<PAGE>
As filed with the U.S. Securities and Exchange Commission on September 9, 1996
Registration Nos. 33-84798 and 811-8794
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 9
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 11
THE JPM ADVISOR FUNDS
(Exact Name of Registrant as Specified in Charter)
60 State Street, Suite 1300, Boston, Massachusetts 02109
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (617) 557-0700
John E. Pelletier
60 State Street, Suite 1300, Boston, Massachusetts 02109
(Name and Address of Agent for Service)
Copy to:
Stephen K. West, Esq.
Sullivan & Cromwell
125 Broad Street, New York, New York 10004
It is proposed that this filing will become effective (check appropriate box):
[ ] Immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) of rule 485.
If appropriate, check the following box:
[X] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
The Registrant has previously registered an indefinite number of its
shares under the Securities Act of 1933, as amended, pursuant to Rule 24f-2
under the Investment Company Act of 1940, as amended. The Registrant has not
filed Rule 24f-2 notices with respect to The JPM Advisor International Fixed
Income Fund (for the Fiscal Year ended September 30, 1995); The JPM Advisor
U.S. Equity Fund and The JPM Advisor U.S. Small Cap Equity Fund (for their
Fiscal Years ended May 31, 1995); The JPM Advisor U.S. Fixed Income Fund, The
JPM Advisor International Equity Fund and The JPM Advisor Emerging Markets
Equity Fund (for their Fiscal Years ended October 31, 1995); and The JPM
Advisor European Equity Fund, The JPM Advisor Japan Equity Fund and The JPM
Advisor Asia Growth Fund (for their Fiscal Years ended December 31, 1995)
because the Registrant has not sold any securities to the public with respect
to those series during the fiscal years indicated. The Registrant filed a
Rule 24f-2 notice with respect to its series as follows: The JPM Advisor U.S.
Equity Fund and The JPM Advisor U.S. Small Cap Equity Fund (for their Fiscal
Years ended May 31, 1996) on July 30, 1996. The Registrant expects to file
Rule 24f-2 notices with respect to its other series as follows: The JPM
Advisor Diversified Fund (for the Fiscal Year ending June 30, 1997) on or
before August 29, 1997; The JPM Advisor International Fixed Income Fund (for
the Fiscal Year ending September 30, 1996) on or before November 29, 1996; The
JPM Advisor U.S. Fixed Income Fund, The JPM Advisor International Equity Fund
and The JPM Advisor Emerging Markets Equity Fund (for their Fiscal Years
ending October 31, 1996) or before December 30, 1996; and The JPM Advisor
European Equity Fund, The JPM Advisor Japan Equity Fund and The JPM Advisor
Asia Growth Fund (for their Fiscal Years ending December 31, 1996) on or
before February 28, 1997.
The U.S. Fixed Income Portfolio, The Non-U.S. Fixed Income Portfolio, The
Selected U.S. Equity Portfolio, The U.S. Small Company Portfolio, The Non-U.S.
Equity Portfolio, The Emerging Markets Equity Portfolio, The Series Portfolio
and The Diversified Portfolio have also executed this Registration Statement.
JPM510A
<PAGE>
THE JPM ADVISOR FUNDS
CROSS-REFERENCE SHEET
(As Required by Rule 495)
PART A ITEM NO.: Prospectus Headings.
1. COVER PAGE: Cover Page.
2. SYNOPSIS: Investors for Whom the Fund is Designed.
3. CONDENSED FINANCIAL INFORMATION: Financial Highlights, where applicable.
4. GENERAL DESCRIPTION OF REGISTRANT: Cover Page; Investors for Whom the
Fund is Designed; Investment Objective and Policies; Risk Factors and
Additional Investment Information; Investment Restrictions; Special
Information Concerning Investment Structure; Organization; Appendix.
5. MANAGEMENT OF THE FUND: Management of the Trust and the Portfolio;
Shareholder Transactions; Additional Information.
5A. MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE: Not applicable.
6. CAPITAL STOCK AND OTHER SECURITIES: Special Information Concerning
Investment Structure; Shareholder Transactions; Net Asset Value; Purchase
of Shares; Taxes; Dividends and Distributions; Organization.
7. PURCHASE OF SECURITIES BEING OFFERED: Purchase of Shares; Exchange of
Shares; Investors for Whom the Fund is Designed; Dividends and
Distributions; Net Asset Value.
8. REDEMPTION OR REPURCHASE: Redemption of Shares; Exchange of Shares; Net
Asset Value.
9. PENDING LEGAL PROCEEDINGS: Not applicable.
PART B ITEM NO.: Statement of Additional Information Headings.
10. COVER PAGE: Cover Page.
11. TABLE OF CONTENTS: Table of Contents.
12. GENERAL INFORMATION AND HISTORY: General.
13. INVESTMENT OBJECTIVES AND POLICIES: Investment Objectives and Policies;
Additional Investments; Investment Restrictions; Quality and
Diversification Requirements; Appendices A and B.
14. MANAGEMENT OF THE FUND: Trustees and Officers.
15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES: Description of
Shares.
16. INVESTMENT ADVISORY AND OTHER SERVICES: Investment Advisor; Co-
Administrator and Distributor; Services Agent; Custodian; Independent
Accountants; Expenses.
17. BROKERAGE ALLOCATION AND OTHER PRACTICES: Portfolio Transactions.
18. CAPITAL STOCK AND OTHER SECURITIES: Massachusetts Trust; Description of
Shares.
19. PURCHASE, REDEMPTION AND PRICING OF SECURITIES BEING OFFERED: Net Asset
Value; Purchase of Shares; Redemption of Shares; Exchange of Shares;
Dividends and Distributions.
20. TAX STATUS: Taxes.
21. UNDERWRITERS: Co-Administrator and Distributor.
22. CALCULATION OF PERFORMANCE DATA: Performance Data.
23. FINANCIAL STATEMENTS: Financial Statements.
PART C
Information required to be included in Part C is set forth under the
appropriately numbered items included in Part C of this registration
statement.
<PAGE>
EXPLANATORY NOTE
This post-effective amendment no. 9 (the "Amendment") to the
Registrant's registration statement (File nos. 33-84798 and 811-8794) on
Form N-1A (the "Registration Statement") is being filed with respect to
The JPM Advisor International Fixed Income Fund, a series of shares of the
Registrant (the "Fund"), pursuant to the Registrant's undertaking to file a
post-effective amendment to the Registration Statement, using financials
which need not be certified, within four to six months following the date of
commencement of public investment operations of the Fund. As a result, the
Amendment does not affect any of the Registrant's currently effective
prospectuses for each other series of shares of the Registrant, each of which
is incorporated herein by reference as most recently filed pursuant to
Rule 497 under the Securities Act of 1933, as amended.
<PAGE>
PROSPECTUS
The JPM Advisor International Fixed Income Fund
60 State Street
Boston, Massachusetts 02109
For information call (800) JPM-3637
The JPM Advisor International Fixed Income Fund (the "Fund") seeks to provide
a high total return, consistent with moderate risk of capital, from a
portfolio of international fixed income securities. It is designed for
investors who seek exposure to the international bond markets in their
investment portfolios.
The Fund is a non-diversified no-load mutual fund for which there are no
sales charges or exchange or redemption fees. The Fund is a series of The JPM
Advisor Funds, an open-end management investment company organized as a
Massachusetts business trust (the "Trust").
UNLIKE OTHER MUTUAL FUNDS WHICH DIRECTLY ACQUIRE AND MANAGE THEIR OWN
PORTFOLIO OF SECURITIES, THE FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE
BY INVESTING ALL OF ITS INVESTABLE ASSETS IN THE NON-U.S. FIXED INCOME
PORTFOLIO (THE "PORTFOLIO"), A CORRESPONDING NON-DIVERSIFIED OPEN-END
MANAGEMENT INVESTMENT COMPANY HAVING THE SAME INVESTMENT OBJECTIVE AS THE
FUND. THE FUND INVESTS IN THE PORTFOLIO THROUGH A TWO-TIER MASTER-FEEDER
INVESTMENT FUND STRUC-TURE. SEE SPECIAL INFORMATION CONCERNING INVESTMENT
STRUCTURE ON PAGE 3.
The Portfolio is advised by Morgan Guaranty Trust Company of New
York ("Morgan" or the "Advisor").
This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing and it should be retained
for future reference. Additional information about the Fund has been filed
with the Securities and Exchange Commission in a Statement of Additional
Information dated September 9, 1996 (as supplemented from time to time). This
information is incorporated herein by reference and is available without
charge upon written request from the Fund's Distributor, Funds Distributor,
Inc. ("FDI"), 60 State Street, Suite 1300, Boston, Massachusetts 02109,
Attention: The JPM Advisor Funds, or by calling (800) 221-7930.
INVESTMENTS IN THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, MORGAN GUARANTY TRUST COMPANY OF NEW YORK OR ANY OTHER BANK.
SHARES OF THE FUND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. AN
INVESTMENT IN THE FUND IS SUBJECT TO RISK THAT MAY CAUSE THE VALUE OF THE
INVESTMENT TO FLUCTUATE, AND WHEN THE INVESTMENT IS REDEEMED, THE VALUE MAY
BE HIGHER OR LOWER THAN THE AMOUNT ORIGINALLY INVESTED BY THE INVESTOR.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS SEPTEMBER 9, 1996
<PAGE>
TABLE OF CONTENTS
PAGE
Investors for Whom the Fund is Designed.................................... 1
Financial Highlights....................................................... 3
Special Information Concerning Investment Structure........................ 3
Investment Objective and Policies.......................................... 4
Risk Factors and Additional Investment Information......................... 6
Investment Restrictions.................................................... 10
Management of the Trust and the Portfolio.................................. 10
Shareholder Transactions................................................... 13
PAGE
Purchase of Shares......................................................... 13
Redemption of Shares....................................................... 14
Exchange of Shares......................................................... 14
Dividends and Distributions................................................ 15
Net Asset Value............................................................ 15
Organization............................................................... 15
Taxes...................................................................... 16
Additional Information..................................................... 17
Appendix................................................................... A-1
<PAGE>
The JPM Advisor International Fixed Income Fund
INVESTORS FOR WHOM THE FUND IS DESIGNED
The Fund is designed for investors who seek to broaden their investments by
adding exposure to international bonds. The Fund seeks to achieve its
investment objective by investing all of its investable assets in The
Non-U.S. Fixed Income Portfolio, a non-diversified open-end management
investment company having the same investment objective as the Fund. Since
the investment characteristics and experience of the Fund will correspond
directly with those of the Portfolio, the discussion in this Prospectus
focuses on the investments and investment policies of the Portfolio. The net
asset value of shares in the Fund fluctuates with changes in the value of the
investments in the Portfolio.
The Portfolio may make various types of investments in seeking its objective.
Among the permissible investments and investment techniques for the Portfolio
are futures contracts, options and forward contracts on foreign currencies.
The potential risks of investing in these derivative instruments are
discussed in Risk Factors and Additional Investment Information and the
Appendix. The Portfolio may also purchase certain privately placed
securities. The Portfolio's investments in securities of foreign issuers,
including issuers in emerging markets, involve foreign investment risks and
may be more volatile and less liquid than domestic securities. For further
information about these investments, see Investment Objective and Policies
below.
The Fund requires a minimum initial investment of $5,000. See Purchase of
Shares.
This Prospectus describes the investment objective and policies,
management and operation of the Fund to enable investors to decide if the
Fund suits their needs. The Fund operates in a two-tier master-feeder
investment fund structure. The Trustees of the Trust believe that the Fund
may achieve economies of scale over time by utilizing this investment
structure.
The following table illustrates that investors in the Fund incur no
shareholder transaction expenses; their investment in the Fund is subject
only to the operating expenses set forth below for the Fund and the
Portfolio, as a percentage of average net assets of the Fund. The Trustees of
the Trust believe that the aggregate per share expenses of the Fund and the
Portfolio will be approximately equal to and may be less than the expenses
that the Fund would incur if it retained the services of an investment
adviser and invested its assets di-rectly in portfolio securities. Fund and
Portfolio expenses are discussed below under the heading Management of the
Trust and the Portfolio.
<TABLE>
<CAPTION>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on
Purchases............................................ None
Sales Load Imposed
on Reinvested Dividends.............................. None
Deferred Sales
Load................................................. None
Redemption
Fees................................................. None
Exchange Fees........................................ None
</TABLE>
1
<PAGE>
EXPENSE TABLE
ANNUAL OPERATING EXPENSES*
<TABLE>
<S> <C>
Advisory Fees.......................................................... 0.35%
Rule 12b-1 Fees........................................................ None
Other Expenses (after expense reimbursement)........................... 0.85%
----
Total Operating Expenses (after expense reimbursement)................. 1.20%
</TABLE>
- -------
* These expenses are based on estimated expenses of the Fund and the
Portfolio and estimated average net assets for the Fund's first fiscal year,
after any applicable expense reimbursement. Without such reimbursement, Other
Expenses and Total Operating Expenses would be equal on an annual basis to
1.70% and 2.05%, respectively, of the estimated average daily net assets of
the Fund. See Management of the Trust and the Portfolio.
EXAMPLE
An investor would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<S> <C>
1 Year........................................................ $12
3 Years....................................................... $38
</TABLE>
The above expense table is designed to assist investors in understanding the
various direct and indirect costs and expenses that investors in the Fund
bear. The fees and expenses included in Other Expenses are the fees paid to
Morgan under the Portfolio's Administrative Services Agreement and the
Trust's Services Agreement, the fees paid to Pierpont Group, Inc. under the
Portfolio Fund Services Agreement, the fees paid to FDI under the Portfolio's
Co-Administration Agreement, organizational expenses, the fees paid to State
Street Bank and Trust Company as custodian of the Portfolio, and other usual
and customary expenses of the Portfolio. For a more detailed description of
contractual fee arrangements, including expense reimbursements, see
Management of the Trust and the Portfolio. In connection with the above
example, please note that $1,000 is less than the Fund's minimum investment
requirement and that there are no redemption or exchange fees of any kind.
See Purchase of Shares and Redemption of Shares. THE EXAMPLE IS HYPOTHETICAL;
IT IS INCLUDED SOLELY FOR ILLUSTRATIVE PURPOSES. IT SHOULD NOT BE CONSIDERED
A REPRESENTATION OF FUTURE PERFORMANCE; ACTUAL EXPENSES MAY BE MORE OR LESS
THAN THOSE SHOWN.
2
<PAGE>
FINANCIAL HIGHLIGHTS
The following table presents selected financial information about the Fund
including outstanding per share data, expense ratios and other data based on
the Fund's average net assets during the period indicated. This information
should be read in conjunction with the financial statements and notes thereto
which are part of the Statement of Additional Information.
<TABLE>
<CAPTION>
For the Period
March 6, 1996
(commencement of operations)
through June 30, 1996
(unaudited)
----------------------------
<S> <C>
Net Asset Value, Beginning of Period.............. $10.00
------
Income from Investment Operations:
Net Investment Income........................... 0.06
Net Realized and Unrealized Gain on Investment
and Foreign Currency........................... 0.17
------
Total from Investment Operations................ 0.23
------
Net Asset Value, End of Period.................... $10.23
======
Total Return...................................... 2.30%(a)
======
Ratios and Supplemental Data:
Net Assets at end of Period (in thousands)...... $ 46
Ratios to Average Net Assets:
Expenses...................................... 1.20%(b)
Net Investment Income......................... 4.83%(b)
Decrease Reflected in Expense Ratio due to
Expense Reimbursement........................ 1.30%(b)(c)
</TABLE>
- -------
(a) Not annualized.
(b) Annualized.
(c) After consideration of certain state limitations.
SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE
Unlike other mutual funds which directly acquire and manage their
own portfolio of securities, the Fund is an open-end management investment
company which seeks to achieve its investment objective by investing all of its
investable assets in the Portfolio, a separate registered investment company
with the same investment objective as the Fund. The investment objective
of the Fund or Portfolio may be changed only with the approval of the holders of
the outstanding shares of the Fund and the Portfolio. The master-feeder
investment fund structure has been developed relatively recently, so
shareholders should carefully consider this investment approach.
In addition to selling a beneficial interest to the Fund, the
Portfolio may sell beneficial interests to other mutual funds or institutional
investors. Such investors will invest in the Portfolio on the same terms and
conditions and will bear a proportionate share of the Portfolio's expenses.
However, the other investors investing in the Portfolio may sell shares of
their own fund using a different pricing structure than the Fund. Such different
pricing structures may result in differences in returns experienced by
investors in other funds that invest in the Portfolio. Such differences in
returns are not uncommon and are present in other mutual fund structures.
Information concerning other holders of interests in the Portfolio is available
from Morgan at (800) JPM-3637.
3
<PAGE>
The Trust may withdraw the investment of the Fund from the Portfolio at any
time if the Board of Trustees of the Trust determines that it is in the best
interests of the Fund to do so. Upon any such withdrawal, the Board of Trustees
would consider what action might be taken, including the investment of all the
assets of the Fund in another pooled investment entity having the same invest-
ment objective and restrictions as the Fund or the retaining of an investment
adviser to manage the Fund's assets in accordance with the investment policies
described below with respect to the Portfolio.
Certain changes in the Portfolio's investment objective, policies or restric-
tions, or a failure by the Fund's shareholders to approve a change in the Port-
folio's investment objective or restrictions, may require withdrawal of the
Fund's interest in the Portfolio. Any such withdrawal could result in a distri-
bution in kind of portfolio securities (as opposed to a cash distribution) from
the Portfolio which may or may not be readily marketable. The distribution in
kind may result in the Fund having a less diversified portfolio of investments
or adversely affect the Fund's liquidity, and the Fund could incur brokerage,
tax or other charges in converting the securities to cash. Notwithstanding the
above, there are other means for meeting shareholder redemption requests, such
as borrowing.
Smaller funds investing in the Portfolio may be materially affected by the ac-
tions of larger funds investing in the Portfolio. For example, if a large fund
withdraws from the Portfolio, the remaining funds may subsequently experience
higher pro rata operating expenses, thereby producing lower returns. Addition-
ally, because the Portfolio would become smaller, it may become less diversi-
fied, resulting in potentially increased portfolio risk (however, these possi-
bilities also exist for traditionally structured funds which have large or in-
stitutional investors who may withdraw from a fund). Also, funds with a greater
pro rata ownership in the Portfolio could have effective voting control of the
operations of the Portfolio. Whenever the Fund is requested to vote on matters
pertaining to the Portfolio (other than a vote by the Fund to continue the op-
eration of the Portfolio upon the withdrawal of another investor in the Portfo-
lio), the Trust will hold a meeting of shareholders of the Fund and will cast
all of its votes proportionately as instructed by the Fund's shareholders. The
Trust will vote the shares held by Fund shareholders who do not give voting in-
structions in the same proportion as the shares of Fund shareholders who do
give voting instructions. Shareholders of the Fund who do not vote will have no
effect on the outcome of such matters.
For more information about the Portfolio's investment objective, policies and
restrictions, see Investment Objective and Policies, Risk Factors and Addi-
tional Investment Information and Investment Restrictions. For more information
about the Portfolio's management and expenses, see Management of the Trust and
the Portfolio. For more information about changing the investment objective,
policies and restrictions of the Fund or the Portfolio, see Investment Restric-
tions.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund and the Portfolio is described below, to-
gether with the policies they employ in their efforts to achieve this objec-
tive. Additional information about the investment policies of the Fund and the
Portfolio appears in the Statement of Additional Information under Investment
Objectives and Policies. There can be no assurance that the investment objec-
tive of the Fund or the Portfolio will be achieved.
The 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. Total return will consist of income plus realized and unrealized
capital gains and losses. The Fund attempts to achieve its objective by invest-
ing all of its investable assets in The Non-U.S. Fixed Income Portfolio, a non-
diversified open-end management investment company having the same investment
objective as the Fund. The Portfolio seeks to achieve its objective by invest-
ing in the types of fixed income securities described below. The expected total
return of a portfolio of fixed income securities may not be as high as that of
a portfolio of equity securities.
The Fund is designed for investors who seek exposure to the international bond
markets in their investment portfolios.
4
<PAGE>
Morgan actively manages the Portfolio's allocation across countries, its dura-
tion and the selection of specific securities within countries. Based on funda-
mental economic and capital markets research, quantitative valuation techniques
and experienced judgment, Morgan allocates the Portfolio's assets primarily
among the developed countries of the world outside the United States. Morgan
adjusts the Portfolio's duration in light of market conditions and the Advi-
sor's interest rate outlook for the countries in which it invests. The Advisor
selects securities among the broad sectors of the fixed income market includ-
ing, but not limited to, debt obligations of governments and their agencies,
supranational organizations, corporations and banks, taking into consideration
such factors as their relative value, the likelihood of a change in credit rat-
ing, and the liquidity of the issue. Under normal circumstances, the Advisor
intends to keep the Portfolio essentially fully invested with at least 65% of
the Portfolio's assets invested in bonds of foreign issuers. These investments
will be made in at least three foreign countries. For further information on
international investments, see Risk Factors and Additional Investment Informa-
tion.
Duration is a measure of the weighted average maturity of the bonds held in the
Portfolio and can be used as a measure of the sensitivity of the Portfolio's
market value to changes in interest rates. Typically, the Portfolio's duration
will range between one year shorter and one year longer than the duration of
the non-U.S. fixed income universe, as represented by Salomon Brothers Non-U.S.
World Government Bond Index, the Portfolio's benchmark. Currently the bench-
mark's duration is approximately five years. The maturities of the individual
bonds in the Portfolio may vary widely, however.
The Portfolio may invest in securities denominated in foreign currencies, the
U.S. dollar or multinational currency units such as the ECU. The Advisor will
generally attempt to hedge the Portfolio's foreign currency exposure into the
U.S. dollar. However, the Advisor may from time to time decide to keep foreign
currency positions unhedged or engage in foreign currency transactions if,
based on fundamental research, technical factors and the judgment of experi-
enced currency managers, it believes the foreign currency exposure will benefit
the Portfolio. For further information on foreign currency exchange transac-
tions, see Risk Factors and Additional Investment Information.
The Portfolio intends to manage its portfolio actively in pursuit of its in-
vestment objective. Portfolio transactions are undertaken principally to accom-
plish the Portfolio's objective in relation to expected movements in the gen-
eral level of interest rates in each country, but the Portfolio may also engage
in short-term trading consistent with its objective. To the extent the Portfo-
lio engages in short-term trading, it may realize short-term capital gains or
losses and incur increased transaction costs. See Taxes below. The estimated
annual portfolio turnover rate for the Portfolio is generally not expected to
exceed 300%.
CORPORATE BONDS. The Portfolio may invest in a broad range of debt obligations
of foreign issuers. These include debt securities of foreign corporations; debt
obligations of foreign banks and bank holding companies; and debt obligations
issued or guaranteed by supranational organizations such as the World Bank, the
European Investment Bank and the Asian Development Bank. To a limited extent,
the Portfolio may also invest in non-U.S. dollar denominated securities of U.S.
issuers.
GOVERNMENT SECURITIES. The Portfolio may invest in debt obligations issued or
guaranteed by a foreign sovereign government or one of its agencies, authori-
ties, instrumentalities or political subdivisions including a foreign state,
province or municipality.
MONEY MARKET INSTRUMENTS. The Portfolio may invest in money market instruments
of foreign or domestic issuers denominated in U.S. dollars and other curren-
cies. Under normal circumstances the Portfolio will purchase these securities
as part of its management of the Portfolio's duration, to invest temporary cash
balances or to maintain liquidity to meet redemptions. However, the Portfolio
may also invest in money market instruments without limitation as a temporary
defensive measure taken in the Advisor's judgment during, or in anticipation
of, adverse market conditions. For more detailed information about these money
market investments, see Investment Objectives and Policies in the Statement of
Additional Information.
