As filed with the Securities and Exchange Commission on May 1, 1996
File No. 811-9008
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 2
THE SERIES PORTFOLIO
(Exact Name of Registrant as Specified in Charter)
Post Office Box 2494, Elizabethan Square, George Town,
Grand Cayman, Cayman Islands, BWI
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (809) 945-1824
Thomas M. Lenz, 6 St. James Avenue, Boston, Massachusetts 02116
(Name and Address of Agent for Service)
Copy to: Steven K. West, Esq.
Sullivan & Cromwell
125 Broad Street
New York, NY 10004
JPM581
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EXPLANATORY NOTE
This Amendment No. 2 (the "Amendment") to the Registrant's Registration
Statement on Form N-1A (File No. 811-9008) (the "Registration Statement") has
been filed by the Registrant pursuant to Section 8(b) of the Investment Company
Act of 1940, as amended (the "1940 Act"). However, beneficial interests in the
Registrant are not being registered under the Securities Act of 1933 (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 actual and potential series, only 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 Guaranty" or the "Advisor").
Investments in the Portfolio are not deposits or obligations of, or
guaranteed or endorsed by, Morgan Guaranty 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 administrator 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.
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.
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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.
The Portfolio seeks to achieve the its investment objective through a
country allocation and stock valuation and selection. Based on fundamental
research, quantitative valuation techniques, and experienced judgment, Morgan
Guaranty 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 Guaranty
selects the companies which appear the most attractive for the Portfolio. Morgan
Guaranty 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 Portfolio intends to manage its portfolio actively in pursuit of
its investment objective. The Portfolio does not intend to respond to short-term
market fluctuations or to acquire securities for the purpose of short-term
trading; however, it may take advantage of short-term trading opportunities that
are consistent with its objective. To the extent the Portfolio engages in
short-term trading, it may realize short-term capital gains or losses and incur
increased transaction costs. The estimated annual portfolio turnover rate for
the Portfolio is generally not expected to exceed 100%.
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
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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 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
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 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
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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.
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 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
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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 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
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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.
WARRANTS. The Portfolio invests in warrants, which entitle the holder
to buy common stock from the issuer at a specific price (the strike price) for a
specific period of time. The strike price of warrants sometimes is much lower
than the current market price of the underlying securities, yet warrants are
subject to similar price fluctuations. As a result, warrants may be more
volatile investments than the underlying securities.
Warrants do not entitle the holder to dividends or voting rights with
respect to the underlying securities and do not represent any rights in the
assets of the issuing company. Also, the value of the warrant does not
necessarily change with the value of the underlying securities and a warrant
ceases to have value if it is not exercised prior to the expiration date.
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 investments 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,
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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. 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 it 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, it is considered as a form of borrowing by the
Portfolio and, therefore, is a form of leverage. Leverage may cause any gains or
losses of the Portfolio to be magnified. 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 over-the-counter 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. See Risk Management in Part B. The Portfolio may not
use futures contracts and options for speculation.
The Portfolio may utilize options and futures contracts to manage its
exposure to changing interest rates and/or security prices. Some options and
futures strategies, including selling futures contracts and buying puts, tend to
hedge the Portfolio's investments against price fluctuations. Other strategies,
including buying futures contracts, writing puts and calls, and buying calls,
tend to increase market exposure. Options and futures contracts may be combined
with each other or with forward contracts in order to adjust the risk and return
characteristics of the Portfolio's overall strategy in a manner deemed
appropriate to the Advisor and consistent with the Portfolio's objective and
policies. Because combined options positions involve multiple trades, they
result in higher transaction costs and may be more difficult to open and close
out.
The use of options and futures is a highly specialized activity which
involves investment strategies and risks different from those associated with
ordinary portfolio securities transactions, and there can be no guarantee that
their use will increase 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.
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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.
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
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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. The Portfolio may purchase and sell (write) put and
call options on any securities index based on securities in which the Portfolio
may invest. Options on securities 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
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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, high quality assets in connection
with its use of options and futures contracts to the extent required by the
staff of the Securities and Exchange Commission. Securities held in a segregated
account cannot be sold while the futures contract or option is outstanding,
unless they are replaced with other suitable assets. As a result, there is a
possibility that segregation of a large percentage of the Portfolio's assets
could impede portfolio management or the Portfolio's ability to meet redemption
requests or other current obligations.
