As filed with the Securities and Exchange Commission on December 27, 1996
File No. 811-9008
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 4
THE SERIES PORTFOLIO
(Exact Name of Registrant as Specified in Charter)
Post Office Box 2508 GT, George Town, Grand Cayman, Cayman Islands, BWI
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (809) 949-6644
John E. Pelletier, c/o Funds Distributor, Inc.
60 State Street, Suite 1300, Boston, Massachusetts 02109
(Name and Address of Agent for Service)
Copy to: Steven K. West, Esq.
Sullivan & Cromwell
125 Broad Street
New York, NY 10004
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EXPLANATORY NOTE
This Registration Statement has been filed by the Registrant pursuant
to Section 8(b) of the Investment Company Act of 1940, as amended. However,
beneficial interests in the Registrant are not being registered under the
Securities Act of 1933, as amended (the "1933 Act"), because such interests will
be issued solely in private placement transactions that do not involve any
"public offering" within the meaning of Section 4(2) of the 1933 Act.
Investments in the Registrant may only be made by other investment companies,
insurance company separate accounts, common or commingled trust funds or similar
organizations or entities that are "accredited investors" within the meaning of
Regulation D under the 1933 Act. This Registration Statement does not constitute
an offer to sell, or the solicitation of an offer to buy, any beneficial
interests in the Registrant.
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PART A (THE EUROPEAN EQUITY PORTFOLIO)
Responses to Items 1 through 3 and 5A have been omitted pursuant to
paragraph 4 of Instruction F of the General Instructions to Form N-1A.
ITEM 4. GENERAL DESCRIPTION OF REGISTRANT
The Series Portfolio (the "Portfolio Trust") is an open-end management
investment company which was organized as a trust under the laws of the State of
New York on June 24, 1994. Beneficial interests of the Portfolio Trust are
divided into series, one of which, The European Equity Portfolio (the
"Portfolio") is described herein. The Portfolio is diversified for purposes of
the Investment Company Act of 1940, as amended (the "1940 Act"). Beneficial
interests in the Portfolio are issued solely in private placement transactions
that do not involve any "public offering" within the meaning of Section 4(2) of
the Securities Act of 1933 (the "1933 Act"). Investments in the Portfolio may
only be made by other investment companies, insurance company separate accounts,
common or commingled trust funds or similar organizations or entities that are
"accredited investors" within the meaning of Regulation D under the 1933 Act.
This Registration Statement does not constitute an offer to sell, or the
solicitation of an offer to buy, any "security" within the meaning of the 1933
Act.
The Portfolio is advised by Morgan Guaranty Trust Company of New York
("Morgan" or the "Advisor").
Investments in the Portfolio are not deposits or obligations of, or
guaranteed or endorsed by, Morgan or any other bank. Interests in the Portfolio
are not federally insured by the Federal Deposit Insurance Corporation, the
Federal Reserve Board or any other governmental agency. An investment in the
Portfolio is subject to risk, as the net asset value of the Portfolio will
fluctuate with changes in the value of the Portfolio's holdings.
Part B contains more detailed information about the Portfolio,
including information related to (i) the investment policies and restrictions of
the Portfolio, (ii) the Trustees, officers, Advisor and administrators of the
Portfolio, (iii) portfolio transactions, (iv) rights and liabilities of
investors and (v) the audited financial statements of the Portfolio at December
31, 1995, and its unaudited semi-annual financial statements at June 30, 1996.
The investment objective of the Portfolio is described below, together
with the policies it employs in its efforts to achieve this objective.
Additional information about the investment policies of the Portfolio appears in
Part B under Item 13. There can be no assurance that the investment objective of
the Portfolio will be achieved.
The Portfolio's investment objective is to provide a high total return
from a portfolio of equity securities of European companies. Total return will
consist of realized and unrealized capital gains and losses plus income. Under
certain market conditions, the Portfolio may not be able to achieve its
investment objective.
The Portfolio 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 Portfolio does not represent a
complete investment program nor is the Portfolio suitable for all investors.
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The Portfolio seeks to achieve its investment objective through a
country allocation and stock valuation and selection. Based on fundamental
research, quantitative valuation techniques, and experienced judgment, Morgan
uses a structured decision-making process to allocate the Portfolio across
European countries, consisting of Austria, Belgium, Denmark, Germany, Finland,
France, Ireland, Italy, the Netherlands, Norway, Spain, Sweden, Switzerland and
the United Kingdom.
A European company is one that: (i) has its principal securities
trading market in a European country; or (ii) is organized under the laws of a
European country; or (iii) derives 50% or more of its total revenue and/or
profits from either goods produced, sales made or services performed in European
countries; or (iv) has at least 50% of its assets located in European countries.
Using a dividend discount model and based on analysts' industry
expertise, companies in each country are ranked within industrial sectors
according to their relative value. Based on this valuation, Morgan selects the
companies which appear the most attractive for the Portfolio. Morgan believes
that under normal market conditions, industrial sector weightings generally will
be similar to those of the Morgan Stanley Capital International Europe Index.
The Portfolio's investments are primarily denominated in foreign
currencies but it may also invest in securities denominated in the U.S. dollar
or multinational currency units such as the ECU. The Advisor will not routinely
attempt to hedge the Portfolio's foreign currency exposure. However, the Advisor
may from time to time engage in foreign currency exchange transactions if, based
on fundamental research, technical factors, and the judgment of experienced
currency managers, it believes the transactions would be in the Portfolio's best
interest. For further information on foreign currency exchange transactions, see
Risk Factors and Additional Investment Information.
The Advisor intends to manage the Portfolio's portfolio actively in
pursuit of its investment objective. The Portfolio does not intend to respond to
short-term market fluctuations or to acquire securities for the purpose of
short-term trading; however, it may take advantage of short-term trading
opportunities that are consistent with its objective. To the extent the
Portfolio engages in short-term trading, it may realize short-term capital gains
or losses and incur increased transaction costs. The portfolio turnover rate for
the Portfolio for the period March 28, 1995 (commencement of operations) through
December 31, 1995 was 36%.
EQUITY INVESTMENTS. In normal circumstances, the Advisor intends to
keep the Portfolio essentially fully invested with at least 65% of the value of
its total assets in equity securities of European companies 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. The Portfolio's primary equity
investments are the common stock of companies based in the developed countries
of Europe. Such investments will be made in at least three European countries.
The common stock in which the Portfolio may invest includes the common stock of
any class or series or any similar equity interest, such as trust or limited
partnership interests. These equity investments may or may not pay dividends and
may or may not carry voting rights. In addition to its equity investments in
European companies, the Portfolio may invest up to 5% of its assets in equity
securities of issuers in emerging European markets such as Eastern European
countries and Turkey. See Risk Factors and Additional Investment Information.
The Portfolio invests in securities listed on foreign or domestic securities
exchanges and securities traded in foreign or domestic over-the-counter (OTC)
markets, and may invest in certain restricted or unlisted securities.
The Portfolio may also invest in money market instruments and bonds
denominated in U.S. dollars and other currencies, purchase securities on a
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when-issued or delayed delivery basis, enter into repurchase and reverse
repurchase agreements, lend 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 derivative instruments. For a discussion of these
investments and investment techniques, see Risk Factors and Additional
Investment Information.
RISK FACTORS AND ADDITIONAL INVESTMENT INFORMATION
FOREIGN INVESTMENT INFORMATION. The Portfolio invests primarily in
foreign securities. Investment in securities of foreign issuers involves
somewhat different investment risks from those affecting securities of U.S.
domestic issuers. There may be limited publicly available information with
respect to foreign issuers, and foreign issuers are not generally subject to
uniform accounting, auditing and financial standards and requirements comparable
to those applicable to domestic companies. Dividends and interest paid by
foreign issuers may be subject to withholding and other foreign taxes which may
decrease the net return on foreign investments as compared to dividends and
interest paid to the Portfolio by domestic companies.
Investors should realize that the value of the Portfolio's investments
in foreign securities may be adversely affected by changes in political or
social conditions, diplomatic relations, confiscatory taxation, expropriation,
nationalization, limitation on the removal of funds or assets, or imposition of
(or change in) exchange control or tax regulations in those foreign countries.
In addition, changes in government administrations or economic or monetary
policies in the United States or abroad could result in appreciation or
depreciation of portfolio securities and could favorably or unfavorably affect
the Portfolio's operations. Furthermore, the economies of individual foreign
nations may differ from the U.S. economy, whether favorably or unfavorably, in
areas such as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position; it may
also be more difficult to obtain and enforce a judgment against a foreign
issuer. Any foreign investments made by the Portfolio must be made in compliance
with U.S. and foreign currency restrictions and tax laws restricting the amounts
and types of foreign investments.
In addition, while the volume of transactions effected on foreign stock
exchanges has increased in recent years, in most cases it remains appreciably
below that of domestic security exchanges. Accordingly, the Portfolio's foreign
investments may be less liquid and their prices may be more volatile than
comparable investments in securities of U.S. companies. Moreover, the settlement
periods for foreign securities, which are often longer than those for securities
of U.S. issuers, may affect portfolio liquidity. In buying and selling
securities on foreign exchanges, purchasers normally pay fixed commissions that
are generally higher than the negotiated commissions charged in the United
States. In addition, there is generally less government supervision and
regulation of securities exchanges, brokers and issuers located in foreign
countries than in the United States.
Although the Portfolio invests primarily in securities of established
issuers in developed European countries, it may also invest in equity securities
of companies in European emerging market countries. Investments in securities of
issuers in European emerging market 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 degree. These heightened risks include (i) greater risks of
expropriation, confiscatory taxation, nationalization, and less social,
political and economic stability; (ii) the small current size of the markets for
securities
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of emerging markets issuers and the currently low or nonexistent volume of
trading, resulting in lack of liquidity and in price volatility; (iii) certain
national policies which may restrict the Portfolio's investment opportunities
including restrictions on investing in issuers or industries deemed sensitive to
relevant national interests; and (iv) the absence of developed legal structures
governing private or foreign investment and private property.
The Portfolio may invest in securities of foreign issuers directly or
in the form of American Depositary Receipts ("ADRs"), European Depositary
Receipts ("EDRs") or other similar securities of foreign issuers. These
securities may not necessarily be denominated in the same currency as the
securities they represent. ADRs are receipts typically issued by a U.S. bank or
trust company evidencing ownership of the underlying foreign securities. Certain
such institutions issuing ADRs may not be sponsored by the issuer of the
underlying foreign securities. A non-sponsored depository may not provide the
same shareholder information that a sponsored depository is required to provide
under its contractual arrangements with the issuer of the underlying foreign
securities. EDRs are receipts issued by a European financial institution
evidencing a similar arrangement. Generally, ADRs, in registered form, are
designed for use in the U.S. securities markets, and EDRs, in bearer form, are
designed for use in European securities markets.
Since the Portfolio's investments in foreign securities involve foreign
currencies, the value of its assets as measured in U.S. dollars may be affected
favorably or unfavorably by changes in currency rates and in exchange control
regulations, including currency blockage. See Foreign Currency Exchange
Transactions.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Because the Portfolio buys and
sells securities and receives interest and dividends in currencies other than
the U.S. dollar, the Portfolio may enter from time to time into foreign currency
exchange transactions. The Portfolio either enters into these transactions on a
spot (i.e., cash) basis at the spot rate prevailing in the foreign currency
exchange market, or uses forward contracts to purchase or sell foreign
currencies. The cost of the Portfolio's spot currency exchange transactions is
generally the difference between the bid and offer spot rate of the currency
being purchased or sold.
A forward foreign currency exchange contract is an obligation by the
Portfolio to purchase or sell a specific currency at a future date, which may be
any fixed number of days from the date of the contract. Forward foreign currency
exchange contracts establish an exchange rate at a future date. These contracts
are derivative instruments, as their value derives from the spot exchange rates
of the currencies underlying under the contract. These contracts are entered
into in the interbank market directly between currency traders (usually large
commercial banks) and their customers. A forward foreign currency exchange
contract generally has no deposit requirement and is traded at a net price
without commission. The Portfolio will not enter into forward contracts for
speculative purposes. Neither spot transactions nor forward foreign currency
exchange contracts eliminate fluctuations in the prices of the Portfolio's
securities or in foreign exchange rates, or prevent loss if the prices of these
securities should decline.
The Portfolio may enter into foreign currency exchange transactions in
an attempt to protect against changes in foreign currency exchange rates between
the trade and settlement dates of specific securities transactions or
anticipated securities transactions. The Portfolio may also enter into forward
contracts to hedge against a change in foreign currency exchange rates that
would cause a decline in the value of existing investments denominated or
principally traded in a foreign currency. To do this, the Portfolio would enter
into a forward contract to sell the foreign currency in which the investment is
denominated or principally traded in exchange for U.S. dollars or in exchange
for another
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foreign currency. The Portfolio will only enter into forward contracts to sell a
foreign currency in exchange for another foreign currency if the Advisor expects
the foreign currency purchased to appreciate against the U.S. dollar.
Although these transactions are intended to minimize the risk of loss
due to a decline in the value of the hedged currency, at the same time they
limit any potential gain that might be realized should the value of the hedged
currency increase. In addition, forward contracts that convert a foreign
currency into another foreign currency will cause the Portfolio to assume the
risk of fluctuations in the value of the currency purchased against the hedged
currency and the U.S. dollar. The precise matching of the forward contract
amounts and the value of the securities involved will not generally be possible
because the future value of such securities in foreign currencies will change as
a consequence of market movements in the value of such securities between the
date the forward contract is entered into and the date it matures. The
projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly uncertain.
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.
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.
COMMON STOCK WARRANTS. The Portfolio may invest in common stock
warrants that entitle the holder to buy common stock from the issuer of the
warrant at a specific price (the strike price) for a specific period of time.
The market price of warrants may be substantially lower than the current market
price of the underlying common stock, yet warrants are subject to similar price
fluctuations. As a result, warrants may be more volatile investments than the
underlying common stock.
Warrants generally do not entitle the holder to dividends or voting
rights with respect to the underlying common stock and do not represent any
rights in the assets of the issuer company. A warrant will expire worthless if
it is not exercised on or prior to the expiration date.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. Delivery of and payment
for these securities may take as long as a month or more after the date of the
purchase commitment. The value of these securities is subject to market
fluctuation during this period and for fixed income securities no interest
accrues to the Portfolio until settlement. At the time of settlement, a
when-issued security may be valued at less than its purchase price. The
Portfolio maintains with the Custodian a separate account with a segregated
portfolio of securities in an amount at least equal to these commitments. When
entering into a when-issued or delayed delivery transaction, the Portfolio will
rely on the other party to consummate the transaction; if the other party fails
to do so, the Portfolio may be disadvantaged. It is the current policy of the
Portfolio not to enter into when-issued commitments exceeding in the aggregate
15% of the market value of the Portfolio's total assets less liabilities other
than the obligations created by these commitments.
REPURCHASE AGREEMENTS. The Portfolio may engage in repurchase agreement
transactions with brokers, dealers or banks that meet the credit guidelines
established by the Portfolio Trust'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
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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.
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 exclusive
placement agent or any affiliate thereof, 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 the same security at a mutually agreed
upon date and price, reflecting the interest rate effective for the term of the
agreement. For the purposes of the 1940 Act, a reverse repurchase agreement is
also considered as the borrowing of money by the Portfolio and, therefore, is a
form of leverage. Leverage may cause any gains or losses of the Portfolio to be
magnified. See Investment Restrictions for investment limitations applicable to
reverse repurchase agreements and other borrowings. For more information, see
Item 13 in Part B.
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 non-fundamental policy
limitation, the Portfolio may acquire investments that are illiquid or have
limited liquidity, such as private placements or investments that are not
registered under the 1933 Act and cannot be offered for public sale in the
United States without first being registered under the 1933 Act. An illiquid
investment is any investment that cannot be disposed of within seven days in the
normal course of business at approximately the amount at which it is valued by
the Portfolio. The price the Portfolio pays for illiquid securities or receives
upon resale may be lower than the price paid or received for similar securities
with a more liquid market. Accordingly the valuation of these securities will
reflect any limitations on their liquidity.
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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 Trust.
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 OTC put and call options on equity securities
or indexes of equity securities, (b) purchase and sell futures contracts on
indexes of equity securities, and (c) purchase and sell (write) put and call
options on futures contracts on indexes of equity securities. Each of these
instruments is a derivative instrument, as its value derives from the underlying
asset or index.
The Portfolio may use futures contracts and options for hedging and
risk management purposes. The Portfolio may not use futures contracts and
options for speculation. For a more detailed description of these transactions
see "Options and Futures Transactions" in Item 13 in Part B.
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 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.
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
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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.
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 on futures contracts or commodity options for
risk management purposes if, as a result, the aggregate initial margin and
options premiums required to establish these positions exceed 5% of the net
asset value of the Portfolio. For more detailed information about these
transactions, see Item 13 in Part B.
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.
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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 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
offset both positive and negative market price changes, much as if the
underlying instrument had been sold.
The purchaser or seller of a futures contract is not required to
deliver or pay for the underlying instrument unless the contract is held until
the delivery date. However, when the Portfolio buys or sells a futures contract
it will be required to deposit "initial margin" with its Custodian in a
segregated account in the name of its futures broker, known as a futures
commission merchant (FCM). Initial margin deposits are typically equal to a
small percentage of the contract's value. If the value of either party's
position declines, that party will be required to make additional "variation
margin" payments equal to the change in value on a daily basis. The party that
has a gain may be entitled to receive all or a portion of this amount. The
Portfolio may be obligated to make payments of variation margin at a time when
it is disadvantageous to do so. Furthermore, it may not always be possible for
the Portfolio to close out its futures positions. Until it closes out a futures
position, the Portfolio will be obligated to continue to pay variation margin.
Initial and variation margin payments do not constitute purchasing on margin for
purposes of the Portfolio's investment restrictions. In the event of the
bankruptcy of an FCM that holds margin on behalf of the Portfolio, the Portfolio
may be entitled to return of
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margin owed to it only in proportion to the amount received by the FCM's other
customers, potentially resulting in losses to the Portfolio.
The Portfolio will segregate liquid assets in connection with its use
of options and futures contracts to the extent required by the staff of the
Securities and Exchange Commission. Securities held in a segregated account
cannot be sold while the futures contract or option is outstanding, unless they
are replaced with other suitable assets. As a result, there is a possibility
that segregation of a large percentage of the Portfolio's assets could impede
portfolio management or the Portfolio's ability to meet redemption requests or
other current obligations.
FIXED INCOME INVESTMENTS. The Portfolio is permitted to invest in money
market instruments and bonds although it intends to stay invested in equity
securities to the extent practical in light of its objective. The Portfolio may
invest in fixed income instruments of foreign or domestic issuers denominated in
U.S. dollars and other currencies. Under normal circumstances the Portfolio will
purchase money market instruments to invest temporary cash balances or to
maintain liquidity to meet redemptions. However, the Portfolio may also invest
in money market instruments and bonds 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
investments, see Item 13 in Part B.
INVESTMENT RESTRICTIONS
As a diversified investment company, 75% of the assets of the Portfolio
are subject to the following fundamental limitations: (a) the Portfolio may not
invest more than 5% of its total assets in the securities of any one issuer,
except U.S. Government securities, and (b) the Portfolio may not own more than
10% of the outstanding voting securities of any one issuer.
The investment objective of the Portfolio, together with the investment
restrictions described below and in Part B, except as noted, are deemed
fundamental policies, i.e., they may be changed only with the approval of the
holders of a majority of the outstanding voting securities of the Portfolio.
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. 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 one
third 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 Item 13 in
Part B.
ITEM 5. MANAGEMENT OF THE PORTFOLIO TRUST
The Board of Trustees provides broad supervision over the affairs of
the Portfolio Trust. The Portfolio Trust has retained the services of Morgan as
investment adviser and administrative services agent. The Portfolio Trust has
retained the services of Funds Distributor, Inc. ("FDI") as co-administrator
(the "Co-Administrator").
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The Portfolio Trust has not retained the services of a principal
underwriter or distributor, since interests in the Portfolio are offered solely
in private placement transactions. FDI, acting as agent for the Portfolio,
serves as exclusive placement agent of interests in the Portfolio. FDI receives
no additional compensation for serving as exclusive placement agent to the
Portfolio.
INVESTMENT ADVISOR. The Portfolio has retained the services of Morgan
as investment advisor. Morgan, with principal offices at 60 Wall Street, New
York, New York 10260, is a New York trust company which conducts a general
banking and trust business. Morgan is a wholly owned subsidiary of J.P. Morgan &
Co. Incorporated ("J.P. Morgan"), a bank holding company organized under the
laws of Delaware. Through offices in New York City and abroad, J.P. Morgan,
through the Advisor and other subsidiaries, offers a wide range of services to
governmental, institutional, corporate and individual customers and acts as
investment adviser to individual and institutional clients with combined assets
under management of over $197 billion (of which the Advisor advises over $30
billion). Morgan provides investment advice and portfolio management services to
the Portfolio. Subject to the supervision of the Portfolio Trust's Trustees,
Morgan, as Advisor makes the Portfolio's day-to-day investment decisions,
arranges for the execution of portfolio transactions and generally manages the
Portfolio's investments. See Item 16 in Part B.
The Advisor uses a sophisticated, disciplined, collaborative process
for managing all asset classes. For equity portfolios, this process utilizes
fundamental research, systematic stock selection, disciplined portfolio
construction and, in the case of foreign equities, country exposure and currency
management. Morgan has managed portfolios of equity securities of international,
including European, companies on behalf of its clients since 1974. The portfolio
managers making investments in European equity securities work in conjunction
with Morgan's European equity analysts, as well as capital market, credit and
economic research analysts, traders and administrative officers. The European
equity analysts, located in London, each cover a different industry, monitoring
a universe of approximately 600 companies in Europe.
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): Paul
A. Quinsee, Vice President (since March, 1995, employed by Morgan since
February, 1992 and by Citibank, N.A. prior to 1992 as a portfolio manager of
international equity investments) and Rudolph Leuthold, Managing Director (since
March, 1995, employed by Morgan since prior to 1991 as a portfolio manager of
international equity investments).
As compensation for the services rendered and related expenses borne by
Morgan under the Investment Advisory Agreement with the Portfolio Trust, the
Portfolio has agreed to pay Morgan a fee, which is computed daily and may be
paid monthly, at the annual rate of 0.65% of the Portfolio's average daily net
assets.
Under a separate agreement, Morgan also provides administrative and
related services to the Portfolio Trust. See Administrative Services Agent
below.
CO-ADMINISTRATOR. Pursuant to a Co-Administration Agreement with the
Portfolio Trust, FDI serves as the Co-Administrator for the Portfolio. FDI (i)
provides office space, equipment and clerical personnel for maintaining the
organization and books and records of the Portfolio; (ii) provides officers for
the Portfolio; (iii) files Portfolio regulatory documents and mails Portfolio
communications to Trustees and investors; and (iv) maintains related books and
records. See Administrative Services Agent below.
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For its services under the Co-Administration Agreement, the Portfolio
Trust has agreed to pay FDI fees equal to its allocable share of an annual
complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The amount
allocable to the Portfolio is based on the ratio of its net assets to the
aggregate net assets of the Portfolio Trust and certain other registered
investment companies subject to similar agreements with FDI.
ADMINISTRATIVE SERVICES AGENT. Pursuant to the Administrative Services
Agreement with the Portfolio Trust, Morgan provides administrative and related
services to the Portfolio, including services related to tax compliance,
preparation of financial statements, calculation of performance data, oversight
of service providers and certain regulatory and Board of Trustees matters.
Under the Administrative Services Agreement, the Portfolio has agreed
to pay Morgan fees equal to its allocable share of an annual complex-wide
charge. This charge is calculated daily based on the aggregate net assets of the
Portfolio and certain other registered investment companies managed by the
Advisor in accordance with the following annual schedule: 0.09% on the first $7
billion of their aggregate average daily net assets and 0.04% of their aggregate
average daily net assets in excess of $7 billion, less the complex-wide fees
payable to FDI.
PLACEMENT AGENT. FDI, a registered broker-dealer, also serves as
exclusive placement agent for the Portfolio. FDI is a wholly owned indirect
subsidiary of Boston Institutional Group, Inc. FDI's principal business address
is 60 State Street, Suite 1300, Boston, Massachusetts 02109.
FUND SERVICES AGREEMENT. Pursuant to an Amended and Restated Portfolio
Fund Services Agreement with the Portfolio Trust, Pierpont Group, Inc.
("Pierpont Group"), 461 Fifth Avenue, New York, New York 10017, assists the
Trustees in exercising their overall supervisory responsibilities for the
affairs of the Portfolio Trust. Pierpont Group provides these services for a fee
approximating its reasonable cost. See Item 14 in Part B.
CUSTODIAN. State Street Bank and Trust Company ("State Street"), 40
King Street West, Toronto, Ontario, Canada M5H 3Y8, serves as the Portfolio's
custodian and fund accounting and transfer agent. State Street keeps the books
of account for the Portfolio.
EXPENSES. In addition to the fees payable to the service providers
identified above, the Portfolio is responsible for usual and customary expenses
associated with its operations. Such expenses include organization expenses,
legal fees, accounting and audit expenses, insurance costs, the compensation and
expenses of the Trustees, registration fees under federal and foreign securities
laws, extraordinary expenses, custodian fees and brokerage expenses.
Morgan has agreed that it will reimburse the Portfolio through at least
April 30, 1997 to the extent necessary to maintain the Portfolio's total
operating expenses at the annual rate of 1.00% of the Portfolio's average daily
net assets. This limit does not cover extraordinary expenses during the period.
There is no assurance that Morgan will continue this waiver beyond the specified
period, except as required by the following sentence. Morgan has agreed to waive
fees as necessary if in any fiscal year the sum of the Portfolio's expenses
exceeds the limits set by applicable regulations of state securities
commissions. Such annual limits are currently 2.5% of the first $30 million of
average net assets, 2% of the next $70 million of such net assets and 1.5% of
such net assets in excess of $100 million for any fiscal year.
For the period March 28, 1995 (commencement of operations) through
December 31, 1995 the Portfolio's total expenses were .90% of its average net
assets.
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ITEM 6. CAPITAL STOCK AND OTHER SECURITIES
The Portfolio is a series of the Portfolio Trust, which is organized as
a trust under the laws of the State of New York. Under the Declaration of Trust,
the Trustees are authorized to issue beneficial interests in one or more series.
Currently, there are five active subtrusts (series) of the Portfolio Trust.
Investments in the Portfolio may not be transferred, but an investor may
withdraw all or any portion of its investment at any time at net asset value.
The Declaration of Trust provides that investors in the Portfolio (other
investment companies, insurance company separate accounts and common and
commingled trust funds) are each liable for all obligations of the Portfolio.
However, the risk of an investor in the Portfolio incurring financial loss on
account of such liability is limited to circumstances in which both inadequate
insurance existed and the Portfolio itself was unable to meet its obligations.
As of November 30, 1996 JPM Europe Fund, Ltd. (a Bahamas international
business company) owned 98.81% of the total outstanding beneficial interests of
The European Equity Portfolio.
Each investor in the Portfolio is entitled to a vote in proportion to
the amount of its investment in the Portfolio. Investors in the Portfolio will
vote as a separate class, except as to voting of Trustees, as otherwise required
by the 1940 Act, or if determined by the Trustees to be a matter which affects
all series. As to any matter which only affects a specific series, only
investors in that series are entitled to vote. Investments in the Portfolio have
no preemptive or conversion rights and are fully paid and nonassessable, except
as set forth below. The Portfolio is not required and has no current intention
of holding annual meetings of investors, but the Portfolio will hold special
meetings of investors when in the judgment of the Trustees it is necessary or
desirable to submit matters for an investor vote. Changes in fundamental
policies will be submitted to investors for approval. Investors have under
certain circumstances (e.g., upon application and submission of certain
specified documents to the Trustees by a specified percentage of the outstanding
interests in the Portfolio) the right to communicate with other investors in
connection with requesting a meeting of investors for the purpose of removing
one or more Trustees. Investors also have the right to remove one or more
Trustees without a meeting by a declaration in writing by a specified percentage
of the outstanding interests in the Portfolio. Upon liquidation of the
Portfolio, investors would be entitled to share pro rata in the net assets of
the Portfolio available for distribution to investors.
The net asset value of the Portfolio is determined each business day
other than the holidays listed in Part B ("Portfolio Business Day"). This
determination is made once each Portfolio Business Day as of 4:15 p.m. New York
time (the "Valuation Time").
The "net income" of the Portfolio will consist of (i) all income
accrued, less the amortization of any premium, on the assets of the Portfolio,
less (ii) all actual and accrued expenses of the Portfolio determined in
accordance with generally accepted accounting principles. Income includes
dividends and interest, including discount earned (including both original issue
and market discount) on discount paper accrued ratably to the date of maturity
and any net realized and unrealized gains or losses on the assets of the
Portfolio. All the net income of the Portfolio is allocated pro rata among the
investors in the Portfolio.
The end of the Portfolio's fiscal year is December 31.
Under the anticipated method of operation of the Portfolio, the
Portfolio will not be subject to any income tax. However, each investor in the
Portfolio will be taxable on its share (as determined in accordance with the
governing instruments of the Portfolio) of the Portfolio's ordinary income and
capital gain
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in determining its income tax liability. The determination of such share will be
made in accordance with the Internal Revenue Code of 1986, as amended (the
"Code"), and regulations promulgated thereunder.
It is intended that the Portfolio's assets, income and distributions
will be managed in such a way that an investor in the Portfolio will be able to
satisfy the requirements of Subchapter M of the Internal Revenue Code of 1986,
as amended (the "Code") assuming that the investor invested all of its assets in
the Portfolio.
Investor inquiries may be directed to FDI, in care of State Street
Cayman Trust Company, Ltd. at Elizabethan Square, Shedden Road, George Town,
Grand Cayman, Cayman Islands, B.W.I. ((809) 949-6644).
ITEM 7. PURCHASE OF SECURITIES
Beneficial interests in the Portfolio are issued solely in private
placement transactions that do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. Investments in the Portfolio may only
be made by other investment companies, insurance company separate accounts,
common or commingled trust funds, or similar organizations or entities which are
"accredited investors" as defined in Rule 501 under the 1933 Act. This
Registration Statement does not constitute an offer to sell, or the solicitation
of an offer to buy, any "security" within the meaning of the 1933 Act.
An investment in the Portfolio may be made without a sales load. All
investments are made at net asset value next determined after an order is
received in "good order" by the Portfolio Trust. The net asset value of the
Portfolio is determined at the Valuation Time on each Portfolio Business Day.
There is no minimum initial or subsequent investment in the Portfolio.
However, because the Portfolio intends to be as fully invested at all times as
is reasonably practicable in order to enhance the yield on its assets,
investments must be made in federal funds (i.e., monies credited to the account
of the Custodian by a Federal Reserve Bank.)
The Portfolio may, at its own option, accept securities in payment for
investments in its beneficial interests. The securities delivered in kind are
valued by the method described in Net Asset Value as of the business day prior
to the day the Portfolio receives the securities. Securities may be accepted in
payment for beneficial interests only if they are, in the judgment of Morgan,
appropriate investments for the Portfolio. In addition, securities accepted in
payment for beneficial interests must: (i) meet the investment objective and
policies of the Portfolio; (ii) be acquired by the Portfolio for investment and
not for resale; (iii) be liquid securities which are not restricted as to
transfer either by law or liquidity of market; and (iv) if stock, have a value
which is readily ascertainable as evidenced by a listing on a stock exchange,
OTC market or by readily available market quotations from a dealer in such
securities. The Portfolio reserves the right to accept or reject at its own
option any and all securities offered in payment for beneficial interests.
The Portfolio and FDI reserve the right to cease accepting investments
at any time or to reject any investment order.
Each investor in the Portfolio may add to or reduce its investment in
the Portfolio on each Portfolio Business Day. At the Valuation Time on each such
day, the value of each investor's beneficial interest in the Portfolio will be
determined by multiplying the net asset value of the Portfolio by the
percentage, effective for that day, which represents that investor's share of
the aggregate beneficial interests in the Portfolio. Any additions or
reductions, which are to be effected at the Valuation Time on such day, will
then be effected. The investor's percentage of the aggregate beneficial
interests in the Portfolio will
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then be recomputed as the percentage equal to the fraction (i) the numerator of
which is the value of such investor's investment in the Portfolio at the
Valuation Time on such day plus or minus, as the case may be, the amount of net
additions to or reductions in the investor's investment in the Portfolio
effected as of the Valuation Time, and (ii) the denominator of which is the
aggregate net asset value of the Portfolio as of the Valuation Time on such day,
plus or minus, as the case may be, the amount of net additions to or reductions
in the aggregate investments in the Portfolio by all investors in the Portfolio.
The percentage so determined will then be applied to determine the value of the
investor's interest in the Portfolio as of the Valuation Time on the following
Portfolio Business Day.
ITEM 8. REDEMPTION OR REPURCHASE
An investor in the Portfolio may reduce all or any portion of its
investment at the net asset value next determined after a request in "good
order" is furnished by the investor to the Portfolio Trust. The proceeds of a
reduction will be paid by the Portfolio Trust in federal funds normally on the
next Portfolio Business Day after the reduction is effected, but in any event
within seven days. Investments in the Portfolio may not be transferred.
The right of any investor to receive payment with respect to any
reduction may be suspended or the payment of the proceeds therefrom postponed
during any period in which the New York Stock Exchange (the "NYSE") is closed
(other than weekends or holidays) or trading on the NYSE is restricted or, to
the extent otherwise permitted by the 1940 Act, if an emergency exists.
The Portfolio Trust, on behalf of the Portfolio, reserves the right
under certain circumstances, such as accommodating requests for substantial
withdrawals or liquidations, to pay distributions in kind to investors (i.e., to
distribute portfolio securities as opposed to cash). If securities are
distributed, an investor could incur brokerage, tax or other charges in
converting the securities to cash. In addition, distribution in kind may result
in a less diversified portfolio of investments or adversely affect the liquidity
of the Portfolio or the investor's portfolio, as the case may be.
ITEM 9. PENDING LEGAL PROCEEDINGS
Not applicable.
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PART A (THE ASIA GROWTH PORTFOLIO)
Responses to Items 1 through 3 and 5A have been omitted pursuant to
paragraph 4 of Instruction F of the General Instructions to Form N-1A.
ITEM 4. GENERAL DESCRIPTION OF REGISTRANT
The Series Portfolio (the "Portfolio Trust") is an open-end management
investment company which was organized as a trust under the laws of the State of
New York on June 24, 1994. Beneficial interests of the Portfolio Trust are
divided into series, one of which, The Asia Growth Portfolio (the "Portfolio")
is described herein. The Portfolio is diversified for purposes of the Investment
Company Act of 1940, as amended (the "1940 Act"). Beneficial interests in the
Portfolio are issued solely in private placement transactions that do not
involve any "public offering" within the meaning of Section 4(2) of the
Securities Act of 1933 (the "1933 Act"). Investments in the Portfolio may only
be made by other investment companies, insurance company separate accounts,
common or commingled trust funds or similar organizations or entities that are
"accredited investors" within the meaning of Regulation D under the 1933 Act.
This Registration Statement does not constitute an offer to sell, or the
solicitation of an offer to buy, any "security" within the meaning of the 1933
Act.
The Portfolio is advised by Morgan Guaranty Trust Company of New York
("Morgan" or the "Advisor").
Investments in the Portfolio are not deposits or obligations of, or
guaranteed or endorsed by, Morgan or any other bank. Interests in the Portfolio
are not federally insured by the Federal Deposit Insurance Corporation, the
Federal Reserve Board or any other governmental agency. An investment in the
Portfolio is subject to risk, as the net asset value of the Portfolio will
fluctuate with changes in the value of the Portfolio's holdings.
Part B contains more detailed information about the Portfolio,
including information related to (i) the investment policies and restrictions of
the Portfolio, (ii) the Trustees, officers, Advisor and administrators of the
Portfolio, (iii) portfolio transactions, (iv) rights and liabilities of
investors and (v) the audited financial statements of the Portfolio at December
31, 1995, and the unaudited semi-annual financial statements at June 30, 1996.
The investment objective of the Portfolio is described below, together
with the policies it employs in its efforts to achieve this objective.
Additional information about the investment policies of the Portfolio appears in
Part B under Item 13. There can be no assurance that the investment objective of
the Portfolio will be achieved.
The Portfolio's investment objective is to achieve a high total return
from a portfolio of equity securities of companies in Asian growth markets.
Total return will consist of realized and unrealized capital gains and losses
plus income. Under certain market conditions, the Portfolio may not be able to
achieve its investment objective.
The Portfolio is designed for long-term investors who want access to
the rapidly growing Asian markets. The Portfolio does not represent a complete
investment program nor is the Portfolio suitable for all investors. Many
investments in Asian growth markets can be considered speculative and,
therefore, may offer higher potential for gains and losses and may be more
volatile than investments in the developed markets of the world. See Risk
Factors and Additional Investment Information.
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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.
A company in an Asian growth market is one that: (i) has its principal
securities trading market in an Asian growth market; or (ii) is organized under
the laws of an Asian growth market; or (iii) derives 50% or more of its total
revenue and/or profits from either goods produced, sales made or services
performed in Asian growth markets; or (iv) has at least 50% of its assets
located in Asian growth markets.
The Portfolio seeks to achieve its objective through country allocation
and company selection. Morgan uses a disciplined portfolio construction process
to seek to enhance returns and reduce volatility in the market value of the
Portfolio relative to its benchmark. The Portfolio's benchmark is a customized
index comprised of Morgan Stanley Capital International's indices for Hong Kong
and Singapore and the International Finance Corporation's Investable indices for
China, Indonesia, Malaysia, Philippines, South Korea, Taiwan and Thailand.
Based on fundamental research, quantitative valuation techniques and
experienced judgment, Morgan identifies those countries where economic and
political factors, including currency movements, are likely to produce
above-average returns. Drawing on this analysis, Morgan allocates the Portfolio
among Asian growth markets by overweighting or underweighting selected countries
against the benchmark. Currently, three Asian growth markets-Hong Kong, Malaysia
and Thailand-represent more than 60% of the market value of the benchmark and of
the Portfolio.
To select investments for the Portfolio, the Advisor ranks companies in
each Asian growth market within industrial sectors according to their relative
value. These valuations are based on the Advisor's fundamental research and use
of quantitative tools to project a company's long-term prospects for earnings
growth and its dividend paying capability. Based on this valuation, Morgan then
selects the companies which appear most attractive for the Portfolio. Typically,
the Portfolio's industrial sector weightings will be similar to those of its
benchmark.
The Advisor intends to manage the Portfolio's portfolio actively in
pursuit of its investment objective. The Portfolio does not intend to respond to
short-term market fluctuations or to acquire securities for the purpose of
short-term trading; however, it may take advantage of short-term trading
opportunities that are consistent with its objective. To the extent the
Portfolio engages in short-term trading, it may realize short-term capital gains
or losses and incur increased transaction costs. The portfolio turnover rate for
the Portfolio for the period April 5, 1995 (commencement of operations) through
December 31, 1995 was 70%.
The Portfolio's investments are primarily in securities denominated in
foreign currencies, but it may also invest in securities denominated in the U.S.
dollar or multinational currency units such as the ECU. The Advisor will not
routinely attempt to hedge the Portfolio's foreign currency exposure. However,
the Advisor may from time to time engage in foreign currency exchange
transactions if, based on fundamental research, technical factors, and the
judgment of experienced currency managers, it believes the transactions would be
in the Portfolio's best interest. For further information on foreign currency
exchange transactions, see Risk Factors and Additional Investment Information.
EQUITY INVESTMENTS. In normal circumstances, the Advisor intends to
keep the Portfolio essentially fully invested with at least 65% of the value of
its total assets in equity securities of companies in Asian growth markets
consisting of common stocks and other securities with equity characteristics
comprised of preferred stock, warrants, rights, convertible securities, trust
certificates,
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limited partnership interests and equity participations. The Portfolio's primary
equity investments are the common stock of companies the Advisor has identified
as attractive in the Asian growth markets. Such investments will be made in at
least three different countries considered to be Asian growth markets. The
common stock in which the Portfolio may invest includes the common stock of any
class or series or any similar equity interest, such as trust or limited
partnership interests. These equity investments may or may not pay dividends and
may or may not carry voting rights. The Portfolio invests in securities listed
on foreign or domestic securities exchanges and securities traded in foreign or
domestic over-the-counter (OTC) markets, and may invest in certain restricted or
unlisted securities.
Certain Asian growth markets are closed in whole or in part to equity
investments by foreigners except through specifically authorized investment
funds. Securities of other investment companies may be acquired by the Portfolio
to the extent permitted under the 1940 Act--that is, the Portfolio may invest up
to 10% of its total assets in securities of other investment companies so long
as not more than 3% of the outstanding voting stock of any one investment
company is held by the Portfolio. In addition, not more than 5% of the
Portfolio's total assets may be invested in the securities of any one investment
company. As a shareholder in an investment fund, the Portfolio would bear its
share of that investment fund's expenses, including its advisory and
administration fees. At the same time the Portfolio would continue to pay its
own operating expenses.
The Portfolio may also invest in money market instruments denominated
in U.S. dollars and other currencies, purchase securities on a when-issued or
delayed delivery basis, enter into repurchase and reverse repurchase agreements,
lend 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 derivative instruments. For a discussion of these investments and
investment techniques, see Risk Factors and Additional Investment Information.
RISK FACTORS AND ADDITIONAL INVESTMENT INFORMATION
INVESTING IN ASIAN GROWTH MARKETS. The Portfolio invests primarily in
equity securities of companies in Asian growth markets. Investments in
securities of issuers in Asian growth markets 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 described below to a heightened
degree. These heightened risks include (i) greater risks of expropriation,
confiscatory taxation, nationalization, and less social, political and economic
stability; (ii) the small current size of the markets for securities of Asian
issuers and the currently low or nonexistent volume of trading, resulting in
lack of liquidity and in price volatility; (iii) certain national policies which
may restrict the Portfolio's investment opportunities including restrictions on
investing in issuers or industries deemed sensitive to relevant national
interests; and (iv) the absence of developed legal structures governing private
or foreign investment and private property.
Different combinations of the above risks exist in each Asian growth
market. For example, the People's Republic of China (the "PRC") continues to
exercise significant centralized control over the economy. A delay in
implementing, or a reversal of, economic reforms could adversely affect economic
growth, opportunities for foreign investment and the prospects of private sector
enterprises. Actions by the PRC with respect to Hong Kong, both before and after
the reversion to Chinese rule, could have a negative effect on business
confidence, the performance of Hong Kong companies and the prices of Hong Kong
stocks.
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The value of the Portfolio's investments could also be unfavorably
affected by limitations on the foreign ownership of stock imposed by Indonesia,
Malaysia, Thailand and Taiwan; by substantial delays in the settlement (through
physical delivery) of stock transactions in India; and Thailand's border
disputes with Laos and Cambodia. In addition, all of these countries have
experienced or may experience a significant degree of political instability and
volatility in the prices of their respective currencies. For additional
information, see Appendix C--Investing in Japan and Asian Growth Markets in Part
B.
OTHER FOREIGN INVESTMENT INFORMATION. Generally, investment in
securities of foreign issuers involves somewhat different investment risks from
those affecting securities of U.S. domestic issuers. There may be limited
publicly available information with respect to foreign issuers, and foreign
issuers are not generally subject to uniform accounting, auditing and financial
standards and requirements comparable to those applicable to domestic companies.
Dividends and interest paid by foreign issuers may be subject to withholding and
other foreign taxes which may decrease the net return on foreign investments as
compared to dividends and interest paid to the Portfolio by domestic companies.
Investors should realize that the value of the Portfolio's investments
in foreign securities may be adversely affected by changes in political or
social conditions, diplomatic relations, confiscatory taxation, expropriation,
nationalization, limitation on the removal of funds or assets, or imposition of
(or change in) exchange control or tax regulations in those foreign countries.
In addition, changes in government administrations or economic or monetary
policies in the United States or abroad could result in appreciation or
depreciation of portfolio securities and could favorably or unfavorably affect
the Portfolio's operations. Furthermore, the economies of individual foreign
nations may differ from the U.S. economy, whether favorably or unfavorably, in
areas such as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position; it may
also be more difficult to obtain and enforce a judgment against a foreign
issuer. Any foreign investments made by the Portfolio must be made in compliance
with U.S. and foreign currency restrictions and tax laws restricting the amounts
and types of foreign investments.
In addition, while the volume of transactions effected on foreign stock
exchanges has increased in recent years, in most cases it remains appreciably
below that of domestic security exchanges. Accordingly, the Portfolio's foreign
investments may be less liquid and their prices may be more volatile than
comparable investments in securities of U.S. companies. Moreover, the settlement
periods for foreign securities, which are often longer than those for securities
of U.S. issuers, may affect portfolio liquidity. In buying and selling
securities on foreign exchanges, purchasers normally pay fixed commissions that
are generally higher than the negotiated commissions charged in the United
States. In addition, there is generally less government supervision and
regulation of securities exchanges, brokers and issuers located in foreign
countries than in the United States.
The Portfolio may invest in securities of foreign issuers directly or
in the form of American Depositary Receipts ("ADRs"), European Depositary
Receipts ("EDRs") or other similar securities of foreign issuers. These
securities may not necessarily be denominated in the same currency as the
securities they represent. ADRs are receipts typically issued by a U.S. bank or
trust company evidencing ownership of the underlying foreign securities. Certain
such institutions issuing ADRs may not be sponsored by the issuer of the
underlying foreign securities. A non-sponsored depository may not provide the
same shareholder information that a sponsored depository is required to provide
under its contractual arrangements with the issuer of the underlying foreign
securities. EDRs are receipts issued by a European financial institution
evidencing a similar arrangement. Generally, ADRs, in registered form, are
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designed for use in the U.S. securities markets, and EDRs, in bearer form, are
designed for use in European securities markets.
Since the Portfolio's investments in foreign securities involve foreign
currencies, the value of its assets as measured in U.S. dollars may be affected
favorably or unfavorably by changes in currency rates and in exchange control
regulations, including currency blockage. See Foreign Currency Exchange
Transactions.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Because the Portfolio buys and
sells securities and receives interest and dividends in currencies other than
the U.S. dollar, the Portfolio may enter from time to time into foreign currency
exchange transactions. The Portfolio either enters into these transactions on a
spot (i.e., cash) basis at the spot rate prevailing in the foreign currency
exchange market or uses forward contracts to purchase or sell foreign
currencies. The cost of the Portfolio's spot currency exchange transactions is
generally the difference between the bid and offer spot rate of the currency
being purchased or sold.
A forward foreign currency exchange contract is an obligation by the
Portfolio to purchase or sell a specific currency at a future date, which may be
any fixed number of days from the date of the contract. Forward foreign currency
exchange contracts establish an exchange rate at a future date. These contracts
are derivative instruments, as their value derives from the spot exchange rates
of the currencies underlying the contract. These contracts are entered into in
the interbank market directly between currency traders (usually large commercial
banks) and their customers. A forward foreign currency exchange contract
generally has no deposit requirement and is traded at a net price without
commission. The Portfolio will not enter into forward contracts for speculative
purposes. Neither spot transactions nor forward foreign currency exchange
contracts eliminate fluctuations in the prices of the Portfolio's securities or
in foreign exchange rates, or prevent loss if the prices of these securities
should decline.
The Portfolio may enter into foreign currency exchange transactions in
an attempt to protect against changes in foreign currency exchange rates between
the trade and settlement dates of specific securities transactions or
anticipated securities transactions. The Portfolio may also enter into forward
contracts to hedge against a change in foreign currency exchange rates that
would cause a decline in the value of existing investments denominated or
principally traded in a foreign currency. To do this, the Portfolio would enter
into a forward contract to sell the foreign currency in which the investment is
denominated or principally traded in exchange for U.S. dollars or in exchange
for another foreign currency. The Portfolio will only enter into forward
contracts to sell a foreign currency in exchange for another foreign currency if
the Advisor expects the foreign currency purchased to appreciate against the
U.S. dollar.