5
<PAGE>
QUALITY INFORMATION. Under normal circumstances at least 65% of the Portfo-
lio's total assets will consist of securities that at the time of purchase are
rated at least A by Moody's Investors Service, Inc. ("Moody's") or Standard &
Poor's Corporation ("Standard & Poor's") or that are unrated and in the Advi-
sor's opinion are of comparable quality. In the case of the remaining 35% of
the Portfolio's investments, the Portfolio may purchase securities that are
rated Baa or better by Moody's or BBB or better by Standard & Poor's or are
unrated and in the Advisor's opinion are of comparable quality. Securities
rated Baa by Moody's or BBB by Standard & Poor's are considered investment
grade, but have some speculative characteristics. These standards must be sat-
isfied at the time an investment is made. If the quality of the investment
later declines, the Portfolio may continue to hold the investment. See Appen-
dix A in the Statement of Additional Information for more detailed information
on these ratings.
NON-DIVERSIFICATION. The Portfolio is registered as a non-diversified invest-
ment company which means that the Portfolio is not limited by the Investment
Company Act of 1940, as amended (the "1940 Act"), in the proportion of its as-
sets that may be invested in the obligations of a single issuer. Thus, the
Portfolio may invest a greater proportion of its assets in the securities of a
smaller number of issuers and, as a result, may be subject to greater risk with
respect to its portfolio securities. The Portfolio, however, 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.
See Taxes below.
The Portfolio may also purchase securities on a when-issued or delayed deliv-
ery basis, enter into repurchase and reverse repurchase agreements, loan its
portfolio securities, purchase certain privately placed securities and enter
into forward foreign currency exchange contracts. In addition, the Portfolio
may use options on securities and indexes of securities, futures contracts and
options on futures contracts for hedging and risk management purposes. Forward
foreign currency exchange contracts, options and futures contracts are deriva-
tive instruments. For a discussion of these investments and investment tech-
niques, see Risk Factors and Additional Investment Information.
RISK FACTORS AND ADDITIONAL INVESTMENT INFORMATION
FOREIGN INVESTMENT INFORMATION. The Portfolio invests primarily in foreign se-
curities. Investment in securities of foreign issuers and in obligations of
foreign branches of domestic banks involves somewhat different investment
risks from those affecting securities of U.S. domestic issuers. There may be
limited publicly available information with respect to foreign issuers, and
foreign issuers are not generally subject to uniform accounting, auditing and
financial standards and requirements comparable to those applicable to domes-
tic companies. Interest paid by foreign issuers may be subject to withholding
and other foreign taxes which may decrease the net return on foreign invest-
ments as compared to interest paid to the Portfolio by domestic companies.
Investors should realize that the value of the Portfolio's investments in for-
eign securities may be adversely affected by changes in political or social
conditions, diplomatic relations, confiscatory taxation, expropriation, na-
tionalization, limitation on the removal of funds or assets, or imposition of
(or change in) exchange control or tax regulations in those foreign countries.
In addition, changes in government administrations or economic or monetary
policies in the United States or abroad could result in appreciation or depre-
ciation of portfolio securities and could favorably or unfavorably affect the
Portfolio's operations. Furthermore, the economies of individual foreign na-
tions may differ from the U.S. economy, whether favorably or unfavorably, in
areas such as growth of gross national product, rate of inflation, capital re-
investment, resource self-sufficiency and balance of payments position; it may
also be more difficult to obtain and enforce a judgment against a foreign is-
suer. Any foreign investments made by the Portfolio must be made in compliance
with U.S. and foreign currency restrictions and tax laws restricting the amounts
and types of foreign investments.
In addition, while the volume of transactions effected in foreign bond markets
has increased in recent years, in most cases it remains appreciably below that
of domestic markets. Accordingly, the Portfolio's foreign investments may be
less liquid and their prices may be more volatile than comparable investments
in securities of U.S. issuers. Moreover, the settlement
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periods for foreign securities, which are often longer than those for securi-
ties of U.S. issuers, may affect portfolio liquidity. In addition, there is
generally less government supervision and regulation of brokers, financial in-
stitutions and issuers located in foreign countries than in the United States.
Although the Portfolio invests primarily in securities of established issuers
based in developed foreign countries, it may also invest in securities of is-
suers in emerging markets countries. Investments in securities of issuers in
emerging markets countries may involve a high degree of risk and many may be
considered speculative. These investments carry all of the risks of investing
in securities of foreign issuers outlined in this section to a heightened de-
gree. These heightened risks include (i) greater risks of expropriation, con-
fiscatory taxation, nationalization, and less social, political and economic
stability; (ii) the small current size of the markets for securities of emerg-
ing markets issuers and the currently low or nonexistent volume of trading, re-
sulting in lack of liquidity and in price volatility; (iii) certain national
policies which may restrict the Portfolio's investment opportunities including
restrictions on investing in issuers or industries deemed sensitive to relevant
national interests; and (iv) the absence of developed legal structures gov-
erning private or foreign investment and private property.
Since the Portfolio's investments in foreign securities involve foreign curren-
cies, the value of its assets as measured in U.S. dollars may be affected fa-
vorably or unfavorably by changes in currency rates and in exchange control
regulations, including currency blockage. See Foreign Currency Exchange Trans-
actions.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Because the Portfolio buys and sells
securities and receives interest in currencies other than the U.S. dollar, the
Portfolio enters into foreign currency exchange transactions. The Portfolio ei-
ther enters into these transactions on a spot (i.e., cash) basis at the spot
rate prevailing in the foreign currency exchange market or uses forward con-
tracts to purchase or sell foreign currencies. The cost of the Portfolio's spot
currency exchange transactions is generally the difference between the bid and
offer spot rate of the currency being purchased or sold.
A forward foreign currency exchange contract is an obligation by the Portfolio
to purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract. Forward foreign currency exchange
contracts establish an exchange rate at a future date. These contracts are
derivative instruments, as their value derives from the spot exchange rates of
the currencies underlying the contract. These contracts are entered into in the
interbank market directly between currency traders (usually large commer-
cial banks) and their customers. A forward foreign currency exchange contract
generally has no deposit requirement and is traded at a net price without com-
mission. The Portfolio will not enter into forward contracts for speculative
purposes. Neither spot transactions nor forward foreign currency exchange con-
tracts eliminate fluctuations in the prices of the Portfolio's securities or in
foreign exchange rates, or prevent loss if the prices of these securities should
decline.
The Portfolio may enter into foreign currency exchange transactions in an at-
tempt to protect against changes in foreign currency exchange rates between the
trade and settlement dates of specific securities transactions or anticipated
securities transactions. The Portfolio may also enter into forward contracts to
hedge against a change in foreign currency exchange rates that would cause a
decline in the value of existing investments denominated or principally traded
in a foreign currency. To do this, the Portfolio would enter into a forward
contract to sell the foreign currency in which the investment is denominated or
principally traded in exchange for U.S. dollars or in exchange for another for-
eign currency. The Portfolio will only enter into forward contracts to sell a
foreign currency in exchange for another foreign currency if the Advisor ex-
pects the foreign currency purchased to appreciate against the U.S. dollar.
Although these transactions are intended to minimize the risk of loss due to
a decline in the value of the hedged currency, at the same time they limit
any potential gain that might be realized should the value of the hedged
currency in-
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crease. In addition, forward contracts that convert a foreign currency into
another foreign currency will cause the Portfo lio to assume the risk of
fluctuations in the value of the currency purchased against the hedged cur-
rency and the U.S. dollar. The precise matching of the forward contract
amounts and the value of the securities involved will not generally be possi-
ble because the future value of such securities in foreign currencies will
change as a consequence of market movements in the value of such securities
between the date the forward contract is entered into and the date it matures.
The projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly uncertain.
CONVERTIBLE SECURITIES. The convertible securities in which the Portfolio may
invest include any debt securities or preferred stock which may be converted
into common stock or which carry the right to purchase common stock. Convert-
ible securities entitle the holder to exchange the securities for a specified
number of shares of common stock, usually of the same company, at specified
prices within a certain period of time.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase secu-
rities on a when-issued or delayed delivery basis. Delivery of and payment for
these securities may take as long as a month or more after the date of the
purchase commitment. The value of these securities is subject to market fluc-
tuation during this period and for fixed income investments no interest ac-
crues to the Portfolio until settlement. At the time of settlement, a when-is-
sued security may be valued at less than its purchase price. The Portfolio
maintains with the Custodian a separate account with a segregated portfolio of
securities in an amount at least equal to these commitments. When entering into
a when-issued or delayed delivery transaction, the Portfolio will rely on the
other party to consummate the transaction; if the other party fails to do so,
the Portfolio may be disadvantaged. It is the current policy of the Port-
folio not to enter into when-issued commitments exceeding in the aggregate 15%
of the market value of the Portfolio's total assets less liabilities other than
the obligations created by these commitments.
REPURCHASE AGREEMENTS. The Portfolio may engage in repurchase agreement trans-
actions with brokers, dealers or banks that meet the credit guidelines estab-
lished by the Portfolio's Trustees. In a repurchase agreement, the Portfolio
buys a security from a seller that has agreed to repurchase it at a mutually
agreed upon date and price, reflecting the interest rate effective for the term
of the agreement. The term of these agreements is usually from overnight to one
week. A repurchase agreement may be viewed as a fully collateralized loan of
money by the Portfolio to the seller. The Portfolio always receives securities
as collateral with a market value at least equal to the purchase price plus
accrued interest and this value is maintained during the term of the agreement.
If the seller defaults and the collateral value declines, the Portfolio might
incur a loss. If bankruptcy proceedings are commenced with respect to the
seller, the Portfolio's realization upon the disposition of collateral may be
delayed or limited. Investments in certain repurchase agreements and certain
other investments which may be considered illiquid are limited. See Illiquid
Investments; Privately Placed and other Unregistered Securities below.
LOANS OF PORTFOLIO SECURITIES. Subject to applicable investment restrictions,
the Portfolio is permitted to lend its securities in an amount up to 33 1/3%
of the value of the Portfolio's net assets. The Portfolio may lend its
securities if such loans are secured continuously by cash or equivalent
collateral or by a letter of credit in favor of the Portfolio at least equal
at all times to 100% of the market value of the securities loaned, plus
accrued interest. While such securities are on loan, the borrower will pay
the Portfolio any income accruing thereon. Loans will be subject to
termination by the Portfolio in the normal settlement time, generally three
business days after notice, or by the borrower on one day's notice. Borrowed
securities must be returned when the loan is terminated. Any gain or loss in
the market price of the borrowed securities which occurs during the term of
the loan inures to the Portfolio and its respective investors. The Portfolio
may pay reasonable finders' and custodial fees in connection with a loan. In
addition, the Portfolio will consider all facts and circumstances, including
the creditworthiness of the borrowing financial institution, and the
Portfolio will not make any loans in excess of one year.
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Loans of portfolio securities may be considered extensions of credit by
the Portfolio. The risks to the Portfolio with respect to borrowers of its
portfolio securities are similar to the risks to the Portfolio with respect
to sellers in repurchase agreement transactions. See Repurchase Agreements
above. The Portfolio will not lend its securities to any officer, Trustee,
Director, employee or other affiliate of the Portfolio, the Advisor or the
Distributor, unless otherwise permitted by applicable law.
REVERSE REPURCHASE AGREEMENTS. The Portfolio is permitted to enter into reverse
repurchase agreements. In a reverse repurchase agreement, the Portfolio sells
a security and agrees to repurchase it at a mutually agreed upon date and
price, reflecting the interest rate effective for the term of the agreement.
For purposes of the 1940 Act, it is considered a form of borrowing by the
Portfolio and, therefore, is a form of leverage. Leverage may cause any gains
or losses of the Portfolio to be magnified. See Investment Restrictions for
investment limitations applicable to reverse repurchase agreements and other
borrowings. For more information, see Investment Objectives and Policies in
the Statement of Additional Information.
ILLIQUID INVESTMENTS; PRIVATELY PLACED AND OTHER UNREGISTERED SECURITIES. The
Portfolio may not acquire any illiquid securities if, as a result thereof,
more than 15% of the market value of the Portfolio's net assets would be in
illiquid investments. Subject to this nonfundamental policy limitation, the
Portfolio may acquire investments that are illiquid or have limited
liquidity, such as private placements or investments that are not registered
under the Securities Act of 1933, as amended (the "1933 Act"), and cannot be
offered for public sale in the United States without first being registered
under the 1933 Act. An illiquid investment is any investment that cannot be
disposed of within seven days in the normal course of business at
approximately the amount at which it is valued by the Portfolio. The price
the Portfolio pays for illiquid securities or receives upon resale may be
lower than the price paid or received for similar securities with a more
liquid market. Accordingly the valuation of these securities will reflect any
limitations on their liquidity.
The Portfolio may also purchase Rule 144A securities sold to institutional
investors without registration under the 1933 Act. These securities may be
determined to be liquid in accordance with guidelines established by the
Advisor and approved by the Trustees of the Portfolio. The Trustees will
monitor the Advisor's implementation of these guidelines on a periodic basis.
FUTURES AND OPTIONS TRANSACTIONS. The Portfolio may (a) purchase and sell
(write) exchange traded and over-the-counter (OTC) put and call options on
fixed income securities or indexes of fixed income securities, (b) purchase
and sell futures contracts on indexes of fixed income securities, and (c)
purchase and sell (write) put and call options on futures contracts on
indexes of fixed income securities. Each of these instruments is a derivative
instrument, as its value derives from the underlying asset or index.
The Portfolio may use futures contracts and options for hedging and risk
management purposes. The Portfolio may not use futures contracts and options
for speculation.
The Portfolio may utilize options and futures contracts to manage its
exposure to changing interest rates and/or security prices. Some options and
futures strategies, including selling futures contracts and buying puts, tend
to hedge the Portfolio's investments against price fluctuations. Other
strategies, including buying futures contracts, writing puts and calls, and
buying calls, tend to increase market exposure. Options and futures contracts
may be combined with each other or with forward contracts in order to adjust
the risk and return characteristics of the Portfolio's overall strategy in a
manner deemed appropriate to the Advisor and consistent with the Portfolio's
objective and policies. Because combined options positions involve multiple
trades, they result in higher transaction costs and may be more difficult to
open and close out.
The use of options and futures is a highly specialized activity which
involves investment strategies and risks different from those associated with
ordinary portfolio securities transactions, and there can be no guarantee
that their use will increase
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the Portfolio's return. While the use of these instruments by the Portfolio
may reduce certain risks associated with owning its portfolio securities,
these techniques themselves entail certain other risks. If the Advisor
applies a strategy at an inappropriate time or judges market conditions or
trends incorrectly, options and futures strategies may lower the Portfolio's
return. Certain strategies limit the Portfolio's possibilities to realize
gains as well as limiting its exposure to losses. The Portfolio could also
experience losses if the prices of its options and futures positions were
poorly correlated with its other investments or if it could not close out its
positions because of an illiquid secondary market. In addition, the
Portfolio will incur transaction costs, including trading commissions and
option premiums, in connection with its futures and options transactions and
these transactions could significantly increase the Portfolio's turnover rate.
The Portfolio may purchase put and call options on securities, indexes of
securities and futures contracts, or purchase and sell futures contracts,
only if such options are written by other persons and if (i) the aggregate
premiums paid on all such options which are held at any time do not exceed
20% of the Portfolio's net assets, and (ii) the aggregate margin deposits
required on all such futures or options thereon held at any time do not
exceed 5% of the Portfolio's total assets. In addition, the Portfolio will
not purchase or sell (write) futures contracts, options, or futures contracts
or commodity options for risk management purposes if, as a result, the
aggregate initial margin and options premiums required to establish these
positions exceed 5% of the net asset value of the Portfolio. For more
detailed information about these transactions, see the Appendix to this
Prospectus and Investment Objectives and Policies--Risk Management in the
Statement of Additional Information.
INVESTMENT RESTRICTIONS
The investment objective of the Fund and the Portfolio, together with the
investment restrictions described below and in the Statement of Additional
Information, except as noted, are deemed fundamental policies, i.e., they
may be changed only with the approval of the holders of a majority of the
outstanding voting securities of the Fund and the Portfolio. The Fund has the
same investment restrictions as the Portfolio, except that the Fund may
invest all of its investable assets in another openend investment company
with the same investment objective and restrictions (such as the Portfolio).
References below to the Portfolio's investment restrictions also include the
Fund's investment restrictions.
The Portfolio may not purchase securities or other obligations of issuers
conducting their principal business activity in the same industry if its
investments in such industry would exceed 25% of the value of the
Portfolio's total assets, except this limitation shall not apply to
investments in U.S. Government securities. (For the purposes of this 25%
limitation, the staff of the Securities and Exchange Commision considers i)
all supranational organizations as a group to be a single industry and ii)
each foreign government and its political subdivisions to be a single
industry.) In addition, the Portfolio may not borrow money except that the
Portfolio may (a) borrow money from banks for temporary or emergency
purposes (not for leveraging purposes) and (b) enter into reverse repurchase
agreements for any purpose, provided that (a) and (b) in total do not exceed
33 1/3% of the Portfolio's total assets less liabilities (other than
borrowings); and the Portfolio may not issue senior securities except as
permitted by the 1940 Act or any rule, order or interpretation thereunder.
See Risk Factors and Additional Investment Information--Loans of Portfolio
Securities and Reverse Repurchase Agreements.
For a more detailed discussion of the above investment restrictions, as well
as a description of certain other investment restrictions, see Investment
Restrictions in the Statement of Additional Information.
MANAGEMENT OF THE TRUST AND THE PORTFOLIO
TRUSTEES. Pursuant to the Declaration of Trust for the Trust, the Trustees of
the Trust decide upon matters of general policy and review the actions of the
Trust's service providers and the performance of the Portfolio's Advisor.
Pursuant to the Declaration of Trust for the Portfolio, the Trustees of the
Portfolio (who are not the same as the Trustees of the Trust) have the same
responsibilities for the Portfolio including overseeing its service
providers.
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The Portfolio has entered into a Fund Services Agreement with Pierpont Group,
Inc. to assist the Trustees of the Portfolio in exercising their overall
supervisory responsibilities for the Portfolio's affairs. The fee to be paid
by the Portfolio under the agreement approximates the reasonable cost of
Pierpont Group, Inc. in providing these services. Pierpont Group, Inc. was
organized in 1989 at the request of the Trustees of The Pierpont Family of
Funds for the purpose of providing these services at cost to those funds. The
principal offices of Pierpont Group, Inc. are located at 461 Fifth Avenue,
New York, New York 10017. For more information concerning the Trust's and the
Portfolio's Trustees and officers, see Trustees and Officers in the Statement
of Additional Information.
ADVISOR. The Fund has not retained the services of an investment adviser
because the Fund seeks to achieve its investment objective by investing all of
its investable assets in the Portfolio. The Portfolio has retained the services
of Morgan as Investment Advisor. Morgan, with principal offices at 60 Wall
Street, New York, New York 10260, is a New York trust company which conducts a
general banking and trust business. Morgan is a wholly owned subsidiary of J.P.
Morgan & Co. Incorporated ("J.P. Morgan"), a bank holding company organized
under the laws of Delaware. Through offices in New York City and abroad, J.P.
Morgan, through the Advisor and other subsidiaries, offers a wide range of
services to governmental, institutional, corporate and individual customers and
acts as investment adviser to individual and institutional clients with
combined assets under management of over $179 billion (of which the Advisor
advises over $28 billion). Morgan provides investment advice and portfolio
management services to the Portfolio. Subject to the supervision of the
Portfolio's Trustees, Morgan makes the Portfolio's day-to-day investment
decisions, arranges for the execution of portfolio transactions and
generally manages the Portfolio's investments. See Investment Advisor in the
Statement of Additional Information.
Morgan uses a sophisticated, disciplined, collaborative process for managing
all asset classes. For fixed income portfolios, this process focuses on
systematic analysis of real interest rates, sector diversification,
quantitative and credit analysis, and, for foreign fixed income securities,
country selection. Morgan has managed portfolios of international fixed
income securities on behalf of its clients since 1977. The portfolio managers
making investments in international fixed income securities work in
conjunction with fixed income, credit, capital market and economic research
analysts, as well as traders and administrative officers.
The following persons are primarily responsible for the day-to-day management
and implementation of Morgan's process for the Portfolio (the inception date
of each person's responsibility for the Portfolio and his business experience
for the past five years is indicated parenthetically): Robert P. Browne, Vice
President (since October, 1994, employed by Morgan since prior to 1991 as a
portfolio manager of international fixed income investments) and Lili B.L.
Dung, Vice President (since October, 1994, employed by Morgan since prior to
1991 as a portfolio manager of international fixed income investments).
As compensation for the services rendered and related expenses borne by
Morgan under the Investment Advisory Agreement with the Portfolio, the
Portfolio has agreed to pay Morgan a fee, which is computed daily and may be
paid monthly, at the annual rate of 0.35% of the Portfolio's average daily
net assets.
Morgan also acts as Services Agent to the Trust and the Portfolio and provides
shareholder services to shareholders of the Fund. See Services Agent below.
INVESTMENTS IN THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, MORGAN GUARANTY TRUST COMPANY OF NEW YORK OR ANY OTHER BANK.
CO-ADMINISTRATOR AND DISTRIBUTOR. Under Co-Administration Agreements with the
Trust and the Portfolio, FDI serves as the Co-Administrator for the Trust and
the Portfolio, and in that capacity FDI (i) provides office space, equipment
and clerical personnel for maintaining the organization and books and records
of the Trust and the Portfolio; (ii) provides officers for the Trust and the
Portfolio; (iii) prepares and files documents required in connection with the
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<PAGE>
Trust's state securities law registrations; (iv) reviews and files Trust
marketing and sales literature; (v) files Portfolio regulatory documents and
mails Portfolio communications to Trustees and investors; and (vi) maintains
related books and records. Under the terms of the Trust's Services Agreement
with Morgan, the fees of the Co-Administrator for its services to the Trust
are covered by Morgan's expense undertakings described under Services Agent
below.
FDI, a registered broker-dealer, also serves as the Distributor of shares of
the Fund and exclusive placement agent for the Portfolio. FDI is a wholly
owned indirect subsidiary of Boston Institutional Group, Inc. FDI currently
provides administration and distribution services for a number of other regis-
tered investment companies.
SERVICES AGENT. Under a Services Agreement with the Trust and an Administra-
tive Services Agreement with the Portfolio, Morgan is responsible for certain
financial, fund accounting and administrative services provided to the Fund
and the Portfolio, respectively, including services related to taxes, finan-
cial statements, calculation of performance data, oversight of service provid-
ers, certain regulatory and Board of Trustees matters, and providing share-
holder services to shareholders of the Fund.
In addition, as provided in the Trust's Services Agreement, Morgan is respon-
sible for the annual costs of certain usual and customary expenses incurred by
the Fund (the "expense undertaking"). The expenses covered by the expense un-
dertaking include, but are not limited to, transfer, registrar, and dividend
disbursing costs, legal and accounting expenses, fees of the Co-Administrator
for services to the Trust, insurance, the compensation and expenses of the
Trust's Trustees, the expenses of printing and mailing reports, notices, and
proxies to Fund shareholders, and registration fees under federal or state
securities laws. The Fund will pay these expenses directly and such amounts
will be deducted from the fees to be paid to Morgan under the agreement. If
such amounts are more than the amount of Morgan's fees under the agreement,
Morgan will reimburse the Fund for such excess amounts. Under the agreement,
the fol-lowing expenses are not included in the expense undertaking: the
services agent fee, organization expenses and extraordinary expenses as
defined in this agreement.