For further information about the Portfolio's use of futures and
options and a more detailed discussion of associated risks, see Item 13 in Part
B.
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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 (i) 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; (ii) 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); or (iii) 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
Guaranty as investment adviser. The Portfolio Trust has retained the services of
Signature Broker-Dealer Services, Inc. ("SBDS") as administrator (the
"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. SBDS, acting as agent for the Portfolio,
serves as exclusive placement agent of interests in the Portfolio. SBDS receives
no additional compensation for serving as exclusive placement agent to the
Portfolio.
The Portfolio Trust has entered into a Portfolio Fund Services
Agreement with Pierpont Group, Inc. to assist the Trustees of the Portfolio
Trust in exercising their overall supervisory responsibilities for the Portfolio
Trust's affairs. The fees to be paid under the agreement approximate the
reasonable cost of Pierpont Group, Inc. in providing these services. Pierpont
Group, Inc. was organized in 1989 at the request of the Trustees of The Pierpont
Funds for the purpose of providing these services at cost to these funds. The
principal offices of Pierpont Group, Inc. are located at 461 Fifth Avenue, New
York, New York 10017. See Item 14 in Part B.
INVESTMENT ADVISOR. The Portfolio has retained the services of Morgan
Guaranty as investment advisor. Morgan Guaranty, 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 Guaranty 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 $178 billion (of which the Advisor
advises over $29 billion). Morgan Guaranty provides investment advice and
portfolio management services to the Portfolio. Subject to the supervision of
the Portfolio Trust's Trustees, Morgan Guaranty 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.
Morgan Guaranty 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 Guaranty 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 Guaranty'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 Guaranty'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 Guaranty since
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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 Guaranty since prior to 1991 as a portfolio
manager of international equity investments).
As compensation for the services rendered and related expenses borne by
Morgan Guaranty under the Investment Advisory Agreement with the Portfolio
Trust, the Portfolio has agreed to pay Morgan Guaranty 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 provides certain financial, fund
accounting and administrative services to the Portfolio Trust. See Services
Agent below.
ADMINISTRATOR. Under an Administration Agreement with the Portfolio
Trust, SBDS serves as the Administrator for the Portfolio and in that capacity
supervises the Portfolio's day-to-day operations other than management of the
Portfolio's investments. In this capacity, SBDS administers and manages all
aspects of the Portfolio's day-to-day operations subject to the supervision of
the Trustees, except as set forth under "Investment Advisor," "Services Agent"
and "Custodian." In connection with its responsibilities as Administrator, SBDS
(i) furnishes ordinary clerical and related services for day-to-day operations
including certain recordkeeping responsibilities; (ii) takes responsibility for
compliance with all applicable federal and state securities and other regulatory
requirements; and (iii) performs such administrative and managerial oversight of
the activities of the Portfolio's custodian and transfer agent as the Trustees
may direct from time to time.
Under the Portfolio Trust's Administration Agreement with SBDS, the
Portfolio Trust has agreed to pay to SBDS a fee equal to its proportionate share
of an annual complex-wide charge. This charge is calculated daily based on the
aggregate net assets of the Portfolio and the other portfolios (collectively,
the "Master Portfolios") in which series of The JPM Advisor Funds, The Pierpont
Funds or The JPM Institutional Funds invest. This charge is calculated in
accordance with the following annual schedule: 0.03% on the first $7 billion of
the Master Portfolios' aggregate average daily net assets and 0.01% of the
Master Portfolios' aggregate average daily net assets in excess of $7 billion.
The portion of this charge payable by the Portfolio is determined by the
proportionate share that its net assets bear to the total of the net assets of
The JPM Advisor Funds, The Pierpont Funds, The JPM Institutional Funds and the
Master Portfolios.
SBDS, a registered broker-dealer, is a wholly owned subsidiary of
Signature Financial Group, Inc. ("Signature"). Signature and its affiliates
currently provide administration and distribution services for a number of
registered investment companies through offices located in Boston, New York,
London, Toronto and George Town, Grand Cayman. The principal business address of
SBDS is 6 St. James Avenue, Boston, Massachusetts 02116.
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SERVICES AGENT. Under an Administrative Services Agreement with the
Portfolio Trust, Morgan is responsible for certain financial, fund accounting
and administrative services provided to the Portfolio Trust, including services
related to Portfolio tax returns and Portfolio financial reports.
