategy.
THE JPM ADVISOR INTERNATIONAL EQUITY FUND (the "International Equity
Fund") is designed for investors with a long-term investment horizon who want to
diversify their portfolios by investing in an actively managed portfolio of non-
U.S. securities that seeks to outperform the Morgan Stanley Europe, Australia
and Far East Index (the "EAFE Index"). The International Equity Fund's
investment objective is to provide a high total return from a portfolio of
Equity Securities of foreign corporations. The Fund attempts to achieve its
investment objective by investing all of its investable assets in The Non-U.S.
Equity Portfolio (the "Non-U.S. Equity Portfolio"), a diversified open-end
management investment company having the same investment objective as the
International Equity Fund.
5
<PAGE>
The Non-U.S. Equity Portfolio seeks to achieve its investment objective
by investing primarily in the Equity Securities of foreign corporations. Under
normal circumstances, the Non-U.S. Equity Portfolio expects to invest at least
65% of its total assets in such securities. The Non-U.S. Equity Portfolio does
not intend to invest in U.S. securities (other than money market instruments),
except temporarily, when extraordinary circumstances prevailing at the same time
in a significant number of developed foreign countries render investments in
such countries inadvisable.
INVESTMENT PROCESS
Country allocation: Morgan's country allocation decision begins with a
forecast of equity risk premiums, which provide a valuation signal by measuring
the relative attractiveness of stocks versus bonds. Using a proprietary
approach, Morgan calculates this risk premium for each of the nations in the
Portfolio's universe, determines the extent of its deviation -- if any -- from
its historical norm, and then rank countries according to the size of those
deviations. Countries with high (low) rankings are overweighted (underweighted)
in comparisons to the EAFE Index to reflect the above-average (below-average)
attractiveness of their stock markets. In determining weightings, Morgan
analyzes a variety of qualitative factors as well -- including the liquidity,
earnings momentum and interest rate climate of the market at hand. These
qualitative assessments can change the magnitude but not the direction of the
country allocations called for by the risk premium forecast. Morgan places
limits on the total size of the Portfolio's country over- and under-weightings
relative to the EAFE Index.
Stock selection: Morgan's 44 international equity analysts, each an
industry and country specialist, forecast normalized earnings and dividend
payouts for roughly 1,000 non-U.S. companies -- taking a long-term perspective
rather than the short time frame common to consensus estimates. These forecasts
are converted into comparable expected returns by a dividend discount model, and
then companies are ranked from most to least attractive by industry and country.
A diversified portfolio is constructed using disciplined buy and sell rules. The
portfolio manager's objective is to concentrate the purchases in the top third
of the rankings, and to keep sector weightings close to those of the EAFE Index,
the Fund's benchmark. Once a stock falls into the bottom third of the rankings,
it generally becomes a sales candidate. Where available, warrants and
convertibles may be purchased instead of common stock if they are deemed a more
attractive means of investing in an undervalued company.
Currency management: Currency is actively managed, in conjunction with
country and stock allocation, with the goal of protecting and possibly enhancing
the Fund's return. Morgan's currency decisions are supported by a proprietary
tactical mode which forecasts currency movements based on an analysis of four
fundamental factors -- trade balance trends, purchasing power parity, real
short-term interest differentials, and real bond yields -- plus a technical
factor designed to improve the timing of transactions. Combining the output of
this model with a subjective assessment of economic political and market
factors, Morgan's currency group recommends currency strategies that are
implemented in conjunction with the portfolio's investment strategy.
6
<PAGE>
THE JPM ADVISOR EMERGING MARKETS EQUITY FUND (the "Emerging Markets
Equity Fund") is designed for investors with a long-term investment horizon who
want exposure to the rapidly growing emerging markets. The Emerging Markets
Equity Fund's investment objective is to provide a high total return from a
portfolio of Equity Securities of companies in emerging markets. The Fund
attempts to achieve its investment objective by investing all of its investable
assets in The Emerging Markets Equity Portfolio (the "Emerging Markets Equity
Portfolio"), a diversified open-end management investment company having the
same investment objective as the Emerging Markets Equity Fund.
The Emerging Markets Equity Portfolio seeks to achieve its investment
objective by investing primarily in Equity Securities of emerging markets
issuers. Under normal circumstances, the Portfolio expects to invest at least
65% of its total assets in such securities. The Portfolio does not intend to
invest in U.S. securities (other than money market instruments), except
temporarily, when extraordinary circumstances prevailing at the same time in a
significant number of emerging markets countries render investments in such
countries inadvisable.
INVESTMENT PROCESS
Country allocation: Morgan's country allocation decision begins with a
forecast of the expected return of each market in the Portfolio's universe.
These expected returns are calculated using a proprietary valuation method that
is forward looking in nature rather than based on historical data. Morgan then
evaluates these expected returns from two different perspectives: first, it
identifies those countries that have high real expected returns relative to
their own history and other nations in their universe. Second, it identifies
those countries that it expects will provide high returns relative to their
currency risk. Countries that rank highly on one or both of these scores are
overweighted relative to the Fund's benchmark, The IFC Investable Index, while
those that rank poorly are underweighted. To help contain risk, Morgan places
limits on the total size of the Portfolio's country over- and under-weightings.
Stock selection: Morgan's 12 emerging market equity analysts -- each an
industry specialist -- monitor a universe of approximately 900 companies in
these countries, developing forecasts of earnings and cash flows for the most
attractive among them. Companies are ranked from most to least attractive based
on this research, and then a diversified portfolio is constructed using
disciplined buy and sell rules. The portfolio manager's objective is to
concentrate the Portfolio's holdings in the stocks deemed most undervalued, and
to keep sector weightings relatively close to those of the index. Stocks are
generally held until they fall into the bottom half of Morgan's rankings.
THE JPM ADVISOR ASIA GROWTH FUND (the "Asia Growth Fund") is designed
for long-term investors who want access to the rapidly growing Asian markets.
The Asia Growth Fund's investment objective is to provide a high total return
from a portfolio of Equity Securities of companies in Asian growth markets. The
Asia Growth Fund attempts to achieve its investment objective by investing all
its investable assets in The Asia Growth Portfolio (the "Asia Growth
Portfolio"), a diversified open-end management investment company having the
same investment objective as the Asia Growth Fund. For additional information,
see "Appendix B - Investing in Japan and Asian Growth Markets."
7
<PAGE>
The Asia Growth Portfolio seeks to achieve its investment objective by
investing primarily in the Equity Securities of companies in Asian growth
markets. Under normal circumstances, the Asia Growth Portfolio expects to invest
at least 65% of its total assets in such securities. The Asia Growth Portfolio
does not intend to invest in U.S. securities (other than money market
instruments), except temporarily, when extraordinary circumstances prevailing at
the same time in a significant number of countries considered to be Asian growth
markets render investments in such countries inadvisable.
INVESTMENT PROCESS
Country allocation: Morgan's country allocation decision begins with a
forecast of equity risk premiums, which provide a valuation signal by measuring
the relative attractiveness of stocks versus bonds. Using a proprietary
approach, Morgan calculates this risk premium for each of the nations in the
Portfolio's universe, determines the extent of its deviation -- if any -- from
its historical norm, and then ranks countries according to the size of these
deviations. Countries with high (low) rankings are overweighted (underweighted)
to reflect the above-average (below average) attractiveness of their stock
markets. In determining weightings, Morgan analyzes a variety of qualitative
factors as well -- including the liquidity, earnings momentum and interest rate
climate of the market at hand. These qualitative assessments can change the
magnitude but not the direction of the country allocations called for by the
risk-premium forecast. In an effort to contain risk, Morgan places limits on the
total size of the Portfolio's country over- and under-weightings.
Stock selection: Morgan's six Asian equity analysts focused on Asian
markets -- each an industry and country specialist -- forecast normalized,
long-term earnings and dividend payouts for approximately 250 companies in this
region. These forecasts are converted into comparable expected returns by a
dividend discount model, and then companies are ranked from most to least
attractive by industry and country, and are grouped into quintiles. A
diversified portfolio is constructed using disciplined buy and sell rules. The
portfolio manager's objective is to concentrate purchases in the top 20% of the
rankings, and to keep sector weightings close to those of the benchmark. Once a
stock falls into the third quintile -- because its price has risen or its
fundamentals have deteriorated -- it generally becomes a sale candidate. Where
available, warrants and convertibles are purchased when they appear to have the
potential to add value over common stock.
THE JPM ADVISOR EUROPEAN EQUITY FUND (the "European Equity Fund") is
designed for investors who want an actively managed portfolio of European Equity
Securities that seeks to outperform the Morgan Stanley Capital International
Europe Index which is comprised of more than 500 companies in fourteen European
countries. The European Equity Fund's investment objective is to provide a high
total return from a portfolio of Equity Securities of European companies. The
European Equity Fund attempts to achieve its investment objective by investing
all of its investable assets in The European Equity Portfolio (the "European
8
<PAGE>
Equity Portfolio"), a diversified open-end management investment company having
the same investment objective as the European Equity Fund.
The European Equity Portfolio seeks to achieve its investment objective
by investing primarily in the Equity Securities of European companies. Under
normal circumstances, the European Equity Portfolio expects to invest at least
65% of its total assets in such securities. The European Equity Portfolio does
not intend to invest in U.S. securities (other than money market instruments),
except temporarily, when extraordinary circumstances prevailing at the same time
in a significant number of European countries render investments in such
countries inadvisable.
INVESTMENT PROCESS
Country allocation: Morgan's country allocation decision begins with a
forecast of equity risk premiums, which provide a valuation signal by measuring
the relative attractiveness of stocks versus bonds. Using a proprietary
approach, Morgan calculates this risk premium for each of the nations in the
Portfolio's universe, determines the extent of its deviation -- if any -- from
its historical norm, and then ranks countries according to the size of those
deviations. Countries with high (low) rankings are overweighted (underweighted)
in comparison to the Morgan Stanley Capital International Europe Index to
reflect the above-average (below-average) attractiveness of their stock markets.
In determining weightings, Morgan analyzes a variety of qualitative factors as
well -- including the liquidity, earnings momentum and interest rate climate of
the market at hand. These qualitative assessments can change the magnitude but
not the direction of the country allocations called for by the risk-premium
forecast. In an effort to contain risk, Morgan place limits on the total size of
the Portfolio's country over- and under-weightings.
Stock selection: Morgan's 15 equity analysts, each an industry and
country specialist, forecast normalized earnings and dividend payouts for
roughly 600 companies, taking a long-term perspective rather than the short time
frame common to consensus estimates. The analysts' forecasts are converted into
comparable expected returns by a dividend discount model, and then companies are
ranked from most to least attractive by industry and country. A diversified
portfolio is constructed using disciplined buy and sell rules. The portfolio
manager's objective is to concentrate purchases in the top third of the
rankings, and to keep sector weightings close to those of the benchmark. Once a
stock falls into the bottom third of the rankings -- because its price has risen
or its fundamentals have deteriorated -- it generally becomes a sale candidate.
THE JPM JAPAN EQUITY FUND (the "Japan Equity Fund") is designed for
investors who want an actively managed portfolio of Japanese Equity Securities
that seeks to outperform the Tokyo Stock Price Index ("TOPIX"), a composite
market-capitalization weighted-index of all common stocks listed on the First
Section of the Tokyo Stock Exchange. The Japan Equity Fund's investment
objective is to provide a high total return from a portfolio of Equity
Securities of Japanese companies. The Japan Equity Fund attempts to achieve its
investment objective by investing all of its investable assets in The Japan
Equity Portfolio (the "Japan Equity Portfolio"), a non-diversified open-end
management investment
9
<PAGE>
company having the same investment objective as the Japan Equity Fund. For
additional information, see "Appendix B - Investing in Japan and Asian Growth
Markets."
The Japan Equity Portfolio seeks to achieve its investment objective by
investing primarily in the Equity Securities of Japanese companies. Under normal
circumstances, the Japan Equity Portfolio expects to invest at least 65% of its
total assets in such securities. The Japan Equity Portfolio does not intend to
invest in U.S. securities (other than money market instruments), except
temporarily, when extraordinary circumstances prevailing in Japan render
investments there inadvisable.
INVESTMENT PROCESS
Systematic valuation: Morgan's ten Japanese equity analysts in Tokyo --
each an industry specialist -- follow a total of over 300 Japanese companies.
The most attractive names in that universe are identified by a multifactor model
which screens for low price/earnings ratios, high earnings growth rates and high
sales/price ratios. Within each sector, this subset of the universe is ranked by
these three measures and broken into quintiles; the companies in the top
quintile are considered the most attractive ones from both a growth and
valuation viewpoint. To provide an additional check on the valuation of selected
companies, the analysts prepare normalized, long-term earnings and dividend
forecasts which are converted into comparable expected returns by a dividend
discount model.
Warrant/convertible strategy: Once a company has been identified as a
buy candidate, the portfolio manager analyzes the yields on the company's
available equity vehicles -- stocks, warrants and convertibles -- to determine
which appears the most attractive means of purchase. In an effort to enhance
potential returns, the Portfolio also trades among these vehicles -- a strategy
that seeks to capitalize on the inefficiencies that pervade the Japanese equity
market. If the Portfolio invests in a warrant, it will set aside cash in an
amount approximately equal to the difference in the price of the warrant and the
market value of the underlying common stock. The cash is invested in money
market instruments.
Disciplined portfolio construction: The portfolio is constructed using
disciplined buy and sell rules. The portfolio manager's objective is to
concentrate purchases in the top 20% of the rankings; the specific companies
selected reflect the portfolio manager's judgment concerning the liquidity of an
issue, the soundness of the underlying forecasts, and the magnitude of the risks
versus the rewards. Once a stock falls into the third quintile -- because its
price has risen or its fundamentals have deteriorated it generally becomes a
sale candidate. The portfolio manager strives to hold sector weightings close to
those of the benchmark in an effort to contain risk.
The following discussion supplements the information regarding the
investment objective of each of the Funds and the policies to be employed to
achieve this objective by their corresponding Portfolios as set forth above and
in the Prospectus. The investment objective of each Fund and its corresponding
Portfolio is identical. Accordingly, references below to a Fund also include the
10
<PAGE>
Fund's corresponding Portfolio; similarly, references to a Portfolio also
include the corresponding Fund that invests in the Portfolio unless the context
requires otherwise.
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 United States.
ADDITIONAL U.S. GOVERNMENT OBLIGATIONS. Each of the Portfolios may
invest in obligations issued or guaranteed by U.S. Government agencies or
instrumentalities. These obligations may or may not be backed by the "full faith
and credit" of the United States. In the case of securities not backed by the
full faith and credit of the United States, 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 United States
itself in the event the agency or instrumentality does not meet its commitments.
Securities in which each Portfolio may invest that are not backed by the full
faith and credit of the United States include, but are not limited to,
obligations of the Tennessee Valley Authority, the Federal Home Loan Mortgage
Corporation and the U.S. Postal Service, each of which has the right to borrow
from the U.S. Treasury to meet its obligations, and obligations of the Federal
Farm Credit System and the Federal Home Loan Banks, both of whose obligations
may be satisfied only by the individual credits of each issuing agency.
Securities which are backed by the full faith and credit of the United States
include obligations of the Government National Mortgage Association, the Farmers
Home Administration and the Export-Import Bank.
FOREIGN GOVERNMENT OBLIGATIONS. Each of the Portfolios, subject to its
applicable investment policies, may also invest in short-term obligations of
foreign sovereign governments or of their agencies, instrumentalities,
authorities or political subdivisions. These securities may be denominated in
the U.S. dollar or in another currency. See "Foreign Investments."
BANK OBLIGATIONS. Each of the Portfolios, 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 United States or any state,
(ii) foreign branches of these banks or of foreign banks of equivalent size
(Euros) and (iii) U.S. branches of foreign banks of equivalent size (Yankees).
The Asset Limitation is not applicable to the Non-U.S. Fixed Income, Non-U.S.
Equity, Emerging Markets Equity, Asia Growth, European Equity and Japan Equity
11
<PAGE>
Portfolios. See "Foreign Investments." The Portfolios will not invest in
obligations for which the Advisor, or any of its affiliated persons, is the
ultimate obligor or accepting bank. Each of the Portfolios may also invest in
obligations of international banking institutions designated or supported by
national governments to promote economic reconstruction, development or trade
between nations (e.g., the European Investment Bank, the Inter-American
Development Bank or the World Bank).
COMMERCIAL PAPER. Each of the Portfolios may invest in commercial
paper, including master demand obligations. Master demand obligations are
obligations that provide for a periodic adjustment in the interest rate paid and
permit daily changes in the amount borrowed. Master demand obligations are
governed by agreements between the issuer and Morgan acting as agent, for no
additional fee, in its capacity as investment advisor to the Portfolios and as
fiduciary for other clients for whom it exercises investment discretion. The
monies loaned to the borrower come from accounts managed by the Advisor or its
affiliates, pursuant to arrangements with such accounts. Interest and principal
payments are credited to such accounts. The Advisor, acting as a fiduciary on
behalf of its clients, has the right to increase or decrease the amount provided
to the borrower under an obligation. The borrower has the right to pay without
penalty all or any part of the principal amount then outstanding on an
obligation together with interest to the date of payment. Since these
obligations typically provide that the interest rate is tied to the Federal
Reserve commercial paper composite rate, the rate on master demand obligations
is subject to change. Repayment of a master demand obligation to participating
accounts depends on the ability of the borrower to pay the accrued interest and
principal of the obligation on demand which is continuously monitored by the
Advisor. Since master demand obligations typically are not rated by credit
rating agencies, a Portfolio may invest in such unrated obligations only if at
the time of an investment the obligation is determined by the Advisor to have a
credit quality which satisfies the Portfolio's quality restrictions. See
"Quality and Diversification Requirements." Although there is no secondary
market for master demand obligations, such obligations are considered by the
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 Portfolio's Trustees. 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 may also 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 the Portfolios invest
in repurchase agreements for more than thirteen months. The securities which are
subject to repurchase agreements, however, may have maturity dates in excess of
thirteen months from the effective date of the repurchase agreement. Each
Portfolio always will receive securities as collateral whose market value
12
<PAGE>
is, and during the entire term of the agreement remains, at least equal to 100%
of the dollar amount invested by the Portfolio in each agreement plus accrued
interest, and the Portfolio will make payment for such securities only upon
physical delivery or upon evidence of book entry transfer to the account of the
Portfolio's custodian (the "Custodian").
Each of the Portfolios may make investments in other debt securities
with remaining effective maturities of not more than thirteen months, including
without limitation corporate and foreign bonds, asset-backed securities and
other obligations described in the Prospectus or this Statement of Additional
Information.
CORPORATE BONDS AND OTHER DEBT SECURITIES
As discussed in the Prospectus, the U.S. Fixed Income, Non-U.S. Fixed
Income and European Equity Portfolios may invest in bonds and other debt
securities of domestic and foreign issuers to the extent consistent with their
investment objectives 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."
ASSET-BACKED SECURITIES. Asset-backed securities directly or indirectly
represent a participation interest in, or are secured by and payable from, a
stream of payments generated by particular assets such as motor vehicle or
credit card receivables. Payments of principal and interest may be guaranteed up
to certain amounts and for a certain time period by a letter of credit issued by
a financial institution unaffiliated with the entities issuing the securities.
The asset-backed securities in which a Portfolio may invest are subject to the
Portfolio's overall credit requirements. However, asset-backed securities, in
general, are subject to certain risks. Most of these risks are related to
limited interests in applicable collateral. For example, credit card debt
receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of which
give such debtors the right to set off certain amounts on credit card debt
thereby reducing the balance due. Additionally, if the letter of credit is
exhausted, holders of asset-backed securities may also experience delays in
payments or losses if the full amounts due on underlying sales contracts are not
realized. Because asset-backed securities are relatively new, the market
experience in these securities is limited and the market's ability to sustain
liquidity through all phases of the market cycle has not been tested.
TAX EXEMPT OBLIGATIONS
As discussed in the Prospectus, in certain circumstances, the U.S.
Fixed Income Portfolio, may invest in tax exempt obligations to the extent
consistent with the Portfolio's investment objective and policies. A description
of the various types of tax exempt obligations which may be purchased by the
Portfolio appears in the Prospectus and below. See "Quality and Diversification
Requirements."
13
<PAGE>
MUNICIPAL BONDS. Municipal bonds are debt obligations issued by the
states, territories and possessions of the United States and the District of
Columbia, by their political subdivisions and by duly constituted authorities
and corporations. For example, states, territories, possessions and
municipalities may issue municipal bonds to raise funds for various public
purposes such as airports, housing, hospitals, mass transportation, schools,
water and sewer works. They may also issue municipal bonds to refund outstanding
obligations and to meet general operating expenses. Public authorities issue
municipal bonds to obtain funding for privately operated facilities, such as
housing and pollution control facilities, for industrial facilities or for water
supply, gas, electricity or waste disposal facilities.
Municipal bonds may be general obligation or revenue bonds. General
obligation bonds are secured by the issuer's pledge of its full faith, credit
and taxing power for the payment of principal and interest. Revenue bonds are
payable from revenues derived from particular facilities, from the proceeds of a
special excise tax or from other specific revenue sources. They are not
generally payable from the general taxing power of a municipality.
MUNICIPAL NOTES. Municipal notes are subdivided into three categories
of short-term obligations: municipal notes, municipal commercial paper and
municipal demand obligations.
Municipal notes are short-term obligations with a maturity at the time
of issuance ranging from six months to five years. The principal types of
municipal notes include tax anticipation notes, bond anticipation notes, revenue
anticipation notes, grant anticipation notes and project notes. Notes sold in
anticipation of collection of taxes, a bond sale, or receipt of other revenues
are usually general obligations of the issuing municipality or agency.
Municipal commercial paper typically consists of very short-term
unsecured negotiable promissory notes that are sold to meet seasonal working
capital or interim construction financing needs of a municipality or agency.
While these obligations are intended to be paid from general revenues or
refinanced with long-term debt, they frequently are backed by letters of credit,
lending agreements, note repurchase agreements or other credit facility
agreements offered by banks or institutions.
Municipal demand obligations are subdivided into two types: variable
rate demand notes and master demand obligations.
Variable rate demand notes are tax exempt municipal obligations or
participation interests that provide for a periodic adjustment in the interest
rate paid on the notes. They permit the holder to demand payment of the notes or
to demand purchase of the notes at a purchase price equal to the unpaid
principal balance, plus accrued interest either directly by the issuer or by
drawing on a bank letter of credit or guaranty issued with respect to such note.
The issuer of the municipal obligation may have a corresponding right to prepay
at its discretion the outstanding principal of the note plus accrued interest
upon notice comparable to that required for the holder to demand payment. The
variable rate demand notes in which the U.S. Fixed Income Portfolio may invest
14
<PAGE>
are payable, or are subject to purchase, on demand usually on notice of seven
calendar days or less. The terms of the notes provide that interest rates are
adjustable at intervals ranging from daily to six months, and the adjustments
are based upon the prime rate of a bank or other appropriate interest rate index
specified in the respective notes. Variable rate demand notes are valued at
amortized cost; no value is assigned to the right of the Portfolio to receive
the par value of the obligation upon demand or notice.
Master demand obligations are tax exempt municipal obligations that
provide for a periodic adjustment in the interest rate paid and permit daily
changes in the amount borrowed. The interest on such obligations is, in the
opinion of counsel for the borrower, exempt from federal income tax. For a
description of the attributes of master demand obligations, see "Money Market
Instruments" above. Although there is no secondary market for master demand
obligations, such obligations are considered by the U.S. Fixed Income Portfolio
to be liquid because they are payable upon demand. The U.S. Fixed Income
Portfolio has no specific percentage limitations on investments in master demand
obligations.
EQUITY INVESTMENTS
As discussed in the Prospectus, the Selected U.S. Equity, U.S. Small
Company, Non-U.S. Equity, European Equity, Emerging Markets Equity, Asia Growth
and Japan Equity Portfolios (collectively, the "Equity Portfolios") invest
primarily in Equity Securities. The Equity Securities in which the Equity
Portfolios invest include those listed on any domestic or foreign securities
exchange or traded in the over-the-counter market 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 Equity Securities in which the Equity Portfolios
may invest may or may not pay dividends and may or may not carry voting rights.
Common stock occupies the most junior position in a company's capital structure.
The convertible securities in which the Equity Portfolios may invest
include any debt securities or preferred stock which may be converted into
common stock or which carry the right to purchase common stock. Convertible
securities entitle the holder to exchange the securities for a specified number
of shares of common stock, usually of the same company, at specified prices
within a certain period of time.
The terms of any convertible security determine its ranking in a
company's capital structure. In the case of subordinated convertible debentures,
the holders' claims on assets and earnings are subordinated to the claims of
other creditors, and are senior to the claims of preferred and common
shareholders. In the case of convertible preferred stock, the holders' claims on
assets and earnings are subordinated to the claims of all creditors and are
senior to the claims of common shareholders.
15
<PAGE>
WARRANTS
The Equity Portfolios may invest in warrants, which entitle the holder
to buy common stock from the issuer at a specific price (the strike price) for a
specific period of time. The strike price of warrants sometimes is much lower
than the current market price of the underlying securities, yet warrants are
subject to similar price fluctuations. As a result, warrants may be more
volatile investments than the underlying securities.
Warrants do not entitle the holder to dividends or voting rights with
respect to the underlying securities and do not represent any rights in the
assets of the issuing company. Also, the value of the warrant does not
necessarily change with the value of the underlying securities and a warrant
ceases to have value if it is not exercised prior to the expiration date.
FOREIGN INVESTMENTS
The Non-U.S. Fixed Income, Non-U.S. Equity, Emerging Markets Equity,
Asia Growth, European Equity and Japan Equity Portfolios make substantial
investments in foreign countries. The U.S. Fixed Income, Selected U.S. Equity
and U.S. Small Company Portfolios may invest in certain foreign securities. The
U.S. Fixed Income Portfolio may invest in dollar-denominated fixed income
securities of foreign issuers. The Selected U.S. Equity Portfolio may invest in
equity securities of foreign corporations included in the S&P 500 Index or
listed on a national securities exchange. The U.S. Small Company Portfolio may
invest in equity securities of foreign issuers that are listed on a national
securities exchange or denominated or principally traded in the U.S. dollar. The
U.S. Fixed Income Portfolio may invest in dollar-denominated fixed income
securities of foreign issuers. The U.S. Fixed Income, Selected U.S. Equity and
U.S. Small Company Portfolios do not expect to invest more than 25%, 5% and 5%,
respectively, of their total assets at the time of purchase in securities of
foreign issuers. In the case of the U.S. Fixed Income 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
favorably or unfavorably by changes in currency rates and in exchange control
regulations, including currency blockage. Each of the Portfolios except for the
U.S. Fixed Income Portfolio may enter into forward commitments for the purchase
or sale of foreign currencies in connection with the settlement of foreign
securities transactions or to manage the Portfolio's currency exposure related
to foreign investments. The Portfolios will not enter into such commitments for
speculative purposes.
16
<PAGE>
For a description of the risks associated with investing in foreign
securities, see "Risk Factors and Additional Investment Information" in the
Prospectus.
INVESTING IN JAPAN. Investing in Japanese securities may involve the
risks associated with investing in foreign securities generally. In addition,
because it invests in Japan, The International Equity Portfolio will be subject
to the general economic and political conditions in Japan.
Share prices of companies listed on Japanese stock exchanges and on the
Japanese OTC market reached historical peaks (which were later referred to as
the "bubble") as well as historically high trading volumes in 1989 and 1990.
Since then, stock prices in both markets decreased significantly, with listed
stock prices reaching their lowest levels in the third quarter of 1992 and OTC
stock prices reaching their lowest levels in the fourth quarter of 1992. During
the period from January 1, 1989 through December 31, 1994, the highest Nikkei
stock average and Nikkei OTC average were 38,915.87 and 4,149.20, respectively,
and the lowest for each were 14,309.41 and 1,099.32, respectively. There can be
no assurance that additional market corrections will not occur.