Although these transactions are intended to minimize the risk of loss
due to a decline in the value of the hedged currency, at the same time they
limit any potential gain that might be realized should the value of the hedged
currency increase. In addition, forward contracts that convert a foreign
currency into another foreign currency will cause the Portfolio to assume the
risk of fluctuations in the value of the currency purchased against the hedged
currency and the U.S. dollar. The precise matching of the forward contract
amounts and the value of the securities involved will not generally be possible
because the future value of such securities in foreign currencies will change as
a consequence of market movements in the value of such securities between the
date the forward contract is entered into and the date it matures. The
projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly uncertain.
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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.
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.
COMMON STOCK WARRANTS. The Portfolio may invest in common stock
warrants that entitle the holder to buy common stock from the issuer of the
warrant at a specific price (the strike price) for a specific period of time.
The market price of warrants may be substantially lower than the current market
price of the underlying common stock, yet warrants are subject to similar price
fluctuations. As a result, warrants may be more volatile investments than the
underlying common stock.
Warrants generally do not entitle the holder to dividends or voting
rights with respect to the underlying common stock and do not represent any
rights in the assets of the issuer company. A warrant will expire worthless if
it is not exercised on or prior to the expiration date.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. Delivery of and payment
for these securities may take as long as a month or more after the date of the
purchase commitment. The value of these securities is subject to market
fluctuation during this period and for fixed income securities no interest
accrues to the Portfolio until settlement. At the time of settlement, a
when-issued security may be valued at less than its purchase price. The
Portfolio maintains with the Custodian a separate account with a segregated
portfolio of securities in an amount at least equal to these commitments. When
entering into a when-issued or delayed delivery transaction, the Portfolio will
rely on the other party to consummate the transaction; if the other party fails
to do so, the Portfolio may be disadvantaged. It is the current policy of the
Portfolio not to enter into when-issued commitments exceeding in the aggregate
15% of the market value of the Portfolio's total assets less liabilities other
than the obligations created by these commitments.
REPURCHASE AGREEMENTS. The Portfolio may engage in repurchase agreement
transactions with brokers, dealers or banks that meet the credit guidelines
established by the Portfolio Trust'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
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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.
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
the 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
exclusive placement agent or any affiliate thereof, 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 the same security at a mutually agreed
upon date and price, reflecting the interest rate effective for the term of the
agreement. For the purposes of the 1940 Act, a reverse repurchase agreement is
also considered as the borrowing of money by the Portfolio and, therefore, is a
form of leverage. Leverage may cause any gains or losses of the Portfolio to be
magnified. See Investment Restrictions for investment limitations applicable to
reverse repurchase agreements and other borrowings. For more information, see
Item 13 in Part B.
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 non-fundamental policy
limitation, the Portfolio may acquire investments that are illiquid or have
limited liquidity, such as private placements or investments that are not
registered under the 1933 Act and cannot be offered for public sale in the
United States without first being registered under the 1933 Act. An illiquid
investment is any investment that cannot be disposed of within seven days in the
normal course of business at approximately the amount at which it is valued by
the Portfolio. The price the Portfolio pays for illiquid securities or receives
upon resale may be lower than the price paid or received for similar securities
with a more liquid market. Accordingly the valuation of these securities will
reflect any limitations on their liquidity.
The Portfolio may also purchase Rule 144A securities sold to
institutional investors without registration under the 1933 Act. These
securities may be determined to be liquid in accordance with guidelines
established by the Advisor and approved by the Trustees of the Portfolio Trust.
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 OTC put and call options on equity securities
or indexes of equity securities, (b) purchase and sell futures contracts on
indexes of equity securities, and (c) purchase and sell (write) put and call
options on futures contracts on indexes of equity securities. Each of these
instruments is a derivative instrument as its value derives from the underlying
asset or index.
The Portfolio may use futures contracts and options for hedging and
risk management purposes. The Portfolio may not use futures contracts and
options for speculation. For a more detailed description of these transactions
see "Options and Futures Transactions" in Item 13 in Part B.
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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 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.
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.
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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 on futures contracts or commodity options for
risk management purposes if, as a result, the aggregate initial margin and
options premiums required to establish these positions exceed 5% of the net
asset value of the Portfolio. For more detailed information about these
transactions, see Item 13 in Part B.
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 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
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entered into. When the Portfolio purchases an OTC option, it will be relying on
its counterparty to perform its obligations, and the Portfolio may incur
additional losses if the counterparty is unable to perform.
FUTURES CONTRACTS. When the Portfolio purchases a futures contract, it
agrees to purchase a specified quantity of an underlying instrument at a
specified future date or to make a cash payment based on the value of a
securities index. When the Portfolio sells a futures contract, it agrees to sell
a specified quantity of the underlying instrument at a specified future date or
to receive a cash payment based on the value of a securities index. The price at
which the purchase and sale will take place is fixed when the Portfolio enters
into the contract. Futures can be held until their delivery dates or the
position can be (and normally is) closed out before then. There is no assurance,
however, that a liquid market will exist when the Portfolio wishes to close out
a particular position.
When the Portfolio purchases a futures contract, the value of the
futures contract tends to increase and decrease in tandem with the value of its
underlying instrument. Therefore, purchasing futures contracts will tend to
increase the Portfolio's exposure to positive and negative price fluctuations in
the underlying instrument, much as if it had purchased the underlying instrument
directly. When the Portfolio sells a futures contract, by contrast, the value of
its futures position will tend to move in a direction contrary to the value of
the underlying instrument. Selling futures contracts, therefore, will tend to
offset both positive and negative market price changes, much as if the
underlying instrument had been sold.
The purchaser or seller of a futures contract is not required to
deliver or pay for the underlying instrument unless the contract is held until
the delivery date. However, when the Portfolio buys or sells a futures contract
it will be required to deposit "initial margin" with its Custodian in a
segregated account in the name of its futures broker, known as a futures
commission merchant (FCM). Initial margin deposits are typically equal to a
small percentage of the contract's value. If the value of either party's
position declines, that party will be required to make additional "variation
margin" payments equal to the change in value on a daily basis. The party that
has a gain may be entitled to receive all or a portion of this amount. The
Portfolio may be obligated to make payments of variation margin at a time when
it is disadvantageous to do so. Furthermore, it may not always be possible for
the Portfolio to close out its futures positions. Until it closes out a futures
position, the Portfolio will be obligated to continue to pay variation margin.
Initial and variation margin payments do not constitute purchasing on margin for
purposes of the Portfolio's investment restrictions. In the event of the
bankruptcy of an FCM that holds margin on behalf of the Portfolio, the Portfolio
may be entitled to return of margin owed to it only in proportion to the amount
received by the FCM's other customers, potentially resulting in losses to the
Portfolio.
The Portfolio will segregate liquid assets in connection with its use
of options and futures contracts to the extent required by the staff of the
Securities and Exchange Commission. Securities held in a segregated account
cannot be sold while the futures contract or option is outstanding, unless they
are replaced with other suitable assets. As a result, there is a possibility
that segregation of a large percentage of the Portfolio's assets could impede
portfolio management or the Portfolio's ability to meet redemption requests or
other current obligations.
MONEY MARKET INSTRUMENTS. The Portfolio is permitted to invest in money
market instruments although it intends to stay invested in equity securities to
the extent practical in light of its objective. The Portfolio may invest in
money market instruments of foreign or domestic issuers denominated in U.S.
dollars and other currencies. Under normal circumstances the Portfolio will
purchase these securities to invest temporary cash balances or to maintain
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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 Item 13
in Part B.
INVESTMENT RESTRICTIONS
As a diversified investment company, 75% of the assets of the Portfolio
are subject to the following fundamental limitations: (a) the Portfolio may not
invest more than 5% of its total assets in the securities of any one issuer,
except U.S. Government securities, and (b) the Portfolio may not own more than
10% of the outstanding voting securities of any one issuer.
The investment objective of the Portfolio, together with the investment
restrictions described below and in Part B, except as noted, are deemed
fundamental policies, i.e., they may be changed only with the approval of the
holders of a majority of the outstanding voting securities of the Portfolio.
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. 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 one
third 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 Item 13 in
Part B.
ITEM 5. MANAGEMENT OF THE PORTFOLIO TRUST
The Board of Trustees provides broad supervision over the affairs of
the Portfolio Trust. The Portfolio Trust has retained the services of Morgan as
investment adviser and administrative services agent. The Portfolio Trust has
retained the services of Funds Distributor, Inc. ("FDI") as co-administrator
(the "Co-Administrator").
The Portfolio Trust has not retained the services of a principal
underwriter or distributor, since interests in the Portfolio are offered solely
in private placement transactions. FDI, acting as agent for the Portfolio,
serves as exclusive placement agent of interests in the Portfolio. FDI receives
no additional compensation for serving as exclusive placement agent to the
Portfolio.
INVESTMENT ADVISOR. The Portfolio has retained the services of Morgan
as investment advisor. Morgan, with principal offices at 60 Wall Street, New
York, New York 10260, is a New York trust company which conducts a general
banking and trust business. Morgan is a wholly owned subsidiary of J.P. Morgan &
Co. Incorporated ("J.P. Morgan"), a bank holding company organized under the
laws of Delaware. Through offices in New York City and abroad, J.P. Morgan,
through the Advisor and other subsidiaries, offers a wide range of services to
governmental, institutional, corporate and individual customers and acts as
investment adviser to individual and institutional clients with combined assets
under management of over $197 billion (of which the Advisor advises over $30
billion). Morgan
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provides investment advice and portfolio management services to the
Portfolio. Subject to the supervision of the Portfolio Trust's Trustees, Morgan,
as Advisor, makes the Portfolio's day-to-day investment decisions, arranges for
the execution of portfolio transactions and generally manages the Portfolio's
investments. See Item 16 in Part B.
The Advisor uses a sophisticated, disciplined, collaborative process
for managing all asset classes. For equity portfolios, this process utilizes
fundamental research, systematic stock selection, disciplined portfolio
construction and, in the case of foreign equities, country exposure and currency
management. Morgan has managed portfolios of equity securities of companies in
emerging markets, including Asian growth markets, since 1990. The portfolio
managers making investments in Asian growth markets work in conjunction with
Morgan's equity analysts focused on Asian growth markets, as well as capital
market, credit and economic research analysts, traders and administrative
officers. The Asian equity analysts, located in Singapore, each cover a
different industry, monitoring a universe of approximately 250 companies in the
region.
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):
Steven T. Ho, Vice President (since March, 1995, employed by Morgan since prior
to 1991 as a portfolio manager of Asian investments and as an investment
research analyst) and Douglas J. Dooley, Managing Director (since March, 1995,
employed as a portfolio manager of emerging markets investments since 1991).
As compensation for the services rendered and related expenses borne by
Morgan under the Investment Advisory Agreement with the Portfolio Trust, the
Portfolio has agreed to pay Morgan a fee, which is computed daily and may be
paid monthly, at the annual rate of 0.80% of the Portfolio's average daily net
assets. While the advisory fee for the Portfolio is higher than that of most
investment companies, it is similar to the advisory fees of other funds of this
type.
Under a separate agreement, Morgan provides administrative and related
services to the Portfolio Trust. See Administrative Services Agent below.
CO-ADMINISTRATOR. Pursuant to a Co-Administration Agreement with the
Portfolio Trust, FDI serves as the Co-Administrator for the Portfolio. FDI (i)
provides office space, equipment and clerical personnel for maintaining the
organization and books and records of the Portfolio; (ii) provides officers for
the Portfolio; (iii) files Portfolio regulatory documents and mails Portfolio
communications to Trustees and investors; and (iv) maintains related books and
records. See Administrative Services Agent below.
For its services under the Co-Administration Agreement, the Portfolio
Trust has agreed to pay FDI fees equal to its allocable share of an annual
complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The amount
allocable to the Portfolio is based on the ratio of its net assets to the
aggregate net assets of the Portfolio Trust and certain other registered
investment companies subject to similar agreements with FDI.
ADMINISTRATIVE SERVICES AGENT. Pursuant to an Administrative Services
Agreement with the Portfolio Trust, Morgan provides administrative and related
services to the Portfolio, including services related to tax compliance,
preparation of financial statements, calculation of performance data, oversight
of service providers and certain regulatory and Board of Trustees matters.
Under the Administrative Services Agreement, the Portfolio has agreed
to pay Morgan 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
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Portfolio and certain other registered investment companies managed by the
Advisor in accordance with the following annual schedule: 0.09% on the first $7
billion of their aggregate average daily net assets and 0.04% of their aggregate
average daily net assets in excess of $7 billion, less the complex-wide fees
payable to FDI.
PLACEMENT AGENT. FDI, a registered broker-dealer, also serves as
exclusive placement agent for the Portfolio. FDI is a wholly owned indirect
subsidiary of Boston Institutional Group, Inc. FDI's principal business address
is 60 State Street, Suite 1300, Boston, Massachusetts 02109.
FUND SERVICES AGREEMENT. Pursuant to an Amended and Restated Portfolio
Fund Services Agreement with the Portfolio Trust, Pierpont Group, Inc.
("Pierpont Group"), 461 Fifth Avenue, New York, New York 10017, assists the
Trustees in exercising their overall supervisory responsibilities for the
affairs of the Portfolio Trust. Pierpont Group provides these services for a fee
approximating its reasonable cost. See Item 14 in Part B.
CUSTODIAN. State Street Bank and Trust Company ("State Street"), 40
King Street West, Toronto, Ontario, Canada M5H 3Y8, serves as the Portfolio's
custodian and fund accounting and transfer agent. State Street keeps the books
of account for the Portfolio.
EXPENSES. In addition to the fees payable to the service providers
identified above, the Portfolio is responsible for usual and customary expenses
associated with its operations. Such expenses include organization expenses,
legal fees, accounting and audit expenses, insurance costs, the compensation and
expenses of the Trustees, registration fees under federal and foreign securities
laws, extraordinary expenses, custodian fees and brokerage expenses.
Morgan has agreed that it will reimburse the Portfolio through at least
April 30, 1997 to the extent necessary to maintain the Portfolio's total
operating expenses at the annual rate of 1.25% of the Portfolio's average daily
net assets. This limit does not cover extraordinary expenses during the period.
There is no assurance that Morgan will continue this waiver beyond the specified
period, except as required by the following sentence. Morgan has agreed to waive
fees as necessary if in any fiscal year the sum of the Portfolio's expenses
exceeds the limits set by applicable regulations of state securities
commissions. Such annual limits are currently 2.5% of the first $30 million of
average net assets, 2% of the next $70 million of such net assets and 1.5% of
such net assets in excess of $100 million for any fiscal year.
For the period April 5, 1995 (commencement of operations) through
December 31, 1995 the Portfolio's total expenses were 1.40% of its average net
assets.
ITEM 6. CAPITAL STOCK AND OTHER SECURITIES
The Portfolio is a series of the Portfolio Trust, which is organized as
a trust under the laws of the State of New York. Under the Declaration of Trust,
the Trustees are authorized to issue beneficial interests in one or more series.
Currently, there are five active subtrusts (series) of the Portfolio Trust.
Investments in the Portfolio may not be transferred, but an investor may
withdraw all or any portion of its investment at any time at net asset value.
The Declaration of Trust provides that investors in the Portfolio (e.g., other
investment companies, insurance company separate accounts and common and
commingled trust funds) are each liable for all obligations of the Portfolio.
However, the risk of an investor in the Portfolio incurring financial loss on
account of such liability is limited to circumstances in which both inadequate
insurance existed and the Portfolio itself was unable to meet its obligations.
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As of November 30, 1996, JPM Asia Growth Fund, Ltd. (a Bahamas
international business company) and The JPM Pierpont Asia Growth Fund and The
JPM Institutional Asia Growth Fund (series of The JPM Pierpont Funds and The JPM
Institutional Funds, respectively) (the "Funds") owned 96.52%, 2.56% and .93%,
respectively, of the total outstanding beneficial interests of The Asia Growth
Portfolio.
Each investor in the Portfolio is entitled to a vote in proportion to
the amount of its investment in the Portfolio. Investors in the Portfolio will
vote as a separate class, except as to voting of Trustees, as otherwise required
by the 1940 Act, or if determined by the Trustees to be a matter which affects
all series. As to any matter which only affects a specific series, only
investors in that series are entitled to vote. Investments in the Portfolio have
no preemptive or conversion rights and are fully paid and nonassessable, except
as set forth below. The Portfolio is not required and has no current intention
of holding annual meetings of investors, but the Portfolio will hold special
meetings of investors when in the judgment of the Trustees it is necessary or
desirable to submit matters for an investor vote. Changes in fundamental
policies will be submitted to investors for approval. Investors have under
certain circumstances (e.g., upon application and submission of certain
specified documents to the Trustees by a specified percentage of the outstanding
interests in the Portfolio) the right to communicate with other investors in
connection with requesting a meeting of investors for the purpose of removing
one or more Trustees. Investors also have the right to remove one or more
Trustees without a meeting by a declaration in writing by a specified percentage
of the outstanding interests in the Portfolio. Upon liquidation of the
Portfolio, investors would be entitled to share pro rata in the net assets of
the Portfolio available for distribution to investors.
The net asset value of the Portfolio is determined each business day
other than the holidays listed in Part B ("Portfolio Business Day"). This
determination is made once each Portfolio Business Day as of 4:15 p.m. New York
time (the "Valuation Time").
The "net income" of the Portfolio will consist of (i) all income
accrued, less the amortization of any premium, on the assets of the Portfolio,
less (ii) all actual and accrued expenses of the Portfolio determined in
accordance with generally accepted accounting principles. Income includes
dividends and interest, including discount earned (including both original issue
and market discount) on discount paper accrued ratably to the date of maturity
and any net realized and unrealized gains or losses on the assets of the
Portfolio. All the net income of the Portfolio is allocated pro rata among the
investors in the Portfolio.
The end of the Portfolio's fiscal year is December 31.
Under the anticipated method of operation of the Portfolio, the
Portfolio will not be subject to any income tax. However, each investor in the
Portfolio will be taxable on its share (as determined in accordance with the
governing instruments of the Portfolio) of the Portfolio's ordinary income and
capital gain in determining its income tax liability. The determination of such
share will be made in accordance with the Internal Revenue Code of 1986, as
amended (the "Code"), and regulations promulgated thereunder.
It is intended that the Portfolio's assets, income and distributions
will be managed in such a way that an investor in the Portfolio will be able to
satisfy the requirements of Subchapter M of the Internal Revenue Code of 1986,
as amended (the "Code"), assuming that the investor invested all of its assets
in the Portfolio.
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Investor inquiries may be directed to FDI, in care of State Street
Cayman Trust Company Ltd., at Elizabethan Square, Shedden Road, George Town,
Grand Cayman, Cayman Islands, B.W.I. ((809) 949-6644).
ITEM 7. PURCHASE OF SECURITIES
Beneficial interests in the Portfolio are issued solely in private
placement transactions that do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. Investments in the Portfolio may only
be made by other investment companies, insurance company separate accounts,
common or commingled trust funds, or similar organizations or entities which are
"accredited investors" as defined in Rule 501 under the 1933 Act. This
Registration Statement does not constitute an offer to sell, or the solicitation
of an offer to buy, any "security" within the meaning of the 1933 Act.
An investment in the Portfolio may be made without a sales load. All
investments are made at net asset value next determined after an order is
received in "good order" by the Portfolio Trust. The net asset value of the
Portfolio is determined at the Valuation Time on each Portfolio Business Day.
There is no minimum initial or subsequent investment in the Portfolio.
However, because the Portfolio intends to be as fully invested at all times as
is reasonably practicable in order to enhance the yield on its assets,
investments must be made in federal funds (i.e., monies credited to the account
of the Custodian by a Federal Reserve Bank).
The Portfolio may, at its own option, accept securities in payment for
investments in its beneficial interests. The securities delivered in kind are
valued by the method described in Net Asset Value as of the business day prior
to the day the Portfolio receives the securities. Securities may be accepted in
payment for beneficial interests only if they are, in the judgment of Morgan,
appropriate investments for the Portfolio. In addition, securities accepted in
payment for beneficial interests must: (i) meet the investment objective and
policies of the Portfolio; (ii) be acquired by the Portfolio for investment and
not for resale; (iii) be liquid securities which are not restricted as to
transfer either by law or liquidity of market; and (iv) if stock, have a value
which is readily ascertainable as evidenced by a listing on a stock exchange,
OTC market or by readily available market quotations from a dealer in such
securities. The Portfolio reserves the right to accept or reject at its own
option any and all securities offered in payment for beneficial interests.
The Portfolio and FDI reserve the right to cease accepting investments
at any time or to reject any investment order.
Each investor in the Portfolio may add to or reduce its investment in
the Portfolio on each Portfolio Business Day. At the Valuation Time on each such
day, the value of each investor's beneficial interest in the Portfolio will be
determined by multiplying the net asset value of the Portfolio by the
percentage, effective for that day, which represents that investor's share of
the aggregate beneficial interests in the Portfolio. Any additions or
reductions, which are to be effected at the Valuation Time on such day, will
then be effected. The investor's percentage of the aggregate beneficial
interests in the Portfolio will then be recomputed as the percentage equal to
the fraction (i) the numerator of which is the value of such investor's
investment in the Portfolio at the Valuation Time on such day plus or minus, as
the case may be, the amount of net additions to or reductions in the investor's
investment in the Portfolio effected as of the Valuation Time, and (ii) the
denominator of which is the aggregate net asset value of the Portfolio as of the
Valuation Time on such day, plus or minus, as the case may be, the amount of net
additions to or reductions in the aggregate investments in the Portfolio by all
investors in the Portfolio. The percentage so determined will then be applied to
determine the value of the investor's
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interest in the Portfolio as of the Valuation Time on the following Portfolio
Business Day.
ITEM 8. REDEMPTION OR REPURCHASE
An investor in the Portfolio may reduce all or any portion of its
investment at the net asset value next determined after a request in "good
order" is furnished by the investor to the Portfolio Trust. The proceeds of a
reduction will be paid by the Portfolio Trust in federal funds normally on the
next Portfolio Business Day after the reduction is effected, but in any event
within seven days. Investments in the Portfolio may not be transferred.
The right of any investor to receive payment with respect to any
reduction may be suspended or the payment of the proceeds therefrom postponed
during any period in which the New York Stock Exchange (the "NYSE") is closed
(other than weekends or holidays) or trading on the NYSE is restricted or, to
the extent otherwise permitted by the 1940 Act, if an emergency exists.
The Portfolio Trust, on behalf of the Portfolio, reserves the right
under certain circumstances, such as accommodating requests for substantial
withdrawals or liquidations, to pay distributions in kind to investors (i.e., to
distribute portfolio securities as opposed to cash). If securities are
distributed, an investor could incur brokerage, tax or other charges in
converting the securities to cash. In addition, distribution in kind may result
in a less diversified portfolio of investments or adversely affect the liquidity
of the Portfolio or the investor's portfolio, as the case may be.
ITEM 9. PENDING LEGAL PROCEEDINGS
Not applicable.
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PART A (THE JAPAN EQUITY PORTFOLIO)
Responses to Items 1 through 3 and 5A have been omitted pursuant to
paragraph 4 of Instruction F of the General Instructions to Form N-1A.
ITEM 4. GENERAL DESCRIPTION OF REGISTRANT
The Series Portfolio (the "Portfolio Trust") is an open-end management
investment company which was organized as a trust under the laws of the State of
New York on June 24, 1994. Beneficial interests of the Portfolio Trust are
divided into series, one of which, The Japan Equity Portfolio (the "Portfolio")
is described herein. The Portfolio is non-diversified for purposes of the
Investment Company Act of 1940 (the "1940 Act"). Beneficial interests in the
Portfolio are issued solely in private placement transactions that do not
involve any "public offering" within the meaning of Section 4(2) of the
Securities Act of 1933 (the "1933 Act"). Investments in the Portfolio may only
be made by other investment companies, insurance company separate accounts,
common or commingled trust funds or similar organizations or entities that are
"accredited investors" within the meaning of Regulation D under the 1933 Act.
This Registration Statement does not constitute an offer to sell, or the
solicitation of an offer to buy, any "security" within the meaning of the 1933
Act.
The Portfolio is advised by Morgan Guaranty Trust Company of New York
("Morgan" or the "Advisor").
Investments in the Portfolio are not deposits or obligations of, or
guaranteed or endorsed by, Morgan or any other bank. Interests in the Portfolio
are not federally insured by the Federal Deposit Insurance Corporation, the
Federal Reserve Board or any other governmental agency. An investment in the
Portfolio is subject to risk, as the net asset value of the Portfolio will
fluctuate with changes in the value of the Portfolio's holdings.
Part B contains more detailed information about the Portfolio,
including information related to (i) the investment policies and restrictions of
the Portfolio, (ii) the Trustees, officers, Advisor and administrators of the
Portfolio, (iii) portfolio transactions, (iv) rights and liabilities of
investors and (v) the audited financial statements of the Portfolio at December
31, 1995, and its unaudited semi-annual financial statements at June 30, 1996.
The investment objective of the Portfolio is described below, together
with the policies it employs in its efforts to achieve this objective.
Additional information about the investment policies of the Portfolio appears in
Part B under Item 13. There can be no assurance that the investment objective of
the Portfolio will be achieved.
The Portfolio's investment objective is to provide a high total return
from a portfolio of equity securities of Japanese companies. Total return will
consist of realized and unrealized capital gains and losses plus income. Under
certain market conditions, the Portfolio may not be able to achieve its
investment objective.
The Portfolio 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
Portfolio does not represent a complete investment program nor is the Portfolio
suitable for all investors.
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A Japanese company is one that: (i) has its principal securities
trading market in Japan; or (ii) is organized under the laws of Japan; or (iii)
derives 50% or more of its total revenues and/or profits from either goods
produced, sales made or services performed in Japan; or (iv) has at least 50% of
its assets located in Japan.
The Advisor seeks to enhance the Portfolio's total return relative to
that of the TOPIX through fundamental research, stock valuation and the
exploitation of underlying market inefficiencies. Based on internal fundamental
research, the Advisor uses a proprietary valuation model to establish the
relative valuation of individual Japanese companies within industrial sectors.
The Advisor then buys and sells securities within each industrial sector based
on this valuation process. In addition to stocks, the Advisor actively uses
convertible securities and warrants to seek to enhance overall portfolio
performance.
In addition, the Advisor uses a disciplined portfolio construction
process to seek to reduce the Portfolio's volatility relative to the TOPIX.
Morgan attempts to keep the industrial sector weightings, the average market
capitalization and other broad characteristics of the Portfolio comparable to
those of the TOPIX.
The Advisor intends to manage the Portfolio's portfolio actively in
pursuit of its investment objective. The Portfolio does not intend to respond to
short-term market fluctuations or to acquire securities for the purpose of
short-term trading; however, it may take advantage of short-term trading
opportunities that are consistent with its objective. To the extent the
Portfolio engages in short-term trading, it may realize short-term capital gains
or losses and incur increased transaction costs. The portfolio turnover rate for
the Portfolio for the period March 28, 1995 (commencement of operations) through
December 31, 1995 was 36%.
The Portfolio's equity investments will be primarily denominated in
yen, but the Portfolio may also invest in securities denominated in other
foreign currencies, the U.S. dollar or multinational currency units such as the
ECU. The Advisor will not routinely attempt to hedge the Portfolio's foreign
currency exposure. However, the Advisor may from time to time engage in foreign
currency exchange transactions if, based on fundamental research, technical
factors, and the judgment of experienced currency managers, it believes the
transactions would be in the Portfolio's best interest. For further information
on foreign currency exchange transactions, see Risk Factors and Additional
Investment Information.
EQUITY INVESTMENTS. In normal circumstances, the Advisor intends to
keep the Portfolio essentially fully invested with at least 65% of the
Portfolio's total assets invested in equity securities of Japanese companies
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. The
Portfolio's primary equity investments are the common stock of established
Japanese companies. The common stock in which the Portfolio may invest includes
the common stock of any class or series or any similar equity interest, such as
trust or limited partnership interests. These equity investments may or may not
pay dividends and may or may not carry voting rights. The Portfolio invests in
securities listed on foreign or domestic securities exchanges and securities
traded in foreign or domestic over-the-counter (OTC) markets, and may invest in
certain restricted or unlisted securities.
NON-DIVERSIFICATION. The Portfolio is registered as a non-diversified
investment company which means that the Portfolio is not limited by the 1940 Act
in the proportion of its assets 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,
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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.
The Portfolio may also invest in money market instruments denominated
in U.S. dollars and other currencies, purchase securities on a when-issued or
delayed delivery basis, enter into repurchase and reverse repurchase agreements,
lend 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 derivative instruments. For a discussion of these investments and
investment techniques, see Risk Factors and Additional Investment Information.
RISK FACTORS AND ADDITIONAL INVESTMENT INFORMATION
INVESTING IN JAPAN. Investing in Japanese securities may involve the risks
associated with investing in foreign securities generally. See Other Foreign
Investment Information. In addition, because the Portfolio invests primarily in
Japan, it will be subject to the general economic and political conditions in
Japan.
Despite recent increases, prices for exchange-listed and OTC stocks of
Japanese companies are currently depressed in comparison to their historical
peaks in 1989 and 1990. Nevertheless, Japanese stocks continue to trade at high
price earnings ratios relative to stocks of U.S. companies. In addition,
differences in accounting methods make it difficult to compare the earnings of
Japanese companies with those of U.S. companies. Because most of the Portfolio's
investments are denominated in yen, changes in currency exchange rates will
affect the U.S. dollar value of the Portfolio's assets. The Japanese economy has
experienced a substantial reduction in its rate of growth. Economic growth and
the prices of Japanese stocks could be adversely affected by a reversal of
Japan's historical success in exporting its products and maintaining low
inflation and interest rates. Recent political instability and any resulting
delay in implementing regulatory reforms could also have a negative effect on
Japanese stock prices. For additional information, see Appendix C--Investing in
Japan and Asian Growth Markets--Japan and its Securities Markets in Part B.
OTHER FOREIGN INVESTMENT INFORMATION. The Portfolio invests primarily
in foreign securities. Investment in securities of foreign issuers involves
somewhat different investment risks from those affecting securities of U.S.
domestic issuers. There may be limited publicly available information with
respect to foreign issuers, and foreign issuers are not generally subject to
uniform accounting, auditing and financial standards and requirements comparable
to those applicable to domestic companies. Interest paid by foreign issuers may
be subject to withholding and other foreign taxes which may decrease the net
return on foreign investments as compared to interest paid to the Portfolio by
domestic companies.
Investors should realize that the value of the Portfolio's investments
in foreign securities may be adversely affected by changes in political or
social conditions, diplomatic relations, confiscatory taxation, expropriation,
nationalization, limitation on the removal of funds or assets, or imposition of
(or change in) exchange control or tax regulations in those foreign countries.
In addition, changes in government administrations or economic or monetary
policies in the United States or abroad could result in appreciation or
depreciation of portfolio securities and could favorably or unfavorably affect
the Portfolio's operations. Furthermore, the economies of individual foreign
nations may differ from the U.S. economy, whether favorably or unfavorably, in
areas such as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position; it may
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also be more difficult to obtain and enforce a judgment against a foreign
issuer. Any foreign investments made by the Portfolio must be made in compliance
with U.S. and foreign currency restrictions and tax laws restricting the amounts
and types of foreign investments.
The Portfolio may invest in securities of foreign issuers directly or
in the form of American Depositary Receipts ("ADRs"), European Depositary
Receipts ("EDRs") or other similar securities of foreign issuers. These
securities may not necessarily be denominated in the same currency as the
securities they represent. ADRs are receipts typically issued by a U.S. bank or
trust company evidencing ownership of the underlying foreign securities. Certain
such institutions issuing ADRs may not be sponsored by the issuer of the
underlying foreign securities. A non-sponsored depository may not provide the
same shareholder information that a sponsored depository is required to provide
under its contractual arrangements with the issuer of the underlying foreign
securities. EDRs are receipts issued by a European financial institution
evidencing a similar arrangement. Generally, ADRs, in registered form, are
designed for use in the U.S. securities markets, and EDRs, in bearer form, are
designed for use in European securities markets.
Since the Portfolio's investments in foreign securities involve foreign
currencies, the value of its assets as measured in U.S. dollars may be affected
favorably or unfavorably by changes in currency rates and in exchange control
regulations, including currency blockage. See Foreign Currency Exchange
Transactions.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Because the Portfolio buys and
sells securities and receives interest and dividends in currencies other than
the U.S. dollar-principally yen-the Portfolio may enter from time to time into
foreign currency exchange transactions. The Portfolio either enters into these
transactions on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign currency exchange market or uses forward contracts to purchase or sell
foreign currencies. The cost of the Portfolio's spot currency exchange
transactions is generally the difference between the bid and offer spot rate of
the currency being purchased or sold.
A forward foreign currency exchange contract is an obligation by the
Portfolio to purchase or sell a specific currency at a future date, which may be
any fixed number of days from the date of the contract. Forward foreign currency
exchange contracts establish an exchange rate at a future date. These contracts
are derivative instruments, as their value derives from the spot exchange rates
of the currencies underlying the contract. These contracts are entered into in
the interbank market directly between currency traders (usually large commercial
banks) and their customers. A forward foreign currency exchange contract
generally has no deposit requirement and is traded at a net price without
commission. The Portfolio will not enter into forward contracts for speculative
purposes. Neither spot transactions nor forward foreign currency exchange
contracts eliminate fluctuations in the prices of the Portfolio's securities or
in foreign exchange rates, or prevent loss if the prices of these securities
should decline.
The Portfolio may enter into foreign currency exchange transactions in
an attempt to protect against changes in foreign currency exchange rates between
the trade and settlement dates of specific securities transactions or
anticipated securities transactions. The Portfolio may also enter into forward
contracts to hedge against a change in foreign currency exchange rates that
would cause a decline in the value of existing investments denominated or
principally traded in a foreign currency. To do this, the Portfolio would enter
into a forward contract to sell the foreign currency in which the investment is
denominated or principally traded in exchange for U.S. dollars or in exchange
for another foreign currency. The Portfolio will only enter into forward
contracts to sell
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a foreign currency in exchange for another foreign currency if the Advisor
expects the foreign currency purchased to appreciate against the U.S. dollar.
Although these transactions are intended to minimize the risk of loss
due to a decline in the value of the hedged currency, at the same time they
limit any potential gain that might be realized should the value of the hedged
currency increase. In addition, forward contracts that convert a foreign
currency into another foreign currency will cause the Portfolio to assume the
risk of fluctuations in the value of the currency purchased against the hedged
currency and the U.S. dollar. The precise matching of the forward contract
amounts and the value of the securities involved will not generally be possible
because the future value of such securities in foreign currencies will change as
a consequence of market movements in the value of such securities between the
date the forward contract is entered into and the date it matures. The
projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly uncertain.
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.
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.
COMMON STOCK WARRANTS. The Portfolio may invest in common stock
warrants that entitle the holder to buy common stock from the issuer of the
warrant at a specific price (the strike price) for a specific period of time.
The market price of warrants may be substantially lower than the current market
price of the underlying common stock, yet warrants are subject to similar price
fluctuations. As a result, warrants may be more volatile investments than the
underlying common stock.
Warrants generally do not entitle the holder to dividends or voting
rights with respect to the underlying common stock and do not represent any
rights in the assets of the issuer company. A warrant will expire worthless if
it is not exercised on or prior to the expiration date.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. Delivery of and payment
for these securities may take as long as a month or more after the date of the
purchase commitment. The value of these securities is subject to market
fluctuation during this period and for fixed income securities no interest
accrues to the Portfolio until settlement. At the time of settlement, a
when-issued security may be valued at less than its purchase price. The
Portfolio maintains with the Custodian a separate account with a segregated
portfolio of securities in an amount at least equal to these commitments. When
entering into a when-issued or delayed delivery transaction, the Portfolio will
rely on the other party to consummate the transaction; if the other party fails
to do so, the Portfolio may be disadvantaged. It is the current policy of the
Portfolio not to enter into when-issued commitments exceeding in the aggregate
15% of the market value of the Portfolio's total assets less liabilities other
than the obligations created by these commitments.
REPURCHASE AGREEMENTS. The Portfolio may engage in repurchase agreement
transactions with brokers, dealers or banks that meet the credit guidelines
established by the Portfolio Trust'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
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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.
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
the 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
exclusive placement agent or any affiliate thereof, 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 the same security at a mutually agreed
upon date and price, reflecting the interest rate effective for the term of the
agreement. For the purposes of the 1940 Act, a reverse repurchase agreement is
also considered as the borrowing of money by the Portfolio and, therefore, is a
form of leverage. Leverage may cause any gains or losses of the Portfolio to be
magnified. See Investment Restrictions for investment limitations applicable to
reverse repurchase agreements and other borrowings. For more information, see
Item 13 in Part B.
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 non-fundamental policy
limitation, the Portfolio may acquire investments that are illiquid or have
limited liquidity, such as private placements or investments that are not
registered under the 1933 Act and cannot be offered for public sale in the
United States without first being registered under the 1933 Act. An illiquid
investment is any investment that cannot be disposed of within seven days in the
normal course of business at approximately the amount at which it is valued by
the Portfolio. The price the Portfolio pays for illiquid securities or receives
upon resale may be lower than the price paid or received for similar securities
with a more liquid market. Accordingly the valuation of these securities will
reflect any limitations on their liquidity.
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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 Trust.
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 OTC put and call options on equity securities
or indexes of equity securities, (b) purchase and sell futures contracts on
indexes of equity securities, and (c) purchase and sell (write) put and call
options on futures contracts on indexes of equity securities. Each of these
instruments is a derivative instrument as its value derives from the underlying
asset or index.
The Portfolio may use futures contracts and options for hedging and
risk management purposes. The Portfolio may not use futures contracts and
options for speculation. For a more detailed description of these transactions
see "Options and Futures Transactions" in Item 13 in Part B.
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 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.
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
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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.
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 on futures contracts or commodity options for
risk management purposes if, as a result, the aggregate initial margin and
options premiums required to establish these positions exceed 5% of the net
asset value of the Portfolio. For more detailed information about these
transactions, see Item 13 in Part B.
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.
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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 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
offset both positive and negative market price changes, much as if the
underlying instrument had been sold.
The purchaser or seller of a futures contract is not required to
deliver or pay for the underlying instrument unless the contract is held until
the delivery date. However, when the Portfolio buys or sells a futures contract
it will be required to deposit "initial margin" with its Custodian in a
segregated account in the name of its futures broker, known as a futures
commission merchant (FCM). Initial margin deposits are typically equal to a
small percentage of the contract's value. If the value of either party's
position declines, that party will be required to make additional "variation
margin" payments equal to the change in value on a daily basis. The party that
has a gain may be entitled to receive all or a portion of this amount. The
Portfolio may be obligated to make payments of variation margin at a time when
it is disadvantageous to do so. Furthermore, it may not always be possible for
the Portfolio to close out its futures positions. Until it closes out a futures
position, the Portfolio will be obligated to continue to pay variation margin.
Initial and variation margin payments do not constitute purchasing on margin for
purposes of the Portfolio's investment restrictions. In the event of the
bankruptcy of an FCM that holds margin on behalf of the Portfolio, the Portfolio
may be entitled to return of
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margin owed to it only in proportion to the amount received by the FCM's other
customers, potentially resulting in losses to the Portfolio.
The Portfolio will segregate liquid assets in connection with its use
of options and futures contracts to the extent required by the staff of the
Securities and Exchange Commission. Securities held in a segregated account
cannot be sold while the futures contract or option is outstanding, unless they
are replaced with other suitable assets. As a result, there is a possibility
that segregation of a large percentage of the Portfolio's assets could impede
portfolio management or the Portfolio's ability to meet redemption requests or
other current obligations.
MONEY MARKET INSTRUMENTS. The Portfolio is permitted to invest in money
market instruments although it intends to stay invested in equity securities to
the extent practical in light of its objective. The Portfolio may invest in
money market instruments of foreign or domestic issuers denominated in U.S.
dollars and other currencies. Under normal circumstances the Portfolio will
purchase these securities 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 Item 13
in Part B.
INVESTMENT RESTRICTIONS.
The investment objective of the Portfolio, together with the investment
restrictions described below and in Part B, except as noted, are deemed
fundamental policies, i.e., they may be changed only with the approval of the
holders of a majority of the outstanding voting securities of the Portfolio.
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. 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 one
third 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 Item 13 in
Part B.
ITEM 5. MANAGEMENT OF THE PORTFOLIO TRUST
The Board of Trustees provides broad supervision over the affairs of
the Portfolio Trust. The Portfolio Trust has retained the services of Morgan as
investment adviser and administrative services agent. The Portfolio Trust has
retained the services of Funds Distributor, Inc. ("FDI") as co-administrator
(the "Co-Administrator").
The Portfolio Trust has not retained the services of a principal
underwriter or distributor, since interests in the Portfolio are offered solely
in private placement transactions. FDI, acting as agent for the Portfolio,
serves as exclusive placement agent of interests in the Portfolio. FDI receives
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no additional compensation for serving as exclusive placement agent to the
Portfolio.
INVESTMENT ADVISOR. The Portfolio has retained the services of Morgan
as investment advisor. Morgan, with principal offices at 60 Wall Street, New
York, New York 10260, is a New York trust company which conducts a general
banking and trust business. Morgan is a wholly owned subsidiary of J.P. Morgan &
Co. Incorporated ("J.P. Morgan"), a bank holding company organized under the
laws of Delaware. Through offices in New York City and abroad, J.P. Morgan,
through the Advisor and other subsidiaries, offers a wide range of services to
governmental, institutional, corporate and individual customers and acts as
investment adviser to individual and institutional clients with combined assets
under management of over $197 billion (of which the Advisor advises over $30
billion). Morgan provides investment advice and portfolio management services to
the Portfolio. Subject to the supervision of the Portfolio Trust's Trustees,
Morgan, as Advisor, makes the Portfolio's day-to-day investment decisions,
arranges for the execution of portfolio transactions and generally manages the
Portfolio's investments. See Item 16 in Part B.
The Advisor uses a sophisticated, disciplined, collaborative process
for managing all asset classes. For equity portfolios, this process utilizes
fundamental research, systematic stock selection and disciplined portfolio
construction. The Advisor has invested in equity securities of Japanese
companies on behalf of its clients for over a decade and has had a research team
in Tokyo since 1972. The portfolio managers making investments in Japanese
equity securities work in conjunction with Morgan's Japanese equity analysts, as
well as capital market, credit and economic research analysts, traders and
administrative officers. The Japanese equity analysts, located in Tokyo, each
cover a different industry, monitoring a universe of over 300 Japanese
companies.
The following persons are primarily responsible for the day-to-day
management and implementation of Morgan's process for the Portfolio (the
inception date of each person's responsibility for the Portfolio and his
business experience for the past five years is indicated parenthetically):
Masato Degawa, Vice President (since August, 1995, employed by Morgan since
September, 1993 as a portfolio manager of Japanese equity investments and by
Morgan Stanley prior to September, 1993 as a senior analyst covering Japanese
utilities and special situations) and Yukiko Sugimoto, Vice President (since
March, 1995, employed by Morgan since prior to 1991 as a portfolio manager of
Japanese equity investments).
As compensation for the services rendered and related expenses borne by
Morgan under the Investment Advisory Agreement with the Portfolio Trust, the
Portfolio has agreed to pay Morgan a fee, which is computed daily and may be
paid monthly, at the annual rate of 0.65% of the Portfolio's average daily net
assets.
Under a separate agreement, Morgan also provides administrative and
related services to the Portfolio Trust. See Administrative Services Agent
below.
CO-ADMINISTRATOR. Pursuant to a Co-Administration Agreement with the
Portfolio Trust, FDI serves as the Co-Administrator for the Portfolio. FDI (i)
provides office space, equipment and clerical personnel for maintaining the
organization and books and records of the Portfolio; (ii) provides officers for
the Portfolio; (iii) files Portfolio regulatory documents and mails Portfolio
communications to Trustees and investors; and (iv) maintains related books and
records. See Administrative Services Agent below.
For its services under the Co-Administration Agreement, the Portfolio
Trust has agreed to pay FDI fees equal to its allocable share of an annual
complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The amount
allocable to the Portfolio is based on the ratio of its net assets to the
aggregate net assets
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of the Portfolio Trust and certain other registered investment companies subject
to similar agreements with FDI.
ADMINISTRATIVE SERVICES AGENT. Pursuant to an Administrative Services
Agreement with the Portfolio Trust, Morgan provides administrative and related
services provided to the Portfolio, including services related to tax
compliance, preparation of financial statements, calculation of performance
data, oversight of service providers and certain regulatory and Board of
Trustees matters.
Under the Administrative Services Agreement, the Portfolio has agreed
to pay Morgan fees equal to its allocable share of an annual complex-wide
charge. This charge is calculated daily based on the aggregate net assets of the
Portfolio and certain other registered investment companies managed by the
Advisor in accordance with the following annual schedule: 0.09% on the first $7
billion of their aggregate average daily net assets and 0.04% of their aggregate
average daily net assets in excess of $7 billion, less the complex-wide fees
payable to FDI.
PLACEMENT AGENT. FDI, a registered broker-dealer, also serves as
exclusive placement agent for the Portfolio. FDI is a wholly owned indirect
subsidiary of Boston Institutional Group, Inc. FDI's principal business address
is 60 State Street, Suite 1300, Boston, Massachusetts 02109.
FUND SERVICES AGREEMENT. Pursuant to an Amended and Restated Portfolio
Fund Services Agreement with the Portfolio Trust, Pierpont Group, Inc.
("Pierpont Group"), 461 Fifth Avenue, New York, New York 10017, assists the
Trustees in exercising their overall supervisory responsibilities for the
affairs of the Portfolio Trust. Pierpont Group provides these services for a fee
approximating its reasonable cost. See Item 14 in Part B.
CUSTODIAN. State Street Bank and Trust Company ("State Street"), 40
King Street West, Toronto, Ontario, Canada M5H 3Y8, serves as the Portfolio's
custodian and fund accounting and transfer agent. State Street keeps the books
of account for the Portfolio.
EXPENSES. In addition to the fees payable to the service providers
identified above, the Portfolio is responsible for usual and customary expenses
associated with its operations. Such expenses include organization expenses,
legal fees, accounting and audit expenses, insurance costs, the compensation and
expenses of the Trustees, registration fees under federal and foreign securities
laws, extraordinary expenses, custodian fees and brokerage expenses.
Morgan has agreed that it will reimburse the Portfolio through at least
April 30, 1997 to the extent necessary to maintain the Portfolio's total
operating expenses at the annual rate of 1.00% of the Portfolio's average daily
net assets. This limit does not cover extraordinary expenses during the period.
There is no assurance that Morgan will continue this waiver beyond the specified
period, except as required by the following sentence. Morgan has agreed to waive
fees as necessary, if in any fiscal year the sum of the Portfolio's expenses
exceeds the limits set by applicable regulations of state securities
commissions. Such annual limits are currently 2.5% of the first $30 million of
average net assets, 2% of the next $70 million of such net assets and 1.5% of
such net assets in excess of $100 million for any fiscal year.
For the period March 28, 1995 (commencement of operations) through
December 31, 1995 the Portfolio's total expenses were .87% of its average net
assets.
ITEM 6. CAPITAL STOCK AND OTHER SECURITIES
The Portfolio is a series of the Portfolio Trust, which is organized as a
trust under the laws of the State of New York. Under the Declaration of Trust,
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the Trustees are authorized to issue beneficial interests in one or more series.
Currently, there are five active subtrusts (series) of the Portfolio Trust.
Investments in the Portfolio may not be transferred, but an investor may
withdraw all or any portion of its investment at any time at net asset value.
The Declaration of Trust provides that investors in the Portfolio (e.g., other
investment companies, insurance company separate accounts and common and
commingled trust funds) are each liable for all obligations of the Portfolio.
However, the risk of an investor in the Portfolio incurring financial loss on
account of such liability is limited to circumstances in which both inadequate
insurance existed and the Portfolio itself was unable to meet its obligations.