Under the Portfolio Trust's Administrative Services Agreement effective
December 29, 1995, the Portfolio Trust has agreed to pay to Morgan a fee equal
to its proportionate share of an annual complex-wide charge. This charge is
calculated daily based on the aggregate net assets of the Master Portfolios.
This charge is calculated in accordance with the following annual schedule:
0.06% on the first $7 billion of the Master Portfolios' aggregate average daily
net assets and 0.03% of the Master Portfolios' aggregate average daily net
assets in excess of $7 billion. The portion of this charge payable by the
Portfolio is determined by the proportionate share that its net assets bear to
the total of the net assets of The JPM Advisor Funds, The Pierpont Funds, The
JPM Institutional Funds, the Master Portfolios and other investors in the Master
Portfolios for which Morgan provides similar services.
Under this agreement, Morgan may delegate one or more of its
responsibilities to other entities, including SBDS, at Morgan's expense.
EXPENSES. In addition to the fees payable to Morgan, SBDS and Pierpont
Group, Inc. under the various agreements discussed above, the Portfolio is
responsible for certain usual and customary expenses associated with its
operations. Such expenses include organization expenses, legal fees, accounting
expenses, insurance costs, the compensation and expenses of its Trustees,
registration fees under federal and foreign securities laws, custodian fees,
brokerage expenses and extraordinary expenses applicable to the Portfolio.
CUSTODIAN. State Street Bank and Trust Company, 225 Franklin Street,
Boston, Massachusetts 02101, serves as the Portfolio's Custodian and Transfer
Agent.
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 three active and seventeen inactive 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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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 Code, assuming that the investor
invested all of its assets in the Portfolio.
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Investor inquiries may be directed to SBDS, in care of Signature
Financial Group (Grand Cayman) Ltd. at P.O. Box 2494, Elizabethan Square, 2nd
Floor, George Town, Grand Cayman, Cayman Islands, B.W.I. ((809) 945-1824).
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 interest. The securities delivered in kind are
valued by the method described in Item 19 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 Guaranty,
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,
over-the-counter 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 SBDS 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 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 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 actual and potential series, only 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 Guaranty" or the "Advisor").
Investments in the Portfolio are not deposits or obligations of, or
guaranteed or endorsed by, Morgan Guaranty 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 administrator 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.
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.
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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.
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 overweighing or underweighing 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 Portfolio intends to manage its portfolio actively in pursuit of
its investment objective. The Portfolio does not intend to respond to short-term
market fluctuations or to acquire securities for the purpose of short-term
trading; however, it may take advantage of short-term trading opportunities that
are consistent with its objective. To the extent the Portfolio engages in
short-term trading, it may realize short-term capital gains or losses and incur
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increased transaction costs. The estimated annual portfolio turnover rate for
the Portfolio is generally not expected to exceed 100%.
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, 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 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 and the Fund would continue
to pay their 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,
loan its portfolio securities, purchase certain privately placed securities and
enter into forward foreign currency exchange contracts. In addition, the
Portfolio may use options on securities and indexes of securities, futures
contracts and options on futures contracts for hedging and risk management
purposes. Forward foreign currency exchange contracts, options and futures
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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.
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
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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
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
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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.
WARRANTS. The Portfolio invests in warrants, which entitle the holder
to buy common stock from the issuer at a specific price (the strike price) for a
specific period of time. The strike price of warrants sometimes is much lower
than the current market price of the underlying securities, yet warrants are
subject to similar price fluctuations. As a result, warrants may be more
volatile investments than the underlying securities.
Warrants do not entitle the holder to dividends or voting rights with
respect to the underlying securities and do not represent any rights in the
assets of the issuing company. As the value of the warrant does not necessarily
change with the value of the underlying securities and a warrant ceases to have
value if it is not exercised prior to the expiration date.
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 investments 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
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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. 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 it 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, it is considered as a form of borrowing by the
Portfolio and, therefore, is a form of leverage. Leverage may cause any gains or
losses of the Portfolio to be magnified. 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
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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 over-the-counter 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. See Risk Management in Part B. The Portfolio may not
use futures contracts and options for speculation.