The common stocks of many Japanese companies continue to trade at high
price earnings ratios in comparison with those in the United States, even after
the recent market decline. Differences in accounting methods make it difficult
to compare the earnings of Japanese companies with those of companies in other
countries, especially the United States.
Since The International Equity Portfolio invests in securities
denominated in yen, changes in exchange rates between the U.S. dollar and the
yen affect the U.S. dollar value of The International Equity Portfolio's assets.
Such rate of exchange is determined by forces of supply and demand on the
foreign exchange markets. These forces are in turn affected by the international
balance of payments and other economic, political and financial conditions,
government intervention, speculation and other factors. See Foreign Currency
Exchange Transactions.
Japanese securities held by The International Equity Portfolio are not
registered with the SEC nor are the issuers thereof subject to its reporting
requirements. There may be less publicly available information about issuers of
Japanese securities than about U.S. companies and such issuers may not be
subject to accounting, auditing and financial reporting standards and
requirements comparable to those to which U.S. companies are subject.
Although the Japanese economy has grown substantially over the past
four decades, recently the rate of growth had slowed substantially. During 1991,
1992 and 1993, the Japanese economy grew at rates of 4.3%, 1.1% and 0.1%,
respectively, as measured by real gross domestic product.
Japan's success in exporting its products has generated a sizeable
trade surplus. Such trade surplus has caused tensions at times between Japan and
some of its trading partners. In particular, Japan's trade relations with the
United States have recently been the subject of discussion and negotiation
between the
17
<PAGE>
two nations. The United States has imposed certain measures designed to address
trade issues in specific industries. These measures and similar measures in the
future may adversely affect the performance of The International Equity
Portfolio.
Japan's economy has typically exhibited low inflation and low interest
rates. There can be no assurance that low inflation and low interest rates will
continue, and it is likely that a reversal of such factors would adversely
affect the Japanese economy. Moreover, the Japanese economy may differ,
favorably or unfavorably, from the U.S. economy in such respects as growth of
gross national product, rate of inflation, capital reinvestment, resources,
self-sufficiency and balance of payments position.
Japan has a parliamentary form of government. In 1993 a coalition
government was formed which, for the first time since 1955, did not include the
Liberal Democratic Party. Since mid-1993, there have been several changes in
leadership in Japan. What, if any, effect the current political situation will
have on prospective regulatory reforms of the economy in Japan cannot be
predicted. Recent and future developments in Japan and neighboring Asian
countries may lead to changes in policy that might adversely affect The
International Equity Portfolio.
ADDITIONAL INVESTMENTS
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. Each of the Portfolios may
purchase securities on a when-issued or delayed delivery basis. For example,
delivery of and payment for these securities can take place a month or more
after the date of the purchase commitment. The purchase price and the interest
rate payable, if any, on the securities are fixed on the purchase commitment
date or at the time the settlement date is fixed. The value of such securities
is subject to market fluctuation and no interest accrues to a Portfolio until
settlement takes place. At the time a Portfolio makes the commitment to purchase
securities on a when-issued or delayed delivery basis, it will record the
transaction, reflect the value each day of such securities in determining its
net asset value and, if applicable, calculate the maturity for the purposes of
average maturity from that date. At the time of settlement, a when-issued
security may be valued at less than the purchase price. To facilitate such
acquisitions, each Portfolio will maintain with the Custodian a segregated
account with liquid assets, consisting of cash, U.S. Government securities or
other appropriate securities, in an amount at least equal to such commitments.
On delivery dates for such transactions, 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.
18
<PAGE>
INVESTMENT COMPANY SECURITIES. Securities of other investment companies
may be acquired by each of the Portfolios to the extent permitted under the 1940
Act. These limits require that, as determined immediately after a purchase is
made, (i) not more than 5% of the value of the Portfolio's total assets will be
invested in the securities of any one investment company, (ii) not more than 10%
of the value of its total assets will be invested in the aggregate in securities
of investment companies as a group, and (iii) not more than 3% of the
outstanding voting stock of any one investment company will be owned by the
Portfolio. As a shareholder of another investment company, 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 of the Portfolios 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. For purposes of the 1940 Act, it is also considered as the
borrowing of money by the Portfolio and, therefore, a form of leverage. The
Portfolios will invest the proceeds of borrowings under reverse repurchase
agreements. In addition, a Portfolio will enter into a reverse repurchase
agreement only when the interest income to be earned from the investment of the
proceeds is greater than the interest expense of the transaction. A Portfolio
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 Custodian a separate account with a segregated
portfolio of securities in an amount at least equal to its purchase obligations
under its reverse repurchase agreements.
MORTGAGE DOLLAR ROLL TRANSACTIONS. The U.S. Fixed Income Portfolio may
engage in mortgage dollar roll transactions with respect to mortgage securities
issued by the Government National Mortgage Association, the Federal National
Mortgage Association and the Federal Home Loan Mortgage Corporation. In a
mortgage dollar roll transaction, the Portfolio sells a mortgage backed security
and simultaneously agrees to repurchase a similar security on a specified future
date at an agreed upon price. During the roll period, the 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 may also 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
Custodian. Mortgage dollar roll transactions are considered reverse repurchase
agreements for purposes of the Portfolio's investment restrictions.
LOANS OF PORTFOLIO SECURITIES. Each of the Portfolios may lend its
securities if such loans are secured continuously by cash or equivalent
19
<PAGE>
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, 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 inures to a
Portfolio and its respective investors. The Portfolios may pay reasonable
finders' and custodial fees in connection with a loan. In addition, a Portfolio
will consider all facts and circumstances including the creditworthiness of the
borrowing financial institution, and no Portfolio will make any loans in excess
of one year. The Portfolios will not lend their securities to any officer,
Trustee, Director, employee or other affiliate of the Portfolios, the Advisor or
the Distributor, unless otherwise permitted by applicable law.
PRIVATELY PLACED AND CERTAIN UNREGISTERED SECURITIES. Each of the
Portfolios may invest in privately placed, restricted, Rule 144A or other
unregistered securities as described in the Prospectus.
As to illiquid investments, a Portfolio is subject to a risk that
should the Portfolio decide to sell them when a ready buyer is not available at
a price the Portfolio deems representative of their value, the value of the
Portfolio's net assets could be adversely affected. Where an illiquid security
must be registered under the Securities Act of 1933, as amended (the "1933
Act"), before it may be sold, a Portfolio may be obligated to pay all or part of
the registration expenses, and a considerable period may elapse between the time
of the decision to sell and the time the Portfolio may be permitted to sell a
security under an effective registration statement. If, during such a period,
adverse market conditions were to develop, a Portfolio might obtain a less
favorable price than prevailed when it decided to sell.
QUALITY AND DIVERSIFICATION REQUIREMENTS
Each of the Portfolios, except the Non-U.S. Fixed Income and Japan
Equity Portfolios, intends to meet the diversification requirements of the 1940
Act. To meet these requirements, 75% of the assets of each of these Portfolios
is subject to the following fundamental limitations: (1) the Portfolio may not
invest more than 5% of its total assets in the securities of any one issuer,
except obligations of the U.S. Government, its agencies and instrumentalities,
and (2) the Portfolio may not own more than 10% of the outstanding voting
securities of any one issuer. As for the other 25% of the Portfolio's assets not
subject to the limitation described above, there is no limitation on investment
of these assets under the 1940 Act, so that all of such assets may be invested
in securities of any one issuer, subject to the limitation of any applicable
state securities laws. Investments not subject to the limitations described
above could involve an increased risk to 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.
20
<PAGE>
Although the Non-U.S. Fixed Income and Japan Equity Portfolios are not
limited by the diversification requirements of the 1940 Act, these Portfolios
will comply with the diversification requirements imposed by the Internal
Revenue Code of 1986, as amended (the "Code"), for qualification as a regulated
investment company. To meet these requirements, each Portfolio must diversify
its holdings so that, with respect to 50% of the Portfolio's assets, no more
than 5% of its assets are invested in the securities of any one issuer other
than the U.S. Government at the close of each quarter of the Portfolio's taxable
year. The Portfolio may, with respect to the remaining 50% of its assets, invest
up to 25% of its assets in the securities of any one issuer (except this
limitation does not apply to U.S. Government securities).
U.S. FIXED INCOME AND NON-U.S. FIXED INCOME PORTFOLIOS. The U.S. Fixed
Income and Non-U.S. Fixed Income Portfolios invest principally in a diversified
portfolio of "high grade" and "investment grade" securities. Investment grade
debt is rated, on the date of investment, within the four highest ratings of
Moody's, currently Aaa, Aa, A and Baa, or of Standard & Poor's, currently AAA,
AA, A and BBB, while high grade debt is rated, on the date of the investment,
within the two highest of such ratings. The U.S. Fixed Income Portfolio may also
invest up to 5% of its total assets in securities which are "below investment
grade." Such securities must be rated, on the date of investment, Ba by Moody's
or BB by Standard & Poor's. The Portfolios may invest in debt securities which
are not rated or other debt securities to which these ratings are not
applicable, if in the opinion of the Advisor, such securities are of comparable
quality to the rated securities discussed above. In addition, at the time the
Portfolios invest in any commercial paper, bank obligation or repurchase
agreement, the issuer must have outstanding debt rated A or higher by Moody's or
Standard & Poor's, the issuer's parent corporation, if any, must have
outstanding commercial paper rated Prime-1 by Moody's or A-1 by Standard &
Poor's, or if no such ratings are available, the investment must be of
comparable quality in the Advisor's opinion.
EQUITY PORTFOLIOS. The 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-1 by Moody's or A-1 by Standard &
Poor's, or if no such ratings are available, the investment must be of
comparable quality in the Advisor's opinion. At the time the Portfolio invests
in any other short-term debt securities, they must be rated A or higher by
Moody's or Standard & Poor's, or if unrated, the investment must be of
comparable quality in the Advisor's opinion.
In determining suitability of investment in a particular unrated
security, the Advisor takes into consideration asset and debt service coverage,
the purpose of the financing, history of the issuer, existence of other rated
securities of the issuer and other relevant conditions, such as comparability to
other issuers.
21
<PAGE>
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 creditworthiness standards approved by the Portfolio's Board of Trustees.
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 (the "SEC") has
taken the position that, in general, purchased OTC options and the underlying
securities used to cover written OTC options are illiquid securities. However, 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 the maximum
repurchase price under the formula exceeds the intrinsic value of the option.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Portfolios
permitted to enter into futures and options transactions may purchase or sell
(write) futures contracts and purchase put and call options, including put and
call options on futures contracts. In addition, the Non-U.S. Fixed Income,
Emerging Markets Equity, Asia Growth, European Equity and Japan Equity
Portfolios may sell (write) uncovered put and call options on futures. Futures
contracts obligate the buyer to take and the seller to make delivery at a future
date of a specified quantity of a financial instrument or an amount of cash
based on the value of a securities index. Currently, futures contracts are
available on various types of fixed income securities, including but not limited
to U.S. Treasury bonds, notes and bills, Eurodollar certificates of deposit and
on indexes of fixed income securities and indexes of equity securities.
Unlike a futures contract, which requires the parties to buy and sell a
security or make a cash settlement payment based on changes in a financial
instrument or securities index on an agreed date, an option on a futures
contract entitles its holder to decide on or before a future date whether to
enter into such a contract. If the holder decides not to exercise its option,
the holder may close out the option position by entering into an offsetting
transaction or may decide to let the option expire and forfeit the premium
thereon. The purchaser of an option on a futures contract pays a premium for the
option but makes no initial margin payments or daily payments of cash in the
nature of "variation" margin payments to reflect the change in the value of the
underlying contract as does a purchaser or seller of a futures contract.
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
22
<PAGE>
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, as required by the 1940
Act and the SEC's interpretations thereunder.
COMBINED POSITIONS. The Portfolios permitted to purchase and write
options may do so 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 may also result from differing levels of demand in the options and
futures markets and the securities markets, from structural differences in how
options and futures and securities are traded, or from imposition of daily price
fluctuation limits or trading halts. A Portfolio may purchase or sell options
and futures contracts with a greater or lesser value than the securities it
wishes to hedge or intends to purchase in order to attempt to compensate for
differences in volatility between the contract and the securities, although this
may not be successful in all cases. If price changes in a Portfolio's options or
futures positions are poorly correlated with its other investments, the
positions may fail to produce anticipated gains or result in losses that are not
offset by gains in other investments.
LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a
liquid market will exist for any particular option or futures contract at any
particular time even if the contract is traded on an exchange. In addition,
exchanges may establish daily price fluctuation limits for options and futures
contracts and may halt trading if a contract's price moves up or down more than
the limit in a given day. On volatile trading days when the price fluctuation
limit is reached or a trading halt is imposed, it may be impossible for a
Portfolio to
23
<PAGE>
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 could also be impaired.
(See "Exchange Traded and Over-the-Counter Options" above for a discussion of
the liquidity of options not traded on an exchange.)
POSITION LIMITS. Futures exchanges can limit the number of futures and
options on futures contracts that can be held or controlled by an entity. If an
adequate exemption cannot be obtained, a Portfolio or the Advisor may be
required to reduce the size of its futures and options positions or may not be
able to trade a certain futures or options contract in order to avoid exceeding
such limits.
ASSET COVERAGE FOR FUTURES CONTRACTS AND OPTIONS POSITIONS. The
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 Non-U.S. Fixed Income, Emerging Markets Equity, Asia Growth,
European Equity and Japan Equity 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 Advisor wishes to extend maturities in a fixed income
portfolio in order to take advantage of an anticipated decline in interest
rates, but does not wish to purchase the underlying long-term securities, it
might cause the Portfolio to purchase futures contracts on long-term debt
securities. Similarly, if the Advisor wishes to decrease fixed income securities
or purchase equities, it could cause the Portfolio to sell futures contracts on
debt securities and purchase futures contracts on a stock index. Such
non-hedging risk management techniques are not speculative, but because they
involve leverage include, as do all leveraged transactions, the possibility of
losses as well as gains that are greater than if these techniques involved the
purchase and sale of the securities themselves rather than their synthetic
derivatives.
PORTFOLIO TURNOVER
Set forth below are the portfolio turnover rates for the Portfolios
corresponding to the Funds. A rate of 100% indicates that the equivalent of all
24
<PAGE>
of the Portfolio's assets have been sold and reinvested in a year. High
portfolio turnover may result in the realization of substantial net capital
gains or losses. To the extent net short term capital gains are realized, any
distributions resulting from such gains are considered ordinary income for
federal income tax purposes. See "Taxes" below.
THE U.S. FIXED INCOME PORTFOLIO (U.S. Fixed Income Fund) -- For the fiscal year
ended October 31, 1994: 234%
THE SELECTED U.S. EQUITY PORTFOLIO (U.S. Equity Fund) -- For the period July 19,
1993 (commencement of operations) through May 31, 1994: 76%. For the fiscal year
ended May 31, 1995: 71%
THE U.S. SMALL COMPANY PORTFOLIO (U.S. Small Cap Equity Fund) -- For the period
July 19, 1993 (commencement of operations) through May 31, 1994: 97%. For the
fiscal year ended May 31, 1995: 75%
THE NON-U.S. EQUITY PORTFOLIO (International Equity Fund) -- For the fiscal year
ended October 31, 1994: 56%
THE EMERGING MARKETS EQUITY PORTFOLIO (Emerging Markets Equity Fund) -- For the
fiscal year ended October 31, 1994: 27.48%
As of the date of this Statement of Additional Information the Asia
Growth, European Equity, Japan Equity and Non-U.S. Fixed Income Portfolios had
not completed their initial fiscal years.
INVESTMENT RESTRICTIONS
The investment restrictions below have been adopted by the Trust with
respect to each Fund and by each corresponding Portfolio. Except where otherwise
noted, these investment restrictions are "fundamental" policies which, under the
1940 Act, may not be changed without the vote of a majority of the outstanding
voting securities of the Fund or Portfolio, as the case may be. A "majority of
the outstanding voting securities" is defined in the 1940 Act as the lesser of
(a) 67% or more of the voting securities present at a meeting if the holders of
more than 50% of the outstanding voting securities are present or represented by
proxy, or (b) more than 50% of the outstanding voting securities. The percentage
limitations contained in the restrictions below apply at the time of the
purchase of securities. Whenever a Fund is requested to vote on a change in the
fundamental investment restrictions of its corresponding Portfolio, the Trust
will hold a meeting of Fund shareholders and will cast its votes as instructed
by the shareholders.
The investment restrictions of each Fund and its corresponding
Portfolio are identical, unless otherwise specified and except that each Fund
may invest all of its investable assets in another open-end management
investment company with the same investment objective, policies and restrictions
(such as the Fund's corresponding Portfolio). Accordingly, references below to a
Portfolio also include the Portfolio's corresponding Fund unless the context
requires otherwise.
25
<PAGE>
The U.S. Fixed Income Portfolio may not:
1. Borrow money, except from banks for extraordinary or
emergency purposes and then only in amounts up to 30% of the
value of the Portfolio's total assets, taken at cost at the
time of such borrowing and except in connection with reverse
repurchase agreements permitted by Investment Restriction No.
8. Mortgage, pledge or hypothecate any assets except in
connection with any such borrowing in amounts up to 30% of
the value of the Portfolio's net assets at the time of such
borrowing. The Portfolio will not purchase securities while
borrowings (including reverse repurchase agreements) exceed
5% of the Portfolio's total assets. This borrowing provision
facilitates the orderly sale of portfolio securities, for
example, in the event of abnormally heavy redemption
requests. This provision is not for investment purposes.
Collateral arrangements for premium and margin payments in
connection with the Portfolio's hedging activities are not
deemed to be a pledge of assets;
2. Purchase the securities or other obligations of any one
issuer if, immediately after such purchase, more than 5% of
the value of the Portfolio's total assets would be invested
in securities or other obligations of any one such issuer.
This limitation shall not apply to securities issued or
guaranteed by the U.S. Government, its agencies or
instrumentalities or to permitted investments of up to 25% of
the Portfolio's total assets;
3. Purchase the securities of an issuer if, immediately after
such purchase, the Portfolio owns more than 10% of the
outstanding voting securities of such issuer. This limitation
shall not apply to permitted investments of up to 25% of the
Portfolio's total assets;
4. Purchase securities or other obligations of issuers
conducting their principal business activity in the same
industry if, immediately after such purchase the value of its
investments in such industry would exceed 25% of the value of
the Portfolio's total assets. For purposes of industry
concentration, there is no percentage limitation with respect
to investments in U.S. Government securities;
5. Make loans, except through the purchase or holding of debt
obligations (including privately placed securities) or the
entering into of repurchase agreements, or loans of portfolio
securities in accordance with the Portfolio's investment
objective and policies;
6. Purchase or sell puts, calls, straddles, spreads, or any
combination thereof, real estate, commodities, commodity
contracts, except for the Portfolio's interest in hedging
activities as described under "Investment Objectives and
Policies"; or interests in oil, gas, or mineral exploration
or development programs. However, the Portfolio may purchase
debt obligations secured by interests in real estate or
issued by companies which invest in real estate or interests
therein including real estate investment trusts;
26
<PAGE>
7. Purchase securities on margin, make short sales of
securities, or maintain a short position in securities,
except in the course of the Portfolio's hedging activities,
unless at all times when a short position is open the
Portfolio owns an equal amount of such securities, provided
that this restriction shall not be deemed to be applicable to
the purchase or sale of when-issued securities or delayed
delivery securities;
8. Issue any senior security, except as appropriate to evidence
indebtedness which constitutes a senior security and which
the Portfolio is permitted to incur pursuant to Investment
Restriction No. 1 and except that the Portfolio may enter
into reverse repurchase agreements, provided that the
aggregate of senior securities, including reverse repurchase
agreements, shall not exceed one-third of the market value of
the Portfolio's total assets, less liabilities other than
obligations created by reverse repurchase agreements. The
Portfolio's arrangements in connection with its hedging
activities as described in "Investment Objectives and
Policies" shall not be considered senior securities for
purposes hereof;
9. Acquire securities of other investment companies, except as
permitted by the 1940 Act; or
10. Act as an underwriter of securities.
Each of the Selected U.S. Equity and U.S. Small Company Portfolios may
not:
1. Purchase the securities or other obligations of issuers
conducting their principal business activity in the same
industry if, immediately after such purchase the value of its
investments in such industry would exceed 25% of the value of
the Portfolio's total assets. For purposes of industry
concentration, there is no percentage limitation with respect
to investments in U.S. Government securities;
2. Borrow money, except from banks for extraordinary or
emergency purposes and then only in amounts not to exceed 10%
of the value of the Portfolio's total assets, taken at cost,
at the time of such borrowing. Mortgage, pledge or
hypothecate any assets except in connection with any such
borrowing and in amounts not to exceed 10% of the value of
the Portfolio's net assets at the time of such borrowing. The
Portfolio will not purchase securities while borrowings
exceed 5% of the Portfolio's total assets. This borrowing
provision is included to facilitate the orderly sale of
portfolio securities, for example, in the event of abnormally
heavy redemption requests, and is not for investment
purposes. Collateral arrangements for premium and margin
payments in connection with the Portfolio's hedging
activities are not deemed to be a pledge of assets;
3. Purchase the securities or other obligations of any one
issuer if, immediately after such purchase, more than 5% of
the value of the Portfolio's total assets would be invested
in securities or other obligations of any one such issuer.
This limitation shall not apply to issues of the U.S.
Government, its agencies or instrumentalities or to permitted
investments of up to 25% of the Portfolio's total assets;
27
<PAGE>
4. Purchase the securities of an issuer if, immediately after
such purchase, the Portfolio owns more than 10% of the
outstanding voting securities of such issuer. This limitation
shall not apply to permitted investments of up to 25% of the
Portfolio's total assets;
5. Make loans, except through the purchase or holding of debt
obligations (including privately placed securities), or the
entering into of repurchase agreements, or loans of portfolio
securities in accordance with the Portfolio's investment
objective and policies (see "Investment Objectives and
Policies");
6. Purchase or sell puts, calls, straddles, spreads, or any
combination thereof, real estate, commodities, or commodity
contracts, except for the Portfolio's interests in hedging
activities as described under "Investment Objectives and
Policies"; or interests in oil, gas, or mineral exploration
or development programs. However, the Portfolio may purchase
securities or commercial paper issued by companies which
invest in real estate or interests therein, including real
estate investment trusts;
7. Purchase securities on margin, make short sales of
securities, or maintain a short position, except in the
course of the Portfolio's hedging activities, provided that
this restriction shall not be deemed to be applicable to the
purchase or sale of when-issued securities or delayed
delivery securities;
8. Acquire securities of other investment companies, except as
permitted by the 1940 Act;
9. Act as an underwriter of securities;
10. Issue any senior security, except as appropriate to evidence
indebtedness which the Portfolio is permitted to incur
pursuant to Investment Restriction No. 2. The Portfolio's
arrangements in connection with its hedging activities as
described in "Investment Objectives and Policies" shall not
be considered senior securities for purposes hereof; or
11. Purchase any equity security if, as a result, the Portfolio
would then have more than 5% of its total assets invested in
securities of companies (including predecessors) that have
been in continuous operation for fewer than three years.
The Non-U.S. Equity Portfolio may not:
1. Borrow money, except from banks for extraordinary or
emergency purposes and then only in amounts up to 30% of the
value of the Portfolio's net assets at the time of borrowing,
and except in connection with reverse repurchase agreements
and then only in amounts up to 33 1/3% of the value of the
Portfolio's net assets; or purchase securities while
borrowings, including reverse repurchase agreements, exceed
5% of the Portfolio's total assets. The Portfolio will not
mortgage, pledge or hypothecate any assets except in
connection with any such borrowing and in amounts not to
exceed 30% of the value of the Portfolio's net assets at the
time of such borrowing;
28
<PAGE>
2. Purchase the securities or other obligations of any one
issuer if, immediately after such purchase, more than 5% of
the value of the Portfolio's total assets would be invested
in securities or other obligations of any one such issuer.
This limitation shall not apply to securities issued or
guaranteed by the U.S. Government, its agencies or
instrumentalities or to permitted investments of up to 25% of
the Portfolio's total assets;
3. Purchase the securities of an issuer if, immediately after
such purchase, the Portfolio owns more than 10% of the
outstanding voting securities of such issuer. This limitation
shall not apply to permitted investments of up to 25% of the
Portfolio's total assets;
4. Purchase the securities or other obligations of issuers
conducting their principal business activity in the same
industry if, immediately after such purchase, the value of
its investments in such industry would exceed 25% of the
value of the Portfolio's total assets. For purposes of
industry concentration, there is no percentage limitation
with respect to investments in U.S. Government securities;
5. Make loans, except through the purchase or holding of debt
obligations (including restricted securities), or the
entering into of repurchase agreements, or loans of portfolio
securities in accordance with the Portfolio's investment
objective and policies, see "Risk Factors and Additional
Investment Information" in the Prospectus and "Investment
Objectives and Policies" in this Statement of Additional
Information;
6. Purchase or sell puts, calls, straddles, spreads, or any
combination thereof, real property, including limited
partnership interests, commodities, or commodity contracts,
except for the Portfolio's interests in hedging and foreign
exchange activities as described under "Risk Factors and
Additional Investment Information" in the Prospectus; or
interests in oil, gas, mineral or other exploration or
development programs or leases. However, the Portfolio may
purchase securities or commercial paper issued by companies
that invest in real estate or interests therein including
real estate investment trusts;
7. Purchase securities on margin, make short sales of
securities, or maintain a short position in securities,
except to obtain such short-term credit as necessary for the
clearance of purchases and sales of securities, provided that
this restriction shall not be deemed to apply to the purchase
or sale of when-issued securities or delayed delivery
securities;
8. Acquire securities of other investment companies, except as
permitted by the 1940 Act;
9. Act as an underwriter of securities, except insofar as the
Portfolio may be deemed to be an underwriter under the 1933
Act by virtue of disposing of portfolio securities; or
29
<PAGE>
10. Issue any senior security, except as appropriate to evidence
indebtedness which the Portfolio is permitted to incur
pursuant to Investment Restriction No. 1. The Portfolio's
arrangements in connection with its hedging activities as
described in "Risk Factors and Additional Investment
Information" in the Prospectus shall not be considered senior
securities for purposes hereof.
Unless Sections 8(b)(1) and 13(a) of the 1940 Act or any SEC or SEC
staff interpretations thereof are amended or modified, each of the Emerging
Markets Equity, Asia Growth and European Equity Portfolios may not:
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 Government
securities (as defined in the 1940 Act);
4. Make loans to other persons, except through the purchase of
debt obligations, 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;
30
<PAGE>
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 1933 Act; or
8. Issue senior securities, except as permitted under the 1940
Act or any rule, order or interpretation thereunder.
Unless Sections 8(b)(1) and 13(a) of the 1940 Act or any SEC or SEC
staff interpretations thereof are amended or modified, each of the Non-U.S.
Fixed Income and Japan Equity Portfolios may not:
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. Make loans to other persons, except through the purchase of
debt obligations, loans of portfolio securities and
participation in repurchase agreements;
4. 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;
5. 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;
6. 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 1933 Act; or
7. Issue senior securities, except as permitted under the 1940
Act or any rule, order or interpretation thereunder.
31
<PAGE>
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS - ALL PORTFOLIOS. The
investment restriction described below is not a fundamental policy of each
Portfolio and may be changed by the Portfolio's Trustees. This non-fundamental
investment policy requires that each Portfolio may not:
(i) acquire any illiquid securities, such as repurchase agreements with
more than seven days to maturity or fixed time deposits with a duration of over
seven calendar days, if as a result thereof, more than 15% of the market value
of the Portfolio's total assets would be in investments that are illiquid.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS - NON-U.S. EQUITY PORTFOLIO.