The Trust's Services Agreement provides for the Fund to pay Morgan a fee for
these services, which is computed daily and may be paid monthly, equal on an
annual basis to 0.68% of the Fund's average daily net assets.
As noted above, the fee levels of the Fund are expense undertakings and
reflect payments made directly to third parties by the Fund for services
rendered, as well as payments to Morgan for services rendered. The Trustees
of the Trust regularly review amounts paid to and accounted for by Morgan
pursuant to the Services Agreement. See Expenses below.
Under the Portfolio's Administrative Services Agreement and the
Co-Administration Agreement, effective August 1, 1996, the Portfolio has
agreed to pay to Morgan and FDI fees equal to the Portfolio's allocable share
of an annual complex-wide charge. This charge is calculated daily based on
the aggregate net assets of the Portfolios and the other portfolios
(collectively the "Master Portfolios") in which series of the Trust, The
Pierpont Funds or The JPM Institutional Funds invest. This charge is
calculated in accordance with the following annual schedule: 0.09% on the
first $7 billion of the Master Portfolios' aggregate average daily net
assets, and 0.04% of the Master Portfolios' aggregate average daily net
assets in excess of $7 billion.
CUSTODIAN. State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02110, serves as the Fund's and the Portfolio's
Custodian and the Fund's Transfer and Dividend Disbursing Agent. State Street
also keeps the books of account for the Fund and the Portfolio.
EXPENSES. In addition to the fees payable to Morgan, FDI and Pierpont Group,
Inc. under the various agreements discussed under Trustees, Advisor,
Co-Administrator and Distributor, and Services Agent above, the Portfolio is
responsi
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<PAGE>
ble for usual and customary expenses associated with its operations. Such
expenses include organization expenses, legal fees, accounting expenses,
insurance costs, the compensation and expenses of its Trustees, registration
fees under federal and foreign securities laws, custodian fees, brokerage
expenses and extraordinary expenses applicable to the Portfolio.
In addition to the expenses of the Fund that Morgan assumes under the Trust's
Services Agreement, Morgan has agreed that it will reimburse the Fund through
at least January 31, 1997 to the extent necessary to maintain the Fund's
total operating expenses (which includes expenses of the Fund and the
Portfolio) at the annual rate of 1.20% of the Fund's average daily net
assets. This limit does not cover extraordinary expenses during the period.
There is no assurance that Morgan will continue this waiver beyond the
specified period, except as required by the following sentence. Morgan has
agreed to waive fees as necessary if in any fiscal year the sum of the
Fund's expenses exceeds the limits set by applicable regulations of state
securities commissions. Such annual limits are currently 2.5% of the first
$30 million of average net assets, 2% of the next $70 million of such net
assets and 1.5% of such net assets in excess of $100 million for any fiscal
year.
SHAREHOLDER TRANSACTIONS
Investors may request either Morgan or their Eligible Institution, as defined
below, for assistance in placing orders to purchase, redeem or exchange
shares of the Fund.
Shareholders should address all inquiries to J.P. Morgan Funds Services,
Morgan Guaranty Trust Company of New York, 522 Fifth Avenue, New York, New
York 10036 or call (800) JPM-3637.
The business days of the Fund and the Portfolio are the days the New York
Stock Exchange is open.
PURCHASE OF SHARES
METHOD OF PURCHASE. Investors may open accounts with the Fund only through
the Distributor. All purchase transactions in Fund accounts are processed by
Morgan as Services Agent and the Fund is authorized to accept any
instructions relating to a Fund account from Morgan as agent for the
customer. All purchase orders must be accepted by the Fund's Distributor.
Investors must be customers of Morgan or an eligible institution which is a
customer of Morgan (an "Eligible Institution"). Investors may also be
employer-sponsored retirement plans that have designated the Fund as an
investment option for the plans. Prospective investors who are not already
customers of Morgan may apply to become customers of Morgan for the sole
purpose of Fund transactions. There are no charges associated with becoming
a Morgan customer for this purpose. Morgan reserves the right to determine
the customers that it will accept, and the Fund reserves the right to
determine the purchase orders that it will accept.
The Fund requires a minimum initial investment of $5,000.
PURCHASE PRICE AND SETTLEMENT. The Fund's shares are sold on a continuous
basis without a sales charge at the net asset value per share next determined
after receipt of an order. Prospective investors may purchase shares with the
assistance of an Eligible Institution that may establish its own terms,
conditions and charges.
To purchase shares in the Fund, investors should request their Morgan
representative (or a representative of their Eligible Institution) to assist
them in placing a purchase order with the Fund's Distributor. If the Fund
receives a purchase order prior to 4:00 P.M. New York time on any business day,
the purchase of Fund shares is effective and is made at the net asset value
determined that day. If the Fund or its agent receives a purchase order after
4:00 P.M. New York time, the purchase is effective and is made at the net
asset value determined on the next business day. All purchase orders for Fund
shares must be accompanied by instructions to Morgan (or an Eligible
Institution) to transfer immediately available funds to the Fund's Distributor
on settlement date. The settlement date is generally the business day after
the purchase is effective. See Dividends and Distributions.
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<PAGE>
ELIGIBLE INSTITUTIONS. The services provided by Eligible Institutions may
include establishing and maintaining shareholder accounts, processing
purchase and redemption transactions, arranging for bank wires, performing
shareholder subaccounting, answering client inquiries regarding the Trust,
assisting clients in changing dividend options, account designations and
addresses, providing periodic statements showing the client's account
balance and integrating these statements with those of other transactions and
balances in the client's other accounts serviced by the Eligible Institution,
transmitting proxy statements, periodic reports, updated prospectuses and
other communications to shareholders and, with respect to meetings of
shareholders, collecting, tabulating and forwarding executed proxies and
obtaining such other information and performing such other services as Morgan
or the Eligible Institution's clients may reasonably request and agree upon
with the Eligible Institution. Eligible Institutions may separately establish
their own terms, conditions and charges for providing the aforementioned
services and for providing other services.
REDEMPTION OF SHARES
METHOD OF REDEMPTION. To redeem shares in the Fund, an investor may instruct
Morgan or his or her Eligible Institution, as appropriate, to submit a
redemptionf request to the Fund. The Fund executes effective redemption
requests at the next determined net asset value per share. See Net Asset
Value. See Additional Information below for an explanation of the telephone
redemption policy of The JPM Advisor Funds.
A redemption request received by the Fund or its agent prior to 4:00 P.M. New
York time is effective on that day. A redemption request received after that
time becomes effective on the next business day. Proceeds of an effective
redemption are deposited on settlement date in immediately available funds to
the shareholder's account at Morgan or at his or her Eligible Institution or,
in the case of certain Morgan customers, are mailed by check or wire transfer-
red in accordance with the customer's instructions. Settlement date is
generally the next business day after a redemption is effective and, subject to
Further Redemption Information below, in any event is within seven days. See
Dividends and Distributions.
FURTHER REDEMPTION INFORMATION. Investors should be aware that redemptions
from the Fund may not be processed if a redemption request is not submitted
in proper form. To be in proper form, the Fund must have received the
shareholder's taxpayer identification number and address. As discussed under
Taxes below, the Fund may be required to impose "back-up" withholding of
federal income tax on dividends, distributions and redemption proceeds when
non-corporate investors have not provided a certified taxpayer identification
number. In addition, if a shareholder sends a check for the purchase of Fund
shares and shares are purchased before the check has cleared, the transmittal
of redemption proceeds from the shares will occur upon clearance of the check
which may take up to 15 days.
The Fund reserves the right to suspend the right of redemption and to postpone
the date of payment upon redemption for up to seven days and for such other
periods as the 1940 Act or the Securities and Exchange Commission may permit.
See Redemption of Shares in the Statement of Additional Information.
EXCHANGE OF SHARES
An investor may exchange shares from the Fund into any other JPM Advisor Fund
without charge. Shares are exchanged on the basis of relative net asset value
per share. Exchanges are in effect redemptions from one fund and purchases of
another fund and the usual purchase and redemption procedures and requirements
are applicable to exchanges. See Purchase of Shares and Redemption of Shares
in this Prospectus and in the prospectuses for the other JPM Advisor Funds. See
also Additional Information below for an explanation of the telephone exchange
policy of The JPM Advisor Funds.
Shareholders subject to federal income tax who exchange shares in one fund for
shares in another fund may recognize capital gain or loss for federal income
tax purposes. The Fund reserves the right to discontinue, alter or limit its
exchange privilege at any time. For investors in certain states, state
securities laws may restrict the availability of the exchange privilege.
14
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DIVIDENDS AND DISTRIBUTIONS
Income dividends for the Fund are declared and paid annually. The Fund may also
declare an additional dividend of net investment income in a given year to the
extent necessary to avoid the imposition of federal excise tax on the Fund.
Substantially all the realized net capital gains, if any, of the Fund are
declared and paid on an annual basis, except that an additional capital gains
distribution may be made in a given year to the extent necessary to avoid the
imposition of federal excise tax on the Fund. Declared dividends and
distributions are payable to shareholders of record on the record date.
Dividends and capital gains distributions paid by the Fund are automatically
reinvested in additional shares of the Fund unless the shareholder has elected
to have them paid in cash. Dividends and distributions to be paid in cash are
credited to the shareholder's account at Morgan or at his Eligible Institution
or, in the case of certain Morgan customers, are mailed by check in accordance
with the customer's instructions. The Fund reserves the right to discontinue,
alter or limit the automatic reinvestment privilege at any time.
NET ASSET VALUE
Net asset value per share for the Fund is determined by subtracting from the
value of the Fund's total assets (i.e., the value of its investment in the
Portfolio and other assets) the amount of its liabilities and dividing the
remainder by the number of its outstanding shares, rounded to the nearest
cent. Expenses, including the fees payable to Morgan, are accrued daily. See
Net Asset Value in the Statement of Additional Information for information
on valuation of portfolio securities for the Portfolio.
The Fund computes its net asset value once daily at 4:15 P.M. New York time on
Monday through Friday, except that the net asset value is not computed for the
Fund on the holidays listed under Net Asset Value in the Statement of Additional
Information.
ORGANIZATION
The Trust was organized on September 16, 1994 as an unincorporated business
trust under Massachusetts law and is an entity commonly known as a "Massachu-
setts business 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. To date, nine series of shares have been authorized and are
available for sale to the public. Only shares of the Fund are offered through
this Prospectus. No series of shares has any preference over any other series of
shares. See Massachusetts Trust in the Statement of Additional Information.
The Declaration of Trust for the Trust provides that no Trustee, shareholder,
officer, employee, or agent of the Fund shall be held to any personal
liability, nor shall resort be had to their private property for the
satisfaction of any obligation or claim or otherwise in connection with the
affairs of the Fund, but that the Trust property only shall be liable.
Shareholders of the Fund are entitled to one vote for each share and to the
appropriate fractional vote for each fractional share. There is no cumulative
voting. Shares have no preemptive or conversion rights. Shares are fully paid
and nonassessable by the Fund. The Trust has adopted a policy of not issuing
share certificates. The Trust does not intend to hold meetings of
shareholders annually. The Trustees may call meetings of shareholders for
action by share-holder vote as may be required by either the 1940 Act or the
Declaration of Trust. The Trustees will call a meeting of shareholders to
vote on removal of a Trustee upon the written request of the record holders
of ten percent of Trust shares and will assist shareholders in communicating
with each other as prescribed in Section 16(c) of the 1940 Act. For further
organization information, including certain shareholder rights, see Description
of Shares in the Statement of Additional Information.
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The Portfolio in which all of the assets of the Fund are invested is organized
as a trust under the laws of the State of New York. The Portfolio's Declaration
of Trust provides that the Fund and other entities investing in the Portfolio
(e.g., other investment companies, insurance company separate accounts and
common and commingled trust funds) will each be liable for all obligations of
the Portfolio. However, the risk of the Fund incurring financial loss on
account of such liability is limited to circumstances in which both inadequate
insurance existed and the Portfolio itself was unable to meet its obligations.
Accordingly, the Trustees of the Trust believe that neither the Fund nor its
shareholders will be adversely affected by reason of the Fund's investing in
the Portfolio.
TAXES
The following discussion of tax consequences is based on U.S. federal tax
laws in effect on the date of this Prospectus. These laws and regulations are
subject to change by legislative or administrative action. Investors are
urged to consult their own tax advisors with respect to specific questions as
to federal taxes and with respect to the applicability of state or local taxes.
See Taxes in the Statement of Additional Information. Annual statements as to
the current federal tax status of distributions, if applicable, are mailed to
shareholders after the end of the taxable year for the Fund.
The Trust intends to qualify the Fund as a separate regulated investment com-
pany under Subchapter M of the Code. For the Fund to qualify as a regulated
investment company, the Portfolio, in addition to other requirements, limits
its investments so that at the close of each quarter of its taxable year (a)
no more than 25% of its total assets are invested in the securities of any one
issuer, except U.S. Government securities, and (b) with regard to 50% of its
total assets, no more than 5% of its total assets are invested in the
securities of a single issuer, except U.S. Government securities. As a
regulated invest-ment company, the Fund should not be subject to federal income
taxes or federal excise taxes if substantially all of its net investment income
and capital gains less any available capital loss carryforwards are distributed
to share-holders within allowable time limits. The Portfolio intends to qualify
as an association treated as a partnership for federal income tax purposes. As
such, the Portfolio should not be subject to tax. The Fund's status as a
regulated investment company is dependent on, among other things, the Port-
folio's continued qualification as a partnership for federal income tax
purposes.
If a correct and certified taxpayer identification number is not on file, the
Fund is required, subject to certain exemptions, to withhold 31% of certain
payments made or distributions declared to non-corporate shareholders.
Distributions of net investment income and realized net short-term capital
gains in excess of net long-term capital losses are taxable as ordinary
income to shareholders of the Fund whether such distributions are taken in
cash or re-invested in additional shares. Distributions of this type to
corporate share-holders of the Fund will not qualify for the dividends-
received deduction because the income of the Fund will not consist of
dividends paid by U.S. corporations.
Distributions of net long-term capital gains in excess of net short-term
capital losses are taxable to shareholders of the Fund as long-term capital
gains regardless of how long a shareholder has held shares in the Fund and
regardless of whether taken in cash or reinvested in additional shares.
Long-term capital gains distributions to corporate shareholders are not
eligible for the dividends-received deduction.
Any distribution of net investment income or capital gains will have the
effect of reducing the net asset value of Fund shares held by a shareholder
by the same amount as the distribution. If the net asset value of the shares
is reduced below a shareholder's cost as a result of such a distribution,
the distribution, although constituting a return of capital to the
shareholder, will be taxable as described above.
Any gain or loss realized on the redemption or exchange of Fund shares by a
shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held for more than one year,
and otherwise as
16
<PAGE>
short-term capital gain or loss. However, any loss realized by a shareholder
upon the redemption or exchange of shares in the Fund held for six months or
less will be treated as a long-term capital loss to the extent of any
long-term capital gain distributions received by the shareholder with respect
to such shares.
The Fund is subject to foreign withholding taxes with respect to income
received from sources within certain foreign countries. So long as more than
50% of the value of the Fund's total assets at the close of any taxable year
consists of securities of foreign corporations, the Fund may elect to treat
any such foreign income taxes paid by it as paid directly by its shareholders.
The Fund will make such an election only if it deems it to be in the best
interests of its shareholders and will notify shareholders in writing each year
if it makes the election and of the amount of foreign income taxes and gross
income derived from sources within any foreign country or possession of the
United States, if any, to be treated as paid by the shareholders. If the Fund
makes the election, each shareholder will be required to include in income his
proportionate share of the amount of foreign income taxes paid by the Fund and
will be entitled to claim either a credit (which is subject to certain
limitations) or, if the shareholder itemizes deductions, a deduction for his
share of the foreign income taxes in computing his federal income tax
liability. (No deduction will be permitted to individuals in computing their
alternative minimum tax liability.)
ADDITIONAL INFORMATION
The Fund sends to its shareholders annual and semi-annual reports. The
financial statements appearing in annual reports are audited by independent
accountants. Shareholders also will be sent confirmations of each purchase
and redemption and monthly statements, reflecting all other account
activity, including dividends and any distributions reinvested in additional
shares or credited as cash.
All shareholders are given the privilege to initiate transactions
automatically by telephone upon opening an account. However, an investor
should be aware that a transaction authorized by telephone and reasonably
believed to be genuine by the Fund, Morgan, his or her Eligible Institution
or the Distributor may subject the investor to risk of loss if such
instruction is subsequently found not to be genuine. The Fund will employ
reasonable procedures, including requiring investors to give their Personal
Identification Number and tape recording of telephone instructions, to
confirm that instructions commu-nicated from investors by telephone are
genuine; if it does not, the Fund, the Services Agent or a shareholder's
Eligible Institution may be liable for any losses due to unauthorized or
fraudulent instructions.
The Fund may make historical performance information available and may
compare its performance to other investments or relevant indexes, including
data from Lipper Analytical Services, Inc., Micropal Inc., Morningstar Inc.,
Ibbotson Associates, Salomon Brothers Non-U.S. World Government Bond Index
and other industry publications. The Fund may advertise "yield". Yield refers
to the net income generated by an investment in the Fund over a stated 30-day
period. This income is then annualized--i.e., the amount of income generated
by the investment during the 30-day period is assumed to be generated each
30-day period for twelve periods and is shown as a percentage of the
investment. The income earned on the investment is also assumed to be
reinvested at the end of the sixth 30-day period.
The Fund may also advertise "total return" and non-standardized total return
data. The total return shows what an investment in the Fund would have earned
over a specified period of time (one, five or ten years or since commencement
of operations, if less) assuming that all distributions and dividends by the
Fund were reinvested on the reinvestment dates during the period and less all
recurring fees. These methods of calculating yield and total return are
required by regulations of the Securities and Exchange Commission. Yield and
total return data similarly calculated, unless otherwise indicated, over
other specified periods of time may also be used. See Performance Data in the
Statement of Additional Information. All performance figures are based on
historical earnings and are not intended to indicate future performance.
Shareholders may obtain performance information by calling Morgan at (800)
JPM-3637.
17
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APPENDIX
OPTIONS
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, the Portfolio
obtains the right (but not the obligation) to sell the instrument underlying
the option at a fixed strike price. In return for this right, the Portfolio
pays the current market price for the option (known as the option premium).
Options have various types of underlying instruments, including specific
securities, indexes of securities, indexes of securities prices, and futures
contracts. The Portfolio may terminate its position in a put option it has
purchased by allowing it to expire or by exercising the option. The
Portfolio may also close out a put option position by entering into an
offsetting transaction, if a liquid market exists. If the option is allowed
to expire, the Portfolio will lose the entire premium it paid. If the
Portfolio exercises a put option on a security, it will sell the instrument
underlying the option at the strike price. If the Portfolio exercises an
option on an index, settlement is in cash and does not involve the actual
sale of securities. If an option is American style, it may be exercised on
any day up to its expiration date. A European style option may be exercised
only on its expiration date.
The buyer of a typical put option can expect to realize a gain if the price
of the underlying instrument falls substantially. However, if the price of
the instrument underlying the option does not fall enough to offset the cost
of purchasing the option, a put buyer can expect to suffer a loss (limited
to the amount of the premium paid, plus related transaction costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the instrument underlying the option at the
option's strike price. A call buyer typically attempts to participate in
potential price increases of the instrument underlying the option with risk
limited to the cost of the option if security prices fall. At the same time,
the buyer can expect to suffer a loss if security prices do not rise
sufficiently to offset the cost of the option.
SELLING (WRITING) PUT AND CALL OPTIONS. When the Portfolio writes a put
option, it takes the opposite side of the transaction from the option's
purchaser. In return for receipt of the premium, the Portfolio assumes the
obligation to pay the strike price for the instrument underlying the option
if the other party to the option chooses to exercise it. The Portfolio may
seek to terminate its position in a put option it writes before exercise by
purchasing an offsetting option in the market at its current price. If the
market is not liquid for a put option the Portfolio has written, however, the
Portfolio must continue to be prepared to pay the strike price while the
option is outstanding, regardless of price changes, and must continue to post
margin as discussed below.
If the price of the underlying instrument rises, a put writer would generally
expect to profit, although its gain would be limited to the amount of the
premium it received. If security prices remain the same over time, it is
likely that the writer will also profit, because it should be able to close
out the option at a lower price. If security prices fall, the put writer
would expect to suffer a loss. This loss should be less than the loss from
purchasing and holding the underlying instrument directly, however, because
the premium received for writing the option should offset a portion of the
decline.
Writing a call option obligates the Portfolio to sell or deliver the option's
underlying instrument in return for the strike price upon exercise of the
option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium a call writer offsets part of the effect of a price decline. At the
same time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is
greater, a call writer gives up some ability to participate in security price
increases.
The writer of an exchange traded put or call option on a security, an index
of securities or a futures contract is required to deposit cash or securities
or a letter of credit as margin and to make mark to market payments of
variation margin as the position becomes unprofitable.
OPTIONS ON INDEXES.
Options on securities indexes are similar to options on securities, except
that the exercise of securities index options is settled by cash payment and
does not involve the actual purchase or sale of securities. In
A-1
<PAGE>
addition, these options are designed to reflect price fluctuations in a
group of securities or segment of the securities market rather than price
fluctuations in a single security. The Portfolio, in purchasing or selling
index options, is subject to the risk that the value of its portfolio
securities may not change as much as an index because the Portfolio's
investments generally will not match the composition of an index.
For a number of reasons, a liquid market may not exist and thus the Portfolio
may not be able to close out an option position that it has previously entered
into. When the Portfolio purchases an OTC option, it will be relying on its
counterparty to perform its obligations, and the Portfolio may incur
additional losses if the counterparty is unable to perform.
FUTURES CONTRACTS
When the Portfolio purchases a futures contract, it agrees to purchase a
specified quantity of an underlying instrument at a specified future date or
to make a cash payment based on the value of a securities index. When the
Portfolio sells a futures contract, it agrees to sell a specified quantity of
the underlying instrument at a specified future date or to receive a cash
payment based on the value of a securities index. The price at which the
purchase and sale will take place is fixed when the Portfolio enters into the
contract. Futures can be held until their delivery dates or the position can
be (and normally is) closed out before then. There is no assurance, however,
that a liquid market will exist when the Portfolio wishes to close out a
particular position.
When the Portfolio purchases a futures contract, the value of the futures
contract tends to increase and decrease in tandem with the value of its
underlying instrument. Therefore, purchasing futures contracts will tend to
increase the Portfolio's exposure to positive and negative price fluctuations
in the underlying instrument, much as if it had purchased the underlying
instrument directly. When the Portfolio sells a futures contract, by
contrast, the value of its futures position will tend to move in a direction
contrary to the value of the underlying instrument. Selling futures
contracts, therefore, will tend to off-set both positive and negative market
price changes, much as if the underlying instrument had been sold.
The purchaser or seller of a futures contract is not required to deliver or
pay for the underlying instrument unless the contract is held until the
delivery date. However, when the Portfolio buys or sells a futures contract
it will be required to deposit "initial margin" with its Custodian in a
segregated account in the name of its futures broker, known as a futures
commission merchant (FCM). Initial margin deposits are typically equal to a
small percentage of the contract's value. If the value of either party's
position declines, that party will be required to make additional "variation
margin" payments equal to the change in value on a daily basis. The party
that has a gain may be entitled to receive all or a portion of this amount.
The Portfolio may be obligated to make payments of variation margin at a time
when it is disadvantageous to do so. Furthermore, it may not always be
possible for the Portfolio to close out its futures positions. Until it
closes out a futures position, the Portfolio will be obligated to continue to
pay variation margin. Initial and variation margin payments do not constitute
purchasing on margin for purposes of the Portfolio's investment restrictions.