As of November 30, 1996 JPM Japan Equity Fund, Ltd. (a Bahamas
international business company) and The JPM Pierpont Japan Equity Fund and The
JPM Institutional Japan Equity Fund (series of The JPM Pierpont Funds and The
JPM Institutional Funds, respectively) owned 98.73%, 1.14% and 0.13%,
respectively, of the total outstanding beneficial interests of The Japan Equity
Portfolio.
Each investor in the Portfolio is entitled to a vote in proportion to
the amount of its investment in the Portfolio. Investors in the Portfolio will
vote as a separate class, except as to voting of Trustees, as otherwise required
by the 1940 Act, or if determined by the Trustees to be a matter which affects
all series. As to any matter which only affects a specific series, only
investors in that series are entitled to vote. Investments in the Portfolio have
no preemptive or conversion rights and are fully paid and nonassessable, except
as set forth below. The Portfolio is not required and has no current intention
of holding annual meetings of investors, but the Portfolio will hold special
meetings of investors when in the judgment of the Trustees it is necessary or
desirable to submit matters for an investor vote. Changes in fundamental
policies will be submitted to investors for approval. Investors have under
certain circumstances (e.g., upon application and submission of certain
specified documents to the Trustees by a specified percentage of the outstanding
interests in the Portfolio) the right to communicate with other investors in
connection with requesting a meeting of investors for the purpose of removing
one or more Trustees. Investors also have the right to remove one or more
Trustees without a meeting by a declaration in writing by a specified percentage
of the outstanding interests in the Portfolio. Upon liquidation of the
Portfolio, investors would be entitled to share pro rata in the net assets of
the Portfolio available for distribution to investors.
The net asset value of the Portfolio is determined each business day
other than the holidays listed in Part B ("Portfolio Business Day"). This
determination is made once each Portfolio Business Day as of 4:15 p.m. New York
time (the "Valuation Time").
The "net income" of the Portfolio will consist of (i) all income
accrued, less the amortization of any premium, on the assets of the Portfolio,
less (ii) all actual and accrued expenses of the Portfolio determined in
accordance with generally accepted accounting principles. Income includes
dividends and interest, including discount earned (including both original issue
and market discount) on discount paper accrued ratably to the date of maturity
and any net realized and unrealized gains or losses on the assets of the
Portfolio. All the net income of the Portfolio is allocated pro rata among the
investors in the Portfolio.
The end of the Portfolio's fiscal year is December 31.
Under the anticipated method of operation of the Portfolio, the
Portfolio will not be subject to any income tax. However, each investor in the
Portfolio will be taxable on its share (as determined in accordance with the
governing instruments of the Portfolio) of the Portfolio's ordinary income and
capital gain in determining its income tax liability. The determination of such
share will
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be made in accordance with the Internal Revenue Code of 1986, as amended (the
"Code") and regulations promulgated thereunder.
It is intended that the Portfolio's assets, income and distributions
will be managed in such a way that an investor in the Portfolio will be able to
satisfy the requirements of Subchapter M of the Code, assuming that the investor
invested all of its assets in the Portfolio.
Investor inquiries may be directed to FDI, in care of State Street Cayman
Trust Company, Ltd., at Elizabethan Square, Shedden Road, George Town, Grand
Cayman, Cayman Islands, B.W.I. ((809) 949-6644).
ITEM 7. PURCHASE OF SECURITIES
Beneficial interests in the Portfolio are issued solely in private
placement transactions that do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. Investments in the Portfolio may only
be made by other investment companies, insurance company separate accounts,
common or commingled trust funds, or similar organizations or entities which are
"accredited investors" as defined in Rule 501 under the 1933 Act. This
Registration Statement does not constitute an offer to sell, or the solicitation
of an offer to buy, any "security" within the meaning of the 1933 Act.
An investment in the Portfolio may be made without a sales load. All
investments are made at net asset value next determined after an order is
received in "good order" by the Portfolio. The net asset value of the Portfolio
is determined at the Valuation Time on each Portfolio Business Day.
There is no minimum initial or subsequent investment in the Portfolio.
However, because the Portfolio intends to be as fully invested at all times as
is reasonably practicable in order to enhance the yield on its assets,
investments must be made in federal funds (i.e., monies credited to the account
of the Custodian by a Federal Reserve Bank.)
The Portfolio may, at its own option, accept securities in payment for
investments in its beneficial interests. The securities delivered in kind are
valued by the method described in Net Asset Value as of the business day prior
to the day the Portfolio receives the securities. Securities may be accepted in
payment for beneficial interests only if they are, in the judgment of Morgan,
appropriate investments for the Portfolio. In addition, securities accepted in
payment for beneficial interests must: (i) meet the investment objective and
policies of the Portfolio; (ii) be acquired by the Portfolio for investment and
not for resale; (iii) be liquid securities which are not restricted as to
transfer either by law or liquidity of market; and (iv) if stock, have a value
which is readily ascertainable as evidenced by a listing on a stock exchange,
OTC market or by readily available market quotations from a dealer in such
securities. The Portfolio reserves the right to accept or reject at its own
option any and all securities offered in payment for beneficial interests.
The Portfolio and FDI reserve the right to cease accepting investments
at any time or to reject any investment order.
Each investor in the Portfolio may add to or reduce its investment in
the Portfolio on each Portfolio Business Day. At the Valuation Time on each such
day, the value of each investor's beneficial interest in the Portfolio will be
determined by multiplying the net asset value of the Portfolio by the
percentage, effective for that day, which represents that investor's share of
the aggregate beneficial interests in the Portfolio. Any additions or
reductions, which are to be effected at the Valuation Time on such day, will
then be effected. The investor's percentage of the aggregate beneficial
interests in the Portfolio will then be recomputed as the percentage equal to
the fraction (i) the numerator of which is the value of such investor's
investment in the Portfolio at the
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Valuation Time on such day plus or minus, as the case may be, the amount of net
additions to or reductions in the investor's investment in the Portfolio
effected as of the Valuation Time, and (ii) the denominator of which is the
aggregate net asset value of the Portfolio as of the Valuation Time on such day,
plus or minus, as the case may be, the amount of net additions to or reductions
in the aggregate investments in the Portfolio by all investors in the Portfolio.
The percentage so determined will then be applied to determine the value of the
investor's interest in the Portfolio as of the Valuation Time on the following
Portfolio Business Day.
ITEM 8. REDEMPTION OR REPURCHASE
An investor in the Portfolio may reduce all or any portion of its
investment at the net asset value next determined after a request in "good
order" is furnished by the investor to the Portfolio Trust. The proceeds of a
reduction will be paid by the Portfolio Trust in federal funds normally on the
next Portfolio Business Day after the reduction is effected, but in any event
within seven days. Investments in the Portfolio may not be transferred.
The right of any investor to receive payment with respect to any
reduction may be suspended or the payment of the proceeds therefrom postponed
during any period in which the New York Stock Exchange (the "NYSE") is closed
(other than weekends or holidays) or trading on the NYSE is restricted or, to
the extent otherwise permitted by the 1940 Act, if an emergency exists.
The Portfolio Trust, on behalf of the Portfolio, reserves the right
under certain circumstances, such as accommodating requests for substantial
withdrawals or liquidations, to pay distributions in kind to investors (i.e., to
distribute portfolio securities as opposed to cash). If securities are
distributed an investor could incur brokerage, tax or other charges in
converting the securities to cash. In addition, distribution in kind may result
in a less diversified portfolio of investments or adversely affect the liquidity
of the Portfolio or the investor's portfolio, as the case may be.
ITEM 9. PENDING LEGAL PROCEEDINGS
Not applicable.
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PART A (THE DISCIPLINED EQUITY PORTFOLIO)
Responses to Items 1 through 3 and 5A have been omitted pursuant to
paragraph 4 of Instruction F of the General Instructions to Form N-1A.
ITEM 4. GENERAL DESCRIPTION OF REGISTRANT
The Series Portfolio (the "Portfolio Trust") is an open-end management
investment company which was organized as a trust under the laws of the State of
New York on June 24, 1994. Beneficial interests of the Portfolio Trust are
divided into series, one of which, The Disciplined Equity Portfolio (the
"Portfolio") is described herein. The Portfolio is diversified for purposes of
the Investment Company Act of 1940, as amended (the "1940 Act"). Beneficial
interests in the Portfolio are issued solely in private placement transactions
that do not involve any "public offering" within the meaning of Section 4(2) of
the Securities Act of 1933 (the "1933 Act"). Investments in the Portfolio may
only be made by other investment companies, insurance company separate accounts,
common or commingled trust funds or similar organizations or entities that are
"accredited investors" within the meaning of Regulation D under the 1933 Act.
This Registration Statement does not constitute an offer to sell, or the
solicitation of an offer to buy, any "security" within the meaning of the 1933
Act.
The Portfolio is advised by Morgan Guaranty Trust Company of New York
("Morgan" or the "Advisor").
Investments in the Portfolio are not deposits or obligations of, or
guaranteed or endorsed by, Morgan or any other bank. Interests in the Portfolio
are not federally insured by the Federal Deposit Insurance Corporation, the
Federal Reserve Board or any other governmental agency. An investment in the
Portfolio is subject to risk, as the net asset value of the Portfolio will
fluctuate with changes in the value of the Portfolio's holdings.
Part B contains more detailed information about the Portfolio,
including information related to (i) the investment policies and restrictions of
the Portfolio, (ii) the Trustees, officers, Advisor and administrators of the
Portfolio, (iii) portfolio transactions, and (iv) rights and liabilities of
investors.
The investment objective of the Portfolio is described below, together
with the policies it employs in its efforts to achieve this objective.
Additional information about the investment policies of the Portfolio appears in
Part B under Item 13. There can be no assurance that the investment objective of
the Portfolio will be achieved.
The Portfolio's investment objective is to provide high total return
from a broadly diversified portfolio of equity securities. Total return will
consist of realized and unrealized capital gains and losses plus income. The
Portfolio invests primarily in the common stock and other equity securities of
large and medium sized U.S. companies.
The Portfolio is designed for investors seeking enhanced total return
relative to that of large and medium sized U.S. companies, typically represented
by the Standard & Poor's 500 Composite Stock Price Index (the "S&P 500 Index" or
the "Index"). The Portfolio is designed to have a volatility of return similar
to that of the Index. The Portfolio invests in a portfolio of common stocks and
other equity securities of large and medium sized companies broadly diversified
across sectors, industries and issuers. The Portfolio does not represent a
complete investment program nor is the Portfolio suitable for all investors.
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PRIMARY INVESTMENTS. Under normal market conditions, the Advisor
intends to keep the Portfolio essentially fully invested and at least 65% of its
total assets will be invested in common stocks and other equity securities.
Equity securities include exchange-traded, over-the-counter and unlisted common
and preferred stocks, warrants, rights, convertible securities, depository
receipts, trust certificates, limited partnership interests and equity
participations. The Portfolio may invest to a limited extent in equity
securities of foreign issuers.
HOW INVESTMENTS ARE SELECTED. The Portfolio seeks to enhance returns
exclusively through the selection of undervalued securities. Based on the
insights gained from the fundamental research of the Advisor's equity analysts,
the Advisor uses a dividend discount model to value securities and to rank a
universe of large and medium capitalization companies within industry sectors
according to their relative value. The Advisor then buys and sells securities
within each industry sector based on this valuation process.
In addition, the Advisor uses its disciplined portfolio construction
process to seek to reduce the Portfolio's volatility relative to the S&P 500
Index. The Advisor attempts to match the Portfolio to various risk
characteristics of the Index. For instance, the Advisor keeps the industry
sector weightings, the average market capitalization and other broad
characteristics of the Portfolio comparable to those of the Index and limits the
underweighting or overweighting of individual securities relative to their
weighting in the Index. Finally, the Portfolio holds a large number of stocks to
enhance its diversification.
THE S&P 500 INDEX. The Index is a market weighted compilation of 500
common stocks selected on a statistical basis by Standard & Poor's. Total return
for the Index assumes reinvestment of dividends. The Index is typically composed
of issues in the following sectors: industrial, financial, public utilities and
transportation. Most stocks that comprise the Index are traded on the New York
Stock Exchange, although some are traded on the American Stock Exchange and in
the over-the-counter market.
ADDITIONAL INVESTMENT PRACTICES AND RISKS
WARRANTS AND CONVERTIBLE SECURITIES. Warrants acquired by the Portfolio
entitle it to buy common stock at a specified price and time. Warrants are
subject to the same market risks as stocks, but may be more volatile in price.
The Portfolio's investment in warrants will not entitle it to receive dividends
or exercise voting rights and will become worthless if the warrants cannot be
profitably exercised before their expiration dates. Convertible debt securities
and preferred stock entitle the Portfolio to acquire the issuer's stock by
exchange or purchase for a predetermined rate. Convertible securities are
subject both to the credit and interest rate risks associated with fixed income
securities and to the stock market risk associated with equity securities.
DEPOSITORY RECEIPTS. Depository receipts are typically issued by a U.S.
or foreign bank or trust company and evidence ownership of underlying securities
of a U.S. or foreign issuer. Unsponsored programs are organized independently
and without the cooperation of the issuer of the underlying securities. As a
result, available information concerning the issuer may not be as current as for
sponsored depository instruments, and their prices may be more volatile than if
they were sponsored by the issuers of the underlying securities.
INVESTMENTS IN OTHER INVESTMENT COMPANIES. The Portfolio is permitted
to invest up to 10% of its total assets in shares of other investment companies
and up to 5% of its total assets in any one investment company as long as that
investment does not represent more than 3% of the total voting stock of the
acquired investment company. Investments in the securities of other investment
companies may involve duplication of advisory fees and other expenses.
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RESTRICTED AND ILLIQUID SECURITIES. The Portfolio may invest up to 15%
of its net assets in illiquid securities, including certain restricted and
private placement securities. 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 eligible for resale to institutional
investors without registration under the 1933 Act. These securities may be
determined to be liquid in accordance with guidelines established by the Advisor
and approved by the Trustees. The Trustees will monitor the Advisor's
implementation of these guidelines on a periodic basis.
MONEY MARKET INSTRUMENTS. The Portfolio is permitted to invest in money
market instruments although it intends to stay invested in equity securities to
the extent practical in light of its objective. Under normal circumstances, the
Portfolio will purchase money market instruments 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. These money market instruments include obligations
issued or guaranteed by the U.S. Government or any of its agencies and
instrumentalities, commercial paper, bank obligations, repurchase agreements and
other debt obligations of U.S. and foreign issuers. If a repurchase agreement
counterparty defaults on its obligations, the Portfolio may, under some
circumstances, be limited or delayed in disposing of the repurchase agreement
collateral to recover its investment.
WHEN-ISSUED AND FORWARD COMMITMENT TRANSACTIONS. The Portfolio may
purchase when-issued securities and enter into other forward commitments to
purchase or sell securities. The value of securities purchased on a when-issued
or forward commitment basis may decline between the purchase date and the
settlement date.
FUTURES AND OPTIONS TRANSACTIONS. The Portfolio may enter into
derivative contracts to hedge against fluctuations in securities prices, changes
in interest rates or as a substitute for the purchase or sale of securities. The
Portfolio may also use derivative contracts for risk management purposes. See
Risk Management in Part B. The Portfolio may purchase and sell (write) exchange
traded and over-the-counter put and call options on securities and securities
indexes, purchase and sell futures contracts on securities and securities
indexes and purchase and sell (write) put and call options on futures contracts
on securities and securities indexes. Some options and futures strategies,
including selling futures contracts, buying puts and writing calls, tend to
hedge the Portfolio's investments against price fluctuations. Other strategies,
including buying futures contracts, writing puts and buying calls, tend to
increase market exposure. Options and futures contracts may be combined with
each other in order to adjust the risk and return characteristics of the
Portfolio's overall strategy in a manner consistent with the Portfolio's
objective and policies.
All of the Portfolio's transactions in derivative contracts involve a
risk of loss or depreciation due to unanticipated adverse changes in securities
prices. The Portfolio may incur liabilities to a counterparty in connection with
transactions in futures contracts and the writing of options that exceeds the
Portfolio's initial investment. The Portfolio may also lose the entire premium
paid for purchased options that expire before they can be profitably exercised
by the Portfolio. In addition, the Portfolio incurs transaction costs in opening
and closing positions in derivative contracts.
Derivative contracts may sometimes increase or leverage the Portfolio's
exposure to a particular market risk thereby increasing the price volatility of
the Portfolio. The Portfolio is required to offset the leverage inherent in
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derivative contracts by maintaining a segregated account consisting of cash or
liquid securities, by holding offsetting portfolio securities or contracts or by
covering written options.
The Portfolio's success in using derivative contracts to hedge
portfolio assets depends on the degree of price correlation between the
derivative contract and the hedged asset. Imperfect correlation may be caused by
several factors, including temporary price disparities among the trading markets
for the derivative contract, the assets underlying the derivative contract and
the Portfolio's assets.
During periods of extreme market volatility, a commodity or options
exchange may suspend or limit trading in an exchange-traded derivative contract,
which may make the contract temporarily illiquid and difficult to price. The
Portfolio's ability to terminate over-the-counter derivative contracts may
depend on the cooperation of the counterparties to such contracts. For thinly
traded derivative contracts, the only source of price quotations may be the
selling dealer or counterparty. In addition, derivative securities and
over-the-counter derivative contracts involve a risk that the issuer or
counterparty will fail to perform its contractual obligations.
The Portfolio will not engage in a transaction in futures or options on
futures for risk management purposes if, immediately thereafter, the sum of
initial margin deposits and premiums required to establish risk management
positions in futures contracts and options on futures would exceed 5% of the
Portfolio's net assets.
PORTFOLIO SECURITIES LOANS. The Portfolio may lend portfolio securities
with a value up to one-third of its net assets. Each loan must be fully
collateralized by cash or other eligible assets. The Portfolio may pay
reasonable fees in connection with securities loans. The Advisor will evaluate
the creditworthiness of prospective institutional borrowers and monitor the
adequacy of the collateral to reduce the risk of default by borrowers.
BORROWING AND REVERSE REPURCHASE AGREEMENTS. The Portfolio may (1)
borrow money from banks solely for temporary or emergency (but not for leverage)
purposes and (2) enter into reverse repurchase agreements for any purpose. The
aggregate amount of such borrowings and reverse repurchase agreements may not
exceed one-third of the Portfolio's total assets less liabilities (other than
borrowings). For the purposes of the 1940 Act, reverse repurchase agreements are
considered a form of borrowing by the Portfolio and, therefore, a form of
leverage. Leverage may cause any gains or losses of the Portfolio to be
magnified.
SHORT-TERM TRADING. The Portfolio may sell a portfolio security without
regard to the length of time such security has been held if, in the Advisor's
view, the security meets the criteria for disposal. The annual portfolio
turnover rate of the Portfolio is generally not expected to exceed 100%. A high
portfolio turnover rate involves higher costs to the Portfolio in the form of
dealer spreads and brokerage commissions. This policy is subject to certain
requirements so that certain investors can qualify as regulated investment
companies under the Internal Revenue Code of 1986, as amended (the "Code").
INVESTMENT POLICIES AND RESTRICTIONS. Except as otherwise stated
herein, the Portfolio's investment objective, policies and restrictions are not
fundamental and may be changed without shareholder approval. The Portfolio is
diversified and therefore may not, with respect to 75% of its total assets (i)
invest more than 5% of its total assets in the securities of any one issuer,
other than U.S. Government securities, or (2) acquire more than 10% of the
outstanding voting securities of any one issuer. The Portfolio will not
concentrate (invest 25% or more of its total assets) in the securities of
issuers in any one industry.
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For a more detailed discussion of the above investment restrictions, as
well as a description of certain other investment restrictions, see Item 13 in
Part B.
ITEM 5. MANAGEMENT OF THE PORTFOLIO TRUST
The Board of Trustees provides broad supervision over the affairs of
the Portfolio Trust. The Portfolio Trust has retained the services of Morgan as
investment adviser and administrative services agent. The Portfolio Trust has
retained the services of Funds Distributor, Inc. ("FDI") as co-administrator
(the "Co-Administrator").
The Portfolio Trust has not retained the services of a principal
underwriter or distributor, since interests in the Portfolio are offered solely
in private placement transactions. FDI, acting as agent for the Portfolio,
serves as exclusive placement agent of interests in the Portfolio. FDI receives
no additional compensation for serving as exclusive placement agent to the
Portfolio.
ADVISOR. The Portfolio has retained the services of Morgan as
investment advisor. Morgan provides investment advice and portfolio management
services to the Portfolio. Subject to the supervision of the Trustees, Morgan
makes the Portfolio's day-to-day investment decisions, arranges for the
execution of portfolio transactions and generally manages the Portfolio's
investments.
Morgan, with principal offices at 60 Wall Street, New York, New York
10260, is a New York trust company that 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 advisor
to individual and institutional clients with combined assets under management of
over $197 billion (of which the Advisor advises over $30 billion).
Morgan uses a sophisticated, disciplined, collaborative process for
managing all asset classes. For equity portfolios, this process utilizes
fundamental research, systematic stock selection and disciplined portfolio
construction. Morgan believes that the market price of a security will, over
time, move towards its fundamental value, notwithstanding short-term
fluctuations in price. Morgan maintains an active presence in all of the world's
leading financial markets.
James C. Wiess, Vice President, is primarily responsible for the day-
to-day management and implementation of Morgan's investment process for the
Portfolio since its inception. Mr. Wiess has been employed by Morgan since 1992.
Prior to 1992, he worked for Oppenheimer & Co., Inc.
As compensation for the services rendered and related expenses borne by
Morgan under its 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.
Investments in the Portfolio are not deposits or obligations of, or guaranteed
or endorsed by, Morgan Guaranty Trust Company of New York or any other bank.
CO-ADMINISTRATOR. Pursuant to a Co-Administration Agreement with the
Portfolio Trust, Funds Distributor, Inc. ("FDI") serves as the Co-Administrator
for the Portfolio. FDI (i) provides office space, equipment and clerical
personnel for maintaining the organization and books and records of the
Portfolio; (ii) provides officers for the Portfolio Trust; (iii) files Portfolio
regulatory documents and mails Portfolio communications to Trustees and
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investors; and (iv) maintains related books and records. See Administrative
Services Agent below.
For its services under the Co-Administration Agreement, the Portfolio
has agreed to pay FDI fees equal to its allocable share of an annual
complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The amount
allocable to the Portfolio is based on the ratio of its net assets to the
aggregate net assets of the Portfolio Trust and certain other registered
investment companies subject to similar agreements with FDI.
ADMINISTRATIVE SERVICES AGENT. Pursuant to an Administrative Services
Agreement with the Portfolio Trust, Morgan provides administrative and related
services to the Portfolio, including services related to tax compliance,
preparation of financial statements, calculation of performance data, oversight
of service providers and certain regulatory and Board of Trustees matters.
Under the Administrative Services Agreement, the Portfolio has agreed
to pay Morgan fees equal to its allocable share of an annual complex-wide
charge. This charge is calculated daily based on the aggregate net assets of the
Portfolio and certain other registered investment companies managed by the
Advisor in accordance with the following annual schedule: 0.09% on the first $7
billion of their aggregate average daily net assets and 0.04% of their average
daily net assets in excess of $7 billion, less the complex-wide fees payable to
FDI.
PLACEMENT AGENT. FDI, a registered broker-dealer, also serves as the
exclusive placement agent for the Portfolio. FDI is a wholly owned indirect
subsidiary of Boston Institutional Group, Inc. FDI's principal business address
is 60 State Street, Suite 1300, Boston, Massachusetts 02109.
FUND SERVICES AGREEMENT. Pursuant to an Amended and Restated Portfolio
Fund Services Agreement with the Portfolio Trust, Pierpont Group, Inc.
("Pierpont Group"), 461 Fifth Avenue, New York, New York 10017, assists the
Trustees in exercising their overall supervisory responsibilities for the
affairs of the Portfolio Trust. Pierpont Group provides these services for a fee
approximating its reasonable cost. See Item 14 in Part B.
CUSTODIAN. State Street Bank and Trust Company ("State Street"), 40
King Street West, Toronto, Ontario, Canada M5H 3Y8, serves as the custodian and
fund accounting and transfer agent. State Street keeps the books of account for
the Portfolio.
EXPENSES. In addition to the fees payable to the service providers
identified above, the Portfolio is responsible for usual and customary expenses
associated with its operations. These include, among other things, organization
expenses, legal fees, audit and accounting expenses, insurance costs, the
compensation and expenses of the Trustees, interest, taxes and extraordinary
expenses (such as for litigation), registration fees under foreign securities
laws and brokerage commissions.
Morgan has agreed that it will, at least through October 31, 1998,
maintain the Portfolio's total operating expenses at the annual rate of 0.45% of
the Portfolio's average daily net assets. This expense limitation does not cover
extraordinary expenses during the period.
ITEM 6. CAPITAL STOCK AND OTHER SECURITIES
The Portfolio is a series of the Portfolio Trust, which is organized as
a trust under the laws of the State of New York. Under the Declaration of Trust,
the Trustees are authorized to issue beneficial interests in one or more series.
Currently, there are five active subtrusts (series) of the Portfolio Trust.
Investments in the Portfolio may not be transferred, but an investor may
withdraw
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all or any portion of its investment at any time at net asset value. The
Declaration of Trust provides that investors in the Portfolio (other investment
companies, insurance company separate accounts and common and commingled trust
funds) are each liable for all obligations of the Portfolio. However, the risk
of an investor in the Portfolio incurring financial loss on account of such
liability is limited to circumstances in which both inadequate insurance existed
and the Portfolio itself was unable to meet its obligations.
Each investor in the Portfolio is entitled to a vote in proportion to
the amount of its investment in the Portfolio. Investors in the Portfolio will
vote as a separate class, except as to voting of Trustees, as otherwise required
by the 1940 Act, or if determined by the Trustees to be a matter which affects
all series. As to any matter which only affects a specific series, only
investors in that series are entitled to vote. Investments in the Portfolio have
no preemptive or conversion rights and are fully paid and nonassessable, except
as set forth below. The Portfolio is not required and has no current intention
of holding annual meetings of investors, but the Portfolio will hold special
meetings of investors when in the judgment of the Trustees it is necessary or
desirable to submit matters for an investor vote. Changes in fundamental
policies will be submitted to investors for approval. Investors have under
certain circumstances (e.g., upon application and submission of certain
specified documents to the Trustees by a specified percentage of the outstanding
interests in the Portfolio) the right to communicate with other investors in
connection with requesting a meeting of investors for the purpose of removing
one or more Trustees. Investors also have the right to remove one or more
Trustees without a meeting by a declaration in writing by a specified percentage
of the outstanding interests in the Portfolio. Upon liquidation of the
Portfolio, investors would be entitled to share pro rata in the net assets of
the Portfolio available for distribution to investors.
The net asset value of the Portfolio is determined each business day
other than the holidays listed in Part B ("Portfolio Business Day"). This
determination is made once each Portfolio Business Day as of 4:15 p.m. New York
time (the "Valuation Time").
The "net income" of the Portfolio will consist of (i) all income
accrued, less the amortization of any premium, on the assets of the Portfolio,
less (ii) all actual and accrued expenses of the Portfolio determined in
accordance with generally accepted accounting principles. Income includes
dividends and interest, including discount earned (including both original issue
and market discount) on discount paper accrued ratably to the date of maturity
and any net realized and unrealized gains or losses on the assets of the
Portfolio. All the net income of the Portfolio is allocated pro rata among the
investors in the Portfolio.
The end of the Portfolio's fiscal year is June 30.
Under the anticipated method of operation of the Portfolio, the
Portfolio will not be subject to any income tax. However, each investor in the
Portfolio will be taxable on its share (as determined in accordance with the
governing instruments of the Portfolio) of the Portfolio's ordinary income and
capital gain in determining its income tax liability. The determination of such
share will be made in accordance with the Code, and regulations promulgated
thereunder.
It is intended that the Portfolio's assets, income and distributions
will be managed in such a way that an investor in the Portfolio will be able to
satisfy the requirements of Subchapter M of the Code assuming that the investor
invested all of its assets in the Portfolio.
Investor inquiries may be directed to FDI, in care of State Street
Cayman Trust Company, Ltd. at Elizabethan Square, Shedden Road, George Town,
Grand Cayman, Cayman Islands, B.W.I. ((809) 949-6644).
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ITEM 7. PURCHASE OF SECURITIES
Beneficial interests in the Portfolio are issued solely in private
placement transactions that do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. Investments in the Portfolio may only
be made by other investment companies, insurance company separate accounts,
common or commingled trust funds, or similar organizations or entities which are
"accredited investors" as defined in Rule 501 under the 1933 Act. This
Registration Statement does not constitute an offer to sell, or the solicitation
of an offer to buy, any "security" within the meaning of the 1933 Act.
An investment in the Portfolio may be made without a sales load. All
investments are made at net asset value next determined after an order is
received in "good order" by the Portfolio Trust. The net asset value of the
Portfolio is determined at the Valuation Time on each Portfolio Business Day.
There is no minimum initial or subsequent investment in the Portfolio.
However, because the Portfolio intends to be as fully invested at all times as
is reasonably practicable in order to enhance the yield on its assets,
investments must be made in federal funds (i.e., monies credited to the account
of the Custodian by a Federal Reserve Bank.)
The Portfolio may, at its own option, accept securities in payment for
investments in its beneficial interests. The securities delivered in kind are
valued by the method described in Net Asset Value as of the business day prior
to the day the Portfolio receives the securities. Securities may be accepted in
payment for beneficial interests only if they are, in the judgment of Morgan,
appropriate investments for the Portfolio. In addition, securities accepted in
payment for beneficial interests must: (i) meet the investment objective and
policies of the Portfolio; (ii) be acquired by the Portfolio for investment and
not for resale; (iii) be liquid securities which are not restricted as to
transfer either by law or liquidity of market; and (iv) if stock, have a value
which is readily ascertainable as evidenced by a listing on a stock exchange,
OTC market or by readily available market quotations from a dealer in such
securities. The Portfolio reserves the right to accept or reject at its own
option any and all securities offered in payment for beneficial interests.
The Portfolio and FDI reserve the right to cease accepting investments
at any time or to reject any investment order.
Each investor in the Portfolio may add to or reduce its investment in
the Portfolio on each Portfolio Business Day. At the Valuation Time on each such
day, the value of each investor's beneficial interest in the Portfolio will be
determined by multiplying the net asset value of the Portfolio by the
percentage, effective for that day, which represents that investor's share of
the aggregate beneficial interests in the Portfolio. Any additions or
reductions, which are to be effected at the Valuation Time on such day, will
then be effected. The investor's percentage of the aggregate beneficial
interests in the Portfolio will then be recomputed as the percentage equal to
the fraction (i) the numerator of which is the value of such investor's
investment in the Portfolio at the Valuation Time on such day plus or minus, as
the case may be, the amount of net additions to or reductions in the investor's
investment in the Portfolio effected as of the Valuation Time, and (ii) the
denominator of which is the aggregate net asset value of the Portfolio as of the
Valuation Time on such day, plus or minus, as the case may be, the amount of net
additions to or reductions in the aggregate investments in the Portfolio by all
investors in the Portfolio. The percentage so determined will then be applied to
determine the value of the investor's interest in the Portfolio as of the
Valuation Time on the following Portfolio Business Day.
ITEM 8. REDEMPTION OR REPURCHASE
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An investor in the Portfolio may reduce all or any portion of its
investment at the net asset value next determined after a request in "good
order" is furnished by the investor to the Portfolio Trust. The proceeds of a
reduction will be paid by the Portfolio Trust in federal funds normally on the
next Portfolio Business Day after the reduction is effected, but in any event
within seven days. Investments in the Portfolio may not be transferred.
The right of any investor to receive payment with respect to any
reduction may be suspended or the payment of the proceeds therefrom postponed
during any period in which the New York Stock Exchange (the "NYSE") is closed
(other than weekends or holidays) or trading on the NYSE is restricted or, to
the extent otherwise permitted by the 1940 Act, if an emergency exists.
The Portfolio Trust, on behalf of the Portfolio, reserves the right
under certain circumstances, such as accommodating requests for substantial
withdrawals or liquidations, to pay distributions in kind to investors (i.e., to
distribute portfolio securities as opposed to cash). If securities are
distributed, an investor could incur brokerage, tax or other charges in
converting the securities to cash. In addition, distribution in kind may result
in a less diversified portfolio of investments or adversely affect the liquidity
of the Portfolio or the investor's portfolio, as the case may be.
ITEM 9. PENDING LEGAL PROCEEDINGS
Not applicable.
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PART A (THE INTERNATIONAL OPPORTUNITIES PORTFOLIO)
Responses to Items 1 through 3 and 5A have been omitted pursuant to
paragraph 4 of Instruction F of the General Instructions to Form N-1A.
ITEM 4. GENERAL DESCRIPTION OF REGISTRANT
The Series Portfolio (the "Portfolio Trust") is an open-end management
investment company which was organized as a trust under the laws of the State of
New York on June 24, 1994. Beneficial interests of the Portfolio Trust are
divided into series, one of which, The International Opportunities Portfolio
(the "Portfolio") is described herein. The Portfolio is diversified for purposes
of the Investment Company Act of 1940, as amended (the "1940 Act"). Beneficial
interests in the Portfolio are issued solely in private placement transactions
that do not involve any "public offering" within the meaning of Section 4(2) of
the Securities Act of 1933 (the "1933 Act"). Investments in the Portfolio may
only be made by other investment companies, insurance company separate accounts,
common or commingled trust funds or similar organizations or entities that are
"accredited investors" within the meaning of Regulation D under the 1933 Act.
This Registration Statement does not constitute an offer to sell, or the
solicitation of an offer to buy, any "security" within the meaning of the 1933
Act.
The Portfolio is advised by Morgan Guaranty Trust Company of New York
("Morgan" or the "Advisor").
Investments in the Portfolio are not deposits or obligations of, or
guaranteed or endorsed by, Morgan or any other bank. Interests in the Portfolio
are not federally insured by the Federal Deposit Insurance Corporation, the
Federal Reserve Board or any other governmental agency. An investment in the
Portfolio is subject to risk, as the net asset value of the Portfolio will
fluctuate with changes in the value of the Portfolio's holdings.
Part B contains more detailed information about the Portfolio,
including information related to (i) the investment policies and restrictions of
the Portfolio, (ii) the Trustees, officers, Advisor and administrators of the
Portfolio, (iii) portfolio transactions, and (iv) rights and liabilities of
investors.
The Portfolio's investment objective is to provide high total return
from a portfolio of equity securities of foreign companies in developed and, to
a lesser extent, developing markets. Total return consists of realized and
unrealized capital gains and losses plus income. The Portfolio invests primarily
in common stocks and other equity securities of non-U.S. companies in developed
markets, and, to a lesser extent, companies in developing markets.
The Portfolio is designed for long-term investors who want to invest in
an actively managed portfolio of common stocks and other equity securities of
non-U.S. companies in developed and, to a lesser extent, developing markets.
Investments in issuers in developing or emerging markets may be considered
speculative and involve risks not associated with investments in securities of
U.S. issuers. An investment in the Portfolio, therefore, may be more volatile
than an investment in a portfolio investing only in more developed world
markets. The Portfolio does not represent a complete investment program nor is
the Portfolio suitable for all investors..
PRIMARY INVESTMENTS. In normal circumstances, substantially all and at
least 65% of the value of the Portfolio's total assets are invested in equity
securities of foreign issuers. Equity securities include common stocks,
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preferred stock, warrants, rights, convertible securities, trust certificates,
limited partnership interests and equity participations. The Portfolio's assets
are invested in securities of issuers located in at least three foreign
countries. The Portfolio's equity investments may not pay dividends or carry
voting rights. The Portfolio's primary equity investments are common stocks of
established companies based in developed countries outside the United States.
However, the Portfolio will also invest in equity securities of issuers located
in developing countries or "emerging markets." The Portfolio invests in
securities listed on foreign or domestic securities exchanges and securities
traded in foreign or domestic over-the-counter markets, and may invest in
certain restricted or unlisted securities.
The Advisor considers "emerging markets" to be any country which is
generally considered to be an emerging or developing country by the World Bank,
the International Finance Corporation, the United Nations or its authorities.
The Portfolio will focus its emerging market investments in those countries
which it believes have strongly developing economies and in which the markets
are becoming more sophisticated. An issuer in an emerging market is one that:
(i) has its principal securities trading market in an emerging market country;
(ii) is organized under the laws of an emerging market; (iii) derives 50% or
more of its total revenue from either goods produced, sales made or services
performed in emerging markets; or (iv) has at least 50% of its assets located in
emerging markets. See Additional Investment Practices and Risks.
The Portfolio's investments are primarily quoted in foreign currencies
but it may also invest in securities quoted in the U.S. dollar or multinational
currency units such as the ECU. Through the use of forward foreign currency
exchange contracts, the Advisor actively manages the Portfolio's currency
exposure in developed countries. For further information on foreign currency
exchange transactions, see Additional Investment Practices and Risks.
The Portfolio may also invest in money market instruments denominated
in U.S. dollars and other currencies, purchase securities on a when-issued or
delayed delivery basis, enter into repurchase and reverse repurchase agreements,
loan its portfolio securities, purchase certain privately placed securities and
enter into certain hedging transactions that may involve options on securities
and securities indexes, futures contracts and options on futures contracts. For
a discussion of these investments and investment techniques, see Additional
Investment Practices and Risks.
HOW INVESTMENTS ARE SELECTED. The Portfolio seeks to achieve its
investment objective through a combination of country allocation, stock
selection and currency management. The Advisor uses a disciplined portfolio
construction process to seek to enhance returns and reduce volatility in the
market value of the Portfolio. To allocate the Portfolio within developed and
developing markets, the Advisor uses fundamental research, quantitative
valuation techniques, and experienced judgment, to identify those countries
whose equity prices appear most attractive relative to future earnings
prospects. Based on this analysis, the Advisor allocates the Portfolio's assets
among countries emphasizing those countries with the highest expected returns
consistent with overall portfolio liquidity. Under normal circumstances, the
Advisor expects that approximately 80% of the value of the Portfolio's equity
investments will be in companies in developed markets and 20% in companies in
emerging markets. The Advisor may vary this allocation in a manner consistent
with the Portfolio's investment objective and current market conditions.
Using a variety of quantitative valuation techniques and based on
analysts' industry expertise, issuers in each country are ranked within
industrial sectors according to their relative value. Based on this valuation,
the Advisor selects the issuers which appear the most attractive for the
Portfolio. The Portfolio will be diversified across industrial sectors in each
country.
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The Advisor manages the Portfolio actively in pursuit of its investment
objective. The Portfolio does not expect to trade in securities for short-term
profits; however, when circumstances warrant, securities may be sold without
regard to the length of time held. To the extent the Portfolio engages in
short-term trading, it may incur increased transaction costs. See Short-Term
Trading below.
ADDITIONAL INVESTMENT PRACTICES AND RISKS
INVESTING IN FOREIGN SECURITIES. Investing in the securities of foreign
issuers involves risks that are not typically associated with investing in U.S.
dollar-denominated securities of domestic issuers. Investments in foreign
issuers may be affected by changes in currency rates, changes in foreign or U.S.
laws or restrictions applicable to such investments and in exchange control
regulations (e.g., currency blockage). A decline in the exchange rate of the
currency (i.e., weakening of the currency against the U.S. dollar) in which a
portfolio security is quoted or denominated relative to the U.S. dollar would
reduce the value of the portfolio security. Commissions on transactions in
foreign securities may be higher than those for similar transactions on domestic
stock markets. In addition, clearance and settlement procedures may be different
in foreign countries and, in certain markets, such procedures have on occasion
been unable to keep pace with the volume of securities transactions, thus making
it difficult to conduct such transactions.
Foreign issuers are not generally subject to uniform accounting,
auditing and financial reporting standards comparable to those applicable to
U.S. issuers. There may be less publicly available information about a foreign
issuer than about a U.S. issuer. In addition, there is generally less government
regulation of foreign markets, companies and securities dealers than in the
United States. Foreign securities markets may have substantially less volume
than U.S. securities markets and securities of many foreign issuers are less
liquid and more volatile than securities of comparable U.S. issuers.
Furthermore, with respect to certain foreign countries, there is a possibility
of nationalization, expropriation or confiscatory taxation, imposition of
withholding taxes on dividend or interest payments, limitations on the removal
of funds or other assets, political or social instability or diplomatic
developments which could affect investments in those countries.
INVESTING IN EMERGING MARKETS. Although the Portfolio invests primarily
in securities of established issuers based in developed foreign countries, it
will also invest in securities of issuers in emerging markets countries,
including issuers in Asia, Eastern Europe, Latin and South America and Africa.
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 to a
heightened degree. These heightened risks include (i) greater risks of
expropriation, confiscatory taxation, nationalization, and less social,
political and economic stability; (ii) limitations on daily price changes and
the small current size of the markets for securities of emerging markets issuers
and the currently low or nonexistent volume of trading, resulting in lack of
liquidity and in price volatility; (iii) certain national policies which may
restrict the Portfolio's investment opportunities including limitations on
aggregate holdings by foreign investors and restrictions on investing in issuers
or industries deemed sensitive to relevant national interests; and (iv) the
absence of developed legal structures governing private or foreign investment
and private property.
CURRENCY RISKS. The U.S. dollar value of foreign securities in a foreign
currency will vary with changes in currency exchange rates, which can be
volatile. Accordingly, changes in the value of these currencies against the U.S.
dollar will result in corresponding changes in the U.S. dollar value of the
Portfolio's assets quoted in those currencies. Exchange rates are generally
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affected by the forces of supply and demand in the international currency
markets, the relative merits of investing in different countries and the
intervention or failure to intervene of U.S. or foreign governments and central
banks. Some countries in emerging markets also may have managed currencies,
which are not free floating against the U.S. dollar. In addition, emerging
markets are subject to the risk of restrictions upon the free conversion of
their currencies into other currencies. Any devaluations relative to the U.S.
dollar in the currencies in which the Portfolio's securities are quoted would
have a detrimental impact on the Portfolio's net asset value.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. The Portfolio either enters
into currency transactions on a spot (i.e., cash) basis at the prevailing
currency exchange rate or uses forward contracts to purchase or sell foreign
currencies at a future date. A forward foreign currency exchange contract is an
obligation by the Portfolio to purchase or sell a specific currency at a future
date at a predetermined price. These contracts are derivative instruments, as
their value derives from the spot exchange rates of the currencies underlying
the contract. These contracts are entered into in the interbank market directly
between currency traders (usually large commercial banks) and their customers.
Neither spot transactions nor forward foreign currency exchange contracts
eliminate fluctuations in the prices of the Portfolio's securities or in foreign
exchange rates, or prevent loss if the prices of these securities should
decline.
The Portfolio may enter into foreign currency exchange transactions in
an attempt to protect against changes in foreign currency exchange rates between
the trade and settlement dates of specific securities transactions or
anticipated securities transactions. The Portfolio may also enter into forward
contracts to (i) hedge against a change in foreign currency exchange rates that
would cause a decline in the value of existing investments quoted in a foreign
currency or (ii) to manage its currency exposure to selected countries. To do
this, the Portfolio would enter into a forward contract to sell the foreign
currency in which the investment is quoted in exchange for U.S. dollars or in
exchange for another foreign currency.
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 increase. In addition, forward contracts that convert a foreign
currency into another foreign currency will cause the Portfolio to assume the
risk of fluctuations in the value of the currency purchased against the hedged
currency and the U.S. dollar. The precise matching of the forward contract
amounts and the value of the securities involved will not generally be possible
because the future value of such securities in foreign currencies will change as
a consequence of market movements in the value of such securities between the
date the forward contract is entered into and the date it matures. The
projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly uncertain.
DEPOSITORY RECEIPTS. Depository receipts are typically issued by a U.S.
or foreign bank or trust company and evidence ownership of underlying securities
of a U.S. or foreign issuer. Unsponsored programs are organized independently
and without the cooperation of the issuer of the underlying securities. As a
result, available information concerning the issuer may not be as current as for
sponsored depositary instruments, and their prices may be more volatile than if
they were sponsored by the issuers of the underlying securities.
WARRANTS AND CONVERTIBLE SECURITIES. Warrants acquired by the Portfolio
entitle it to buy common stock from the issuer at a specified price and time.
Warrants are subject to the same market risks as stocks, but may be more
volatile in price. The Portfolio's investment in warrants will not entitle it to
receive dividends or exercise voting rights and will become worthless if the
warrants cannot be profitably exercised before their expiration dates.
Convertible debt
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securities and preferred stock entitle the Portfolio to acquire the issuer's
stock by exchange or purchase for a predetermined rate. Convertible securities
are subject both to the credit and interest rate risks associated with fixed
income securities and to the stock market risk associated with equity
securities.
INVESTMENTS IN OTHER INVESTMENT COMPANIES. The Portfolio is permitted
to invest up to 10% of its total assets in shares of investment companies and up
to 5% of its total assets in any one investment company as long as that
investment does not represent more than 3% of the total voting stock of the
acquired investment company. Investments in the securities of other investment
companies may involve duplication of advisory fees and other expenses. Certain
emerging markets are closed to investment by foreigners. The Portfolio may be
able to invest in issuers in certain emerging markets primarily through
specifically authorized investment funds.
RESTRICTED AND ILLIQUID SECURITIES. The Portfolio may invest up to 15%
of its net assets in illiquid securities, including certain restricted and
private placement securities. 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 eligible for resale to institutional
investors without registration under the 1933 Act. These securities may be
determined to be liquid in accordance with guidelines established by the Advisor
and approved by the Trustees. The Trustees will monitor the Advisor's
implementation of these guidelines on a periodic basis.
MONEY MARKET INSTRUMENTS. The Portfolio is permitted to invest in money
market instruments although it intends to stay invested in equity securities to
the extent practical in light of its objective. Under normal circumstances, the
Portfolio will purchase money market instruments 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 judgement during, or in anticipation
of, adverse market conditions. These money market instruments include
obligations issued or guaranteed by the U.S. Government or any of its agencies
or instrumentalities, any foreign government or any of its political
subdivisions, commercial paper, bank obligations, repurchase agreements and
other debt obligations of U.S. and foreign issuers. If a repurchase agreement
counterparty defaults on its obligations, the Portfolio may, under some
circumstances, be limited or delayed in disposing of the repurchase agreement
collateral to recover its investment.
WHEN-ISSUED AND FORWARD COMMITMENT TRANSACTIONS. The Portfolio may
purchase when-issued securities and enter into other forward commitments to
purchase or sell securities. The value of securities purchased on a when-issued
or forward commitment basis may decline between the purchase date and the
settlement date.
FUTURES AND OPTIONS TRANSACTIONS. The Portfolio may enter into
derivative contracts to hedge against fluctuations in securities prices, changes
in interest rates or as a substitute for the purchase or sale of securities. The
Portfolio may also use derivative contracts for risk management purposes. See
Risk Management in Part B. The Portfolio may purchase and sell (write) exchange
traded and over-the-counter put and call options on securities and securities
indexes, purchase and sell futures contracts on securities and securities
indexes and purchase and sell (write) put and call options on futures contracts
on securities and securities indexes. Some options and futures strategies,
including selling futures contracts, buying puts and writing calls, tend to
hedge the Portfolio's investments against price fluctuations. Other strategies,
including buying futures contracts, writing puts and buying calls, tend to
increase market exposure. Options and futures contracts may be combined with
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each other in order to adjust the risk and return characteristics of the
Portfolio's overall strategy in a manner consistent with the Portfolio's
objective and policies.
All of the Portfolio's transactions in derivative contracts involve a
risk of loss or depreciation due to unanticipated adverse changes in securities
prices. The Portfolio may incur liabilities to a counterparty in connection with
transactions in futures contracts and the writing of options that exceeds the
Portfolio's initial investment. The Portfolio may also lose the entire premium
paid for purchased options that expire before they can be profitably exercised
by the Portfolio. In addition, the Portfolio incurs transaction costs in opening
and closing positions in derivative contracts.