The Portfolio may utilize options and futures contracts to manage its
exposure to changing interest rates and/or security prices. Some options and
futures strategies, including selling futures contracts and buying puts, tend to
hedge the Portfolio's investments against price fluctuations. Other strategies,
including buying futures contracts, writing puts and calls, and buying calls,
tend to increase market exposure. Options and futures contracts may be combined
with each other or with forward contracts in order to adjust the risk and return
characteristics of the Portfolio's overall strategy in a manner deemed
appropriate to the Advisor and consistent with the Portfolio's objective and
policies. Because combined options positions involve multiple trades, they
result in higher transaction costs and may be more difficult to open and close
out.
The use of options and futures is a highly specialized activity which
involves investment strategies and risks different from those associated with
ordinary portfolio securities transactions, and there can be no guarantee that
their use will increase 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
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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.
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.
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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. The Portfolio may purchase and sell (write) put and
call options on any securities index based on securities in which the Portfolio
may invest. Options on securities 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,
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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, high quality assets in connection
with its use of options and futures contracts to the extent required by the
staff of the Securities and Exchange Commission. Securities held in a segregated
account cannot be sold while the futures contract or option is outstanding,
unless they are replaced with other suitable assets. As a result, there is a
possibility that segregation of a large percentage of the Portfolio's assets
could impede portfolio management or the Portfolio's ability to meet redemption
requests or other current obligations.
For further information about the Portfolio's use of futures and
options and a more detailed discussion of associated risks, see Item 13 in Part
B.
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
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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
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 (i) 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; (ii) 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); or (iii) 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
Guaranty as investment adviser. The Portfolio Trust has retained the services of
Signature Broker-Dealer Services, Inc. ("SBDS") as administrator (the
"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. SBDS, acting as agent for the Portfolio,
serves as exclusive placement agent of interests in the Portfolio. SBDS receives
no additional compensation for serving as exclusive placement agent to the
Portfolio.
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The Portfolio Trust has entered into a Portfolio Fund Services
Agreement with Pierpont Group, Inc. to assist the Trustees of the Portfolio
Trust in exercising their overall supervisory responsibilities for the Portfolio
Trust's affairs. The fees to be paid under the agreement approximate the
reasonable cost of Pierpont Group, Inc. in providing these services. Pierpont
Group, Inc. was organized in 1989 at the request of the Trustees of The Pierpont
Funds for the purpose of providing these services at cost to these funds. The
principal offices of Pierpont Group, Inc. are located at 461 Fifth Avenue, New
York, New York 10017. See Item 14 in Part B.
INVESTMENT ADVISOR. The Portfolio has retained the services of Morgan
Guaranty as investment advisor. Morgan Guaranty, 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 Guaranty is a wholly owned
subsidiary of J.P. Morgan & Co. Incorporated ("J.P. Morgan"), a bank holding
company organized under the laws of Delaware. Through offices in New York City
and abroad, J.P. Morgan, through the Advisor and other subsidiaries, offers a
wide range of services to governmental, institutional, corporate and individual
customers and acts as investment adviser to individual and institutional clients
with combined assets under management of over $179 billion (of which the Advisor
advises over $29 billion). Morgan Guaranty provides investment advice and
portfolio management services to the Portfolio. Subject to the supervision of
the Portfolio Trust's Trustees, Morgan Guaranty 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.
Morgan Guaranty 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 Guaranty 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 Guaranty'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 Guaranty'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 Guaranty
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 Guaranty under the Investment Advisory Agreement with the Portfolio
Trust, the Portfolio has agreed to pay Morgan Guaranty a fee, which is computed
daily
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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 certain financial, fund
accounting and administrative services to the Portfolio Trust. See Services
Agent below.
ADMINISTRATOR. Under an Administration Agreement with the Portfolio
Trust, SBDS serves as the Administrator for the Portfolio and in that capacity
supervises the Portfolio's day-to-day operations other than management of the
Portfolio's investments. In this capacity, SBDS administers and manages all
aspects of the Portfolio's day-to-day operations subject to the supervision of
the Trustees, except as set forth under "Investment Advisor," "Services Agent"
and "Custodian." In connection with its responsibilities as Administrator, SBDS
(i) furnishes ordinary clerical and related services for day-to-day operations
including certain recordkeeping responsibilities; (ii) takes responsibility for
compliance with all applicable federal and state securities and other regulatory
requirements; and (iii) performs such administrative and managerial oversight of
the activities of the Portfolio's custodian and transfer agent as the Trustees
may direct from time to time.