The investment restrictions described below are not fundamental policies of the
Non- U.S. Equity Portfolio and may be changed by the Portfolio's Trustees. These
non-fundamental investment policies require that the Portfolio may not:
(i) purchase any equity security if, as a result, the Portfolio
would then have more than 5% of its total assets invested in
securities of companies (including predecessors) that have
been in continuous operation for fewer than three years;
(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; or
(iii) invest in any securities issued by an issuer any of whose
officers, directors, trustees or security holders is an
officer or Trustee of the Portfolio, or is an officer of the
Advisor, if after the Portfolio's purchase of the securities
of such issuer, one or more of such persons owns beneficially
more than 1/2 of 1% of the shares or securities, or both, all
taken at market value, of such issuer, and such persons
owning more than 1/2 of 1% of such shares or securities
together own beneficially more than 5% of such shares or
securities, or both, all taken at market value.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS - SELECTED U.S. EQUITY AND U.S.
SMALL COMPANY PORTFOLIOS. The investment restrictions described below are not
fundamental policies of these Portfolios and may be changed by the Portfolios'
Trustees. These non-fundamental investment policies require that each of these
Portfolios may not:
(i) 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;
32
<PAGE>
(ii) invest in any securities issued by an issuer any of whose
officers, directors, trustees or security holders is an
officer or Trustee of the Portfolio, or is an officer of the
Advisor, if after the Portfolio's purchase of the securities
of such issuer, one or more of such persons owns beneficially
more than 1/2 of 1% of the shares or securities, or both, all
taken at market value, of such issuer, and such persons
owning more than 1/2 of 1% of such shares or securities
together own beneficially more than 5% of such shares or
securities, or both, all taken at market value;
(iii) invest in real estate limited partnership interests; or
(iv) invest in oil, gas or other mineral leases.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS - EMERGING MARKETS EQUITY, ASIA
GROWTH AND EUROPEAN EQUITY PORTFOLIOS. The investment restrictions described
below are not fundamental policies of these Portfolios and may be changed by the
Portfolios' Trustees. These non-fundamental investment policies require that
each of these 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) 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;
(iii) 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;
(iv) 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;
(v) Purchase securities on margin, but the Portfolio may obtain
such short term credits as may be necessary for the clearance
of transactions;
(vi) Purchase or retain securities of any issuer if, to the
knowledge of the Portfolio, any of the Portfolio's officers
or Trustees or any officer of the Advisor individually owns
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 own more than 5% of such
securities, all taken at market; or
33
<PAGE>
(vii) Invest in real estate limited partnerships or purchase
interests in oil, gas or mineral exploration or development
programs or leases.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS - JAPAN EQUITY PORTFOLIO. The
investment restrictions described below are not fundamental policies of the
Japan Equity Portfolio and may be changed by the Portfolio's Trustees. These
non- fundamental investment policies require that the Portfolio may not:
(i) Acquire securities of other investment companies, except as
permitted by the 1940 Act or any rule, order or
interpretation thereunder, or in connection with a merger,
consolidation, reorganization, acquisition of assets or an
offer of exchange;
(ii) 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;
(iii) 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;
(iv) Purchase securities on margin, but the Portfolio may obtain
such short term credits as may be necessary for the clearance
of transactions;
(v) Purchase or retain securities of any issuer if, to the
knowledge of the Portfolio, any of the Portfolio's officers
or Trustees or any officer of the Advisor individually owns
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 own more than 5% of such
securities, all taken at market; or
(vi) Invest in real estate limited partnerships or purchase
interests in oil, gas or mineral exploration or development
programs or leases.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS - NON-U.S. FIXED INCOME
PORTFOLIO. The investment restrictions described below are not fundamental
policies of the Non-U.S. Fixed Income Portfolio and may be changed by the
Portfolio's Trustees. These non-fundamental investment policies require that the
Portfolio may not:
(i) Acquire securities of other investment companies, except as
permitted by the 1940 Act or any rule, order or
interpretation thereunder, or in connection with a merger,
consolidation, reorganization, acquisition of assets or an
offer of exchange;
(ii) 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;
34
<PAGE>
(iii) 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;
(iv) Purchase or retain securities of any issuer if, to the
knowledge of the Portfolio, any of the Portfolio's officers
or Trustees or any officer of the Advisor individually owns
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 own more than 5% of such
securities, all taken at market;
(v) Purchase securities on margin, but the Portfolio may obtain
such short term credits as may be necessary for the clearance
of transactions; or
(vi) Invest in real estate limited partnerships or purchase
interests in oil, gas or mineral exploration or development
programs or leases.
ALL PORTFOLIOS. There will be no violation of any investment
restriction if that restriction is complied with at the time the relevant action
is taken notwithstanding a later change in market value of an investment, in net
or total assets, in the securities rating of the investment or any other later
change.
TRUSTEES AND OFFICERS
The Trustees of the Trust and the Trustees of the Portfolios, their
business addresses and their principal occupations during the past five years
are set forth below. An asterisk indicates that a Trustee is an "interested
person" (as defined in the 1940 Act) of the Trust or the Portfolios, as the case
may be.
TRUSTEES OF THE TRUST
JOHN C. COX*--Trustee; Nomura Professor of Finance, Massachusetts
Institute of Technology (since 1983); Director, Asset Specialization Corporation
(since May, 1992); Director, Nomura Asset Securities Corporation (since May,
1992); Fellow, Econometric Society (since December, 1990); Director, Nomura
Mortgage Capital Corporation (since 1989); Director, American Finance
Association (prior to 1993); Consultant J.P. Morgan Investment Management Inc.
("J.P. Morgan") (since 1985). His address is 15 Stony Brook Road, Weston,
Massachusetts 02193.
JOYCE NELSON--Trustee; Vice President and Director-Investments,
International Paper Company (since March, 1993); Treasurer, The Times Mirror
Company (prior to March, 1993); Vicechair-Investment Committee, Committee on
Investment of Employee Benefit Assets (since November, 1993); Trustee and
Chairman of Investment Committee, Hartford Courant Foundation (prior to March,
1993); Investment Advisory Committee Member, Newspaper Association of America
(prior to 1993); Trustee, Alvin Ailey Dance Theater Foundation (since October,
1992). Her address is c/o International Paper Company, Two Manhattanville Road,
Purchase, New York 10577.
35
<PAGE>
JOHN R. RETTBERG--Trustee; retired; Consultant, Northrop Grumman
Corporation ("Northrop") (since January, 1995); Corporate Vice President and
Treasurer, Northrop (prior to January, 1995); Director, Independent Colleges of
Southern California (prior to 1994); Director, Junior Achievement (prior to
1993). His address is 79-165 Montego Bay Drive, Bermuda Dunes, California 92201.
JOHN F. RUFFLE*--Trustee; retired; Consultant, J.P. Morgan (since June,
1993); Director and Vice Chairman of J.P. Morgan (prior to June, 1993);
Director, Trident Corporation (since April, 1994); Director, Bethlehem Steel
Corporation (since September, 1990); Trustee, Johns Hopkins University (since
April, 1990); Trustee, Overlook Hospital Foundation (since April, 1990);
Director, Student Loan Marketing Association (since April, 1990). His address is
34 Wynwood Road, Chatham, New Jersey 07928-1731.
KENNETH WHIPPLE, JR.--Trustee; Executive Vice President, Ford Motor
Company, President, Ford Financial Services Group, and Director, Ford Motor
Credit Company (since 1988); Director and President, Ford Holdings, Inc. (since
1989); Director, CMS Energy Corporation and Consumers Power Company (since
January, 1993); Director, Detroit Country Day School (since January, 1993);
Director Granite Management Corporation (formerly First Nationwide Financial
Corporation) and Granite Savings Bank (formerly First Nationwide Bank) (since
1988); Director, United Way of Southeastern Michigan (since 1988); Director, USL
Capital Corporation (since 1988); Chairman, Director and First Vice President,
WTVS-TV (since 1988). His address is 1115 Country Club Drive, Bloomfield Hills,
Michigan 48304.
Each Trustee of the Trust is paid a $16,000 annual fee for serving as
Trustee of the Trust and is reimbursed for expenses incurred in connection with
service as a Trustee. The Trustees may hold various other directorships
unrelated to the Trust. The Trustees of the Trust, in addition to reviewing
actions of the Trust's various service providers, decide upon matters of general
policy.
TRUSTEES OF THE PORTFOLIOS
FREDERICK S. ADDY--Trustee; Retired; Executive Vice President and Chief
Financial Officer from January 1990 to April 1994 and Vice President, Finance,
from 1983 to January 1990, Amoco Corporation; Director, Ensearch Corp. (natural
gas), since 1994. His address is 19129 RR 2147 W. Horseshoe Bay, Texas 78654.
WILLIAM G. BURNS--Trustee; Retired; Limited Partner, Galen Partners
L.P. and Vice Chairman, Galen Associates, since 1990; Chief Executive Officer,
Galen Associates and General Partner, Galen Partners L.P., until 1991. His
address is 4241 S.W. Parkgate Blvd., Palm City, Florida 34990.
ARTHUR C. ESCHENLAUER--Trustee; Retired; Senior Vice President, Morgan
Guaranty Trust Company of New York until 1987. His address is 14 Alta Vista
Drive, RD #2, Princeton, New Jersey 08540.
MATTHEW HEALEY*--Trustee and Chairman of the Board of Trustees;
Chairman, Pierpont Group, Inc., since 1989; Chairman and Chief Executive
Officer, Execution Services, Inc. until October 1991. His address is Pine Tree
Club Estates, 10286 Saint Andrew Road, Boynton Beach, Florida 33436.
36
<PAGE>
MICHAEL P. MALLARDI--Trustee; Senior Vice President, Capital
Cities/ABC, Inc., President, Broadcast Group, since 1986. His address is 77 West
66th Street, New York, New York 10017.
Each Trustee is paid an annual fee as follows for serving as Trustee of
The Pierpont Funds, The JPM Institutional Funds, the other portfolios in which
these funds invest, and the Portfolios, and is reimbursed for any expenses
incurred in connection with service as a Trustee. The Trustees may hold various
other directorships unrelated to the Portfolios.
<TABLE>
<CAPTION>
PENSION OR
AGGREGATE RETIREMENT TOTAL COMPENSATION FROM
COMPENSATION BENEFITS ESTIMATED THE TRUST AND FUND
FROM THE TRUST ACCRUED AS PART ANNUAL BENEFITS COMPLEX PAID TO TRUSTEES
DURING 1994 OF FUND EXPENSES UPON RETIREMENT DURING 1994
----------- ---------------- --------------- -----------
<S> <C> <C> <C> <C>
Frederick S. Addy, Trustee N/A None None $55,000
William G. Burns, Trustee N/A None None $55,000
Arthur C. Eschenlauer, Trustee N/A None None $55,000
Matthew Healey, Trustee, N/A None None $55,000
Chairman and Chief Executive
Officer (*)
Michael P. Mallardi, Trustee N/A None None $55,000
</TABLE>
- ------------------------------------
(*) During 1994, Pierpont Group, Inc. paid Mr. Healey, in his role as Chairman
of Pierpont Group, Inc., compensation in the amount of $130,000, contributed
$19,500 to a defined contribution plan on his behalf, and paid $20,000 in
insurance premiums for his benefit.
As of April 1, 1995 the annual fee paid to each Trustee for serving as
a Trustee of each of the Portfolios, The Series Portfolio, The JPM Institutional
Funds and The Pierpont Funds was adjusted to $65,000.
The Trustees, in addition to reviewing actions of the Portfolios'
various service providers, decide upon matters of general policy. On January 15,
1994, each of the Portfolios entered into a Fund Services Agreement with
Pierpont Group, Inc. to assist the Trustees in exercising their overall
supervisory responsibilities over the affairs of the Portfolios. Pierpont Group,
Inc. was organized in July 1989 to provide services for The Pierpont Family of
Funds, and the Trustees of the Portfolios are the shareholders of Pierpont
Group, Inc. The Portfolios have agreed to pay Pierpont Group, Inc. a fee in an
amount representing its reasonable costs in performing these services. These
costs are periodically reviewed by the Portfolios' Trustees. The aggregate fees
paid by each Portfolio during its last fiscal year completed after January 15,
1994 are set forth below:
U.S. FIXED INCOME PORTFOLIO--For the fiscal year ended October 31, 1994: $23,028
37
<PAGE>
SELECTED U.S. EQUITY PORTFOLIO--For the fiscal year ended May 31, 1994: $20,385.
For the fiscal year ended May 31, 1995: $52,948.
U.S. SMALL COMPANY PORTFOLIO--For the fiscal year ended May 31, 1994: $33,435.
For the fiscal year ended May 31, 1995: $62,256.
NON-U.S. EQUITY PORTFOLIO--For the fiscal year ended October 31, 1994: $32,512
EMERGING MARKETS EQUITY PORTFOLIO--For the fiscal year ended October 31, 1994:
$42,764
As of the date of this Statement of Additional Information, the Asia
Growth, European Equity, Japan Equity and Non-U.S. Fixed Income Portfolios and
their corresponding Funds had not completed their initial fiscal years.
OFFICERS
The Trust's and Portfolios' executive officers (listed below), other
than the Chief Executive Officer of the Portfolios, are provided and compensated
by Signature Broker-Dealer Services, Inc. ("SBDS"), a wholly owned subsidiary of
Signature Financial Group, Inc. ("Signature"). The officers conduct and
supervise the business operations of the Trust and the Portfolios. The Trust and
the Portfolios have no employees.
The officers of the Trust and the Portfolios and their principal
occupations during the past five years are set forth below. Unless otherwise
specified, each officer holds the same position with the Trust and each
Portfolio. The business address of each of the officers unless otherwise noted
is Signature Broker-Dealer Services, Inc., 6 St. James Avenue, Boston,
Massachusetts 02116.
MATTHEW HEALEY; Chief Executive Officer; Chairman, Pierpont Group,
Inc., since 1989; Chairman and Chief Executive Officer, Execution Services, Inc.
until October 1991. His address is Pine Tree Club Estates, 10286 Saint Andrew
Road, Boynton Beach, FL 33436.
PHILIP W. COOLIDGE; President; Chairman, Chief Executive Officer and
President, Signature since December 1988 and SBDS since April 1989.
DAVID G. DANIELSON; Assistant Treasurer; Assistant Manager, Signature
since May 1991; Graduate Student, Northeastern University from April 1990 to
March 1991.
LINDA T. GIBSON; Assistant Secretary; Legal Counsel and Assistant
Secretary, Signature since June 1991; Assistant Secretary, SBDS since November
1992; law student, Boston University School of Law prior to May 1992.
JAMES E. HOOLAHAN; Vice President; Senior Vice President, Signature
since December 1989.
38
<PAGE>
SUSAN JAKUBOSKI; Assistant Secretary and Assistant Treasurer of the
Portfolios only; Manager and Senior Fund Administrator, SFG and Signature
(Cayman) (since August 1994); Assistant Treasurer, SBDS (since September 1994);
Fund Compliance Administrator, Concord Financial Group, Inc. (from November 1990
to August 1994); Senior Fund Accountant, Neuberger & Berman Management
Incorporated (since prior to 1990). Her address is P.O. Box 2494, Elizabethan
Square, George Town, Grand Cayman, Cayman Islands, B.W.I.
JAMES S. LELKO; Assistant Treasurer; Assistant Manager, Signature since
January 1993; Senior Tax Compliance Accountant, Putnam Companies since prior to
December 1992.
THOMAS M. LENZ; Assistant Secretary; Vice President and Associate
General Counsel, Signature since November 1989; Assistant Secretary, SBDS since
February 1991.
MOLLY S. MUGLER; Assistant Secretary; Legal Counsel and Assistant
Secretary, Signature since December 1988; Assistant Secretary, SBDS since April
1989.
ANDRES E. SALDANA; Assistant Secretary; Legal Counsel and Assistant
Secretary, Signature since November 1992; Assistant Secretary, SBDS since
September 1993; Attorney, Ropes & Gray from September 1990 to November 1992.
DANIEL E. SHEA; Assistant Treasurer; Assistant Manager of Fund
Administration, Signature since November 1993; Supervisor and Senior Technical
Advisor, Putnam Investments since prior to 1990.
Messrs. Coolidge, Danielson, Hoolahan, Lelko, Lenz, Saldana and Shea
and Mss. Gibson, Mugler and Jakuboski hold similar positions for other
investment companies for which SBDS or an affiliate serves as principal
underwriter.
INVESTMENT ADVISOR
The investment advisor to the Portfolios is Morgan Guaranty Trust
Company of New York, a wholly owned subsidiary of J.P. Morgan & Co. Incorporated
("J.P. Morgan"), a bank holding company organized under the laws of the State of
Delaware. Morgan, whose principal offices are at 60 Wall Street, New York, New
York 10260, is a New York trust company which conducts a general banking and
trust business. Morgan is subject to regulation by the New York State Banking
Department and is a member bank of the Federal Reserve System. Through offices
in New York City and abroad, Morgan offers a wide range of services, primarily
to governmental, institutional, corporate and high net worth individual
customers in the United States and throughout the world.
J.P. Morgan, through the Advisor and other subsidiaries, acts as
investment advisor to individuals, governments, corporations, employee benefit
plans, mutual funds and other institutional investors with combined assets under
management of approximately $165 billion (of which the Advisor advises over $26
billion).
J.P. Morgan has a long history of service as adviser, underwriter and
lender to an extensive roster of major companies and as a financial advisor to
39
<PAGE>
national governments. The firm, through its predecessor firms, has been in
business for over a century and has been managing investments since 1913.
The basis of Morgan's investment process is fundamental investment
research as the firm believes that fundamentals should determine an asset's
value over the long term. J.P. Morgan currently employs over 100 full time
research analysts, among the largest research staffs in the money management
industry, in its investment management divisions located in New York, London,
Tokyo, Frankfurt, Melbourne and Singapore to cover companies, industries and
countries on site. In addition, the investment management divisions employ
approximately 300 capital market researchers, portfolio managers and traders.
The conclusions of the equity analysts' fundamental research is quantified into
a set of projected returns for individual companies through the use of a
dividend discount model. These returns are projected for 2 to 5 years to enable
analysts to take a longer term view. These returns, or normalized earnings, are
used to establish relative values among stocks in each industrial sector. These
values may not be the same as the markets' current valuations of these
companies. This provides the basis for ranking the attractiveness of the
companies in an industry according to five distinct quintiles or rankings. This
ranking is one of the factors considered in determining the stocks purchased and
sold in each sector. The Advisor's fixed income investment process is based on
analysis of real rates, sector diversification and quantitative and credit
analysis.
The investment advisory services the Advisor provides to the Portfolios
are not exclusive under the terms of the Advisory Agreements. The Advisor is
free to and does render similar investment advisory services to others. The
Advisor serves as investment advisor to personal investors and other investment
companies and acts as fiduciary for trusts, estates and employee benefit plans.
Certain of the assets of trusts and estates under management are invested in
common trust funds for which the Advisor serves as trustee. The accounts which
are managed or advised by the Advisor have varying investment objectives and the
Advisor invests assets of such accounts in investments substantially similar to,
or the same as, those which are expected to constitute the principal investments
of the Portfolios. Such accounts are supervised by officers and employees of the
Advisor who may also be acting in similar capacities for the Portfolios. See
"Portfolio Transactions."
Sector weightings are generally similar to a fund's benchmark with the
emphasis on security selection as the method to achieve investment performance
superior to the benchmark. The benchmarks for the Portfolios in which the Funds
invest are currently: The U.S. Fixed Income Portfolio--Salomon Brothers Broad
Investment Grade Bond Index; The Non-U.S. Fixed Income Portfolio--Salomon
Brother Non-U.S. World Government Bond Index; The Selected U.S. Equity
Portfolio--S&P 500 Index; The U.S. Small Company Portfolio--Russell 2500 Index;
The Non-U.S. Equity Portfolio--EAFE Index; The Emerging Markets Equity
Portfolio--IFC Emerging Markets Index; The European Equity Portfolio--the MSCI
Europe Index; The Japan Equity Portfolio--the TOPIX; and The Asia Growth
Portfolio--the MSCI indexes for Hong Kong and Singapore and the International
Finance Corporation Investable indexes for China, Indonesia, Malaysia,
Philippines, South Korea, Taiwan and Thailand.
40
<PAGE>
J.P. Morgan Investment Management Inc., a wholly-owned subsidiary of
J.P. Morgan, is a registered investment adviser under the Investment Advisers
Act of 1940, as amended, which manages employee benefit funds of corporations,
labor unions and state and local governments and the accounts of other
institutional investors, including investment companies. Certain of the assets
of employee benefit accounts under its management are invested in commingled
pension trust funds for which the Advisor serves as trustee. J.P. Morgan
Investment Management Inc. advises the Advisor on investment of the commingled
pension trust funds.
The Portfolios are managed by officers of the Advisor who, in acting
for their customers, including the Portfolios, do not discuss their investment
decisions with any personnel of J.P. Morgan or any personnel of other divisions
of the Advisor or with any of its affiliated persons, with the exception of J.P.
Morgan Investment Management Inc. See "Portfolio Transactions" below for a
description of services provided to the Portfolios by J.P. Morgan Investment
Management Inc.
As compensation for the services rendered and related expenses such as
salaries of advisory personnel borne by the Advisor under the Advisory
Agreements, the Portfolio corresponding to each Fund has agreed to pay the
Advisor a fee, which is computed daily and may be paid monthly, equal to the
annual rates of each Portfolio's average daily net assets shown below.
PORTFOLIO FEE RATE
U.S. FIXED INCOME 0.30%
NON-U.S. FIXED INCOME 0.35%
SELECTED U.S. EQUITY 0.40%
U.S. SMALL COMPANY 0.60%
NON-U.S. EQUITY 0.60%
EMERGING MARKETS EQUITY 1.00%
ASIA GROWTH 0.80%
EUROPEAN EQUITY 0.65%
JAPAN EQUITY 0.65%
The table below sets forth for each Fund listed the advisory fees paid
by its corresponding Portfolio to the Advisor for the fiscal periods indicated.
See "Expenses" in the Prospectus and below for applicable expense limitations.
U.S. FIXED INCOME PORTFOLIO (U.S. FIXED INCOME FUND)--For the period July 12,
1993 (commencement of operations) through October 31, 1993: $119,488. For the
fiscal year ended October 31, 1994: $699,081.
41
<PAGE>
SELECTED U.S. EQUITY PORTFOLIO (U.S. EQUITY FUND)--For the period July 19, 1993
(commencement of operations) through May 31, 1994: $1,263,048. For the fiscal
year ended May 31, 1995: $2,025,936.
U.S. SMALL COMPANY PORTFOLIO (U.S. SMALL CAP EQUITY FUND)--For the period July
19, 1993 (commencement of operations) through May 31, 1994: $2,912,670. For the
fiscal year ended May 31, 1995: $3,514,331.
NON-U.S. EQUITY PORTFOLIO (INTERNATIONAL EQUITY FUND)--For the period October 4,
1993 (commencement of operations) through October 31, 1993: $78,550. For the
fiscal year ended October 31, 1994: $1,911,202.
EMERGING MARKETS EQUITY PORTFOLIO (EMERGING MARKETS EQUITY FUND)--For the period
November 15, 1993 (commencement of operations) through October 31, 1994:
$4,122,465.
As of the date of this Statement of Additional Information, the Asia
Growth, European Equity, Japan Equity and Non-U.S. Fixed Income Portfolios and
their corresponding Funds had not completed their initial fiscal years.
The Investment Advisory Agreements provide that they will continue in
effect for a period of two years after execution only if specifically approved
thereafter annually in the same manner as the Distribution Agreement. See
"Administrator and Distributor" below. Each of the Investment Advisory
Agreements will terminate automatically if assigned and is terminable at any
time without penalty by a vote of a majority of the Portfolio's Trustees, or by
a vote of the holders of a majority of the Portfolio's outstanding voting
securities, on 60 days' written notice to the Advisor and by the Advisor on 90
days' written notice to the Portfolio. See "Additional Information."
The Glass-Steagall Act and other applicable laws generally prohibit
banks such as Morgan from engaging in the business of underwriting or
distributing securities, and the Board of Governors of the Federal Reserve
System has issued an interpretation to the effect that under these laws a bank
holding company registered under the federal Bank Holding Company Act or certain
subsidiaries thereof may not sponsor, organize or control a registered open-end
investment company continuously engaged in the issuance of its shares, such as
the Trust. The interpretation does not prohibit a holding company or a
subsidiary thereof from acting as investment advisor and custodian to such an
investment company. Morgan believes that it may perform the services for the
Portfolios contemplated by the Advisory Agreements without violation of the
Glass-Steagall Act or other applicable banking laws or regulations. State laws
on this issue may differ from the interpretation of relevant federal law, and
banks and financial institutions may be required to register as dealers pursuant
to state securities laws. However, it is possible that future changes in either
federal or state statutes and regulations concerning the permissible activities
of banks or trust companies, as well as further judicial or administrative
decisions and interpretations of present and future statutes and regulations,
might prevent Morgan from continuing to perform such services for the
Portfolios.
If Morgan were prohibited from acting as investment advisor to any
Portfolio, it is expected that the Trustees of the Portfolio would recommend to
42
<PAGE>
investors that they approve the Portfolio's entering into a new investment
advisory agreement with another qualified investment advisor selected by the
Trustees.
Morgan also receives compensation from the Funds in its capacity as
Services Agent for the Trust (see "Services Agent").
ADMINISTRATOR AND DISTRIBUTOR
SBDS serves as the Trust's exclusive Distributor and holds itself
available to receive purchase orders for each of the Fund's shares. In that
capacity, SBDS has been granted the right, as agent of the Trust, to solicit and
accept orders for the purchase of each of the Fund's shares in accordance with
the terms of the Distribution Agreement between the Trust and SBDS. The
Distribution Agreement shall continue in effect with respect to each of the
Funds for a period of two years after execution only if it is approved at least
annually thereafter (i) by a vote of the holders of a majority of the Fund's
outstanding shares or by 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 the holders of a
majority of the Fund's outstanding shares as defined under "Additional
Information," in any case without payment of any penalty on not more than 60
days' nor less than 30 days' written notice to the other party. The principal
offices of SBDS are located at 6 St.
James Avenue, Boston, Massachusetts 02116.
SBDS also serves as the Trust's and the Portfolios' Administrator and
in that capacity administers and manages all aspects of the Funds' and the
Portfolios' day-to-day operations subject to the supervision of the Trustees,
except as set forth under Investment Advisor, Services Agent and Custodian. In
connection with its responsibilities as Administrator, SBDS (i) furnishes
ordinary clerical and related services for day-to-day operations including
certain record keeping responsibilities; (ii) takes responsibility for
compliance with all applicable federal and state securities and other regulatory
requirements including, without limitation, preparing and mailing and filing
(but not paying for) registration statements, prospectuses, statements of
additional information, and proxy statements and all required reports to the
Trust's shareholders, the SEC, the Secretary of The Commonwealth of
Massachusetts, and state securities commissions (but not the Trust's federal and
state tax returns); (iii) is responsible for the registration of sufficient Fund
shares under federal and state securities laws; (iv) takes responsibility for
monitoring each Fund's status as a regulated investment company under the Code;
and (v) performs such administrative and managerial oversight of the activities
of the Trust's and the Portfolios' custodian and transfer agent as the
respective Trustees may direct from time to time.
Under the Trust's Administration Agreement, the annual administration
fee rate is calculated daily based on the aggregate daily net assets of The JPM
Advisor Funds, as well as The Pierpont Funds and The JPM Institutional Funds,
43
<PAGE>
which are two other families of mutual funds investing in the Portfolios. The
fee rate is calculated daily in accordance with the following schedule: 0.040%
of the first $1 billion of these funds' aggregate daily net assets, 0.032% of
the next $2 billion of these funds' aggregate daily net assets, 0.024% of the
next $2 billion of these funds' aggregate daily net assets and 0.016% of these
funds' aggregate daily net assets in excess of $5 billion. This fee rate is then
applied to the net assets of each Fund. The Administrator may voluntarily waive
a portion of its fees.