In the event of the bankruptcy of an FCM that holds margin on behalf of the
Portfolio, the Portfolio may be entitled to return of margin owed to it only
in proportion to the amount received by the FCM's other customers,
potentially resulting in losses to the Portfolio.
The Portfolio will segregate liquid assets in connection with its use of op-
tions and futures contracts to the extent required by the staff of the Securi-
ties and Exchange Commission. Securities held in a segregated account cannot be
sold while the futures contract or option is outstanding, unless they are re-
placed with other suitable assets. As a result, there is a possibility that
segregation of a large percentage of the Portfolio's assets could impede port-
folio management or the Portfolio's ability to meet redemption requests or other
current obligations.
For further information about the Portfolio's use of futures and options and
a more detailed discussion of associated risks, see Investment Objectives and
Policies in the Statement of Additional Information.
A-2
<PAGE>
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 European Equity Fund
The JPM Advisor Asia Growth Fund
The JPM Advisor Japan Equity Fund
The JPM Advisor Emerging Markets Equity Fund
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in
this Prospectus, in connection with the offer contained in this Prospectus
and, if given or made, such other information or representations must not be
relied upon as having been authorized by the Trust or the Distributor. This
Prospectus does not constitute an offer by the Trust or by the Distributor to
sell or a solicitation of any offer to buy any of the securities offered
hereby in any jurisdiction to any person to whom it is unlawful for the Trust
or the Distributor to make such offer in such jurisdiction.
ADVPROS402-969
MST608095
The JPM Advisor International Fixed Income Fund
PROSPECTUS
September 9, 1996
<PAGE>
JPM597C
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 DIVERSIFIED 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
SEPTEMBER 9, 1996
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 FUNDS
DISTRIBUTOR, INC., ATTENTION: THE JPM ADVISOR FUNDS; (800) 221-7930.
<PAGE>
Table of Contents
Page
General . . . . . . . . . . . . . . . . . . . 1
Investment Objectives and Policies . . . . . . 1
Investment Restrictions . . . . . . . . . . . 21
Trustees and Officers . . . . . . . . . . . . 31
Investment Advisor . . . . . . . . . . . . . . 37
Co-Administrator and Distributor . . . . . . . 39
Services Agent . . . . . . . . . . . . . . . . 41
Custodian . . . . . . . . . . . . . . . . . . 43
Independent Accountants . . . . . . . . . . . 44
Expenses . . . . . . . . . . . . . . . . . . . 44
Purchase of Shares . . . . . . . . . . . . . . 44
Redemption of Shares . . . . . . . . . . . . . 45
Exchange of Shares . . . . . . . . . . . . . . 45
Dividends and Distributions . . . . . . . . . 46
Net Asset Value . . . . . . . . . . . . . . . 46
Performance Data . . . . . . . . . . . . . . . 47
Portfolio Transactions . . . . . . . . . . . . 50
Massachusetts Trust . . . . . . . . . . . . . 52
Description of Shares . . . . . . . . . . . . 53
Taxes . . . . . . . . . . . . . . . . . . . . 55
Additional Information . . . . . . . . . . . 58
Financial Statements . . . . . . . . . . . . . 59
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 ten 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 Diversified 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 shares of beneficial interest of The JPM Advisor Funds, an
open-end management investment company formed as a Massachusetts business trust
(the "Trust"). As of the date of this Statement of Additional Information, The
JPM Advisor Diversified Fund had neither been offered to the public nor
commenced public investment operations.
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 a two-tier master-feeder investment fund structure.
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 herein have the
meanings accorded to them in the Funds' Prospectuses. The Funds' executive
offices are located at 60 State Street, Suite 1300, Boston, Massachusetts 02109.
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
1
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corporate and government debt obligations and related securities of domestic and
foreign issuers described in the Prospectus and this Statement of Additional
Information.
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 analysts 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
2
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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.
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 Salomon
Brothers World Government Bond Index.
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 an 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
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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.
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
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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
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
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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 investment
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 Capital
International ("MSCI") 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.
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 ranks 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)
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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.
THE JPM ADVISOR DIVERSIFIED FUND (the "Diversified Fund") is designed
for investors who wish to invest for long term objectives such as retirement and
who seek to attain real appreciation in their investments over the long term,
but with somewhat less price fluctuation than a portfolio consisting solely of
equity securities. The Diversified Fund's investment objective is to provide a
high total return from a diversified portfolio of equity and fixed income
securities. The Fund attempts to achieve its investment objective by investing
all of its investable assets in The Diversified Portfolio, a diversified
open-end management investment company having the same investment objective as
the Diversified Fund. Morgan allocates the Portfolio's assets between major
asset classes based on a systematic valuation procedure and subjective
assessment.
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INVESTMENT PROCESS
The mix of equities and fixed income is based on the risk premium model
and the anticipation of changing economic trends. The risk premium is the
difference between Morgan's forecast of the long-term return on stocks
(determined using Morgan's proprietary dividend discount model) and the current
nominal yield on 30-year U.S. Treasury bonds. When the risk premium is high,
more assets are allocated to stocks. When the risk premium is low, more assets
are allocated to bonds. Within U.S. equities, the allocation between large cap
and small cap stocks is based on the relative dividend discount rate spread
between large and small cap. Within fixed income, the allocation among sectors
is based on Morgan's analysis of their relative valuation. Morgan's asset
allocation decisions for the Portfolio are implemented using the investment
processes described herein for the U.S. Fixed Income, U.S. Equity, U.S. Small
Cap Equity and International Equity Funds.
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
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risk. Countries that rank highly on one or both of these scores are overweighted
relative to the Fund's benchmark, the MSCI Emerging Markets Free 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 Advisor considers Asian growth markets to be Bangladesh, China, India,
Indonesia, Korea, Malaysia, Pakistan, the Philippines, Sri Lanka, Thailand,
Taiwan, Hong Kong and Singapore. 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."
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
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(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
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
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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 European 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 Advisor 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 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
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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
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below to a Fund also include the 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 the case of all Portfolios except U.S. Fixed Income
Portfolio, 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
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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 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.
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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 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, Diversified 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
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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."
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
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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
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
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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 and the equity portion of the Diversified Portfolio
(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.
COMMON STOCK WARRANTS
The Portfolios for The JPM Advisor U.S. Equity, U.S. Small Cap,
International Equity, Diversified, Emerging Markets Equity, European Equity,
Japan Equity and Asia Growth Funds may invest in common stock warrants that
entitle the holder to buy common stock from the issuer of the warrant at a
specific price (the strike price) for a specific period of time. The market
price of warrants may be substantially lower than the current market price of
the underlying common stock, yet warrants are subject to similar price
fluctuations. As a result, warrants may be more volatile investments than the
underlying common stock.
Warrants generally do not entitle the holder to dividends or voting
rights with respect to the underlying common stock and do
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not represent any rights in the assets of the issuer company. A warrant will
expire worthless if it is not exercised on or prior to the expiration date.
FOREIGN INVESTMENTS
The 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,
U.S. Small Company and Diversified 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, U.S. Small Company and Diversified Portfolios do not expect to invest
more than 25%, 5%, 5% and 30%, 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 as described in the relevant Prospectus. The Portfolios
will not enter into such commitments for speculative purposes.
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 the Japan Equity Portfolio and
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the International Equity Portfolio invest in Japan, they will be subject to the
general economic and political conditions in Japan. It is not expected that the
Asia Growth Portfolio will invest in Japan (see "Investment Objective and
Policies" in the Prospectus).
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. 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 Japan Equity and the International Equity Portfolios invest
in securities denominated in yen, changes in exchange rates between the U.S.
dollar and the yen affect the U.S. dollar value of their respective assets.
Although the Japanese economy has grown substantially over the past four
decades, recently the rate of growth had slowed substantially.
See Foreign Currency Exchange Transactions.
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 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 Japan Equity
and International Equity Portfolios.
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
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predicted. Recent and future developments in Japan and neighboring Asian
countries may lead to changes in policy that might adversely affect these
Portfolios.
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 for money market instruments and other
fixed income investments 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.
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
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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. Each of the U.S.
Fixed Income, Non-U.S. Fixed Income, Non-U.S. Equity, Emerging Markets Equity,
European Equity, Japan Equity, Asia Growth and Diversified Portfolios may enter
into reverse repurchase agreements not exceeding in the aggregate one-third of
the market value of their respective total assets, less liabilities other than
the obligations created by reverse repurchase agreements. Each of the Selected
U.S. Equity and U.S. Small Company Portfolios may enter into reverse repurchase
agreements not exceeding in the aggregate 10% of the value of their respective
total assets, taken at cost, at the time of the borrowing. 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
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cash or equivalent collateral or by a letter of credit in favor of the Portfolio
at least equal at all times to 100% of the market value of the securities
loaned, plus accrued interest. While such securities are on loan, the borrower
will pay the Portfolio any income accruing thereon. Loans will be subject to
termination by the Portfolios in the normal settlement time, generally three
business days after notice, or by the borrower on one day's notice. Borrowed
securities must be returned when the loan is terminated. Any gain or loss in the
market price of the borrowed securities which occurs during the term of the loan
inures to 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
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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.
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, NON-U.S. FIXED INCOME AND DIVERSIFIED PORTFOLIOS.
The U.S. Fixed Income and Non-U.S. Fixed Income Portfolios and the fixed income
portion of the Diversified Portfolio 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. 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
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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.
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
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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
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
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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 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.
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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, Diversified, 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
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%; for the fiscal year ended October 31, 1995:
293%.
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THE NON-U.S. FIXED INCOME PORTFOLIO (International Fixed Income Fund)--For
the period October 11, 1994 (commencement of operations) through September
30, 1995: 288%; for the nine months ended June 30, 1996: 252% (unaudited).
THE SELECTED U.S. EQUITY PORTFOLIO (U.S. Equity Fund)--For the fiscal year
ended May 31, 1995: 71%; for the fiscal year ended May 31, 1996: 84.55%.
THE U.S. SMALL COMPANY PORTFOLIO (U.S. Small Cap Equity Fund)--For the fiscal
year ended May 31, 1995: 75%; for the fiscal year ended May 31, 1996:
92.58%.
THE NON-U.S. EQUITY PORTFOLIO (International Equity Fund)--For the fiscal
year ended October 31, 1994: 56%; for the fiscal year ended October 31,
1995: 59%; for the six months ended April 30, 1996: 26% (unaudited).
THE DIVERSIFIED PORTFOLIO (Diversified Fund)--For the period July 8, 1993
(commencement of operations) through June 30, 1994: 115%; for the fiscal year
ended June 30, 1995: 136%; for the fiscal year ended June 30, 1996: 144%.
THE EMERGING MARKETS EQUITY PORTFOLIO (Emerging Markets Equity Fund)--For the
period November 15, 1993 (commencement of operations) through October 31,
1994: 27.48%; for the fiscal year ended October 31, 1995: 41.31%; for the
six months ended April 30, 1996: 16.13% (unaudited).
THE EUROPEAN EQUITY PORTFOLIO (European Equity Fund)--For the period March 28,
1995 (commencement of operations) through December 31, 1995: 36%; for the six
months ended June 30, 1996:
27% (unaudited).
THE JAPAN EQUITY PORTFOLIO (Japan Equity Fund)--For the period March 28, 1995
(commencement of operations) through December 31, 1995: 60%; for the six months
ended June 30, 1996: 44.07% (unaudited).
THE ASIA GROWTH PORTFOLIO (Asia Growth Fund)--For the period April 5, 1995
(commencement of operations) through December 31, 1995: 70%; for the six months
ended June 30, 1996: 42% (unaudited).
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"
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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.
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;
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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;
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
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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;
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
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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;
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
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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
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
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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;
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
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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.
The Diversified Portfolio may not:
1. Purchase the securities or other obligations of issuers conducting
their principal business activity in the same industry if, immediately after
such purchase the value of its investments in such industry would exceed 25% of
the value of the Fund's total assets; provided, however, that the Fund may
invest all or part of its investable assets in an open-end management investment
company with the same investment objective and restrictions as the Fund's. For
purposes of industry concentration, there is no percentage limitation with
respect to investments in U.S. Government securities;
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2. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in securities or other obligations of any one such
issuer; provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with the same
investment objective and restrictions as the Fund's. 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 Fund's total
assets;
3. Purchase the securities of an issuer if, immediately after such
purchase, the Fund owns more than 10% of the outstanding voting securities of
such issuer; provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with the same
investment objective and restrictions as the Fund's. This limitation shall not
apply to permitted investments of up to 25% of the Fund's total assets;
4. Borrow money (not including reverse repurchase agreements), except
from banks for temporary or extraordinary or emergency purposes and then only in
amounts up to 30% of the value of the Fund's or the Portfolio's total assets,
taken at cost at the time of such borrowing (and provided that such borrowings
and reverse repurchase agreements do not exceed in the aggregate one-third of
the market value of the Fund's and the Portfolio's total assets less liabilities
other than the obligations represented by the bank borrowings and reverse
repurchase agreements). The Fund 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 Fund's or the Portfolio's net assets at the time of such
borrowing. The Fund or the Portfolio will not purchase securities while
borrowings exceed 5% of the Fund's total assets; provided, however, that the
Fund may increase its interest in an open-end management investment company with
the same investment objective and restrictions as the Fund's while such
borrowings are outstanding. 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
Fund's use of futures contracts and options are not deemed to be a pledge of
assets;
5. Issue any senior security, except as appropriate to evidence
indebtedness which constitutes a senior security and which the Fund is permitted
to incur pursuant to Investment Restriction No. 4 and except that the Fund 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 Fund's total assets, less liabilities other than
obligations created by reverse repurchase agreements. The Fund's arrangements in
connection
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with its use of futures contracts and options shall not be considered senior
securities for purposes hereof;
6. 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
Fund's investment objective and policies (see "Investment Objectives and
Policies");
7. Purchase or sell commodities or commodity contracts, but this
restriction shall not prohibit the Fund from purchasing or selling futures
contracts or options (including options on futures contracts, but excluding
options or futures contracts on physical commodities) or entering into foreign
currency forward contracts; or purchase or sell real estate or interests in oil,
gas, or mineral exploration or development programs. However, the Fund may
purchase securities or commercial paper issued by companies which invest in real
estate or interests therein, including real estate investment trusts, and
purchase instruments secured by real estate or interests therein;
8. 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 be applicable to the purchase or
sale of when-issued securities or delayed delivery securities or to restrict the
Fund's use of futures contracts or options;
9. Acquire securities of other investment companies, except as
permitted by the 1940 Act or in connection with a merger, consolidation,
reorganization, acquisition of assets or an offer of exchange; provided,
however, that nothing in this investment restriction shall prevent the Trust
from investing all or part of the Fund's assets in an open-end management
investment company with the same investment objective and restrictions as the
Fund; or
10. Act as an underwriter of securities.
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
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PORTFOLIO AND DIVERSIFIED PORTFOLIO. The investment restrictions described below
are not fundamental policies of these Portfolios and may be changed by their
respective Trustees. These non-fundamental investment policies require that each
such 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;
(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
39
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more than 5% of such shares or securities, or both, all taken at market value;
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS - SELECTED U.S. EQUITY, U.S. SMALL
COMPANY AND DIVERSIFIED 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 real estate limited partnership interests; or
(ii) 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
40
<PAGE>
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
(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:
41
<PAGE>
(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 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,
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<PAGE>
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. (since 1985). His address is 15 Stony Brook Road,
Weston, Massachusetts 02193.
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 & Co.
Incorporated (since June, 1993); Director and Vice Chairman of J.P. Morgan & Co.
Incorporated (prior to June, 1993); Director, Trident Corporation (since April,
1994); Director, Bethlehem Steel Corporation (since September, 1990); Trustee,
Johns Hopkins University (since April, 1990); Trustee, Overlook Hospital
Foundation (since April, 1990); Director, Student Loan Marketing Association
(since April, 1990). His address is 103 Spruce Knob Road, Middletown Springs, VT
05757.
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.
JOHN BAUMGARDNER*--Trustee; Partner, Sullivan & Cromwell (law firm)
(since 1983); Supervisory Director, The Turkish Private Equity Investment
Company, N.V. (1991-1993). His address is Sullivan & Cromwell, 125 Broad Street,
New York, NY 10004.
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. Under the Services Agreement, Morgan is responsible for
paying the Trustees' fees. The compensation paid to the Trust's Trustees in
calendar 1995 is set forth below. 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.
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<PAGE>
<TABLE>
<CAPTION>
PENSION OR RETIREMENT ESTIMATED ANNUAL
AGGREGATE COMPENSATION BENEFITS ACCRUED AS BENEFITS UPON
NAME OF TRUSTEE FROM THE TRUST DURING 1995 PART OF FUND EXPENSES RETIREMENT
<S> <C> <C> <C>
John E. Baumgardner, Jr.* $0 None None
John C. Cox $13,067 None None
Joyce M. Nelson** $13,067 None None
John R. Rettberg $13,067 None None
John F. Ruffle $13,067 None None
Kenneth Whipple, Jr. $13,067 None None
</TABLE>
- ------------------
*Trustee elected February 6, 1996.
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<PAGE>
**Trustee resigned January 2, 1996.
The dollar figure reported in the second column above was the total
compensation paid to the Trustee in 1995 for service on the Trust's board. None
of the Trust's Trustees serve on the board of another investment company in the
fund complex. As of the date of this Statement of Additional Information there
were 17 investment companies (including the Trust) in the fund complex.
Trustees of the Portfolios
FREDERICK S. ADDY--Trustee; Retired; Executive Vice
President and Chief Financial Officer from January 1990 to April
1994, Amoco Corporation. His address is 5300 Arbutus Cove,
Austin, TX 78746.
WILLIAM G. BURNS--Trustee; Retired; Former Vice Chairman and
Chief Financial Officer, NYNEX. His address is 2200 Alaqua
Drive, Longwood, FL 32779.
ARTHUR C. ESCHENLAUER--Trustee; Retired; Senior Vice
President, Morgan Guaranty Trust Company of New York until 1987.
His address is 14 Alta Vista Drive, RD #2, Princeton, NJ 08540.
MATTHEW HEALEY*--Trustee, Chairman and Chief Executive
Officer; Chairman, Pierpont Group, Inc., since 1989. His address
is Pine Tree Club Estates, 10286 Saint Andrews Road, Boynton
Beach, FL 33436.
MICHAEL P. MALLARDI--Trustee; Retired; Senior Vice
President, Capital Cities/ABC, Inc. and President, Broadcast
Group prior to April 1996. His address is 10 Charnwood Drive,
Suffern, NY 10910.
Each Trustee of the Portfolios is paid an annual fee as follows for
serving as Trustee of The Pierpont Funds, The JPM Institutional Funds, the
Portfolios and the other portfolios in which these funds invest, 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.
45
<PAGE>
<TABLE>
<CAPTION>
TOTAL COMPENSA-
TION FROM THE
AGGREGATE PENSION OR PORTFOLIOS**, JPM
COMPENSATION RETIREMENT ESTIMATED INSTITUTIONAL AND
FROM THE BENEFITS ANNUAL BEN- PIERPONT FUNDS PAID
TRUST ACCRUED AS EFITS UPON TO TRUSTEES DURING
NAME POSITION DURING 1995 PART OF FUND RETIREMENT 1995
EXPENSES
<S> <C> <C> <C> <C>
Frederick S. Addy, Trustee N/A None None $62,500
William G. Burns, Trustee N/A None None $62,500
Arthur C. Eschenlauer, Trustee N/A None None $62,500
Matthew Healey, Trustee, Chairman N/A None None $62,500
and Chief Executive Officer*
Michael P. Mallardi, Trustee N/A None None $62,500
</TABLE>
- ------------------
*During 1995, Pierpont Group, Inc. paid Mr. Healey, in his
role as Chairman of Pierpont Group, Inc., compensation in the
amount of $140,000, contributed $21,000 to a defined contribution
plan on his behalf, and paid $20,000 in insurance premiums for
his benefit.
**Includes the Portfolios and The Treasury Money Market Portfolio, The
Money Market Portfolio, The Tax Exempt Money Market Portfolio, The Short Term
Bond Portfolio, The Tax Exempt Bond Portfolio and The New York Total Return Bond
Portfolio.
As of April 1, 1995 the annual fee paid to each Trustee for serving as
a Trustee of each of the Portfolios and the six other registered investment
companies referenced directly above (collectively the "Master Portfolios"), The
JPM Institutional Funds and The Pierpont Funds was adjusted to $65,000.
The Portfolios' Trustees, in addition to reviewing actions of the
Portfolios' various service providers, decide upon matters of general policy.
Each of the Portfolios has 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 the indicated fiscal years are set forth below:
U.S. FIXED INCOME PORTFOLIO--For the fiscal year ended October 31, 1994:
$23,028; for the fiscal year ended October 31, 1995: $40,729.
NON-U.S. FIXED INCOME PORTFOLIO--For the period October 11, 1994
(commencement of operations) through September 30, 1995: $20,446 ; for the
nine months ended June 30, 1996: $10,010 (unaudited).
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<PAGE>
SELECTED U.S. EQUITY PORTFOLIO--For the period July 19, 1993 (commencement of
operations) through May 31, 1994: $20,385; for the fiscal year ended May
31, 1995: $52,948; for the fiscal year ended May 31, 1996: $46,626.
U.S. SMALL COMPANY PORTFOLIO--For the period July 19, 1993 (commencement of
operations) through May 31, 1994: $33,435; for the fiscal year ended May 31,
1995: $62,256; for the fiscal year ended May 31, 1996: $48,688.
NON-U.S. EQUITY PORTFOLIO--For the fiscal year ended October 31, 1994:
$32,512; for the fiscal year ended October 31, 1995: $48,442; for the six
months ended April 30, 1996: $21,154 (unaudited).
DIVERSIFIED PORTFOLIO--For the period July 8, 1993 (commencement of
operations) through June 30, 1994: $3,434; for the fiscal year ended June
30, 1995: $11,702; for the fiscal year ended June 30, 1996: $13,109.
EMERGING MARKETS EQUITY PORTFOLIO--For the period November 13, 1993
(commencement of operations) through October 31, 1994: $42,764; for the
fiscal year ended October 31, 1995: $53,162; for the six months ended April
30, 1996: $19,928 (unaudited).
ASIA GROWTH PORTFOLIO--For the period April 5, 1995 (commencement of
operations) through December 31, 1995: $4,788; for the six months ended June
30, 1996: $2,840 (unaudited).
EUROPEAN EQUITY PORTFOLIO--For the period March 28, 1995 (commencement of
operations) through December 31, 1995: $19,953; for the six months ended
June 30, 1996: $14,050 (unaudited).
JAPAN EQUITY PORTFOLIO--For the period March 28, 1995 (commencement of
operations) through December 31, 1995: $21,727; for the six months ended
June 30, 1996: $13,641 (unaudited).
OFFICERS
The Trust's and Portfolios' executive officers (listed below), other
than the Chief Executive Officer of the Portfolios, are provided and compensated
by Funds Distributor, Inc. ("FDI"), a wholly owned indirect subsidiary of Boston
Institutional Group, Inc. 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 Funds Distributor, Inc., 60 State Street, Suite 1300, Boston,
47
<PAGE>
Massachusetts 02109.
MATTHEW HEALEY; Chief Executive Officer of the Portfolios; Chairman,
Pierpont Group, Inc., since 1989. His address is Pine Tree Club Estates, 10286
Saint Andrews Road, Boynton Beach, FL 33436.
ELIZABETH A. BACHMAN; Vice President and Assistant Secretary.