Derivative contracts may sometimes increase or leverage the Portfolio's
exposure to a particular market risk thereby increasing the price volatility of
the Portfolio. The Portfolio is required to offset the leverage inherent in
derivative contracts by maintaining a segregated account consisting of cash or
liquid securities, by holding offsetting portfolio securities or contracts or by
covering written options.
The Portfolio's success in using derivative contracts to hedge
portfolio assets depends on the degree of price correlation between the
derivative contract and the hedged asset. Imperfect correlation may be caused by
several factors, including temporary price disparities among the trading markets
for the derivative contract, the assets underlying the derivative contract and
the Portfolio's assets.
During periods of extreme market volatility, a commodity or options
exchange may suspend or limit trading in an exchange-traded derivative contract,
which may make the contract temporarily illiquid and difficult to price. The
Portfolio's ability to terminate over-the-counter derivative contracts may
depend on the cooperation of the counterparties to such contracts. For thinly
traded derivative contracts, the only source of price quotations may be the
selling dealer or counterparty. In addition, derivative securities and
over-the-counter derivative contracts involve a risk that the issuer or
counterparty will fail to perform its contractual obligations.
The Portfolio will not engage in a transaction in futures or options on
futures for risk management purposes if, immediately thereafter, the sum of
initial margin deposits and premiums required to establish risk management
positions in futures contracts and options on futures would exceed 5% of the
Portfolio's net assets.
PORTFOLIO SECURITIES LOANS. The Portfolio may lend portfolio securities
with a value up to one-third of its net assets. Each loan must be fully
collateralized by cash or other eligible assets. The Portfolio may pay
reasonable fees in connection with securities loans. The Advisor will evaluate
the creditworthiness of prospective institutional borrowers and monitor the
adequacy of the collateral to reduce the risk of default by borrowers.
BORROWING AND REVERSE REPURCHASE AGREEMENTS. The Portfolio may (1)
borrow money from banks solely for temporary or emergency (but not for leverage)
purposes and (2) enter into reverse repurchase agreements for any purpose. The
aggregate amount of such borrowings and reverse repurchase agreements may not
exceed one-third of the Portfolio's total assets less liabilities (other than
borrowings). For the purposes of the 1940 Act, reverse repurchase agreements are
considered a form of borrowing by the Portfolio and, therefore, a form of
leverage. Leverage may cause any gains or losses of the Portfolio to be
magnified.
SHORT-TERM TRADING. The Portfolio may sell a portfolio security without
regard to the length of time such security has been held if, in the Advisor's
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view, the security meets the criteria for disposal. The annual portfolio
turnover rate of the Portfolio is generally not expected to exceed 100%. A high
portfolio turnover rate involves higher costs to the Portfolio in the form of
dealer spreads and brokerage commissions. This policy is subject to certain
requirements so that certain investors can qualify as regulated investment
companies under the Internal Revenue Code of 1986, as amended (the "Code").
INVESTMENT POLICIES AND RESTRICTIONS. Except as otherwise stated
herein, the Portfolio's investment objective, policies and restrictions are not
fundamental and may be changed without shareholder approval. The Portfolio is
diversified and therefore may not, with respect to 75% of its total assets (1)
invest more than 5% of its total assets in the securities of any one issuer,
other than U.S. Government securities, or (2) acquire more than 10% of the
outstanding voting securities of any one issuer. The Portfolio will not
concentrate (invest 25% or more of its total assets) in the securities of
issuers in any one industry, including any one foreign government.
For a more detailed discussion of the above investment restrictions, as
well as a description of certain other investment restrictions, see Item 13 in
Part B.
ITEM 5. MANAGEMENT OF THE PORTFOLIO TRUST
The Board of Trustees provides broad supervision over the affairs of
the Portfolio Trust. The Portfolio Trust has retained the services of Morgan as
investment adviser and administrative services agent. The Portfolio Trust has
retained the services of Funds Distributor, Inc. ("FDI") as co-administrator
(the "Co-Administrator").
The Portfolio Trust has not retained the services of a principal
underwriter or distributor, since interests in the Portfolio are offered solely
in private placement transactions. FDI, acting as agent for the Portfolio,
serves as exclusive placement agent of interests in the Portfolio. FDI receives
no additional compensation for serving as exclusive placement agent to the
Portfolio.
ADVISOR. The Portfolio has retained the services of Morgan as
investment advisor. Morgan provides investment advice and portfolio management
services to the Portfolio. Subject to the supervision of the Trustees, Morgan
makes the Portfolio's day-to-day investment decisions, arranges for the
execution of portfolio transactions and generally manages the Portfolio's
investments.
Morgan, with principal offices at 60 Wall Street, New York, New York
10260, is a New York trust company that 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 advisor
to individual and institutional clients with combined assets under management of
over $197 billion (of which the Advisor advises over $30 billion).
Morgan uses a sophisticated, disciplined, collaborative process for
managing all asset classes. For equity portfolios, this process utilizes
fundamental research, systematic stock selection and disciplined portfolio
construction. For foreign equities, the process also utilizes country exposure
and for developed countries, currency management. Morgan believes that the
market price of a security will, over time, move towards its fundamental value,
notwithstanding short-term fluctuations in price. Morgan has managed
international equity securities since 1974 and emerging markets equity
securities since 1990.
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The following persons have been primarily responsible for the
day-to-day management and implementation of Morgan's investment process for the
Portfolio since inception: Paul A. Quinsee, Vice President (employed by Morgan
since February 1992, previously Vice President, Citibank N.A. as a portfolio
manager of international equity investments), and Rudolph Leuthold, Managing
Director (employed by Morgan since prior to 1992 as a portfolio manager of
international equity investments).
As compensation for the services rendered and related expenses borne by
Morgan under its 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 0.60% of the Portfolio's average daily net assets.
Investments in the Portfolio are not deposits or obligations of, or guaranteed
or endorsed by, Morgan Guaranty Trust Company of New York or any other bank.
CO-ADMINISTRATOR. Pursuant to a Co-Administration Agreement with the
Portfolio Trust, Funds Distributor, Inc. ("FDI") serves as the Co-Administrator
for the Portfolio. FDI (i) provides office space, equipment and clerical
personnel for maintaining the organization and books and records of the
Portfolio; (ii) provides officers for the Portfolio Trust; (iii) files Portfolio
regulatory documents and mails Portfolio communications to Trustees and
investors; and (iv) maintains related books and records. See Administrative
Services Agent below.
For its services under the Co-Administration Agreement, the Portfolio
has agreed to pay FDI fees equal to its allocable share of an annual
complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The amount
allocable to the Portfolio is based on the ratio of its net assets to the
aggregate net assets of the Portfolio Trust and certain other registered
investment companies subject to similar agreements with FDI.
ADMINISTRATIVE SERVICES AGENT. Pursuant to an Administrative Services
Agreement with the Portfolio Trust, Morgan provides administrative and related
services to the Portfolio, including services related to tax compliance,
preparation of financial statements, calculation of performance data, oversight
of service providers and certain regulatory and Board of Trustees matters.
Under the Administrative Services Agreement, the Portfolio has agreed
to pay Morgan fees equal to its allocable share of an annual complex-wide
charge. This charge is calculated daily based on the aggregate net assets of the
Portfolio and certain other registered investment companies managed by the
Advisor in accordance with the following annual schedule: 0.09% on the first $7
billion of their aggregate average daily net assets and 0.04% of their average
daily net assets in excess of $7 billion, less the complex-wide fees payable to
FDI.
PLACEMENT AGENT. FDI, a registered broker-dealer, also serves as the
exclusive placement agent for the Portfolio. FDI is a wholly owned indirect
subsidiary of Boston Institutional Group, Inc. FDI's principal business address
is 60 State Street, Suite 1300, Boston, Massachusetts 02109.
FUND SERVICES AGREEMENT. Pursuant to an Amended and Restated Portfolio
Fund Services Agreement with the Portfolio Trust, Pierpont Group, Inc.
("Pierpont Group"), 461 Fifth Avenue, New York, New York 10017, assists the
Trustees in exercising their overall supervisory responsibilities for the
affairs of the Portfolio Trust. Pierpont Group provides these services for a fee
approximating its reasonable cost. See Item 14 in Part B.
CUSTODIAN. State Street Bank and Trust Company ("State Street"), 40
King Street West, Toronto, Ontario, Canada M5H 3Y8, serves as the custodian and
fund accounting and transfer agent. State Street keeps the books of account for
the Portfolio.
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EXPENSES. In addition to the fees payable to the service providers
identified above, the Portfolio is responsible for usual and customary expenses
associated with its operations. These include, among other things, organization
expenses, legal fees, audit and accounting expenses, insurance costs, the
compensation and expenses of the Trustees, interest, taxes and extraordinary
expenses (such as for litigation), registration fees under foreign securities
laws and brokerage commissions.
Morgan has agreed that it will, at least through March 31, 1998,
maintain the Portfolio's total operating expenses at the annual rate of 1.00%
the Portfolio's average daily net assets. This expense limitation does not cover
extraordinary expenses during the period.
ITEM 6. CAPITAL STOCK AND OTHER SECURITIES
The Portfolio is a series of the Portfolio Trust, which is organized as
a trust under the laws of the State of New York. Under the Declaration of Trust,
the Trustees are authorized to issue beneficial interests in one or more series.
Currently, there are five active subtrusts (series) of the Portfolio Trust.
Investments in the Portfolio may not be transferred, but an investor may
withdraw all or any portion of its investment at any time at net asset value.
The Declaration of Trust provides that investors in the Portfolio (other
investment companies, insurance company separate accounts and common and
commingled trust funds) are each liable for all obligations of the Portfolio.
However, the risk of an investor in the Portfolio incurring financial loss on
account of such liability is limited to circumstances in which both inadequate
insurance existed and the Portfolio itself was unable to meet its obligations.
Each investor in the Portfolio is entitled to a vote in proportion to
the amount of its investment in the Portfolio. Investors in the Portfolio will
vote as a separate class, except as to voting of Trustees, as otherwise required
by the 1940 Act, or if determined by the Trustees to be a matter which affects
all series. As to any matter which only affects a specific series, only
investors in that series are entitled to vote. Investments in the Portfolio have
no preemptive or conversion rights and are fully paid and nonassessable, except
as set forth below. The Portfolio is not required and has no current intention
of holding annual meetings of investors, but the Portfolio will hold special
meetings of investors when in the judgment of the Trustees it is necessary or
desirable to submit matters for an investor vote. Changes in fundamental
policies will be submitted to investors for approval. Investors have under
certain circumstances (e.g., upon application and submission of certain
specified documents to the Trustees by a specified percentage of the outstanding
interests in the Portfolio) the right to communicate with other investors in
connection with requesting a meeting of investors for the purpose of removing
one or more Trustees. Investors also have the right to remove one or more
Trustees without a meeting by a declaration in writing by a specified percentage
of the outstanding interests in the Portfolio. Upon liquidation of the
Portfolio, investors would be entitled to share pro rata in the net assets of
the Portfolio available for distribution to investors.
The net asset value of the Portfolio is determined each business day
other than the holidays listed in Part B ("Portfolio Business Day"). This
determination is made once each Portfolio Business Day as of 4:15 p.m. New York
time (the "Valuation Time").
The "net income" of the Portfolio will consist of (i) all income
accrued, less the amortization of any premium, on the assets of the Portfolio,
less (ii) all actual and accrued expenses of the Portfolio determined in
accordance with generally accepted accounting principles. Income includes
dividends and interest, including discount earned (including both original issue
and market discount) on discount paper accrued ratably to the date of maturity
and any net realized and unrealized gains or losses on the assets of the
Portfolio. All the
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net income of the Portfolio is allocated pro rata among the investors in the
Portfolio.
The end of the Portfolio's fiscal year is November 30.
Under the anticipated method of operation of the Portfolio, the
Portfolio will not be subject to any income tax. However, each investor in the
Portfolio will be taxable on its share (as determined in accordance with the
governing instruments of the Portfolio) of the Portfolio's ordinary income and
capital gain in determining its income tax liability. The determination of such
share will be made in accordance with the Code, and regulations promulgated
thereunder.
It is intended that the Portfolio's assets, income and distributions
will be managed in such a way that an investor in the Portfolio will be able to
satisfy the requirements of Subchapter M of the Code assuming that the investor
invested all of its assets in the Portfolio.
Investor inquiries may be directed to FDI, in care of State Street Cayman
Trust Company, Ltd. at Elizabethan Square, Shedden Road, George Town, Grand
Cayman, Cayman Islands, B.W.I. ((809) 949-6644).
ITEM 7. PURCHASE OF SECURITIES
Beneficial interests in the Portfolio are issued solely in private
placement transactions that do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. Investments in the Portfolio may only
be made by other investment companies, insurance company separate accounts,
common or commingled trust funds, or similar organizations or entities which are
"accredited investors" as defined in Rule 501 under the 1933 Act. This
Registration Statement does not constitute an offer to sell, or the solicitation
of an offer to buy, any "security" within the meaning of the 1933 Act.
An investment in the Portfolio may be made without a sales load. All
investments are made at net asset value next determined after an order is
received in "good order" by the Portfolio Trust. The net asset value of the
Portfolio is determined at the Valuation Time on each Portfolio Business Day.
There is no minimum initial or subsequent investment in the Portfolio.
However, because the Portfolio intends to be as fully invested at all times as
is reasonably practicable in order to enhance the yield on its assets,
investments must be made in federal funds (i.e., monies credited to the account
of the Custodian by a Federal Reserve Bank.)
The Portfolio may, at its own option, accept securities in payment for
investments in its beneficial interests. The securities delivered in kind are
valued by the method described in Net Asset Value as of the business day prior
to the day the Portfolio receives the securities. Securities may be accepted in
payment for beneficial interests only if they are, in the judgment of Morgan,
appropriate investments for the Portfolio. In addition, securities accepted in
payment for beneficial interests must: (i) meet the investment objective and
policies of the Portfolio; (ii) be acquired by the Portfolio for investment and
not for resale; (iii) be liquid securities which are not restricted as to
transfer either by law or liquidity of market; and (iv) if stock, have a value
which is readily ascertainable as evidenced by a listing on a stock exchange,
OTC market or by readily available market quotations from a dealer in such
securities. The Portfolio reserves the right to accept or reject at its own
option any and all securities offered in payment for beneficial interests.
The Portfolio and FDI reserve the right to cease accepting investments
at any time or to reject any investment order.
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Each investor in the Portfolio may add to or reduce its investment in
the Portfolio on each Portfolio Business Day. At the Valuation Time on each such
day, the value of each investor's beneficial interest in the Portfolio will be
determined by multiplying the net asset value of the Portfolio by the
percentage, effective for that day, which represents that investor's share of
the aggregate beneficial interests in the Portfolio. Any additions or
reductions, which are to be effected at the Valuation Time on such day, will
then be effected. The investor's percentage of the aggregate beneficial
interests in the Portfolio will then be recomputed as the percentage equal to
the fraction (i) the numerator of which is the value of such investor's
investment in the Portfolio at the Valuation Time on such day plus or minus, as
the case may be, the amount of net additions to or reductions in the investor's
investment in the Portfolio effected as of the Valuation Time, and (ii) the
denominator of which is the aggregate net asset value of the Portfolio as of the
Valuation Time on such day, plus or minus, as the case may be, the amount of net
additions to or reductions in the aggregate investments in the Portfolio by all
investors in the Portfolio. The percentage so determined will then be applied to
determine the value of the investor's interest in the Portfolio as of the
Valuation Time on the following Portfolio Business Day.
ITEM 8. REDEMPTION OR REPURCHASE
An investor in the Portfolio may reduce all or any portion of its
investment at the net asset value next determined after a request in "good
order" is furnished by the investor to the Portfolio Trust. The proceeds of a
reduction will be paid by the Portfolio Trust in federal funds normally on the
next Portfolio Business Day after the reduction is effected, but in any event
within seven days. Investments in the Portfolio may not be transferred.
The right of any investor to receive payment with respect to any
reduction may be suspended or the payment of the proceeds therefrom postponed
during any period in which the New York Stock Exchange (the "NYSE") is closed
(other than weekends or holidays) or trading on the NYSE is restricted or, to
the extent otherwise permitted by the 1940 Act, if an emergency exists.
The Portfolio Trust, on behalf of the Portfolio, reserves the right
under certain circumstances, such as accommodating requests for substantial
withdrawals or liquidations, to pay distributions in kind to investors (i.e., to
distribute portfolio securities as opposed to cash). If securities are
distributed, an investor could incur brokerage, tax or other charges in
converting the securities to cash. In addition, distribution in kind may result
in a less diversified portfolio of investments or adversely affect the liquidity
of the Portfolio or the investor's portfolio, as the case may be.
ITEM 9. PENDING LEGAL PROCEEDINGS
Not applicable.
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PART B
ITEM 10. COVER PAGE.
Not applicable.
ITEM 11. TABLE OF CONTENTS. PAGE
General Information and History . . . . . . . . . . . B-1
Investment Objective and Policies . . . . . . . . . . B-1
Management of the Portfolio Trust . . . . . . . . . . B-20
Control Persons and Principal Holder
of Securities . . . . . . . . . . . . . . . . . . . . B-23
Investment Advisory and Other Services . . . . . . . B-24
Brokerage Allocation and Other Practices . . . . . . B-28
Capital Stock and Other Securities . . . . . . . . . B-30
Purchase, Redemption and Pricing of
Securities . . . . . . . . . . . . . . . . . . . . . B-31
Tax Status . . . . . . . . . . . . . . . . . . . . . B-32
Underwriters . . . . . . . . . . . . . . . . . . . . B-34
Calculations of Performance Data . . . . . . . . . . B-34
Financial Statements . . . . . . . . . . . . . . . . B-34
ITEM 12. GENERAL INFORMATION AND HISTORY.
Not applicable.
ITEM 13. INVESTMENT OBJECTIVE AND POLICIES.
References in this Part B to "Part A" are to the Parts A relating to
The European Equity Portfolio, The Asia Growth Portfolio The Japan Equity
Portfolio, The Disciplined Equity Portfolio and the International Opportunities
Portfolio, respectively (each a "Portfolio"; collectively the "Portfolios").
Unless the context otherwise requires, terms defined in Part A have the same
meaning in this Part B as in Part A.
Part A contains additional information about the investment objectives
and policies and management techniques of the Portfolios. This Part B should
only be read in conjunction with Part A of the registration statement.
The following supplements the information contained in Part A
concerning the investment objectives, policies and techniques of the Portfolios.
THE ASIA GROWTH PORTFOLIO (the "Asia Growth Portfolio") 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 Portfolio's investment
objective is to provide a high total return from a portfolio of 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") of companies in Asian growth
markets. 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
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markets. Under normal circumstances, the Asia Growth Portfolio expects to invest
at least 65% of its total assets in such securities. The Asia Growth Portfolio
does not intend to invest in U.S. securities (other than money market
instruments), except temporarily, when extraordinary circumstances prevailing at
the same time in a significant number of countries considered to be Asian growth
markets render investments in such countries inadvisable.
INVESTMENT PROCESS
Country allocation: Morgan's country allocation decision begins with a
forecast of equity risk premiums, which provide a valuation signal by measuring
the relative attractiveness of stocks versus bonds. Using a proprietary
approach, Morgan calculates this risk premium for each of the nations in the
Portfolio's universe, determines the extent of its deviation -- if any -- from
its historical norm, and then ranks countries according to the size of these
deviations. Countries with high (low) rankings are overweighted (underweighted)
to reflect the above-average (below average) attractiveness of their stock
markets. In determining weightings, Morgan analyzes a variety of qualitative
factors as well -- including the liquidity, earnings momentum and interest rate
climate of the market at hand. These qualitative assessments can change the
magnitude but not the direction of the country allocations called for by the
risk-premium forecast. In an effort to contain risk, Morgan places limits on the
total size of the Portfolio's country over- and under-weightings.
Stock selection: Morgan's six Asian equity analysts focused on Asian
markets -- each an industry and country specialist -- forecast normalized,
long-term earnings and dividend payouts for approximately 250 companies in this
region. These forecasts are converted into comparable expected returns by a
dividend discount model, and then companies are ranked from most to least
attractive by industry and country, and are grouped into quintiles. A
diversified portfolio is constructed using disciplined buy and sell rules. The
portfolio manager's objective is to concentrate purchases in the top 20% of the
rankings, and to keep sector weightings close to those of the benchmark. Once a
stock falls into the third quintile -- because its price has risen or its
fundamentals have deteriorated -- it generally becomes a candidate for sale.
Where available, warrants and convertibles are purchased when they appear to
have the potential to add value over common stock.
THE EUROPEAN EQUITY PORTFOLIO (the "European Equity Portfolio") 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 Portfolio's investment objective is to provide a
high total return from a portfolio of Equity Securities of European companies.
The European Equity Portfolio seeks to achieve its investment objective
by investing primarily in the Equity Securities of European companies. Under
normal circumstances, the European Equity Portfolio expects to invest at least
65% of its total assets in such securities. The European Equity Portfolio does
not intend to invest in U.S. securities (other than money market instruments),
except temporarily, when extraordinary circumstances prevailing at the same time
in a significant number of European countries render investments in such
countries inadvisable.
INVESTMENT PROCESS
Country allocation: Morgan's country allocation decision begins with a
forecast of equity risk premiums, which provide a valuation signal by measuring
the relative attractiveness of stocks versus bonds. Using a proprietary
approach, Morgan calculates this risk premium for each of the nations in the
Portfolio's universe, determines the extent of its deviation -- if any -- from
its historical norm, and then ranks countries according to the size of those
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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 candidate for
sale.
THE JAPAN EQUITY PORTFOLIO (the "Japan Equity Portfolio") 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 Portfolio's
investment objective is to provide a high total return from a portfolio of
Equity Securities of Japanese companies. For additional information, see
"Appendix B - Investing in Japan and Asian Growth Markets."
The Japan Equity Portfolio seeks to achieve its investment objective by
investing primarily in the Equity Securities of Japanese companies. Under normal
circumstances, the Japan Equity Portfolio expects to invest at least 65% of its
total assets in such securities. The Japan Equity Portfolio does not intend to
invest in U.S. securities (other than money market instruments), except
temporarily, when extraordinary circumstances prevailing in Japan render
investments there inadvisable.
INVESTMENT PROCESS
Systematic valuation: Morgan's ten Japanese equity analysts in Tokyo --
each an industry specialist -- follow a total of over 300 Japanese companies.
The most attractive names in that universe are identified by a multifactor model
which screens for low price/earnings ratios, high earnings growth rates and high
sales/price ratios. Within each sector, this subset of the universe is ranked by
these three measures and broken into quintiles; the companies in the top
quintile are considered the most attractive ones from both a growth and
valuation viewpoint. To provide an additional check on the valuation of selected
companies, the analysts prepare normalized, long-term earnings and dividend
forecasts which are converted into comparable expected returns by a dividend
discount model.
Warrant/convertible strategy: Once a company has been identified as a
buy candidate, the portfolio manager analyzes the yields on the company's
available equity vehicles -- stocks, warrants and convertibles -- to determine
which appears the most attractive means of purchase. In an effort to enhance
potential returns, the Portfolio also trades among these vehicles -- a strategy
that seeks to capitalize on the inefficiencies that pervade the Japanese equity
market. If the Portfolio invests in a warrant, it will set aside cash in an
amount approximately equal to the difference in the price of the warrant and the
market
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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 Portfolios and the policies to be employed
to achieve this objective as set forth above and in the Part A.
THE DISCIPLINED EQUITY PORTFOLIO (the "Disciplined Equity Portfolio")
is designed for investors seeking enhanced total return relative to that of
large and medium sized companies, typically represented by the S&P 500 Index.
The Disciplined Equity Portfolio's investment objective is to provide high total
return from a broadly diversified portfolio of equity securities.
The Portfolio invests primarily in a diversified portfolio of common
stocks and other equity securities. Under normal circumstances, the Portfolio
expects to invest at least 65% of its total assets in such securities.
INVESTMENT PROCESS
Fundamental research: Morgan's 20 domestic equity analysts, each an
industry specialist with an average of 13 years of experience, follow 600 medium
and large capitalization U.S. companies. Their research goal is to forecast
intermediate-term earnings and prospective dividend growth rates for the most
attractive companies among those researched.
Systematic valuation: The analysts' forecasts are converted into
comparable expected returns using a proprietary dividend discount model, which
calculates the intermediate-term earnings by comparing a company's current stock
price with the "fair value" price forecasted by the estimated intermediate-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 broadly diversified portfolio is
constructed using disciplined buy and sell rules. Purchases are allocated among
stocks in the first three quintiles. The stocks selected reflect the portfolio
manager's judgment concerning the soundness of the underlying forecasts, the
likelihood that a perceived misvaluation will be corrected within a reasonable
time frame, and the manager's estimate of the magnitude of the risks versus the
potential rewards. A stock that falls into the fourth and fifth quintiles
generally becomes a candidate for sale, either because its price has risen or
its fundamentals have deteriorated. The Portfolio's sector weightings are
matched 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. Morgan also controls the Portfolio's exposure to style and
theme bets and maintains near-market security weightings in individual security
holdings. This process results in an investment portfolio containing 250-300
stocks.
THE INTERNATIONAL OPPORTUNITIES PORTFOLIO (the "International
Opportunities Portfolio") is designed for long-term investors who want to invest
in an actively
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managed portfolio of common stocks and other equity securities of non-U.S.
companies, including companies located in emerging markets. The International
Opportunities Portfolio's investment objective is to provide a high total return
from a portfolio of equity securities of foreign companies in developed and, to
a lesser extent, developing markets.
The Portfolio invests primarily in common stocks and other equity
securities of non-U.S. issuers in developed and developing countries. 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 foreign countries render investments in such countries inadvisable.
INVESTMENT PROCESS
Country allocation (developed countries): Morgan's country allocation
decision for securities issued in developed countries 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 developed countries 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 emphasized (deemphasized) to
reflect the above-average (below-average) attractiveness of their stock markets.
In determining these 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.
Country allocation (emerging countries): Morgan's country allocation
decision for emerging markets securities begins with a forecast of the expected
return of each emerging market in the Portfolio's universe. These expected
returns are calculated using a proprietary valuation method that is forward
looking in nature rather than based on historical data. Morgan then evaluates
these expected returns from two different perspectives: first, it identifies
those countries that have high real expected returns relative to their own
history and other nations in their universe. Second, it identifies those
countries that it expects will provide high returns relative to their currency
risk. Countries that rank highly on one or both of these scores are
overweighted, while those that rank poorly are underweighted.
Stock selection: Morgan's 44 international equity analysts and 12
emerging market equity analysts, each an industry and country specialist,
forecast normalized earnings, dividend payouts and cash flows 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 Portfolio's purchases in the stocks
deemed most undervalued. Stocks generally become a candidate for sale when they
fall into the bottom half of Morgan's rankings. 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: Morgan actively manages the currency exposure of
the Portfolio's investments in developed countries, in conjunction with country
and stock allocation, with the goal of protecting and possibly enhancing the
Portfolio's return. Morgan's currency decisions are supported by a
proprietary tactical mode which forecasts currency movements based on an
analysis of four fundamental
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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.
MONEY MARKET INSTRUMENTS
As discussed in Part A, 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. Also see "Quality and Diversification
Requirements."
U.S. TREASURY SECURITIES. Each of the Portfolios may invest in direct
obligations of the U.S. Treasury, including Treasury bills, notes and bonds, all
of which are backed as to principal and interest payments by the full faith and
credit of the United States.
ADDITIONAL U.S. GOVERNMENT OBLIGATIONS. Each of the Portfolios may
invest in obligations issued or guaranteed by U.S. Government agencies or
instrumentalities. These obligations may or may not be backed by the "full faith
and credit" of the United States. In the case of securities not backed by the
full faith and credit of the United States, each Portfolio must look principally
to the federal agency issuing or guaranteeing the obligation for ultimate
repayment, and may not be able to assert a claim against the United States
itself in the event the agency or instrumentality does not meet its commitments.
Securities in which each Portfolio may invest that are not backed by the full
faith and credit of the United States include, but are not limited to,
obligations of the Tennessee Valley Authority, the Federal Home Loan Mortgage
Corporation and the U.S. Postal Service, each of which has the right to borrow
from the U.S. Treasury to meet its obligations, and obligations of the Federal
Farm Credit System and the Federal Home Loan Banks, both of whose obligations
may be satisfied only by the individual credits of each issuing agency.
Securities which are backed by the full faith and credit of the United States
include obligations of the Government National Mortgage Association, the Farmers
Home Administration and the Export-Import Bank.
FOREIGN GOVERNMENT OBLIGATIONS. Each of the Portfolios, subject to its
applicable investment policies, may also invest in short-term obligations of
foreign sovereign governments or of their agencies, instrumentalities,
authorities or political subdivisions. These securities may be denominated in
the U.S. dollar or in another currency. See Foreign Investments.
BANK OBLIGATIONS. Each of the Portfolios, unless otherwise noted in the
Part A or below, may invest in negotiable certificates of deposit, time deposits
and bankers' acceptances of (i) banks, savings and loan associations and savings
banks which have more than $2 billion in assets and are organized under the laws
of the United States or any state, (ii) foreign branches of these banks or of
foreign banks (Euros) and (iii) U.S. branches of foreign banks (Yankees). The
Portfolio will not invest in obligations for which the Advisor, or any of its
affiliated persons, is the ultimate obligor or accepting bank. The Portfolio may
also invest in obligations of international banking institutions designated or
supported by national governments to promote economic reconstruction,
development or trade between nations (e.g., the European Investment Bank, the
Inter-American Development Bank, or the World Bank).
COMMERCIAL PAPER. 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
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agreements between the issuer and the Advisor acting as agent, for no additional
fee, in its capacity as investment advisor to the Portfolios and as fiduciary
for other clients for whom it exercises investment discretion. The monies loaned
to the borrower come from accounts managed by the Advisor or its affiliates,
pursuant to arrangements with such accounts. Interest and principal payments are
credited to such accounts. The Advisor, acting as a fiduciary on behalf of its
clients, has the right to increase or decrease the amount provided to the
borrower under an obligation. The borrower has the right to pay without penalty
all or any part of the principal amount then outstanding on an obligation
together with interest to the date of payment. Since these obligations typically
provide that the interest rate is tied to the Federal Reserve commercial paper
composite rate, the rate on master demand obligations is subject to change.
Repayment of a master demand obligation to participating accounts depends on the
ability of the borrower to pay the accrued interest and principal of the
obligation on demand which is continuously monitored by the Advisor. Since
master demand obligations typically are not rated by credit rating agencies, a
Portfolio may invest in such unrated obligations only if at the time of an
investment the obligation is determined by the Advisor to have a credit quality
which satisfies the Portfolio's quality restrictions. See Quality and
Diversification Requirements. Although there is no secondary market for master
demand obligations, such obligations are considered by the Portfolios to be
liquid because they are payable upon demand. The Portfolios do not have any
specific percentage limitation on investments in master demand obligations.
REPURCHASE AGREEMENTS. Each of the Portfolios may enter into repurchase
agreements with brokers, dealers or banks that meet the credit guidelines
approved by the Portfolio Trust'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 herein or in Part A.
CORPORATE BONDS AND OTHER DEBT SECURITIES
As discussed in Part A, the European Equity Portfolio may invest in
bonds and other debt securities of domestic and foreign issuers to the extent
consistent with its investment objective and policies. A description of these
investments appears in Part A 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
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card receivables. Payments of principal and interest may be guaranteed up to
certain amounts and for a certain time period by a letter of credit issued by a
financial institution unaffiliated with the entities issuing the securities. The
asset-backed securities in which a Portfolio may invest are subject to the
Portfolio's overall credit requirements. However, asset-backed securities, in
general, are subject to certain risks. Most of these risks are related to
limited interests in applicable collateral. For example, credit card debt
receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of which
give such debtors the right to set off certain amounts on credit card debt
thereby reducing the balance due. Additionally, if the letter of credit is
exhausted, holders of asset-backed securities may also experience delays in
payments or losses if the full amounts due on underlying sales contracts are not
realized. Because asset-backed securities are relatively new, the market
experience in these securities is limited and the market's ability to sustain
liquidity through all phases of the market cycle has not been tested.
EQUITY INVESTMENTS
As discussed in Part A, the Portfolios invest primarily in Equity
Securities. The Equity Securities in which the Portfolios invest include those
listed on any domestic or foreign securities exchange or traded in the
over-the-counter (OTC) market as well as certain restricted or unlisted
securities. A discussion of the various types of equity investments which may be
purchased by these Portfolios appears in Part A and below. See Quality and
Diversification Requirements.
EQUITY SECURITIES. The Equity Securities in which the 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 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 may invest in common stock warrants that entitle the
holder to buy common stock from the issuer of the warrant at a specific price
(the strike price) for a specific period of time. The market price of warrants
may be substantially lower than the current market price of the underlying
common stock, yet warrants are subject to similar price fluctuations. As a
result, warrants may be more volatile investments than the underlying common
stock.
Warrants generally do not entitle the holder to dividends or voting
rights with respect to the underlying common stock and do not represent any
rights in the assets of the issuer company. A warrant will expire worthless if
it is not exercised on or prior to the expiration date.
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FOREIGN INVESTMENTS
Each of the Portfolios, except the Disciplined Equity Portfolio makes
substantial investments in foreign countries. The Disciplined Equity Portfolio
may invest in certain foreign securities and does not expect to invest more than
5% of its total assets at the time of purchase in securities of foreign issuers.
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 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 Part A. The Portfolios will not enter into such commitments for
speculative purposes.
The International Opportunities and Asia Growth Portfolios may also
invest in countries with emerging economies or securities markets. Political and
economic structures in many of such countries may be undergoing significant
evolution and rapid development, and such countries may lack the social,
political and economic stability characteristic of more developed countries.
Certain of such countries may have in the past failed to recognize private
property rights and have at times nationalized or expropriated the assets of
private companies. As a result, the risks described above, including the risks
of nationalization or expropriation of assets, may be heightened. In addition,
unanticipated political or social developments may affect the values of a
Portfolio's investments in those countries and the availability to such
Portfolio of additional investments in those countries. The small size and
inexperience of the securities markets in certain of such countries and the
limited volume of trading in securities in those countries may make a
Portfolio's investments in such countries illiquid and more volatile than
investments in more developed countries, and such Portfolio may be required to
establish special custodial or other arrangements before making certain
investments in those countries. There may be little financial or accounting
information available with respect to issuers located in certain of such
countries, and it may be difficult as a result to assess the value or prospects
of an investment in such issuers.
For a description of the risks associated with investing in foreign
securities, see Risk Factors and Additional Investment Information in Part A.
INVESTING IN JAPAN. Investing in Japanese securities may involve the
risks associated with investing in foreign securities generally. In addition,
because the Japan Equity and International Opportunities Portfolios 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 relevant Part A).
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
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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 International Opportunities 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 Opportunities 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
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 fixed income securities 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 (except the Disciplined Equity or International Opportunities
Portfolio) not to enter into when-issued
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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 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, a reverse repurchase
agreement is also considered as the borrowing of money by the Portfolio and,
therefore, a form of leverage. The Portfolios will invest the proceeds of
borrowings under reverse repurchase agreements. In addition, a Portfolio will
enter into a reverse repurchase agreement only when the interest income to be
earned from the investment of the proceeds is greater than the interest expense
of the transaction. A Portfolio will not invest the proceeds of a reverse
repurchase agreement for a period which exceeds the duration of the reverse
repurchase agreement. A Portfolio may not enter into reverse repurchase
agreements exceeding in the aggregate one-third of the market value of its total
assets, less liabilities other than the obligations created by reverse
repurchase agreements. Each Portfolio will establish and maintain with the
Custodian a separate account with a segregated portfolio of securities in an
amount at least equal to its purchase obligations under its reverse repurchase
agreements. See Investment Restrictions for the Portfolios' limitation on
reverse repurchase agreements and on bank borrowings.
LOANS OF PORTFOLIO SECURITIES. Each of the Portfolios may lend its
securities if such loans are secured continuously by cash or equivalent
collateral or by a letter of credit in favor of the Portfolio at least equal at
all times to 100% of the market value of the securities loaned, plus accrued
interest. While such securities are on loan, the borrower will pay the Portfolio
any income accruing thereon. Loans will be subject to termination by 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 exclusive placement agent 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 Part A.
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
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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 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 Japan Equity Portfolio, intends to
meet the diversification requirements of the 1940 Act. To meet these
requirements, 75% of the assets of each of these Portfolios is subject to the
following fundamental limitations: (1) the Portfolio may not invest more than 5%
of its total assets in the securities of any one issuer, except obligations of
the U.S. Government, its agencies and instrumentalities, and (2) the Portfolio
may not own more than 10% of the outstanding voting securities of any one
issuer. As for the other 25% of the Portfolio's assets not subject to the
limitation described above, there is no limitation on investment of these assets
under the 1940 Act, so that all of such assets may be invested in securities of
any one issuer, subject to the limitation of any applicable state securities
laws. Investments not subject to the limitations described above could involve
an increased risk to a Portfolio should an issuer, or a state or its related
entities, be unable to make interest or principal payments or should the market
value of such securities decline.
Although the Japan Equity Portfolio is not limited by the
diversification requirements of the 1940 Act, the Portfolio 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
Tax Status. To meet these requirements, the 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).
The Portfolios may invest in convertible debt securities for which
there are no specific quality requirements. In addition, at the time the
Portfolio invests in any commercial paper, bank obligation or repurchase
agreement, the issuer must have outstanding debt rated A or higher by Moody's or
Standard & Poor's, the issuer's parent corporation, if any, must have
outstanding commercial paper rated Prime-1 by Moody's or A-1 by Standard &
Poor's, or if no such ratings are available, the investment must be of
comparable quality in the Advisor's opinion. At the time the Portfolio invests
in any other short-term debt securities, they must be rated A or higher by
Moody's or Standard & Poor's, or if unrated, the investment must be of
comparable quality in the Advisor's opinion.
In determining suitability of investment in a particular unrated
security, the Advisor takes into consideration asset and debt service coverage,
the purpose of the financing, history of the issuer, existence of other rated
securities of the issuer and other relevant conditions, such as comparability to
other issuers.
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 (OTC options) that meet creditworthiness
standards approved by the Portfolio's Board of Trustees. While exchange-traded
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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.
Provided that the Portfolio Trust has arrangements with certain
qualified dealers who agree that a Portfolio may repurchase any option it writes
for a maximum price to be calculated by a predetermined formula, a Portfolio may
treat the underlying securities used to cover written OTC options as liquid. 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 Portfolios may sell (write)
uncovered put and call options on futures. Futures contracts obligate the buyer
to take and the seller to make delivery at a future date of a specified quantity
of a financial instrument or an amount of cash based on the value of a
securities index. Currently, futures contracts are available on various types of
fixed income securities, including but not limited to U.S. Treasury bonds, notes
and bills, Eurodollar certificates of deposit and on indexes of fixed income
securities and indexes of equity securities.
Unlike a futures contract, which requires the parties to buy and sell a
security or make a cash settlement payment based on changes in a financial
instrument or securities index on an agreed date, an option on a futures
contract entitles its holder to decide on or before a future date whether to
enter into such a contract. If the holder decides not to exercise its option,
the holder may close out the option position by entering into an offsetting
transaction or may decide to let the option expire and forfeit the premium
thereon. The purchaser of an option on a futures contract pays a premium for the
option but makes no initial margin payments or daily payments of cash in the
nature of "variation" margin payments to reflect the change in the value of the
underlying contract as does a purchaser or seller of a futures contract.
The seller of an option on a futures contract receives the premium paid
by the purchaser and may be required to pay initial margin. Amounts equal to the
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
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current or anticipated investments exactly. A Portfolio may invest in options
and futures contracts based on securities with different issuers, maturities or
other characteristics from the securities in which it typically invests, which
involves a risk that the options or futures position will not track the
performance of the Portfolio's other investments.
Options and futures contracts prices can also diverge from the prices
of their underlying instruments, even if the underlying instruments match the
Portfolio's investments well. Options and futures contracts prices are affected
by such factors as current and anticipated short-term interest rates, changes in
volatility of the underlying instrument, and the time remaining until expiration
of the contract, which may not affect security prices the same way. Imperfect
correlation may also result from differing levels of demand in the options and
futures markets and the securities markets, from structural differences in how
options and futures and securities are traded, or from imposition of daily price
fluctuation limits or trading halts. A Portfolio may purchase or sell options
and futures contracts with a greater or lesser value than the securities it
wishes to hedge or intends to purchase in order to attempt to compensate for
differences in volatility between the contract and the securities, although this
may not be successful in all cases. If price changes in a Portfolio's options or
futures positions are poorly correlated with its other investments, the
positions may fail to produce anticipated gains or result in losses that are not
offset by gains in other investments.
LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a
liquid market will exist for any particular option or futures contract at any
particular time even if the contract is traded on an exchange. In addition,
exchanges may establish daily price fluctuation limits for options and futures
contracts and may halt trading if a contract's price moves up or down more than
the limit in a given day. On volatile trading days when the price fluctuation
limit is reached or a trading halt is imposed, it may be impossible for a
Portfolio to enter into new positions or close out existing positions. If the
market for a contract is not liquid because of price fluctuation limits or
otherwise, it could prevent prompt liquidation of unfavorable positions and
could potentially require a Portfolio to continue to hold a position until
delivery or expiration regardless of changes in its value. As a result, the
Portfolio's access to other assets held to cover its options or futures
positions could also be impaired. (See Exchange Traded and Over-the-Counter
Options above for a discussion of the liquidity of options not traded on an
exchange.)
POSITION LIMITS. Futures exchanges can limit the number of futures and
options on futures contracts that can be held or controlled by an entity. If an
adequate exemption cannot be obtained, a Portfolio or the Advisor may be
required to reduce the size of its futures and options positions or may not be
able to trade a certain futures or options contract in order to avoid exceeding
such limits.
ASSET COVERAGE FOR FUTURES CONTRACTS AND OPTIONS POSITIONS. The
Portfolios intend to comply with Section 4.5 of the regulations under the
Commodity Exchange Act, which limits the extent to which a Portfolio can commit
assets to initial margin deposits and option premiums. In addition, the
Portfolios will comply with guidelines established by the SEC with respect to
coverage of options and futures contracts by mutual funds, and if the guidelines
so require, will set aside appropriate liquid assets in a segregated custodial
account in the amount prescribed. Securities held in a segregated account cannot
be sold while the futures contract or option is outstanding, unless they are
replaced with other suitable assets. As a result, there is a possibility that
segregation of a large percentage of a Portfolio's assets could impede portfolio
management or the Portfolio's ability to meet redemption requests or other
current obligations.
RISK MANAGEMENT. The Portfolios may employ non-hedging risk management
techniques. Examples of risk management strategies include synthetically
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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 each of the
indicated Portfolios. 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 Item 20 below.
THE EUROPEAN EQUITY PORTFOLIO -- For the period March 28, 1995 (commencement of
operations) through December 31, 1995: 36%.
THE JAPAN EQUITY PORTFOLIO -- For the period March 28, 1995 (commencement of
operations) through December 31, 1995: 60%.
THE ASIA GROWTH PORTFOLIO -- For the period April 5, 1995 (commencement of
operations) through December 31, 1995: 70%.
The estimated annual portfolio turnover rate for each of the European
Equity, Japan Equity, Asia Growth, Disciplined Equity and International
Opportunities Portfolios generally should not exceed 100%.
INVESTMENT RESTRICTIONS
The investment restrictions below have been adopted by the Portfolio
Trust with respect to each 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 Portfolio. A "majority of the outstanding voting securities"
is defined in the 1940 Act as the lesser of (a) 67% or more of the voting
securities present at a 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.
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 Asia Growth
and European Equity Portfolios may not:
1. Purchase any security if, as a result, more than 25% of the value of
the Portfolio's total assets would be invested in securities of issuers
having their principal business activities in the same industry. This
limitation shall not apply to obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities;
2. Borrow money, except that the Portfolio may (i) borrow money from banks
for temporary or emergency purposes (not for leveraging purposes) and
(ii) enter into reverse repurchase agreements for any purpose; provided
that
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(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, the Japan Equity Portfolio may
not:
1. Purchase any security if, as a result, more than 25% of the value of the
Portfolio's total assets would be invested in securities of issuers having
their principal business activities in the same industry. This limitation
shall not apply to obligations issued or guaranteed by the U.S. Government,
its agencies or instrumentalities;
2. Borrow money, except that the Portfolio may (i) borrow money from banks for
temporary or emergency purposes (not for leveraging purposes) and (ii)
enter into reverse repurchase agreements for any purpose; provided that (i)
and (ii) in total do not exceed 33 1/3% of the value of the Portfolio's
total assets (including the amount borrowed) less liabilities (other than
borrowings). If at any time any borrowings come to exceed 33 1/3% of the
value of the Portfolio's total assets, the Portfolio will reduce its
borrowings within three business days to the extent necessary to comply
with the 33 1/3% limitation;
3. Make loans to other persons, except through the purchase of debt
obligations, loans of portfolio securities and participation in repurchase
agreements;
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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.
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 Disciplined Equity
and International Opportunities Portfolios may not:
1. Purchase any security if, as a result, more than 25% its total assets would
be invested in securities of issuers in any single industry. This
limitation shall not apply to securities issued or guaranteed as to
principal or interest by the U.S. Government, its agencies or
instrumentalities.
2. Issue senior securities. For purposes of this restriction, borrowing money
in accordance with paragraph 3 below, making loans in accordance with
paragraph 7 below, the issuance of beneficial interests in multiple classes
or series, the purchase or sale of options, futures contracts, forward
commitments, swaps and transactions in repurchase agreements are not deemed
to be senior securities.
3. Borrow money, except in amounts not to exceed one third of the Portfolio's
total assets (including the amount borrowed) (i) from banks for temporary
or short-term purposes or for the clearance of transactions, (ii) in
connection with redemptions or to finance failed settlements of portfolio
trades without immediately liquidating portfolio securities or other
assets, (iii) in order to fulfill commitments or plans to purchase
additional securities pending the anticipated sale of other portfolio
securities or assets and (iv) pursuant to reverse repurchase agreements
entered into by the Portfolio.
4. Underwrite the securities of other issuers, except to the extent that, in
connection with the disposition of portfolio securities, the Portfolio may
be deemed to be an underwriter under the 1933 Act.
5. Purchase or sell real estate except that the Portfolio may (i) acquire or
lease office space for its own use, (ii) invest in securities of issuers
that invest in real estate or interests therein, (iii) invest in securities
that are secured by real estate or interests therein, (iv) purchase and
sell mortgage-related securities and (v) hold and sell real estate acquired
by the Portfolio as a result of the ownership of securities.
6. Purchase or sell commodities or commodity contracts, except the Portfolio
may purchase and sell financial futures contracts, options on financial
futures contracts and warrants and may enter into swap and forward
commitment transactions.
7. Make loans, except that the Portfolio (1) may lend portfolio securities
with a value not exceeding one-third of the Portfolio's net assets, (2)
enter into repurchase agreements, and (3) purchase all or a portion of an
issue of debt
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securities (including privately issued debt securities), bank loan partici-
pation interests, bank certificates of deposit, bankers' acceptances,
debentures or other securities, whether or not the purchase is made upon
the original issuance of the securities.
8. With respect to 75% of its total assets, purchase securities of an issuer
(other than the U.S. Government, its agencies, instrumentalities or
authorities or repurchase agreements collateralized by U.S. Government
securities), if:
a. such purchase would cause more than 5% of the Portfolio's total assets to
be invested in the securities of such issuer; or
b. such purchase would cause the Portfolio to hold more than 10% of the
outstanding voting securities of such issuer.
(Although permitted to do so by Restriction No. 3 above, the Portfolio has
no current intention to engage in borrowing for financial leverage.)