Under the Portfolios' Administration Agreements, the annual
administration fee rate is calculated based on the aggregate average daily net
assets of the Portfolios, as well as all of the other portfolios in which series
of The Pierpont Funds or The JPM Institutional Funds invest. The fee rate is
calculated daily in accordance with the following schedule: 0.010% of the first
$1 billion of these Portfolios' aggregate average daily net assets, 0.008% of
the next $2 billion of these Portfolios' aggregate average daily net assets,
0.006% of the next $2 billion of these Portfolios' aggregate average daily net
assets and 0.004% of these Portfolios' aggregate average daily net assets in
excess of $5 billion. This fee rate is then applied to the net assets of each
Portfolio. The Administrator may voluntarily waive a portion of its fees.
Below are set forth for each Fund listed and its corresponding
Portfolio the administrative fees paid to the Administrator for the fiscal
periods indicated. See "Expenses" in the Prospectus and below for applicable
expense limitations.
U.S. FIXED INCOME PORTFOLIO (U.S. FIXED INCOME FUND)--For the period July 12,
1993 (commencement of operations) through October 31, 1993: $950. For the
fiscal year ended October 31, 1994: $16,107.
SELECTED U.S. EQUITY PORTFOLIO--For the period July 19, 1993 (commencement of
operations) through May 31, 1994: $19,348. For the fiscal year ended May 31,
1995: $32,670
U.S. EQUITY FUND--For the fiscal year ended May 31, 1995: $0.
U.S. SMALL COMPANY PORTFOLIO--For the period July 19, 1993 (commencement of
operations) through May 31, 1994: $30,420. For the fiscal year ended May 31,
1995: $38,215.
U.S. SMALL CAP EQUITY FUND--For the fiscal year ended May 31, 1995: $0.
NON-U.S. EQUITY PORTFOLIO (INTERNATIONAL EQUITY FUND)--For the period October 4,
1993 (commencement of operations) through October 31, 1993: $1,005. For the
fiscal year ended October 31, 1994: $22,024.
EMERGING MARKETS EQUITY PORTFOLIO (EMERGING MARKETS EQUITY FUND)-- For the
period November 15, 1993 (commencement of operations) through October 31, 1994:
$30,828.
44
<PAGE>
As of the date of this Statement of Additional Information, the Asia
Growth, European Equity, Japan Equity and Non-U.S. Fixed Income Portfolios and
their corresponding Funds had not completed their initial fiscal years.
The Administration Agreements may be renewed or amended by the
respective Trustees without a shareholder vote. The Administration Agreements
are terminable at any time without penalty by a vote of a majority of the
Trustees of the Trust or the Portfolios, as applicable, on not more than 60
days' written notice nor less than 30 days' written notice to the other party.
The Administrator may subcontract for the performance of its obligations under
the Administration Agreements only if the Trustees approve such subcontract and
find the subcontracting party to be qualified to perform the obligations sought
to be subcontracted, provided, however, that unless the Trust or the Portfolios,
as applicable, expressly agrees in writing, the Administrator shall be fully
responsible for the acts and omissions of any subcontractor as it would for its
own acts or omissions.
SERVICES AGENT
The Trust, on behalf of each Fund, has entered into a Services
Agreement with Morgan pursuant to which Morgan acts as Services Agent to the
Funds and provides shareholder services to shareholders of the Funds. Morgan is
responsible for certain accounting and operational services provided to each
Fund. The accounting and operational services to be provided by Morgan under the
agreement include, but are not limited to, monitoring the fund and shareholder
accounting activities of the Custodian; assisting the Administrator in preparing
tax returns, reviewing financial reports, coordinating annual audits, assisting
in the development of budgets, overseeing preparation of tax information for
Fund shareholders; monitoring the fund accounting activities and daily
partnership allocation; and providing other related services.
Under the Services Agreement with the Trust, Morgan is also responsible
for performing shareholder account administrative and servicing functions, which
includes, but is not limited to, answering inquiries regarding account status
and history, the manner in which purchases and redemptions of Fund shares may be
effected, and certain other matters pertaining to the Funds; assisting customers
in designating and changing dividend options, account designations and
addresses; providing necessary personnel and facilities to coordinate the
establishment and maintenance of shareholder accounts and records with the
Funds' transfer agent; transmitting purchase and redemption orders to the Funds'
transfer agent and arranging for the wiring or other transfer of funds to and
from customer accounts in connection with orders to purchase or redeem Fund
shares; verifying purchase and redemption orders, transfers among and changes in
accounts; informing the Distributor of the gross amount of purchase orders for
Fund shares; and providing other related services.
In addition, Morgan is responsible for the annual costs to the Funds of
certain usual and customary expenses incurred by the Funds (the "expense
undertaking"). The expenses covered by the expense undertaking include, but are
not limited to, transfer, registrar, and dividend disbursing costs, legal and
accounting expenses, the fees of the Administrator for its services to the
Trust, the cost of any liability insurance or fidelity bonds, the compensation
and expenses of the Trust's Trustees, the expenses of printing and mailing
reports,
45
<PAGE>
notices and proxies to Fund shareholders, interest charges, membership dues in
the Investment Company Institute, shareholder meeting fees and registration fees
under federal or state securities laws. The Funds will pay these expenses
directly and such amounts will be deducted from the fees to be paid to Morgan
under the Services Agreement. If such amounts are more than the amount of
Morgan's fees under the agreement, Morgan will reimburse the applicable Fund for
such excess amounts.
Under the Trust's Services Agreement, the administration and operation
expenses of each Fund not covered by the expense undertakings, and for which
each Fund is responsible, include the services agent fee, organization expenses
and extraordinary expenses as defined in the Services Agreement, which includes
litigation and indemnification expenses and material increases in expenses due
to occurrences such as significant increases in the fee schedules of service
providers or significant decreases in a Fund's asset level due to changes in tax
or other laws or other extraordinary occurrences outside of the ordinary course
of a Fund's business.
The Trust's Services Agreement provides for each Fund to pay Morgan a
fee for these services which is computed daily and may be paid monthly at the
following annual rates of average daily net assets: U.S. Fixed Income Fund,
0.60%; International Fixed Income Fund, 0.68%; U.S. Equity and U.S. Small Cap
Equity Funds, 0.69%; International Equity Fund, 0.76%; Emerging Markets Equity
Fund, 0.77%; and Asia Growth, European Equity and Japan Equity Funds, 0.75%. As
noted immediately above, these fee levels reflect payments made directly to
third parties by each of the Funds for expenses covered by the expense
undertaking, as well as payments to Morgan for services rendered under the
agreement. For the Funds, the Trustees regularly review amounts paid to and
accounted for by Morgan pursuant to this agreement. Under the agreement, Morgan
may delegate one or more of its responsibilities to other entities, including
SBDS, at Morgan's expense. The agreement may be terminated at any time, without
penalty, by the respective Trustees or Morgan, in each case on not more than 60
days' nor less than 30 days' written notice to the other party.
Below are set forth for each Fund listed the fees paid to Morgan, net
of fee waivers and reimbursements, under the Services Agreement, for the fiscal
periods indicated. See "Expenses" in the Prospectus and below for applicable
expense limitations.
U.S. EQUITY FUND--For the period March 24, 1995 (commencement of operations)
through May 31, 1995: $0.
U.S. SMALL CAP EQUITY FUND--For the period March 24, 1995 (commencement of
operations) through May 31, 1995: $0.
As of the date of this Statement of Additional Information, the Asia
Growth, European Equity, Japan Equity and Non-U.S. Fixed Income Portfolios and
their corresponding Funds had not completed their initial fiscal years.
As discussed under "Investment Advisor," the Glass-Steagall Act and
other applicable laws and regulations limit the activities of bank holding
companies and certain of their subsidiaries in connection with registered
open-end
46
<PAGE>
investment companies. The activities of Morgan in providing accounting and
operational services to the Funds and the Portfolios and shareholder services to
the Trust's shareholders under the Services Agreements and in acting as Advisor
to the Portfolios under the Investment Advisory Agreements, may raise issues
under these laws. However, Morgan believes that it may properly perform these
services and the other activities described in the Prospectus without violation
of the Glass-Steagall Act or other applicable banking laws or regulations.
If Morgan were prohibited from providing any of the services under the
Services Agreement, the Trust's Trustees would seek an alternative provider of
such services. In such event, changes in the operation of the Funds might occur
and a shareholder might no longer be able to avail himself or herself of any
services then being provided to shareholders by Morgan.
CUSTODIAN
State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02101, serves as the Trust's and each of the
Portfolio's Custodian and Transfer and Dividend Disbursing Agent. Pursuant to
the Custodian Contract with each of the Portfolios, it is responsible for
maintaining the books and records of portfolio transactions and holding
portfolio securities and cash. In the case of the Selected U.S. Equity and U.S.
Small Company Portfolios, the Custodian has entered into subcustodian agreements
with Morgan for the purpose of holding participations in master demand
obligations. In the case of foreign assets held outside the United States, the
Custodian employs various subcustodians who were approved by the Trustees of the
Portfolios in accordance with the regulations of the SEC. The Custodian
maintains portfolio transaction records. As Transfer Agent and Dividend
Disbursing Agent, State Street is responsible for maintaining account records
detailing the ownership of Fund shares and for crediting income, capital gains
and other changes in share ownership to shareholder accounts. Under the terms of
the Services Agreement between the Trust and Morgan, Morgan is responsible for
the usual and customary fees of the Custodian for each Fund (see "Services
Agent"); the corresponding Portfolio is responsible for the fees of the
Custodian for the Portfolio (see "Services Agent").
INDEPENDENT ACCOUNTANTS
The independent accountants of the Trust and the Portfolios are Price
Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036. Price
Waterhouse LLP conducts an annual audit of the financial statements of each of
the Funds and the Portfolios, assists in the preparation and/or review of each
of the Fund's and the Portfolio's federal and state income tax returns and
consults with the Funds and the Portfolios as to matters of accounting and
federal and state income taxation.
EXPENSES
Each Fund is responsible for Morgan's fees as Services Agent for the
Fund, and any fees or expenses not covered by the Services Agreement with the
Trust (see "Services Agent"). In addition, each Portfolio is responsible for its
fees payable to Pierpont Group, Inc., Morgan's fees as investment advisor, the
fees
47
<PAGE>
of the Custodian for the Portfolio, the fees of the Administrator for services
to the Portfolio and other usual and customary fees or expenses.
Morgan has agreed that if in any fiscal year the sum of any Fund's
expenses exceeds the limits set by applicable regulations of state securities
commissions, the fees payable by the Fund to Morgan for that year shall be
reduced as specified by agreement with the Trust on behalf of the Fund.
Currently, Morgan believes that the most restrictive expense limitation of state
securities commissions limits expenses to 2.5% of the first $30 million of
average net assets, 2% of the next $70 million of such net assets and 1.5% of
such net assets in excess of $100 million for any fiscal year. For additional
information regarding waivers or expense subsidies, see "Management of the Trust
and the Portfolio" in the Prospectus.
PURCHASE OF SHARES
Investors may open Fund accounts and purchase shares as described in
the Prospectus under "Purchase of Shares." References in the Prospectus and this
Statement of Additional Information to customers of Morgan or an Eligible
Institution include customers of their affiliates and references to transactions
by customers with Morgan or an Eligible Institution include transactions with
their affiliates. Only Fund investors who are using the services of Morgan or a
financial institution acting pursuant to an agreement with Morgan or the Trust
on behalf of a Fund may make transactions in shares of a Fund.
Each Fund may, at its own option, accept securities in payment for
shares. The securities delivered in payment for shares are valued by the method
described under "Net Asset Value" as of the day the Fund receives the
securities. This is a taxable transaction to the shareholder. Securities may be
accepted in payment for shares only if they are, in the judgment of Morgan,
appropriate investments for the Fund's corresponding Portfolio. In addition,
securities accepted in payment for shares must: (i) meet the investment
objective and policies of the acquiring Fund's corresponding Portfolio; (ii) be
acquired by the applicable Fund for investment and not for resale (other than
for resale to the Fund's corresponding Portfolio); (iii) be liquid securities
which are not restricted as to transfer either by law or liquidity of market;
and (iv) if stock, have a value which is readily ascertainable as evidenced by a
listing on a stock exchange, over-the-counter market or by readily available
market quotations from a dealer in such securities. Each Fund reserves the right
to accept or reject at its own option any and all securities offered in payment
for its shares.
Prospective investors may purchase shares with the assistance of an
Eligible Institution, and the Eligible Institution may charge the investor a fee
for this service and other services it provides to its customers.
REDEMPTION OF SHARES
Investors may redeem shares as described in the Prospectus under
"Redemption of Shares."
If the Trust on behalf of a Fund and its corresponding Portfolio
determine that it would be detrimental to the best interest of the remaining
shareholders of a Fund to make payment wholly or partly in cash, payment of the
redemption
48
<PAGE>
price may be made in whole or in part by a distribution in kind of securities
from the Portfolio, in lieu of cash, in conformity with the applicable rule of
the SEC. If shares are redeemed in kind, the redeeming shareholder might incur
transaction costs in converting the assets into cash. The method of valuing
portfolio securities is described under "Net Asset Value," and such valuation
will be made as of the same time the redemption price is determined. The Trust
on behalf of all of the Funds and their corresponding Portfolios (except The
Non- U.S. Fixed Income Portfolio) have elected to be governed by Rule 18f-1
under the 1940 Act pursuant to which the Funds and the corresponding Portfolios
are obligated to redeem shares solely in cash up to the lesser of $250,000 or 1%
of the net asset value of the Fund during any 90-day period for any one
shareholder. The Trust will redeem Fund shares in kind only if it has received a
redemption in kind from the corresponding Portfolio and therefore shareholders
of the Fund that receive redemptions in kind will receive securities of the
Portfolio. The Portfolios have advised the Trust that the Portfolios will not
redeem in kind except in circumstances in which a Fund is permitted to redeem in
kind.
FURTHER REDEMPTION INFORMATION. The Trust on behalf of a Fund and the
Portfolios reserve the right to suspend the right of redemption and to postpone
the date of payment upon redemption as follows: (i) for up to seven days, (ii)
during periods when the New York Stock Exchange is closed for other than
weekends and holidays or when trading on such Exchange is restricted as
determined by the SEC by rule or regulation, (iii) during periods in which an
emergency, as determined by the SEC, exists that causes disposal by the
Portfolio of, or evaluation of the net asset value of, its portfolio securities
to be unreasonable or impracticable, or (iv) for such other periods as the SEC
may permit.
EXCHANGE OF SHARES
An investor may exchange shares from any JPM Advisor Fund into any
other JPM Advisor Fund, as described under "Exchange of Shares" in the
Prospectus. For complete information, the Prospectus as it relates to the Fund
into which a transfer is being made should be read prior to the transfer.
Requests for exchange are made in the same manner as requests for redemptions.
See "Redemption of Shares." Shares of the Fund to be acquired are purchased for
settlement when the proceeds from redemption become available. In the case of
investors in certain states, state securities laws may restrict the availability
of the exchange privilege. The Trust reserves the right to discontinue, alter or
limit the exchange privilege at any time.
DIVIDENDS AND DISTRIBUTIONS
Each Fund declares and pays dividends and distributions as described
under "Dividends and Distributions" in the Prospectus.
NET ASSET VALUE
Each of the Funds computes its net asset value once daily on Monday
through Friday as described under "Net Asset Value" in the Prospectus. The net
asset value will not be computed on a day in which no orders to purchase or
redeem Fund shares have been received or on the day the following legal holidays
are
49
<PAGE>
observed: 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 Funds and
the Portfolios would expect to close for purchases and redemptions at the same
time. The days on which net asset value is determined are the Funds' business
days.
The net asset value of each Fund is equal to the net asset value of the
Fund's investment in its corresponding Portfolio (which is equal to the Fund's
pro rata share of the total investment of the Fund and of any other investors in
the Portfolio liabilities) less the Fund's liabilities. The following is a
discussion of the procedures used by the Portfolios corresponding to each Fund
in valuing their assets.
U.S. FIXED INCOME AND INTERNATIONAL FIXED INCOME FUNDS. In the case of
the Portfolios for the U.S. Fixed Income and International Fixed Income Funds,
securities with a maturity of 60 days or more, including securities that are
listed on an exchange or traded over-the-counter, are valued using prices
supplied daily by an independent pricing service or services that (i) are based
on the last sale price on a national securities exchange or, in the absence of
recorded sales, at the readily available closing bid price on such exchange or
at the quoted bid price in the over-the- counter market, if such exchange or
market constitutes the broadest and most representative market for the security
and (ii) in other cases, take into account various factors affecting market
value, including yields and prices of comparable securities, indication as to
value from dealers and general market conditions. If such prices are not
supplied by the Portfolio's independent pricing service, such securities are
priced in accordance with procedures adopted by the Portfolio's Trustees. All
portfolio securities with a remaining maturity of less than 60 days are valued
by the amortized cost method. Securities listed on a foreign exchange are valued
at the last quoted sale price available before the time when net assets are
valued. Because of the large number of municipal bond issues outstanding and the
varying maturity dates, coupons and risk factors applicable to each issuer's
books, no readily available market quotations exist for most municipal
securities.
Trading in securities in most foreign markets is normally completed
before the close of trading in U.S. markets and may also take place on days on
which the U.S. markets are closed. If events materially affecting the value of
securities occur between the time when the market in which they are traded
closes and the time when a 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 Portfolio's Trustees.
U.S. EQUITY, U.S. SMALL CAP EQUITY, INTERNATIONAL EQUITY, EMERGING
MARKETS EQUITY, ASIA GROWTH, EUROPEAN EQUITY AND JAPAN EQUITY FUNDS. In the case
of each of the Equity Portfolios, the value of investments listed on a domestic
securities exchange, other than options on stock indexes, 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
50
<PAGE>
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, all assets and liabilities initially expressed in foreign currencies will
be converted into U.S. dollars at the prevailing market rates available at the
time of valuation.
Options on stock indexes traded on national securities exchanges are
valued at the close of options trading on such exchanges which is currently 4:10
P.M., New York time. Stock index futures and related options, which are traded
on commodities exchanges, are valued at their last sales price as of the close
of such commodities exchanges which is currently 4:15 P.M., New York time.
Securities or other assets for which market quotations are not readily available
are valued at fair value in accordance with procedures established by and under
the general supervision and responsibility of the Portfolio's 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 over-the-counter
markets is normally completed before the close of the New York Stock Exchange
and may also take place on days on which the New York Stock Exchange is closed.
If events materially affecting the value of securities occur between the time
when the exchange on which they are traded closes and the time when a
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 Portfolio's Trustees.
PERFORMANCE DATA
From time to time, the Funds may quote performance in terms of yield,
actual distributions, total return or capital appreciation in reports, sales
literature and advertisements published by the Trust. Current performance
information for the Funds may be obtained by calling the number provided on the
cover page of this Statement of Additional Information. See "Additional
Information" in the Prospectus.
YIELD QUOTATIONS. As required by regulations of the SEC, the annualized
yield for the U.S. Fixed Income and International Fixed Income Funds is computed
by dividing each Fund's net investment income per share earned during a 30-day
period by the net asset value on the last day of the period. The average daily
number of shares outstanding during the period that are eligible to receive
dividends is used in determining the net investment income per share. Income is
computed by totaling the interest earned on all debt obligations during the
period and subtracting from that amount the total of all recurring expenses
incurred during the period. The 30-day yield is then annualized on a
51
<PAGE>
bond-equivalent basis assuming semi-annual reinvestment and compounding of net
investment income, as described under "Additional Information" in the
Prospectus.
TOTAL RETURN QUOTATIONS. As required by regulations of the SEC, the
annualized total return of each of the Funds for a period is computed by
assuming a hypothetical initial payment of $1,000. It is then assumed that all
of the dividends and distributions by the Fund over the period are reinvested.
It is then assumed that at the end of the period, the entire amount is redeemed.
The annualized total return is then calculated by determining the annual rate
required for the initial payment to grow to the amount which would have been
received upon redemption.
Aggregate total returns, reflecting the cumulative percentage change
over a measuring period, may also be calculated.
Historical performance information for any period or portion thereof
prior to the inception of each Fund will be that of its corresponding Pierpont
Fund (or, in the case of the International Fixed Income Fund, its corresponding
JPM Institutional Fund) which also invests all of its investable assets in the
Fund's corresponding Portfolio, as permitted by applicable SEC staff
interpretations, if the Pierpont Fund commenced operations before its
corresponding JPM Advisor Fund. The applicable financial information in the
registration statement for The Pierpont Funds (Registration Nos. 33-54632 and
811-7340) and The JPM Institutional Funds (Registration Nos. 33-54642 and
811-7342) is hereby incorporated by reference. The table that follows sets forth
historical return information for the periods indicated:
Below is set forth historical return information for the Funds for the
periods indicated:
U.S. FIXED INCOME FUND (4/30/95): Average annual total return, 1 year: 6.57%;
average annual total return, 5 years: 8.23%; average annual total return,
commencement of operations(*) to period end: 7.79%; aggregate total return, 1
year: 6.57%; aggregate total return, 5 years: 48.50%; aggregate total return,
commencement of operations(*) to period end: 70.12%.
U.S. EQUITY FUND (5/31/95): Average annual total return, 1 year: 15.33%; average
annual total return, 5 years: 12.63%; average annual total return, commencement
of operations(*) to period end: 14.28%; aggregate total return, 1 year: 15.33%;
aggregate total return, 5 years: 81.21%; aggregate total return, commencement of
operations(*) to period end: 276.13%.
U.S. SMALL CAP EQUITY FUND (5/31/95): Average annual total return, 1 year:
12.31%; average annual total return, 5 years: 9.26%; average annual total
return, commencement of operations(*) to period end: 11.98%; aggregate total
return, 1 year: 12.31%; aggregate total return, 5 years: 55.68%; aggregate total
return, commencement of operations(*) to period end: 207.36%.
INTERNATIONAL EQUITY FUND (4/30/95): Average annual total return, 1 year: 0.32%;
average annual total return, 5 years: N/A; average annual total return,
commencement of operations(*) to period end: 3.85%; aggregate total return, 1
year: 0.32%; aggregate total return, 5 years: N/A; aggregate total return,
commencement of operations(*) to period end: 20.41%.
52
<PAGE>
EMERGING MARKETS EQUITY FUND (4/30/95): Average annual total return, 1 year:
(9.73)%; average annual total return, 5 years: N/A; average annual total return,
commencement of operations(*) to period end: (2.98)%; aggregate total return, 1
year: (9.73)%; aggregate total return, 5 years: N/A; aggregate total return,
commencement of operations(*) to period end: (4.20)%.
- --------------------
* The corresponding Pierpont Funds to the U.S. Fixed Income, U.S. Equity, U.S.
Small Cap Equity and International Equity Funds commenced operations on July 12,
1993, July 19, 1993, July 19, 1993 and October 4, 1993, respectively. The
predecessors to these corresponding Pierpont Funds -- The Pierpont Bond Fund,
The Pierpont Equity Fund, The Pierpont Capital Appreciation Fund and The
Pierpont International Equity Fund, Inc. -- commenced operations on March 11,
1988, June 27, 1985, June 27, 1985 and June 1, 1990, respectively. The
corresponding Pierpont Fund to the Emerging Markets Equity Fund commenced
operations on November 15, 1993.
GENERAL. A Fund's performance will vary from time to time depending
upon market conditions, the composition of its corresponding Portfolio and its
operating expenses. Consequently, any given performance quotation should not be
considered representative of a Fund's performance for any specified period in
the future. In addition, because performance will fluctuate, it may not provide
a basis for comparing an investment in a Fund with certain bank deposits or
other investments that pay a fixed yield or return for a stated period of time.
Comparative performance information may be used from time to time in
advertising the Fund's shares, including data from Lipper Analytical Services,
Inc., Micropal, Inc., Ibbotson Associates, Morningstar Inc., the S&P 500
Composite Stock Price Index, the Dow Jones Industrial Average, the Frank Russell
Indexes, The EAFE Index, The IFC-JPM Emerging Markets Index, Tokyo Stock Price
Index, Salomon Brothers Non-U.S. World Government Bond Index (Hedged) and other
industry publications.
From time to time, the Funds may quote performance in terms of yield,
actual distributions, total return, or capital appreciation in reports, sales
literature, and advertisements published by the Funds. Current performance
information for the Funds may be obtained by calling the number provided on the
cover page of this Statement of Additional Information. See "Additional
Information" in the Prospectus.
PORTFOLIO TRANSACTIONS
J.P. Morgan Investment Management Inc., acting as agent for Morgan,
places orders for all Portfolios for all purchases and sales of portfolio
securities. Morgan enters into repurchase agreements and reverse repurchase
agreements and executes loans of portfolio securities on behalf of all the
Portfolios. See "Investment Objectives and Policies."
Fixed income and debt securities and municipal bonds and notes are
generally traded at a net price with dealers acting as principal for their own
53
<PAGE>
accounts without a stated commission. The price of the security usually includes
profit to the dealers. In underwritten offerings, securities are purchased at a
fixed price which includes an amount of compensation to the underwriter,
generally referred to as the underwriter's concession or discount. On occasion,
certain securities may be purchased directly from an issuer, in which case no
commissions or discounts are paid.
U.S. FIXED INCOME AND INTERNATIONAL FIXED INCOME FUNDS. Portfolio
transactions for the Portfolios corresponding to the U.S. Fixed Income and
International Fixed Income Funds will be undertaken principally to accomplish a
Portfolio's objective in relation to expected movements in the general level of
interest rates. The Fixed Income and Non-U.S. Fixed Income Portfolios may engage
in short-term trading consistent with their objectives. The estimated portfolio
turnover rate for each of the U.S. Fixed Income and Non-U.S. Fixed Income
Portfolios generally should not exceed 300%.
In connection with portfolio transactions for the Portfolios, J.P.
Morgan Investment Management Inc. intends to seek best price and execution on a
competitive basis for both purchases and sales of securities.
U.S. EQUITY, U.S. SMALL CAP EQUITY, INTERNATIONAL EQUITY, EMERGING
MARKETS EQUITY, ASIA GROWTH, EUROPEAN EQUITY AND JAPAN EQUITY FUNDS. In
connection with portfolio transactions for the Equity Portfolios, the overriding
objective is to obtain the best possible execution of purchase and sale orders.
The estimated portfolio turnover rate for each of the Equity Portfolios
generally should not exceed 100%.
In selecting a broker, J.P. Morgan Investment Management Inc. considers
a number of factors including: the price per unit of the security; the broker's
reliability for prompt, accurate confirmations and on-time delivery of
securities; the firm's financial condition; as well as the commissions charged.
A broker may be paid a brokerage commission in excess of that which another
broker might have charged for effecting the same transaction if, after
considering the foregoing factors, J.P. Morgan Investment Management Inc.
decides that the broker chosen will provide the best possible execution. J.P.
Morgan Investment Management Inc. and Morgan monitor the reasonableness of the
brokerage commissions paid in light of the execution received. The Trustees of
each Portfolio review regularly the reasonableness of commissions and other
transaction costs incurred by the Portfolios in light of facts and circumstances
deemed relevant from time to time, and, in that connection, will receive reports
from the Advisor and published data concerning transaction costs incurred by
institutional investors generally. Research services provided by brokers to
which J.P. Morgan Investment Management Inc. has allocated brokerage business in
the past include economic statistics and forecasting services, industry and
company analyses, portfolio strategy services, quantitative data, and consulting
services from economists and political analysts. Research services furnished by
brokers are used for the benefit of all the Advisor's clients and not solely or
necessarily for the benefit of an individual Portfolio. The Advisor believes
that the value of research services received is not determinable and does not
significantly reduce its expenses. The Portfolios do not reduce their fee to the
Advisor by any amount that might be attributable to the value of such services.
54
<PAGE>
The Portfolios or their predecessors corresponding to the U.S. Equity,
U.S. Small Cap Equity, International Equity and Emerging Markets Equity Funds
paid the following approximate brokerage commissions for the indicated fiscal
years:
SELECTED U.S. EQUITY FUND (May): 1995: $1,179,132; 1994: $744,676; 1993:
$293,698.
U.S. SMALL COMPANY FUND (May): 1995: $1,217,016; 1994: $1,760,320; 1993:
$142,310.
INTERNATIONAL EQUITY FUND (October): 1994: $1,413,238; 1993: $639,000; 1992:
$157,000.