Under the Portfolio Trust's Administration Agreement with SBDS, the
Portfolio Trust has agreed to pay to SBDS a fee equal to its proportionate share
of an annual complex-wide charge. This charge is calculated daily based on the
aggregate net assets of the Portfolio and the other portfolios (collectively,
the "Master Portfolios") in which series of The JPM Advisor Funds, The Pierpont
Funds or The JPM Institutional Funds invest. This charge is calculated in
accordance with the following annual schedule: 0.03% on the first $7 billion of
the Master Portfolios' aggregate average daily net assets and 0.01% of the
Master Portfolios' aggregate average daily net assets in excess of $7 billion.
The portion of this charge payable by the Portfolio is determined by the
proportionate share that its net assets bear to the total of the net assets of
The JPM Advisor Funds, The Pierpont Funds, The JPM Institutional Funds and the
Master Portfolios.
SBDS, a registered broker-dealer, is a wholly owned subsidiary of
Signature Financial Group, Inc. ("Signature"). Signature and its affiliates
currently provide administration and distribution services for a number of
registered investment companies through offices located in Boston, New York,
London, Toronto and George Town, Grand Cayman. The principal business address of
SBDS is 6 St.
James Avenue, Boston, Massachusetts 02116.
SERVICES AGENT. Under an Administrative Services Agreement with the
Portfolio Trust, Morgan is responsible for certain financial, fund accounting
and administrative services provided to the Portfolio Trust, including services
related to Portfolio tax returns and Portfolio financial reports.
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Under the Portfolio Trust's Administrative Services Agreement effective
December 29, 1995, the Portfolio Trust has agreed to pay to Morgan a fee equal
to its proportionate share of an annual complex-wide charge. This charge is
calculated daily based on the aggregate net assets of the Master Portfolios.
This charge is calculated in accordance with the following annual schedule:
0.06% on the first $7 billion of the Master Portfolios' aggregate average daily
net assets and 0.03% of the Master Portfolios' aggregate average daily net
assets in excess of $7 billion. The portion of this charge payable by the
Portfolio is determined by the proportionate share that its net assets bear to
the total of the net assets of The JPM Advisor Funds, The Pierpont Funds, The
JPM Institutional Funds, the Master Portfolios and other investors in the Master
Portfolios for which Morgan provides similar services.
Under this agreement, Morgan may delegate one or more of its
responsibilities to other entities, including SBDS, at Morgan's expense.
EXPENSES. In addition to the fees payable to Morgan, SBDS and Pierpont
Group, Inc. under the various agreements discussed above, the Portfolio is
responsible for certain usual and customary expenses associated with its
operations. Such expenses include organization expenses, legal fees, accounting
expenses, insurance costs, the compensation and expenses of its Trustees,
registration fees under federal and foreign securities laws, custodian fees,
brokerage expenses and extraordinary expenses applicable to the Portfolio.
CUSTODIAN. State Street Bank and Trust Company, 225 Franklin Street,
Boston, Massachusetts 02101, serves as the Portfolio's Custodian and Transfer
Agent.
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 three active and seventeen inactive 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.
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
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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 Code, assuming that the investor
invested all of its assets in the Portfolio.
Investor inquiries may be directed to SBDS, in care of Signature
Financial Group (Grand Cayman) Ltd. at P.O. Box 2494, Elizabethan Square, 2nd
Floor, George Town, Grand Cayman, Cayman Islands, B.W.I. ((809) 945-1824).
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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 interest. The securities delivered in kind are
valued by the method described in Item 19 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 Guaranty,
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,
over-the-counter 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 SBDS 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 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
investor's investment in the Portfolio effected
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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 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 actual and potential series, only 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 Guaranty" or the "Advisor").
Investments in the Portfolio are not deposits or obligations of, or
guaranteed or endorsed by, Morgan Guaranty 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 administrator 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.
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.
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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.
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.
Morgan Guaranty 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, Morgan Guaranty uses a proprietary valuation model to establish the
relative valuation of individual Japanese companies within industrial sectors.
Morgan Guaranty 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, Morgan Guaranty uses a disciplined portfolio construction
process to seek to reduce the Portfolio's volatility relative to the TOPIX.