Counsel, FDI and Premier Mutual Fund Services, Inc. ("Premier Mutual") and an
officer of RCM Capital Funds, Inc., RCM Equity Funds, Inc., Waterhouse
Investors Cash Management Fund, Inc. and certain investment companies advised
or administered by the Dreyfus Corporation ("Dreyfus"). Prior to September
1995, Ms. Bachman was enrolled at Fordham University School of Law and
received her JD in May 1995. Prior to September 1992, Ms. Bachman was an
assistant at the National Association for Public Interest Law. Address:
FDI, 200 Park Avenue, New York, New York 10166.
MARIE E. CONNOLLY; Vice President and Assistant Treasurer. President
and Chief Executive Officer and Director of FDI, Premier Mutual and an
officer of RCM Capital Funds, Inc., RCM Equity Funds, Inc. and certain
investment companies advised or administered by Dreyfus. From December 1991
to July 1994, she was President and Chief Compliance Officer of FDI. Prior
to December 1991, she served as Vice President and Controller, and later as
Senior Vice President of The Boston Company Advisors, Inc. ("TBCA").
DOUGLAS C. CONROY; Vice President and Assistant Treasurer.
Supervisor of Treasury Services and Administration of FDI and an officer of
certain investment companies advised or administered by Dreyfus. From April
1993 to January 1995, Mr. Conroy was a Senior Fund Accountant for Investors
Bank & Trust Company. Prior to March 1993, Mr. Conroy was employed as a fund
accountant at The Boston Company.
JACQUELINE HENNING; Assistant Secretary and Assistant Treasurer of
the Portfolios. Managing Director, State Street Cayman Trust Company, Ltd.
since October 1994. Prior to October 1994, Mrs. Henning was head of mutual
funds at Morgan Grenfell in Cayman and for five years was Managing director
of Bank of Nova Scotia Trust Company (Cayman) Limited from September 1988 to
September 1993. Address: P.O. Box 2508 GT, Elizabethan Square, 2nd Floor,
Shedden Road, George Town, Grand Cayman, Cayman Islands.
RICHARD W. INGRAM; President and Treasurer. Senior Vice President
and Director of Client Services and Treasury Administration of FDI, Senior
Vice President of Premier Mutual and an officer of RCM Capital Funds, Inc.,
RCM Equity Funds, Inc., Waterhouse Investors Cash Management Fund, Inc. and
certain investment companies advised or administered by Dreyfus. From March
1994 to November 1995, Mr. Ingram was Vice President and
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<PAGE>
Division Manager of First Data Investor Services Group, Inc. From 1989 to
1994, Mr. Ingram was Vice President, Assistant Treasurer and Tax Director -
Mutual Funds of The Boston Company.
KAREN JACOPPO-WOOD; Vice President and Assistant Secretary.
Assistant Vice President of FDI and an officer of RCM Capital Funds, Inc. and
RCM Equity Funds, Inc. From June 1994 to January 1996, Ms. Jacoppo was a
Manager, SEC Registration, Scudder, Stevens & Clark, Inc. From 1988 to May
1994, Ms. Jacoppo was a senior paralegal at TBCA.
CHRISTOPHER J. KELLEY; Vice President and Assistant Secretary. Vice
President and Associate General Counsel of FDI. From April 1994 to July 1996,
Mr. Kelley was Assistant Counsel at Forum Financial Group. From 1992 to
1994, Mr. Kelley was employed by Putnam Investments in legal and compliance
capacities. Prior to September 1992, Mr. Kelley was enrolled at Boston
College Law School and received his JD in May 1992.
LENORE J. MCCABE; Assistant Secretary and Assistant Treasurer of the
Portfolios. Assistant Vice President, State Street Bank and Trust Company
since November 1994. Assigned as Operations Manager, State Street Cayman
Trust Company, Ltd. since February 1995. Prior to November, 1994, employed
by Boston Financial Data Services, Inc. as Control Group Manager. Address:
P.O. Box 2508 GT, Elizabethan Square, 2nd Floor, Shedden Road, George Town,
Grand Cayman, Cayman Islands.
MARY A. NELSON; Vice President and Assistant Treasurer. Vice
President and Manager of Treasury Services and Administration of FDI, an
officer of RCM Capital Funds, Inc., RCM Equity Funds, Inc. and certain
investment companies advised or administered by Dreyfus. From 1989 to 1994,
Ms. Nelson as an Assistant Vice President and client manager for The Boston
Company.
JOHN E. PELLETIER; Vice President and Secretary. Senior Vice
President and General Counsel of FDI and Premier Mutual and an officer of RCM
Capital Funds, Inc., RCM Equity Funds, Inc., Waterhouse Investors Cash
Management Fund, Inc. and certain investment companies advised or
administered by Dreyfus. From February 1992 to April 1994, Mr. Pelletier
served as Counsel for TBCA. From August 1990 to February 1992, Mr. Pelletier
was employed as an Associate at Ropes & Gray.
JOSEPH F. TOWER III; Vice President and Assistant Treasurer. Senior
Vice President, Treasurer and Chief Financial Officer of FDI and Premier
Mutual and an officer of Waterhouse Investors Cash Management Fund, Inc. and
certain investment companies advised or administered by Dreyfus. From July
1988 to November 1993, Mr. Tower was Financial Manager of The Boston Company.
INVESTMENT ADVISOR
The investment advisor to the Portfolios is Morgan Guaranty
49
<PAGE>
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 $179 billion (of which the Advisor advises over $28
billion).
J.P. Morgan has a long history of service as adviser, underwriter and
lender to an extensive roster of major companies and as a financial advisor to
national governments. The firm, through its predecessor firms, has been in
business for over a century and has been managing investments since 1913.
The basis of 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
50
<PAGE>
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
Brothers Non-U.S. World Government Bond Index (currency hedged); 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 Diversified
Portfolio--diversified benchmark (52% S&P 500, 35% Salomon Brothers Broad
Investment Grade Bond, 3% Russell 2000 and 10% EAFE indexes); The Emerging
Markets Equity Portfolio--MSCI Emerging Markets Free 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.
J.P. Morgan Investment Management Inc., also a wholly owned subsidiary
of J.P. Morgan, is a registered investment adviser under the Investment Advisers
Act of 1940, as amended, which manages employee benefit funds of corporations,
labor unions and state and local governments and the accounts of other
institutional investors, including investment companies. Certain of the assets
of employee benefit accounts under its management are invested in commingled
pension trust funds for which the Advisor serves as trustee. J.P. Morgan
Investment Management Inc. advises the Advisor on investment of the commingled
pension trust funds.
The 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.
As compensation for the services rendered and related expenses such
as salaries of advisory personnel borne by the
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<PAGE>
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%
DIVERSIFIED 0.55%
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. For the fiscal year ended
October 31, 1995: $1,339,147.
NON-U.S. FIXED INCOME PORTFOLIO (INTERNATIONAL FIXED INCOME FUND) --For
the period October 11, 1994 (commencement of operations) through September
30, 1995: $782,748. For the nine months ended June 30, 1996: $591,673
(unaudited).
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. For the fiscal year ended May
31, 1996: $2,744,054.
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. For the fiscal year
ended May 31, 1996: $4,286,311.
NON-U.S. EQUITY PORTFOLIO (INTERNATIONAL EQUITY FUND)--For the
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<PAGE>
period October 4, 1993 (commencement of operations) through October 31, 1993:
$78,550. For the fiscal year ended October 31, 1994: $1,911,202. For the
fiscal year ended October 31, 1995: $3,174,965. For the six months ended
April 30, 1996: $2,275,697 (unaudited).
THE DIVERSIFIED PORTFOLIO (DIVERSIFIED FUND)--For the period July 8, 1993
(commencement of operations) through June 30, 1994: $197,026. For the fiscal
year ended June 30, 1995: $663,000. For the fiscal year ended June 30, 1996:
$1,112,941.
EMERGING MARKETS EQUITY PORTFOLIO (EMERGING MARKETS EQUITY FUND) --For the
period November 15, 1993 (commencement of operations) through October 31,
1994: $4,122,465. For the fiscal year ended October 31, 1995: $5,713,506.
For the six months ended April 30, 1996: $3,608,169 (unaudited).
ASIA GROWTH PORTFOLIO--For the period April 5, 1995 (commencement of
operations) through December 31, 1995: $528,956. For the six months ended
June 30, 1996: $414,049 (unaudited).
EUROPEAN EQUITY PORTFOLIO--For the period March 28, 1995 (commencement of
operations) through December 31, 1995: $1,675,355. For the six months ended
June 30, 1996: $1,670,174 (unaudited).
JAPAN EQUITY PORTFOLIO--For the period March 28, 1995 (commencement of
operations) through December 31, 1995: $1,777,126. For the six months ended
June 30, 1996: $1,581,190 (unaudited).
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
"Co-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
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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
investors that they approve the Portfolio's entering into a new investment
advisory agreement with another qualified investment advisor selected by the
Trustees.
Under separate agreements, Morgan also provides certain financial, fund
accounting and administrative services to the Trust and the Portfolios and
shareholder services for the Trust (see "Services Agent").
CO-ADMINISTRATOR AND DISTRIBUTOR
FDI 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, FDI 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 FDI. 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' written notice to the other party. The principal offices of FDI are
located at 60 State Street, Suite 1300, Boston, Massachusetts 02109.
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FDI also serves as the Trust's and the Portfolios' Co-Administrator.
The Co-Administration Agreements may be renewed or amended by the respective
Trustees without a shareholder vote. The Co-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
Co-Administrator may subcontract for the performance of its obligations,
provided, however, that unless the Trust or the Portfolios, as applicable,
expressly agrees in writing, the Co-Administrator shall be fully responsible for
the acts and omissions of any subcontractor as it would for its own acts or
omissions. See "Services Agent" below.
Below are set forth for each Fund listed and its corresponding
Portfolio the administrative fees paid to Signature Broker-Dealer Services, Inc.
(which provided distribution and administrative services to the Trust and
placement agent and administrative services to the Portfolios prior to August 1,
1996) for the fiscal periods indicated. See "Expenses" in the Prospectus and
below for applicable expense limitations.
U.S. FIXED INCOME PORTFOLIO--For the period July 12, 1993 (commencement of
operations) through October 31, 1993: $950. For the fiscal year ended
October 31, 1994: $16,107. For the fiscal year ended October 31, 1995:
$27,436.
NON-U.S. FIXED INCOME PORTFOLIO--For the period October 11, 1994
(commencement of operations) through September 30, 1995: $13,862. For the
nine months ended June 30, 1996: $17,155 (unaudited).
INTERNATIONAL FIXED INCOME FUND--For the period March 6, 1996 (commencement
of operations) through June 30, 1996: $0 (unaudited).
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. For the fiscal year ended May 31, 1996: $62,404.
U.S. EQUITY FUND--For the period February 5, 1996 (commencement of
operations) through May 31, 1996: $2.
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. For the fiscal year ended May 31, 1996: $65,079.
U.S. SMALL CAP EQUITY FUND--For the period January 19, 1996 (commencement of
operations) through May 31, 1996: $3.
NON-U.S. EQUITY PORTFOLIO--For the period October 4, 1993 (commencement of
operations) through October 31, 1993: $1,005.
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For the fiscal year ended October 31, 1994: $22,024. For the fiscal year
ended October 31, 1995: $31,500. For the six months ended April 30, 1996:
$41,663 (unaudited).
INTERNATIONAL EQUITY FUND--For the period November 22, 1995 (commencement
of operations) through April 30, 1996: $9 (unaudited).
THE DIVERSIFIED PORTFOLIO--For the period July 8, 1993 (commencement of
operations) through June 30, 1994: $2,423. For the fiscal year ended June
30, 1995: $7,770. For the fiscal year ended June 30, 1996: $19,517.
EMERGING MARKETS EQUITY PORTFOLIO--For the period November 15, 1993
(commencement of operations) through October 31, 1994: $30,828. For the
fiscal year ended October 31, 1995: $35,189. For the six months ended April
30, 1996: $39,661 (unaudited).
EMERGING MARKETS EQUITY FUND--For the period November 22, 1995 (commencement
of operations) through April 30, 1996: $45 (unaudited).
ASIA GROWTH PORTFOLIO--For the period April 5, 1995 (commencement of
operations) through December 31, 1995: $4,037. For the six months ended
June 30, 1996: $6,530 (unaudited).
ASIA GROWTH FUND--For the period January 5, 1996 (commencement of
operations) through June 30, 1996: $16 (unaudited).
EUROPEAN EQUITY PORTFOLIO--For the period March 28, 1995 (commencement
of operations) through December 31, 1995: $15,623. For the six months ended
June 30, 1996: $32,409 (unaudited).
EUROPEAN EQUITY FUND--For the period January 23, 1996 (commencement
of operations) through June 30, 1996: $34 (unaudited).
JAPAN EQUITY PORTFOLIO--For the period March 28, 1995 (commencement
of operations) through December 31, 1995: $17,418. For the six months ended
June 30, 1996: $30,693 (unaudited).
JAPAN EQUITY FUND--For the period January 24, 1996 (commencement of
operations) through June 30, 1996: $26 (unaudited).
SERVICES AGENT
The Trust and the Portfolios have entered into a Services Agreement and
an Administrative Services Agreements (the "Services Agreements"), respectively,
with Morgan effective December 29, 1995, as amended effective August 1, 1996,
pursuant to which Morgan is responsible for certain financial, fund accounting
and administrative services provided to the Funds and Portfolios. The Services
Agreements may be terminated at any time, without penalty, by the respective
Trustees or Morgan, in
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each case on not more than 60 days' nor less than 30 days' written notice to the
other party.
Under the Services Agreement with the Trust, Morgan is also responsible
for performing shareholder account administrative and servicing functions for
each Fund, 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 Co-Administrator for 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,
notices and proxies to Fund shareholders, interest charges, membership dues in
the Investment Company Institute allocable to the Funds, shareholder meeting
fees and registration fees under federal or state securities laws. When the
Funds pay these expenses directly, such amounts will be deducted from the fees
to be paid to Morgan under the Trust's 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 Trust's 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
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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,
U.S. Small Cap Equity and Diversified 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. The Trust's Trustees regularly review amounts paid
to and accounted for by Morgan pursuant to this agreement. See "Expenses" in the
Prospectus and below for applicable expense limitations.
Under the Portfolios' amended Services Agreements and the
Co-Administration Agreements, each of the Portfolios has agreed to pay Morgan
and FDI fees equal to its allocable share of an annual complex-wide charge. This
charge is calculated daily based on the aggregate net assets of the Master
Portfolios (in which series of the Trust, The Pierpont Funds or The JPM
Institutional Funds invest) in accordance with the following annual schedule:
0.09% on the first $7 billion of the Master Portfolios' aggregate average daily
net assets and 0.04% of the Master Portfolios' average daily net assets in
excess of $7 billion.
Under Administrative Services Agreements in effect from December 29,
1995 through July 31, 1996, with Morgan, each Portfolio paid Morgan a fee equal
to its proportionate share of an annual complex-wide charge. This charge was
calculated daily based on the aggregate net assets of the Master Portfolios in
accordance with the following schedule: 0.06% of the first $7 billion of the
Master Portfolios' aggregate average daily net assets, and 0.03% of the Master
Portfolios' aggregate average daily net assets in excess of $7 billion.
Prior to December 29, 1995, each Portfolio had entered into a Financial
and Fund Accounting Services Agreement with Morgan, the provisions of which
included certain of the activities described above and, prior to September 1,
1995, also included reimbursement of the Portfolio's usual and customary
expenses. Below are set forth for each Fund listed and its corresponding
Portfolio the fees paid to Morgan, net of fee waivers and reimbursements, as
Services Agent. See "Expenses" in the Prospectus and below for applicable
expense limitations.
THE U.S. FIXED INCOME PORTFOLIO--For the fiscal year ended October 31, 1995:
$167,081.
THE NON-U.S. FIXED INCOME PORTFOLIO--For the period October 11, 1994
(commencement of operations) through September 30, 1995: $156,367; for the
nine months ended June 30 1996: $25,053 (unaudited).
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INTERNATIONAL FIXED INCOME FUND--For the period March 6, 1996
(commencement of operations) through June 30, 1996: $(30,562)*.
THE SELECTED U.S. EQUITY PORTFOLIO--For the fiscal year ended May 31, 1996:
$138,134.
U.S. EQUITY FUND--For the period February 5, 1996 (commencement of
operations) through May 31, 1996: $(46,245)*.
THE U.S. SMALL COMPANY PORTFOLIO--For the fiscal year ended May 31, 1996:
$144,277.
U.S. SMALL CAP EQUITY FUND--For the period January 19, 1996 (commencement of
operations) through May 31, 1996: $(37,481)*.
THE NON-U.S. EQUITY PORTFOLIO--For the fiscal year ended October 31, 1995:
$349,443; for the six months ended April 30, 1996: $21,154 (unaudited).
INTERNATIONAL EQUITY FUND--For the period November 22, 1996 (commencement
of operations) through April 30, 1996: $(46,638)* (unaudited).
THE DIVERSIFIED PORTFOLIO--For the fiscal year ended June 30, 1995: $63,153;
for the fiscal year ended June 30, 1996: $45,687 .
THE EMERGING MARKETS EQUITY PORTFOLIO--For the fiscal year ended October 31,
1995: $337,050; for the six months ended April 30, 1996: $64,035
(unaudited).
EMERGING MARKETS EQUITY FUND--For the period November 22, 1996 (commencement
of operations) through April 30, 1996: $(19,747)* (unaudited).
ASIA GROWTH PORTFOLIO--For the period April 5, 1995 (commencement of
operations) through December 31, 1995: $21,823; for the six months ended
June 30, 1996: $12,972 (unaudited).
ASIA GROWTH FUND--For the period January 5, 1996 (commencement of
operations) through June 30, 1996: $(27,641)* (unaudited).
EUROPEAN EQUITY PORTFOLIO--For the period March 28, 1995 (commencement of
operations) through December 31, 1995: $128,335; for the six months ended
June 30, 1996: $64,388 (unaudited).
EUROPEAN EQUITY FUND--For the period January 23, 1996 (commencement
of operations) through June 30, 1996: $(27,180)* (unaudited).
JAPAN EQUITY PORTFOLIO--For the period March 28, 1995 (commencement of
operations) through December 31, 1995: $147,974; for the six months ended
June 30, 1996: $60,965 (unaudited).
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JAPAN EQUITY FUND--For the period January 24, 1996 (commencement of
operations) through June 30, 1996: $(24,930)* (unaudited).
------------------
*Indicates a reimbursement by Morgan for expenses in excess of its fees
under the Trust's Services Agreement. No fees were paid by the Fund for the
fiscal period.
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 investment companies. The activities of Morgan in acting as shareholder
servicing agent for Fund shareholders and providing administrative services to
the Funds and the Portfolios 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 Prospectuses 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 Agreements, the Trustees would seek an alternative provider of such
services. In such event, changes in the operation of the Funds or the Portfolios
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 02110, serves as the Trust's and each of the
Portfolio's Custodian and Transfer and Dividend Disbursing Agent. Pursuant to
the Custodian Contracts, State Street is responsible for maintaining the books
of account and records of portfolio transactions and holding portfolio
securities and cash. In the case of foreign assets held outside the United
States, the Custodian employs various 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
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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 fee under the Trust's Services
Agreement and any fees or expenses not covered by the Services Agreement with
the Trust (see "Services Agent" above and "Expenses" in the Prospectuses). In
addition, each Portfolio is responsible for all fees and other usual and
customary expenses associated with its operations (see "Expenses" in the
Prospectuses).
Morgan has agreed to waive fees as necessary if in any fiscal year the
sum of any Fund's expenses exceeds the limits set by applicable regulations of
state securities commissions. 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 Prospectuses.
PURCHASE OF SHARES
Investors may open Fund accounts and purchase shares as described in
the relevant 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
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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 relevant 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 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, Asia Growth, European Equity and
Japan Equity Portfolios) 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
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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 the day the following legal holidays are
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 less the Fund's pro rata share of the Portfolio's 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, DIVERSIFIED AND INTERNATIONAL FIXED INCOME FUNDS.
In the case of the Portfolios for the U.S. Fixed Income, Diversified
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
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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. The
Portfolio values municipal securities on the basis of prices from a pricing
service which uses information with respect to transactions in bonds, quotations
from bond dealers, market transactions in comparable securities and various
relationships between securities in determining values.
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, DIVERSIFIED, 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
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.
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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
(including certain restricted and illiquid securities) 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
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during the period. The 30-day yield is then annualized on a bond-equivalent
basis assuming semi-annual reinvestment and compounding of net investment
income, as described under "Additional Information" in the Prospectus.
Below is set forth historical yield information for the periods
indicated:
U.S. Fixed Income Fund (8/31/96): 30-day yield: 6.27%.
International Fixed Income Fund (8/31/96): 30-day yield: 4.72%.
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 commencement of operations 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 or JPM Institutional 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 incorporated herein by reference.
Below is set forth historical information for the Funds for the periods
indicated:
U.S. FIXED INCOME FUND (8/1/96): Average annual total return, 1 year:
3.64%; average annual total return, 5 years: 7.08%; average annual total
return, commencement of operations(*) to period end: 7.63%; aggregate total
return, 1 year: 3.64%; aggregate total return, 5 years: 140.77%; aggregate
total return, commencement of operations(*) to period end: 186.47%.
INTERNATIONAL FIXED INCOME FUND (6/30/96): Average annual total return, 1
year: 10.75%; average annual total return, 5 years:
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N/A; average annual total return, commencement of operations(*) to period
end: 13.03%; aggregate total return, 1 year: 10.75%; aggregate total
return, 5 years: N/A; aggregate total return, commencement of operations(*)
to period end: 121.37%.
U.S. EQUITY FUND (5/30/96): Average annual total return, 1 year: 24.98%;
average annual total return, 5 years: 14.51%; average annual total return,
10 years: 13.61%; aggregate total return, 1 year: 24.98%; aggregate total
return, 5 years: 96.89%; aggregate total return, 10 years: 258.26%.
U.S. SMALL CAP FUND (5/30/96): Average annual total return, 1 year: 34.77%;
average annual total return, 5 years: 16.42%; average annual total return,
10 years: 11.18%; aggregate total return, 1 year: 34.77%; aggregate total
return, 5 years: 113.83%; aggregate total return, 10 years: 188.46%.
INTERNATIONAL EQUITY FUND (4/30/96): Average annual total return, 1 year:
11.64%; average annual total return, 5 years: 7.05%; average annual total
return, commencement of operations(*) to period end: 5.13%; aggregate total
return, 1 year: 11.64%; aggregate total return, 5 years: 40.58%; aggregate
total return, commencement of operations(*) to period end: 34.44%.
EMERGING MARKETS EQUITY FUND (4/30/96): Average annual total return, 1 year:
11.58%; average annual total return, 5 years: N/A; average annual total
return, commencement of operations(*) to period end: 3.80%; aggregate total
return, 1 year: 11.58%; aggregate total return, 5 years: N/A; aggregate
total return, commencement of operations(*) to period end: 9.59%.
EUROPEAN EQUITY FUND (6/30/96): Average annual total return, 1 year:
N/A; average annual total return, 5 years: N/A; average annual total
return, commencement of operations(*) to period end: 6.78%; aggregate total
return, 1 year: N/A; aggregate total return, 5 years: N/A; aggregate total
return, commencement of operations(*) to period end: 6.78%.
JAPAN EQUITY FUND (6/30/96): Average annual total return, 1 year: N/A;
average annual total return, 5 years: N/A; average annual total return,
commencement of operations(*) to period end: 5.55%; aggregate total return,
1 year: N/A; aggregate total return, 5 years: N/A; aggregate total return,
commencement of operations(*) to period end: 5.55%.