EMERGING MARKETS EQUITY FUND (October): 1994: $1,262,905; 1993: N/A; 1992: N/A.
The increases in brokerage commissions reflected above were due to
increased portfolio activity and an increase in net investments in the Portfolio
or its predecessor.
Subject to the overriding objective of obtaining the best possible
execution of orders, J.P. Morgan Investment Management Inc. may allocate a
portion of a Portfolio's brokerage transactions to affiliates of Morgan. In
order for affiliates of Morgan to effect any portfolio transactions for a
Portfolio, the commissions, fees or other remuneration received by such
affiliates must be reasonable and fair compared to the commissions, fees, or
other remuneration paid to other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time. Furthermore, the
Trustees of each Portfolio, including a majority of the Trustees who are not
"interested persons," have adopted procedures which are reasonably designed to
provide that any commissions, fees, or other remuneration paid to such
affiliates are consistent with the foregoing standard.
Portfolio securities will not be purchased from or through or sold to
or through the Portfolios' Administrator, Distributor or Advisor or any
"affiliated person" (as defined in the 1940 Act) of the Administrator,
Distributor or Advisor when such entities are acting as principals, except to
the extent permitted by law. In addition, the Portfolios will not purchase
securities during the existence of any underwriting group relating thereto of
which the Advisor or an affiliate of the Advisor is a member, except to the
extent permitted by law.
On those occasions when Morgan deems the purchase or sale of a security
to be in the best interests of a Portfolio as well as other customers including
other Portfolios, J.P. Morgan Investment Management Inc. to the extent permitted
by applicable laws and regulations may, but is not obligated to, aggregate the
securities to be sold or purchased for a Portfolio with those to be sold or
purchased for other customers in order to obtain best execution, including lower
brokerage commissions if appropriate. In such event, allocation of the
securities so purchased or sold as well as any expenses incurred in the
transaction will be made by J.P. Morgan Investment Management Inc. in the manner
it considers to be most equitable and consistent with Morgan's fiduciary
55
<PAGE>
obligations to a Portfolio. In some instances, this procedure might adversely
affect a Portfolio.
If a Portfolio that writes options effects a closing purchase
transaction with respect to an option written by it, normally such transaction
will be executed by the same broker-dealer who executed the sale of the option.
The writing of options by a Portfolio will be subject to limitations established
by each of the exchanges governing the maximum number of options in each class
which may be written by a single investor or group of investors acting in
concert, regardless of whether the options are written on the same or different
exchanges or are held or written in one or more accounts or through one or more
brokers. The number of options which a Portfolio may write may be affected by
options written by the Advisor for other investment advisory clients. An
exchange may order the liquidation of positions found to be in excess of these
limits, and it may impose certain other sanctions.
MASSACHUSETTS TRUST
The Trust is a trust fund of the type commonly known as a
"Massachusetts business trust" of which each Fund is a separate and distinct
series. A copy of the Declaration of Trust for the Trust is on file in the
office of the Secretary of The Commonwealth of Massachusetts. The Declaration of
Trust and the By-Laws of the Trust are designed to make the Trust similar in
most respects to a Massachusetts business corporation. The principal distinction
between the two forms concerns shareholder liability described below.
Under Massachusetts law, shareholders of such a trust may, under
certain circumstances, be held personally liable as partners for the obligations
of the trust which is not the case for a corporation. However, the Trust's
Declaration of Trust provides that the shareholders shall not be subject to any
personal liability for the acts or obligations of any Fund and that every
written agreement, obligation, instrument or undertaking made on behalf of any
Fund shall contain a provision to the effect that the shareholders are not
personally liable thereunder.
No personal liability will attach to the shareholders under any
undertaking containing such provision when adequate notice of such provision is
given, except possibly in a few jurisdictions. With respect to all types of
claims in the latter jurisdictions, (i) tort claims, (ii) contract claims where
the provision referred to is omitted from the undertaking, (iii) claims for
taxes, and (iv) certain statutory liabilities in other jurisdictions, a
shareholder may be held personally liable to the extent that claims are not
satisfied by the Fund. However, upon payment of such liability, the shareholder
will be entitled to reimbursement from the general assets of the Fund. The
Trustees intend to conduct the operations of the Trust in such a way so as to
avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the Funds.
The Trust's Declaration of Trust further provides that the name of the
Trust refers to the Trustees collectively as Trustees, not as individuals or
personally, that no Trustee, officer, employee or agent of a Fund is liable to a
Fund or to a shareholder, and that no Trustee, officer, employee or agent is
liable to any third persons in connection with the affairs of a Fund, except as
such liability may arise from his or its own bad faith, willful misfeasance,
56
<PAGE>
gross negligence or reckless disregard of his or its duties to such third
persons. It also provides that all third persons shall look solely to Fund
property for satisfaction of claims arising in connection with the affairs of a
Fund. With the exceptions stated, the Trust's Declaration of Trust provides that
a Trustee, officer, employee or agent is entitled to be indemnified against all
liability in connection with the affairs of a Fund.
The Trust shall continue without limitation of time subject to the
provisions in the Declaration of Trust concerning termination by action of the
shareholders or by action of the Trustees upon notice to the shareholders.
DESCRIPTION OF SHARES
The Trust is an open-end management investment company organized as a
Massachusetts business trust in which each Fund represents a separate series of
shares of beneficial interest. See "Massachusetts Trust."
The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares ($0.001 par value) of one or more series
and classes within any series and to divide or combine the shares (of any
series, if applicable) without changing the proportionate beneficial interest of
each shareholder in a Fund (or in the assets of other series, if applicable). To
date shares of the nine series described in this Statement of Additional
Information have been authorized and are available for sale to the public. Each
share represents an equal proportional interest in a Fund with each other share.
Upon liquidation of a Fund, holders are entitled to share pro rata in the net
assets of a Fund available for distribution to such shareholders. See
"Massachusetts Trust." Shares of a Fund have no preemptive or conversion rights
and are fully paid and nonassessable. The rights of redemption and exchange are
described in the Prospectus and elsewhere in this Statement of Additional
Information.
The shareholders of the Trust are entitled to a full vote for each full
share held and to a fractional vote for each fractional share. Subject to the
1940 Act, the Trustees themselves have the power to alter the number and the
terms of office of the Trustees, to lengthen their own terms, or to make their
terms of unlimited duration subject to certain removal procedures, and to
appoint their own successors, PROVIDED, HOWEVER, that immediately after such
appointment the requisite majority of the Trustees have been elected by the
shareholders of the Trust. The voting rights of shareholders are not cumulative
so that holders of more than 50% of the shares voting can, if they choose, elect
all Trustees being selected while the shareholders of the remaining shares would
be unable to elect any Trustees. It is the intention of the Trust not to hold
meetings of shareholders annually. The Trustees may call meetings of
shareholders for action by shareholder vote as may be required by either the
1940 Act or the Trust's Declaration of Trust.
Shareholders of the Trust have the right, upon the declaration in
writing or vote of more than two-thirds of its outstanding shares, to remove a
Trustee. The Trustees will call a meeting of shareholders to vote on removal of
a Trustee upon the written request of the record holders of 10% of the Trust's
shares. In addition, whenever ten or more shareholders of record who have been
such for at least six months preceding the date of application, and who hold in
the aggregate either shares having a net asset value of at least $25,000 or at
least 1% of the
57
<PAGE>
Trust's outstanding shares, whichever is less, shall apply to the Trustees in
writing, stating that they wish to communicate with other shareholders with a
view to obtaining signatures to request a meeting for the purpose of voting upon
the question of removal of any Trustee or Trustees and accompanied by a form of
communication and request which they wish to transmit, the Trustees shall within
five business days after receipt of such application either: (1) afford to such
applicants access to a list of the names and addresses of all shareholders as
recorded on the books of the Trust; or (2) inform such applicants as to the
approximate number of shareholders of record, and the approximate cost of
mailing to them the proposed communication and form of request. If the Trustees
elect to follow the latter course, the Trustees, upon the written request of
such applicants, accompanied by a tender of the material to be mailed and of the
reasonable expenses of mailing, shall, with reasonable promptness, mail such
material to all shareholders of record at their addresses as recorded on the
books, unless within five business days after such tender the Trustees shall
mail to such applicants and file with the SEC, together with a copy of the
material to be mailed, a written statement signed by at least a majority of the
Trustees to the effect that in their opinion either such material contains
untrue statements of fact or omits to state facts necessary to make the
statements contained therein not misleading, or would be in violation of
applicable law, and specifying the basis of such opinion. After opportunity for
hearing upon the objections specified in the written statements filed, the SEC
may, and if demanded by the Trustees or by such applicants shall, enter an order
either sustaining one or more of such objections or refusing to sustain any of
them. If the SEC shall enter an order refusing to sustain any of such
objections, or if, after the entry of an order sustaining one or more of such
objections, the SEC shall find, after notice and opportunity for hearing, that
all objections so sustained have been met, and shall enter an order so
declaring, the Trustees shall mail copies of such material to all shareholders
with reasonable promptness after the entry of such order and the renewal of such
tender.
The Trustees have authorized the issuance and sale to the public of
shares of nine series of the Trust that are authorized for sale to the public.
The Trustees have no current intention to create any classes within the initial
series or any subsequent series. The Trustees may, however, authorize the
issuance of shares of additional series and the creation of classes of shares
within any series with such preferences, privileges, limitations and voting and
dividend rights as the Trustees may determine. The proceeds from the issuance of
any additional series would be invested in separate, independently managed
portfolios with distinct investment objectives, policies and restrictions, and
share purchase, redemption and net asset valuation procedures. Any additional
classes would be used to distinguish among the rights of different categories of
shareholders, as might be required by future regulations or other unforeseen
circumstances. All consideration received by the Trust for shares of any
additional series or class, and all assets in which such consideration is
invested, would belong to that series or class, subject only to the rights of
creditors of the Trust and would be subject to the liabilities related thereto.
Shareholders of any additional series or class will approve the adoption of any
management contract or distribution plan relating to such series or class and of
any changes in the investment policies related thereto, to the extent required
by the 1940 Act.
58
<PAGE>
For information relating to mandatory redemption of Fund shares or
their redemption at the option of the Trust under certain circumstances, see
"Redemption of Shares" in the Prospectus.
As of August 28, 1995, Signature Financial Group, Inc. owned of record
and beneficially 100% of the outstanding shares of beneficial interest of each
Fund except U.S. Fixed Income Fund, and SFG Investors II Limited Partnership
owned of record and beneficially 100% of the outstanding shares of beneficial
interest of U.S. Fixed Income Fund. However, it is expected that these initial
shareholders will own less than 25% of each Fund's outstanding shares shortly
after the commencement of the public offering of such Fund's shares. As of the
same date, the officers and Trustees as a group owned less than 1% of the shares
of each Fund.
TAXES
Each Fund qualifies and intends to remain qualified as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). As a regulated investment company, a Fund must, among
other things, (a) derive at least 90% of its gross income from dividends,
interest, payments with respect to loans of stock and securities, gains from the
sale or other disposition of stock, securities or foreign currency and other
income (including but not limited to gains from options, futures, and forward
contracts) derived with respect to its business of investing in such stock,
securities or foreign currency; (b) derive less than 30% of its gross income
from the sale or other disposition of stock, securities, options, futures, or
forward contracts (other than options, futures or forward contracts on foreign
currencies) held less than three months, or foreign currencies (or options,
futures or forward contracts on foreign currencies), but only if such currencies
(or options, futures or forward contracts on foreign currencies) are not
directly related to a Fund's principal business of investing in stocks or
securities (or options and futures with respect to stocks or securities); and
(c) diversify its holdings so that, at the end of each fiscal quarter, (i) at
least 50% of the value of the Fund's total assets is represented by cash, U.S.
Government securities, investments in other regulated investment companies and
other securities limited, in respect of any one issuer, to an amount not greater
than 5% of the Fund's total assets, and 10% of the outstanding voting securities
of such issuer, and (ii) not more than 25% of the value of its total assets is
invested in the securities of any one issuer (other than U.S. Government
securities). As a regulated investment company, a Fund (as opposed to its
shareholders) will not be subject to federal income taxes on the net investment
income and capital gains that it distributes to its shareholders, provided that
at least 90% of its net investment income and realized net short-term capital
gains in excess of net long-term capital losses for the taxable year is
distributed.
Under the Code, a Fund will be subject to a 4% excise tax on a portion
of its undistributed income if it fails to meet certain distribution
requirements by the end of the calendar year. Each Fund intends to make
distributions in a timely manner and accordingly does not expect to be subject
to the excise tax.
For federal income tax purposes, dividends that are declared by a Fund
in October, November or December as of a record date in such month and actually
paid
59
<PAGE>
in January of the following year will be treated as if they were paid on
December 31 of the year declared. Therefore, such dividends will generally be
taxable to a shareholder in the year declared rather than the year paid.
Distributions of net investment income and realized net short-term
capital gains in excess of net long-term capital losses (other than exempt
interest dividends) are generally taxable to shareholders of the Funds as
ordinary income whether such distributions are taken in cash or reinvested in
additional shares. The U.S. Equity and U.S. Small Cap Equity Funds expect that a
portion of these distributions to corporate shareholders will be eligible for
the dividends-received deduction. Distributions to corporate shareholders of the
U.S. Fixed Income, International Fixed Income, International Equity, Emerging
Markets Equity, Asia Growth, European Equity and Japan Equity Funds are not
eligible for the dividends-received deduction. Distributions of net long-term
capital gains (i.e., net long-term capital gains in excess of net short-term
capital losses) are taxable to shareholders of a Fund as long-term capital
gains, regardless of whether such distributions are taken in cash or reinvested
in additional shares and regardless of how long a shareholder has held shares in
the Fund. See "Taxes" in the Prospectus for a discussion of the federal income
tax treatment of any gain or loss realized on the redemption or exchange of a
Fund's shares. Additionally, any loss realized on a redemption or exchange of
shares of a Fund will be disallowed to the extent the shares disposed of are
replaced within a period of 61 days beginning 30 days before such disposition,
such as pursuant to reinvestment of a dividend in shares of the Fund.
Gains or losses on sales of portfolio securities will be treated as
long-term capital gains or losses if the securities have been held for more than
one year except in certain cases where, if applicable, a put is acquired or a
call option is written thereon. Other gains or losses on the sale of securities
will be short-term capital gains or losses. Gains and losses on the sale, lapse
or other termination of options on securities will be treated as gains and
losses from the sale of securities. If an option written by a Portfolio lapses
or is terminated through a closing transaction, such as a repurchase by the
Portfolio of the option from its holder, the Portfolio will realize a short-term
capital gain or loss, depending on whether the premium income is greater or less
than the amount paid by the Portfolio in the closing transaction. If securities
are purchased by a Portfolio pursuant to the exercise of a put option written by
it, the Portfolio will subtract the premium received from its cost basis in the
securities purchased.
Under the Code, gains or losses attributable to disposition of foreign
currency or to foreign currency contracts, or to fluctuations in exchange rates
between the time a Portfolio accrues income or receivables or expenses or other
liabilities denominated in a foreign currency and the time a Portfolio actually
collects such income or pays such liabilities, are treated as ordinary income or
ordinary loss. Similarly, gains or losses on the disposition of debt securities
held by a Portfolio, if any, denominated in foreign currency, to the extent
attributable to fluctuations in exchange rates between the acquisition and
disposition dates are also treated as ordinary income or loss.
Forward currency contracts, options and futures contracts entered into
by a Portfolio may create "straddles" for U.S. federal income tax purposes and
this may affect the character and timing of gains or losses realized by the
Portfolio
60
<PAGE>
on forward currency contracts, options and futures contracts or on the
underlying securities. Straddles may also result in the loss of the holding
period of underlying securities for purposes of the 30% of gross income test
described above, and therefore, the Portfolio's ability to enter into forward
currency contracts, options and futures contracts may be limited.
Certain options, futures and foreign currency contracts held by a
Portfolio at the end of each fiscal year will be required to be "marked to
market" for federal income tax purposes -- i.e., treated as having been sold at
market value. For options and futures contracts, 60% of any gain or loss
recognized on these deemed sales and on actual dispositions will be treated as
long-term capital gain or loss, and the remainder will be treated as short-term
capital gain or loss regardless of how long the Portfolio has held such options
or futures. Any gain or loss recognized on foreign currency contracts will be
treated as ordinary income.
The Equity Portfolios may invest in Equity Securities of foreign
issuers. If a Portfolio purchases shares in certain foreign investment funds
(referred to as passive foreign investment companies ("PFICs") under the Code),
the Portfolio may be subject to federal income tax on a portion of an "excess
distribution" from such foreign investment fund or gain from the disposition of
such shares, even though such income may have to be distributed as a taxable
dividend by the Fund to its shareholders. In addition, certain interest charges
may be imposed on a Fund or its shareholders in respect of unpaid taxes arising
from such distributions or gains. Alternatively, a Fund may each year include in
its income and distribute to shareholders a pro rata portion of the foreign
investment fund's income, whether or not distributed to the Fund.
Pursuant to proposed regulations, open-end regulated investment
companies such as the Funds would be entitled to elect to mark to market their
stock in certain PFICs. Marking to market in this context means recognizing as
gain for each taxable year the excess, as of the end of that year, of the fair
market value of each PFIC's stock over the owner's adjusted basis in that stock
(including mark to market gains of a prior year for which an election was in
effect).
FOREIGN SHAREHOLDERS. Dividends of net investment income and
distributions of realized net short-term gains in excess of net long-term losses
to a shareholder who, as to the United States, is a nonresident alien
individual, fiduciary of a foreign trust or estate, foreign corporation or
foreign partnership (a "foreign shareholder") will be subject to U.S.
withholding tax at the rate of 30% (or lower treaty rate) unless the dividends
are effectively connected with a U.S. trade or business of the shareholder, in
which case the dividends will be subject to tax on a net income basis at the
graduated rates applicable to U.S. individuals or domestic corporations.
Distributions of net long term capital gains to foreign shareholders will not be
subject to U.S. tax unless the distributions are effectively connected with the
shareholder's trade or business in the United States or, in the case of a
shareholder who is a nonresident alien individual, the shareholder was present
in the United States for more than 182 days during the taxable year and certain
other conditions are met.
61
<PAGE>
In the case of a foreign shareholder who is a nonresident alien
individual and who is not otherwise subject to withholding as described above, a
Fund may be required to withhold U.S. federal income tax at the rate of 31%
unless IRS Form W-8 is provided. See "Taxes" in the Prospectus. Transfers by
gift of shares of a Fund by a foreign shareholder who is a nonresident alien
individual will not be subject to U.S. federal gift tax, but the value of shares
of the Fund held by such a shareholder at his or her death will be includible in
his or her gross estate for U.S. federal estate tax purposes.
FOREIGN TAXES. It is expected that the corresponding Portfolios of the
International Fixed Income, U.S. Equity, U.S. Small Cap Equity, International
Equity, Emerging Markets Equity, Asia Growth, European Equity and Japan Equity
Funds may be subject to foreign withholding taxes with respect to income
received from sources within foreign countries. In the case of each of these
Funds, so long as more than 50% in value of the total assets of the Fund's
corresponding Portfolio at the close of any taxable year consists of stock or
securities of foreign corporations, the Fund may elect to treat any foreign
income taxes paid by it as paid directly by its shareholders. These Funds will
make such an election only if they deem it to be in the best interest of their
shareholders. The Funds will notify their respective shareholders in writing
each year if they make the election and of the amount of foreign income taxes,
if any, to be treated as paid by the shareholders. If a Fund makes the election,
each shareholder will be required to include in his or her income his or her
proportionate share of the amount of foreign income taxes paid by the Fund and
will be entitled to claim either a credit (subject to the limitations discussed
below) or, if he or she itemizes deductions, a deduction for his or her share of
the foreign income taxes in computing federal income tax liability. (No
deduction will be permitted in computing an individual's alternative minimum tax
liability.) A shareholder who is a nonresident alien individual or a foreign
corporation may be subject to U.S. withholding tax on the income resulting from
the election described in this paragraph, but may not be able to claim a credit
or deduction against such U.S. tax for the foreign taxes treated as having been
paid by such shareholder. A tax-exempt shareholder will not ordinarily benefit
from this election. Shareholders who choose to utilize a credit (rather than a
deduction) for foreign taxes will be subject to the limitation that the credit
may not exceed the shareholder's U.S. tax (determined without regard to the
availability of the credit) attributable to his or her total foreign source
taxable income. For this purpose, the portion of dividends and distributions
paid by each of the International Fixed Income, International Equity, Emerging
Markets Equity, Asia Growth, European Equity and Japan Equity Funds from its
foreign source net investment income will be treated as foreign source income.
Each of these Funds' gains and losses from the sale of securities will generally
be treated as derived from U.S. sources, however, and certain foreign currency
gains and losses likewise will be treated as derived from U.S. sources. The
limitation on the foreign tax credit is applied separately to foreign source
"passive income," such as the portion of dividends received from the Fund which
qualifies as foreign source income. In addition, the foreign tax credit is
allowed to offset only 90% of the alternative minimum tax imposed on
corporations and individuals. Because of these limitations, shareholders may be
unable to claim a credit for the full amount of their proportionate shares of
the foreign income taxes paid by the International Fixed Income, International
Equity, Emerging Markets Equity, Asia Growth, European Equity and Japan Equity
Funds.
62
<PAGE>
STATE AND LOCAL TAXES. Each Fund may be subject to state or local taxes
in jurisdictions in which the Fund is deemed to be doing business. In addition,
the treatment of a Fund and its shareholders in those states which have income
tax laws might differ from treatment under the federal income tax laws.
Shareholders should consult their own tax advisors with respect to any state or
local taxes.
OTHER TAXATION. The Trust is organized as a Massachusetts business
trust and, under current law, neither the Trust nor any Fund is liable for any
income or franchise tax in The Commonwealth of Massachusetts, provided that the
Fund continues to qualify as a regulated investment company under Subchapter M
of the Code. The Portfolios are organized as New York trusts. The Portfolios are
not subject to any federal income taxation or income or franchise tax in the
State of New York or The Commonwealth of Massachusetts. The investment by a Fund
in its corresponding Portfolio does not cause the Fund to be liable for any
income or franchise tax in the State of New York.
ADDITIONAL INFORMATION
As used in this Statement of Additional Information and the Prospectus,
the term "majority of the outstanding voting securities" means the vote of (i)
67% or more of the Fund's shares or the Portfolio's outstanding voting
securities present at a meeting if the holders of more than 50% of the Fund's
outstanding shares or the Portfolio's outstanding voting securities are present
or represented by proxy, or (ii) more than 50% of the Fund's outstanding shares
or the Portfolio's outstanding voting securities, whichever is less.
Telephone calls to the Funds, Morgan or Eligible Institutions may be
tape recorded. With respect to the securities offered hereby, this Statement of
Additional Information and the Prospectuses do not contain all the information
included in the Trust's Registration Statement filed with the SEC under the 1933
Act and the Trust's and the Portfolios' Registration Statements filed under the
1940 Act. Pursuant to the rules and regulations of the SEC, certain portions
have been omitted. The Registration Statements including the exhibits filed
therewith may be examined at the office of the SEC in Washington D.C.
Statements contained in this Statement of Additional Information and
the Prospectuses concerning the contents of any contract or other document are
not necessarily complete, and in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the applicable
Registration Statements. Each such statement is qualified in all respects by
such reference.
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in the
Prospectuses and this Statement of Additional Information, in connection with
the offer contained therein and, if given or made, such other information or
representations must not be relied upon as having been authorized by the Trust,
the Funds or the Distributor. The Prospectus and this Statement of Additional
Information do not constitute an offer by any Fund or by the Distributor to sell
or solicit any offer to buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful for the Fund or the
Distributor to make such offer in such jurisdictions.
63
<PAGE>
FINANCIAL STATEMENTS
Attached are the audited statement of assets and liabilities and the
reports thereon of Price Waterhouse LLP for each of the Funds (except for the
U.S. Equity and U.S. Small Cap Equity Funds) and for the Asia Growth, European
Equity and Japan Equity Portfolios as of March 24, 1995, and for the Non-U.S.
Fixed Income Portfolio as of October 6, 1994.
The current reports to shareholders for the U.S. Equity and U.S. Small
Cap Equity Funds and for all Portfolios filed with the SEC pursuant to Section
30(b) of the 1940 Act and Rule 30b2-1 thereunder are hereby incorporated herein
by reference. A copy of each such report will be provided, without charge, to
each person receiving this Statement of Additional Information.
64
<PAGE>
THE JPM ADVISOR FUNDS - THE JPM ADVISOR U.S. FIXED INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
MARCH 24, 1995
ASSETS
Investment in The U.S. Fixed Income Portfolio $100,000
--------
Deferred Organization Expenses 58,000
--------
Total Assets 158,000
LIABILITIES
Organization Expenses Payable 58,000
--------
Total Liabilities 58,000
COMMITMENTS AND CONTINGENCIES (SEE NOTE 2) --
Net Assets $100,000
========
Net Asset Value Per Share (10,000 shares of beneficial
interest outstanding; unlimited authorized shares of
beneficial interest of $0.001 par value), Offering and
Redemption Price $10.00
======
NOTES TO FINANCIAL STATEMENT
NOTE 1 - ORGANIZATION
The JPM Advisor U.S. Fixed Income Fund (the "Fund") is a series of The JPM
Advisor Funds, a Massachusetts business trust (the "Trust") organized on
September 16, 1994, and has been inactive since that date except for matters
relating to its organization and registration as an investment company under the
Investment Company Act of 1940, as amended, and the sale of 10,000 shares (the
"initial shares") of the Fund to SFG Investors II Limited Partnership ("SFG
Investors"), an affiliate of Signature Broker-Dealer Services, Inc. ("SBDS"),
the Trust's administrator and distributor.
The Fund will invest all of its investable assets in The U.S. Fixed Income
Portfolio (the "Portfolio"). The Portfolio is an open-end management investment
company and has the same investment objective and policies as the Fund.
The Fund has incurred $58,000 in organization expenses based on its allocable
pro rata share of total organization expenses for the nine funds in the Trust.
These costs are being deferred and will be amortized on a straight line basis
over a period not to exceed five years beginning with the commencement of
operations of the Fund. The amount paid by the Fund on any redemption by SFG
Investors or any other current holder of the Fund's initial shares will be
reduced by the pro rata portion of any unamortized organization expenses of the
Fund which the number of initial shares redeemed bears to the total number of
initial shares outstanding immediately prior to such redemption.
<PAGE>
NOTE 2 - SERVICE AGREEMENTS WITH AFFILIATES
The Trust has entered into a Services Agreement with Morgan Guaranty Trust
Company of New York ("Morgan") to provide financial and fund accounting services
and shareholder servicing for the Fund, as described in the accompanying Trust's
registration statement on Form N-lA. The Trust has also entered into separate
administration and distribution agreements with SBDS to provide for
administrative and distribution services for the Fund, as described in such
registration statement. Morgan, Charles Schwab & Co. ("Schwab") and the Trust
are parties to separate services and operating agreements (the "Schwab
Agreements") whereby Schwab makes Fund shares available to customers of
investment advisers and other financial intermediaries who are Schwab's clients.
The financial responsibilities and other obligations of the Fund under the
Schwab Agreements are contingent upon termination of Morgan's Services Agreement
with the Trust. The officers of the Trust are employees of SBDS.
<PAGE>
Report of Independent Accountants
To the Shareholder and Trustees of
The JPM Advisor U.S. Fixed Income Fund
In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all material respects, the financial position of The JPM Advisor U.S.