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 Trustees of the Portfolio Trust. 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 - ASIA GROWTH AND EUROPEAN EQUITY
PORTFOLIOS. The investment restrictions described below are not fundamental
policies of these Portfolios and may be changed by the Trustees of the Portfolio
Trust. 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
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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
(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 Trustees of the Portfolio
Trust. 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 - DISCIPLINED EQUITY AND
INTERNATIONAL OPPORTUNITIES PORTFOLIOS. The investment restrictions described
below are not fundamental policies of the Portfolios and may be changed by their
respective Trustees. These non-fundamental investment policies require that each
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) Sell any security short, except to the extent permitted by the 1940
Act. Transactions in futures contracts and options shall not constitute selling
securities short;
(iii) Purchase securities on margin, but the Portfolio may obtain such
short term credits as may be necessary for the clearance of transactions;
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.
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For purposes of fundamental investment restrictions regarding industry
concentration, Morgan may classify issuers by industry in accordance with
classifications set forth in the Directory of Companies Filing Annual Reports
With The Securities and Exchange Commission or other sources. In the absence of
such classification or if Morgan determines in good faith based on its own
information that the economic characteristics affecting a particular issuer make
it more appropriately considered to be engaged in a different industry, Morgan
may classify an issuer accordingly. For instance, personal credit finance
companies and business credit finance companies are deemed to be separate
industries and wholly owned finance companies are considered to be in the
industry of their parents if their activities are primarily related to financing
the activities of their parents.
ITEM 14. MANAGEMENT OF THE PORTFOLIO TRUST.
The Trustees and officers of the Portfolio Trust, their addresses and
principal occupations during the past five years and dates of birth are set
forth below. Their titles may have varied during that period. An asterisk
indicates that a Trustee is an "interested person" (as defined in the 1940 Act)
of the Portfolio.
TRUSTEES AND OFFICERS
FREDERICK S. ADDY--Trustee; Retired; Executive Vice President and Chief
Financial Officer from January 1990 to April 1994, Amoco Corporation. His
address is 5300 Arbutus Cove, Austin, TX 78746, and his date of birth is January
1, 1932.
WILLIAM G. BURNS--Trustee; Retired; Former Vice Chairman and Chief
Financial Officer, NYNEX. His address is 2200 Alaqua Drive, Longwood, FL 32779,
and his date of birth is November 2, 1932.
ARTHUR C. ESCHENLAUER--Trustee; Retired; Senior Vice President, Morgan
Guaranty Trust Company of New York until 1987. His address is 14 Alta Vista
Drive, RD #2, Princeton, NJ 08540, and his date of birth is May 23, 1934.
MATTHEW HEALEY (*)--Trustee; Chairman and Chief Executive Officer;
Chairman, Pierpont Group, Inc. ("Pierpont Group") since 1989. His address is
Pine Tree Club Estates, 10286 Saint Andrews Road, Boynton Beach, FL 33436, and
his date of birth is August 23, 1937.
MICHAEL P. MALLARDI--Trustee; Retired; Senior Vice President, Capital
Cities/ ABC, Inc., and President, Broadcast Group, since 1986. His address is 10
Charnwood Drive, Suffern, NY 10910, and his date of birth is March 17, 1934.
- -------------------------
(*) Mr. Healey is an "interested person" of the Portfolio Trust as that term
is defined in the 1940 Act.
Each Trustee is currently paid an annual fee of $65,000 (adjusted as of
April 1, 1995) for serving as Trustee of the Master Portfolios (as defined
below), The JPM Pierpont Funds, The JPM Institutional Funds and JPM Series Trust
and is reimbursed for expenses incurred in connection with service as a Trustee.
The Trustees may hold various other directorships unrelated to the Portfolio
Trust.
The compensation paid to each Trustee for the calendar year ended
December 31, 1995 is set forth below.
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<TABLE>
<CAPTION>
NAME OF TRUSTEE AGGREGATE PENSION OR ESTIMATED ANNUAL TOTAL COMPENSATION FROM THE
COMPENSATION RETIREMENT BENEFITS BENEFITS MASTER PORTFOLIOS(*), THE JPM
FROM THE PORTFO- ACCRUED AS PART OF UPON RETIREMENT PIERPONT FUNDS AND THE JPM
LIO TRUST DURING PORTFOLIO TRUST INSTITUTIONAL FUNDS PAID TO
1995 EXPENSES TRUSTEES DURING 1995
<S> <C> <C> <C> <C>
Frederick S. Addy,
Trustee $10,965 None None $62,500
William G. Burns, $10,965 None None $62,500
Trustee
Arthur C. Eschenlauer, $10,965 None None $62,500
Trustee
Matthew Healey, $10,965 None None $62,500
Trustee(**),
Chairman and Chief
Executive Officer
Michael P. Mallardi, $10,965 None None $62,500
Trustee
</TABLE>
- ------------------------------------
(*) Includes the 5 Portfolios in the Portfolio Trust and 13 other
portfolios (collectively the "Master Portfolios") for which Morgan acts
as investment advisor.
(**) During 1995, Pierpont Group paid Mr. Healey, in his role as Chairman of
Pierpont Group, 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.
Currently there are 17 investment companies (14 investment companies
comprising the Master Portfolios, The JPM Pierpont Funds, The JPM Institutional
Funds and JPM Series Trust) in the fund complex.
The Trustees of the Portfolio Trust are the same as the Trustees of
each of the other Master Portfolios, The JPM Pierpont Funds, The JPM
Institutional Funds and JPM Series Trust. In accordance with applicable state
requirements, a majority of the disinterested Trustees have adopted written
procedures reasonably appropriate to deal with potential conflicts of interest
arising from the fact that the same individuals are Trustees of the Master
Portfolios, The JPM Pierpont Funds and The JPM Institutional Funds, up to and
including creating a separate board of trustees.
The Trustees of the Portfolio Trust, in addition to reviewing actions
of the Portfolio Trust's service providers, decide upon matters of general
policy. The Portfolio Trust has entered into a Portfolio Fund Services Agreement
with Pierpont Group to assist the Trustees in exercising their overall
supervisory responsibilities for the Portfolio Trust's affairs. Pierpont Group
was organized in July 1989 to provide services for The JPM Pierpont Funds. The
Portfolio Trust has agreed to pay Pierpont Group a fee in an amount representing
its reasonable costs in performing these services. These costs are periodically
reviewed by the Trustees. The aggregate fees paid by each indicated Portfolio
during the indicated fiscal years are set forth below:
ASIA GROWTH PORTFOLIO--For the period April 5, 1995 (commencement of operations)
through December 31, 1995: $4,788.
EUROPEAN EQUITY PORTFOLIO--For the period March 28, 1995 (commencement of
operations) through December 31, 1995: $19,953.
JAPAN EQUITY PORTFOLIO--For the period March 28, 1995 (commencement of
operations) through December 31, 1995: $21,727.
The Portfolio Trust has no employees; its executive officers (listed
below), other than the Chief Executive Officer, are provided and compensated by
Funds Distributor, Inc. ("FDI"), a wholly owned indirect subsidiary of Boston
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Institutional Group, Inc. The Portfolio Trust's officers conduct and supervise
the business operations of the Portfolio Trust. The Trustees of the Portfolio
Trust are equal and sole shareholders of Pierpont Group.
The officers of the Portfolio Trust, their principal occupations during
the past five years and their dates of birth are set forth below. The business
address of each of the officers unless otherwise noted is 60 State Street, Suite
1300, Boston, Massachusetts 02109.
MATTHEW HEALEY; Chief Executive Officer; Chairman, Pierpont Group, since
1989. His address is Pine Tree Club Estates, 10286 Saint Andrews Road, Boynton
Beach, FL 33436. His date of birth is August 23, 1937.
ELIZABETH A. KEELEY; 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. Keeley was
enrolled at Fordham University School of Law and received her JD in May 1995.
Prior to September 1992, Ms. Keeley was an assistant at the National Association
for Public Interest Law. Address: FDI, 200 Park Avenue, New York, New York
10166. Her date of birth is September 14, 1969.
MARIE E. CONNOLLY; Vice President and Assistant Treasurer. President and
Chief Executive Officer and Director of FDI, Premier Mutual and an officer of
RCM Capital Funds, Inc., RCM Equity Funds, Inc. and certain investment companies
advised or administered by Dreyfus. From December 1991 to July 1994, she was
President and Chief Compliance Officer of FDI. Prior to December 1991, she
served as Vice President and Controller, and later as Senior Vice President of
The Boston Company Advisors, Inc. ("TBCA"). Her date of birth is August 1, 1957.
DOUGLAS C. CONROY; Vice President and Assistant Treasurer. Supervisor of
Treasury Services and Administration of FDI and an officer of certain investment
companies advised or administered by Dreyfus. From April 1993 to January 1995,
Mr. Conroy was a Senior Fund Accountant for Investors Bank & Trust Company.
Prior to March 1993, Mr. Conroy was employed as a fund accountant at The Boston
Company. His date of birth is March 31, 1969.
JACQUELINE HENNING; Assistant Secretary and Assistant Treasurer. Managing
Director, State Street Cayman Trust Company, Ltd. since October 1994. Prior to
October 1994, Mrs. Henning was head of mutual funds at Morgan Grenfell in Cayman
and for five years was Managing Director of Bank of Nova Scotia Trust Company
(Cayman) Limited from September 1988 to September 1993. Address: P.O. Box 2508
GT, Elizabethan Square, 2nd Floor, Shedden Road, George Town, Grand Cayman,
Cayman Islands. Her date of birth is March 24, 1942.
RICHARD W. INGRAM; President and Treasurer. Senior Vice President and
Director of Client Services and Treasury Administration of FDI, Senior Vice
President of Premier Mutual and an officer of RCM Capital Funds, Inc., RCM
Equity Funds, Inc., Waterhouse Investors Cash Management Fund, Inc. and certain
investment companies advised or administered by Dreyfus. From March 1994 to
November 1995, Mr. Ingram was Vice President and Division Manager of First Data
Investor Services Group, Inc. From 1989 to 1994, Mr. Ingram was Vice President,
Assistant Treasurer and Tax Director -- Mutual Funds of The Boston Company. His
date of birth is September 15, 1955.
KAREN JACOPPO-WOOD; Vice President and Assistant Secretary. Assistant Vice
President of FDI and an officer of RCM Capital Funds, Inc. and RCM Equity Funds,
Inc. From June 1994 to January 1996, Ms. Jacoppo was a Manager, SEC
Registration, Scudder, Stevens & Clark, Inc. From 1988 to May 1994, Ms. Jacoppo
was a senior paralegal at TBCA. Her date of birth is December 29, 1966.
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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 the Global Fixed Income Group
and the Legal Department. His date of birth is December 24, 1964.
LENORE J. MCCABE; Assistant Secretary and Assistant Treasurer. Assistant
Vice President, State Street Bank and Trust Company since November 1994.
Assigned as Operations Manager, State Street Cayman Trust Company, Ltd. since
February 1995. Prior to November, 1994, employed by Boston Financial Data
Services, Inc. as Control Group Manager. Address: P.O. Box 2508 GT, Elizabethan
Square, 2nd Floor, Shedden Road, George Town, Grand Cayman, Cayman Islands. Her
date of birth is May 31, 1961.
MARY A. NELSON; Vice President and Assistant Treasurer. Vice President and
Manager of Treasury Services and Administration of FDI, an officer of RCM
Capital Funds, Inc., RCM Equity Funds, Inc. and certain investment companies
advised or administered by Dreyfus. From 1989 to 1994, Ms. Nelson was an
Assistant Vice President and client manager for The Boston Company. Her date of
birth is April 22, 1964.
JOHN E. PELLETIER; Vice President and Secretary. Senior Vice President and
General Counsel of FDI and Premier Mutual and an officer of RCM Capital Funds,
Inc., RCM Equity Funds, Inc., Waterhouse Investors Cash Management Fund, Inc.
and certain investment companies advised or administered by Dreyfus. From
February 1992 to April 1994, Mr. Pelletier served as Counsel for TBCA. From
August 1990 to February 1992, Mr. Pelletier was employed as an Associate at
Ropes & Gray. His date of birth is June 24, 1964.
JOSEPH F. TOWER III; Vice President and Assistant Treasurer. Senior Vice
President, Treasurer and Chief Financial Officer of FDI and Premier Mutual and
an officer of Waterhouse Investors Cash Management Fund, Inc. and certain
investment companies advised or administered by Dreyfus. From July 1988 to
November 1993, Mr. Tower was Financial Manager of The Boston Company. His date
of birth is June 13, 1964.
The Portfolio Trust's Declaration of Trust provides that it will
indemnify its Trustees and officers against liabilities and expenses incurred in
connection with litigation in which they may be involved because of their
offices with the Portfolio, unless, as to liability to the Portfolio or its
investors, it is finally adjudicated that they engaged in willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in
their offices, or unless with respect to any other matter it is finally
adjudicated that they did not act in good faith in the reasonable belief that
their actions were in the best interests of the Portfolio. In the case of
settlement, such indemnification will not be provided unless it has been
determined by a court or other body approving the settlement or other
disposition, or by a reasonable determination, based upon a review of readily
available facts, by vote of a majority of disinterested Trustees or in a written
opinion of independent counsel, that such officers or Trustees have not engaged
in wilful misfeasance, bad faith, gross negligence or reckless disregard of
their duties.
ITEM 15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.
As of November 30, 1996, the following entities owned the percentages
of total outstanding beneficial interests noted below for each of the indicated
Portfolios:
European Equity Portfolio: JPM Europe Fund, Ltd., 98.81%
Asia Growth Portfolio: JPM Asia Growth Fund, Ltd., 96.52%
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Japan Equity Portfolio: JPM Japan Equity Fund, Ltd., 98.73%
So long as each of these Funds controls its corresponding Portfolio, it
may take actions without the approval of any other holder of beneficial
interests in the Portfolio. Each of the Funds has informed the Portfolio Trust
that whenever it is requested to vote on matters pertaining to its corresponding
Portfolio (other than a vote by the Portfolio to continue the operation of the
Portfolio upon the withdrawal of another investor in the Portfolio), it will
hold a meeting of its shareholders and will cast its vote as instructed by those
shareholders. The officers and Trustees of the Portfolio Trust own none of the
outstanding beneficial interests in any Portfolio.
ITEM 16. INVESTMENT ADVISORY AND OTHER SERVICES.
INVESTMENT ADVISOR. The investment advisor to the Portfolios is Morgan
Guaranty Trust Company of New York, a wholly owned subsidiary of J.P. Morgan, a
bank holding company organized under the laws of the State of Delaware. The
Advisor, whose principal offices are at 60 Wall Street, New York, New York
10260, is a New York trust company which conducts a general banking and trust
business. The Advisor is subject to regulation by the New York State Banking
Department and is a member bank of the Federal Reserve System. Through offices
in New York City and abroad, the Advisor offers a wide range of services,
primarily to governmental, institutional, corporate and high net worth
individual customers in the 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 $197 billion (of which the Advisor advises over $30 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 was founded in and has been managing investments
since 1913.
The basis of the Advisor's investment process is fundamental investment
research as the firm believes that fundamentals should determine an asset's
value over the long term. J.P. Morgan currently employs over 100 full time
research analysts in its investment management divisions located in New York,
London, Tokyo, Frankfurt, Melbourne and Singapore to cover countries, industries
and countries on site. The conclusions of the equity analysts' fundamental
research is quantified into a set of projected returns through the use of a
dividend discount model. These returns are projected for a number of years to
enable analysts to take a long term view. These returns, or normalized earnings,
are used to establish relative values among stocks in each industrial sector.
This provides the basis for ranking the attractiveness of the companies in an
industry according to five distinct quintiles or rankings. This ranking is the
basis for 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 Investment Advisory Agreement. The
Advisor is free to and does render similar investment advisory services to
others. The Advisor serves as investment advisor to personal investors and other
investment companies and acts as fiduciary for trusts, estates and employee
benefit plans. Certain of the assets of trusts and estates under management are
invested in common trust funds for which the Advisor serves as trustee. The
accounts which are managed or advised by the Advisor have varying investment
objectives and the Advisor invests assets of such accounts in investments
substantially similar to, or the same as, those which are expected to constitute
the principal investments of the Portfolios. Such accounts are supervised by
officers and employees of the
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Advisor who may also be acting in similar capacities for the Portfolios. See
Item 17.
Sector weightings are generally similar to a Portfolio's benchmark with the
emphasis on security selection as the method to achieve investment performance
superior to the benchmark. The benchmarks for the Portfolios are currently: The
European Equity Portfolio--the MSCI Europe Index; The Japan Equity
Portfolio--the TOPIX; 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; The
Disciplined Equity Portfolio--S&P 500 Index; and The International Opportunities
Portfolio--EAFE and MSCI Emerging Markets Free Indexes.
J.P. Morgan Investment Management Inc., also a wholly-owned subsidiary of
J.P. Morgan & Co. Incorporated, 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 & Co. Incorporated 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 Advisor under the Investment
Advisory Agreement, the Portfolio Trust on behalf of each Portfolio has agreed
to pay the Advisor a fee, which is computed daily and may be paid monthly, equal
to the annual rate of the Portfolio's average daily net assets shown below.
Asia Growth Portfolio: 0.80%
European Equity Portfolio: 0.65%
Japan Equity Portfolio: 0.65%
Disciplined Equity Portfolio: 0.35%
International Opportunities Portfolio: 0.60%
The table below sets forth for each of the indicated Portfolios listed
the advisory fees to the Advisor for the fiscal periods indicated.
ASIA GROWTH PORTFOLIO--For the period April 5, 1995 (commencement of operations)
through December 31, 1995: $528,956.
EUROPEAN EQUITY PORTFOLIO--For the period March 28, 1995 (commencement of
operations) through December 31, 1995: $1,675,355.
JAPAN EQUITY PORTFOLIO--For the period March 28, 1995 (commencement of
operations) through December 31, 1995: $1,777,126.
The Investment Advisory Agreement provides that it will continue in
effect with respect to each Portfolio for a period of two years after execution
only if specifically approved annually thereafter (i) by a vote of the holders
of a majority of the Portfolio's outstanding securities or by the Portfolio
Trust's Trustees and (ii) by a vote of a majority of the Trustees who are not
parties to
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the Advisory Agreement or "interested persons" as defined by the 1940 Act cast
in person at a meeting called for the purpose of voting on such approval. The
Investment Advisory Agreement will terminate automatically if assigned and is
terminable with respect to each Portfolio at any time without penalty by a vote
of a majority of the Trustees of the Portfolio Trust or by a vote of the holders
of a majority of the Portfolio's outstanding securities on 60 days' written
notice to Morgan and by Morgan on 90 days' written notice to the Portfolio.
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 Portfolio Trust. The interpretation does not prohibit a holding company or a
subsidiary thereof from acting as investment advisor and custodian to such an
investment company. Morgan believes that it may perform the services for the
Portfolios contemplated by the Investment Advisory Agreement without violation
of the Glass-Steagall Act or other applicable banking laws or regulations. State
laws on this issue may differ from the interpretation of relevant federal law,
and banks and financial institutions may be required to register as dealers
pursuant to state securities laws. However, it is possible that future changes
in either federal or state statutes and regulations concerning the permissible
activities of banks or trust companies, as well as further judicial or
administrative 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 Trust would
recommend to investors that they approve the Portfolio Trust's entering into a
new investment advisory agreement with another qualified investment advisor
selected by the Trustees.
Under a separate agreement, Morgan also provides administrative and
related services to the Portfolio Trust (See Administrative Services Agent) in
Part A above.
CO-ADMINISTRATOR. Under the Portfolio Trust's Co-Administration
Agreement dated August 1, 1996, FDI serves as the Portfolio Trust's
Co-Administrator. The Co-Administration Agreement may be renewed or amended by
the Trustees without an investor vote. The Co-Administration Agreement is
terminable at any time without penalty by a vote of a majority of the Trustees
of the Portfolio Trust on not more than 60 days' written notice nor less than 30
days' written notice to the other party. The Co-Administrator may, subject to
the consent of the Trustees of the Portfolio Trust, subcontract for the
performance of its obligations, provided, however, that unless the Portfolio
Trust expressly agrees in writing, the Co-Administrator shall be fully
responsible for the acts and omissions of any subcontractor as it would for its
own acts or omissions. See Administrative Services Agent below.
For its services under the Co-Administration Agreement, the Portfolio
Trust has agreed to pay FDI fees equal to its allocable share of an annual
complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The amount
allocable to the Portfolio Trust is based on the ratio of its net assets to the
aggregate net assets of The JPM Pierpont Funds, The JPM Institutional Funds, the
Master Portfolios and JPM Series Trust.
The following administrative fees were paid by each of the indicated
Portfolios to Signature Broker-Dealer Services, Inc. ("SBDS") (which provided
placement agent and administrative services to the Portfolios prior to August 1,
1996):
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ASIA GROWTH PORTFOLIO--For the period April 5, 1995 (commencement of operations)
through December 31, 1995: $4,037.
EUROPEAN EQUITY PORTFOLIO--For the period March 28, 1995 (commencement of
operations) through December 31, 1995: $15,623.
JAPAN EQUITY PORTFOLIO--For the period March 28, 1995 (commencement of
operations) through December 31, 1995: $17,418.
ADMINISTRATIVE SERVICES AGENT. The Portfolio Trust has entered into a
Restated Administrative Services Agreement (the "Services Agreement") with
Morgan, pursuant to which Morgan is responsible for certain administrative and
related services provided to each Portfolio.
Under the Services Agreement, effective August 1, 1996, the Portfolio
Trust has agreed to pay Morgan 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 and JPM Series Trust in accordance with the
following annual schedule: 0.09% on the first $7 billion of their aggregate
average daily net assets and 0.04% of their average daily net assets in excess
of $7 billion, less the complex-wide fees payable to FDI. The portion of this
charge payable by each Portfolio is determined by the proportionate share that
its net assets bear to the total net assets of The JPM Pierpont Funds, The JPM
Institutional Funds, the Master Portfolios, the other investors in the Master
Portfolios for which Morgan provides similar services and JPM Series Trust.
Under administrative services agreements in effect with Morgan from
December 29, 1995 through July 31, 1996, each Master 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, the Portfolio Trust had entered into a financial and fund
accounting services agreement with Morgan, the provisions of which included
certain of the activities described above and, prior to September 1, 1995, also
included reimbursement of usual and customary expenses. Fee arrangements for
administrative services prior to August 1, 1996 did not pertain to the
Disciplined Equity and International Opportunities Portfolios. Below are set
forth for each of the indicated Portfolios the fees paid to Morgan, net of fee
waivers and reimbursements, as services agent.
ASIA GROWTH PORTFOLIO--For the period April 5, 1995 (commencement of operations)
through December 31, 1995: $21,823.
EUROPEAN EQUITY PORTFOLIO--For the period March 28, 1995 (commencement of
operations) through December 31, 1995: $128,335.
JAPAN EQUITY PORTFOLIO--For the period March 28, 1995 (commencement of
operations) through December 31, 1995: $147,974.
CUSTODIAN AND TRANSFER AGENT. State Street Bank and Trust Company
("State Street"), 40 King Street West, Toronto, Ontario, Canada M5H 3Y8, serves
as the Portfolio Trust's custodian and accounting and transfer agent. Pursuant
to the Custodian Contract, State Street is responsible for maintaining the books
of account and records of portfolio transactions and holding portfolio
securities and cash. In the case of foreign assets held outside the United
States, the Custodian employs various subcustodians who were approved by the
Trustees in accordance with the regulations of the SEC. The Custodian maintains
portfolio transaction records, calculates book and tax allocations for the
Portfolio Trust and computes the value of the interest of each investor. The
Portfolios are responsible for the fees of State Street as the custodian for the
Portfolios.
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INDEPENDENT ACCOUNTANTS. The independent accountants of the Portfolio
Trust 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 Portfolios, assists in the preparation and/or review of each
Portfolio's federal and state income tax returns and consults with the Portfolio
Trust as to matters of accounting and federal and state income taxation.
EXPENSES. In addition to the fees payable to the service providers
identified above, the Portfolio Trust is responsible for usual and customary
expenses associated with its operations. Such expenses include organization
expenses, legal fees, accounting and audit expenses, insurance costs, the
compensation and expenses of the Trustees, registration fees under federal and
foreign securities laws, and extraordinary expenses, applicable to the Portfolio
Trust. Such expenses also include brokerage expenses. Under fee arrangements
prior to September 1, 1995, that included higher fees for financial and fund
accounting services, Morgan as service agent was responsible for reimbursements
to the Portfolio Trust for SBDS's fees as Administrator and the usual and
customary expenses described above (excluding organization and extraordinary
expenses, custodian fees and brokerage expenses).
ITEM 17. BROKERAGE ALLOCATION AND OTHER PRACTICES.
The Advisor places orders for the Portfolios for all purchases and
sales of portfolio securities, enters into repurchase agreements, may enter into
reverse repurchase agreements and execute loans of portfolio securities on
behalf of the Portfolios. See Item 13 above.
Fixed income and debt securities and municipal bonds and notes are
generally traded at a net price with dealers acting as principal for their own
accounts without a stated commission. The price of the security usually includes
profit to the dealers. In underwritten offerings, securities are purchased at a
fixed price which includes an amount of compensation to the underwriter,
generally referred to as the underwriter's concession or discount. On occasion,
certain securities may be purchased directly from an issuer, in which case no
commissions or discounts are paid.
In connection with portfolio transactions for the Portfolios, the
Advisor intends to seek best price and execution on a competitive basis for both
purchases and sales of Securities.
In selecting a broker, the Advisor considers a number of factors
including: the price per unit of the security; the broker's reliability for
prompt, accurate confirmations and on-time delivery of securities; the firm's
financial condition; as well as the commissions charged. A broker may be paid a
brokerage commission in excess of that which another broker might have charged
for effecting the same transaction if, after considering the foregoing factors,
the Advisor decides that the broker chosen will provide the best possible
execution. The Advisor monitors the reasonableness of the brokerage commissions
paid in light of the execution received. The Trustees of the Portfolio Trust
review regularly the reasonableness of commissions and other transaction costs
incurred by the Portfolios in light of facts and circumstances deemed relevant
from time to time, and, in that connection, will receive reports from the
Advisor and published data concerning transaction costs incurred by
institutional investors generally. Research services provided by brokers to
which 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 a 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
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to the value of such services. The portfolio turnover rate for The European
Equity Portfolio for the period March 28, 1995 (commencement of operations)
through December 31, 1995 was 60%, the portfolio turnover rate for The Asia
Growth Portfolio for the period April 5, 1995 (commencement of operations)
through December 31, 1995 was 70%, and the portfolio turnover rate for The Japan
Equity Portfolio for the period March 28, 1995 (commencement of operations)
through December 31, 1995 was 60%.
Each of the indicated Portfolios paid the following approximate
brokerage commissions for the indicated fiscal periods:
ASIA GROWTH PORTFOLIO (December): 1995: $27,322.
EUROPEAN EQUITY PORTFOLIO (December): 1995: $143,417.
JAPAN EQUITY PORTFOLIO (December): 1995: $0.
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 involving
similar securities being purchased or sold on a securities exchange during a
comparable period of time. Furthermore, the Trustees of the Portfolio Trust,
including a majority of the Trustees who are not "interested persons," have
adopted procedures which are reasonably designed to provide that any
commissions, fees, or other remuneration paid to such affiliates are consistent
with the foregoing standard.
The Portfolio Trust's portfolio securities will not be purchased from
or through or sold to or through the Exclusive Placement Agent or Advisor or any
other "affiliated person" (as defined in the 1940 Act) of the Exclusive
Placement Agent or Advisor when such entities are acting as 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 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
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positions found to be in excess of these limits, and it may impose certain other
sanctions.
ITEM 18. CAPITAL STOCK AND OTHER SECURITIES.
Each Portfolio is a subtrust (or series) of the Portfolio Trust, which is
organized as a trust under the laws of the State of New York. Under the
Portfolio Trust's Declaration of Trust, the Trustees are authorized to issue
beneficial interests in one or more series (each a "Series"), including the
Portfolios. Investors in a Series will be held personally liable for the
obligations and liabilities of that Series (and of no other Series), subject,
however, to indemnification by the Portfolio Trust in the event that there is
imposed upon an investor a greater portion of the liabilities and obligations of
the Series than its proportionate beneficial interest in the Series. The
Declaration of Trust also provides that the Portfolio Trust shall maintain
appropriate insurance (for example, a fidelity bond and errors and omissions
insurance) for the protection of the Portfolio Trust, its investors, Trustees,
officers, employees and agents, and covering possible tort and other
liabilities. Thus, the risk of an investor incurring financial loss on account
of investor liability is limited to circumstances in which both inadequate
insurance existed and the Portfolio Trust itself was unable to meet its
obligations.
Investors in a Series are entitled to participate pro rata in
distributions of taxable income, loss, gain and credit of their respective
Series only. Upon liquidation or dissolution of a Series, investors are entitled
to share pro rata in that Series' (and no other Series) net assets available for
distribution to its investors. The Portfolio Trust reserves the right to create
and issue additional Series of beneficial interests, in which case the
beneficial interests in each new Series would participate equally in the
earnings, dividends and assets of that particular Series only (and no other
Series). Any property of the Portfolio Trust is allocated and belongs to a
specific Series to the exclusion of all other Series. All consideration received
by the Portfolio Trust for the issuance and sale of beneficial interests in a
particular Series, together with all assets in which such consideration is
invested or reinvested, all income, earnings and proceeds thereof, and any funds
or payments derived from any reinvestment of such proceeds, is held by the
Trustees in a separate subtrust (a Series) for the benefit of investors in that
Series and irrevocably belongs to that Series for all purposes. Neither a Series
nor investors in that Series possess any right to or interest in the assets
belonging to any other Series.
Investments in a Series have no preference, preemptive, conversion or
similar rights and are fully paid and nonassessable, except as set forth below.
Investments in a Series may not be transferred. Certificates representing an
investor's beneficial interest in a Series are issued only upon the written
request of an investor.
Each investor is entitled to a vote in proportion to the amount of its
investment in each Series. Investors in a Series do not have cumulative voting
rights, and investors holding more than 50% of the aggregate beneficial
interests in all outstanding Series may elect all of the Trustees if they choose
to do so and in such event other investors would not be able to elect any
Trustees. Investors in each Series will vote as a separate class except as to
voting of Trustees, as otherwise required by the 1940 Act, or if determined by
the Trustees to be a matter which affects all Series. As to any matter which
does not affect the interest of a particular Series, only investors in the one
or more affected Series are entitled to vote. The Portfolio Trust is not
required and has no current intention of holding annual meetings of investors,
but the Portfolio Trust will hold special meetings of investors when in the
judgment of the Portfolio Trust's Trustees it is necessary or desirable to
submit matters for an investor vote. The Portfolio Trust's Declaration of Trust
may be amended without the vote of investors, except that investors have the
right to approve by
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affirmative majority vote any amendment which would affect their voting rights,
alter the procedures to amend the Declaration of Trust of the Portfolio Trust,
or as required by law or by the Portfolio Trust's registration statement, or as
submitted to them by the Trustees. Any amendment submitted to investors which
the Trustees determine would affect the investors of any Series shall be
authorized by vote of the investors of such Series and no vote will be required
of investors in a Series not affected.
The Portfolio Trust or any Series (including any Portfolio) may enter
into a merger or consolidation, or sell all or substantially all of its assets,
if approved by the vote of two thirds of its investors (with the vote of each
being in proportion to its percentage of the beneficial interests in the
Series), except that if the Trustees recommend such sale of assets, the approval
by vote of a majority of the investors (with the vote of each being in
proportion to its percentage of the beneficial interests in the Series) will be
sufficient. The Portfolio Trust or any Series (including any Portfolio) may also
be terminated (i) upon liquidation and distribution of its assets if approved by
the vote of two thirds of its investors (with the vote of each being in
proportion to the amount of its investment) or (ii) by the Trustees by written
notice to its investors.
The Portfolio Trust's Declaration of Trust provides that obligations of
the Portfolio Trust are not binding upon the Trustees individually but only upon
the property of the Portfolio Trust and that the Trustees will not be liable for
any action or failure to act, but nothing in the Declaration of Trust protects a
Trustee against any liability to which he would otherwise be subject by reason
of wilful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of his office.
ITEM 19. PURCHASE, REDEMPTION AND PRICING OF SECURITIES.
Beneficial interests in each Portfolio are issued solely in private
placement transactions that do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act.
The value of investments listed on a domestic securities exchange,
other than options on stock indexes, is generally based on the last sale prices
on the New York Stock Exchange at 4:00 P.M. or, in the absence of recorded
sales, at the average of readily available closing bid and asked prices on such
exchange. Securities listed on a foreign exchange are valued at the last quoted
sale price available before the time when net assets are valued. Unlisted
securities are valued at the average of the quoted bid and asked prices in the
over-the-counter market. The value of each security for which readily available
market quotations exist is based on a decision as to the broadest and most
representative market for such security. For purposes of calculating net asset
value per share, all assets and liabilities initially expressed in foreign
currencies will be converted into U.S. dollars at the prevailing market rates
available at the time of valuation.
Options on stock indexes traded on national securities exchanges are
valued at the close of options trading on such exchanges which is currently 4:10
P.M., New York time. Stock index futures and related options, which are traded
on commodities exchanges, are valued at their last sales price as of the close
of such commodities exchanges which is currently 4:15 P.M., New York time.
Securities or other assets for which market quotations are not readily available
are valued at fair value in accordance with procedures established by and under
the general supervision and responsibility of the 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
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day prior to maturity, if their original maturity when acquired by the Portfolio
was more than 60 days, unless this is determined not to represent fair value by
the Trustees.
Trading in securities on most foreign exchanges and OTC markets is
normally completed before the close of trading on the New York Stock Exchange
and may also take place on days on which the New York Stock Exchange is closed.
If events materially affecting the value of securities occur between the time
when the exchange on which they are traded closes and the time when the
Portfolio's net asset value is calculated, such securities will be valued at
fair value in accordance with procedures established by and under the general
supervision of the Trustees.
If a Portfolio determines that it would be detrimental to the best
interest of the remaining investors in the Portfolio to make payment wholly or
partly in cash, payment of the redemption price may be made in whole or in part
by a distribution in kind of securities from the Portfolio, in lieu of cash, in
conformity with the applicable rule of the SEC. If interests are redeemed in
kind, the redeeming investor might incur transaction costs in converting the
assets into cash. The method of valuing portfolio securities is described above
and such valuation will be made as of the same time the redemption price is
determined. A Portfolio will not redeem in kind except in circumstances in which
an investor is permitted to redeem in kind.
ITEM 20. TAX STATUS.
The Portfolio Trust is organized as a New York trust. The Portfolio
Trust should not be subject to any income or franchise tax in the State of New
York. Each Portfolio should be taxed as a partnership for Federal income tax
purposes and should not be subject to Federal income tax. Each investor in a
Portfolio will be required to include in its own tax return its share (as
determined in accordance with the governing instruments of the Portfolio) of the
Portfolio's ordinary income, capital gains and losses, deductions and other
items of income in determining its income tax liability. The determination of
such share will be made in accordance with the Code, and regulations promulgated
thereunder.
Although, as described above, each Portfolio will not be subject to
federal income tax, it will file appropriate income tax returns.
It is intended that a Portfolio's assets will be managed in such a way
that an investor in the Portfolio will be able to satisfy the requirements of
Subchapter M of the Code. To ensure that investors will be able to satisfy the
requirements of subchapter M, a Portfolio must satisfy certain gross income and
diversification requirements, including, among other things, a requirement that
a Portfolio derive less than 30% of its gross income from the sale of stock,
securities, options, futures or forward contracts held less than three months.
Gains or losses on sales of securities by a Portfolio will be treated
as long-term capital gains or losses if the securities have been held by it for
more than one year except in certain cases where a put or call option is written
thereon or the straddle rules described below are otherwise applicable. 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 the repurchase of the option by the Portfolio of the option
from its holder, that 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.
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Under the Code, gains or losses attributable to disposition of foreign
currency or to foreign currency contracts, or to fluctuations in exchange rates
between the time a Portfolio accrues income or receivables or expenses or other
liabilities denominated in a foreign currency and the time that Portfolio
actually collects such income or pays such liabilities, are generally 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 that
Portfolio on forward currency contracts, options and futures contracts or on the
underlying securities. Certain straddles treated as short sales for tax purposes
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, a
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 taxable year will be required to be "marked to
market" for federal income tax purposes--i.e., treated as having been sold at
market value. For options and futures contracts, 60% of any gain or loss
recognized on these deemed sales and on actual dispositions will be treated as
long-term capital gain or loss, and the remainder will be treated as short-term
capital gain or loss regardless of how long the Portfolio has held such options
or futures. However, gain or loss recognized on foreign currency contracts will
be treated as ordinary income or loss.
The Portfolio Trust may invest in equity securities of foreign issuers.
If the Portfolio Trust purchases shares in certain foreign investment funds
(referred to as passive foreign investment companies ("PFICs") under the Code),
investors who are U.S. persons generally would be subject to special rules on
any "excess distribution" from such foreign investment fund or gain from the
disposition of such shares. Under these special rules, (i) the gain or excess
distribution would be allocated ratably over the investor's holding period for
such shares, (ii) the amount allocated to the taxable year in which the gain or
excess distribution was realized would be taxable as ordinary income, (iii) the
amount allocated to each prior year, with certain exceptions, would be subject
to tax at the highest tax rate in effect for that year and (iv) the interest
charge generally applicable to underpayments of tax would be imposed in respect
of the tax attributable to each such year. Alternatively, an investor may, if
certain conditions are met, include in its income each year a pro rata portion
of the foreign investment fund's income, whether or not distributed to the
Portfolio Trust.
FOREIGN INVESTORS. It is intended that the Portfolio Trust will conduct
its affairs such that its income and gains will not be effectively connected
with the conduct of a U.S. trade or business. Provided the Portfolio Trust
conducts its affairs in such a manner, allocations of U.S. source dividend
income to an investor who, as to the United States, is a foreign trust, foreign
corporation or other foreign investor will be subject to U.S. withholding tax at
the rate of 30% (or lower treaty rate), and allocations of portfolio interest
(as defined in the Code) or short term or net long term capital gains to such
investors generally will not be subject to U.S. tax.
STATE AND LOCAL TAXES. A Portfolio may be subject to state or local
taxes in jurisdictions in which the Portfolio is deemed to be doing business. In
addition, the treatment of the Portfolio and its investors in those states which
have income tax laws might differ from treatment under the federal income tax
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B-33
<PAGE>
laws. Investors should consult their own tax advisors with respect to any state
or local taxes.
FOREIGN TAXES. A Portfolio may be subject to foreign withholding taxes
with respect to income received from sources within foreign countries. Investors
are advised to consult their own tax advisers with respect to the reporting of
such foreign taxes on the investors' income tax returns.
OTHER TAXATION. The investment by an investor in a Portfolio does not
cause the investor to be liable for any income or franchise tax in the State of
New York arising solely from such investment. Investors are advised to consult
their own tax advisors with respect to the particular tax consequences to them
of an investment in a Portfolio.
ITEM 21. UNDERWRITERS.
The placement agent for the Portfolio Trust is FDI, which receives no
additional compensation for serving in this capacity. Investment companies,
insurance company separate accounts, common and commingled trust funds and
similar organizations and entities may continuously invest in the Portfolio
Trust.
ITEM 22. CALCULATIONS OF PERFORMANCE DATA.
Not applicable.
ITEM 23. FINANCIAL STATEMENTS.
The Portfolio Trust's current annual and semi-annual reports to
investors filed with the SEC pursuant to Section 30(b) of the 1940 Act and Rule
30b2-1 thereunder (except for the Disciplined Equity and International
Opportunities Portfolios) are incorporated herein by reference.
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<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.
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<PAGE>
While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what
are generally known as high grade bonds. They are rated lower
than the best bonds because margins of protection may not be
as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other
elements present which make the long term risks appear
somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest
are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor
poorly secured. Interest payments and principal security
appear adequate for the present but certain protective
elements may be lacking or may be characteristically un-
reliable over any great length of time. Such bonds lack out-
standing 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.
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Appendix 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
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<PAGE>
incurred and may cease to qualify for the favorable tax treatment afforded to
regulated investment companies under the Code, in which case it would become
subject to U.S. federal income tax on all of its income and gains.
Generally, there are restrictions on foreign investment in certain
Asian growth markets, although these restrictions vary in form and content. In
India, Indonesia, Korea, Malaysia, the Philippines, Singapore and Thailand, the
Portfolio may be limited by government regulation or a company's charter to a
maximum percentage of equity ownership in any one company.
The Advisor intends to apply 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
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Appendix B-2
<PAGE>
involve greater risk than is customarily associated with investing in larger
companies. Smaller companies may have limited product lines, markets or
financial or managerial resources and may be more susceptible to losses and
risks of bankruptcy. Additionally, market making and arbitrage activities are
generally less extensive in such markets, which may contribute to increased
volatility and reduced liquidity of such markets. Accordingly, each of these
markets may be subject to greater influence by adverse events generally
affecting the market, and by large investors trading significant blocks of
securities, than is usual in the United States. To the extent that any Asian
growth market experiences rapid increases in its money supply and investment in
equity securities for speculative purposes, the equity securities traded in any
such country may trade at price-earnings multiples higher than those of
comparable companies trading on securities markets in the United States, which
may not be sustainable. Securities markets in Asian growth markets may also be
subject to substantial governmental control, which may cause sudden or prolonged
disruptions in market prices unrelated to supply and demand considerations. This
may also be true of currency markets.
Brokerage commissions and other transaction costs on securities
exchanges in Asian growth markets are generally higher than in the United
States. In addition, security settlements may in some instance be subject to
delays and related administrative uncertainties, including risk of loss
associated with the credit of local brokers.
GOVERNMENT SUPERVISION OF ASIAN SECURITIES MARKETS; LEGAL SYSTEMS. There is
less government supervision and regulation of foreign securities exchanges,
listed companies and brokers in Asian growth markets than exists in the United
States. Less information, therefore, may be available to the Portfolio 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 Portfolio 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
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Appendix B-3
<PAGE>
and securities markets. Moreover, substantially less information may be publicly
available about issuers in Asian growth markets than is available about U.S.
issuers.
SOCIAL, POLITICAL AND ECONOMIC FACTORS
Asian growth markets may be subject to a greater degree of social,
political and economic instability than is the case in the United States and
Western European countries. Such instability may result from, among other
things, the following: (i) authoritarian governments or military involvement in
political and economic decision-making, and changes in government through extra-
constitutional means; (ii) popular unrest associated with demand for improved
political, economic and social conditions; (iii) internal insurgencies, (iv) war
or hostile relations with neighboring countries; and (v) ethnic, religious and
racial disaffection. Such social, political and economic instability could
significantly disrupt the principal financial markets in which the Portfolio
invests and adversely affect the value of the Portfolio's assets. In addition,
here 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
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Appendix B-4
<PAGE>
for foreign investment, and prospects of private sector enterprises, in the PRC,
will depend in many respects on the implementation of the PRC's current program
of economic reform, which cannot be assured.
In Hong Kong, British proposals to extend limited democracy have caused
a political rift with the PRC, which is scheduled to assume sovereignty over the
colony in 1997. Although the PRC has committed by treaty to preserve the
economic and social freedoms enjoyed in Hong Kong for 50 years after regaining
control of Hong Kong, the continuation of the current form of the economic
system in Hong Kong after the reversion will depend on the actions of the
government of the PRC. In addition, such reversion has increased sensitivity in
Hong Kong to political developments and statements by public figures in the PRC.
Business confidence in Hong Kong, therefore, can be significantly affected by
such developments and statements, which in turn can affect markets and business
performance.
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
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Appendix B-5
<PAGE>
registration process is completed and may experience delays in receipt of
dividends and other entitlement. The recent and anticipated inflow of funds into
the Indian securities market has placed added strains on the settlement system
and transfer process. In addition, the Portfolio may be subject to significant
limitations in the future on the volume of trading during any particular period,
imposed by its sub-custodian in India or otherwise as a result of such physical
or other operational constraints.
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Appendix B-6
<PAGE>
PART C
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS
The audited financial statements included in Part B of this Registration
Statement are as follows:
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 at December 31, 1995
Notes to Financial Statements at December 31, 1995
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 at December 31, 1995
Notes to Financial Statements at December 31, 1995
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 at December 31, 1995
Notes to Financial Statements at December 31, 1995
The unaudited financial statements included in Part B of this Registration
Statement are as follows:
THE ASIA GROWTH PORTFOLIO
Schedule of Investments at June 30, 1996
Statement of Assets and Liabilities at June 30, 1996
Statement of Operations for the period January 1, 1996 through June 30,
1996 Statement of Changes in Net Assets
Supplementary Data at June 30, 1996
Notes to Financial Statements at June 30, 1996
THE EUROPEAN EQUITY PORTFOLIO
Schedule of Investments at June 30, 1996
Statement of Assets and Liabilities at June 30, 1996
Statement of Operations for the period January 1, 1996 through June 30,
1996
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<PAGE>
Statement of Changes in Net Assets
Supplementary Data at June 30, 1996
Notes to Financial Statements at June 30, 1996
THE JAPAN EQUITY PORTFOLIO
Schedule of Investments at June 30, 1996
Statement of Assets and Liabilities at June 30, 1996
Statement of Operations for the period January 1, 1996 through June 30,
1996 Statement of Changes in Net Assets
Supplementary Data at June 30, 1996
Notes to Financial Statements at June 30, 1996
(B) EXHIBITS
1 Declaration of Trust of the Registrant.1
1(a) Amendment No. 1 to Declaration of Trust.3
2 Restated By-Laws of the Registrant.3
5 Investment Advisory Agreement between the Registrant and Morgan Guaranty
Trust Company of New York ("Morgan Guaranty").1
5(a) Amended Schedule A to Investment Advisory Agreement.3
8 Custodian Contract between the Registrant and State Street Bank and Trust
Company ("State Street").3
9(a) Co-Administration Agreement between the Registrant and Funds Distributor,
Inc. dated August 1, 1996 ("Co-Administration Agreement").2
9(a)1 Amended Exhibit I to Co-Administration Agreement.3
9(b) Transfer Agency and Service Agreement between the Registrant and State
Street.3
9(c) Restated Administrative Services Agreement between the Registrant and
Morgan dated August 1, 1996 ("Administrative Services Agreement").2
9(c)1 Amended Exhibit I to Administrative Services Agreement.3
9(d) Amended and Restated Portfolio Fund Services Agreement between the
Registrant and Pierpont Group, Inc. dated July 11, 1996.2
13 Investment representation letters of initial investors.3
17.1 Financial Data Schedule for The Asia Growth Portfolio.3
17.2 Financial Data Schedule for The European Equity Portfolio.3
17.3 Financial Data Schedule for The Japan Equity Portfolio.3
----------------------
1 Incorporated herein by reference from the Registrant's Registration Statement
as filed with the Securities and Exchange Commission (the "SEC") on May 1,
1996 (Accession No.: 0000943185-96-000061).
2 Incorporated by reference from the Registrant's Registration Statement as
filed with the SEC on October 9, 1996 (Accession No.: 0000912057-96-022359).
3 Filed herewith.
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C-2
<PAGE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
No person is controlled by or under common control with the Registrant.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
Title of Class: Beneficial Interests
As of November 30, 1996, the number of record holders were as follows:
The Asia Growth Portfolio 3
The European Equity Portfolio 3
The Japan Equity Portfolio 3
The Disciplined Equity Portfolio 0
The International Opportunities Portfolio 0
ITEM 27. INDEMNIFICATION.
Reference is hereby made to Article V of the Registrant's Declaration
of Trust, filed as an exhibit herewith.
The Trustees and officers of the Registrant and the personnel of the
Registrant's co-administrator are insured under an errors and omissions
liability insurance policy. The Registrant and its officers are also insured
under the fidelity bond required by Rule 17g-1 under the Investment Company Act
of 1940, as amended.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Morgan is a New York trust company which is a wholly-owned subsidiary of
J.P. Morgan & Co. Incorporated. Morgan conducts a general Banking and trust
business.
To the knowledge of the Registrant, none of the directors, except those
set forth below, or executive officers of Morgan is or has been during the past
two fiscal years engaged in any other business, profession, vocation or
employment of a substantial nature, except that certain officers and directors
of Morgan also hold various positions with, and engage in business for, J.P.