ASIA GROWTH FUND (6/30/96): Average annual total return, 1 year: N/A;
average annual total return, 5 years: N/A; average annual total return,
commencement of operations(*) to period end: 4.30%; aggregate total return, 1
year: N/A; aggregate total return, 5 years: N/A; aggregate total return,
commencement of operations(*) to period end: 4.30%.
- ------------------
*The U.S. Fixed Income, International Fixed Income, U.S.
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Equity, U.S. Small Cap Equity, International Equity, Emerging Markets Equity,
European Equity, Japan Equity and Asia Growth Funds commenced operations on July
24, 1996, March 6, 1996, February 5, 1996, January 19, 1996, November 22, 1996,
November 22, 1996, January 23, 1996, January 24, 1996 and January 5, 1996,
respectively. The Pierpont Funds corresponding 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,
and their predecessors commenced operations on March 11, 1988, June 27, 1985,
June 27, 1985 and June 1, 1990, respectively. The JPM Institutional Funds
corresponding to the International Fixed Income Fund and the Diversified Fund
commenced operations on December 1, 1994 and September 10, 1993, respectively.
The Pierpont Fund corresponding to the Emerging Markets Equity Fund commenced
operations on November 15, 1993. These corresponding Pierpont and JPM
Institutional Funds had lower expenses than the Funds.
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 appropriate market indices including
the benchmarks indicated under "Investment Advisor" above or data from Lipper
Analytical Services, Inc., Micropal, Inc., Ibbotson Associates, Morningstar
Inc., and other industry publications.
In order to illustrate the benefits of balanced investing across asset
classes over longer periods of time, the Diversified Fund may use performance
data that will be based on the return of, as appropriate, the S&P 500 Index, the
Salomon Brothers Broad Investment Grade Bond Index, the Frank Russell 2000 and
2500 Indexes, and the EAFE Index. The quoted performance will illustrate what
results could have been achieved had the Fund invested specified percentages of
the Fund's assets in classes of securities that would have produced a return
equal to the relevant index over the time period at issue.
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.
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PORTFOLIO TRANSACTIONS
The Advisor places orders for all Portfolios for all purchases and
sales of portfolio securities. 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 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.
See "Investment Objectives and Policies--Portfolio Turnover".
In connection with portfolio transactions for the Portfolios, the
Advisor 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, DIVERSIFIED, 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.
In selecting a broker, the Advisor considers a number of factors
including: the price per unit of the security; the broker's reliability for
prompt, accurate confirmations and on-time delivery of securities; the firm's
financial condition; as well as the commissions charged. A broker may be paid a
brokerage commission in excess of that which another broker might have charged
for effecting the same transaction if, after considering the foregoing factors,
the Advisor decides that the broker chosen will provide the best possible
execution. The Advisor monitors the reasonableness of the brokerage commissions
paid in light of the execution received. The Trustees of 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
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published data concerning transaction costs incurred by institutional investors
generally. Research services provided by brokers to which the Advisor has
allocated brokerage business in the past include economic statistics and
forecasting services, industry and company analyses, portfolio strategy
services, quantitative data, and consulting services from economists and
political analysts. Research services furnished by brokers are used for the
benefit of all the Advisor's clients and not solely or necessarily for the
benefit of 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.
The Portfolios or their predecessors corresponding to the U.S. Equity,
U.S. Small Cap Equity, International Equity, Emerging Markets Equity,
Diversified, European Equity, Japan Equity and Asia Growth Funds paid the
following approximate brokerage commissions for the indicated fiscal periods:
SELECTED U.S. EQUITY FUND (May): 1996: $1,376,000; 1995: $1,179,132; 1994:
$744,676.
U.S. SMALL COMPANY FUND (May): 1996: $1,554,000; 1995: $1,217,016; 1994:
$1,760,320.
INTERNATIONAL EQUITY FUND (October): 1995: $1,691,642; 1994: $1,413,238;
1994: $1,413,238.
DIVERSIFIED FUND (June): 1995: $145,589; 1994: $78,737; 1993: N/A.
EMERGING MARKETS EQUITY FUND (October): 1995: $1,475,147; 1994:
$1,262,905; 1993: N/A.
ASIA GROWTH FUND (December): 1995: $27,322; 1994: N/A; 1993: N/A.
EUROPEAN EQUITY FUND (December): 1995: $143,416; 1994: N/A; 1993: N/A.
JAPAN EQUITY FUND (December): 1995: $0; 1994: N/A; 1993: N/A.
Any increases in brokerage commissions reflected above were due to
increased portfolio activity and an increase in net investments in the
Portfolio.
Subject to the overriding objective of obtaining the best possible
execution of orders, the Advisor may allocate a portion of a Portfolio's
brokerage transactions to affiliates of the Advisor. In order for affiliates of
the Advisor 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
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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 Co-Administrator, the Distributor or the Advisor or any other
"affiliated person" (as defined in the 1940 Act) of the Co-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 the Advisor 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, the Advisor to the extent permitted by applicable
laws and regulations may, but is not obligated to, aggregate the securities to
be sold or purchased for 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 the Advisor in the manner it considers to be most equitable and
consistent with its fiduciary 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
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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,
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
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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 ten series described in this Statement of Additional
Information have been authorized and nine 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 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
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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 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
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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.
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 31, 1996, the following owned of record or, to the
knowledge of management, beneficially owned more than 5% of the outstanding
shares of:
U.S. Fixed Income Fund--FDI Distribution Services, Inc. 60 State Street,
Boston, MA 02109-1803 (95.32%);
International Fixed Income Fund--Charles Schwab & Co., Inc. , 101 Montgomery
Street, San Francisco, CA 94104-4122 (99.78%);
U.S. Equity Fund--Estate of Ashley Serdar, Steve J. Serdar as guardian, 1140
Tewes, Zion, IL 60099-4513 (41.98%), Laura Danielle Gross, 310 W. Cypress
Street , Phoenix, AZ 85003-1105 (24.55%), Charles Schwab & Co., Inc., 101
Montgomery Street, San Francisco, CA 94104-4122 (16.38%), State Street Bank
and Trust Company C/F Rollover IRA of George D. Watson, 3508 Duke Street,
College Park, MD 20740-4016 (9.17%);
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U.S. Small Cap Equity Fund--Charles Schwab & Co., Inc., 101 Montgomery Street,
San Francisco, CA 94104-4122 (46.98%), John Thayer Sidel, 200 East 66th Street,
New York, NY 10021-6728 (25.24%), Estate of Ashley Serdar, Steve J. Serdar as
guardian, 1140 Tewes, Zion, IL 60099-4513 (15.13%), Laura Danielle Gross, 310 W.
Cypress Street, Phoenix, AZ 85003-1105 (21.51%);
International Equity Fund--Charles Schwab & Co., Inc., 101 Montgomery Street,
San Francisco, CA 94104-4122 (81.05%), Estate of Ashley Serdar, Steve J. Serdar
as guardian, 1140 Tewes, Zion, IL 60099-4513 (15.57%);
Emerging Markets Equity Fund--Donaldson Lufkin & Jenrette, P.O. Box 2052,
Jersey City, NJ 07303-2052 (85.21%), Charles Schwab & Co., Inc., 101
Montgomery Street, San Francisco, CA 94104-4122 (14.12%);
European Equity Fund--Morgan as Agent of American Hospital of Paris (99.97%);
Japan Equity Fund--Morgan as Agent of American Hospital of Paris (85.46%),
Charles Schwab & Co., Inc., 101 Montgomery Street, San Francisco, CA
94104-4122 (14.44%);
Asia Growth Fund--Donaldson Lufkin & Jenrette, P.O. Box 2052, Jersey City, NJ
07303-2052 (99.23%)
Unless otherwise noted, the address of each owner listed above is
c/o Morgan, 522 Fifth Avenue, New York, New York, 10036. 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 intends to qualify 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
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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 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, U.S. Small Cap Equity and Diversified 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
77
<PAGE>
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 certain 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 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
78
<PAGE>
Portfolio has held such options or futures. However, gain or loss recognized on
certain foreign currency contracts will be treated as ordinary income or loss.
The Equity Portfolios may invest in Equity Securities of foreign
issuers. If a Portfolio purchases shares in certain foreign corporations
(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 corporation 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.
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. 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
79
<PAGE>
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, Diversified, 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
80
<PAGE>
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.
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
81
<PAGE>
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.
FINANCIAL STATEMENTS
Attached are audited statements of assets and liabilities and the
reports thereon of Price Waterhouse LLP for each of the Funds (excluding the
U.S. Fixed Income, Diversified, U.S. Equity and U.S. Small Cap Equity Funds) and
unaudited financial statements at June 30, 1996 for the International Fixed
Income Fund and the Non-U.S. Fixed Income Portfolio. The current financial
statements for each Portfolio and the U.S. Fixed Income, International Fixed
Income, International Equity, Emerging Markets Equity, U.S. Equity and U.S.
Small Cap Equity Funds are incorporated herein by reference from their
respective annual and, if applicable, semi-annual reports as filed with the SEC
pursuant to Section 30(b) of the 1940 Act and Rule 30b2-1 thereunder. A copy of
each such report will be provided, without charge, to each person receiving this
Statement of Additional Information.
82
<PAGE>
THE JPM ADVISOR INTERNATIONAL FIXED INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in the Non-U.S. Fixed Income Portfolio ("Portfolio"), at value $ 47,085
Deferred Organization Expenses 30,185
---------
Total Assets 77,270
---------
LIABILITIES
Printing Expenses Payable 7,813
Transfer Agent Fee Payable 7,409
Registration Fees Payable 5,402
Professional Fees Payable 5,248
Organization Expenses Payable 3,226
Accrued Trustees' Fees and Expenses 1,259
Accrued Expenses 1,401
---------
Total Liabilities 31,758
---------
NET ASSETS
Applicable to 4,451 Shares of Beneficial Interest Outstanding
(par value $0.001, unlimited shares authorized) $ 45,512
---------
---------
Net Asset Value, Offering and Redemption Price Per Share $10.23
-----
-----
ANALYSIS OF NET ASSETS
Paid-in Capital $ 45,009
Undistributed Net Investment Income 278
Accumulated Net Realized Gain on Investment and Foreign Currency Transactions 480
Net Unrealized Depreciation of Investment and Foreign Currency Translations (255)
---------
Net Assets $ 45,512
---------
---------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
8
<PAGE>
THE JPM ADVISOR INTERNATIONAL FIXED INCOME FUND
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE PERIOD MARCH 6, 1996 (COMMENCEMENT OF OPERATIONS) THROUGH JUNE 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
Allocated Interest Income (Net of Foreign Withholding Taxes of $17) $ 346
Allocated Portfolio Expenses (31)
---------
Net Investment Income Allocated from Portfolio 315
FUND EXPENSES
Printing Expenses $ 7,813
Transfer Agent Fees 7,409
Registration Fees 5,402
Professional Fees 5,248
Amortization of Organisation Expenses 2,066
Trustees' Fees and Expenses 1,259
Insurance Expense 696
Miscellaneous 706
---------
Total Fund Expenses 30,599
Less: Reimbursement of Expenses (30,562)
---------
NET FUND EXPENSES 37
---------
NET INVESTMENT INCOME 278
NET REALIZED GAIN ON INVESTMENT AND FOREIGN CURRENCY TRANSACTIONS ALLOCATED
FROM PORTFOLIO 480
NET CHANGE IN UNREALIZED DEPRECIATION OF INVESTMENT AND FOREIGN CURRENCY
TRANSLATIONS ALLOCATED FROM PORTFOLIO (255)
---------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 503
---------
---------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
9
<PAGE>
THE JPM ADVISOR INTERNATIONAL FIXED INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
FOR THE PERIOD
MARCH 6, 1996
(COMMENCEMENT
OF
OPERATIONS)
THROUGH
JUNE 30, 1996
(UNAUDITED)
---------------
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 278
Net Realized Gain on Investment and Foreign Currency Transactions Allocated
from Portfolio 480
Net Change in Unrealized Appreciation of Investment and Foreign Currency
Translations Allocated from Portfolio (255)
---------------
Net Increase in Net Assets Resulting from Operations 503
---------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 44,909
---------------
Total Increase in Net Assets 45,412
NET ASSETS
Beginning of Period 100
---------------
End of Period (including undistributed net investment income of $278) $ 45,512
---------------
---------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
THE JPM ADVISOR INTERNATIONAL FIXED INCOME FUND
Financial Highlights
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout the period are as follows:
<TABLE>
<CAPTION>
<S> <C>
FOR THE PERIOD
MARCH 6, 1996
(COMMENCEMENT OF
OPERATIONS) THROUGH
JUNE 30, 1996
(UNAUDITED)
-------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
-------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.06
Net Realized and Unrealized Gain on Investment and Foreign Currency 0.17
-------------------
Total from Investment Operations 0.23
-------------------
NET ASSET VALUE, END OF PERIOD $ 10.23
-------------------
-------------------
Total Return 2.30%(a)
-------------------
-------------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets at end of Period (in thousands) $ 46
Ratios to Average Net Assets
Expenses 1.20%(b)
Net Investment Income 4.83%(b)
Decrease reflected in Expense Ratio due to Expense Reimbursement 1.30%(b)(c)
</TABLE>
- ------------------------------
(a) Not annualized.
(b) Annualized.
(c) After consideration of certain state limitations.
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
THE JPM ADVISOR INTERNATIONAL FIXED INCOME FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1996
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The JPM Advisor International Fixed Income Fund (the "Fund") is a separate
series of The JPM Advisor Funds, a Massachusetts business trust (the "Trust").
The Trust is registered under the Investment Company Act of 1940, as amended, as
a no-load, open-end management investment company. The Fund commenced operations
on March 6, 1996.
The Fund invests all of its investable assets in The Non-U.S.Fixed Income
Portfolio (the "Portfolio"), a no-load, non-diversified open-end management
investment company having the same investment objectives as the Fund. The value
of such investment reflects the Fund's proportionate interest in the net assets
of the Portfolio (less than 1% at June 30, 1996). The performance of the Fund is
directly affected by the performance of the Portfolio. The financial statements
of the Portfolio, including the schedule of investments, are included elsewhere
in this report and should be read in conjunction with the Fund's financial
statements.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual amounts could differ from
those estimates. The following is a summary of the significant accounting
policies of the Fund:
a) Valuation of securities by the Portfolio is discussed in Note 1 of the
Portfolio's Notes to Financial Statements which are included elsewhere in
this report.
b) The Fund records its share of net investment income, realized and
unrealized gain and loss and adjusts its investment in the Portfolio each
day. All the net investment income and realized and unrealized gain and
loss of the Portfolio is allocated pro rata among the Fund and other
investors in the Portfolio at the time of such determination.
c) Substantially all the Fund's net investment income is declared as
dividends and paid annually. Distributions to shareholders of net
investment income and net realized capital gain, if any, are declared and
paid annually.
d) The Fund incurred organization expenses in the amount of $32,251. These
costs were deferred and are being amortized on a straight-line basis over
a five-year period from the commencement of operations.
e) Each series of the Trust is treated as a separate entity for federal
income tax purposes. The Fund intends to comply with the provisions of
the Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and to distribute substantially all of its income,
including net realized capital gains, if any, within the prescribed time
periods. Accordingly, no provision for federal income or excise tax is
necessary.
12
<PAGE>
THE JPM ADVISOR INTERNATIONAL FIXED INCOME FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1996
- --------------------------------------------------------------------------------
f) Expenses incurred by the Trust with respect to any two or more funds in
the Trust are allocated in proportion to the net assets of each fund in
the Trust, except where allocations of direct expenses to each fund can
otherwise be made fairly. Expenses directly attributable to a fund are
charged to that fund.
2. TRANSACTIONS WITH AFFILIATES
a) The Trust has retained Signature Broker-Dealer Services, Inc.
("Signature") to serve as administrator and distributor. Signature
provides administrative services necessary for the operations of the
Fund, furnishes office space and facilities required for conducting the
business of the Fund and pays the compensation of the Fund's officers
affiliated with Signature. The Administration Agreement provided for a
fee to be paid to Signature equal to the Fund's proportionate share of a
complex-wide fee based on the following annual schedule: 0.03% on the
first $7 billion of the aggregate average daily net assets of the
Portfolio and the other portfolios (the "Master Portfolios") in which
series of the Trust, The JPM Institutional Funds, or The Pierpont Funds
invest and 0.01% on the aggregate average daily net assets of the Master
Portfolios in excess of $7 billion. The portion of this charge payable by
the Fund is determined by the proportionate share its net assets bear to
the total net assets of the Trust, The JPM Institutional Funds, The
Pierpont Funds and the Master Portfolios. For the period March 6, 1996
(commencement of operations) through June 30, 1996, there was no fee for
these services. The fees payable by the Fund under the Administration
Agreement between Signature and the Trust are subject to the expense
limit provided by the Services Agreement (See Note 2b). Deferred
organisation expenses include a $15,000 development fee payable to
Signature for the use of their portfolio and fund allocation system.
Effective August 1, 1996, administrative functions provided by Signature
will be provided by Funds Distributor, Inc. ("FDI"), a registered
broker-dealer, and by Morgan Guaranty Trust Company of New York
("Morgan"). FDI will also become the Fund's distributor. The fees payable
by the Fund under a Co-Administration Agreement between FDI and the Trust
on behalf of the Fund are based on the Fund's allocable share of a
complex-wide fee and will also be subject to the expense limit provided
by the Services Agreement (See Note 2b).
b) The Trust, on behalf of the Fund, has a Services Agreement with Morgan
under which Morgan receives a fee, based on the percentage described
below, for overseeing certain aspects of the administration and operation
of the Fund and for providing shareholder servicing to Fund shareholders.
The Services Agreement is also designed to provide an expense limit for
certain expenses of the Fund. If total expenses of the Fund, excluding
amortization of organization expenses, exceed the expense limit of 0.68%
of the Fund's average daily net assets, Morgan will reimburse the Fund
for the excess expense amount and receive no fee. Should such expenses be
less than the expense limit, Morgan's fee would be limited to the
difference between such expenses and the fee calculated under the
Services Agreement. For the period from March 6, 1996 (commencement of
operations) through June 30, 1996, Morgan has agreed to reimburse the
Fund $28,495 under the Services Agreement.
13
<PAGE>
THE JPM ADVISOR INTERNATIONAL FIXED INCOME FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1996
- --------------------------------------------------------------------------------
In addition to the expenses that Morgan assumes under the Services
Agreement, Morgan has agreed to reimburse the Fund to the extent
necessary to maintain the total operating expenses of the Fund, including
the expenses allocated to the Fund from the Portfolio, at no more than
1.20% of the average daily net assets of the Fund through December 31,
1996. For the period from March 6, 1996 (commencement of operations )
through June 30, 1996, Morgan has agreed to reimburse the Fund $2,067 for
expenses which exceeded this limit. 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 advisors and other financial
intermediaries who are Schwab's clients. The Fund is not responsible for
payments to Schwab under the Schwab Agreements; however, in the event the
Services Agreement with the Trust is terminated, the Fund would be
responsible for the ongoing payments to Schwab.
c) An aggregate annual fee of $16,000 is paid to each Trustee for serving
as a Trustee of The Trust. The Trustees' Fees and Expenses shown in the
financial statements represents the Fund's allocated portion of the total
fees and expenses.
3. TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest of one or more series.
Transactions in shares of beneficial interest of the Fund were as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD MARCH 6, 1996
(COMMENCEMENT OF OPERATIONS)
THROUGH JUNE 30, 1996
---------------------------------
<S> <C>
Shares of beneficial interest sold 4,441
-----
-----
</TABLE>
14
<PAGE>
The Non US Fixed Income Portfolio
Interim Report June 30, 1996
(unaudited)
(The following pages should be read in conjunction
with The JPM Advisor International Fixed Income Fund
Interim Financial Statements)
15
<PAGE>
THE NON-U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
JUNE 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
LOCAL CURRENCY(1)
(000'S OMITTED) SECURITY DESCRIPTION VALUE
- --------------------- ------------------------------------------------------------------- ------------
<S> <C> <C>
CORPORATE OBLIGATIONS (26.5%)
CANADA (2.3%)
GBP 2,617 Hydro-Quebec 6.50% due 12/09/98 ................................... $ 4,010,386
------------
FRANCE (1.5%)
FRF 12,300 Electricite de France 8.60% due 04/09/04 .......................... 2,707,005
------------
GERMANY (8.0%)
ITL 5,595,000 Bayerische Landesbank Girozentrale 10.75% due 03/01/03 ............ 3,955,496
DEM 5,000 Deutsche Pfandbriefe Hypobank 5.63% due 02/07/03, 144A ............ 3,177,108
KFW International Finance
DEM 5,000 6.38% due 08/16/00 .............................................. 3,391,609
DEM 5,000 6.75% due 02/08/02 ................................................ 3,396,536
------------
13,920,749
------------
JAPAN (4.9%)
DEM 5,000 Export Import Bank 6.50% due 05/19/00 ............................. 3,404,748
JPY 480,000 Japan Development Bank 6.50% due 09/20/01 ......................... 5,232,423
------------
8,637,171
------------
NETHERLANDS (5.0%)
NLG 12,800 Bank Voor Nederlandsche Gemeenten 7.63% due 12/16/02 .............. 8,083,535
NLG 1,000 General Electric Capital Corp. 7.00% due 02/24/98 ................. 617,320
------------
8,700,855
------------
SINGAPORE (2.0%)
USD 3,500 Krung Thai Bank Public Company Ltd 6.43% due 09/30/04, FRN ........ 3,516,450
------------
UNITED KINGDOM (2.8%)
GBP 3,300 Royal Bank of Scotland 7.88% due 12/07/06 ......................... 4,883,985
------------
TOTAL CORPORATE OBLIGATIONS (COST $46,792,372) ....................................... 46,376,601
------------
GOVERNMENT OBLIGATIONS (46.4%)
AUSTRIA (3.7%)
DEM 9,000 Autobahnen Und Schnellstr Finance Agency 7.13% due 12/22/99 ....... 6,240,889
JPY 25,000 Republic of Austria 3.75% due 02/03/09 ............................ 233,061
------------
6,473,950
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
17
<PAGE>
THE NON-U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
LOCAL CURRENCY(1)
(000'S OMITTED) SECURITY DESCRIPTION VALUE
- --------------------- ------------------------------------------------------------------- ------------
<S> <C> <C>
BELGIUM (3.3%)
Kingdom of Belgium
BEF 110,000 7.00% due 05/15/06 .............................................. $ 3,562,035
BEF 63,000 7.75% due 12/22/00 ................................................ 2,186,067
------------
5,748,102
------------
CANADA (4.4%)
CAD 8,000 Government of Canada 8.50% due 03/01/00 ........................... 6,193,817
CAD 2,200 Government of Canada - Index Linked 4.25% due 12/01/21 ............ 1,580,475
------------
7,774,292
------------
DENMARK (2.0%)
DKK 19,650 Kingdom of Denmark 8.00% due 05/15/03 ............................. 3,546,201
------------
GERMANY (4.9%)
DEM 5,800 Federal Republic of Germany 9.00% due 10/20/00 .................... 4,315,690
DEM 5,950 Germany Unity Fund 8.00% due 01/21/02 ............................. 4,298,697
------------
8,614,387
------------
ITALY (7.0%)
Republic of Italy
ITL 6,500,000 8.50% due 08/01/99 .............................................. 4,249,093
ITL 180,000 9.50% due 12/01/97 ................................................ 118,924
ITL 3,820,000 10.50% due 04/01/00 ............................................... 2,637,205
ITL 3,820,000 10.50% due 07/15/00 ............................................... 2,644,681
ITL 3,650,000 10.50% due 11/01/00 ............................................... 2,533,415
------------
12,183,318
------------
JAPAN (3.8%)
JPY 660,000 Government of Japan 4.50% due 06/20/03 ............................ 6,616,157
------------
NETHERLANDS (1.3%)
NLG 3,370 Government of the Netherlands 9.00% due 01/15/01 .................. 2,255,582
------------
SPAIN (8.8%)
ESP 1,842,000 Government of Spain 10.10% due 02/28/01 ........................... 15,414,304
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE>
THE NON-U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
LOCAL CURRENCY(1)
(000'S OMITTED) SECURITY DESCRIPTION VALUE
- --------------------- ------------------------------------------------------------------- ------------
<S> <C> <C>
SWEDEN (6.1%)
SEK 64,300 Kingdom of Sweden 10.25% due 05/05/00 ............................. $ 10,691,255
------------
UNITED KINGDOM (1.1%)
GBP 750 Treasury Gilt 6.00% due 08/10/99 .................................. 1,136,581
GBP 600 Treasury Gilt 6.75% due 11/26/04 .................................. 873,431
------------
2,010,012
------------
TOTAL GOVERNMENT OBLIGATIONS (COST $82,103,193) ...................................... 81,327,560
------------
SUPRANATIONAL OBLIGATIONS(2) (7.5%)
JPY 720,000 Asian Development Bank 5.00% due 02/05/03 ......................... 7,368,609
ITL 2,537,000 European Investment Bank 12.20% due 02/18/03 ...................... 1,908,603
International Bank for Reconstruction & Development 4.50% due
JPY 390,000 06/20/00 ........................................................ 3,882,435
------------
TOTAL SUPRANATIONAL OBLIGATIONS (COST $13,854,513) ................................... 13,159,647
------------
SHORT-TERM INVESTMENTS (15.8%)
<CAPTION>
PRINCIPAL
AMOUNT
(USD)
- ---------------------
<S> <C> <C>
TIME DEPOSITS (6.7%)
1,707,000 State Street Bank & Trust Co. London, 4.50% due 07/01/96 .......... 1,707,000
10,000,000 State Street Bank & Trust Co. London, 5.40% due 07/02/96 .......... 10,000,000
------------
11,707,000
------------
COMMERCIAL PAPER--DOMESTIC (9.1%)
2,000,000 AT&T Corporation 5.41% due 07/29/96 ............................... 1,991,740
3,000,000 Bellsouth Telecommunications Inc. 5.40% due 08/05/96 .............. 2,984,454
2,500,000 BMW US Capital Corporation 5.47% due 07/26/96 ..................... 2,490,677
2,500,000 Glaxo Wellcome PLC 5.43% due 07/26/96 ............................. 2,490,747
2,000,000 Shell Oil Company 5.38% due 07/19/96 .............................. 1,994,710
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE NON-U.S. FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(USD) SECURITY DESCRIPTION VALUE
- --------------------- ------------------------------------------------------------------- ------------
<S> <C> <C>
2,000,000 EI Dupont De Nemours & Co. 5.42% due 07/10/96 ..................... $ 1,997,335
2,000,000 Ford Motor Credit Company 5.45% due 07/26/96 ...................... 1,992,569
------------
15,942,232
------------
TOTAL SHORT-TERM INVESTMENTS (COST $27,649,232) ...................................... 27,649,232
------------
TOTAL INVESTMENTS (COST $170,399,310) (96.2%) ............................................ 168,513,040
OTHER ASSETS IN EXCESS OF LIABILITIES (3.8%) ............................................. 6,590,915
------------
NET ASSETS (100.0%) ...................................................................... $175,103,955
------------
------------
</TABLE>
- ------------------------------
(1) Principal is in the local currency of the country in which the currency is
traded, which may not be the country of origin.