Fixed Income Fund (one of nine funds comprising The JPM Advisor Funds, hereafter
referred to as the "Fund") at March 24, 1995, in conformity with generally
accepted accounting principles. This financial statement is the responsibility
of the Fund's management; our responsibility is to express an opinion on this
financial statement based on our audit. We conducted our audit of this financial
statement in accordance with generally accepted auditing standards which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statement is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statement, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
March 24, 1995
<PAGE>
THE JPM ADVISOR FUNDS - THE JPM ADVISOR INTERNATIONAL FIXED INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
MARCH 24, 1995
ASSETS
Investment in The Non-U.S. Fixed Income Portfolio $ 100
Deferred Organization Expenses 58,000
-------
Total Assets 58,100
-------
LIABILITIES
Organization Expenses Payable 58,000
-------
Total Liabilities 58,000
-------
COMMITMENTS AND CONTINGENCIES (SEE NOTE 2) --
Net Assets $ 100
=======
Net Asset Value Per Share (10,000 shares of beneficial
interest outstanding; unlimited authorized shares of
beneficial interest of $0.001 par value), Offering and
Redemption Price $10.00
======
NOTES TO FINANCIAL STATEMENT
NOTE 1 - ORGANIZATION
The JPM Advisor International Fixed Income Fund (the "Fund") is a series of The
JPM Advisor Funds, a Massachusetts business trust (the "Trust") organized on
September 16, 1994, and has been inactive since that date except for matters
relating to its organization and registration as an investment company under the
Investment Company Act of 1940, as amended, and the sale of 10 shares (the
"initial shares") of the Fund to Signature Financial Group, Inc. ("Signature"),
the parent company of Signature Broker-Dealer Services, Inc. ("SBDS"), the
Trust's administrator and distributor.
The Fund will invest all of its investable assets in The Non-U.S. Fixed Income
Portfolio (the "Portfolio"). The Portfolio is an open-end management investment
company and has the same investment objective and policies as the Fund.
The Fund has incurred $58,000 in organization expenses based on its allocable
pro rata share of total organization expenses for the nine funds in the Trust.
These costs are being deferred and will be amortized on a straight line basis
over a period not to exceed five years beginning with the commencement of
operations of the Fund. The amount paid by the Fund on any redemption by
Signature or any other current holder of the Fund's initial shares will be
reduced by the pro rata portion of any unamortized organization expenses of the
Fund which the number of initial shares redeemed bears to the total number of
initial shares outstanding immediately prior to such redemption.
<PAGE>
NOTE 2 - SERVICE AGREEMENTS WITH AFFILIATES
The Trust has entered into a Services Agreement with Morgan Guaranty Trust
Company of New York ("Morgan") to provide financial and fund accounting services
and shareholder servicing for the Fund, as described in the accompanying Trust's
registration statement on Form N-lA. The Trust has also entered into separate
administration and distribution agreements with SBDS to provide for
administrative and distribution services for the Fund, as described in such
registration statement. Morgan, Charles Schwab & Co. ("Schwab") and the Trust
are parties to separate services and operating agreements (the "Schwab
Agreements") whereby Schwab makes Fund shares available to customers of
investment advisers and other financial intermediaries who are Schwab's clients.
The financial responsibilities and other obligations of the Fund under the
Schwab Agreements are contingent upon termination of Morgan's Services Agreement
with the Trust. The officers of the Trust are employees of SBDS.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Trustees of
The JPM Advisor International Fixed Income Fund
In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all material respects, the financial position of The JPM Advisor
International Fixed Income Fund (one of nine funds comprising The JPM Advisor
Funds, hereafter referred to as the "Fund") at March 24, 1995, in conformity
with generally accepted accounting principles. This financial statement is the
responsibility of the Fund's management; our responsibility is to express an
opinion on this financial statement based on our audit. We conducted our audit
of this financial statement in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement, assessing the accounting
principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
March 24, 1995
<PAGE>
THE NON-U.S. FIXED INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 6, 1994
Assets
Cash $ 100,100
Deferred Organization Expenses 35,000
---------
Total Assets 135,100
LIABILITIES
Organization Expenses Payable 35,000
---------
Net Assets $ 100,100
=========
NOTES TO FINANCIAL STATEMENT
NOTE 1 - ORGANIZATION OF PORTFOLIO
The Non-U.S. Fixed Income Portfolio (the "Portfolio") was organized as a New
York trust on June 16, 1993, and has been inactive since that date except for
matters relating to its organization and registration as an investment company
under the Investment Company Act of 1940, as amended (the "1940 Act"), the sales
of beneficial interests at the respective prices of $100 to Signature Financial
Group, Inc. and $100,000 to JPM International Bond Fund, Ltd. (the "initial
beneficial interests").
Morgan Guaranty Trust Company of New York ("Morgan") has agreed to pay the
organization expenses of the Portfolio. The Portfolio has agreed to reimburse
Morgan for these costs which are being amortized by the Portfolio on a
straight-line basis over a sixty-month period from the commencement of
operations. The amount paid by the Portfolio on any decrease or withdrawal by
any current holder of the initial beneficial interests in the Portfolio will be
reduced by the pro rata portion of any unamortized organization expenses which
the amount of the initial beneficial interests of the Portfolio being decreased
bears to the total amount of beneficial interests of the Portfolio held by such
holder immediately prior to such withdrawal.
NOTE 2 - VALUATION OF INVESTORS' BENEFICIAL INTERESTS
At 4:00 p.m. New York time on each business day of the Portfolio, the value of
an investor's beneficial interest in the Portfolio is equal to the product of
(i) the aggregate net asset value of the Portfolio, multiplied by (ii) the
percentage representing that investor's share of the aggregate beneficial
interest in the Portfolio effective for that day.
NOTE 3 - SERVICE AGREEMENT WITH AFFILIATES
<PAGE>
The Portfolio has entered into separate Investment Advisory and Financial and
Fund Accounting Services agreements with Morgan as described in the registration
statement of the Portfolio on Form N-1A under the 1940 Act. The Portfolio has
also entered into separate Administration and Exclusive Placement Agent
agreements with Signature Broker-Dealer Services, Inc., and a Fund Services
agreement with Pierpont Group, Inc. as described in such registration statement.
The officers of the Portfolio are employees of Signature Broker-Dealer Services,
Inc. The Trustees of the Portfolio are the sole shareholders of Pierpont Group,
Inc.
<PAGE>
NOTE 4 - SUBSEQUENT EVENT
The Portfolio commenced operations on October 11, 1994. On that date, JPM
International Bond Fund, Ltd. increased its beneficial interest in the Portfolio
by contributing certain assets and liabilities, including securities, with a
value of $112,714,902.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Investors and Trustees of
The Non-U.S. Fixed Income Portfolio
In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all material respects, the financial position of The Non-U.S. Fixed
Income Portfolio (the "Portfolio") at October 6, 1994, in conformity with
generally accepted accounting principles. This financial statement is the
responsibility of the Portfolio's management; our responsibility is to express
an opinion on this financial statement based on our audit. We conducted our
audit of this financial statement in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a seasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
November 1, 1994
<PAGE>
THE JPM ADVISOR FUNDS - THE JPM ADVISOR U.S. EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
MARCH 24, 1995
ASSETS
Investment in The Selected U.S. Equity Portfolio $ 100
Deferred Organization Expenses 58,000
-------
Total Assets 58,100
-------
LIABILITIES
Organization Expenses Payable 58,000
-------
Total Liabilities 58,000
-------
COMMITMENTS AND CONTINGENCIES (SEE NOTE 2) --
Net Assets $ 100
=======
Net Asset Value Per Share (10,000 shares of beneficial
interest outstanding; unlimited authorized shares of
beneficial interest of $0.001 par value), Offering and
Redemption Price $10.00
======
NOTES TO FINANCIAL STATEMENT
NOTE 1 - ORGANIZATION
The JPM Advisor U.S. Equity Fund (the "Fund") is a series of The JPM Advisor
Funds, a Massachusetts business trust (the "Trust") organized on September 16,
1994, and has been inactive since that date except for matters relating to its
organization and registration as an investment company under the Investment
Company Act of 1940, as amended, and the sale of 10 shares (the "initial
shares") of the Fund to Signature Financial Group, Inc. ("Signature"), the
parent company of Signature Broker-Dealer Services, Inc. ("SBDS"), the Trust's
administrator and distributor.
The Fund will invest all of its investable assets in The Selected U.S. Equity
Portfolio (the "Portfolio"). The Portfolio is an open-end management investment
company and has the same investment objective and policies as the Fund.
The Fund has incurred $58,000 in organization expenses based on its allocable
pro rata share of total organization expenses for the nine funds in the Trust.
These costs are being deferred and will be amortized on a straight line basis
over a period not to exceed five years beginning with the commencement of
operations of the Fund. The amount paid by the Fund on any redemption by
Signature or any other current holder of the Fund's initial shares will be
reduced by the pro rata portion of any unamortized organization expenses of the
Fund which the number of initial shares redeemed bears to the total number of
initial shares outstanding immediately prior to such redemption.
<PAGE>
NOTE 2 - SERVICE AGREEMENTS WITH AFFILIATES
The Trust has entered into a Services Agreement with Morgan Guaranty Trust
Company of New York ("Morgan") to provide financial and fund accounting services
and shareholder servicing for the Fund, as described in the accompanying Trust's
registration statement on Form N-lA. The Trust has also entered into separate
administration and distribution agreements with SBDS to provide for
administrative and distribution services for the Fund, as described in such
registration statement. Morgan, Charles Schwab & Co. ("Schwab") and the Trust
are parties to separate services and operating agreements (the "Schwab
Agreements") whereby Schwab makes Fund shares available to customers of
investment advisers and other financial intermediaries who are Schwab's clients.
The financial responsibilities and other obligations of the Fund under the
Schwab Agreements are contingent upon termination of Morgan's Services Agreement
with the Trust. The officers of the Trust are employees of SBDS.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Trustees of
The JPM Advisor U.S. Equity Fund
In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all material respects, the financial position of The JPM Advisor U.S.
Equity Fund (one of nine funds comprising The JPM Advisor Funds, hereafter
referred to as the "Fund") at March 24, 1995, in conformity with generally
accepted accounting principles. This financial statement is the responsibility
of the Fund's management; our responsibility is to express an opinion on this
financial statement based on our audit. We conducted our audit of this financial
statement in accordance with generally accepted auditing standards which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statement is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statement, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
March 24, 1995
<PAGE>
THE JPM ADVISOR FUNDS - THE JPM ADVISOR U.S. SMALL CAP EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
MARCH 24, 1995
ASSETS
Investment in The U.S. Small Company Portfolio $ 100
Deferred Organization Expenses 58,000
-------
Total Assets 58,100
-------
LIABILITIES
Organization Expenses Payable 58,000
-------
Total Liabilities 58,000
-------
COMMITMENTS AND CONTINGENCIES (SEE NOTE 2) --
Net Assets $ 100
=======
Net Asset Value Per Share (10,000 shares of beneficial
interest outstanding; unlimited authorized shares of
beneficial interest of $0.001 par value), Offering and
Redemption Price $10.00
======
NOTES TO FINANCIAL STATEMENT
NOTE 1 - ORGANIZATION
The JPM Advisor U.S. Small Cap Equity Fund (the "Fund") is a series of The JPM
Advisor Funds, a Massachusetts business trust (the "Trust") organized on
September 16, 1994, and has been inactive since that date except for matters
relating to its organization and registration as an investment company under the
Investment Company Act of 1940, as amended, and the sale of 10 shares (the
"initial shares") of the Fund to Signature Financial Group, Inc. ("Signature"),
the parent company of Signature Broker-Dealer Services, Inc. ("SBDS"), the
Trust's administrator and distributor.
The Fund will invest all of its investable assets in The U.S. Small Company
Portfolio (the "Portfolio"). The Portfolio is an open-end management investment
company and has the same investment objective and policies as the Fund.
The Fund has incurred $58,000 in organization expenses based on its allocable
pro rata share of total organization expenses for the nine funds in the Trust.
These costs are being deferred and will be amortized on a straight line basis
over a period not to exceed five years beginning with the commencement of
operations of the Fund. The amount paid by the Fund on any redemption by
Signature or any other current holder of the Fund's initial shares will be
reduced by the pro rata portion of any unamortized organization expenses of the
Fund which the number of initial shares redeemed bears to the total number of
initial shares outstanding immediately prior to such redemption.
<PAGE>
NOTE 2 - SERVICE AGREEMENTS WITH AFFILIATES
The Trust has entered into a Services Agreement with Morgan Guaranty Trust
Company of New York ("Morgan") to provide financial and fund accounting services
and shareholder servicing for the Fund, as described in the accompanying Trust's
registration statement on Form N-lA. The Trust has also entered into separate
administration and distribution agreements with SBDS to provide for
administrative and distribution services for the Fund, as described in such
registration statement. Morgan, Charles Schwab & Co. ("Schwab") and the Trust
are parties to separate services and operating agreements (the "Schwab
Agreements") whereby Schwab makes Fund shares available to customers of
investment advisers and other financial intermediaries who are Schwab's clients.
The financial responsibilities and other obligations of the Fund under the
Schwab Agreements are contingent upon termination of Morgan's Services Agreement
with the Trust. The officers of the Trust are employees of SBDS.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Trustees of
The JPM Advisor U.S. Small Cap Equity Fund
In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all material respects, the financial position of The JPM Advisor U.S.
Small Cap Equity Fund (one of nine funds comprising The JPM Advisor Funds,
hereafter referred to as the "Fund") at March 24, 1995, in conformity with
generally accepted accounting principles. This financial statement is the
responsibility of the Fund's management; our responsibility is to express an
opinion on this financial statement based on our audit. We conducted our audit
of this financial statement in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement, assessing the accounting
principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
March 24, 1995
<PAGE>
THE JPM ADVISOR FUNDS - THE JPM ADVISOR INTERNATIONAL EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
MARCH 24, 1995
ASSETS
Investment in The Non-U.S. Equity Portfolio $ 100
Deferred Organization Expenses 58,000
-------
Total Assets 58,100
-------
LIABILITIES
Organization Expenses Payable 58,000
-------
Total Liabilities 58,000
-------
COMMITMENTS AND CONTINGENCIES (SEE NOTE 2) --
Net Assets $ 100
=======
Net Asset Value Per Share (10,000 shares of beneficial
interest outstanding; unlimited authorized shares of
beneficial interest of $0.001 par value), Offering and
Redemption Price $10.00
======
NOTES TO FINANCIAL STATEMENT
NOTE 1 - ORGANIZATION
The JPM Advisor International Equity Fund (the "Fund") is a series of The JPM
Advisor Funds, a Massachusetts business trust (the "Trust") organized on
September 16, 1994, and has been inactive since that date except for matters
relating to its organization and registration as an investment company under the
Investment Company Act of 1940, as amended, and the sale of 10 shares (the
"initial shares") of the Fund to Signature Financial Group, Inc. ("Signature"),
the parent company of Signature Broker-Dealer Services, Inc. ("SBDS"), the
Trust's administrator and distributor.
The Fund will invest all of its investable assets in The Non-U.S. Equity
Portfolio (the "Portfolio"). The Portfolio is an open-end management investment
company and has the same investment objective and policies as the Fund.
The Fund has incurred $58,000 in organization expenses based on its allocable
pro rata share of total organization expenses for the nine funds in the Trust.
These costs are being deferred and will be amortized on a straight line basis
over a period not to exceed five years beginning with the commencement of
operations of the Fund. The amount paid by the Fund on any redemption by
Signature or any other current holder of the Fund's initial shares will be
reduced by the pro rata portion of any unamortized organization expenses of the
Fund which the number of initial shares redeemed bears to the total number of
initial shares outstanding immediately prior to such redemption.
<PAGE>
NOTE 2 - SERVICE AGREEMENTS WITH AFFILIATES
The Trust has entered into a Services Agreement with Morgan Guaranty Trust
Company of New York ("Morgan") to provide financial and fund accounting services
and shareholder servicing for the Fund, as described in the accompanying Trust's
registration statement on Form N-lA. The Trust has also entered into separate
administration and distribution agreements with SBDS to provide for
administrative and distribution services for the Fund, as described in such
registration statement. Morgan, Charles Schwab & Co. ("Schwab") and the Trust
are parties to separate services and operating agreements (the "Schwab
Agreements") whereby Schwab makes Fund shares available to customers of
investment advisers and other financial intermediaries who are Schwab's clients.
The financial responsibilities and other obligations of the Fund under the
Schwab Agreements are contingent upon termination of Morgan's Services Agreement
with the Trust. The officers of the Trust are employees of SBDS.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Trustees of
The JPM Advisor International Equity Fund
In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all material respects, the financial position of The JPM Advisor
International Equity Fund (one of nine funds comprising The JPM Advisor Funds,
hereafter referred to as the "Fund") at March 24, 1995, in conformity with
generally accepted accounting principles. This financial statement is the
responsibility of the Fund's management; our responsibility is to express an
opinion on this financial statement based on our audit. We conducted our audit
of this financial statement in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement, assessing the accounting
principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
March 24, 1995
<PAGE>
THE JPM ADVISOR FUNDS - THE JPM ADVISOR EMERGING MARKETS EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
MARCH 24, 1995
ASSETS
Investment in The Emerging Markets
Equity Portfolio $ 100
Deferred Organization Expenses 58,000
-------
Total Assets 58,100
-------
LIABILITIES
Organization Expenses Payable 58,000
-------
Total Liabilities 58,000
-------
COMMITMENTS AND CONTINGENCIES (SEE NOTE 2) --
Net Assets $ 100
=======
Net Asset Value Per Share (10,000 shares of beneficial
interest outstanding; unlimited authorized shares of
beneficial interest of $0.001 par value), Offering and
Redemption Price $10.00
======
NOTES TO FINANCIAL STATEMENT
NOTE 1 - ORGANIZATION
The JPM Advisor Emerging Markets Equity Fund (the "Fund") is a series of The JPM
Advisor Funds, a Massachusetts business trust (the "Trust") organized on
September 16, 1994, and has been inactive since that date except for matters
relating to its organization and registration as an investment company under the
Investment Company Act of 1940, as amended, and the sale of 10 shares (the
"initial shares") of the Fund to Signature Financial Group, Inc. ("Signature"),
the parent company of Signature Broker-Dealer Services, Inc. ("SBDS"), the
Trust's administrator and distributor.
The Fund will invest all of its investable assets in The Emerging Markets Equity
Portfolio (the "Portfolio"). The Portfolio is an open-end management investment
company and has the same investment objective and policies as the Fund.
The Fund has incurred $58,000 in organization expenses based on its allocable
pro rata share of total organization expenses for the nine funds in the Trust.
These costs are being deferred and will be amortized on a straight line basis
over a period not to exceed five years beginning with the commencement of
operations of the Fund. The amount paid by the Fund on any redemption by
Signature or any other current holder of the Fund's initial shares will be
reduced by the pro rata portion of any unamortized organization expenses of the
Fund which the number of initial shares redeemed bears to the total number of
initial shares outstanding immediately prior to such redemption.
<PAGE>
NOTE 2 - SERVICE AGREEMENTS WITH AFFILIATES
The Trust has entered into a Services Agreement with Morgan Guaranty Trust
Company of New York ("Morgan") to provide financial and fund accounting services
and shareholder servicing for the Fund, as described in the accompanying Trust's
registration statement on Form N-lA. The Trust has also entered into separate
administration and distribution agreements with SBDS to provide for
administrative and distribution services for the Fund, as described in such
registration statement. Morgan, Charles Schwab & Co. ("Schwab") and the Trust
are parties to separate services and operating agreements (the "Schwab
Agreements") whereby Schwab makes Fund shares available to customers of
investment advisers and other financial intermediaries who are Schwab's clients.
The financial responsibilities and other obligations of the Fund under the
Schwab Agreements are contingent upon termination of Morgan's Services Agreement
with the Trust. The officers of the Trust are employees of SBDS.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Trustees of
The JPM Advisor Emerging Markets Equity Fund
In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all material respects, the financial position of The JPM Advisor
Emerging Markets Equity Fund (one of nine funds comprising The JPM Advisor
Funds, hereafter referred to as the "Fund") at March 24, 1995, in conformity
with generally accepted accounting principles. This financial statement is the
responsibility of the Fund's management; our responsibility is to express an
opinion on this financial statement based on our audit. We conducted our audit
of this financial statement in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement, assessing the accounting
principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
March 24, 1995
<PAGE>
THE JPM ADVISOR FUNDS - THE JPM ADVISOR ASIA GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
MARCH 24, 1995
ASSETS
Investment in The Asia Growth Portfolio $ 100
Deferred Organization Expenses 58,000
-------
Total Assets 58,100
-------
LIABILITIES
Organization Expenses Payable 58,000
-------
Total Liabilities 58,000
-------
COMMITMENTS AND CONTINGENCIES (SEE NOTE 2) --
Net Assets $ 100
=======
Net Asset Value Per Share (10,000 shares of beneficial
interest outstanding; unlimited authorized shares of
beneficial interest of $0.001 par value), Offering and
Redemption Price $10.00
======
NOTES TO FINANCIAL STATEMENT
NOTE 1 - ORGANIZATION
The JPM Advisor Asia Growth Fund (the "Fund") is a series of The JPM Advisor
Funds, a Massachusetts business trust (the "Trust") organized on September 16,
1994, and has been inactive since that date except for matters relating to its
organization and registration as an investment company under the Investment
Company Act of 1940, as amended, and the sale of 10 shares (the "initial
shares") of the Fund to Signature Financial Group, Inc. ("Signature"), the
parent company of Signature Broker-Dealer Services, Inc. ("SBDS"), the Trust's
administrator and distributor.
The Fund will invest all of its investable assets in The Asia Growth Portfolio
(the "Portfolio"), a series of The Series Portfolio, a trust organized under the
laws of the State of New York. The Portfolio is an open-end management
investment company and has the same investment objective and policies as the
Fund.
The Fund has incurred $58,000 in organization expenses based on its allocable
pro rata share of total organization expenses for the nine funds in the Trust.
These costs are being deferred and will be amortized on a straight line basis
over a period not to exceed five years beginning with the commencement of
operations of the Fund. The amount paid by the Fund on any redemption by
Signature or any other current holder of the Fund's initial shares will be
reduced by the pro rata portion of any unamortized organization expenses of the
Fund which the number of initial shares redeemed bears to the total number of
initial shares outstanding
<PAGE>
immediately prior to such redemption.
NOTE 2 - SERVICE AGREEMENTS WITH AFFILIATES
The Trust has entered into a Services Agreement with Morgan Guaranty Trust
Company of New York ("Morgan") to provide financial and fund accounting services
and shareholder servicing for the Fund, as described in the accompanying Trust's
registration statement on Form N-lA. The Trust has also entered into separate
administration and distribution agreements with SBDS to provide for
administrative and distribution services for the Fund, as described in such
registration statement. Morgan, Charles Schwab & Co. ("Schwab") and the Trust
are parties to separate services and operating agreements (the "Schwab
Agreements") whereby Schwab makes Fund shares available to customers of
investment advisers and other financial intermediaries who are Schwab's clients.
The financial responsibilities and other obligations of the Fund under the
Schwab Agreements are contingent upon termination of Morgan's Services Agreement
with the Trust. The officers of the Trust are employees of SBDS.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Trustees of
The JPM Advisor Asia Growth Fund
In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all material respects, the financial position of The JPM Advisor Asia
Growth Fund (one of nine funds comprising The JPM Advisor Funds, hereafter
referred to as the "Fund") at March 24, 1995, in conformity with generally
accepted accounting principles. This financial statement is the responsibility
of the Fund's management; our responsibility is to express an opinion on this
financial statement based on our audit. We conducted our audit of this financial
statement in accordance with generally accepted auditing standards which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statement is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statement, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
March 24, 1995
<PAGE>
THE SERIES PORTFOLIO - THE ASIA GROWTH PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
MARCH 24, 1995
ASSETS
Cash $ 200
Deferred Organization Expenses 33,000
-------
Total Assets 33,200
-------
LIABILITIES
Organization Expenses Payable 33,000
-------
Total Liabilities 33,000
-------
Commitments and Contingencies (See Note 3) --
Net Assets $ 200
=======
NOTES TO FINANCIAL STATEMENT
NOTE 1 - ORGANIZATION
The Asia Growth Portfolio (the "Portfolio") is a series of The Series Portfolio
(the "Series Portfolio"), a trust organized under the laws of the State of New
York on June 24, 1994, and has been inactive since that date except for matters
relating to its organization and registration as an investment company under the
Investment Company Act of 1940, as amended, and the sales of beneficial
interests in the Portfolio in the respective amounts of $100 to The JPM Advisor
Asia Growth Fund (the "Fund") and $100 to JPM Asia Growth Fund, Ltd. (the
"initial beneficial interests").
The Portfolio has incurred $33,000 in organization expenses based on its
allocable pro rata share of total organization expenses for the three Portfolios
in the Series Portfolio. These costs are being deferred and will be amortized on
a straight line basis over a period not to exceed five years beginning with the
commencement of operations of the Portfolio. The Portfolio will receive upon a
redemption by Signature (the purchaser of the Fund's initial shares) from the
Fund, a pro rata portion of the unamortized organization expenses of the
Portfolio. The amount paid by the Portfolio on any withdrawal of an initial
beneficial interest by the Fund, JPM Asia Growth Fund, Ltd. or any other current
holder of such initial beneficial interest will be reduced by a pro rata portion
of any unamortized organization expenses. This reduction will be determined with
respect to each withdrawal of an initial beneficial interest by calculating the
proportion of the amount of the initial beneficial interest withdrawn to the
aggregate initial beneficial interests then outstanding.
NOTE 2 - VALUATION OF INVESTORS' BENEFICIAL INTERESTS
At 4:15 p.m. New York time on each business day of the Portfolio, the value of
an investor's beneficial interest in the Portfolio is equal to the product of
(i) the aggregate net asset value of the Portfolio, effective for that day, and
(ii) the percentage representing that investor's pro rata share of the aggregate
beneficial interests in the Portfolio, on that day.
<PAGE>
NOTE 3 - SERVICE AGREEMENTS WITH AFFILIATES
The Series Portfolio has entered into separate investment advisory and financial
and fund accounting services agreements with Morgan Guaranty Trust Company of
New York ("Morgan") to provide investment advisory and financial and fund
accounting services for the Portfolio as described in the Series Portfolio's
accompanying registration statement on Form N-lA. The Series Portfolio has also
entered into separate administration and exclusive placement agent agreements
with Signature Broker-Dealer Services, Inc.("SBDS"), to provide for
administrative and placement services for the Portfolio, and a fund services
agreement with Pierpont Group, Inc. ("Pierpont Group"), each as described in
such registration statement. The officers of the Series Portfolio, excluding its
Chief Executive Officer, are employees of SBDS. The Trustees of the Series
Portfolio represent all the existing shareholders of Pierpont Group.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Investors and Trustees of
The Asia Growth Portfolio
In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all material respects, the financial position of The Asia Growth
Portfolio (one of three portfolios comprising The Series Portfolio, hereafter
referred to as the "Portfolio") at March 24, 1995, in conformity with generally
accepted accounting principles. This financial statement is the responsibility
of the Portfolio's management; our responsibility is to express an opinion on
this financial statement based on our audit. We conducted our audit of this
financial statement in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statement is free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statement, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
March 24, 1995
<PAGE>
THE JPM ADVISOR FUNDS - THE JPM ADVISOR EUROPEAN EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
MARCH 24, 1995
ASSETS
Investment in The European Equity Portfolio $ 100
Deferred Organization Expenses 58,000
-------
Total Assets 58,100
-------
LIABILITIES
Organization Expenses Payable 58,000
-------
Total Liabilities 58,000
-------
COMMITMENTS AND CONTINGENCIES (SEE NOTE 2) --
Net Assets $ 100
=======
Net Asset Value Per Share (10,000 shares of beneficial
interest outstanding; unlimited authorized shares of
beneficial interest of $0.001 par value), Offering and
Redemption Price $10.00
======
NOTES TO FINANCIAL STATEMENT
NOTE 1 - ORGANIZATION
The JPM Advisor European Equity Fund (the "Fund") is a series of The JPM Advisor
Funds, a Massachusetts business trust (the "Trust") organized on September 16,
1994, and has been inactive since that date except for matters relating to its
organization and registration as an investment company under the Investment
Company Act of 1940, as amended, and the sale of 10 shares (the "initial
shares") of the Fund to Signature Financial Group, Inc. ("Signature"), the
parent company of Signature Broker-Dealer Services, Inc. ("SBDS"), the Trust's
administrator and distributor.