Morgan & Co. Incorporated, which owns all the outstanding stock of Morgan. Set
forth below is the name, address, and principal business of each director of
Morgan who is engaged in another business, profession, vocation or employment of
a substantial nature.
Riley P. Bechtel: Chairman and Chief Executive Officer, Bechtel Group, Inc.
(architectural design and construction). His address is Bechtel Group, Inc.,
P.O. Box 193965, San Francisco, CA 94119-3965.
Martin Feldstein: President and Chief Executive Officer, National Bureau of
Economic Research, Inc. (national research institution). His address is National
Bureau of Economic Research, Inc., 1050 Massachusetts Avenue, Cambridge, MA
02138-5398.
Hanna H. Gray: President Emeritus, The University of Chicago (academic
institution). Her address is Department of History, The University of Chicago,
1126 East 59th Street, Chicago, IL 60637.
James R. Houghton: Retired Chairman, Corning Incorporated (glass products).
His Address is R.D. #2 Spencer Hill Road, Corning, NY 14830.
James L. Ketelsen: Retired Chairman and Chief Executive Officer, Tenneco
Inc. (oil, pipe-lines, and manufacturing). His address is Tenneco, Inc., P.O.
Box 2511, Houston, TX 77252-2511.
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Lee R. Raymond: Chairman and Chief Executive Officer, Exxon Corporation
(oil, natural gas, and other petroleum products). His address is Exxon
Corporation, 5959 Las Colinas Boulevard, Irving, TX 75039-2298.
Richard D. Simmons: Former President, The Washington Post Company and
International Herald Tribune (newspapers). His address is P.O. Box 242,
Sperryville, VA 22740.
Douglas C. Yearley: Chairman, President, and Chief Executive Officer,
Phelps Dodge Corporation (chemicals). His address is Phelps Dodge Corporation,
2600 N. Central Avenue, Phoenix, AZ 85004-3014.
ITEM 29. PRINCIPAL UNDERWRITERS.
Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
The accounts and records of the Registrant are located, in whole or in
part, at the office of the Registrant and the following locations:
Pierpont Group, Inc., 461 Fifth Avenue, New York, New York 10017
(records relating to its assisting the Trustees in carrying out their duties in
supervising the Registrant's affairs).
Morgan Guaranty Trust Company of New York, 60 Wall Street, New York, NY
10260-0060 and 522 Fifth Avenue, New York, NY 10036 (records relating to its
functions as investment advisor and administrative services agent).
State Street Bank and Trust Company, 40 King Street West, Toronto,
Ontario, Canada M5H 3Y8 (records relating to its functions as custodian and
Portfolio accountant and transfer agent).
Funds Distributor, Inc., in care of State Street Cayman Trust Company,
Ltd., at Elizabethan Square, Shedden Road, George Town, Grand Cayman, Cayman
Islands (records relating to its functions as co-administrator and exclusive
placement agent).
ITEM 31. MANAGEMENT SERVICES.
Not applicable.
ITEM 32. UNDERTAKINGS.
Not applicable.
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SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940, the
Registrant has duly caused this Registration Statement on Form N-1A to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
George Town, Grand Cayman, Cayman Islands, B.W.I., on the day of December, 1996.
THE SERIES PORTFOLIO
By: /S/LENORE J. MCCABE
------------------------
Lenore J. McCabe
Assistant Secretary and
Assistant Treasurer
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INDEX TO EXHIBITS
Exhibit No.
Ex-99.B1(a) Amendment to Declaration of Trust
Ex-99.B2 Restated By-Laws
Ex-99.B5(a) Amended Schedule A to Investment Advisory Agreement
Ex-99.B8 Custodian Contract
Ex-99.B9(a)1 Amended Exhibit I to Co-Administration Agreement
Ex-99.B9(b) Transfer Agency and Service Agreement
Ex-99.B9(c)1 Amended Exhibit I to Administrative Services Agreement
Ex-99.B13 Investment representation letters of initial investors
Ex-27.1 Financial Data Schedule for The Asia Growth Portfolio
Ex-27.2 Financial Data Schedule for The European Equity Portfolio
Ex-27.3 Financial Data Schedule for The Japan Equity Portfolio
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The Series Portfolio
Amendment No. 1 to Declaration of Trust
by Written Consent of Trustees
Abolishment and Establishment of Series
October 10, 1996
Hamilton, Bermuda
The undersigned, being the Trustees of The Series Portfolio (the
"Trust"), pursuant to Article VI Section 6.2 of the Trust's Declaration of Trust
dated as of June 24, 1995 (the "Declaration"), hereby adopt the following
resolutions applicable to the Trust and its Series (as defined in the
Declaration):
RESOLVED: That, there being no Interest outstanding in sixteen initial Series
of the Trust, the following such Series and their establishment and
designation are hereby abolished:
The China Portfolio
The India Portfolio
The Mexico Portfolio
The Eastern European Growth Portfolio
The Structured Equity Portfolio
The Australian Equity Portfolio
The European Small Company Portfolio
The International Short Term Bond Portfolio
The European Bond Portfolio
The Global Bond Portfolio
The Asian Bond Portfolio
The Latin American Bond Portfolio
The Global Money Market Portfolio
The European Money Market Portfolio
The German Money Market Portfolio
The Japanese Money Market Portfolio
FURTHER
RESOLVED: The Trustees hereby establish and designate five additional
Series, such Series together with the Trust's four remaining
initial Series totalling nine Series (each a "Portfolio" and
collectively the "Portfolios") of the Trust.
The Portfolios shall be redesignated or designated as follows:
The Asia Growth Portfolio
The Japan Equity Portfolio
The European Equity Portfolio
The Latin American Equity Portfolio
The Disciplined Equity Portfolio
The Global Strategic Income Portfolio
The International Opportunities Portfolio
The Small Company Growth Portfolio
The Emerging Markets Debt Portfolio
FURTHER
RESOLVED: The Interests in each Portfolio shall have the relative rights
and preferences provided in the Declaration.
IN WITNESS WHEREOF, the undersigned have executed this instrument,
attested by the Trust's Secretary, on the 10th day of October, 1996. This
<PAGE>
instrument may be executed by the Trustees on separate counterparts but shall be
effective when signed by a majority of the Trustees and so attested.
/s/ Frederick S. Addy
Frederick S. Addy
/s/ William G. Burns
William G. Burns
/s/ Arthur C. Eschenlauer
Arthur C. Eschenlauer
/s/ Matthew Healey
Matthew Healey
/s/ Michael P. Mallardi
Michael P. Mallardi
Attest:
/s/ John E. Pelletier
John E. Pelletier
Secretary
JPM530
JPM345A
AMENDED AND RESTATED BY-LAWS
OF
EACH MASTER TRUST LISTED ON SCHEDULE I
AND
EACH FEEDER TRUST LISTED ON SCHEDULE II
AND
EACH STAND ALONE TRUST LISTED ON SCHEDULE III
ARTICLE I
DEFINITIONS
Each Trust listed on Schedule I is referred to in these By-Laws as a
"Master Trust". Each Trust listed on Schedule II is referred to in these By-Laws
as a "Feeder Trust". Each Trust listed on Schedule III is referred to in these
By-Laws as a "Stand Alone Trust".
In the case of each Trust, unless otherwise specified, capitalized
terms have the respective meanings given them in the Declaration of Trust of
such Trust dated as of the date set forth in Schedule I, II or III, as amended
from time to time. In the case of each Feeder Trust and each Stand Alone Trust,
the term "Holder" has the meaning given the term "Shareholder" in the respective
Declarations of Trust.
ARTICLE II
OFFICES
Section 1. Principal Office. In the case of each Master Trust, the
principal office of the Trust shall be in such place as the Trustees may
determine from time to time, provided that the principal office shall be outside
the United States of America if the Trustees determine that the Trust is
intended to be operated so that it is not engaged in United States trade or
business for United States federal income tax purposes. In the case of each
Feeder Trust and each Stand Alone Trust, until changed by the Trustees, the
principal office of the Trust in the Commonwealth of Massachusetts shall be in
the City of Boston, County of Suffolk.
Section 2. Other Offices. The Trust may have offices in such other
places without as well as within the state of its organization and the United
States of America as the Trustees may from time to time determine.
ARTICLE III
HOLDERS
Section 1. Meetings of Holders. Meetings of Holders may be called at
any time by a majority of the Trustees and shall be called by any Trustee upon
written request of Holders holding, in the aggregate, not less than 10% of the
Interests in the case of each Master Trust or 10% of the voting securities
entitled to vote thereat in the case of each Feeder Trust and each Stand Alone
Trust, such request specifying the purpose or purposes for which such meeting is
to be called.
Any such meeting shall be held within or without the state of
organization of the Trust and within, or, if applicable, in the case of a Master
Trust only without, the United States of America on such day
<PAGE>
and at such time as
the Trustees shall designate. Holders of one third of the Interests in the case
of each Master Trust or one third of the voting securities entitled to vote
thereat in the case of each Feeder Trust and each Stand Alone Trust, present in
person or by proxy, shall constitute a quorum for the transaction of any
business, except as may otherwise be required by the 1940 Act, other applicable
law, the Declaration or these By-Laws. If a quorum is present at a meeting, an
affirmative vote of the Holders present in person or by proxy, holding more than
50% of the total Interests in the case of each Master Trust, or 50% of the
voting securities entitled to vote thereat in the case of each Feeder Trust and
each Stand Alone Trust, present, either in person or by proxy, at such meeting
constitutes the action of the Holders, unless a greater number of affirmative
votes is required by the 1940 Act, other applicable law, the Declaration or
these By-Laws.
All or any one or more Holders may participate in a meeting of Holders
by means of a conference telephone or similar communications equipment by means
of which all persons participating in the meeting can hear each other, and
participation in a meeting by means of such communications equipment shall
constitute presence in person at such meeting.
In the case of The Series Portfolio or any Feeder Trust or any Stand
Alone Trust, whenever a matter is required to be voted by Holders of the Trust
in the aggregate under Section 9.1 and Section 9.2 of the Declaration of The
Series Portfolio or Section 6.8 and Section 6.9 and Section 6.9(g) of the
Declaration of the Feeder Trust and the Stand Alone Trust, the Trust may either
hold a meeting of Holders of all series, as defined in Section 1.2 of the
Declaration of The Series Portfolio or Section 6.9 of the Declaration of the
Feeder Trust and the Stand Alone Trust, to vote on such matter, or hold separate
meetings of Holders of each of the individual series to vote on such matter,
provided that (i) such separate meetings shall be held within one year of each
other, (ii) a quorum consisting of the Holders of one third of the voting
securities of the individual series entitled to vote shall be present at each
such separate meeting except as may otherwise be required by the 1940 Act, other
applicable law, the Declaration or these By-Laws and (iii) a quorum consisting
of the Holders of one third of all voting securities of the Trust entitled to
vote, except as may otherwise be required by the 1940 Act, other applicable law,
the Declaration or these By-Laws, shall be present in the aggregate at such
separate meetings, and the votes of Holders at all such separate meetings shall
be aggregated in order to determine if sufficient votes have been cast for such
matter to be voted.
Section 2. Notice of Meetings. Notice of each meeting of Holders,
stating the time, place and purpose of the meeting, shall be given by the
Trustees by mail to each Holder, at its registered address, mailed at least 10
days and not more than 60 days before the meeting. Notice of any meeting may be
waived in writing by any Holder either before or after such meeting. The
attendance of a Holder at a meeting shall constitute a waiver of notice of such
meeting except in the situation in which a Holder attends a meeting for the
express purpose of objecting to the transaction of any business on the ground
that the meeting was not lawfully called or convened. At any meeting, any
business properly before the meeting may be considered whether or not stated in
the notice of the meeting. Any adjourned meeting may be held as adjourned
without further notice.
In the case of The Series Portfolio and each Feeder Trust and each
Stand Alone Trust, where separate meetings are held for Holders of each of the
individual series to vote on a matter required to be voted on by
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<PAGE>
Holders of the
Trust in the aggregate, as provided in Article III, Section 1 above, notice of
each such separate meeting shall be provided in the manner described above in
this Section 2.
Section 3. Record Date for Meetings. For the purpose of determining the
Holders who are entitled to notice of and to vote at any meeting, the Trustees
may from time to time fix a date, not more than 90 days prior to the date of any
meeting of Holders as a record date for the determination of the Persons to be
treated as Holders for such purpose.
In the case of The Series Portfolio and each Feeder Trust and each
Stand Alone Trust, where separate meetings are held for Holders of each of the
individual series to vote on a matter required to be voted on by Holders of the
Trust in the aggregate, as provided in Article III, Section 1 above, the record
date of each such separate meeting shall be determined in the manner described
above in this Section 3.
Section 4. Voting, Proxies, Inspectors of Election. At any meeting of
Holders, any Holder entitled to vote thereat may vote by proxy, provided that no
proxy shall be voted at any meeting unless it shall have been placed on file
with the Secretary, or with such other officer or agent of the Trust as the
Secretary may direct, for verification prior to the time at which such vote is
to be taken. A proxy may be revoked by a Holder at any time before it has been
exercised by placing on file with the Secretary, or with such other officer or
agent of the Trust as the Secretary may direct, a later dated proxy or written
revocation. Pursuant to a resolution of a majority of the Trustees, proxies may
be solicited in the name of the Trust or of one or more Trustees or of one or
more officers of the Trust. No proxy shall be valid after one year from the date
of its execution, unless a longer period is expressly stated in the proxy.
In the case of each Master Trust, only Holders on the record date shall
be entitled to vote and each such Holder shall be entitled to a vote
proportionate to its Interest. In the case of each Feeder Trust, (i) only
Holders on the record date shall be entitled to vote, and (ii) each whole Share
shall be entitled to vote as to any matter on which it is entitled to vote and
each fractional Share shall be entitled to a proportionate fractional vote,
except that Shares held in the treasury of the Trust shall not be voted. In the
case of each Stand Alone Trust, unless the Trustees determine that each Share
will entitle Holders to one vote per Share, on any matter submitted to a vote of
Holders of Shares of any series or class thereof, if any, each dollar of net
asset value (number of Shares owned times net asset value per Share of such
series or class, as applicable) shall be entitled to one vote on any matter on
which such shares are entitled to vote and each fractional dollar amount shall
be entitled to a proportionate fractional vote, except that Shares held in the
treasury of the Trust shall not be voted. In the case of each Feeder Trust and
each Stand Alone Trust, (i) Shares shall be voted by individual series or
classes thereof, if any, on any matter submitted to a vote of the Holders of the
Trust except as provided in Section 6.9(g) of the Declaration, and (ii) at any
meeting of Holders of the Trust or of any series or class thereof, if any, a
Shareholder Servicing Agent may vote any Shares as to which such Shareholder
Servicing Agent is the agent of record.
The Chairman of the meeting may, and upon the request of the Holders of
10% of the Interests or Shares, as the case may be, entitled to vote at such
election shall, appoint one or three inspectors of election who shall first
subscribe an oath or affirmation to execute faithfully the duties of inspectors
at such election with strict impartiality and according to the best of their
ability, and shall after
3
<PAGE>
the election certify the result of the vote taken. No
candidate for Trustee shall be appointed such inspector. If there are three
inspectors of election, the decision, act or certification of a majority is
effective in all respects as the decision, act or certificate of all.
At every meeting of the Holders, all proxies shall be required and
taken in charge of and all ballots shall be required and canvassed by the
Secretary of the meeting, who shall decide all questions touching the
qualification of voters, the validity of the proxies, the acceptance or
rejection of votes and any other questions related to the conduct of the vote
with fairness to all Holders, unless inspectors of election shall have been
appointed, in which event the inspectors of election shall decide all such
questions. On request of the Chairman of the meeting, or of any Holder or his
proxy, the Secretary shall make a report in writing of any question determined
and shall execute a certificate of facts found, unless inspectors of election
shall have been appointed, in which event the inspectors of election shall do
so.
When an Interest is held or Shares are held jointly by several Persons,
any one of them may vote at any meeting in person or by proxy in respect of such
Interest or Shares, but if more than one of them is present at such meeting in
person or by proxy, and such joint owners or their proxies so present disagree
as to any vote to be cast, such vote shall not be received in respect of such
Interest or Shares. A proxy purporting to be executed by or on behalf of a
Holder shall be deemed valid unless challenged at or prior to its exercise, and
the burden of proving invalidity shall rest on the challenger.
Section 5. Holder Action by Written Consent. In the case of each Master
Trust, any action which may be taken by Holders may be taken without a meeting
if Holders of all Interests entitled to vote consent to the action in writing
and the written consents are filed with the records of the meetings of Holders.
In the case of each Feeder Trust and each Stand Alone Trust, any action which
may be taken by Holders may be taken without a meeting if Holders holding a
majority of Shares entitled to vote on the matter (or such larger proportion
thereof as shall be required by law, the Declaration or these By-Laws for
approval of such matter) consent to the action in writing and the written
consents are filed with the records of the meetings of Holders.
Such consents shall be treated for all purposes as a vote taken at a
meeting of Holders. Each such written consent shall be executed by or on behalf
of the Holder delivering such consent and shall bear the date of such execution.
No such written consent shall be effective to take the action referred to
therein unless, within one year of the earliest dated consent, written consents
executed by a sufficient number of Holders to take such action are filed with
the records of the meetings of Holders.
Section 6. Conduct of Meetings. The meetings of the Holders shall be
presided over by the Chairman, or if he is not present, by a Chairman to be
elected at the meeting. The Secretary of the Trust, if present, shall act as
secretary of such meetings, or if he is not present, an Assistant Secretary
shall so act; if neither the Secretary nor any Assistant Secretary is present,
then the meeting shall elect its secretary
4
<PAGE>
ARTICLE IV
TRUSTEES
Section 1. Place of Meeting, etc. The Trustees may hold their meetings,
have one or more offices, and keep the books of the Trust, inside or outside the
state of organization of the Trust or the United States of America, at any
office of the Trust or at any other place as they may from time to time
determine, or in the case of meetings, as they may from time to time determine
or as shall be specified or fixed in the respective notices or waivers of notice
thereof.
Section 2. Meetings. Meetings of the Trustees shall be held from time
to time upon the call of the Chairman or any two Trustees. The President, the
Secretary or an Assistant Secretary may call meetings only upon the written
direction of the Chairman or two Trustees. The Trustees shall hold an annual
meeting for the election of officers and transaction of other business which may
come before such meeting. Regular meetings of the Trustees may be held without
call or notice at a time and place fixed by resolution of the Trustees. Notice
of any other meeting shall be mailed or otherwise given not less than 24 hours
before the meeting but may be waived in writing by any Trustee either before or
after such meeting. Notice shall be given of any proposed action to be taken by
written consent. Notice of a meeting or proposed action to be taken by written
consent may be given by telegram (which term shall include a cablegram), by
telecopier or delivered personally (which term shall include by telephone), as
well as by mail. The attendance of a Trustee at a meeting shall constitute a
waiver of notice of such meeting except in the situation in which a Trustee
attends a meeting for the express purpose of objecting to the transaction of any
business on the ground that the meeting was not lawfully called or convened.
Neither the business to be transacted at, nor the purpose of, any meeting of the
Trustees need be stated in the notice or waiver of notice of such meeting.
Section 3. Quorum. A quorum for all meetings of the Trustees shall be a
majority of the Trustees. Unless provided otherwise in the Declaration, the 1940
Act or other applicable law, any action of the Trustees may be taken at a
meeting by vote of a majority of the Trustees present (a quorum being present).
In the absence of a quorum, a majority of the Trustees present may adjourn the
meeting from time to time until a quorum shall be present. Notice of an
adjourned meeting need not be given.
With respect to actions of the Trustees, Trustees who are Interested
Persons of the Trust or otherwise interested in any action to be taken may be
counted for quorum purposes and shall be entitled to vote to the extent
permitted by the 1940 Act.
Section 4. Committees. The Trustees, by the majority vote of all the
Trustees then in office, may appoint from the Trustees committees which shall in
each case consist of such number of Trustees (not less than two) and shall have
and may exercise such powers as the Trustees may determine in the resolution
appointing them. Unless provided otherwise in the Declaration or by the
Trustees, a majority of all the members of any such committee may determine its
actions and fix the time and place of its meetings. With respect to actions of
any committee, Trustees who are Interested Persons of the Trust or otherwise
interested in any action to be taken may be counted for quorum purposes and
shall be entitled to vote to the extent permitted by the 1940 Act. The Trustees
shall have power at any time to change the members and powers of any such
committee, to fill vacancies and to discharge any such committee. Each committee
5
<PAGE>
shall keep regular minutes of its meetings and cause them to be filed with the
minutes of the proceedings of the Trustees.
Section 5. Telephone Meetings. All or any one or more Trustees may
participate in a meeting of the Trustees or any committee thereof by means of a
conference telephone or similar communications equipment by means of which all
individuals participating in the meeting can hear each other, and participating
in a meeting by means of such communications equipment shall constitute presence
in person at such meeting. Any conference telephone meeting shall be deemed to
have been held at a place designated by the Trustees at the meeting.
Section 6. Action without a Meeting. Any action required or permitted
to be taken at any meeting of the Trustees or any committee thereof may be taken
without a meeting, if a written consent to such action is signed either by all
the Trustees or all members of such committee then in office or by an 80%
majority of the Trustees or an 80% majority of members of such committee,
provided that no action by 80% majority consent shall be effective unless and
until (i) each Trustee or committee member signing such consent shall have been
advised in writing of the following information: the identity of any Trustee or
committee member not signing such consent and the reasons for his not signing;
and (ii) after receiving such information signing Trustees or committee members
who represent an 80% majority then in office indicate in writing that the
consent shall become effective by 80% majority, rather than unanimous, consent.
All such effective written consents shall be filed with the minutes of the
proceedings of the Trustees and treated as a vote for all purposes.
Section 7. Compensation. The Trustees shall be entitled to receive
such compensation from the Trust for their services as may from time to time
be voted by the Trustees.
Section 8. Chairman. The Trustees may, by a majority vote of all the
Trustees, elect from their own number a Chairman, to serve until his successor
shall have been duly elected and qualified; the Chairman may serve on committees
of the Trustees. The Chairman shall not be an officer of the Trust solely by
virtue of his serving as Chairman. The Chairman shall preside at all meetings of
the Trustees at which he is present, shall serve as the liaison between the
Trustees and the officers of the Trust and between the Trustees and their staff
and shall have such other duties as from time to time may be assigned to him by
the Trustees.
Section 9. Trustees' Staff; Counsel for the Trust and Trustees, etc.
The Trustees may employ or contract with one or more Persons to serve as their
staff and to provide such services related thereto as may be determined from
time to time. The Trustees may employ attorneys as counsel for the Trust and/or
the Trustees and may engage such other experts or consultants as may be
determined from time to time.
ARTICLE V
OFFICERS
Section 1. General Provisions. The Trustees may elect or appoint such
officers or agents as the business of the Trust may require, including without
limitation a Chief Executive Officer, a President, one or more Vice Presidents,
a Treasurer, a Secretary, one or more Assistant Treasurers and one or more
Assistant Secretaries. The Trustees may delegate to any officer or committee the
power to appoint any subordinate officers or agents.
6
<PAGE>
Section 2. Term of Office and Qualifications. Except as otherwise
provided by law, the Declaration or these ByLaws, each of the principal
executive officer described in Section 4 below, the Treasurer and the Secretary
shall hold office until a successor shall have been duly elected and qualified,
and any other officers shall hold office at the pleasure of the Trustees. Any
two or more offices may be held by the same Person, provided that at least two
different individuals shall serve as officers. Any officer may be, but does not
need be, a Trustee.
Section 3. Removal. The Trustees may remove any officer with or without
cause by a vote of a majority of the Trustees. Any subordinate officer or agent
appointed by any officer or committee may be removed with or without cause by
such appointing officer or committee.
Section 4. Powers and Duties of the Chief Executive Officer; President.
The Chief Executive Officer, if any, shall be the principal executive officer of
the Trust. Subject to the control of the Trustees, the Chief Executive Officer
shall (i) at all times exercise general supervision and direction over the
affairs of the Trust, (ii) have the power to grant, issue, execute or sign such
documents as may be deemed advisable or necessary in the ordinary course of the
Trust's business and (iii) have such other powers and duties as from time to
time may be assigned by the Trustees.
If there is no Chief Executive Officer, the President shall be the
principal executive officer of the Trust and shall have the powers and duties
set forth above in this Section 4. If there is a Chief Executive Officer and a
President, the President shall have such powers and duties as from time to time
may be assigned by the Trustees or the Chief Executive Officer.
Section 5. Powers and Duties of Vice Presidents. In the absence or
disability of the President, any Vice President designated by the Trustees or
the President shall perform all the duties, and may exercise any of the powers,
of the President. Each Vice President shall perform such other duties as from
time to time may be assigned to him by the Trustees or the Chief Executive
Officer.
Section 6. Powers and Duties of the Treasurer. The Treasurer shall be
the principal financial and accounting officer of the Trust. The Treasurer shall
deliver all funds of the Trust which may come into his hands to the Trust's
custodian. The Treasurer shall render a statement of condition of the finances
of the Trust to the Trustees as often as they shall require the same and shall
in general perform all the duties incident to the office of Treasurer and such
other duties as from time to time may be assigned to him by the Trustees.
Section 7. Powers and Duties of the Secretary. The Secretary shall keep
the minutes of all meetings of the Holders in proper books provided for that
purpose; shall keep the minutes of all meetings of the Trustees; shall have
custody of the seal of the Trust, if any; and shall have charge of the Holder
lists and records unless the same are in the charge of the Transfer Agent. The
Secretary shall attend to the giving and serving of notices by the Trust in
accordance with the provisions of these By-Laws and as required by law; and
subject to these By-Laws, shall in general perform all the duties incident to
the office of Secretary and such other duties as from time to time may be
assigned to him by the Trustees.
Section 8. Powers and Duties of Assistant Treasurers. In the absence or
disability of the Treasurer, any Assistant Treasurer designated by the Trustees
shall perform all the duties, and may exercise
7
<PAGE>
any of the powers, of the Treasurer. Each Assistant Treasurer shall perform
such other duties as from time to time may be assigned to him by the Trustees.
Section 9. Powers and Duties of Assistant Secretaries. In the absence
or disability of the Secretary, any Assistant Secretary designated by the
Trustees shall perform all of the duties, and may exercise any of the powers, of
the Secretary. Each Assistant Secretary shall perform such other duties as from
time to time may be assigned to him by the Trustees.
Section 10. Compensation of Officers. Subject to any applicable law or
provision of the Declaration, any compensation of any officer may be fixed from
time to time by the Trustees. No officer shall be prevented from receiving any
such compensation as such officer by reason of the fact that he is also a
Trustee. If no such compensation is fixed for any officer, such officer shall
not be entitled to receive any compensation from the Trust.
Section 11. Bond and Surety. As provided in the Declaration, any
officer may be required by the Trustees to be bonded for the faithful
performance of his duties in the amount and with such sureties as the Trustees
may determine.
ARTICLE VI
SEAL
The Trustees may adopt a seal which shall be in such form and shall
have such inscription thereon as the Trustees may from time to time prescribe.
ARTICLE VII
FISCAL YEAR
The Trust may have different fiscal years for its separate and distinct
series, if applicable. The fiscal year(s) of the Trust shall be determined by
the Trustees, provided that the Trustees (or the Treasurer subject to
ratification by the Trustees) may from time to time change any fiscal year.
ARTICLE VIII
CUSTODIAN
Section 1. Appointment and Duties. The Trustees shall at all times
employ one or more banks or trust companies having a capital, surplus and
undivided profits of at least $50,000,000 as custodian with authority as the
Trust's agent, but subject to such restrictions, limitations and other
requirements, if any, as may be contained in the Declaration, these By-Laws and
the 1940 Act:
(i) to hold the securities owned by the Trust and deliver the same upon
written order; (ii) to receive and receipt for any monies due to the
Trust and deposit the same in its own banking department or elsewhere
as the Trustees may direct; (iii) to disburse such funds upon orders or
vouchers; (iv) if authorized by the Trustees, to keep the books and
accounts of the Trust and furnish clerical and accounting services; and
(v) if authorized by the Trustees, to compute the net income of
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<PAGE>
the
Trust and the net asset value of the Trust or, in the case of each
Feeder Trust and each Stand Alone Trust, Shares; all upon such basis of
compensation as may be agreed upon between the Trustees and the
custodian.
The Trustees may also authorize the custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services of the
custodian and upon such terms and conditions as may be agreed upon between the
custodian and such sub-custodian and approved by the Trustees. Subject to the
approval of the Trustees, the custodian may enter into arrangements with
securities depositories. All such custodial, sub-custodial and depository
arrangements shall be subject to, and comply with, the provisions of the 1940
Act and the rules and regulations promulgated thereunder.
Section 2. Successor Custodian. The Trust shall upon the resignation
or inability to serve of its custodian or upon change of the custodian:
(i) in case of such resignation or inability to serve, use its best
efforts to obtain a successor custodian; (ii) require that the cash and
securities owned by the Trust be delivered directly to the successor
custodian; and (iii) in the event that no successor custodian can be
found, submit to the Holders before permitting delivery of the cash and
securities owned by the Trust otherwise than to a successor custodian,
the question whether the Trust shall be liquidated or shall function
without a custodian.
ARTICLE IX
INDEMNIFICATION
In the case of each Master Trust, insofar as the conditional advancing
of indemnification monies under Section 5.4 of the Declaration for actions based
upon the 1940 Act may be concerned, such payments will be made only on the
following conditions:
(i) the advances must be limited to amounts used, or to be used, for
the preparation or presentation of a defense to the action, including
costs connected with the preparation of a settlement; (ii) advances may
be made only upon receipt of a written promise by, or on behalf of, the
recipient to repay the amount of the advance which exceeds the amount
to which it is ultimately determined that he is entitled to receive
from the Trust by reason of indemnification; and (iii) (a) such promise
must be secured by a surety bond, other suitable insurance or an
equivalent form of security which assures that any repayment may be
obtained by the Trust without delay or litigation, which bond,
insurance or other form of security must be provided by the recipient
of the advance, or (b) a majority of a quorum of the Trust's
disinterested, nonparty Trustees, or an independent legal counsel in a
written opinion, shall determine, based upon a review of readily
available facts, that the recipient of the advance ultimately will be
found entitled to indemnification.
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<PAGE>
ARTICLE X
AMENDMENTS, ADDITIONAL TRUSTS, ETC.
The Trustees shall have the power to alter, amend or repeal
these By-Laws or adopt new By-Laws at any time to the extent such power is not
reserved to the Holders by the 1940 Act, other applicable law or the
Declaration. Action by the Trustees with respect to these By-Laws shall be taken
by an affirmative vote of a majority of the Trustees. The Trustees shall in no
event adopt By-Laws which are in conflict with the Declaration.
One or more additional trusts may be added to Schedule I or Schedule II
by resolution of the trustees of such trust(s), provided that the trustees of
such trust(s) are identical to the Trustees of the Master Trusts, the Feeder
Trusts and the Stand Alone Trusts immediately prior to such addition.
In the case of each Master Trust, the Declaration refers to the
Trustees as Trustees, but not as individuals or personally; and no Trustee,
officer, employee or agent of the Trust 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 Trust. In
the case of each Feeder Trust and each Stand Alone Trust, the Declaration refers
to the Trustees not individually, but as Trustees under the Declaration, and no
Trustee, officer, employee or agent of the Trust shall be subject to any
personal liability whatsoever to any Person, other than the Trust or its
Holders, in connection with Trust Property or the affairs of the Trust, save
only that arising from bad faith, willful misfeasance, gross negligence or
reckless disregard for his duty to such Person; and all such Persons shall look
solely to the Trust Property for satisfaction of claims of any nature arising in
connection with the affairs of the Trust.
JPM345A
10
<PAGE>
SCHEDULE I
MASTER TRUSTS
State of Date of Date
Organiza- Declara- By-Laws
Trust tion tion Adopted
The Treasury Money Market New York 11/4/92 10/10/96
Portfolio
The Money Market Portfolio New York 1/29/93 10/10/96
The Tax Exempt Money Market New York 1/29/93 10/10/96
Portfolio
The Short Term Bond Portfolio New York 1/29/93 10/10/96
The U.S. Fixed Income Portfolio New York 1/29/93 10/10/96
The Tax Exempt Bond Portfolio New York 1/29/93 10/10/96
The Selected U.S. Equity Portfolio New York 1/29/93 10/10/96
The U.S. Small Company Portfolio New York 1/29/93 10/10/96
The Non-U.S. Equity Portfolio New York 1/29/93 10/10/96
The Diversified Portfolio New York 1/29/93 10/10/96
The Non-U.S. Fixed Income New York 6/13/93 10/10/96
Portfolio
The Emerging Markets Equity New York 6/13/93 10/10/96
Portfolio
The New York Total Return Bond New York 6/13/93 10/10/96
Portfolio
The Series Portfolio New York 6/14/94 10/10/96
11
<PAGE>
SCHEDULE II
FEEDER TRUSTS
State of Date of Date
Organization Declara- By-Laws
Trust tion Adopted
The JPM Pierpont Funds Massachusetts 11/4/92 10/10/96
The JPM Institutional
Funds Massachusetts 11/4/92 10/10/96
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<PAGE>
SCHEDULE III
STAND ALONE TRUSTS
State of Date of Date
Organization Declara- By-Laws
Trust tion Adopted
JPM Series Trust Massachusetts 8/15/96 10/10/96
13
JPM268A Schedule A
The Series Portfolio
Investment Advisory Fees
The Asia Growth Portfolio1
.80% of the average daily net assets of the Portfolio
The Japan Equity Portfolio1
.65% of the average daily net assets of the Portfolio
The European Equity Portfolio1
.65% of the average daily net assets of the Portfolio
The Disciplined Equity Portfolio2
.35% of the average daily net assets of the Portfolio
The Global Strategic Income Portfolio2
.45% of the average daily net assets of the Portfolio
The International Opportunities Portfolio2
.60% of the average daily net assets of the Portfolio
1Approved July 7, 1994
2Approved October 10, 1996
AMENDMENT TO CUSTODIAN CONTRACT
Agreement made by and between State Street Bank and Trust Company (the
Custodian) and The Series Portfolio (the Fund).
WHEREAS, the Custodian and the Fund are parties to a custodian contract
dated July 8, 1994 (the "Custodian Contract") governing the terms and conditions
under which the Custodian maintains custody of the securities and other assets
of the Fund; and
WHEREAS, the Custodian and the Fund desire to amend the terms and
conditions under which the Custodian maintains the Fund's securities and other
non-cash property in the custody of certain foreign sub-custodians in conformity
with the requirements of Rule f-5 under the Investment Company Act of 1940, as
amended;
NOW THEREFORE, in consideration of the premises and covenants contained
herein, the Custodian and the Fund hereby amend the Custodian Contract by the
addition of the following terms and provisions:
1. Notwithstanding any provisions to the contrary set forth in the
Custodian Contract, the Custodian may hold securities and other non-cash
property for all of its customers, including the Fund, with a foreign
sub-custodian in a single account that is identified as belonging to the
Custodian for the benefit of its customers, provided however, that (i) the
records of the Custodian with respect to securities and other non-cash property
of the Fund which are maintained in such account shall identify by book-entry
those securities and other non-cash property belonging to the Fund and (ii) the
Custodian shall require that securities and other non-cash property so held by
the foreign sub-custodian be held separately from any assets of the foreign
sub-custodian or of others.
2. Except as specifically superseded or modified herein, the terms and
provisions of the Custodian Contract shall continue to apply with full force and
effect.
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed as a sealed instrument in its name and behalf by its duly authorized
representative this 28th day of February, 1996.
THE SERIES PORTFOLIO
By: /s/ Thomas M. Lenz
Title: Secretary
STATE STREET BANK AND TRUST COMPANY
By: /s/ Kathryn Donelin
Title: Vice President
<PAGE>
CUSTODIAN CONTRACT
Between
THE SERIES PORTFOLIO
and
STATE STREET BANK AND TRUST COMPANY
W:\...\solomon\agm\JPMport.cus
21E593
<PAGE>
TABLE OF CONTENTS
Page
1. Employment of Custodian and Property to be
Held By It............................................................2
2. Duties of the Custodian with Respect to Property
of the Portfolio Held by the Custodian in the United States...........3
2.1 Holding Securities...........................................3
2.2 Delivery of Securities.......................................3
2.3 Registration of Securities...................................8
2.4 Bank Accounts................................................9
2.5 Availability of Federal Funds...............................10
2.6 Collection of Income........................................10
2.7 Payment of Portfolio Monies.................................11
2.8 Liability for Payment in Advance of Receipt of Securities
Purchased...................................................14
2.9 Appointment of Agents.......................................14
2.10 Deposit of Portfolio Assets in Securities System............15
2.10A Portfolio Assets Held in the Custodian's
Direct Paper System................................18
2.11 Segregated Account..........................................19
2.12 Ownership Certificates for Tax Purposes.....................21
2.13 Proxies.....................................................21
2.14 Communications Relating to Portfolio Securities.............21
3. Duties of the Custodian with Respect to Property of
the Portfolio Held Outside of the United States......................22
3.1 Appointment of Foreign Sub-Custodians.......................22
3.2 Assets to be Held...........................................23
3.3 Foreign Securities Depositories.............................23
3.4 Agreements with Foreign Banking Institutions................23
3.5 Access of Independent Accountants of the Portfolio..........24
3.6 Reports by Custodian........................................25
3.7 Transactions in Foreign Custody Account.....................25
3.8 Liability of Foreign Sub-Custodians.........................26
3.9 Liability of Custodian......................................27
3.10 Reimbursement for Advances..................................27
3.11 Monitoring Responsibilities.................................28
3.13 Branches of U.S. Banks......................................29
3.13 Tax Law.....................................................29
4. Payments for Sales or Repurchase or Withdrawals of
Portfolio Interests..................................................30
5. Proper Instructions..................................................31
<PAGE>
TABLE OF CONTENTS continued
Page
6. Actions Permitted Without Express Authority..........................32
7. Evidence of Authority................................................33
8. Duties of Custodian with Respect to the Books of Account and
Calculation of Net Asset Value and Net Income........................33
9. Records..............................................................34
10. Opinion of Trust's Independent Accountants...........................35
11. Reports to Trust by Independent Public Accountants...................35
12. Compensation of Custodian............................................36
13. Responsibility of Custodian..........................................36
14. Effective Period, Termination and Amendment..........................38
15. Successor Custodian..................................................39
16. Interpretive and Additional Provisions...............................41
17. Additional Portfolios................................................
18. Massachusetts Law to Apply...........................................42
19. Prior Contracts......................................................42
20. Shareholder Communications Election..................................42
21. Limitation of Liability..............................................43
<PAGE>
CUSTODIAN CONTRACT
This Contract between The Series Portfolio, a master trust organized
and existing under the laws of the State of New York, having its principal place
of business at P.O. Box 268, Elizabethan Square, 2nd Floor, George Town, Grand
Cayman, BWI, hereinafter called the "Trust", and State Street Bank and Trust
Company, a Massachusetts trust company, having its principal place of business
at 225 Franklin Street, Boston, Massachusetts, 02110, hereinafter called the
"Custodian",
WITNESSETH:
WHEREAS, the Trust desires to retain the Custodian to render custody
and fund accounting services to The Asia Growth Portfolio, The Japan Equity
Portfolio and The European Equity Portfolio, the Trust's three initial separate
and distinct subtrusts or series (such subtrusts or series together with all
other subtrusts or series subsequently established by the Trust and made subject
to this Contract in accordance with Article 17 being herein referred to as the
"Portfolio(s)"),
WHEREAS, each Portfolio's assets are composed of money and property
contributed thereto by the holders of interests in the Portfolio ("Interest(s)")
entitled to ownership rights in the Portfolio ("Investors');
NOW THEREFORE in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1
<PAGE>
1. Employment of Custodian and Property to be Held by It
The Trust hereby employs the Custodian as the custodian of the assets
each Portfolio, including securities which the Portfolio desires to be
held in places within the United States ("domestic securities") and
securities it desires to be held outside the United States ("foreign
securities") pursuant to the provisions of the Trust's Declaration of
Trust. The Trust agrees to deliver to the Custodian all securities and
cash of each Portfolio, and all payments of income, payments of
principal or capital distributions received by it with respect to all
securities owned by the Trust from time to time, and the cash
consideration received by it for such new Interests as may be issued or
sold from time to time. The Custodian shall not be responsible for any
property of the Portfolios held or received by it and not delivered to
the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of
Article 5), the Custodian shall on behalf of the applicable
Portfolio(s) from time to time employ one or more sub-custodians,
located in the United States but only in accordance with an applicable
vote by the Board of Trustees of the Trust and provided that the
Custodian shall have no more or less responsibility or liability to the
Trust or the Portfolios on account of any actions or omissions of any
sub-custodian so employed than any such sub-custodian has to the
Custodian. The Custodian may
2
<PAGE>
employ as sub-custodian for the Portfolios' foreign securities foreign
banking institutions and foreign securities depositories designated in
Schedule A hereto but only in accordance with the provisions of Article
3.
2. Duties of the Custodian with Respect to Property of the Portfolios Held
By the Custodian in the United States
2.1 Holding Securities. The Custodian shall hold and physically
segregate for the account of each Portfolio all non-cash property, to
be held by it in the United States including all domestic securities
owned by the Portfolio, other than (a) securities which are maintained
pursuant to Section 2.10 in a clearing agency which acts as a
securities depository or in a book-entry system authorized by the U.S.
Department of the Treasury, collectively referred to herein as
"Securities System" and (b) commercial paper of an issuer for which the
Custodian acts as issuing and paying agent ("Direct Paper") which is
deposited and/or maintained in the Direct Paper System of the Custodian
pursuant to Section 2.10A.
2.2 Deliveries of Securities. The Custodian shall release and deliver
domestic securities owned by each Portfolio held by the Custodian or in
a Securities System account of the Custodian or in the Custodian's
Direct Paper book entry system account ("Direct Paper System Account")
only upon receipt of Proper Instructions from the Trust with respect to
the Portfolio, which may be continuing instructions when
3
<PAGE>
deemed appropriate by the parties, and only in the
following cases:
1) Upon sale of such securities for the account of the
Portfolio and receipt of payment therefor;
2) Upon the receipt of payment in connection with any
repurchase agreement related to such securities
entered into by the Portfolio;
3) In the case of a sale effected through a Securities
System, in accordance with the provisions of Section
2.10 hereof;
4) To the depository agent in connection with tender or
other similar offers for securities of the Portfolio;
5) To the issuer thereof or its agent when such
securities are called, redeemed, retired or otherwise
become payable; provided that, in any such case, the
cash or other consideration is to be delivered to the
Custodian;
6) To the issuer thereof, or its agent, for transfer into the
name of the Portfolio or into the name of any nominee or
nominees of the Custodian or into the name or nominee name of
any agent appointed pursuant to Section 2.9 or into the name
or nominee name of any sub-custodian appointed pursuant to
Article 1; or for exchange for a different number of bonds,
certificates or other evidence representing the same aggregate
face amount or number of units; provided that, in any such
4
<PAGE>
case, the new securities are to be delivered to the
Custodian;
7) Upon the sale of such securities for the account of the
Portfolio, to the broker or its clearing agent, against a
receipt, for examination in accordance with "street delivery"
custom; provided that in any such case, the Custodian shall
have no responsibility or liability for any loss arising from
the delivery of such securities prior to receiving payment for
such securities except as may arise from the Custodian's own
negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion contained
in such securities, or pursuant to any deposit agreement;
provided that, in any such case, the new securities and cash,
if any, are to be delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the
surrender thereof in the exercise of such warrants, rights or
similar securities or the surrender of interim receipts or
temporary securities for definitive securities; provided that,
in any such case, the new securities and cash, if any, are to
be delivered to the Custodian;
5
<PAGE>
10) For delivery in connection with any loans of securities made
by the Portfolio, but only against receipt of adequate
collateral as agreed upon from time to time by the Custodian
and the Trust on behalf of the Portfolio, which may be in the
form of cash or obligations issued by the United States
government, its agencies or instrumentalities, except that in
connection with any loans for which collateral is to be
credited to the Custodian's account in the book-entry system
authorized by the U.S. Department of the Treasury, the
Custodian will not be held liable or responsible for the
delivery of securities owned by the Portfolio prior to the
receipt of such collateral;
11) For delivery as security in connection with any borrowings by
the Portfolio requiring a pledge of assets by the Portfolio,
but only against receipt of amounts borrowed;
12) For delivery in accordance with the provisions of any
agreement relating to the Portfolio among the Trust, the
Custodian and a broker-dealer registered under the Securities
Exchange Act of 1934 (the "Exchange Act") and a member of The
National Association of Securities Dealers, Inc. ("NASD"),
relating to compliance with the rules of The Options Clearing
Corporation and of any registered national securities
exchange, or of any similar organization or organizations,
regarding
6
<PAGE>
escrow or other arrangements in connection with
transactions by the Portfolio;
13) For delivery in accordance with the provisions of any
agreement relating to the Portfolio among the Trust, the
Custodian, and a Futures Commission Merchant registered under
the Commodity Exchange Act, relating to compliance with the
rules of the Commodity Futures Trading Commission and/or any
Contract Market, or any similar organization or organizations,
regarding account deposits in connection with transactions by
the Portfolio;
14) Upon receipt of instructions from the transfer agent
("Transfer Agent") for the Portfolio, for delivery to such
Transfer Agent or to the Investors in connection with
distributions in kind, as may be described from time to time
in the registration statement on Form N-1A of the Trust with
respect to the Portfolio ("Registration Statement"), in
satisfaction of requests by Investors for repurchase or
withdrawal; and
15) For any other proper corporate purpose, but only upon receipt
of, in addition to Proper Instructions from the Trust, a
certified copy of a resolution of the Board of Trustees or of
the Executive Committee signed by an officer of the Trust and
certified by the Secretary or an Assistant Secretary,
specifying the securities of the Portfolio to be delivered,
setting
7
<PAGE>
forth the purpose for which such delivery is to be made,
declaring such purpose to be a proper corporate purpose, and
naming the person or persons to whom delivery of such
securities shall be made.
2.3 Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of the
Portfolio or in the name of any nominee of the Portfolio or of any
nominee of the Custodian which nominee shall be assigned exclusively to
the Portfolio, unless the Trust has authorized in writing the
appointment of a nominee to be used in common with other registered
investment companies having the same investment adviser as the
Portfolio, or in the name or nominee name of any agent appointed
pursuant to Section 2.9 or in the name or nominee name of any
sub-custodian appointed pursuant to Article 1. All securities accepted
by the Custodian under the terms of this Contract shall be in "street
name" or other good delivery form. If, however, the Trust directs the
Custodian to maintain securities in "street name", the Custodian shall
utilize its best efforts only to timely collect income due the
Portfolio on such securities and to notify the Trust on a best efforts
basis only of relevant corporate actions including, without limitation,
pendency of calls, maturities, tender or exchange offers.
2.4 Bank Accounts. The Custodian shall open and maintain a
8
<PAGE>
separate bank account or accounts in the United States in the name of
the Portfolio, subject only to draft or order by the Custodian acting
pursuant to the terms of this Contract, and shall hold in such account
or accounts, subject to the provisions hereof, all cash received by it
from or for the account of the Portfolio, other than cash maintained by
the Portfolio in a bank account established and used in accordance with
Rule f-3 under the Investment Company Act of 1940. Funds held by the
Custodian for a Portfolio may be deposited by it to its credit as
Custodian in the Banking Department of the Custodian or in such other
banks or trust companies as it may in its discretion deem necessary or
desirable; provided, however, that every such bank or trust company
shall be qualified to act as a custodian under the Investment Company
Act of 1940 and that each such bank or trust company and the funds to
be deposited with each such bank or trust company shall be approved by
vote of a majority of the Board of Trustees of the Trust. Such funds
shall be deposited by the Custodian in its capacity as Custodian and
shall be withdrawable by the Custodian only in that capacity.