(2) International Agencies
144A -- Securities restricted for resale to Qualified Institutional Buyers
FRN -- Floating Rate Note
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE NON-U.S. FIXED INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JUNE 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $170,399,310) $168,513,040
Cash 940
Foreign Currency at Value (Cost $5,254,721) 5,251,996
Receivable for Investments Sold 9,437,947
Interest Receivable 3,688,818
Unrealized Appreciation on Open Forward Foreign Currency Contracts 1,624,273
Unrealized Appreciation on Open Spot Foreign Currency Contracts 2,285
Prepaid Trustees' Fees 513
Prepaid Expenses and Other Assets 3,719
------------
Total Assets 188,523,531
------------
LIABILITIES
Payable for Investments Purchased 12,125,419
Unrealized Depreciation on Open Forward Foreign Currency Contracts 1,124,748
Advisory Fee Payable 51,508
Custody Fee Payable 41,645
Unrealized Depreciation on Open Spot Foreign Currency Contracts 20,616
Administrative Services Fee Payable 7,348
Administration Fee Payable 1,871
Fund Services Fee Payable 531
Accrued Expenses 45,890
------------
Total Liabilities 13,419,576
------------
NET ASSETS
Applicable to Investors' Beneficial Interests $175,103,955
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE NON-U.S. FIXED INCOME PORTFOLIO
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE NINE MONTHS ENDED JUNE 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest Income (Net of Foreign Withholding Taxes of $154,906) $ 9,814,676
EXPENSES
Advisory Fee $ 591,673
Custodian Fees and Expenses 145,279
Professional Fees 42,453
Administrative Services Fee 25,053
Administration Fee 17,155
Fund Services Fee 10,010
Trustees' Fees and Expenses 3,341
Printing Expenses 3,318
Miscellaneous 3,462
-----------
Total Expenses (841,744)
-----------
NET INVESTMENT INCOME 8,972,932
NET REALIZED GAIN (LOSS) ON
Investment Transactions 165,085
Foreign Currency Transactions 12,610,784
-----------
Net Realized Gain 12,775,869
NET CHANGE IN UNREALIZED APPRECIATION/(DEPRECIATION) OF
Investments (5,844,685)
Foreign Currency Contracts and Translations 2,862,336
-----------
Net Change in Unrealized Appreciation/(Depreciation) (2,982,349)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $18,766,452
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE NON-U.S. FIXED INCOME PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
FOR THE PERIOD
OCTOBER 11,
1994
(COMMENCEMENT
FOR THE NINE OF
MONTHS ENDED OPERATIONS)
JUNE 30, THROUGH
1996 SEPTEMBER 30,
(UNAUDITED) 1995
------------ ---------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 8,972,932 $ 12,808,776
Net Realized Gain on Investments and Foreign Currency
Transactions 12,775,869 15,591,851
Net Change in Unrealized Appreciation (Depreciation) of
Investments and Foreign Currency Translations (2,982,349) 1,562,643
------------ ---------------
Net Increase in Net Assets Resulting from Operations 18,766,452 29,963,270
------------ ---------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 97,793,146 318,237,762
Withdrawals (207,578,560) (82,178,215)
------------ ---------------
Net Increase (Decrease) from Investors' Transactions (109,785,414) 236,059,547
------------ ---------------
Total Increase (Decrease) in Net Assets (91,018,962) 266,022,817
NET ASSETS
Beginning of Period 266,122,917 100,100
------------ ---------------
End of Period $175,103,955 $ 266,122,917
------------ ---------------
------------ ---------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
FOR THE PERIOD
OCTOBER 11, 1994
FOR THE NINE (COMMENCEMENT OF
MONTHS ENDED OPERATIONS)
JUNE 30, 1996 THROUGH
(UNAUDITED) SEPTEMBER 30, 1995
--------------- ------------------
RATIOS TO AVERAGE NET ASSETS
Net Investment Income 5.31%(a) 5.73%(a)
Expenses 0.50%(a) 0.55%(a)
Portfolio Turnover 252%(b) 288%(b)
</TABLE>
- ------------------------
(a)Annualized.
(b)Not Annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
23
<PAGE>
THE NON-U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1996
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Non-U.S. Fixed Income Portfolio (the "Portfolio") is registered under the
Investment Company Act of 1940, as amended, as a no-load, non-diversifed,
open-end management investment company which was organized as a trust under the
laws of the State of New York. The Portfolio'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 Portfolio commenced
operations on October 11, 1994. The Declaration of Trust permits the Trustees to
issue an unlimited number of beneficial interests in the Portfolio.
Investments in international markets may involve certain considerations and
risks not typically associated with investments in the United States. Future
economic and political developments in foreign countries could adversely affect
the liquidity or value, or both, of such securities in which the Portfolio is
invested. The ability of the issuers of the debt securities held by the
Portfolio to meet their obligations may be affected by economic and political
developments in a specific industry or region.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual amounts could differ from
those estimates. The following is a summary of the significant accounting
policies of the Portfolio:
a) Portfolio 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 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 services, such securities
are priced in accordance with procedures adopted by the Trustees. All
portfolio securities with a remaining maturity of less than 60 days are
valued by the amortized cost method.
Trading in securities on most foreign exchanges and over-the-counter
markets is normally completed before the close of the domestic market and
may also take place on days on which the domestic market is closed. If
events materially affecting the value of foreign securities occur between
the time when the exchange on which they are traded closes and the time
when the Portfolio's net assets are 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.
b) The books and records of the Portfolio are maintained in U.S. dollars.
The market values of investment securities, other assets and liabilities
and forward contracts stated in foreign currencies are translated at the
prevailing exchange rates at the end of the period. Purchases, sales,
income and expenses are translated at the exchange rates prevailing on
the respective dates of such
24
<PAGE>
THE NON-U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1996
- --------------------------------------------------------------------------------
transactions. Translation gains and losses resulting from changes in the
exchange rates during the reporting period and gains and losses realized
upon settlement of foreign currency transactions are reported in the
Statement of Operations.
Although the net assets of the Portfolio are presented at the exchange
rates and market values prevailing at the end of the period, the
Portfolio does not isolate the portion of the results of operations
arising as a result of changes in foreign exchange rates from the
fluctuations arising from changes in the market prices of securities
during the period.
c) Securities transactions are recorded on a trade date basis. Interest
income, which includes the amortization of premiums and discounts, if
any, is recorded on an accrual basis. For financial and tax reporting
purposes, realized gains and losses are determined on the basis of
specific lot identification.
d) The portfolio may enter into forward and spot foreign currency contracts
to protect securities and related receivables and payables against
fluctuations in future foreign currency rates. A forward contract is an
agreement to buy or sell currencies of different countries on a specifed
future date at a specified rate. Risks associated with such contracts
include the movement in the value of the foreign currency relative to the
U.S. dollar and the ability of the counterparty to perform.
The market value of the contract will fluctuate with changes in currency
exchange rates. Contracts are valued daily based on procedures
established by and under the general supervision of the Portfolio's
Trustees and the change in the market value is recorded by the Portfolio
as unrealized appreciation or depreciation of forward and spot foreign
currency contracts as follows:
SUMMARY OF OPEN FORWARD FOREIGN CURRENCY CONTRACTS
<TABLE>
<CAPTION>
U.S. DOLLAR NET UNREALIZED
VALUE AT APPRECIATION/
COST/PROCEEDS 06/30/96 (DEPRECIATION)
-------------- -------------- --------------
<S> <C> <C> <C>
PURCHASE CONTRACTS
- -----------------------------------------------------
Belgian Franc 3,928,219 for GBP 81,162, expiring
07/12/96 $ 126,085 $ 125,538 $ (547)
British Pound 3,000,000, expiring 07/12/96 4,644,000 4,660,513 16,513
German Mark 14,463,903, expiring 07/12/96 9,527,498 9,516,383 (11,115)
German Mark 2,436,429 for CAD 2,166,678, expiring
07/12/96 1,586,945 1,603,025 16,080
German Mark 3,674,117 for ITL 3,727,943,279, expiring
07/12/96 2,428,796 2,417,349 (11,447)
Danish Krone 1,308,792, expiring 07/12/96 221,919 223,323 1,404
Danish Krone 18,304,553 for NLG 5,296,993, expiring
07/12/96 3,107,840 3,123,360 15,520
Italian Lira 2,457,004,305, expiring 07/12/96 1,571,447 1,600,766 29,319
</TABLE>
25
<PAGE>
THE NON-U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
U.S. DOLLAR NET UNREALIZED
VALUE AT APPRECIATION/
COST/PROCEEDS 06/30/96 (DEPRECIATION)
-------------- -------------- --------------
PURCHASE CONTRACTS (CONTINUED)
- -----------------------------------------------------
<S> <C> <C> <C>
Italian Lira 5,306,727,253 for DEM 5,241,471,
expiring 07/12/96 $ 3,448,574 $ 3,457,391 $ 8,817
Netherlands Guilder 26,816,302, expiring 07/12/96 15,657,476 15,733,600 76,124
Spanish Peseta 462,160,328, expiring 07/12/96 3,594,425 3,605,762 11,337
Spanish Peseta 288,416,443 for NLG 3,855,268,
expiring 07/12/96 2,261,954 2,250,217 (11,737)
Swedish Krona 5,395,000, expiring 07/12/96 807,671 813,388 5,717
<CAPTION>
SALE CONTRACTS
- -----------------------------------------------------
<S> <C> <C> <C>
Belgian Franc 188,178,038, expiring 07/12/96 6,023,625 6,013,807 9,818
British Pound 10,514,308, expiring 07/12/96 15,893,932 16,334,023 (440,091)
Canadian Dollar, 8,552,548, expiring 07/12/96 6,273,876 6,264,162 9,714
Danish Krone 41,972,872, expiring 07/12/96 7,151,501 7,161,955 (10,454)
French Franc 14,528,238, expiring 07/12/96 2,829,092 2,824,373 4,719
German Mark 59,533,209, expiring 07/12/96 39,167,754 39,169,291 (1,537)
Italian Lira 32,421,380,316, expiring 07/12/96 20,745,317 21,122,888 (377,571)
Japanese Yen 2,655,103,868, expiring 07/12/96 25,409,648 24,282,081 1,127,567
Netherlands Guilder 45,635,463, expiring 07/12/96 26,884,294 26,775,137 109,157
Spanish Peseta 2,804,971,465, expiring 07/12/96 22,021,926 21,884,307 137,619
Swedish Krona 76,350,755, expiring 07/12/96 11,295,770 11,511,171 (215,401)
--------------
NET UNREALIZED APPRECIATION ON OPEN FORWARD FOREIGN CURRENCY CONTRACTS
$ 499,525
--------------
--------------
</TABLE>
SUMMARY OF OPEN SPOT FOREIGN CURRENCY CONTRACTS
<TABLE>
<CAPTION>
U.S. DOLLAR NET UNREALIZED
VALUE AT APPRECIATION/
COST 06/30/96 (DEPRECIATION)
-------------- ----------- --------------
<S> <C> <C> <C>
PURCHASE CONTRACTS
- -------------------------------------------------------
Italian Lira 6,723,664,258, expiring 07/02/96 $ 4,383,807 $ 4,386,092 $ 2,285
Swedish Krona 29,438,357, expiring 07/02/96 4,440,175 4,436,512 (3,663)
<CAPTION>
SALE CONTRACTS
- -------------------------------------------------------
<S> <C> <C> <C>
British Pound 3,000,000, expiring 07/01/96 4,644,450 4,661,403 (16,953)
--------------
NET UNREALIZED DEPRECIATION ON OPEN SPOT FOREIGN CURRENCY CONTRACTS
$ (18,331)
--------------
--------------
</TABLE>
e) The Portfolio intends to be treated as a partnership for federal income
tax purposes. As such, each investor in the Portfolio will be taxable on
its share of the Portfolio's ordinary income and capital
26
<PAGE>
THE NON-U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1996
- --------------------------------------------------------------------------------
gains. It is intended that the Portfolio's assets will be managed in such
a way that an investor in the Portfolio will be able to satisfy the
requirements of Subchapter M of the Internal Revenue Code. The Portfolio
earns foreign income which may be subject to foreign withholding taxes at
various rates.
2. TRANSACTIONS WITH AFFILIATES
a) The Portfolio has an investment advisory agreement with Morgan Guaranty
Trust Company of New York ("Morgan"). Under the terms of the agreement,
the Portfolio pays Morgan at an annual rate of 0.35% of the Portfolio's
average daily net assets. For the nine months ended June 30, 1996, such
fees amounted to $591,673.
b) The Portfolio has retained Signature Broker-Dealer Services, Inc.
("Signature") to serve as administrator and exclusive placement agent.
Signature provides administrative services necessary for the operations
of the Portfolio, furnishes office space and facilities required for
conducting the business of the Portfolio and pays the compensation of the
Portfolio's officers affiliated with Signature. Until December 28, 1995
the Administration Agreement provided for a fee to be paid to Signature
at an annual rate determined by the following schedule: 0.01% of the
first $1 billion of the aggregate average daily net assets of the
Portfolio and the other portfolios subject to the Administration
Agreement, 0.008% of the next $2 billion of such net assets, 0.006% of
the next $2 billion of such net assets, and 0.004% of such net assets in
excess of $5 billion. The daily equivalent of the fee rate is applied
each day to the net assets of the Portfolio. For the period October 1,
1995 through December 28, 1995, such fees amounted to $4,006.
Effective December 29, 1995, the Administration Agreement was amended
such that the fee charged would be equal to the Portfolio's proportionate
share of a complex-wide fee based on the following annual schedule: 0.03%
on the first $7 billion of the aggregate average daily net assets of the
Portfolio and the other portfolios (the "Master Portfolios") in which the
Pierpont Funds, the JPM Institutional Funds and the JPM Advisor Funds
invest and 0.01% on the aggregate average daily net assets of the Master
Portfolios in excess of $7 billion. The portion of this charge payable by
the Portfolio is determined by the proportionate share its net assets
bear to the total net assets of the Pierpont Funds, the JPM Institutional
Funds, The JPM Advisor Funds and the Master Portfolios. For the period
from December 29, 1995 through June 30, 1996, such fees amounted to
$13,149.
Effective August 1, 1996, administrative functions provided by Signature
will be provided by Funds Distributor, Inc. ("FDI"), a registered
broker-dealer, and by Morgan. FDI will also become the Portfolio's
exclusive placement agent. Under a Co-Administration Agreement between
FDI and the Portfolio, FDI's fees are to be paid by the Portfolio (see
Note 2c).
c) Until August 31, 1995, the Portfolio had a Financial and Fund Accounting
Services Agreement with Morgan under which Morgan received a fee, based
on the percentages described below, for overseeing certain aspects of the
administration and operation of the Portfolio and which was also designed
to provide an expense limit for certain expenses of the Portfolio. This
fee was calculated exclusive of the advisory fee, custody expenses, fund
services fee and brokerage costs at 0.12% of the Portfolio's average
daily net assets up to $200 million, 0.08% of the next $200 million of
average daily net assets, and 0.04% on any excess over $400 million. From
September 1, 1995 until December 28, 1995, an
27
<PAGE>
THE NON-U.S. FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
JUNE 30, 1996
- --------------------------------------------------------------------------------
interim agreement between the Portfolio and Morgan provided for the
continuation of the oversight functions that were outlined under the
prior agreement and that Morgan should bear all of its expenses incurred
in connection with these services.
Effective December 29, 1995, the Portfolio entered into an
Administrative Services Agreement (the "Services Agreement") with Morgan
under which Morgan is responsible for overseeing certain aspects of the
administration and operation of the Portfolio. Under the Services
Agreement, the Porfolio has agreed to pay Morgan a fee equal to its
proportionate share of an annual complex-wide charge. This charge is
calculated daily based on the aggregate net assets of the Master
Portfolios in accordance with the following annual schedule: 0.06% on the
first $7 billion of the Master Portfolios' aggregate average daily net
assets and 0.03% of the aggregate average daily net assets in excess of
$7 billion. The portion of this charge payable by the Portfolio is
determined by the proportionate share that the Portfolio's net assets
bear to the net assets of the Master Portfolios and investors in the
Master Portfolios for which Morgan provides similar services. For the
period December 29, 1995 through June 30, 1996, the fee for these
services amounted to $25,053.
Effective August 1, 1996, the Services Agreement will be amended such
that the aggregate complex-wide fees to be paid by the Portfolio under
both the amended Services Agreement and the Co-Administration Agreement
(see Note 2b) will be calculated daily based on the aggregate net assets
of the Master Portfolios in accordance with the following annual
schedule: 0.09% on the first $7 billion of the Master Portfolios'
aggregate average daily net assets and 0.04% of the Master Portfolios'
aggregate average daily net assets in excess of $7 billion.
d) The Portfolio has a Fund Services Agreement with Pierpont Group, Inc.
("Group") to assist the Trustees in exercising their overall supervisory
responsibilities for the Portfolio's affairs. The Trustees of the
Portfolio represent all the existing shareholders of Group. The
Portfolio's allocated portion of Group's costs in performing its services
amounted to $10,010 for the nine months ended June 30, 1996.
e) An aggregate annual fee of $65,000 is paid to each Trustee for serving
as a Trustee of The Pierpont Funds, The JPM Institutional Funds and the
Master Portfolios. The Trustees' Fees and Expenses shown in the financial
statements represents the Portfolio's allocated portion of the total fees
and expenses. The Portfolio's Chairman and Chief Executive Officer also
serves as Chairman of Group and received compensation and employee
benefits from Group in his role as Group's Chairman. The allocated
portion of such compensation and benefits included in the Fund Services
Fee shown in the financial statements was $1,300.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the nine
months ended June 30, 1996 were as follows:
<TABLE>
<CAPTION>
COST OF
PURCHASES PROCEEDS FROM SALES
- ---------------- -------------------
<S> <C>
$ 482,977,116 $ 558,573,503
</TABLE>
28
<PAGE>
THE JPM ADVISOR FUNDS - THE JPM ADVISOR INTERNATIONAL FIXED
INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1995
- -----------------------------------------------------------------------------
Assets
Cash $ 100
Deferred Organization Expenses 32,251
------
Total Assets 32,351
------
Liabilities
Organization Expenses Payable 32,251
------
Total Liabilities 32,251
------
Commitments and Contingencies (See Note 2) -
Net Assets $ 100
======
Net Asset Value Per Share (10 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 $32,251 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
<PAGE>
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.
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-1A. 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.
NOTE 3 - COMMENCEMENT OF OPERATIONS
As of September 30, 1995 the Fund had not commenced operations.
<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 September 30, 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
January 30, 1996
<PAGE>
THE JPM ADVISOR FUNDS - THE JPM ADVISOR INTERNATIONAL EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1995
- ----------------------------------------------------------------------------
Assets
Investment in The Non-U.S. Equity Portfolio $ 100
Deferred Organization Expenses 33,596
------
Total Assets 33,696
------
Liabilities
Organization Expenses Payable 33,596
------
Total Liabilities 33,596
------
Commitments and Contingencies (See Note 2) -
Net Assets $ 100
======
Net Asset Value Per Share (10 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 $33,596 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
<PAGE>
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.
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.
NOTE 3 - COMMENCEMENT OF OPERATIONS
As of October 31, 1995 the Fund had not commenced operations.
<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 October 31, 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
January 30, 1996
<PAGE>
THE JPM ADVISOR FUNDS - THE JPM ADVISOR EMERGING MARKETS EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1995
- --------------------------------------------------------------------------------
ASSETS
Investment in The Emerging Markets
Equity Portfolio $ 100
Deferred Organization Expenses 33,628
------
Total Assets 33,728
------
LIABILITIES
Organization Expenses Payable 33,628
------
Total Liabilities 33,628
------
COMMITMENTS AND CONTINGENCIES (SEE NOTE 2) -
Net Assets $ 100
======
Net Asset Value Per Share (10 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 $33,628 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
<PAGE>
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.
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.
NOTE 3 - COMMENCEMENT OF OPERATIONS
As of October 31, 1995 the Fund had not commenced operations.