The Fund will invest all of its investable assets in The European Equity
Portfolio (the "Portfolio"), a series of The Series Portfolio, a trust organized
under the laws of the State of New York. The Portfolio is an open-end management
investment company and has the same investment objective and policies as the
Fund.
The Fund has incurred $58,000 in organization expenses based on its allocable
pro rata share of total organization expenses for the nine funds in the Trust.
These costs are being deferred and will be amortized on a straight line basis
over a period not to exceed five years beginning with the commencement of
operations of the Fund. The amount paid by the Fund on any redemption by
Signature or any other current holder of the Fund's initial shares will be
reduced by the pro rata portion of any unamortized organization expenses of the
Fund which the number of initial shares redeemed bears to the total number of
initial shares outstanding
<PAGE>
immediately prior to such redemption.
NOTE 2 - SERVICE AGREEMENTS WITH AFFILIATES
The Trust has entered into a Services Agreement with Morgan Guaranty Trust
Company of New York ("Morgan") to provide financial and fund accounting services
and shareholder servicing for the Fund, as described in the accompanying Trust's
registration statement on Form N-lA. The Trust has also entered into separate
administration and distribution agreements with SBDS to provide for
administrative and distribution services for the Fund, as described in such
registration statement. Morgan, Charles Schwab & Co. ("Schwab") and the Trust
are parties to separate services and operating agreements (the "Schwab
Agreements") whereby Schwab makes Fund shares available to customers of
investment advisers and other financial intermediaries who are Schwab's clients.
The financial responsibilities and other obligations of the Fund under the
Schwab Agreements are contingent upon termination of Morgan's Services Agreement
with the Trust. The officers of the Trust are employees of SBDS.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Trustees of
The JPM Advisor European Equity Fund
In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all material respects, the financial position of The JPM Advisor
European Equity Fund (one of nine funds comprising The JPM Advisor Funds,
hereafter referred to as the "Fund") at March 24, 1995, in conformity with
generally accepted accounting principles. This financial statement is the
responsibility of the Fund's management; our responsibility is to express an
opinion on this financial statement based on our audit. We conducted our audit
of this financial statement in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement, assessing the accounting
principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
March 24, 1995
<PAGE>
THE SERIES PORTFOLIO - THE EUROPEAN EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
MARCH 24, 1995
ASSETS
Cash $ 200
Deferred Organization Expenses 33,000
-------
Total Assets 33,200
-------
LIABILITIES
Organization Expenses Payable 33,000
-------
Total Liabilities 33,000
-------
Commitments and Contingencies (See Note 3) --
Net Assets $ 200
=======
NOTES TO FINANCIAL STATEMENT
NOTE 1 - ORGANIZATION
The European Equity Portfolio (the "Portfolio") is a series of The Series
Portfolio (the "Series Portfolio"), a trust organized under the laws of the
State of New York on June 24, 1994, and has been inactive since that date except
for matters relating to its organization and registration as an investment
company under the Investment Company Act of 1940, as amended, and the sales of
beneficial interests in the Portfolio in the respective amounts of $100 to The
JPM Advisor European Equity Fund (the "Fund") and $100 to JPM Europe Fund, Ltd.
(the "initial beneficial interests").
The Portfolio has incurred $33,000 in organization expenses based on its
allocable pro rata share of total organization expenses for the three Portfolios
in the Series Portfolio. These costs are being deferred and will be amortized on
a straight line basis over a period not to exceed five years beginning with the
commencement of operations of the Portfolio. The Portfolio will receive upon a
redemption by Signature (the purchaser of the Fund's initial shares) from the
Fund, a pro rata portion of the unamortized organization expenses of the
Portfolio. The amount paid by the Portfolio on any withdrawal of an initial
beneficial interest by the Fund, JPM Europe Fund, Ltd. or any other current
holder of such initial beneficial interests will be reduced by a pro rata
portion of any unamortized organization expenses. This reduction will be
determined with respect to each withdrawal of an initial beneficial interest by
calculating the proportion of the amount of the initial beneficial interest
withdrawn to the aggregate initial beneficial interests then outstanding.
NOTE 2 - VALUATION OF INVESTORS' BENEFICIAL INTERESTS
At 4:15 p.m. New York time on each business day of the Portfolio, the value of
an investor's beneficial interest in the Portfolio is equal to the product of
(i) the aggregate net asset value of the Portfolio, effective for that day, and
(ii) the percentage representing that investor's pro rata share of the aggregate
beneficial interests in the Portfolio, on that day.
<PAGE>
NOTE 3 - SERVICE AGREEMENTS WITH AFFILIATES
The Series Portfolio has entered into separate investment advisory and financial
and fund accounting services agreements with Morgan Guaranty Trust Company of
New York ("Morgan") to provide investment advisory and financial and fund
accounting services for the Portfolio as described in the Series Portfolio's
accompanying registration statement on Form N-lA. The Series Portfolio has also
entered into separate administration and exclusive placement agent agreements
with Signature Broker-Dealer Services, Inc. ("SBDS"), to provide for
administrative and placement services for the Portfolio, and a fund services
agreement with Pierpont Group, Inc. ("Pierpont Group"), each as described in
such registration statement. The officers of the Series Portfolio, excluding its
Chief Executive Officer, are employees of SBDS. The Trustees of the Series
Portfolio represent all the existing shareholders of Pierpont Group.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Investors and Trustees of
The European Equity Portfolio
In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all material respects, the financial position of The European Equity
Portfolio (one of three portfolios comprising The Series Portfolio, hereafter
referred to as the "Portfolio") at March 24, 1995, in conformity with generally
accepted accounting principles. This financial statement is the responsibility
of the Portfolio's management; our responsibility is to express an opinion on
this financial statement based on our audit. We conducted our audit of this
financial statement in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statement is free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statement, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
March 24, 1995
<PAGE>
THE JPM ADVISOR FUNDS - THE JPM ADVISOR JAPAN EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
MARCH 24, 1995
ASSETS
Investment in The Japan Equity Portfolio $ 100
Deferred Organization Expenses 58,000
-------
Total Assets 58,100
-------
LIABILITIES
Organization Expenses Payable 58,000
-------
Total Liabilities 58,000
-------
COMMITMENTS AND CONTINGENCIES (SEE NOTE 2) --
Net Assets $ 100
=======
Net Asset Value Per Share (10,000 shares of beneficial
interest outstanding; unlimited authorized shares of
beneficial interest of $0.001 par value), Offering and
Redemption Price $10.00
======
NOTES TO FINANCIAL STATEMENT
NOTE 1 - ORGANIZATION
The JPM Advisor Japan Equity Fund (the "Fund") is a series of The JPM Advisor
Funds, a Massachusetts business trust (the "Trust") organized on September 16,
1994, and has been inactive since that date except for matters relating to its
organization and registration as an investment company under the Investment
Company Act of 1940, as amended, and the sale of 10 shares (the "initial
shares") of the Fund to Signature Financial Group, Inc. ("Signature"), the
parent company of Signature Broker-Dealer Services, Inc. ("SBDS"), the Trust's
administrator and distributor.
The Fund will invest all of its investable assets in The Japan Equity Portfolio
(the "Portfolio"), a series of The Series Portfolio, a trust organized under the
laws of the State of New York. The Portfolio is an open-end management
investment company and has the same investment objective and policies as the
Fund.
The Fund has incurred $58,000 in organization expenses based on its allocable
pro rata share of total organization expenses for the nine funds in the Trust.
These costs are being deferred and will be amortized on a straight line basis
over a period not to exceed five years beginning with the commencement of
operations of the Fund. The amount paid by the Fund on any redemption by
Signature or any other current holder of the Fund's initial shares will be
reduced by the pro rata portion of any unamortized organization expenses of the
Fund which the number of initial shares redeemed bears to the total number of
initial shares outstanding
<PAGE>
immediately prior to such redemption.
NOTE 2 - SERVICE AGREEMENTS WITH AFFILIATES
The Trust has entered into a Services Agreement with Morgan Guaranty Trust
Company of New York ("Morgan") to provide financial and fund accounting services
and shareholder servicing for the Fund, as described in the accompanying Trust's
registration statement on Form N-lA. The Trust has also entered into separate
administration and distribution agreements with SBDS to provide for
administrative and distribution services for the Fund, as described in such
registration statement. Morgan, Charles Schwab & Co. ("Schwab") and the Trust
are parties to separate services and operating agreements (the "Schwab
Agreements") whereby Schwab makes Fund shares available to customers of
investment advisers and other financial intermediaries who are Schwab's clients.
The financial responsibilities and other obligations of the Fund under the
Schwab Agreements are contingent upon termination of Morgan's Services Agreement
with the Trust. The officers of the Trust are employees of SBDS.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Trustees of
The JPM Advisor Japan Equity Fund
In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all material respects, the financial position of The JPM Advisor
Japan Equity Fund (one of nine funds comprising The JPM Advisor Funds, hereafter
referred to as the "Fund") at March 24, 1995, in conformity with generally
accepted accounting principles. This financial statement is the responsibility
of the Fund's management; our responsibility is to express an opinion on this
financial statement based on our audit. We conducted our audit of this financial
statement in accordance with generally accepted auditing standards which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statement is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statement, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
March 24, 1995
<PAGE>
THE SERIES PORTFOLIO - THE JAPAN EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
MARCH 24, 1995
ASSETS
Cash $100,100
Deferred Organization Expenses 33,000
--------
Total Assets 133,100
--------
LIABILITIES
Organization Expenses Payable 33,000
--------
Total Liabilities 33,000
--------
Commitments and Contingencies (See Note 3) --
Net Assets $100,100
========
NOTES TO FINANCIAL STATEMENT
NOTE 1 - ORGANIZATION
The Japan Equity Portfolio (the "Portfolio") is a series of The Series Portfolio
(the "Series Portfolio"), a trust organized under the laws of the State of New
York on June 24, 1994, and has been inactive since that date except for matters
relating to its organization and registration as an investment company under the
Investment Company Act of 1940, as amended, and the sales of beneficial
interests in the Portfolio in the respective amounts of $100 to The JPM Advisor
Japan Equity Fund (the "Fund") and $100,000 to JPM Japan Equity Fund, Ltd. (the
"initial beneficial interests").
The Portfolio has incurred $33,000 in organization expenses based on its
allocable pro rata share of total organization expenses for the three Portfolios
in the Series Portfolio. These costs are being deferred and will be amortized on
a straight line basis over a period not to exceed five years beginning with the
commencement of operations of the Portfolio. The Portfolio will receive upon a
redemption by Signature (the purchaser of the Fund's initial shares) from the
Fund, a pro rata portion of the unamortized organization expenses of the
Portfolio. The amount paid by the Portfolio on any withdrawal of an initial
beneficial by the Fund, JPM Japan Equity Fund, Ltd. or any other current holder
of such initial beneficial interests be reduced by a pro rata portion of any
unamortized organization expenses. This reduction will be determined with
respect to each withdrawal of an initial beneficial interest by calculating the
proportion of the amount of the initial beneficial interest withdrawn to the
aggregate initial beneficial interests then outstanding.
NOTE 2 - VALUATION OF INVESTORS' BENEFICIAL INTEREST
At 4:15 p.m. New York time on each business day of the Portfolio, the value of
an investor's beneficial interest in the Portfolio is equal to the product of
(i) the aggregate net asset value of the Portfolio, effective for that day, and
(ii) the percentage representing that investor's pro rata share of the aggregate
beneficial interests in the Portfolio, on that day.
<PAGE>
NOTE 3 - SERVICE AGREEMENTS WITH AFFILIATES
The Series Portfolio has entered into separate investment advisory and financial
and fund accounting services agreements with Morgan Guaranty Trust Company of
New York ("Morgan") to provide investment advisory and financial and fund
accounting services for the Portfolio, as described in the Series Portfolio's
accompanying registration statement on Form N-lA. The Series Portfolio has also
entered into separate administration and exclusive placement agent agreements
with Signature Broker-Dealer Services, Inc.("SBDS"), to provide for
administrative and placement services for the Portfolio, and a fund services
agreement with Pierpont Group, Inc. ("Pierpont Group"), each as described in
such registration statement. The officers of the Series Portfolio, excluding its
Chief Executive Officer, are employees of SBDS. The Trustees of the Series
Portfolio represent all the existing shareholders of Pierpont Group.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Investors and Trustees of
The Japan Equity Portfolio
In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all material respects, the financial position of The Japan Equity
Portfolio (one of three portfolios comprising The Series Portfolio, hereafter
referred to as the "Portfolio") at March 24, 1995, in conformity with generally
accepted accounting principles. This financial statement is the responsibility
of the Portfolio's management; our responsibility is to express an opinion on
this financial statement based on our audit. We conducted our audit of this
financial statement in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statement is free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statement, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
March 24, 1995
<PAGE>
APPENDIX A
DESCRIPTION OF SECURITY RATINGS
STANDARD & POOR'S
CORPORATE AND MUNICIPAL BONDS
AAA - Debt rated AAA has the highest ratings assigned by Standard & Poor's to a
debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in a small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.
BB - Debt rated BB is regarded as having less near-term vulnerability to default
than other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments.
COMMERCIAL PAPER, INCLUDING TAX EXEMPT
A - Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined with
the designations 1, 2, and 3 to indicate the relative degree of safety.
A-1 - This designation indicates that the degree of safety regarding timely
payment is very strong.
SHORT-TERM TAX-EXEMPT NOTES
SP-1 - The short-term tax-exempt note rating of SP-1 is the highest rating
assigned by Standard & Poor's and has a very strong or strong capacity to pay
principal and interest. Those issues determined to possess overwhelming safety
characteristics are given a "plus" (+) designation.
SP-2 - The short-term tax-exempt note rating of SP-2 has a satisfactory capacity
to pay principal and interest.
A-1
<PAGE>
MOODY'S
CORPORATE AND MUNICIPAL BONDS
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
COMMERCIAL PAPER, INCLUDING TAX EXEMPT
Prime-1 - Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
- - Leading market positions in well established industries.
- - High rates of return on funds employed.
- - Conservative capitalization structures with moderate reliance on debt and
ample asset protection. - Broad margins in earnings coverage of fixed financial
charges and high internal cash generation. - Well established access to a range
of financial markets and assured sources of alternate liquidity.
A-2
<PAGE>
SHORT-TERM TAX EXEMPT NOTES
MIG-1 - The short-term tax-exempt note rating MIG-1 is the highest rating
assigned by Moody's for notes judged to be the best quality. Notes with this
rating enjoy strong protection from established cash flows of funds for their
servicing or from established and broad-based access to the market for
refinancing, or both.
MIG-2 - MIG-2 rated notes are of high quality but with margins of protection not
as large as MIG-1.
A-3
<PAGE>
APPENDIX B
INVESTING IN JAPAN AND ASIAN GROWTH MARKETS
JAPAN AND ITS SECURITIES MARKETS
The Japan Equity Portfolio will be subject to general economic and
political conditions in Japan. These include future political and economic
developments, the possible imposition of, or changes in, exchange controls or
other Japanese governmental laws or restrictions applicable to such investments,
diplomatic developments, political or social unrest and natural disasters.
The information set forth in this section has been extracted from
various governmental publications and private news services.
The Japan Equity Portfolio makes no representation as to the accuracy of the
information, nor has the Portfolio attempted to verify it. Furthermore, no
representation is made that any correlation exists between Japan or its economy
in general and the performance of the Japan Equity Portfolio.
DOMESTIC POLITICS
Japan has a parliamentary form of government. The legislative power is
vested in the Japanese Diet, which consists of a House of Representatives and a
House of Councillors. Members of the House of Representatives are elected for
terms of four years unless the House of Representatives is dissolved prior to
the expiration of their full elected terms. Members of the House of Councillors
are elected for terms of six years with one-half of the membership being elected
every three years. Various political parties are represented in the Diet,
including the conservative Liberal Democratic Party ("LDP"), which until August
1993 had been in power nationally since its formation in 1955. The LDP ceased to
have a majority of the House of Representatives in June 1993, when certain
members of the House of Representatives left the LDP and formed two new
political parties. After an election for the House of Representatives was held
on July 18, 1993 and the LDP failed to secure a majority, seven parties formed a
coalition to control the House of Representatives and chose Morihiro Hosokawa,
the Representative of the Japan New Party, to head their coalition. In April
1994, amid accusations of financial improprieties, Prime Minister Hosokawa
announced that he would resign. Tusutomu Hata succeeded Mr. Hosokawa as prime
minister and formed a new cabinet as a minority coalition government. In June
1994 Mr. Hata yielded to political pressure from opposition parties and
resigned. He was succeeded by Social Democratic Party leader Tomi-ichi Murayama,
Japan's first Socialist prime minister since 1948, who was chosen by a new and
unstable alliance between left-wing and conservative parties, including the LDP.
This political instability may hamper Japan's ability to establish and maintain
effective economic and fiscal policies, and recent and future political
developments may lead to changes in policy that might adversely affect the Japan
Equity Portfolio.
B-1
<PAGE>
ECONOMIC BACKGROUND
Over the past 30 years, Japan has experienced significant economic
development. During the era of high economic growth in the 1960s and early
1970s, the expansion was based on the development of heavy industries such as
steel and shipbuilding. In the 1970s, Japan moved into assembly industries which
employ high levels of technology and consume relatively low quantities of
resources, and since then has become a major producer of electrical and
electronic products and automobiles. Moreover, since the mid-1980s, Japan has
become a major creditor nation. With the exception of the periods associated
with the oil crises of the 1970s, Japan has generally experienced very low
levels of inflation.
Japan is largely dependent upon foreign economies for raw materials.
For instance, almost all of its oil is imported, the majority from the Middle
East. Oil prices therefore have a major impact on the domestic economy, as is
evidenced by the current account deficits triggered by the two oil crises of the
1970s. Oil prices have declined mainly due to a worldwide easing of demand for
crude oil. The stabilized price of oil contributed to Japan's sizeable current
account surplus and stability of wholesale and consumer prices during the period
1981 through 1992. While Japan is working to reduce its dependence on foreign
materials, its lack of natural resources poses a significant obstacle to this
effort.
International trade is important to Japan's economy, as exports provide
the means to pay for many of the raw materials it must import. Japan's trade
surplus has increased dramatically in recent years, exceeding $100 billion since
1991. Because of the concentration of Japanese exports in highly visible
products such as automobiles, machine tools and semiconductors, and the large
trade surpluses resulting therefrom, Japan has entered a tense phase in its
relations with its trading partners, particularly with respect to the United
States, with whom the trade imbalance is the greatest. The United States and
Japan have engaged in "economic framework" negotiations to help increase the
United States' share in Japanese markets and reduce Japan's current account
surplus, but progress in the negotiations has been hampered by the recent
political upheaval in Japan. Any trade sanctions imposed upon Japan by the
United States as a result of the current friction or otherwise could adversely
affect Japan and the performance of the Japan Equity Portfolio.
B-2
<PAGE>
The following table sets forth the composition of Japan's trade
balance, as well as other components of its current account, for the years 1980
to 1993.
<TABLE>
<CAPTION>
CURRENT ACCOUNT
Trade
-----------------------------------------------------------------------------------
Change from Change from
PRECEDING PRECEDING TRADE Current
YEAR EXPORTS YEAR IMPORTS YEAR BALANCE SERVICE TRANSFERS BALANCE
(U.S. DOLLARS IN
MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1980 $ 126,736 25.2% $ 124,611 25.4% $ 2,125 $ (11,343) $ (1,528) $ (10,746)
1981 149,522 18.0 129,555 4.0 19,967 (1,624) 4,770
(13,573)
1982 137,663 (7.9) 119,584 (7.7) 18,079 (9,848) 6,850
(1,381)
1983 145,468 5.7 114,014 (4.7) 31,454 (9,106) (1,549) 20,799
1984 168,290 15.7 124,003 8.8 44,257 (7,747) (1,507) 35,003
1985 174,015 3.4 118,029 (4.8) 55,986 (5,165) (1,652) 49,169
1986 205,591 18.1 112,764 (4.5) (4,932) (2,050) 85,845 92,827
1987 224,605 9.2 128,219 13.7 96,386 (5,702) 87,015 (3,669)
1988 259,765 15.7 164,753 28.5 95,012 (11,263) (4,118) 79,631
1989 269,570 3.8 192,653 16.9 76,917 (15,526) (4,234) 57,157
1990 280,374 4.0 216,846 12.6 65,528 (22,292) (5,475) 35,761
1991 306,557 9.3 203,513 (6.1) 103,044 (17,660) (12,483) 72,901
1992 330,850 7.9 198,502 (2.5) 132,348 (10,112) (4,685) 117,551
1993 351,292 6.2 209,778 5.7 141,514 (6,117) 131,448 (3,949)
</TABLE>
Source: Financial Statistics of Japan (1993 ed. and June 1994 supp.), Institute
of Fiscal and Monetary Policy, Ministry of Finance of Japan.
B-3
<PAGE>
The following table sets forth the composition of Japan's imports on a
customs clearance basis, both in terms of import item and in terms of regional
source, for the years 1980 to 1993.
<TABLE>
<CAPTION>
IMPORTS ON A CUSTOMS CLEARANCE BASIS
Crude
Materials Machinery and From From
YEAR TOTAL AND FUELS FOODSTUFF EQUIPMENT U.S. EUROPE FROM ASIA
- ---- ----- --------- --------- --------- ---- ------ ---------
(U.S. DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
1980 $140,528 $93,752 $14,666 $ 9,843 $24,408 $7,842 $31,751
1981 143,290 92,597 15,913 10,240 25,927 8,552 31,930
1982 131,931 84,529 14,575 9,112 24,179 7,560 29,985
1983 126,393 77,136 14,896 10,409 24,647 8,120 27,988
1984 136,503 79,862 16,027 12,066 26,862 9,334 31,883
1985 129,539 73,834 15,547 12,372 25,793 8,893 30,264
1986 126,408 54,423 19,186 14,699 29,054 13,989 29,849
1987 149,515 61,122 22,395 19,123 31,490 17,670 38,627
1988 187,354 66,330 29,120 26,661 42,037 24,071 47,802
1989 210,847 73,649 31,012 32,376 48,246 28,146 61,476
1990 234,799 85,102 31,572 40,863 52,369 35,028 66,646
1991 236,737 81,807 34,473 42,851 53,317 31,792 73,016
1992 233,021 78,734 37,289 42,853 52,230 31,280 74,448
1993 240,670 76,072 39,365 46,612 55,197 30,142 81,060
</TABLE>
Source: Financial Statistics of Japan (1993 ed. and June 1994 supp.), Institute
of Fiscal and Monetary Policy, Ministry of Finance of Japan.
B-4
<PAGE>
ECONOMIC TRENDS. The following table sets forth Japan's gross domestic
product for the years 1987 to 1993.
<TABLE>
<CAPTION>
GROSS DOMESTIC PRODUCT (GDP)
1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ----
(YEN IN BILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Consumption
Expenditures
Private (Y)270,505.4 (Y)264,779.9 (Y)255,084.2 (Y)243,628.1 (Y)228,483.2 (Y)215,122.0 (Y)204,585.3
Government 44,970.3 43,254.0 41,232.0 38,806.6 36,274.8 34,184.3 32,974.5
Capital Formation
(incl.inventories)
Private 102,047.7 109,579.2 116,638.0 110,871.9 100,130.8 89,043.7 76,176.5
Government 40,328.3 35,013.4 30,062.3 28,182.6 25,724.5 24,660.89 23,673.8
Exports of Goods
and Services 44,234.5 47,409.4 46,809.7 45,919.9 42,351.8 37,483.2 36,209.6
Imports of Goods
and Services 33,317.2 36,183.8 38,529.3 42,871.8 36,768.1 29,065.1 25,194.9
GDP
(Expenditures) 468,769.0 463,850.0 451,296.9 24,537.2 396,197.0 371,429.0 348,425.0
Change in GDP from Preceding Year
Nominal
terms 1.1% 2.8% 6.3% 7.2% 6.7% 6.6% 4.1%
Real Terms 0.1% 1.1% 4.3% 4.8% 4.7% 6.2% 4.1%
</TABLE>
Source: Financial Statistics of Japan (1993 ed. and June 1994 supp.), Institute
of Fiscal and Monetary Policy, Ministry of Finance of Japan.
The following tables set forth certain economic indicators in Japan for
the years indicated.
<TABLE>
<CAPTION>
ORDERS RECEIVED FOR MACHINERY
(280 COMPANIES)
1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ----
(YEN IN BILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Manufacturing................. (Y)4,657.7 (Y)5,526.1 (Y)6,785.9 (Y)7,289.3 (Y)6,663.1 (Y)5,621.3
Nonmanufacturing.............. 8,858.8 9,233.9 10,160.4 9,139.4 8,425.9 7,066.5
-------- ------- -------- ------- ------- -------
Total Demand by Private
Sector...................... (Y)13,516.5 (Y)14,759.9 (Y)16,946.3 (Y)16,429.3 (Y)15,088.9 (Y)12,687.8
Government Demand............. 11,226.7 11,010.7 11,291.3 11,601.2 10,316.4 9,131.4
-------- -------- -------- -------- -------- --------
Total......................... (Y)24,743.2 (Y)25,770.6 (Y)28,237.6 (Y)28,030.5 (Y)25,405.3 (Y)21,819.2
----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
Source: Financial Statistics of Japan (1993 ed. and June 1994 supp.), Institute
of Fiscal and Monetary Policy, Ministry of Finance of Japan.
B-5
<PAGE>
<TABLE>
<CAPTION>
NEW DWELLING CONSTRUCTION STARTED
YEAR NUMBER FLOOR AREA
(UNITS IN THOUSANDS) (SQUARE METERS IN THOUSANDS)
<S> <C> <C>
1980 1,269 119,102
1981 1,152 107,853
1982 1,146 107,638
1983 1,137 99,442
1984 1,187 100,226
1985 1,236 103,129
1986 1,365 111,003
1987 1,674 132,527
1988 1,685 134,530
1989 1,663 135,029
1990 1,707 137,490
1991 1,370 117,219
1992 1,403 120,318
1993 1,486 131,683
</TABLE>
Source: Financial Statistics of Japan (1993 ed. and June 1994 supp.), Institute
of Fiscal and Monetary Policy, Ministry of Finance of Japan.
<TABLE>
<CAPTION>
UNEMPLOYMENT
Labor Productivity Index
YEAR NUMBER UNEMPLOYED PERCENT UNEMPLOYED (MANUFACTURING)
(IN MILLIONS) (BASE YEAR 1990)
<S> <C> <C> <C>
1983 1.56 2.6% 66.7
1984 1.61 2.7 72.4
1985 1.56 2.6 75.6
1986 1.67 2.8 77.0
1987 1.73 2.8 81.4
1988 1.55 2.5 90.8
1989 1.42 2.3 96.2
1990 1.34 2.1 100.0
1991 1.36 2.1 102.5
1992 1.42 2.2 97.0
1993 1.66 2.5 95.4
</TABLE>
Source: Financial Statistics of Japan 1993 (1993 ed. and June 1994 supp.),
Institute of Fiscal and Monetary Policy, Ministry of Finance of Japan.