2.5 Availability of Federal Funds. Upon mutual agreement
between the Trust and the Custodian, the Custodian shall,
upon the receipt of Proper Instructions from the Trust,
make federal funds available to the Trust for the
Portfolio(s) as of specified times agreed upon from time to
9
<PAGE>
time by the Trust and the Custodian in the amount of checks received in
payment for Interests in such Portfolio(s) which are deposited into the
account of the Portfolio(s).
2.6 Collection of Income. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other payments
with respect to registered domestic securities held hereunder to which
a Portfolio shall be entitled either by law or pursuant to custom in
the securities business, and shall collect on a timely basis all income
and other payments with respect to bearer domestic securities if, on
the date of payment by the issuer, such securities are held by the
Custodian or its agent thereof and shall credit such income, as
collected, to such Portfolio's custodian account. Without limiting the
generality of the foregoing, the Custodian shall detach and present for
payment all coupons and other income items requiring presentation as
and when they become due and shall collect interest when due on
securities held hereunder. Income due the Portfolio on securities
loaned pursuant to the provisions of Section 2.2 (10) shall be the
responsibility of the Trust. The Custodian will have no duty or
responsibility in connection therewith, other than to provide the Trust
with such information or data as may be necessary to assist the Trust
in arranging for the timely delivery to the Custodian of the income to
which each Portfolio is properly entitled.
10
<PAGE>
2.7 Payment of Portfolio Monies. Upon receipt of Proper Instructions from
the Trust, which may be continuing instructions when deemed appropriate
by the parties, the Custodian shall pay out monies of a Portfolio in
the following cases only:
1) Upon the purchase of domestic securities, options, futures
contracts or options on futures contracts for the account of
the Portfolio but only (a) against the delivery of such
securities or evidence of title to such options, futures
contracts or options on futures contracts to the Custodian (or
any bank, banking firm or trust company doing business in the
United States or abroad which is qualified under the
Investment Company Act of 1940, as amended, to act as a
custodian and has been designated by the Custodian as its
agent for this purpose) registered in the name of the
Portfolio or in the name of a nominee of the Custodian
referred to in Section 2.3 hereof or in proper form for
transfer; (b) in the case of a purchase effected through a
Securities System, in accordance with the conditions set forth
in Section 2.10 hereof; (c) in the case of a purchase
involving the Direct Paper System, in accordance with the
conditions set forth in Section 2.10A; (d) in the case of
repurchase agreements entered into on behalf of the Portfolio
between the Trust and the Custodian, or another bank, or a
broker-dealer which is a member of
11
<PAGE>
NASD, (i) against delivery of the securities either in
certificate form or through an entry crediting the Custodian's
account at the Federal Reserve Bank with such securities or
(ii) against delivery of the receipt evidencing purchase by
the Portfolio of securities owned by the Custodian along with
written evidence of the agreement by the Custodian to
repurchase such securities from the Portfolio or (e) for
transfer to a time deposit account of the Portfolio in any
bank, whether domestic or foreign; such transfer may be
effected prior to receipt of a confirmation from a broker
and/or the applicable bank pursuant to Proper Instructions
from the Trust as defined in Article 5;
2) In connection with conversion, exchange or surrender
of securities owned by the Portfolio as set forth in
Section 2.2 hereof;
3) For the withdrawal or repurchase of the Portfolio's
Interests issued by the Trust as set forth in Article
4 hereof;
4) From an account of the Portfolio located outside of the United
States, for the payment of any expense or liability incurred
by the Portfolio, including but not limited to the following
payments for the account of the Portfolio: interest, taxes,
management, accounting, transfer agent and legal fees, and
operating expenses of the Portfolio whether or not
12
<PAGE>
such expenses are to be in whole or part capitalized
or treated as deferred expenses;
5) From an account of the Portfolio located outside of
the United States, for the payment of any
distributions pursuant to the governing documents of
the Trust;
6) For payment of the amount of dividends received in
respect of securities sold short;
7) For any other proper purpose, but only upon receipt of, in
addition to Proper Instructions from the Trust, a certified
copy of a resolution of the Board of Trustees or of the
Executive Committee of the Trust signed by an officer of the
Trust and certified by its Secretary or an Assistant
Secretary, specifying the amount of such payment, setting
forth the purpose for which such payment is to be made,
declaring such purpose to be a proper purpose, and naming the
person or persons to whom such payment is to be made.
2.8 Liability for PaYment in Advance of Receipt of Securities Purchased.
Except as specifically stated otherwise in this Contract, in any and
every case where payment for purchase of domestic securities for the
account of a Portfolio is made by the Custodian in advance of receipt
of the securities purchased in the absence of specific written
instructions from the Trust with respect to the Portfolio to pay in
advance, the Custodian shall be absolutely liable to the Portfolio for
such securities to the same extent as
13
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if the securities had been received by the Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act of
1940, as amended, to act as a custodian, as its agent to carry out such
of the provisions of this Article 2 as the Custodian may from time to
time direct; provided, however, that the appointment of any agent shall
not relieve the Custodian of its responsibilities or liabilities
hereunder. In addition, the Custodian may appoint an affiliate of the
Custodian located outside of the United States to perform such of its
duties hereunder as are required to be performed outside of the United
States.
2.10 Deposit of Portfolio Assets in Securities Systems. The Custodian may
deposit and/or maintain securities owned by a Portfolio in a clearing
agency registered with the Securities and Exchange Commission under
Section 17A of the Securities Exchange Act of 1934, which acts as a
securities depository, or in the book-entry system authorized by the
U.S. Department of the Treasury and certain federal agencies,
collectively referred to herein as "Securities System" in accordance
with applicable Federal Reserve Board and Securities and Exchange
Commission rules and regulations, if any, and subject to the following
provisions:
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1) The Custodian may keep securities of the Portfolio in a
Securities System provided that such securities are
represented in an account ("Account") of the Custodian in the
Securities System which shall not include any assets of the
Custodian other than assets held as a fiduciary, custodian or
otherwise for customers;
2) The records of the Custodian with respect to
securities of the Portfolio which are maintained in a
Securities System shall identify by book-entry those
securities belonging to the Portfolio;
3) The Custodian shall pay for securities purchased for the
account of the Portfolio upon (i) receipt of advice from the
Securities System that such securities have been transferred
to the Account, and (ii) the making of an entry on the records
of the Custodian to reflect such payment and transfer for the
account of the Portfolio. The Custodian shall transfer
securities sold for the account of the Portfolio upon (i)
receipt of advice from the Securities System that payment for
such securities has been transferred to the Account, and (ii)
the making of an entry on the records of the Custodian to
reflect such transfer and payment for the account of the
Portfolio. Copies of all advices from the Securities System of
transfers of securities for the account of the Portfolio shall
identify the Portfolio, be maintained for the Portfolio by the
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Custodian and be provided to the Trust at the Trust's request.
Upon request, the Custodian shall furnish the Trust on behalf
of the Portfolio confirmation of each transfer to or from the
account of the Portfolio in the form of a written advice or
notice and shall furnish to the Trust on behalf of the
Portfolio copies of daily transaction sheets reflecting each
day's transactions in the Securities System for the account of
the Portfolio;
4) The Custodian shall provide the Trust with any report
obtained by the Custodian on the Securities System's
accounting system, internal accounting control and
procedures for safeguarding securities deposited in
the Securities System;
5) The Custodian shall have received from the Trust
initial or annual certificate, as the case may be,
required by Article 14 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Trust for any loss or damage
to the Trust or the Portfolio(s) resulting from use of the
Securities System by reason of any negligence, misfeasance or
misconduct of the Custodian or any of its agents or of any of
its or their employees or from failure of the Custodian or any
such agent to enforce effectively such rights as it may have
against the Securities
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System; at the election of the Trust, it shall be entitled to be
subrogated to the rights of the Custodian with respect to any claim
against the Securities System or any other person which the Custodian
may have as a consequence of any such loss or damage if and to the
extent that the Trust has not been made whole for any such loss or
damage.
2.10A Portfolio Assets Held in the Custodian's Direct Paper System
The Custodian may deposit and/or maintain securities owned by a
Portfolio in the Direct Paper System of the Custodian subject to the
following provisions:
1) No transaction relating to securities in the Direct
Paper System will be effected in the absence of Proper
Instructions from the Portfolio;
2) The Custodian may keep securities of the Portfolio in the
Direct Paper System only if such securities are represented in
an account ("Account") of the Custodian in the Direct Paper
System which shall not include any assets of the Custodian
other than assets held as a fiduciary, custodian or otherwise
for customers;
3) The records of the Custodian with respect to
securities of the Portfolio which are maintained in
the Direct Paper System shall identify by book-entry
those securities belonging to the Portfolio;
4) The Custodian shall pay for securities purchased
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for the account of the Portfolio upon the making of an entry
on the records of the Custodian to reflect such payment and
transfer of securities to the account of the Portfolio. The
Custodian shall transfer securities sold for the account of
the Portfolio upon the making of an entry on the records of
the Custodian to reflect such transfer and receipt of payment
for the account of the Portfolio;
5) The Custodian shall furnish the Trust confirmation of each
transfer to or from the account of each Portfolio, in the form
of a written advice or notice, of Direct Paper on the next
business day following such transfer and shall furnish to the
Trust copies of daily transaction sheets reflecting each day's
transaction in the Securities System for the account of the
Portfolio;
6) The Custodian shall provide the Trust on behalf of the
Portfolio with any report on its system of internal accounting
control as the Trust may reasonably request from time to time.
2.11 Segregated Account. The Custodian shall upon receipt of Proper
Instructions from the Trust establish and maintain a segregated account
or accounts for and on behalf of each Portfolio, into which account or
accounts may be transferred cash and/or securities, including
securities maintained in an account by the Custodian pursuant to
Section 2.10 hereof, (i) in accordance with the provisions
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of any agreement relating to the Portfolio among the Trust, the
Custodian and a broker-dealer registered under the Exchange Act and a
member of the NASD (or any futures commission merchant registered under
the Commodity Exchange Act), relating to compliance with the rules of
The Options Clearing Corporation and of any registered national
securities exchange (or the Commodity Futures Trading Commission or any
registered contract market), or of any similar organization or
organizations, regarding escrow or other arrangements in connection
with transactions by the Portfolio, (ii) for purposes of segregating
cash or government securities in connection with options purchased,
sold or written by the Portfolio or commodity futures contracts or
options thereon purchased or sold by the Portfolio, (iii) for the
purposes of compliance by the Trust and/or the Portfolio with the
procedures required by Investment Company Act Release No. 10666, or any
subsequent release or releases of the Securities and Exchange
Commission relating to the maintenance of segregated accounts by
registered investment companies and (iv) for other proper corporate
purposes, but only, in the case of clause (iv), upon receipt of, in
addition to Proper Instructions from the Trust, a certified copy of a
resolution of the Board of Trustees or of the Executive Committee
signed by an officer of the Trust and certified by the Secretary or an
Assistant Secretary, setting forth
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the purpose or purposes of such segregated account and declaring such
purposes to be proper corporate purposes.
2.12 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other
payments with respect to domestic securities of the Portfolio(s) held
by it and in connection with transfers of securities.
2.13 Proxies. The Custodian shall, with respect to the domestic securities
held hereunder, cause to be promptly executed by the registered holder
of such securities, if the securities are registered otherwise than in
the names of the Portfolio(s) or a nominee of the Portfolio(s), all
proxies, without indication of the manner in which such proxies are to
be voted, and shall promptly deliver to the Trust such proxies, all
proxy soliciting materials and all notices relating to such securities.
2.14 Communications Relating to Portfolio Securities. Subject to the
provisions of Section 2.3, the Custodian shall transmit promptly to the
Trust all written information (including, without limitation, pendency
of calls and maturities of domestic securities and expirations of
rights in connection therewith and notices of exercise of call and put
options written by the Portfolio and the maturity of futures contracts
purchased or sold by the Portfolio) received by the Custodian from
issuers of the securities
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being held for the Portfolio. With respect to tender or exchange
offers, the Custodian shall transmit promptly to the Trust all written
information received by the Custodian from issuers of the securities
whose tender or exchange is sought and from the party (or his agents)
making the tender or exchange offer. If the Trust desires to take
action with respect to any tender offer, exchange offer or any other
similar transaction, the Trust shall notify the Custodian at least
three business days prior to the date on which the Custodian is to take
such action.
3. Duties of the Custodian with Respect to Property of the Portfolios Held
Outside of the United States
3.1 Appointment of Foreign Sub-Custodians. The Trust hereby authorizes and
instructs the Custodian to employ as sub-custodians for each
Portfolio's securities and other assets maintained outside the United
States the foreign banking institutions and foreign securities
depositories designated on Schedule A hereto ("foreign
sub-custodians"). Upon receipt of "Proper Instructions", as defined in
Section 5 of this Contract, together with a certified resolution of the
Trust's Board of Trustees, the Custodian and the Trust may agree to
amend Schedule A hereto from time to time to designate additional
foreign banking institutions and foreign securities depositories to act
as sub-custodian. Upon receipt of Proper Instructions, the Trust may
instruct the Custodian to cease the employment of
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any one or more such sub-custodians for maintaining custody
of the Portfolio's assets.
3.2 Assets to be Held. The Custodian shall limit the securities and other
assets maintained in the custody of the foreign sub-custodians to: (a)
"foreign securities", as defined in paragraph (c)(1) of Rule f-5 under
the Investment Company Act of 1940, and (b) cash and cash equivalents
in such amounts as the Custodian or the Trust may determine to be
reasonably necessary to effect a Portfolio's foreign securities
transactions. The Custodian shall identify on its books as belonging to
the Portfolio, the foreign securities of the Portfolio held by each
foreign sub-custodian.
3.3 Foreign Securities Depositories. Except as may otherwise be agreed upon
in writing by the Custodian and the Trust, assets of the Portfolio(s)
shall be maintained in foreign securities depositories only through
arrangements implemented by the foreign banking institutions serving as
sub-custodians pursuant to the terms hereof. Where possible, such
arrangements shall include entry into agreements containing the
provisions set forth in Section 3.4 hereof.
3.4 Agreements with Foreign Banking Institutions. Each
agreement with a foreign banking institution shall be
substantially in the form set forth in Exhibit 1 hereto and
shall provide that: (a) the assets of each Portfolio will
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not be subject to any right, charge, security interest, lien or claim
of any kind in favor of the foreign banking institution or its
creditors or agent, except a claim of payment for their safe custody or
administration; (b) beneficial ownership for the assets of the
Portfolio will be freely transferable without the payment of money or
value other than for custody or administration; (c) adequate records
will be maintained identifying the assets as belonging to the
Portfolio; (d) officers of or auditors employed by, or other
representatives of the Custodian, including to the extent permitted
under applicable law the independent public accountants for the
Portfolio, will be given access to the books and records of the foreign
banking institution relating to its actions under its agreement with
the Custodian; and (e) assets of the Portfolio held by the foreign
sub-custodian will be subject only to the instructions of the Custodian
or its agents.
3.5 Access of Independent Accountants of the Portfolio(s). Upon request of
the Trust, the Custodian will use its bent efforts to arrange for the
independent accountants of the Portfolio(s) to be afforded access to
the books and records of any foreign banking institution employed as a
foreign sub-custodian insofar as such books and records relate to the
performance of such foreign banking institution under its agreement
with the Custodian.
3.6 Reports by Custodian. The Custodian will supply to the
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Trust from time to time, as mutually agreed upon, statements in respect
of the securities and other assets of the Portfolio(s) held by foreign
sub-custodians, including but not limited to an identification of
entities having possession of the Portfolio's securities and other
assets and advices or notifications of any transfers of securities to
or from each custodial account maintained by a foreign banking
institution for the Custodian on behalf of the Portfolio indicating, as
to securities acquired for the Portfolio, the identity of the entity
having physical possession of such securities.
3.7 Transactions in Foreign Custody Account
(a) Except as otherwise provided in paragraph (b) of this Section 3.7,
the provision of Sections 2.2 and 2.7 of this Contract shall apply,
mutatis mutandis to the foreign securities of the Portfolio(s) held
outside the United States by foreign sub-custodians.
(b) Notwithstanding any provision of this Contract to the contrary,
settlement and payment for securities received for the account of the
Portfolio and delivery of securities maintained for the account of the
Portfolio may be effected in accordance with the customary established
securities trading or securities processing practices and procedures in
the jurisdiction or market in which the transaction occurs, including,
without limitation, delivering securities to the purchaser thereof or
to a dealer therefor
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(or an agent for such purchaser or dealer) against a receipt with the
expectation of receiving later payment for such securities from such
purchaser or dealer.
(c) Securities maintained in the custody of a foreign sub-custodian may
be maintained in the name of such entity's nominee to the same extent
as set forth in Section 2.3 of this Contract, and the Trust agrees to
hold any such nominee harmless from any liability as a holder of record
of such securities.
3.8 Liability of Foreign Sub-Custodians. Each agreement pursuant to which
the Custodian employs a foreign banking institution as a foreign
sub-custodian shall require the institution to exercise reasonable care
in the performance of its duties and to indemnify, and hold harmless,
the Custodian and the Trust and/or the Portfolio(s) from and against
any loss, damage, cost, expense, liability or claim arising out of or
in connection with the institution's performance of such obligations.
At the election of the Trust, it shall be entitled to be subrogated to
the rights of the Custodian with respect to any claims against a
foreign banking institution as a consequence of any such loss, damage,
cost, expense, liability or claim if and to the extent that the Trust
and/or the Portfolio(s) have not been made whole for any such loss,
damage, cost, expense, liability or claim.
3.9 Liability of Custodian. The Custodian shall be liable for
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the acts or omissions of a foreign banking institution to the same
extent as set forth with respect to sub-custodians generally in this
Contract and, regardless of whether assets are maintained in the
custody of a foreign banking institution, a foreign securities
depository or a branch of a U.S. bank as contemplated by paragraph 3.12
hereof, the Custodian shall not be liable for any loss, damage, cost,
expense, liability or claim resulting from nationalization,
expropriation, currency restrictions, or acts of war or terrorism or
any loss where the sub-custodian has otherwise exercised reasonable
care. Notwithstanding the foregoing provisions of this paragraph 3.9,
in delegating custody duties to State Street London Ltd., the Custodian
shall not be relieved of any responsibility to the Trust and/or the
Portfolio(s) for any loss due to such delegation, except such loss as
may result from (a) political risk (including, but not limited to,
exchange control restrictions,
confiscation,expropriation,nationalization,insurrection, civil strife
or armed hostilities) or (b) other losses (excluding a bankruptcy or
insolvency of State Street London Ltd. not caused by political risk)
due to Acts of God, nuclear incident or other losses under
circumstances where the Custodian and State Street London Ltd. have
exercised reasonable care.
3.10 Reimbursement for Advances. If the Trust requires the
Custodian to advance cash or securities on behalf of a
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Portfolio for any purpose including the purchase or sale of foreign
exchange or of contracts for foreign exchange, or in the event that the
Custodian or its nominee shall incur or be assessed any taxes, charges,
expenses, assessments, claims or liabilities in connection with the
performance of this Contract, except such as may arise from its or its
nominee's own negligent action, negligent failure to act or willful
misconduct, any property at any time held for the account of the
Portfolio shall be security therefor and should the Portfolio fail to
repay the Custodian promptly, the Custodian shall be entitled to
utilize available cash and to dispose of the Portfolio's assets to the
extent necessary to obtain reimbursement.
3.11 Monitoring Responsibilities. The Custodian shall furnish annually to
the Trust, during the month of June, information concerning the foreign
sub-custodians employed by the Custodian. Such information shall be
similar in kind and scope to that furnished to the Trust in connection
with the initial approval of this Contract. In addition, the Custodian
will promptly inform the Trust in the event that the Custodian learns
of a material adverse change in the financial condition of a foreign
sub-custodian or any material loss of the assets of a Portfolio or in
the case of any foreign sub-custodian not the subject of an exemptive
order from the Securities and Exchange Commission is notified by such
foreign sub-custodian that there
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appears to be a substantial likelihood that its shareholders' equity
will decline below $200 million (U.S. dollars or the equivalent
thereof) or that its shareholders' equity has declined below $200
million (in each case computed in accordance with generally accepted
U.S. accounting principles).
3.12 Branches of U.S. Banks. (a) Except as otherwise set forth in this
Contract, the provisions hereof shall not apply where the custody of a
Portfolio's assets are maintained in a foreign branch of a banking
institution which is a "bank" as defined by Section 2(a)(5) of the
Investment Company Act of 1940 meeting the qualification set forth in
Section 26(a) of said Act. The appointment of any such branch as a
sub-custodian shall be governed by paragraph 1 of this Contract.
(b)Cash held for a Portfolio in the United Kingdom shall be maintained
in an interest bearing account established for the Portfolio with the
Custodian's London branch, which account shall be subject to the
direction of the Custodian, State Street London Ltd. or both.
3.13 Tax Law.
(a) United States Taxes
The Custodian shall have no responsibility or liability for any
obligations now or hereafter imposed on a Portfolio or the Custodian as
custodian of the Portfolio by the tax law of the United States of
America or any state or political
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subdivision thereof. The Custodian will be responsible for informing
the Trust of the income received by the Portfolio which is United
States source income and which is not United States source income.
(b) Claiming for Exemption or Refunds under the Tax Laws of
Non-United States Jurisdictions
The sole responsibility of the Custodian with regard to the tax laws of
non-United States jurisdictions shall be to identify the income of each
Portfolio which has been subject to withholding and other tax
assessments or other governmental charges by such jurisdictions and the
amount thereof and, on the basis of information furnished to it by the
Trust as to the allocated amount of such income that is attributable to
each Portfolio's Investors, to use reasonable efforts to assist the
Portfolio or its Investors with respect to any claim for exemption or
refund of such charges that can be made on behalf of the Portfolio or
its Investors.
4. Payments for Sales or Repurchases or Withdrawals of Portfolio
Interests. The Custodian shall receive and deposit into the account of
each Portfolio such payments as are received for Interests in the
Portfolio issued or sold from time to time by the Portfolio. The
Custodian will provide notification to the Trust of any receipt by it
of payments for Portfolio Interests.
From such funds as may be available for the purpose but
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subject to the limitations of the Declaration of Trust and any
applicable votes of the Board of Trustees of the Trust pursuant
thereto, the Custodian shall, upon receipt of instructions from the
Trust, make funds available to an account for each Portfolio maintained
outside of the United States for payment to Investors in the Portfolio
who have delivered to the Trust and/or the Portfolio a request for
withdrawal or repurchase of their Interests.
5. Proper Instructions. Proper Instructions as used throughout
this Contract means a writing signed or initialled by one
or more person or persons as the Board of Trustees shall
have from time to time authorized. Each such writing shall
set forth the specific transaction or type of transaction
involved, including a specific statement of the purpose for
which such action is requested. Oral instructions will be
considered Proper Instructions if the Custodian reasonably
believes them to have been given by a person authorized to
give such instructions with respect to the transaction
involved. The Trust shall cause all oral instructions to be
confirmed in writing. It is understood and agreed that the
Board of Directors has authorized Morgan Guaranty Trust
Company of New York ( "Morgan Guaranty"), as Advisor of the
Portfolios pursuant to an Investment Advisory Agreement,
dated as of [ ], 1994 between Morgan Guaranty and the
Trust, to deliver Proper Instructions with respect to all
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matters for which Proper Instructions are required by paragraphs 2.2(1)
through 2.2(14), 2.S, 2.7(1) and 2.7(2), 2.7(6), 2.11(i) through
2.11(iii) and 3.7(a). The Custodian may rely upon the certificate of an
officer of Morgan Guaranty with respect to the person or persons
authorized on behalf of Morgan Guaranty to sign, initial or give Proper
Instructions for the purposes of such paragraphs. Upon receipt of a
certificate of the Secretary or an Assistant Secretary as to the
authorization by the Board of Trustees of the Trust accompanied by a
detailed description of procedures approved by the Board of Trustees,
Proper Instructions may include communications effected directly
between electro-mechanical or electronic devices provided that the
Board of Trustees and the Custodian are satisfied that such procedures
afford adequate safeguards for the Portfolio's assets. For purposes of
this Section, Proper Instructions shall include instructions received
by the Custodian pursuant to any three-party agreement which requires a
segregated asset account in accordance with Section 2.11.
6. Actions Permitted without Express Authority. The Custodian
may in its discretion, without express authority from the
Trust:
1) make payments to itself or others for minor expenses
of handling securities or other similar items relating
to its duties under this Contract, provided that all
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such payments shall be accounted for to the Trust;
2) surrender securities in temporary form for securities
in definitive form;
3) endorse for collection, in the name of the Trust/
Portfolio, checks, drafts and other negotiable
instruments; and
4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase,
transfer and other dealings with the securities and property
of the Portfolios except as otherwise directed by the Board of
Trustees of the Trust.
7. Evidence of Authority. The Custodian shall be protected in
acting upon any instructions, notice, request, consent,
certificate or other instrument or paper believed by it to
be genuine and to have been properly executed by or on
behalf of the Trust. The Custodian may receive and accept
a certified copy of a vote of the Board of Trustees of the
Trust as conclusive evidence (a) of the authority of any
person to act in accordance with such vote or (b) of any
determination or of any action by the Board of Trustees
pursuant to the Declaration of Trust as described in such
vote, and such vote may be considered as in full force and
effect until receipt by the Custodian of written notice to
the contrary.
8. Duties of Custodian with Respect to the Books of Account
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and Calculation of Net Income. The Custodian shall keep the books of
account of each Portfolio. Until otherwise directed by Proper
Instructions, the Custodian shall calculate daily the net income of the
Portfolio as described in Part A of the Registration Statement and
shall advise the Trust daily of the total amounts of such net income,
including the categorization of such net income by source. The
calculation of the Portfolio's net income and its components shall
include, but may not be limited to, accounting for purchases and sales
of portfolio securities, calculation of realized and unrealized gains
and losses, accruals of income on portfolio investments, expense
accruals and calculations of market value of portfolio securities. The
Custodian will transmit accounting information produced by the
Custodian to the Trust or an agent designated by the Trust in such
format and by such means as the Trust and the Custodian shall agree in
order that the Trust or such agent may calculate a Portfolio's net
asset value and SEC yield and the allocation of its various components
to the Portfolio's Investors. The Custodian shall in no event be
responsible for the calculation or publication of the net asset value
or yields of any Portfolio. All accounting functions to be performed by
the Custodian hereunder shall be performed outside of the United
States.
9. Records. The Custodian shall with respect to each Portfolio
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create and maintain all records relating to its activities and
obligations under this Contract in such manner as the Trust and the
Custodian may agree from time to time. All such records shall be the
property of the Trust and shall at all times during the regular
business hours of the Custodian be open for inspection by duly
authorized officers, employees or agents of the Trust and employees and
agents of the Securities and Exchange Commission. The Custodian shall,
at the Trust's request, supply the Trust with a tabulation(s) of
securities owned by the Portfolio(s) and held by the Custodian and
shall, when requested to do so by the Trust and for such compensation
as shall be agreed upon between the Trust and the Custodian, include
certificate numbers in such tabulations.
10. Opinion of Trust's Independent Accountant. The Custodian
shall take all reasonable action, as the Trust may from
time to time request, to assist the Trust in obtaining from
year to year favorable opinions for the Portfolio from the
Trust's independent accountants with respect to its
activities hereunder in connection with the preparation of
the Registration Statement and each Portfolio's Form N-SAR
or other periodic reports to the Securities and Exchange
Commission and with respect to any other requirements of
such Commission; provided, that the books and records of
the Portfolios shall be audited outside of the United
States.
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11. Reports to Trust by Independent Public Accountants. The
Custodian shall provide the Trust, at such times as the
Trust may reasonably require, with reports by independent
public accountants on the accounting system, internal
accounting control and procedures for safeguarding each
Portfolio's securities, futures contracts and options on
futures contracts, including securities deposited and/or
maintained in a Securities System, relating to the services
provided by the Custodian under this Contract; such
reports, shall be of sufficient scope and in sufficient
detail, as may reasonably be required by the Trust to
provide reasonable assurance that any material inadequacies
would be disclosed by such examination, and, if there are
no such inadequacies, the reports shall so state.
12. Compensation of Custodian. The Custodian shall be entitled
to reasonable compensation for its services and expenses as
Custodian, as agreed upon from time to time between the
Trust and the Custodian.
13. Responsibility of Custodian. So long as and to the extent that it is in
the exercise of reasonable care, the Custodian shall not be responsible
for the title, validity or genuineness of any property or evidence of
title thereto received by it or delivered by it pursuant to this
Contract and shall be held harmless in acting upon any notice, request,
consent, certificate or other instrument
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reasonably believed by it to be genuine and to be signed by the proper
party or parties, including any futures commission merchant acting
pursuant to the terms of a three-party futures or options agreement.
The Custodian shall be held to the exercise of reasonable care in
carrying out the provisions of this Contract, but shall be kept
indemnified by and shall be without liability to the Trust and/or the
Portfolio(s) for any action taken or omitted by it in good faith
without negligence. It shall be entitled to rely on and may act upon
advice of counsel (who may be counsel for the Trust) on all matters,
and shall be without liability for any action reasonably taken or
omitted pursuant to such advice.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution appointed pursuant to the provisions of Article 3
to the same extent as set forth in Article 1 hereof with respect to
sub-custodians located in the United States (except as specifically
provided in Article 3.9) and, regardless of whether assets are
maintained in the custody of a foreign banking institution, a foreign
securities depository or a branch of a U.S. bank as contemplated by
paragraph 3.12 hereof, the Custodian shall not be liable for any loss,
damage, cost, expense, liability or claim resulting from, or caused by,
the direction of or authorization by the Trust to maintain custody or
any securities or cash of the Portfolio(s) in a
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foreign country including, but not limited to, losses resulting from
nationalization, expropriation, currency restrictions, or acts of war
or terrorism.
If the Trust requires the Custodian to take any action with respect to
a Portfolio's securities, which action involves the payment of money or
which action may, in the opinion of the Custodian, result in the
Custodian or its nominee assigned to the Portfolio or the Portfolio
being liable for the payment of money or incurring liability of some
other form, the Trust, as a prerequisite to requiring the Custodian to
take such action, shall provide indemnity to the Custodian in an amount
and form satisfactory to it.
If the Trust requires the Custodian, its affiliates, subsidiaries or
agents, to advance cash or securities for any purpose (including but
not limited to securities settlements, foreign exchange contracts and
assumed settlement) for the benefit of a Portfolio including the
purchase or sale of foreign exchange or of contracts for foreign
exchange or in the event that the Custodian or its nominee shall incur
or be assessed any taxes, charges, expenses, assessments, claims or
liabilities in connection with the performance of this Contract, except
such as may arise from its or its nominee's own negligent action,
negligent failure to act or willful misconduct, any property at any
time held for the account of the Portfolio shall be security therefor
and should the Portfolio fail to
37
<PAGE>
repay the Custodian promptly, the Custodian shall be entitled to
utilize available cash and to dispose of the Portfolio's assets to the
extent necessary to obtain reimbursement.
14. Effective Period. Termination and Amendment. This Contract
shall become effective as of its execution, shall continue
in full force and effect until terminated as hereinafter
provided, may be amended at any time by mutual agreement of
the parties hereto and may be terminated by either party by
an instrument in writing delivered or mailed, postage
prepaid to the other party, such termination to take effect
not sooner than thirty (30) days after the date of such
delivery or mailing; provided, however that the Custodian
shall not with respect to the Trust act under Section 2.10
hereof in the absence of receipt of an initial certificate
of the Secretary or an Assistant Secretary that the Board
of Trustees of the Trust has approved the initial use by
each Portfolio of a particular Securities System as
required by Rule f-4 under the Investment Company Act of
1940, as amended and that the Custodian shall not with
respect to a Portfolio act under Section 2.10A hereof in
the absence of receipt of an initial certificate of the
Secretary or an Assistant Secretary that the Board of
Trustees has approved the initial use by each Portfolio of
the Direct Paper System by such Portfolio; provided
further, however, that the Trust shall not amend or
38
<PAGE>
terminate this Contract in contravention of any applicable federal or
state regulations, or any provision of the Declaration of Trust, and
further provided, that the Trust may at any time by action of its Board
of Trustees (i) with respect to any Portfolio substitute another bank
or trust company for the Custodian by giving notice as described above
to the Custodian, or (ii) immediately terminate this Contract in the
event of the appointment of a conservator or receiver for the Custodian
by the Comptroller of the Currency or upon the happening of a like
event at the direction of an appropriate regulatory agency or court of
competent jurisdiction.
Upon termination of the Contract, the Trust shall pay to the Custodian
such compensation as may be due as of the date of such termination and
shall likewise reimburse the Custodian for its costs, expenses and
disbursements.
15. Successor Custodian. If a successor custodian for a
Portfolio shall be appointed by the Board of Trustees of
the Trust, the Custodian shall, upon termination, deliver
to such successor custodian at the office of the Custodian,
duly endorsed and in the form for transfer, all securities
of such Portfolio then held by it hereunder and shall
transfer to an account of the successor custodian all of
the securities of the Portfolio held in a Securities
System.
If no such successor custodian shall be appointed, the
39
<PAGE>
Custodian shall, in like manner, upon receipt of a certified copy of a
vote of the Board of Trustees of the Trust, deliver at the office of
the Custodian and transfer such securities, funds and other properties
in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Trustees shall have been
delivered to the Custodian on or before the date when such termination
shall become effective, then the Custodian shall have the right to
deliver to a bank or trust company, which is a "bank" as defined in the
Investment Company Act of 1940, doing business in Boston,
Massachusetts, of its own selection, having an aggregate capital,
surplus, and undivided profits, as shown by its last published report,
of not less than $50,000,000, all securities, funds and other
properties held by the Custodian on behalf of a Portfolio and all
instruments held by the Custodian relative thereto and all other
property held by it under this Contract on behalf of the Portfolio and
to transfer to an account of such successor custodian all of the
securities of the Portfolio held in any Securities System. Thereafter,
such bank or trust company shall be the successor of the Custodian
under this Contract.
In the event that securities, funds and other properties
remain in the possession of the Custodian after
40
<PAGE>
the date of termination hereof owing to failure of the Trust to procure
the certified copy of the vote referred to or of the Board of Trustees
to appoint a successor custodian, the Custodian shall be entitled to
fair compensation for its services during such period as the Custodian
retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations
of the Custodian shall remain in full force and effect.
16. Interpretive and Additional Provisions. In connection with
the operation of this Contract, the Custodian and the
Trust, may from time to time agree on such provisions
interpretive of or in addition to the provisions of this
Contract as may in their joint opinion be consistent with
the general tenor of this Contract. Any such interpretive
or additional provisions shall be in a writing signed by
both parties and shall be annexed hereto, provided that no
such interpretive or additional provisions shall contravene
any applicable federal or state regulations or any
provision of the Declaration of Trust of the Trust. No
interpretive or additional provisions made as provided in
the preceding sentence shall be deemed to be an amendment
of this Contract.
17. Additional Portfolios. In the event that the Trust
establishes one or more subtrusts or series in addition to
The Asia Growth Portfolio, The Japan Equity Portfolio and
41
<PAGE>
The European Equity Portfolio, with respect to which it desires to have
the Custodian render services as custodian under the terms hereof, it
shall so notify the Custodian in writing, and if the Custodian agrees
in writing to provide such services, such subtrust or series shall
become a Portfolio hereunder.
18. Massachusetts Law to Apply. This Contract shall be
construed and the provisions thereof interpreted under and
in accordance with laws of The Commonwealth of
Massachusetts.
19. Prior Contracts. This Contract supersedes and terminates,
as of the date hereof, all prior contracts between the
Trust and the Custodian relating to the custody of the
Fund's assets of the Portfolio(s).
20. Investor Communications Election. Securities and Exchange
Commission Rule 14b-2 requires banks which hold securities
for the account of customers to respond to requests by
issuers of securities for the names, addresses and holdings
of beneficial owners of securities of that issuer held by
the bank unless the beneficial owner has expressly objected
to disclosure of this information. In order to comply with
the rule, the Custodian needs the Trust to indicate whether
it authorizes the Custodian to provide name, address, and
share positions of the Portfolio(s) to requesting companies
whose securities are owned by the Portfolio. If the Trust
tells the Custodian "no", the Custodian will not provide
42
<PAGE>
this information to requesting companies. If the Trust tells the
Custodian "yes" or does not check either "yes" or "no" below, the
Custodian is required by the rule to treat the Trust as consenting to
disclosure of this information for all securities owned by the
Portfolio or any funds or accounts established by the Trust. For the
Trust's protection, the Rule prohibits the requesting company from
using the Trust's / Portfolio's name and address for any purpose other
than corporate communications. Please indicate below whether the Trust
consents or objects by checking one of the alternatives below.
YES [ ] The Custodian is authorized to release such names, address, and
share (s).
NO [X] The Custodian is not authorized to release such names, address,
and position(s).
21. Limitation of Liability
The references herein to the Trustees of the Trust are to the Trustees
of the Trust as trustees and not individually or personally. The
obligations of the Trust entered into in the name of or on behalf of
each Portfolio by any of the Trustees are not made individually but in
their capacity as trustees and are not binding on any of the trustees
personally. All persons dealing with a Portfolio must look solely to
the assets of that Portfolio for the enforcement of any claims against
the Portfolio.
43
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the 8th day of July, 1994 .
THE SERIES PORTFOLIO
By /s/ Laura R. Young
Laura R. Young
Assistant Treasurer
STATE STREET BANK AND TRUST COMPANY
By /s/ Ronald E. Logue
Executive Vice President
44
<PAGE>
AMENDMENT TO CUSTODIAN CONTRACT
Agreement made by and between State Street Bank and Trust Company (the
"Custodian") and the funds listed on Exhibit A hereto (each, a "Fund")
WHEREAS, the Custodian and the Fund are parties to a custodian contract
dated and, as applicable amended, as of the date set forth on Exhibit A (each,
the "Custodian Contract");
WHEREAS, the Custodian and the Fund desire to amend the terms and
conditions Custodian Contract pursuant to which the custodian provides
services to the Fund;
NOW, THEREFORE, in consideration of the promises and covenants contained
herein, the Custodian and the Fund hereby agree as follows:
1. The existing Section 3.13 of the Custodian Contract shall be amended and
restated in its entirety to read as follows:
3.13 Tax Law.
(a) United States Taxes. The Custodian shall have no responsibility or
liability for any obligations now or hereafter imposed. On the
Fund or the Custodian as custodian of the Fund by the tax law of
the United States of America or any state or political subdivision
[t]hereof. The Custodian will be responsible for informing the
Fund of the income received by the Fund which is United States
source income and which is not United States source income.
(b) Claiming for Exemption or Refund under the Tax Laws of Non-United
States Jurisdictions. The sole responsibility of the Custodian
with regard to the tax laws of non-United States jurisdictions
shall be to identify the income of the Fund which has been subject
to withholding and other tax assessments or other governmental
charges by such jurisdictions and the amount thereof and to use
reasonable efforts to assist the Fund or its investors with
respect to any claim for exemption or refund of such charges that
can be made on behalf of the Fund or its investors.
2. The existing Article 8 of the Custodian Contract shall be amended and
restated in its entirety to read as follows:
8. Duties of Custodian with Respect to the Books of Account and
Calculation of Net Income. The Custodian shall keep the books of
account of the Fund and shall perform the following duties as
described
<PAGE>
in Part A of its Registration Statement under the 1940 Act and in
accordance with written procedures as may be agreed upon by the
Fund and the Custodian from time to time:
(a) record general ledger entries;
(b) calculate daily net income;
(c) reconcile activity to the trial balance;
(d) calculate book capital account balances;
(e) calculate and provide to the Fund the daily net asset
value of the Fund and the SEC yield of the Fund and
the allocation of its various components to investors
of the Fund;
(f) prepare capital allocation reports in accordance with
Regulation 1.704-3(e)(3) (special aggregation rule for
securities partnerships) under the U.S. Internal
Revenue Code, based upon tax adjustments supplied by
the Fund; and
(g) prepare account balances.
The Custodian shall advise the Fund daily of the total amounts of
such net income, including the categorization of such net income
by source. The calculation of the Fund's net income and its
components shall include, but may not be limited to, accounting
for purchases and sales of portfolio securities, calculation of
realized and unrealized gains and losses, accruals of income on
portfolio investments, Portfolio level expense accruals and
calculations of market value of portfolio securities. All
accounting functions to be performed by the Custodian hereunder
shall be performed outside the United States.
3. Except as specifically superseded or modified herein, the terms and
provisions of the Custodian contract shall continue to apply with full force
and effect.
IN WITNESS WHEREOF, each of the parties has caused this amendment to be
executed as a sealed instrument in its name and behalf by its duly authorized
representative as of this first day of July, 1996.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Ronald E. Logue
EACH OF THE PORTFOLIOS OF THE
FUNDS LISTED ON EXHIBIT A
By: /s/ Matthew Healey
W:\Morin\offshore.96\jpm-am2.mto
<PAGE>
Exhibit A
Master Funds
advised by J.P. Morgan
The Money Market Portfolio
The Short Term Bond Portfolio
The U.S. Fixed Income Portfolio
The Selected U.S. Equity Portfolio
The U.S. Small Company Portfolio
The Non-U.S. Equity Portfolio
The Diversified Portfolio
The Non-U.S. Fixed Income Portfolio
The Emerging Markets Equity Portfolio
The Asia Growth Portfolio, a series of The Series Portfolio
The Japan Equity Portfolio, a series of The Series Portfolio
The European Equity Portfolio, a series of The Series Portfolio
<PAGE>
INTERPRETATIVE PROVISIONS REGARDING CUSTODIAN CONTRACT
Agreement made by and between State Street Bank and Trust Company (the
"Custodian") and the funds listed on Exhibit A hereto (each, a "Fund" and
collectively, the "Funds")[.]
The Custodian and the Funds are parties to custodian contracts dated
and, as applicable amended, as of the dates set forth on Exhibit A (each, the
"Custodian Contract"). As contemplated by Article 16 of the Custodian
Contract, the Custodian and each Fund desire to agree upon provisions
interpretative of the provisions of the Custodian Contract. ACCORDINGLY, the
Custodian and the Fund agree to the following provisions interpretative of the
provisions of the Custodian Contract:
1. Section 2.9 of the Custodian Contract provides that the Custodian may
appoint an affiliate of the Custodian located outside the United States to
perform such of its duties hereunder as are required to be performed outside
the United States. The Custodian and the Fund acknowledge that the Custodian
has appointed its indirect wholly owned subsidiary State Street Cayman Trust
Company, Limited to perform certain of its duties under Article 8 of the
Custodian Contract and that State Street Cayman Trust Company, Limited may
further appoint one or more other affiliates of the Custodian located outside
the United States to perform certain of such duties.
2. The Custodian and the Fund shall adopt written procedures as shall be
agreed upon from time to time regarding the books of account, allocations for
book and tax purposes and calculation of net income in accordance with
Article 8 of the Custodian Contract.
This Agreement shall not supersede or amend the terms of the Custodian
Contract which shall continue to apply with full force and effect.
Each of the parties has caused this agreement to be executed in its name
and behalf by its duly authorized representative as of this first day of July,
1996.
STATE STREET BANK AND TRUST
COMPANY
By: /s/ Ronald E. Logue
EACH OF THE FUNDS LISTED ON
EXHIBIT A
By: /s/ Matthew Healey
<PAGE>
Exhibit A
Master Funds
advised by J.P. Morgan
The Money Market Portfolio
The Short Term Bond Portfolio
The U.S. Fixed Income Portfolio
The Selected U.S. Equity Portfolio
The U.S. Small Company Portfolio
The Non-U.S. Equity Portfolio
The Diversified Portfolio
The Non-U.S. Fixed Income Portfolio
The Emerging Markets Equity Portfolio
The Asia Growth Portfolio, a series of The Series Portfolio
The Japan Equity Portfolio, a series of The Series Portfolio
The European Equity Portfolio, a series of The Series Portfolio
<PAGE>
The Series Portfolio
P.O. Box 2508 GT
Elizabethan Square, 2nd Floor
Shedden Road, George Town
Grand Cayman, Cayman Islands, BWI
(809) 949-6644
December 18, 1996
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, MA 02171
Ladies and Gentlemen:
Re: Custodian Contract and Transfer Agency and Service Agreement
This is to advise you that the Board of Trustees of The Series Portfolio (the
"Trust") has established and organized two additional subtrusts (series): The
Disciplined Equity Portfolio and The International Opportunities Portfolio
(collectively, the "Portfolios"). State Street Bank and Trust Company ("State
Street") currently provides (i) custody and portfolio and fund accounting
services for the Trust's three other subtrusts pursuant to a Custodian Contract
dated July 8, 1994, as amended, between the Trust and State Street (the
"Custodian Contract") and (ii) transfer agency services for the Trust's three
other subtrusts pursuant to a Transfer Agency and Service Agreement dated
December 23, 1992, as amended, with State Street to which the Trust is also a
party (the "Transfer Agency Agreement").
In accordance with Article 17 (Additional Portfolios) of the Custodian Contract
and Article 10 (Additional Parties to Agreement) of the Transfer Agency
Agreement, the Trust hereby requests that State Street act as custodian and
transfer agent for each of the Portfolios under the terms of the Custodian
Contract and Transfer Agency Agreement, respectively.
Please indicate your acceptance of the foregoing by executing the eight
originals of this letter agreement, returning four the Trust and retaining four
for your records.
Very truly yours,
THE SERIES PORTFOLIO
By /s/ Lenore J. McCabe
Lenore J. McCabe
Assistant Secretary and Assistant Treasurer
Agreed to this 18th day of December,
1996
STATE STREET BANK AND TRUST COMPANY
By _________________________
Ronald E. Logue
Executive Vice President
JPM259A1
<PAGE>
Schedule A
17f-5 Approval
The Board of Trustees of The Series Portfolio has approved certain foreign
banking institutions and foreign securities depositories within State Street's
Global Custody Network for use as subcustodians for the Fund's securities, cash
and cash equivalents held outside of the United States. Board approval is as
indicated by the Fund's Authorized Officer:
Fund
Officer
Initials Country Subcustodian Central Depository
/s/ LJM State Street's entire Global Custody Network listed below
________ Argentina Citibank, N.A. Caja de Valores S.A.
________ Australia Westpac Banking Austraclear Limited;
Corporation
Reserve Bank Information
and Transfer System (RITS)
________ Austria GiroCredit Bank Oesterreichische
Aktiengesellschaft Kontrollbank AG
der Sparkassen (Wertpapiersammelbank
Division)
________ Bangladesh Standard Chartered Bank None
________ Belgium Generale Bank Caisse Interprofessionnelle
de Depots et de Virements
de Titres S.A. (CIK);
Banque Nationale de
Belgique
________ Botswana Barclays Bank of Botswana None
Limited
________ Brazil Citibank, N. A. Bolsa de Valores de Sao
Paulo (Bovespa);
Banco Central do Brasil,
Systema Especial de
Liquidacao e Custodia
(SELIC)
________ Canada Canada Trustco Mortgage The Canadian Depository
Company for Securities Limited
(CDS)
________ Chile Citibank, N.A. None
[logo] State Street [registered trademark]
<PAGE>
Fund
Officer
Initials Country Subcustodian Central Depository
________ People's The Hongkong and Shanghai Securities Central
Republic Shanghai Banking Clearing and Registration
of China Corporation Limited, Corporation (SSCCRC);
Shanghai and
Shenzhen branches Shenzhen Securities Central
Clearing Co., Ltd. (SSCC)
________ Colombia Cititrust Colombia S.A. None
Sociedad
Fiduciaria
________ Cyprus Barclays Bank PLC None
Cyprus Offshore Banking
Unit
________ Czech Ceskoslovenska Obchodni Stredisko cennych
Republic Banka A.S. papiru(SCP);
Czech National Bank (CNB)
________ Denmark Den Danske Bank Vaerdipapircentralen - The
Danish Securities Center
(VP)
________ Ecuador Citibank, N.A. None
________ Egypt National Bank of Egypt None
________ Finland Merita Bank Limited The Central Share Register
of Finland
________ France Banque Paribas Societe
Interprofessionnelle
pour la Compensation des
Valeurs Mobilieres
(SICOVAM);
Banque de France,
Saturne System
________ Germany Dresdner Bank AG The Deutscher Kassenverein
AG
________ Ghana Barclays Bank of Ghana None
Limited
________ Greece National Bank of Greece The Central Securities
S.A. Depository (Apothetirion
Titlon A.E.)