<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 October 31, 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
January 30, 1996
<PAGE>
THE JPM ADVISOR FUNDS - THE JPM ADVISOR ASIA GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
ASSETS
Investment in The Asia Growth Portfolio $ 100
Deferred Organization Expenses 32,208
------
Total Assets 32,308
------
LIABILITIES
Organization Expenses Payable 32,208
------
Total Liabilities 32,208
------
COMMITMENTS AND CONTINGENCIES (SEE NOTE 2) -
Net Assets $ 100
======
Net Asset Value Per Share (10 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 $32,208 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
<PAGE>
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 and the Portfolio which the number of initial shares redeemed bears to the
total number of initial shares outstanding immediately prior to such redemption,
and the amount of such reduction in excess of the unamortized organization
expenses of the Fund shall be contributed by the Fund to the Portfolio.
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.
NOTE 3 - COMMENCEMENT OF OPERATIONS
As of December 31, 1995, the Fund has not commenced operations.
<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 December 31, 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
June 27, 1996
<PAGE>
THE JPM ADVISOR FUNDS - THE JPM ADVISOR EUROPEAN EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
ASSETS
Investment in The European Equity Portfolio $ 100
Deferred Organization Expenses 31,966
------
Total Assets 32,066
------
LIABILITIES
Organization Expenses Payable 31,966
------
Total Liabilities 31,966
------
COMMITMENTS AND CONTINGENCIES (SEE NOTE 2) -
Net Assets $ 100
======
Net Asset Value Per Share (10 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.
<PAGE>
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 $31,966 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 and the Portfolio which the number of initial shares redeemed bears to the
total number of initial shares outstanding immediately prior to such redemption,
and the amount of such reduction in excess of the unamortized organization
expenses of the Fund shall be contributed by the Fund to the Portfolio.
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.
NOTE 3 - COMMENCEMENT OF OPERATIONS
As of December 31, 1995, the Fund has not commenced operations.
<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 December 31, 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
June 27, 1996
<PAGE>
THE JPM ADVISOR FUNDS - THE JPM ADVISOR JAPAN EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
ASSETS
Investment in The Japan Equity Portfolio $ 100
Deferred Organization Expenses 32,684
------
Total Assets 32,784
------
LIABILITIES
Organization Expenses Payable 32,684
------
Total Liabilities 32,684
------
COMMITMENTS AND CONTINGENCIES (SEE NOTE 2) -
Net Assets $ 100
======
Net Asset Value Per Share (10 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 $32,684 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 and the Portfolio which the number of initial shares redeemed bears to the
total number of initial shares outstanding immediately prior to such redemption,
and the amount of such reduction in excess of the unamortized organization
expenses of the Fund shall be contributed by the Fund to the Portfolio.
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
<PAGE>
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.
NOTE 3 - COMMENCEMENT OF OPERATIONS
As of December 31, 1995, the Fund has not commenced operations.
<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 December 31, 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
June 27, 1996
<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.
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
A-1
<PAGE>
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.
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-2
<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.
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. While Japan is working to reduce its dependence on foreign materials, its
lack of natural resources poses a significant obstacle to this effort.
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.
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
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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 has applied for approval from Indian
governmental authorities to invest in India on behalf of the
Portfolio as a foreign institutional investor (an "FII"). 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.
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
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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.
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 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
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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 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.
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. Continued economic growth and development in the PRC, as well as
opportunities for foreign investment, and prospects of private sector
enterprises, in the PRC,
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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.
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, all securities of
Asian growth market issuers may generally 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
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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.
JPM597C
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JPM510A
PART C
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements:
The following financial statements are included in Part A:
Financial Highlights: The JPM Advisor U.S. Fixed Income Fund, The JPM Advisor
International Equity Fund, The JPM Advisor Emerging Markets Equity Fund, The
JPM Advisor U.S. Equity Fund, The JPM Advisor U.S. Small Cap Equity Fund, The
JPM Advisor European Equity Fund, The JPM Advisor Asia Growth Fund and The JPM
Advisor International Fixed Income Fund.
The following financial statements are included in Part B:
The JPM Advisor U.S. Fixed Income Fund
Statement of Assets and Liabilities at October 31, 1995
Statement of Operations for the period March 24, 1995 (Inception Date) to
October 31, 1995
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements, October 31, 1995
Statement of Assets and Liabilities at April 30, 1996 (unaudited)
Statement of Operations for the six months ended April 30, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements, April 30, 1996 (unaudited)
The U.S. Fixed Income Portfolio
Schedule of Investments at October 31, 1995
Statement of Assets and Liabilities at October 31, 1995
Statement of Operations for the fiscal year ended October 31, 1995
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements, October 31, 1995
Schedule of Investments at April 30, 1996 (unaudited)
Statement of Assets and Liabilities at April 30, 1996 (unaudited)
Statement of Operations for the six months ended April 30, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements, April 30, 1996 (unaudited)
The JPM Advisor International Fixed Income Fund
Statement of Assets and Liabilities at September 30, 1995
Notes to Financial Statement, September 30, 1995
Statement of Assets and Liabilities at March 31, 1996 (unaudited)
Statement of Operations for the six months ended March 31, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements, March 31, 1996 (unaudited)
Statement of Assets and Liabilities at June 30, 1996 (unaudited)
Statement of Operations for the period March 6, 1996 (commencement of
operations) through June 30, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements, June 30, 1996 (unaudited)
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The Non-U.S. Fixed Income Portfolio
Schedule of Investments at September 30, 1995
Statement of Assets and Liabilities at September 30, 1995
Statement of Operations for the fiscal year ended September 30, 1995
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statement, September 30, 1995
Schedule of Investments at March 31, 1996 (unaudited)
Statement of Assets and Liabilities at March 31, 1996 (unaudited)
Statement of Operations for the six months ended March 31, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements, March 31, 1996 (unaudited)
Schedule of Investments at June 30, 1996 (unaudited)
Statement of Assets and Liabilities at June 30, 1996 (unaudited)
Statement of Operations for the nine months ended June 30, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Date (unaudited)
Notes to Financial Statements, June 30, 1996 (unaudited)
The JPM Advisor U.S. Equity Fund
Statement of Assets and Liabilities at May 31, 1996
Statement of Operations for the period February 5, 1996 (commencement of
operations) to May 31, 1996
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements, May 31, 1996
The Selected U.S. Equity Portfolio
Schedule of Investments at May 31, 1996
Statement of Assets and Liabilities at May 31, 1996
Statement of Operations for the fiscal year ended May 31, 1996
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements, May 31, 1996
The JPM Advisor U.S. Small Cap Equity Fund
Statement of Assets and Liabilities at May 31, 1996
Statement of Operations for the period January 19, 1996 (commencement of
operations) to May 31, 1996
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements, May 31, 1996
The U.S. Small Company Portfolio
Schedule of Investments at May 31, 1996
Statement of Assets and Liabilities at May 31, 1996
Statement of Operations for the fiscal year ended May 31, 1996
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements, May 31, 1996
The JPM Advisor International Equity Fund
Statement of Assets and Liabilities at October 31, 1995
Notes to Financial Statement, October 31, 1995
Statement of Assets and Liabilities at April 30, 1996 (unaudited)
Statement of Operations for the six months ended April 30, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements, April 30, 1996 (unaudited)
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The Non-U.S. Equity Portfolio
Schedule of Investments at October 31, 1995
Statement of Assets and Liabilities at October 31, 1995
Statement of Operations for the fiscal year ended October 31, 1995
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements, October 31, 1995
Schedule of Investments at April 30, 1996 (unaudited)
Statement of Assets and Liabilities at April 30, 1996 (unaudited)
Statement of Operations for the six months ended April 30, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements, April 30, 1996 (unaudited)
The Diversified Portfolio
Schedule of Investments at June 30, 1996
Statement of Assets and Liabilities at June 30, 1996
Statement of Operations for the six months ended June 30, 1996
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements, June 30, 1996
The JPM Advisor Emerging Markets Equity Fund
Statement of Assets and Liabilities at October 31, 1995
Notes to Financial Statement, October 31, 1995
Statement of Assets and Liabilities at April 30, 1996 (unaudited)
Statement of Operations for the six months ended April 30, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements, April 30, 1996 (unaudited)
The Emerging Markets Equity Portfolio
Schedule of Investments at October 31, 1995
Statement of Assets and Liabilities at October 31, 1995
Statement of Operations for the fiscal year ended October 31, 1995
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements, October 31, 1995
Schedule of Investments at April 30, 1996 (unaudited)
Statement of Assets and Liabilities at April 30, 1996 (unaudited)
Statement of Operations for the six months ended April 30, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements, April 30, 1996 (unaudited)
The JPM Advisor Asia Growth Fund
Statement of Assets and Liabilities at December 31, 1995
Notes to Financial Statement, December 31, 1995
Statement of Assets and Liabilities at June 30, 1996 (unaudited)
Statement of Operations for the period January 5, 1996 (commencement of
operations) through June 30, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements, June 30, 1996 (unaudited)
The Asia Growth Portfolio
Schedule of Investments at December 31, 1995
Statement of Assets and Liabilities at December 31, 1995
Statement of Operations for the period April 4, 1995 (commencement of
operations) through December 31, 1995
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements, December 31, 1995
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Schedule of Investments at June 30, 1996 (unaudited)
Statement of Assets and Liabilities at June 30, 1996 (unaudited)
Statement of Operations for the six months ended June 30, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements, June 30, 1996
The JPM Advisor European Equity Fund
Statement of Assets and Liabilities at December 31, 1995
Notes to Financial Statement, December 31, 1995
Statement of Assets and Liabilities at June 30, 1996 (unaudited)
Statement of Operations for the period January 23, 1996 (commencement of
operations) through June 30, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements, June 30, 1996 (unaudited)
The European Equity Portfolio
Schedule of Investments at December 31, 1995
Statement of Assets and Liabilities at December 31, 1995
Statement of Operations for the period March 28, 1995 (commencement of
operations) through December 31, 1995
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements December 31, 1995
Schedule of Investments at June 30, 1996 (unaudited)
Statement of Assets and Liabilities at June 30, 1996 (unaudited)
Statement of Operations for the six months ended June 30, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements, June 30, 1996
The JPM Advisor Japan Equity Fund
Statement of Assets and Liabilities at December 31, 1995
Notes to Financial Statement, December 31, 1995
Statement of Assets and Liabilities at June 30, 1996 (unaudited)
Statement of Operations for the period January 24, 1996 (commencement of
operations) through June 30, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Financial Highlights (unaudited)
Notes to Financial Statements, June 30, 1996 (unaudited)
The Japan Equity Portfolio
Schedule of Investments at December 31, 1995
Statement of Assets and Liabilities at December 31, 1995
Statement of Operations for the period March 28, 1995 (commencement of
operations) through December 31, 1995
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements, December 31, 1995
Schedule of Investments at June 30, 1996 (unaudited)
Statement of Assets and Liabilities at June 30, 1996 (unaudited)
Statement of Operations for the six months ended June 30, 1996 (unaudited)
Statement of Changes in Net Assets (unaudited)
Supplementary Data (unaudited)
Notes to Financial Statements, June 30, 1996
(b) Exhibits
1 Declaration of Trust, as amended.1
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1(a) Amendment No. 2 to the Amended Declaration of Trust.1
1(b) Amendment No. 3 to the Amended Declaration of Trust.2
2 By-Laws, as amended.1
6 Distribution Agreement between Registrant and Funds Distributor, Inc.
("FDI").3
8 Custodian Contract between Registrant and State Street Bank and Trust
Company ("State Street").3
9(a) Co-Administration Agreement between Registrant and FDI.3
9(b) Services Agreement, as amended and restated, between Registrant and
Morgan Guaranty Trust Company of New York.3
9(c) Transfer Agency and Service Agreement between Registrant and State
Street.3
10 Opinion and consent of Sullivan & Cromwell.3
11 Consents of independent accountants.4
13 Purchase agreements with respect to the Registrant's initial shares.3
16 Schedule for computation of performance quotations.3
17 Financial data schedules.4
18 Powers of attorney.3
1 Incorporated herein by reference from post-effective amendment no. 1 to
the Registrant's registration statement on Form N-1A (the "Registration
Statement") as filed with the Securities and Exchange Commission (the
"SEC") on September 29, 1995.
2 Incorporated herein by reference from post-effective amendment no. 4 to
the Registration Statement as filed with the SEC on April 17, 1996.
3 Incorporated herein by reference from post-effective amendment no. 8 to
the Registration Statement as filed with the SEC on August 26, 1996.
4 Filed herewith.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Not applicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
Title of Class: Shares of Beneficial Interest (par value $0.001)
As of August 31, 1996:
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The JPM Advisor U.S. Fixed Income Fund: 2
The JPM Advisor International Fixed Income Fund: 2
The JPM Advisor U.S. Equity Fund: 7
The JPM Advisor U.S. Small Cap Equity Fund: 5
The JPM Advisor International Equity Fund: 4
The JPM Advisor Emerging Markets Equity Fund: 6
The JPM Advisor Asia Growth Fund: 7
The JPM Advisor European Equity Fund: 3
The JPM Advisor Japan Equity Fund: 5
The JPM Advisor Diversified Fund: 0
ITEM 27. INDEMNIFICATION.
Reference is made to Section 5.3 of Registrant's Declaration of Trust and
Section 5 of Registrant's Distribution Agreement.
Registrant, its Trustees and officers are insured against certain expenses in
connection with the defense of claims, demands, actions, suits, or
proceedings, and certain liabilities that might be imposed as a result of such
actions, suits or proceedings.
Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended (the "1933 Act"), may be permitted to directors, trustees,
officers and controlling persons of the Registrant and the principal
underwriter pursuant to the foregoing provisions or otherwise, the Registrant
has been advised that in the opinion of the SEC such indemnification is
against public policy as expressed in the 1933 Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, trustee, officer, or controlling person of the Registrant
and the principal underwriter in connection with the successful defense of any
action, suite or proceeding) is asserted against the Registrant by such
director, trustee, officer or controlling person or principal underwriter in
connection with the shares being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the 1933
Act and will be governed by the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Not applicable.
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) FDI, located at 60 State Street, Suite 1300, Boston, Massachusetts 02109,
is the principal underwriter of the Registrant's shares. FDI is an indirectly
wholly owned subsidiary of Boston Institutional Group, Inc., a holding
company, all of whose outstanding shares are owned by key employees. FDI is a
broker-dealer registered under the Securities Exchange Act of 1934, as
amended.
FDI acts as principal underwriter of the following investment companies other
than the Registrant:
BJB Investment Funds
Foreign Fund, Inc.
Fremont Mutual Funds
H.T. Insight Funds, Inc.
The Harris Insight Funds Trust
LKCM Fund
C-6
<PAGE>
The Munder Funds, Inc.
The Munder Funds Trust
The PanAgora Institutional Funds
RCM Capital Funds,Inc.
RCM Equity Funds, Inc.
Skyline Funds
St. Clair Funds, Inc.
Waterhouse Investors Cash Management Fund, Inc.
The Pierpont Funds
The JPM Institutional Funds
FDI does not act as depositor or investment adviser of any investment
companies.
(b) The following is a list of officers, directors and partners of FDI. The
principal address of all officers and directors is 60 State Street,
Suite 1300, Boston, Massachusetts 02109.
Name; Positions and Offices with Underwriter; Position and Offices with
Registrant:
Marie E. Connolly; Director, President and Chief Executive Officer; Vice
President and Assistant Treasurer
Richard W. Ingram; Senior Vice President; President and Treasurer
John E. Pelletier; Senior Vice President and General Counsel; Vice President
and Secretary
Donald R. Roberson; Senior Vice President; None
John F. Tower III; Senior Vice President, Chief Financial Officer and
Treasurer; Vice President and Assistant Treasurer
Rui M. Moura; First Vice President; None
Bernard A. Whalen; First Vice President; None
John W. Gomez; Chairman and Director; None
William J. Nutt; Director; None
The information required by this Item 29 with respect to each director and
officer of FDI is incorporated herein by reference to Schedule A of Form BD
filed by FDI pursuant to the Securities Exchange Act of 1934 (SEC File
No. 20518).
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940, as amended (the "1940
Act"), and the Rules thereunder will be maintained at the offices of:
Morgan Guaranty Trust Company of New York: 60 Wall Street, New York, New York
10260-0060, 9 West 57th Street, New York, New York 10019 or 522 Fifth Avenue,
New York, New York 10036 (records relating to its functions as shareholder
servicing agent and services agent).
C-7
<PAGE>
State Street Bank and Trust Company: 1776 Heritage Drive, North Quincy,
Massachusetts 02171 (records relating to its functions as custodian, transfer
agent and dividend disbursing agent).
Funds Distributor, Inc.: 60 State Street, Suite 1300, Boston, Massachusetts
02109 (records relating to its functions as distributor and co-administrator).
ITEM 31. MANAGEMENT SERVICES.
Not applicable.
ITEM 32. UNDERTAKINGS.
(a) If the information called for by Item 5A of Form N-1A is contained in the
latest annual report to shareholders, the Registrant shall furnish each
person to whom a prospectus is delivered with a copy of the Registrant's
latest annual report to shareholders upon request and without charge.
(b) The Registrant undertakes to file a post-effective amendment, using
financials which need not be certified, within four to six months
following the commencement of public investment operations of the
Registrant's U.S. Fixed Income and Diversified Funds. The financial
statements included in such amendment will be as of and for the time
period ended on a date reasonably close or as soon as practicable to
the date of the filing of the amendment.
(c) The Registrant undertakes to comply with Section 16(c) of the 1940 Act as
though such provisions of the 1940 Act were applicable to the Registrant,
except that the request referred to in the third full paragraph thereof
may only be made by shareholders who hold in the aggregate at least 10%
of the outstanding shares of the Registrant, regardless of the net asset
value of shares held by such requesting shareholders.
C-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this registration statement pursuant to
Rule 485(b) under the Securities Act of 1933, and has duly caused this
post-effective amendment to its registration statement on Form N-1A to be
signed on its behalf by the undersigned, thereto duly authorized in the City
of Boston and Commonwealth of Massachusetts on the 6th day of September, 1996.
THE JPM ADVISOR FUNDS
By /s/ Richard W. Ingram
-------------------------
Richard W. Ingram
President and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities
indicated on September 6, 1996.
/s/ Richard W. Ingram
- ------------------------
Richard W. Ingram
President and Treasurer
/s/ John E. Baumgardner, Jr.*
- ------------------------
John E. Baumgardner, Jr.
Trustee
/s/ John C. Cox*
- ------------------------
John C. Cox
Trustee
/s/ John R. Rettberg*
- ------------------------
John R. Rettberg
Trustee
/s/ John F. Ruffle*
- ------------------------
John F. Ruffle
Trustee
/s/ Kenneth Whipple, Jr.*
- ------------------------
Kenneth Whipple, Jr.
Trustee
*By /s/ Richard W. Ingram
------------------------
Richard W. Ingram
as attorney-in-fact pursuant to a power of attorney previously filed.
C-9
<PAGE>
SIGNATURES
Each Portfolio has duly caused this registration statement on Form N-1A
("Registration Statement") of The JPM Advisor Funds (the "Trust") (File
No. 33-84798) to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of George Town, Grand Cayman, Cayman Islands, B.W.I.,
on the 6th day of September, 1996.
THE U.S. FIXED INCOME PORTFOLIO, THE SELECTED U.S. EQUITY PORTFOLIO, THE U.S.
SMALL COMPANY PORTFOLIO, THE NON-U.S. EQUITY PORTFOLIO, THE DIVERSIFIED
PORTFOLIO, THE EMERGING MARKETS EQUITY PORTFOLIO, THE NON-U.S. FIXED INCOME
PORTFOLIO AND THE SERIES PORTFOLIO
/s/ Jacqueline Henning
By -------------------------
Jacqueline Henning
Assistant Secretary and Assistant Treasurer
Pursuant to the requirements of the Securities Act of 1933, the Trust's
Registration Statement has been signed below by the following persons in the
capacities indicated on September 6, 1996.
/s/ Richard W. Ingram*
- ------------------------
Richard W. Ingram
President and Treasurer (Principal Financial and Accounting Officer) of the
Portfolios
/s/ Matthew Healey*
- ------------------------
Matthew Healey
Chairman and Chief Executive Officer (Principal Executive Officer) of the
Portfolios
/s/ Frederick S. Addy*
- ------------------------
Frederick S. Addy
Trustee of the Portfolios
/s/ William G. Burns*
- ------------------------
William G. Burns
Trustee of the Portfolios
/s/ Arthur C. Eschenlauer*
- ------------------------
Arthur C. Eschenlauer
Trustee of the Portfolios
/s/ Michael P. Mallardi*
- ------------------------
Michael P. Mallardi
Trustee of the Portfolios
/s/ Jacqueline Henning
*By ------------------------
Jacqueline Henning
as attorney-in-fact pursuant to a power of attorney previously filed.
C-10
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
- ----------- ----------------------
11 Consents of independent accountants.
17 Financial data schedules.
<PAGE>
Exhibit 11
CONSENTS OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 8 to the registration
statement on Form N-1A (the "Registration Statement") of our reports dated
June 27, 1996, relating to the statement of assets and liabilities of The JPM
Advisor Asia Growth Fund, The JPM Advisor European Equity Fund and The JPM
Advisor Japan Equity Fund at December 31, 1995 and our reports dated January
30, 1996, relating to the statements of assets and liabilities of The JPM
Advisor Emerging Markets Equity Fund and The JPM Advisor International Equity
Fund at October 31, 1995 and The JPM Advisor International Fixed Income Fund
at September 30, 1995, which appear in such Statement of Additional
Information, and to the incorporation by reference of our reports into the
Prospectuses which constitute parts of this Registration Statement.
We hereby consent to the incorporation by reference in the Prospectuses and
Statement of Additional Information constituting parts of the Registration
Statement of our reports dated July 25, 1996, relating to the financial
statements and the financial highlights of The JPM Advisor U.S. Equity Fund
and The JPM Advisor U.S. Small Cap Equity Fund and the financial statements
and supplementary data of The Selected U.S. Equity Portfolio and The U.S.
Small Company Portfolio appearing in the May 31, 1996 Annual Reports, which
are also incorporated by reference into the Registration Statement.
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of the Registration
Statement of our report dated August 26, 1996, relating to the financial
statements and supplementary data of The Diversified Portfolio appearing in
the June 30, 1996 Annual Report, which is also incorporated by into the
Registration Statement.
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of the Registration
Statement of our report dated November 20, 1995, relating to the financial
statements and supplementary data of The Non-U.S. Fixed Income Portfolio
appearing in the September 30, 1995 Annual Report, which is also incorporated
by reference into the Registration Statement.
We hereby consent to the incorporation by reference in the Prospectuses and
Statement of Additional Information constituting parts of the Registration
Statement of our report dated February 27, 1996, relating to the financial
statements and financial highlights of The JPM Advisor U.S. Fixed Income Fund
at October 31, 1995 and our reports dated December 22, 1995, relating to the
financial statements and supplementary data of The U.S. Fixed Income
Portfolio, The Emerging Markets Equity Portfolio, and The Non-U.S. Equity
Portfolio appearing in the October 31, 1995 Annual Reports, which are also
incorporated by reference into the Registration Statement.
<PAGE>
Consents of
Independent Accountants
Page 2
We hereby consent to the incorporation by reference in the Prospectuses and
Statement of Additional Information constituting parts of the Registration
Statement of our reports dated February 23, 1996, relating to the financial
statements and supplementary data of The Asia Growth Portfolio, The Japan
Equity Portfolio, and The European Equity Portfolio at December 31, 1995,
which are also incorporated by reference into the Registration Statement.
We also consent to the references to us under the headings "Independent
Accountants" and "Financial Statements" in the Statement of Additional
Information.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
New York, New York
September 6, 1996
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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