B-6
<PAGE>
<TABLE>
<CAPTION>
WHOLESALE PRICE INDEX
Change
All from Manu- Farm and
Commodi- Preced- factured Marine Mineral Domestic
YEAR TIES ING YEAR PRODUCTS PRODUCTS PRODUCTS UTILITIES PRODUCTS EXPORTS IMPORTS
---- ------ -------- -------- -------- -------- --------- -------- ------- -------
(BASE YEAR: 1990)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1980 110.9 17.7% 108.2 116.0 170.4 109.7 104.8 121.5 159.8
1981 112.5 1.4 109.0 114.1 185.5 121.1 106.2 122.9 162.4
1982 114.5 1.8 110.2 114.4 204.1 122.7 106.7 127.7 175.2
1983 111.9 (2.3) 108.6 113.6 180.9 106.0 120.0 161.3
122.9
1984 111.6 (2.7) 108.5 114.1 172.7 124.0 106.1 120.8 156.0
1985 110.4 (1.1) 107.4 109.4 173.6 124.4 105.3 119.1 152.2
1986 100.3 99.7 99.5 97.9 118.5 100.3 101.1 97.7 (9.1)
1987 96.5 (3.8) 96.4 94.9 110.8 97.2 96.0 89.7 88.2
1988 95.6 (0.9) 95.8 95.4 79.2 104.4 96.7 93.8 85.6
1989 98.0 2.5 98.2 98.3 87.1 100.8 98.5 97.9 92.0
1990 100.0 2.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
1991 99.4 (0.6) 99.8 97.5 93.6 100.1 94.6 91.8 101.0
1992 97.8 (1.6) 98.3 96.2 88.2 100.1 100.1 91.2 86.3
1993 (2.9) 95.5 95.1 76.8 100.2 98.6 83.9 77.3 95.0
</TABLE>
Source: Financial Statistics of Japan (1993 ed. and June 1994 supp.), Institute
of Fiscal and Monetary Policy, Ministry of Finance of Japan.
B-7
<PAGE>
<TABLE>
<CAPTION>
CONSUMER PRICE INDEX
General
Change from Including
YEAR GENERAL PRECEDING YEAR FRESH FOOD
(Base Year: 1990)
<S> <C> <C> <C>
1980 81.7 7.7% 81.8
1981 85.6 4.9 85.7
1982 88.0 2.8 88.3
1983 89.6 1.9 89.9
1984 91.7 2.3 91.9
1985 93.5 2.0 93.7
1986 94.1 0.6 94.5
1987 94.2 0.1 94.8
1988 94.9 0.7 95.1
1989 97.0 2.3 97.4
1990 100.0 3.1 100.0
1991 103.3 3.3 102.9
1992 105.0 1.6 105.2
1993 106.4 1.3 106.6
</TABLE>
Source: Financial Statistics of Japan (1993 ed. and June 1994 supp.), Institute
of Fiscal and Monetary Policy, Ministry of Finance of Japan.
B-8
<PAGE>
CURRENCY FLUCTUATION. The Japan Equity Portfolio's investments in
Japanese securities will be denominated in yen and most income received by the
Portfolio from such investments will be in yen. However, the Portfolio's net
asset value will be reported, and distributions will be made, in U.S. dollars.
Therefore, a decline in the value of the yen relative to the U.S. dollar could
have an adverse effect on the value of the Portfolio's Japanese investments.
The following table sets forth the average exchange rates of Japanese
yen for U.S. dollars for the years 1980 to 1993:
<TABLE>
<CAPTION>
CURRENCY EXCHANGE RATES
YEAR YEN PER U.S. DOLLAR
<S> <C>
1980 (Y)226.63
1981 220.63
1982 249.06
1983 237.55
1984 237.45
1985 238.47
1986 168.35
1987 144.60
1988 128.17
1989 138.07
1990 145.00
1991 134.59
1992 126.79
1993 111.08
</TABLE>
Source: Board of Governors of the Federal Reserve System, Federal Reserve
Bulletin
On March 25, 1995, the noon buying rate in London for cable transfers
payable in Japanese yen was 89.00 yen per U.S. dollar. The recent relative
strength of the yen to the U.S. dollar may adversely affect the economy of
Japan, and, in particular, the export sector thereof.
GEOLOGICAL FACTORS. The islands of Japan lie in the western Pacific
Ocean, off the eastern coast of the continent of Asia. Japan has in the past
experienced earthquakes and tidal waves of varying degrees of severity, and the
risks of such phenomena, and damage resulting therefrom, continue to exist.
B-9
<PAGE>
SECURITIES MARKETS
There are eight stock exchanges in Japan. Of these, the Tokyo Stock
Exchange is by far the largest, followed by the Osaka Stock Exchange and the
Nagoya Stock Exchange. These exchanges divide the market for domestic stocks
into two sections, with newly listed companies and smaller companies assigned to
the Second Section and largest companies assigned to the First Section.
The following table sets forth the number of Japanese companies listed
on each of the eight Japanese stock exchanges as of the end of 1993.
<TABLE>
<CAPTION>
NUMBER OF DOMESTIC COMPANIES LISTED ON ALL STOCK EXCHANGES
TOKYO OSAKA NAGOYA
1st 2nd 1st 2nd 1st 2nd
SEC. SEC. SEC. SEC. SEC. SEC. KYOTO HIROSHIMA FUKUOKA NIGATA SAPPORO
- --- --- --- --- --- --- ----- --------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1,234 433 857 321 432 127 237 198 252 197 191
</TABLE>
Source: Tokyo Stock Exchange, Fact Book 1994
The following table sets forth the trading volume and value of Japanese
stocks on each of the eight Japanese stock exchanges for the years 1989 to 1993.
<TABLE>
<CAPTION>
STOCK TRADING VOLUME & VALUE ON ALL STOCK EXCHANGES
(shares in millions; yen in billions)
ALL EXCHANGES TOKYO OSAKA
NAGOYA
YEAR VOLUME VALUE VOLUME VALUE VOLUME VALUE VOLUME VALUE
- ---- -------- --------- ---------- --------- ---------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
1989 ........ 256,296 (Y)386,395 222,599 (Y)332,617 25,096 (Y)41,679 7,263 (Y)10,395
1990 ........ 145,837 231,837 123,099 186,667 17,187 35,813 4,323 7,301
1991 ........ 107,844 134,160 93,606 110,897 10,998 18,723 2,479 3,586
1992 ........ 82,563 80,456 66,408 60,110 12,069 15,575 3,300 3,876
1993 ........ 101,172 106,123 86,934 86,889 10,439 14,635 2,779 3,459
</TABLE>
<TABLE>
<CAPTION>
KYOTO HIROSHIMA FUKUOKA NIIGATA SAPPORO
VOLUME VALUE VOLUME VALUE VOLUME VALUE VOLUME VALUE VOLUME VALUE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1989 ................. 331 (Y)443 190 (Y)235 268 (Y)330 398 (Y)475 151 (Y)221
1990 ................. 416 770 169 261 203 245 334 195 286 405
1991 ................. 220 300 125 149 122 174 181 208 113 123
1992 ................. 225 110 136 139 129 163 178 149 129 322
1993 ................. 222 340 185 178 229 225 206 226 173 170
</TABLE>
Source: Tokyo Stock Exchange, Fact Book 1994
B-10
<PAGE>
The following table sets forth the stock trading volume of Japanese
stocks on the Tokyo Stock Exchange for the years 1971 to 1993.
<TABLE>
<CAPTION>
TOKYO STOCK EXCHANGE
STOCK TRADING VOLUME
No. of
Trading Daily Turnover
YEAR DAYS TOTAL AVERAGE HIGH LOW RATIO
- ---- ------ ----- ------- ---- --- -----
(shares in millions)
<S> <C> <C> <C> <C> <C> <C>
1971............. 299 60,819 203 559 60 51.4%
1972............. 297 100,358 338 1,077 92 79.0
1973............. 287 59,248 206 1,066 48 43.0
1974............. 285 51,001 179 572 48 34.4
1975............. 284 51,906 183 401 62 32.6
1976............. 286 69,941 245 646 91 40.9
1977............. 286 71,195 249 921 102 39.4
1978............. 285 98,555 345 865 149 52.1
1979............. 286 98,246 344 914 138 50.2
1980............. 285 102,245 359 940 141 50.2
1981............. 285 107,549 377 1,390 114 50.0
1982............. 285 78,474 275 823 108 34.6
1983............. 286 104,309 365 997 122 44.3
1984............. 287 103,737 361 965 124 42.5
1985............. 285 121,863 428 1,367 163 48.0
1986............. 279 197,699 709 2,336 141 75.1
1987............. 274 263,611 962 2,839 211 96.1
1988............. 273 282,637 1,035 2,868 187 98.1
1989............. 249 222,599 894 2,212 276 73.1
1990............. 246 123,099 500 1,101 196 38.4
1991............. 246 93,606 381 1,462 138 28.4
1992............. 247 66,408 269 841 116 19.9
1993............. 246 86,935 353 1,553 82 25.9
</TABLE>
Source: Tokyo Stock Exchange, Fact Book 1994
B-11
<PAGE>
The following table sets forth the stock trading value of Japanese
stocks on the Tokyo Stock Exchange for the years 1971 to 1993.
<TABLE>
<CAPTION>
TOKYO STOCK EXCHANGE
STOCK TRADING VALUE
Turnover
YEAR TOTAL DAILY AVERAGE HIGH LOW RATIO
(yen in millions)
<S> <C> <C> <C> <C> <C>
1971................................... (Y)13,980,301 (Y)46,757 (Y)131,339 (Y)10,734 71.8%
1972................................... 21,435,235 72,173 202,347 18,951 60.6
1973................................... 14,904,472 51,932 253,353 11,834 34.4
1974................................... 12,390,319 43,475 137,534 11,455 33.2
1975................................... 15,566,058 54,810 154,217 14,261 39.3
1976................................... 23,662,168 82,735 216,984 28,945 49.2
1977................................... 21,500,060 75,175 193,945 30,497 41.1
1978................................... 32,534,301 144,155 265,158 45,010 55.2
1979................................... 34,911,285 122,067 305,407 44,292 51.5
1980................................... 36,489,558 128,034 247,596 53,714 49.9
1981................................... 49,364,571 173,209 472,362 50,288 53.4
1982................................... 36,571,457 128,320 579,505 48,401 38.5
1983................................... 54,844,791 191,765 496,110 67,825 48.8
1984................................... 67,974,003 236,843 575,562 83,682 47.1
1985................................... 78,711,048 276,179 727,316 110,512 44.7
1986................................... 159,836,218 572,890 1,682,060 115,244 67.2
1987................................... 250,736,971 915,098 2,382,114 221,230 80.6
1988................................... 285,521,260 1,045,865 2,768,810 192,704 70.2
1989................................... 332,616,597 1,335,810 2,796,946 392,347 61.1
1990................................... 186,666,820 758,808 1,464,920 218,205 57.7
1991................................... 110,897,491 450,803 1,531,064 151,565 19.3
1992................................... 60,110,391 243,362 686,737 97,616 18.0
1993................................... 86,889,072 353,208 1,422,760 61,747 18.3
</TABLE>
Source: Tokyo Stock Exchange, Fact Book 1994
B-12
<PAGE>
SECURITIES INDEX. The TOPIX is a composite index of all common stocks
listed on the First Section of the Tokyo Stock Exchange. The TOPIX reflects the
change in the aggregate market value of the common stocks as compared to the
aggregate market value of those stocks as of the close of January 4, 1968.
The following table sets forth the high, low and year-end TOPIX for
each year from 1971 to 1993.
<TABLE>
<CAPTION>
TOPIX (TOKYO STOCK PRICE INDEX)
(Jan. 4, 1968 = 100)
YEAR YEAR-END HIGH LOW
<S> <C> <C> <C>
1971 199.45 209.00 148.05
1972 401.70 401.70 199.93
1973 306.44 422.48 284.69
1974 278.34 342.47 251.96
1975 323.43 333.11 268.24
1976 383.88 383.88 326.28
1977 364.08 390.93 350.49
1978 449.55 452.60 364.04
1979 459.61 465.24 435.13
1980 494.10 497.96 449.01
1981 570.31 603.92 495.79
1982 593.72 593.72 511.52
1983 731.82 731.82 574.51
1984 913.37 913.37 735.45
1985 1,049.40 1,058.35 916.93
1986 1,556.37 1,583.35 1,025.85
1987 1,725.83 2,258.56 1,557.46
1988 2,357.03 2,357.03 1,690.44
1989 2,881.37 2,884.80 2,364.33
1990 1,733.83 2,867.70 1,523.43
1991 1,714.68 2,028.85 1,638.06
1992 1,307.66 1,763.43 1,102.50
1993 1,439.31 1,698.67 1,250.06
</TABLE>
Source: Tokyo Stock Exchange, Fact Book 1994
B-13
<PAGE>
As this index reflects, share prices of companies traded on Japanese
stock exchanges reached historical peaks (which were later referred to as the
"bubble") in 1989 and 1990. Afterwards stock prices decreased significantly,
reaching their lowest levels in the second half of 1992. There can be no
assurance that additional market corrections will not occur.
ASIAN GROWTH MARKETS
The Asia Growth Portfolio will be subject to certain risks and special
considerations, including those set forth below, which are not typically
associated with investing in securities of U.S. companies. In particular,
securities markets in Asian growth markets have been subject to substantial
price volatility, often without warning. This potential for sudden market
declines should be weighed and balanced against the potential for rapid growth
in Asian growth markets. Further, certain securities that the Portfolio may
purchase, and investment techniques in which the Portfolio may engage, involve
risks, including those set forth below.
INVESTMENT AND REPATRIATION RESTRICTIONS
Foreign investment in the securities markets of several Asian growth
markets is restricted or controlled to varying degrees. These restrictions may
limit investment in certain of the Asian growth markets and may increase
expenses of the Portfolio. For example, certain countries may require
governmental approval prior to investments by foreign persons in a particular
company or industry sector or limit investment by foreign persons to only a
specific class of securities of a company which may have less advantageous terms
(including price) than securities of the company available for purchase by
nationals. Certain countries may restrict or prohibit investment opportunities
in issuers or industries deemed important to national interests. In addition,
the repatriation of both investment income and capital from several of the Asian
growth markets is subject to restrictions such as the need for certain
government consents. Even where there is no outright restriction on repatriation
of capital, the mechanics of repatriation may affect certain aspects of the
operation of the Portfolio. For example, Taiwan imposes a waiting period on the
repatriation of investment capital for certain foreign investors. Although these
restrictions may in the future make it undesirable to invest in the countries to
which they apply, the Advisor does not believe that any current repatriation
restrictions would preclude the Portfolio from effectively managing its assets.
If, because of restrictions on repatriation or conversion, the
Portfolio were unable to distribute substantially all of its net investment
income and long-term capital gains within applicable time periods, the Portfolio
could be subject to U.S. Federal income and excise taxes which would not
otherwise be incurred and may cease to qualify for the favorable tax treatment
afforded to regulated investment companies under the Code, in which case it
would become subject to U.S. federal income tax on all of its income and gains.
Generally, there are restrictions on foreign investment in certain
Asian growth markets, although these restrictions vary in form and content. In
India, Indonesia, Korea, Malaysia, the Philippines, Singapore and Thailand, the
Portfolio may be limited by government regulation or a company's charter to a
maximum percentage of equity ownership in any one company. The Advisor intends
to apply
B-14
<PAGE>
for approval from Indian governmental authorities to invest in India on
behalf of the Portfolio as a foreign institutional investor (an "FII"). The
Advisor expects to receive the necessary approvals from these authorities within
three months from the date of this Prospectus. Under the guidelines that apply
currently for FIIs, no FII (or members of an affiliated group investing through
one or more FIIs) may hold more than 5% of the total issued capital of any
Indian company. In addition, all non-resident portfolio investments, including
those of all FIIs and their clients, may not exceed 24% of the issued share
capital of any Indian company; however, the 24% limit does not apply to
investments by FIIs through authorized offshore funds and offshore equity
issues. Further, at least 70% of the total investments made by an FII pursuant
to its FII authorization must be in equity and equity related instruments such
as convertible debentures and tradeable warrants. Under a recently adopted
policy, FIIs may purchase new issues of equity securities directly from an
Indian company, subject to certain conditions. The procedures for such direct
subscription by FIIs of such equity securities are unclear and it is likely that
a further limit, in addition to the 24% limit referred to above, may be imposed.
The guidelines that apply for FIIs are relatively recent and thus experience as
to their application has been limited. At present, FII authorizations are
granted for five years and may be renewed with the approval of India
governmental authorities. Korea generally prohibits foreign investment in
Won-denominated debt securities and Sri Lanka prohibits foreign investment in
government debt securities. In the Philippines, the Portfolio may generally
invest in "B" shares of Philippine issuers engaged in partly nationalized
business activities, which shares are made available to foreigners, and the
market prices, liquidity and rights of which may vary from shares owned by
nationals. Similarly, in the People's Republic of China (the "PRC"), the
Portfolio may only invest in "B" shares of securities traded on The Shanghai
Securities Exchange and The Shenzhen Stock Exchange, currently the two
officially recognized securities exchanges in the PRC. "B" shares traded on The
Shanghai Securities Exchange are settled in U.S. dollars and those traded on The
Shenzhen Stock Exchange are generally settled in Hong Kong dollars.
In Hong Kong, Korea, the Philippines, Taiwan and Thailand, there are
restrictions on the percentage of permitted foreign investment in shares of
certain companies, mainly those in highly regulated industries, although in
Taiwan there are limitations on foreign ownership of shares of any listed
company. In addition, Korea also prohibits foreign investment in specified
telecommunications companies and the Philippines prohibits foreign investment in
mass media companies and companies providing certain professional services.
From time to time, pooled investment funds may be the most effective
available means by which the Portfolio may invest in equity securities of
certain Asian growth markets. For example, prior to January 3, 1992, foreign
investment in Korea was generally limited to a few investment funds that had
been granted a license from the government of Korea, although since that date
direct foreign investment in individual stocks in Korea has been officially
permitted within specific limits. Investment in such investment funds may
involve the payment of management expenses and, in connection with some
purchases, sales loads, and payment of substantial premiums above the value of
such companies' portfolio securities. The Portfolio does not intend to invest in
such investment funds unless, in the judgment of the Advisor, the potential
benefits of such investment outweigh the payment of any applicable premium,
sales load and expenses.
B-15
<PAGE>
MARKET CHARACTERISTICS
DIFFERENCES BETWEEN THE U.S. AND ASIAN SECURITIES MARKETS. The
securities markets of Asian growth markets have substantially less volume than
the New York Stock Exchange, and equity and debt securities of most companies in
Asian growth markets are less liquid and more volatile than equity and debt
securities of U.S. companies of comparable size. Some of the stock exchanges in
Asian growth markets, such as those in the PRC, are in the earliest stages of
their development. Many companies traded on securities markets in Asian growth
markets are smaller, newer and less seasoned than companies whose securities are
traded on securities markets in the United States. Investments in smaller
companies involve greater risk than is customarily associated with investing in
larger companies. Smaller companies may have limited product lines, markets or
financial or managerial resources and may be more susceptible to losses and
risks of bankruptcy. Additionally, market making and arbitrage activities are
generally less extensive in such markets, which may contribute to increased
volatility and reduced liquidity of such markets. Accordingly, each of these
markets may be subject to greater influence by adverse events generally
affecting the market, and by large investors trading significant blocks of
securities, than is usual in the United States. To the extent that any Asian
growth market experiences rapid increases in its money supply and investment in
equity securities for speculative purposes, the equity securities traded in any
such country may trade at price-earnings multiples higher than those of
comparable companies trading on securities markets in the United States, which
may not be sustainable. Securities markets in Asian growth markets may also be
subject to substantial governmental control, which may cause sudden or prolonged
disruptions in market prices unrelated to supply and demand considerations. This
may also be true of currency markets.
Brokerage commissions and other transaction costs on securities
exchanges in Asian growth markets are generally higher than in the United
States. In addition, security settlements may in some instance be subject to
delays and related administrative uncertainties, including risk of loss
associated with the credit of local brokers.
GOVERNMENT SUPERVISION OF ASIAN SECURITIES MARKETS; LEGAL SYSTEMS.
There is less government supervision and regulation of foreign securities
exchanges, listed companies and brokers in Asian growth markets than exists in
the United States. Less information, therefore, may be available to the Fund
than in respect of investments in the United States. Further, in certain Asian
growth markets, less information may be available to the Fund than to local
market participants. Brokers in Asian growth markets may not be as well
capitalized as those in the United States, so that they are more susceptible to
financial failure in times of market, political, or economic stress. In
addition, existing laws and regulations are often inconsistently applied. As
legal systems in some of the Asian growth markets develop, foreign investors may
be adversely affected by new laws and regulations, changes to existing laws and
regulations and preemption of local laws and regulations by national laws. In
circumstances where adequate laws exist, it may not be possible to obtain swift
and equitable enforcement of the law. Currently a mixture of legal and
structural restrictions affect the securities markets of certain Asian growth
markets. India in particular is experiencing
B-16
<PAGE>
difficulty in processing and settling securities transactions to such a degree
that investments are currently impeded.
Korea, in an attempt to avoid market manipulation, requires
institutional investors to deposit in their broker's account a percentage of the
amount to be invested (currently 20%) prior to execution of a purchase order.
That deposit requirement will expose the Fund to the broker's credit risk. These
examples demonstrate that legal and structural developments can be expected to
affect the Portfolio, potentially affecting liquidity of positions held by the
Portfolio, in unexpected and significant ways from time to time.
FINANCIAL INFORMATION AND STANDARDS. Issuers in Asian growth markets
generally are subject to accounting, auditing and financial standards and
requirements that differ, in some cases significantly, from those applicable to
U.S. issuers. In particular, the assets and profits appearing on the financial
statements of an Asian growth market issuer may not reflect its financial
position or results of operations in accordance with U.S. generally accepted
accounting principles. In addition, for an issuer that keeps accounting records
in local currency, inflation accounting rules may require, for both tax and
accounting purposes, that certain assets and liabilities be restated on the
issuer's balance sheet in order to express items in terms of currency of
constant purchasing power. Inflation accounting may indirectly generate losses
or profits. Consequently, financial data may be materially affected by
restatements for inflation and may not accurately reflect the real condition of
those issuers and securities markets. Moreover, substantially less information
may be publicly available about issuers in Asian growth markets than is
available about U.S. issuers.
SOCIAL, POLITICAL AND ECONOMIC FACTORS
Asian growth markets may be subject to a greater degree of social,
political and economic instability than is the case in the United States and
Western European countries. Such instability may result from, among other
things, the following: (i) authoritarian governments or military involvement in
political and economic decision-making, and changes in government through
extra-constitutional means; (ii) popular unrest associated with demand for
improved political, economic and social conditions; (iii) internal insurgencies,
(iv) war or hostile relations with neighboring countries; and (v) ethnic,
religious and racial disaffection. Such social, political and economic
instability could significantly disrupt the principal financial markets in which
the Portfolio invests and adversely affect the value of the Portfolio's assets.
In addition, there may be the possibility of asset expropriations or future
confiscatory levels of taxation affecting the Portfolio.
Few Asian growth markets have western-style or fully democratic
governments. Some governments in the region are authoritarian and influenced by
security forces. During the course of the last 25 years, governments in the
region have been installed or removed as a result of military coups, while
others have periodically demonstrated repressive police state characteristics.
Disparities of wealth, among other factors, have also led to social unrest in
some Asian growth markets, accompanied, in certain cases, by violence and labor
unrest. Ethnic, religious and
B-17
<PAGE>
racial disaffection, as evidenced in India, Pakistan and Sri Lanka, have created
social, economic and political problems.
Several Asian growth markets have or in the past have had hostile
relationships with neighboring nations or have experienced internal insurgency.
Thailand has experienced border conflicts with Laos and Cambodia, and India is
engaged in border disputes with several of its neighbors, including the PRC and
Pakistan. Tension between the Tamil and Sinhalese communities in Sri Lanka has
resulted in periodic outbreaks of violence. An uneasy truce exists between North
Korea and South Korea, and the recurrence of hostilities remains possible.
Reunification of North Korea and South Korea could have a detrimental effect on
the economy of South Korea. Also, the PRC continues to claim sovereignty over
Taiwan. The PRC is acknowledged to possess nuclear weapons capability; North
Korea is alleged to possess or be in the process of developing such a
capability.
The economies of most Asian growth markets are heavily dependent upon
international trade and are accordingly affected by protective barriers and the
economic conditions of their trading partners, principally, the United States,
Japan, the PRC and the European Community. The enactment by the United States or
other principal trading partners of protectionist trade legislation, reduction
of foreign investment in the local economies and general declines in the
international securities markets could have a significant adverse effect upon
the securities markets of the Asian growth markets. In addition, the economies
of some Asian growth markets, Indonesia and Malaysia, for example, are
vulnerable to weakness in world prices for their commodity exports, including
crude oil.
Governments in certain Asian growth markets participate to a
significant degree, through ownership interest or regulation, in their
respective economies. Action by these governments could have a significant
adverse effect on market prices of securities and payment of dividends.
With respect to investments in the PRC, it should be noted that the PRC
has only recently permitted private economic activities and the PRC government
has exercised and continues to exercise substantial control over virtually every
sector of the PRC economy through regulation and state ownership. The PRC is a
socialist state which since 1949 has been, and is expected to continue to be,
controlled by the Communist party of the PRC. Continued economic growth and
development in the PRC, as well as opportunities for foreign investment, and
prospects of private sector enterprises, in the PRC, will depend in many
respects on the implementation of the PRC's current program of economic reform,
which cannot be assured.
In Hong Kong, British proposals to extend limited democracy have caused
a political rift with the PRC, which is scheduled to assume sovereignty over the
colony in 1997. Although the PRC has committed by treaty to preserve the
economic and social freedoms enjoyed in Hong Kong for 50 years after regaining
control of Hong Kong, the continuation of the current form of the economic
system in Hong Kong after the reversion will depend on the actions of the
government of the PRC. In addition, such reversion has increased sensitivity in
Hong Kong to political developments and statements by public figures in the PRC.
Business confidence in Hong Kong, therefore, can be significantly affected by
such developments and statements, which in turn can affect markets and business
performance.
B-18
<PAGE>
With respect to investments in Taiwan, it should be noted that Taiwan
lacks formal diplomatic relations with many nations, although it conducts trade
and financial relations with most major economic powers. Both the government of
the PRC and the government of the Republic of China in Taiwan claim sovereignty
over all of China. Although relations between Taiwan and the PRC are currently
peaceful, renewed frictions or hostility could interrupt operations of Taiwanese
companies in which the Portfolio invests and create uncertainty that could
adversely affect the value and marketability of its Taiwan investments.
With regard to India, agriculture occupies a more prominent position in
the Indian economy than in the United States, and the Indian economy therefore
is more susceptible to adverse changes in weather. The government of India has
exercised and continues to exercise significant influence over many aspects of
the economy, and the number of public sector enterprises in India is
substantial. Accordingly government actions in the future could have a
significant effect on the Indian economy which could affect private sector
companies, market conditions and prices and yields of securities held by the
Portfolio. Religious and ethnic unrest persists in India. The long standing
grievances between the Hindu and Muslim populations resulted in communal
violence during 1993 in the aftermath of the destruction of a mosque in Ayodhya
by radical elements of the Hindu population. The Indian government is also
confronted by separatist movements in several states and the long standing
border dispute with Pakistan over the State of Jammu and Kashmir, a majority of
whose population is Muslim, remains unsolved. In addition, Indian stock
exchanges have in the past been subject to repeated closure including for ten
days in December 1993 due to a broker's strike, and there can be no assurance
that this will not recur.
THINLY TRADED MARKETS
Compared to securities traded in the United States, generally all
securities of Asian growth market issuers may be considered to be thinly traded.
Even relatively widely held securities in such countries may not be able to
absorb trades of a size customarily transacted by institutional investors,
without price disruptions. Accordingly, the Portfolio's ability to reposition
itself will be more constrained than would be the case for a typical equity
mutual fund.
SETTLEMENT PROCEDURES AND DELAYS
Settlement procedures in Asian growth markets are less developed and
reliable than those in the United States and in other developed markets, and the
Portfolio may experience settlement delays or other material difficulties. This
problem is particularly severe in India where settlement is through physical
delivery and, where currently, a severe shortage of vault capacity exists among
custodial banks, although efforts are being undertaken to alleviate the
shortage. In addition, significant delays are common in registering transfers of
securities, and the Portfolio may be unable to sell such securities until the
registration process is completed and may experience delays in receipt of
dividends and other entitlement. The recent and anticipated inflow of funds into
the Indian securities market has placed added strains on the settlement system
and transfer process. In addition, the Portfolio may be subject to significant
limitations in the future on the volume of trading during any particular period,
imposed by its sub-custodian in India or otherwise as a result of such physical
or other operational constraints.
B-19