[logo] State Street [registered trademark]
<PAGE>
Fund
Officer
Initials Country Subcustodian Central Depository
________ Hong Kong Standard Chartered Bank The Central Clearing and
Settlement System (CCASS)
________ Hungary Citibank Budapest Rt. The Central Depository and
Clearing House (Budapest)
Ltd. (KELER Ltd.)
________ India Deutsche Bank AG None
The Hongkong and None
Shanghai Banking
Corporation Limited
________ Indonesia Standard Chartered Bank None
________ Ireland Bank of Ireland None;
The Central Bank of
Ireland, The Gilt
Settlement Office (GSO)
________ Israel Bank Hapoalim B.M. The Clearing House of the
Tel Aviv Stock Exchange
________ Italy Morgan Guaranty Trust Monte Titoli S.p.A.;
Company
(Present Subcustodian) Banca d'Italia
________ Banque Paribas Monte Titoli S.p.A.;
(Future Subcustodian)
Banca d'Italia
________ Ivory Societe Generale de None
Coast Banques en Cote d'Ivoire
________ Japan The Daiwa Bank, Limited Japan Securities Depository
Center (JASDEC);
Bank of Japan Net System
________ The Fuji Bank, Limited Japan Securities Depository
Center (JASDEC);
Bank of Japan Net System
________ The Sumitomo Trust & Japan Securities Depository
Banking Co., Ltd. Center (JASDEC);
Bank of Japan Net System
[logo] State Street [registered trademark]
<PAGE>
Fund
Officer
Initials Country Subcustodian Central Depository
________ Jordan The British Bank of the None
Middle East
________ Kenya Barclays Bank of Kenya None
Limited
________ Republic SEOULBANK Korea Securities Depository
of Korea (KSD)
________ Malaysia Standard Chartered Bank Malaysian Central
Malaysia Berhad Depository Sdn.
Bhd. (MCD)
________ Mauritius The Hongkong and None
Shanghai Banking
Corporation Limited
________ Mexico Citibank Mexico, S.A. S.D. INDEVAL, S.A. de C.V.
(Instituto para el Deposito
de Valores);
Banco de Mexico
________ Morocco Banque Commerciale du None
Maroc
________ Netherlands MeesPierson N.V. Nederlands Centraal
Instituut voor
Giraal Effectenverkeer B.V.
(NECIGEF;)
________ New Zealand ANZ Banking Group New Zealand Central
(New Zealand) Limited Securities Depository
Limited (NZCSD)
________ Norway Christiania Bank og Verdipapirsentralen - The
Kreditkasse Norwegian Registry of
Securities (VPS)
________ Pakistan Deutsche Bank AG None
________ Peru Citibank, N.A. Caja de Valores (CAVAL)
________ Philippines Standard Chartered Bank None
________ Poland Citibank Poland S.A. The National Depository of
Securities (Krajowy Depozyt
Papierow Wartosciowych);
National Bank of Poland
[logo] State Street [registered trademark]
<PAGE>
Fund
Officer
Initials Country Subcustodian Central Depository
________ Portugal Banco Comercial Central de Valores
Portugues Mobiliarios (Central)
________ Russia Credit Suisse, Zurich None
via Credit Suisse
(Moscow) Limited
________ Singapore The Development Bank The Central Depository
of Singapore Ltd. (Pte) Limited (CDP)
________ Slovak Ceskoslovenska Obchodna Stredisko Cennych Papierov
Republic Banka A.S. (SCP);
National Bank of Slovakia
________ South Standard Bank of South The Central Depository
Africa Africa Limited Limited
________ Spain Banco Santander, S. A. Servicio de Compensacion y
Liquidacion de Valores,
S.A. (SCLV);
Banco de Espana,
Anotaciones en Cuenta
________ Sri Lanka The Hongkong and Central Depository System
Shanghai Banking (Pvt) Limited
Corporation Limited
________ Swaziland Barclays Bank of None
Swaziland Limited
________ Sweden Skandinaviska Enskilda Vardepapperscentralen VPC
Banken AB - The Swedish Central
Securities Depository
________ Switzerland Union Bank of Schweizerische Effekten -
Switzerland Giro AG (SEGA)
________ Taiwan - Central Trust of China The Taiwan Securities
R.O.C. Central Depository
or Company, Ltd. (TSCD)
_______________________
(Client Designated
Subcustodian)
________ Thailand Standard Chartered Bank Thailand Securities
Depository Company Limited
(TSD)
[logo] State Street [registered trademark]
<PAGE>
Fund
Officer
Initials Country Subcustodian Central Depository
________ Turkey Citibank, N.A. Takas ve Saklama Bankasi
A.S.(TAKASBANK);
Central Bank of Turkey
________ United State Street Bank None;
Kingdom and Trust Company
The Bank of England,
The Central Gilts Office
CGO);
The Central Moneymarkets
Office (CMO)
________ Uruguay Citibank, N.A. None
________ Venezuela Citibank, N.A. None
________ Zambia Barclays Bank of Zambia Lusaka Central Depository
Limited (LCD)
________ Zimbabwe Barclays Bank of None
Zimbabwe Limited
________ Euroclear (The Euroclear System)/State Street London Limited[)]
________ Cedel (Cedel Bank, societe anonyme)/State Street London Limited[)]
Certified by:
/s/ Lenore J. McCabe NOV - 4 1996
Fund's Authorized Officer Date
Lenore J. McCabe
Assistant Secretary
Assistant Treasurer
[logo] State Street [registered trademark]
<TABLE>
<CAPTION>
10/10/96 Exhibit I
Date of Declaration
Portfolio of Trust Address Effective Date
<S> <C> <C> <C>
The Treasury Money Market Portfolio.11/4/92 60 State Street, Boston, MA 02109 8/1/96
The Money Market Portfolio..........1/29/93 P.O. Box 2508 GT 8/1/96
Grand Cayman, Cayman Islands, BWI
The Tax Exempt Money Market
Portfolio...........................1/29/93 60 State Street, Boston, MA 02109 8/1/96
The Short Term Bond Portfolio.......1/29/93 P.O. Box 2508 GT 8/1/96
Grand Cayman, Cayman Islands, BWI
The U.S. Fixed Income Portfolio.....1/29/93 P.O. Box 2508 GT 8/1/96
Grand Cayman, Cayman Islands, BWI
The Tax Exempt Bond Portfolio.......1/29/93 60 State Street, Boston, MA 02109 8/1/96
The Selected U.S. Equity Portfolio..1/29/93 P.O. Box 2508 GT 8/1/96
Grand Cayman, Cayman Islands, BWI
The U.S. Small Company Portfolio....1/29/93 P.O. Box 2508 GT 8/1/96
Grand Cayman, Cayman Islands, BWI
The Non-U.S. Equity Portfolio.......1/29/93 P.O. Box 2508 GT 8/1/96
Grand Cayman, Cayman Islands, BWI
The Diversified Portfolio...........1/29/93 P.O. Box 2508 GT 8/1/96
Grand Cayman, Cayman Islands, BWI
The Non-U.S. Fixed Income Portfolio.6/16/93 P.O. Box 2508 GT 8/1/96
Grand Cayman, Cayman Islands, BWI
The Emerging Markets Equity
Portfolio...........................6/16/93 P.O. Box 2508 GT 8/1/96
Grand Cayman, Cayman Islands, BWI
The New York Total Return
Bond Portfolio......................6/16/93 60 State Street, Boston, MA 02109 8/1/96
The Series Portfolio--
The Asia Growth Portfolio*..........6/24/94 P.O. Box 2508 GT 8/1/96
Grand Cayman, Cayman Islands, BWI
The Series Portfolio--
The Japan Equity Portfolio*.........6/24/94 P.O. Box 2508 GT 8/1/96
Grand Cayman, Cayman Islands, BWI
The Series Portfolio--
The European Equity Portfolio*......6/24/94 P.O. Box 2508 GT 8/1/96
Grand Cayman, Cayman Islands, BWI
The Series Portfolio--
The Disciplined Equity Portfolio*...6/24/94 P.O. Box 2508 GT 12/27/96
Grand Cayman, Cayman Islands, BWI
The Series Portfolio--The Inter-
national Opportunities Portfolio*...6/24/94 P.O. Box 2508 GT 12/27/96
Grand Cayman, Cayman Islands, BWI
The Series Portfolio--The Global
Strategic Income Portfolio*.........6/24/94 P.O. Box 2508 GT 12/27/96
Grand Cayman, Cayman Islands, BWI
*In the case of The Series Portfolio, references to the "Portfolio" refer to
its individual series as the context requires.
</TABLE>
TRANSFER AGENCY AND SERVICE AGREEMENT
between
THE PORTFOLIOS NAMED HEREIN
and
STATE STREET BANK AND TRUST COMPANY
JPM259A1
<PAGE>
TABLE OF CONTENTS
Page
Article 1 Terms of Appointment; Duties of the Bank 1
Article 2 Fees and Expenses 3
Article 3 Representations and Warranties of the Bank 4
Article 4 Representations and Warranties of
the Portfolio(s) 5
Article 5 Data Access and Proprietary Information 5
Article 6 Indemnification 8
Article 7 Standard of Care 11
Article 8 Covenants of the Portfolios and the Bank 11
Article 9 Termination of Agreement 13
Article 10 Additional Parties to Agreement 14
Article 11 Assignment 14
Article 12 Amendment 15
Article 13 Massachusetts Law to Apply 15
Article 14 Merger of Agreement 15
Article 15 Limitations of Liability of the Trustees
and the Investors 15
Article 16 Counterparts 16
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the 23rd day of December, 1992, by and between
each of the New York trusts executing this Agreement on the signature pages
hereto or becoming a party to this Agreement subsequent to the date hereof as
provided in Article 10 (each a "Portfolio"), and STATE STREET BANK AND TRUST
COMPANY, a Massachusetts trust company having its principal office and place of
business at 225 Franklin Street, Boston, Massachusetts 02110 (the "Bank").
WHEREAS, each Portfolio's assets are composed of money and property
contributed thereto by the holders of interests in the Portfolio ("Interest(s)")
entitled to ownership rights in the Portfolio ("Investors");
WHEREAS, each Portfolio desires to appoint the Bank as its transfer
agent and agent in connection with certain other activities, and the Bank
desires to accept such appointment;
WHEREAS, additional Portfolios may become subject to this Agreement in
accordance with Article 10; and
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
Article 1 Terms of Appointment; Duties of the Bank
1.01 Subject to the terms and conditions set forth in this
Agreement, each Portfolio hereby employs and appoints the Bank to act as, and
the Bank agrees to act, as its transfer agent for the authorized Interests.
<PAGE>
1.02 The Bank agrees that it will perform the following
services:
(a) In accordance with procedures established from time to
time by agreement between the Portfolios and the Bank, the Bank shall:
(i) Receive orders for the purchase of
Interests and promptly deliver payment and
appropriate documentation thereof to the custodian of
the applicable Portfolio authorized pursuant to the
Declaration of Trust of the Portfolio (the
"Custodian");
(ii) Pursuant to purchase orders, hold each
Interest in the appropriate Investor account;
(iii) Receive requests for purchases and
withdrawals and directions associated therewith and
deliver the appropriate documentation thereof to the
Custodian;
(iv) At the appropriate time as and when it
receives monies paid to it by the Custodian with
respect to any withdrawal, pay over or cause to be
paid over in the appropriate manner such monies as
instructed by the withdrawing Investor; and
(v) Maintain records of account for and
advise the Portfolios and their respective Investors
as to the foregoing; and
(vi) Record the Interest of each Investor
and maintain pursuant to SEC Rule 17Ad-lO(e) a record
of the
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<PAGE>
total number and value of Interests which have been
established, based upon data provided to it by the
applicable Portfolio.
(b) In addition to and neither in lieu nor in contravention of
the services set forth in the above paragraph (a), the Bank shall perform the
customary services of a transfer agent, including but not limited to:
maintaining all Investor accounts and withholding taxes, as applicable, on
non-resident alien Investors.
(c) Procedures as to who shall provide certain of these
services in Article 1 may be established from time to time by agreement between
the Portfolios and the Bank per the attached service responsibility schedule.
The Bank may at times perform only a portion of these services and the
Portfolios or their agents may perform these services on the Portfolios' behalf.
Article 2 Fees and Expenses
2.01 For performance by the Bank pursuant to this Agreement,
each Portfolio agrees to pay the Bank an annual fee as agreed to from time to
time by the Bank and the Portfolios. Such fees and out-of-pocket expenses and
advances identified under Section 2.02 below may be changed from time to time
subject to mutual written agreement between the Portfolios and the Bank.
2.02 In addition to the fee paid under Section 2.01 above,
each Portfolio agrees to reimburse the Bank for out-of-pocket expenses,
including but not limited to confirmation production, postage, forms, telephone,
microfilm, microfiche,
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<PAGE>
tabulating information statements and/or proxies, records storage or advances
incurred by the Bank. In addition, any other expenses incurred by the Bank at
the request or with the consent of a Portfolio, will be reimbursed by such
Portfolio.
2.03 Each Portfolio agrees to pay all fees and reimbursable
expenses promptly following the receipt of the respective billing notice.
Procedures applicable to advance payment by the Portfolios to the Bank of
postage for mailing information statements and/or proxies, reports and other
mailings to Investor accounts may be established from time to time by agreement
between the Portfolios and the Bank.
Article 3 Representations and Warranties of the Bank
The Bank represents and warrants to each Portfolio that:
3.01 It is a trust company duly organized and existing and in
good standing under the laws of the Commonwealth of Massachusetts.
3.02 It is duly qualified to carry on its business in the
Commonwealth of Massachusetts.
3.03 It is empowered under applicable laws and by its Charter
and By-Laws to enter into and perform this Agreement.
3.04 All requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement.
3.05 It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations under
this Agreement.
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<PAGE>
Article 4 Representations and Warranties of the Portfolio(s)
Each Portfolio represents and warrants to the Bank that:
4.01 It is a common law trust duly organized and existing
under the laws of the State of New York.
4.02 It is empowered under applicable laws and by its
Declaration of Trust and By-Laws to enter into and perform this Agreement.
4.03 All corporate proceedings required by said Declaration of
Trust and By-Laws have been taken to authorize it to enter into and perform this
Agreement.
4.04 It is an open - end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act").
Article 5 Data Access and Proprietary Information
5.01 Each Portfolio acknowledges that the data bases, computer
programs, screen format, report formats, interactive design techniques, and
documentation manuals (collectively, "Proprietary Information") furnished to the
Portfolio by the Bank as part of the Portfolio's ability to access certain
Portfolio-related data ("Customer Data") maintained by the Bank on data bases
under the control and ownership of the Bank or other third party ("Data Access
Services") constitute copyrighted, trade secret, or other proprietary
information of substantial value to the Bank or other third party. In no event
shall Proprietary Information be deemed Customer Data. Each Portfolio agrees to
treat all Proprietary Information as proprietary to the Bank and further
-5-
<PAGE>
agrees that it shall not divulge any Proprietary Information to any person or
organization except as may be provided hereunder. Without limiting the
foregoing, each Portfolio agrees for itself and its employees and agents:
(a) to access Customer Data solely from
locations as may be designated in writing by the Bank
and solely in accordance with the Bank's applicable
user documentation;
(b) to refrain from copying or duplicating
in any way the Proprietary Information;
(c) to refrain from obtaining unauthorized
access to any portion of the Proprietary Information,
and if such access is inadvertently obtained, to
inform in a timely manner of such fact and dispose of
such information in accordance with the Bank's
instructions;
(d) to refrain from causing or allowing
third-party data required hereunder from being
retransmitted to any other computer facility or other
location, except with the prior written consent of
the Bank;
(e) that the Portfolio shall have access
only to those authorized transactions agreed upon
by the parties;
(f) to honor all reasonable written
requests made by the Bank to protect at the Bank's
expense the rights of the Bank in Proprietary
Information at
-6-
<PAGE>
common law, under federal copyright law and under
other federal or state law.
Each party shall take reasonable efforts to advise its
employees of their obligations pursuant to this Article 5. The obligations of
this Article shall survive any earlier termination of this Agreement.
5.02 If a Portfolio notifies the Bank that any of the Data
Access Services do not operate in material compliance with the most recently
issued user documentation for such services, the Bank shall use its best efforts
to promptly correct such failure. Organizations from which the Bank may obtain
certain data included in the Data Access Services are solely responsible for the
contents of such data and each Portfolio agrees to make no claim against the
Bank arising out of the contents of such third-party data, including, but not
limited to, the accuracy thereof. DATA ACCESS SERVICES AND ALL COMPUTER PROGRAMS
AND SOFTWARE SPECIFICATIONS USED IN CONNECTION THEREWITH ARE PROVIDED ON AN AS
IS, AS AVAILABLE BASIS. THE BANK EXPRESSLY DISCLAIMS ALL WARRANTIES EXCEPT
THOSE EXPRESSLY STATED HEREIN INCLUDING, BUT NOT LIMITED TO, THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
5.03 If the transactions available to the Portfolios include
the ability to originate electronic instructions to the Bank in order to (i)
effect the transfer or movement of cash or (ii) transmit Investor information or
other information (such transactions are known as "Customer Originated
Electronic Financial Instructions" or "COEFI"), then in such event the Bank
shall be
-7-
<PAGE>
entitled to rely on the validity and authenticity of such instruction without
undertaking any further inquiry as long as such instruction is undertaken in
conformity with security procedures established by the Bank from time to time.
Article 6 Indemnification
6.01 The Bank shall not be responsible for, and each Portfolio
shall indemnify and hold the Bank harmless from and against, any and all losses,
damages, costs, charges, reasonable counsel fees, payments, expenses and
liability arising out of or attributable to any claim, demand, action or suit in
connection with:
(a) All actions of the Bank or its agent or subcontractors
required to be taken pursuant to this Agreement, provided that such actions are
taken in good faith and without negligence or willful misconduct.
(b) The Portfolio's lack of good faith, negligence or willful
misconduct which arise out of the breach of any representation or warranty of
the Portfolio hereunder.
(c) The reliance on or use by the Bank or its agents or
subcontractors of information, records, documents or services which (i) are
received by the Bank or its agents or subcontractors, and (ii) have been
prepared, maintained or performed by the Portfolio or any other person or firm
on behalf of the Portfolio.
(d) The reliance on, or the carrying out by the Bank or its
agents or subcontractors of any instructions or requests of the Portfolio.
-8-
<PAGE>
(e) The offer or sale of Interests in violation of any
requirement under the federal securities laws or regulations or the securities
laws or regulations of any state that such Interests be registered in such state
or in violation of any stop order or other determination or ruling by any
federal agency or any state with respect to the offer of Interests in such
state.
6.02 The Bank shall indemnify and hold each Portfolio harmless
from and against any and all losses, damages, costs, charges, reasonable counsel
fees, payments, expenses and liability arising out of or attributable to any
action or failure or omission to act by the Bank as a result of the Bank's lack
of good faith, negligence or willful misconduct.
6.03 At any time the Bank may apply to any officer of a
Portfolio for instructions, and may consult with legal counsel with respect to
any matter arising in connection with the services to be performed by the Bank
under this Agreement, and the Bank and its agents or subcontractors shall not be
liable and shall be indemnified by the applicable Portfolio for any action taken
or omitted by it in reliance upon such instructions or upon the opinion of such
counsel. The Bank, its agents and subcontractors shall be protected and
indemnified in acting upon any paper or document furnished by or on behalf of a
Portfolio, reasonably believed to be genuine and to have been signed by the
proper person or persons, or upon any instruction, information, data, records or
documents provided the Bank or its agents or subcontractors by machine readable
input, telex, CRT data entry or other similar
-9-
<PAGE>
means authorized by the Portfolio, and shall not be held to have notice of any
change of authority of any person, until receipt of written notice thereof from
the Portfolio. The Bank, its agents and subcontractors shall also be protected
and indemnified in recognizing stock certificates which are reasonably believed
to bear the proper manual or facsimile signatures of the officers of a
Portfolio, and the proper countersignature of any former transfer agent or
former registrar, or of a co-transfer agent or co-registrar.
6.04 In the event either party is unable to perform its
obligations under the terms of this Agreement because of acts of God, strikes,
equipment or transmission failure or damage reasonably beyond its control, or
other causes reasonably beyond its control, such party shall not be liable for
damages to the other for any damages resulting from such failure to perform or
otherwise from such causes, provided that the Bank shall use its best efforts to
minimize the likelihood of all damage, loss of data, delays and errors resulting
from uncontrollable events, and if such damage, loss of data, delays or errors
occur, the Bank shall use its best efforts to mitigate the effects of such
occurrence.
6.05 Neither party to this Agreement shall be liable to the
other party for consequential damages under any provision of this Agreement or
for any consequential damages arising out of any act or failure to act
hereunder.
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<PAGE>
6.06 In order that the indemnification provisions contained in
this Article 6 shall apply, upon the assertion of a claim for which either party
may be required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
who may be required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any compromise in any
case in which the other party may be required to indemnify it except with the
other party's prior written consent.
Article 7 Standard of Care
7.01 The Bank shall at all times act in good faith and agrees
to use its best efforts within reasonable limits to insure the accuracy of all
services performed under this Agreement, but assumes no responsibility and shall
not be liable for loss or damage due to errors unless said errors are caused by
its negligence, bad faith, or willful misconduct or that of its employees.
Article 8 Covenants of the Portfolios and the Bank
8.01 Each of the Portfolios shall promptly furnish to the Bank
the following:
(a) A certified copy of the resolution of the Trustees of the
Portfolio authorizing the appointment of the Bank and the execution and delivery
of this Agreement.
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<PAGE>
(b) A copy of the Declaration of Trust and By-Laws of the
Portfolio and all amendments thereto.
8.02 The Bank hereby agrees to establish and maintain
facilities and procedures reasonably acceptable to the Portfolios for safe-
keeping of stock certificates, check forms and facsimile signature imprinting
devices, if any, and for the preparation or use, and for keeping account of,
such certificates, forms and devices. The forms and documents used for a
Portfolio or its Investors shall be acceptable to the Portfolio.
8.03 The Bank shall keep records relating to the services to
be performed hereunder, in the form and manner as it may deem advisable and as
may be reasonably acceptable to the Portfolios. To the extent required by
Section 31 of the 1940 Act and the Rules thereunder, the Bank agrees that all
such records prepared or maintained by the Bank relating to the services to be
performed by the Bank hereunder are the property of the Portfolios and will be
preserved, maintained and made available in accordance with such Section and
Rules, and will be surrendered promptly to each Portfolio on and in accordance
with its request.
8.04 The Bank and the Portfolios agree that all books,
records, information and data pertaining to the business of the other party
which are exchanged or received pursuant to the negotiation or the carrying out
of this Agreement shall remain confidential, and shall not be voluntarily
disclosed to any other person, except as may be required by law. Notice shall be
given to the other party a reasonable time in advance of any such
-12-
<PAGE>
disclosure. In addition, in the case of any request or demand for the inspection
of the Investor records of a Portfolio, the Bank will notify the Portfolio
promptly of receipt of such request or demand and request instructions from an
authorized officer of the Portfolio as to such inspection. The Portfolio will
within two business days furnish instructions to the Bank. Pending receipt of
such instructions, the Bank will not disclose such Investor records and upon
receipt the Bank will abide by such instructions. Notwithstanding any other
provision of this Agreement, in the event that (a) the Portfolio instructs the
Bank not to disclose such Investor records and the Bank has furnished the
Portfolio with an opinion of counsel that the Bank may be held liable for the
failure to disclose such Investor records, the Portfolio will indemnify the Bank
for any such liability, or (b) the Bank discloses such Investor records without
proper instructions from the Portfolio, the Bank shall indemnify and hold the
Portfolio harmless from and against any and all losses, damages, costs, charges,
reasonable counsel fees, payments, expenses and liability arising out of or
attributable to such disclosure. The provision of Section 6.06 shall govern such
indemnification.
Article 9 Termination of Agreement
9.01 This Agreement may be terminated by either party upon one
hundred twenty (120) days written notice to the other.
9.02 Should a Portfolio exercise its right to terminate,
all out-of-pocket expenses associated with the movement of records and material
will be borne by the Portfolio. Additionally, the
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<PAGE>
Bank reserves the right to charge for any other reasonable expenses associated
with such termination.
Article 10 Additional Parties to Agreement
10.01 In the event that the Board of Trustees of the
Portfolio(s) organizes one or more separate New York trusts in addition to the
Portfolio executing this Agreement on the date hereof with respect to which it
desires to have the Bank render services as transfer agent under the terms
hereof, the Bank shall be so notified in writing by the officers of such trust,
and if the Bank agrees in writing to provide such services, such trust shall
become a party to this Agreement and shall be referred to as a Portfolio
hereunder.
Article 11 Assignment
11.01 Except as provided in Section 11.03 below, neither this
Agreement nor any rights or obligations hereunder may be assigned by either
party without the written consent of the other party.
11.02 This Agreement shall inure to the benefit of and be
binding upon the parties and their respective permitted successors and assigns.
11.03 The Bank may, without further consent on the part of any
Portfolio, subcontract for the performance hereof with (i) Boston Financial Data
Services, Inc., a Massachusetts corporation ("BFDS") which is duly registered as
a transfer agent pursuant to Section 17A(c)(1) of the Securities Exchange Act of
1934, as amended ("Section 17A(c)(1)"), (ii) a BFDS subsidiary duly
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<PAGE>
registered as a transfer agent pursuant to Section 17A(c)(1) or (iii) a BFDS
affiliate; provided, however, that the Bank shall be as fully responsible to
the Portfolio for the acts and omissions of any subcontractor as it is for its
own acts and omissions.
Article 12 Amendment
12.01 This Agreement may be amended or modified by a written
agreement executed by both parties and authorized or approved by a resolution of
the Trustees of the Portfolio(s).
Article 13 Massachusetts Law to Apply
13.01 This Agreement shall be construed and the provisions
thereof interpreted under and in accordance with the laws of the Commonwealth
of Massachusetts.
Article 14 Merger of Agreement
14.01 This Agreement constitutes the entire agreement between
the parties hereto and supersedes any prior agreement with respect to the
subject matter hereof whether oral or written.
Article 15 Limitations of Liability of the Trustees and the Investors
15.01 A copy of the Declaration of Trust of each Portfolio is
on file at the principal business address of the Portfolio, and notice is hereby
given that this instrument is executed on behalf of the Trustees of the
Portfolio(s) as Trustees and not individually and that the obligations of this
instrument are not binding upon any of the Trustees or Investors individually
but are binding only upon the assets and property of the Portfolio(s).
-15-
<PAGE>
Article 16 Counterparts
16.01 This Agreement may be executed by the parties hereto on
any number of counterparts, and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in their names and on their behalf by and through their
duly authorized officers, as of the day and year first above written.
THE TREASURY MONEY MARKET PORTFOLIO
BY: /s/ James B. Craver
Secretary and Treasurer
STATE STREET BANK AND TRUST COMPANY
BY: /s/ Ronald E. Logue
Executive Vice President
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<PAGE>
STATE STREET BANK AND TRUST COMPANY
SERVICE RESPONSIBILITIES*
Responsibility
Service Performed Bank Portfolio
1. Receives orders for the purchase of Interests. X
2. Hold Interests in Investor Accounts. X
3. Receive requests for withdrawals. X
4. Effect transactions 1-3 above directly
with broker-dealers. N/A
5. Pay over monies to withdrawing investors. X
6. Effect transfers of Interests. N/A
7. Prepare and transmit distributions. N/A
8. Issue Replacement Certificates. N/A
9. Reporting of abandoned property. N/A
10. Maintain records of account. X
11. Maintain and keep a current and accurate
control book for each issue of securities. X
12. Mail information statements and/or proxies. X
13. Mail Investor reports. X
14. Mail offering documents to prospective Investors. X
15. Withhold taxes on non-resident alien accounts. X
16. Prepare and file U.S. Treasury Department forms. X
17. Prepare and mail account and confirmation
statements for Investors. X
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<PAGE>
Responsibility
Service Performed Bank Portfolio
18. Provide Investor account information. X
19. Blue sky reporting. X
* Such services are more fully described in Article 1.02 (a), (b) and (c)
of the Agreement.
THE TREASURY MONEY MARKET PORTFOLIO
BY: /s/ James B. Craver
James B. Craver
Secretary and Treasurer
STATE STREET BANK AND TRUST COMPANY
BY: /s/ Ronald E. Logue
Executive Vice President
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<PAGE>
The Treasury Money Market Portfolio
The Tax Exempt Money Market Portfolio
The Tax Exempt Bond Portfolio
6 St. James Avenue
Boston, Massachusetts 02116
(617) 423-0800
The Money Market Portfolio
The U.S. Fixed Income Portfolio
The Selected U.S. Equity Portfolio
The U.S. Small Company Portfolio
The Non-U.S. Equity Portfolio
The Short Term Bond Portfolio
The U.S. Stock Portfolio
The Diversified Portfolio
P.O. Box 268, George Town
Grand Cayman, Cayman Islands, BWI
(809) 945-1824
February 1, 1993
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, MA 0[2]171
Ladies and Gentlemen:
Re: Transfer Agency and Service Agreement
This is to advise you that the Board of Trustees of The Treasury Money Market
Portfolio has organized the following ten additional New York trusts:
The Money Market Portfolio The Selected U.S. Equity Portfolio
The Tax Exempt Money Market Portfolio The U.S. Stock Portfolio
The Short Term Bond Portfolio The U.S. Small Company Portfolio
The U.S. Fixed Income Portfolio The Non-U.S. Equity Portfolio
The Tax Exempt Bond Portfolio The Diversified Portfolio
In accordance with Article 10 (Additional Parties to Agreement) of the Transfer
Agency and Service Agreement dated December 23, 1992 between The Treasury Money
Market Portfolio and State Street Bank and Trust Company, each of the ten
Portfolios hereby requests that you act as Transfer Agent of the Portfolio under
the terms of the agreement.
Please indicate your acceptance of the foregoing by executing two copies of this
letter agreement, returning one to the Portfolios and retaining one copy for
your records.
Very truly yours,
THE TREASURY MONEY MARKET PORTFOLIO
THE MONEY MARKET PORTFOLIO
THE TAX EXEMPT MONEY MARKET PORTFOLIO
THE SHORT TERM BOND PORTFOLIO
THE U.S. FIXED INCOME PORTFOLIO
THE TAX EXEMPT BOND PORTFOLIO
THE SELECTED U.S. EQUITY PORTFOLIO
THE U.S. STOCK PORTFOLIO
THE U.S. SMALL COMPANY PORTFOLIO
THE NON-U.S. EQUITY PORTFOLIO
THE DIVERSIFIED PORTFOLIO
By /s/ Cheri J. Baumann
Assistant Treasurer
<PAGE>
State Street Bank and Trust Company
February 1, 1993
Page 2
Agreed to this 2nd day of February,
1993
STATE STREET BANK AND TRUST COMPANY
By /s/ Ronald E. Logue
Executive Vice President
<PAGE>
The Treasury Money Market Portfolio
The Tax Exempt Money Market Portfolio
The Tax Exempt Bond Portfolio
6 St. James Avenue
Boston, Massachusetts 02116
(617) 423-0800
The Money Market Portfolio
The U.S. Fixed Income Portfolio
The Selected U.S. Equity Portfolio
The U.S. Small Company Portfolio
The Non-U.S. Equity Portfolio
The Short Term Bond Portfolio
The U.S. Stock Portfolio
The Diversified Portfolio
The Emerging Markets Equity Portfolio
The Non-U.S. Fixed Income Portfolio
P.O. Box 268, George Town
Grand Cayman, Cayman Islands, BWI
(809) 945-1824
September 27, 1993
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, MA 0[2]171
Ladies and Gentlemen:
Re: Transfer Agency and Service Agreement
This is to advise you that the Board of Trustees of The Treasury Money Market
Portfolio has organized the following two additional New York trusts:
The Emerging Markets Equity Portfolio The Non-U.S. Fixed Income Portfolio
In accordance with Article 10 (Additional Parties to Agreement) of the Transfer
Agency and Service Agreement dated December 23, 1992 between The Treasury Money
Market Portfolio and State Street Bank and Trust Company as amended, each of the
two Portfolios hereby requests that you act as Transfer Agent of the Portfolio
under the terms of the agreement.
Please indicate your acceptance of the foregoing by executing two copies of this
letter agreement, returning one to the Portfolios and retaining one copy for
your records.
Very truly yours,
THE TREASURY MONEY MARKET PORTFOLIO
THE MONEY MARKET PORTFOLIO
THE TAX EXEMPT MONEY MARKET PORTFOLIO
THE SHORT TERM BOND PORTFOLIO
THE U.S. FIXED INCOME PORTFOLIO
THE TAX EXEMPT BOND PORTFOLIO
THE SELECTED U.S. EQUITY PORTFOLIO
THE U.S. STOCK 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
By /s/ Cheri J. Baumann
Assistant Treasurer
<PAGE>
State Street Bank and Trust Company
September 27, 1993
Page 2
Agreed to this 27th day of September,
1993
STATE STREET BANK AND TRUST COMPANY
By /s/ Ronald E. Logue
Executive Vice President
<PAGE>
The Treasury Money Market Portfolio
The Tax Exempt Money Market Portfolio
The Tax Exempt Bond Portfolio
The New York Total Return Bond Portfolio
6 St. James Avenue
Boston, Massachusetts 02116
(617) 423-0800
The Money Market Portfolio
The U.S. Fixed Income Portfolio
The Selected U.S. Equity Portfolio
The U.S. Small Company Portfolio
The Non-U.S. Equity Portfolio
The Short Term Bond Portfolio
The U.S. Stock Portfolio
The Diversified Portfolio
The Emerging Markets Equity Portfolio
The Non-U.S. Fixed Income Portfolio
P.O. Box 268, George Town
Grand Cayman, Cayman Islands, BWI
(809) 945-1824
March 10, 1994
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, MA 02171
Ladies and Gentlemen:
Re: Transfer Agency and Service Agreement
This is to advise you that the Board of Trustees [of] has organized the
following additional New York trust: The New York Total Return Bond Portfolio
(the "Trust").
In accordance with Article 10 (Additional Parties to Agreement) of the Transfer
Agency and Service Agreement dated December 23, 1992 as amended between the
other Portfolios referenced above and State Street Bank and Trust Company, the
Trust hereby requests that you act as its Transfer Agent under the terms of the
agreement.
Please indicate your acceptance of the foregoing by executing the four originals
of this letter agreement, returning two the Portfolios and the Trust and
retaining two for your records.
Very truly yours,
THE TREASURY MONEY MARKET PORTFOLIO
THE MONEY MARKET PORTFOLIO
THE TAX EXEMPT MONEY MARKET PORTFOLIO
THE SHORT TERM BOND PORTFOLIO
THE U.S. FIXED INCOME PORTFOLIO
THE TAX EXEMPT BOND PORTFOLIO
THE SELECTED U.S. EQUITY PORTFOLIO
THE U.S. STOCK 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
THE NEW YORK TOTAL RETURN BOND PORTFOLIO
By /s/ Laura R. Young
Assistant Treasurer
<PAGE>
State Street Bank and Trust Company
March 10, 1994
Page 2
Agreed to this 10th day of March,
1994
STATE STREET BANK AND TRUST COMPANY
By /s/ Ronald E. Logue
Executive Vice President
<PAGE>
The Treasury Money Market Portfolio
The Tax Exempt Money Market Portfolio
The Tax Exempt Bond Portfolio
The New York Total Return Bond Portfolio
6 St. James Avenue
Boston, Massachusetts 02116
(617) 423-0800
The Money Market Portfolio
The U.S. Fixed Income Portfolio
The Selected U.S. Equity Portfolio
The U.S. Small Company Portfolio
The Non-U.S. Equity Portfolio
The Short Term Bond Portfolio
The U.S. Stock Portfolio
The Diversified Portfolio
The Emerging Markets Equity Portfolio
The Non-U.S. Fixed Income Portfolio
The Series Portfolio
P.O. Box 268, George Town
Grand Cayman, Cayman Islands, BWI
(809) 945-1824
July 8, 1994
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, MA 02171
Ladies and Gentlemen:
Re: Transfer Agency and Service Agreement
This is to advise you that the Board of Trustees has organized the following
additional New York trust: The Series Portfolio (the "Trust") (the Trust is
comprised initially of three separate and distinct investment portfolios--The
Asia Growth Portfolio, The European Equity Portfolio and The Japan Equity
Portfolio (each a "Series")).
In accordance with Article 10 (Additional Parties to Agreement) of the Transfer
Agency and Service Agreement dated December 23, 1992 as amended between the
other Portfolios referenced above and State Street Bank and Trust Company, the
Trust hereby requests that you act as Transfer Agent for each Series under the
terms of the agreement.
Please indicate your acceptance of the foregoing by executing the four originals
of this letter agreement, returning two the Portfolios and the Trust and
retaining two for your records.
Very truly yours,
THE TREASURY MONEY MARKET PORTFOLIO
THE MONEY MARKET PORTFOLIO
THE TAX EXEMPT MONEY MARKET PORTFOLIO
THE SHORT TERM BOND PORTFOLIO
THE U.S. FIXED INCOME PORTFOLIO
THE TAX EXEMPT BOND PORTFOLIO
THE SELECTED U.S. EQUITY PORTFOLIO
THE U.S. STOCK 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
THE NEW YORK TOTAL RETURN BOND PORTFOLIO
THE SERIES PORTFOLIO
By /s/ Laura R. Young
Assistant Treasurer
<PAGE>
State Street Bank and Trust Company
July 8, 1994
Page 2
Agreed to this 8th day of July,
1994
STATE STREET BANK AND TRUST COMPANY
By /s/ Ronald E. Logue
Executive Vice President
<PAGE>
The Series Portfolio
P.O. Box 2508 GT
Elizabethan Square, 2nd Floor
Shedden Road, George Town
Grand Cayman, Cayman Islands, BWI
(809) 949-6644
December 18, 1996
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, MA 02171
Ladies and Gentlemen:
Re: Custodian Contract and Transfer Agency and Service Agreement
This is to advise you that the Board of Trustees of The Series Portfolio (the
"Trust") has established and organized two additional subtrusts (series): The
Disciplined Equity Portfolio and The International Opportunities Portfolio
(collectively, the "Portfolios"). State Street Bank and Trust Company ("State
Street") currently provides (i) custody and portfolio and fund accounting
services for the Trust's three other subtrusts pursuant to a Custodian Contract
dated July 8, 1994, as amended, between the Trust and State Street (the
"Custodian Contract") and (ii) transfer agency services for the Trust's three
other subtrusts pursuant to a Transfer Agency and Service Agreement dated
December 23, 1992, as amended, with State Street to which the Trust is also a
party (the "Transfer Agency Agreement").
In accordance with Article 17 (Additional Portfolios) of the Custodian Contract
and Article 10 (Additional Parties to Agreement) of the Transfer Agency
Agreement, the Trust hereby requests that State Street act as custodian and
transfer agent for each of the Portfolios under the terms of the Custodian
Contract and Transfer Agency Agreement, respectively.
Please indicate your acceptance of the foregoing by executing the eight
originals of this letter agreement, returning four the Trust and retaining four
for your records.
Very truly yours,
THE SERIES PORTFOLIO
By /s/ Lenore J. McCabe
Lenore J. McCabe
Assistant Secretary and Assistant Treasurer
Agreed to this 18th day of December,
1996
STATE STREET BANK AND TRUST COMPANY
By _________________________
Ronald E. Logue
Executive Vice President
JPM259A1
Schedule A
Administrative Services Fees
Portfolios listed on Exhibit I
The annual administrative services fee charged to and payable
by each Portfolio listed on Exhibit I, as amended from time to time (the "Master
Portfolios"), is equal to its proportionate share of an annual complex-wide
charge. This charge is calculated daily based on the aggregate net assets of the
Master Portfolios and in accordance with the following annual schedule:
0.09% on the first $7 billion of the Master Portfolios'
aggregate average daily net assets; and 0.04% of the Master
Portfolios' aggregate average daily net assets in excess of $7
billion less the complex-wide charge of the Co-Administrator.
The portion of this charge payable by each Master Portfolio is determined by the
proportionate share that its net assets bear to the total of the net assets of
the Master Portfolios, The JPM Pierpont Funds, The JPM Institutional Funds, The
JPM Advisor Funds, JPM Series Trust and other investors in the Master Portfolios
for which Morgan provides similar services.
Approved: October 10, 1996
Effective: November 4, 1996
RMMFFAS5
<PAGE>
Exhibit I
Date of Effective
Portfolio Declaration of Trust Date
The Treasury Money Market Portfolio 11/4/92 8/1/96
The Money Market Portfolio 1/29/93 8/1/96
The Tax Exempt Money Market Portfolio 1/29/93 8/1/96
The Short Term Bond Portfolio 1/29/93 8/1/96
The U.S. Fixed Income Portfolio 1/29/93 8/1/96
The Tax Exempt Bond Portfolio 1/29/93 8/1/96
The Selected U.S. Equity Portfolio 1/29/93 8/1/96
The U.S. Small Company Portfolio 1/29/93 8/1/96
The Non-U.S. Equity Portfolio 1/29/93 8/1/96
The Diversified Portfolio 1/29/93 8/1/96
The Non-U.S. Fixed Income Portfolio 6/16/93 8/1/96
The Emerging Markets Equity Portfolio 6/16/93 8/1/96
The New York Total Return Bond Portfolio 6/16/93 8/1/96
The Series Portfolio* 6/24/94
The Asia Growth Portfolio 8/1/96
The Japan Equity Portfolio 8/1/96
The European Equity Portfolio 8/1/96
The Disciplined Equity Portfolio 12/27/96
The Global Strategic Income Portfolio 12/27/96
The International Opportunities Portfolio 12/27/96
JPM Series Trust* 8/15/96
Tax Aware Equity Fund 11/4/96
Tax Aware Disciplined Equity Fund 11/4/96
California Bond Fund 11/4/96
*In the cases of The Series Portfolio and JPM Series Trust, references to
"Portfolio" or "Fund" refer to their respective individual series as the context
requires.
Exhibit 13
JPM ASIA GROWTH FUND, LTD.
Bahamas Financial Centre
Shirley & Charlotte Streets
P.O. Box N 4899
Nassau, Bahamas
Telephone: (809) 326 5519 Telecopier (809) 326 5520
March 22, 1995
The Asia Growth Portfolio,
Elizabethan Square,
Second Floor,
P.O. Box 2494,
George Town, Grand Cayman,
B.W.I.
Ladies & Gentlemen:
With respect to our purchase from you, for the account of JPM Asia
Growth Fund, Ltd., a Bahamian International Business Company, at the purchase
price of $100, of a beneficial interest (an "Initial Interest") in the Asia
Growth Portfolio (the "Portfolio"), we hereby advise you that we are purchasing
such Initial Interest for investment purposes without any present intention of
withdrawing or reselling.
The amount paid by the Portfolio on any decrease or withdrawal by us of
any portion of such Initial Interest will be reduced by a portion of any
unamortized organization expenses, determined by the proportion of the amount of
such Initial Interest withdrawn to the aggregate Initial Interests of all
holders of similar Initial Interests then outstanding after taking into account
any prior withdrawals of any such Initial Interest.
Yours faithfully,
JPM ASIA GROWTH FUND, LTD.
Morgan Trust Company of The Bahamas Limited
Sole Director
/s/ Andrew G. Massie /s/ Daphne C. Delaney
Andrew G. Massie Daphne C. Delaney
Managing Director Vice President
<PAGE>
JPM JAPAN EQUITY FUND, LTD.
Bahamas Financial Centre
Shirley & Charlotte Streets
P.O. Box N 4899
Nassau, Bahamas
Telephone: (809) 326 5519 Telecopier (809) 326 5520
March 22, 1995
The Japan Equity Portfolio,
Elizabethan Square,
Second Floor,
P.O. Box 2494,
George Town, Grand Cayman,
B.W.I.
Ladies & Gentlemen:
With respect to our purchase from you, for the account of JPM Japan
Equity Fund, Ltd., a Bahamian International Business Company, at the purchase
price of $100,000, of a beneficial interest (an "Initial Interest") in the Japan
Equity Portfolio (the "Portfolio"), we hereby advise you that we are purchasing
such Initial Interest for investment purposes without any present intention of
withdrawing or reselling.
The amount paid by the Portfolio on any decrease or withdrawal by us of
any portion of such Initial Interest will be reduced by a portion of any
unamortized organization expenses, determined by the proportion of the amount of
such Initial Interest withdrawn to the aggregate Initial Interests of all
holders of similar Initial Interests then outstanding after taking into account
any prior withdrawals of any such Initial Interest.
Yours faithfully,
JPM JAPAN EQUITY FUND, LTD.
Morgan Trust Company of The Bahamas Limited
Sole Director
/s/ Andrew G. Massie /s/ Daphne C. Delaney
Andrew G. Massie Daphne C. Delaney
Managing Director Vice President
<PAGE>
JPM EUROPE FUND, LTD.
Bahamas Financial Centre
Shirley & Charlotte Streets
P.O. Box N 4899
Nassau, Bahamas
Telephone: (809) 326 5519 Telecopier (809) 326 5520
March 22, 1995
The European Equity Portfolio,
Elizabethan Square,
Second Floor
P.O. Box 2494,
George Town, Grand Cayman,
B.W.I.
Ladies & Gentlemen:
With respect to our purchase from you, for the account of JPM Europe
Fund, Ltd., a Bahamian International Business Company, at the purchase price of
$100, of a beneficial interest (an "Initial Interest") in the European Equity
Portfolio (the "Portfolio"), we hereby advise you that we are purchasing such
Initial Interest for investment purposes without any present intention of
withdrawing or reselling.
The amount paid by the Portfolio on any decrease or withdrawal by us of
any portion of such Initial Interest will be reduced by a portion of any
unamortized organization expenses, determined by the proportion of the amount of
such Initial Interest withdrawn to the aggregate Initial Interests of all
holders of similar Initial Interests then outstanding after taking into account
any prior withdrawals of any such Initial Interest.
Yours faithfully,
JPM EUROPE FUND, LTD.
By: Morgan Trust Company of The Bahamas Limited
Sole Director
/s/ Andrew G. Massie /s/ Daphne C. Delaney
Andrew G. Massie Daphne C. Delaney
Managing Director Vice President
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE SEMIANNUAL
REPORT ON FORM N-SAR DATED JUNE 30, 1996 FOR THE SERIES PORTFOLIO AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000943180
<NAME> THE SERIES PORTFOLIO
<SERIES>
<NUMBER> 001
<NAME> THE ASIA GROWTH PORTFOLIO
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 103245
<INVESTMENTS-AT-VALUE> 110283
<RECEIVABLES> 1349
<ASSETS-OTHER> 64
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 111696
<PAYABLE-FOR-SECURITIES> 992
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 262
<TOTAL-LIABILITIES> 1254
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<OTHER-INCOME> 0
<EXPENSES-NET> 650
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<REALIZED-GAINS-CURRENT> 3018
<APPREC-INCREASE-CURRENT> 4623
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<GROSS-EXPENSE> 657
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<EXPENSE-RATIO> 1.26
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
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<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE SEMIANNUAL
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QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000943180
<NAME> THE SERIES PORTFOLIO
<SERIES>
<NUMBER> 002
<NAME> THE EURPOEAN EQUITY PORTFOLIO
<MULTIPLIER> 1000
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<PERIOD-TYPE> 6-MOS
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<EXPENSES-NET> 2204
<NET-INVESTMENT-INCOME> 6481
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<AVG-DEBT-PER-SHARE> 0
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<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE SEMIANNUAL
REPORT ON FORM N-SAR DATED JUNE 30, 1996 FOR THE SERIES PORTFOLIO AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000943180
<NAME> THE SERIES PORTFOLIO
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<NAME> THE JAPAN EQUITY PORTFOLIO
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