Morgan Guaranty 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 Portfolio intends to manage its portfolio actively in pursuit of
its investment objective. The Portfolio does not intend to respond to short-term
market fluctuations or to acquire securities for the purpose of short-term
trading; however, it may take advantage of short-term trading opportunities that
are consistent with its objective. To the extent the Portfolio engages in
short-term trading, it may realize short-term capital gains or losses and incur
increased transaction costs. The estimated annual portfolio turnover rate for
the Portfolio is generally not expected to exceed 100%.
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
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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,
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,
loan its portfolio securities, purchase certain privately placed securities and
enter into forward foreign currency exchange contracts. In addition, the
Portfolio may use options on securities and indexes of securities, futures
contracts and options on futures contracts for hedging and risk management
purposes. Forward foreign currency exchange contracts, options and futures
contracts are 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 a
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
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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.
The common stocks of many Japanese companies continue to trade at high
price earnings ratios in comparison with those in the United States, even after
the recent market decline. Differences in accounting methods make it difficult
to compare the earnings of Japanese companies with those of companies in other
countries, especially the United States.
Since the Portfolio invests primarily in securities denominated in yen,
changes in exchange rates between the U.S. dollar and the yen affect the U.S.
dollar value of the Portfolio's assets. Such rate of exchange is determined by
forces of supply and demand on the foreign exchange markets. These forces are in
turn affected by the international balance of payments and other economic,
political and financial conditions, government intervention, speculation and
other factors. See Foreign Currency Exchange Transactions.
Japanese securities held by the Portfolio are not registered with the
U.S. Securities and Exchange Commission nor are the issuers thereof subject to
its reporting requirements. There may be less publicly available information
about issuers of Japanese securities than about U.S. companies and such issuers
may not be subject to accounting, auditing and financial reporting standards and
requirements comparable to those to which U.S. companies are subject.
Although the Japanese economy has grown substantially over the past
four decades, recently the rate of growth had slowed substantially. During 1991,
1992 and 1993, the Japanese economy grew at rates of 4.3%, 1.1% and 0.1%,
respectively, as measured by real gross domestic product. For additional
information about the Japanese economy, see Appendix B-Investing in Japan and
Asian Growth Markets-Japan and its Securities Markets in Part B.
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 Portfolio.
Japan's economy has typically exhibited low inflation and low interest
rates. There can be no assurance that low inflation and low interest rates will
continue, and it is likely that a reversal of such factors would adversely
affect the Japanese economy. Moreover, the Japanese economy may differ,
favorably or unfavorably, from the U.S. economy in such respects as growth of
gross national product, rate of inflation, capital reinvestment, resources,
self-sufficiency and balance of payments position.
Japan has a parliamentary form of government. In 1993 a coalition
government was formed which, for the first time since 1955, did not include the
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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 on the economy in Japan cannot be
predicted. Recent and future developments in Japan and neighboring Asian
countries may lead to changes in policy that might adversely affect the
Portfolio. For additional information, see Appendix B-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
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.
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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 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
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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.
WARRANTS. The Portfolio invests in warrants, which entitle the holder
to buy common stock from the issuer at a specific price (the strike price) for a
specific period of time. The strike price of warrants sometimes is much lower
than the current market price of the underlying securities, yet warrants are
subject to similar price fluctuations. As a result, warrants may be more
volatile investments than the underlying securities.
Warrants do not entitle the holder to dividends or voting rights with
respect to the underlying securities and do not represent any rights in the
assets of the issuing company. Also, the value of the warrant does not
necessarily change with the value of the underlying securities and a warrant
ceases to have value if it is not exercised prior to the expiration date.
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 investments 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. 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 it 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, it is considered as a form of borrowing by the
Portfolio and, therefore, is a form of leverage. Leverage may cause any gains or
losses of the Portfolio to be magnified. 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
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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 over-the-counter 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. See Risk Management in Part B. The Portfolio may not
use futures contracts and options for speculation.
The Portfolio may utilize options and futures contracts to manage its
exposure to changing interest rates and/or security prices. Some options and
futures strategies, including selling futures contracts and buying puts, tend to
hedge the Portfolio's investments against price fluctuations. Other strategies,
including buying futures contracts, writing puts and calls, and buying calls,
tend to increase market exposure. Options and futures contracts may be combined
with each other or with forward contracts in order to adjust the risk and return
characteristics of the Portfolio's overall strategy in a manner deemed
appropriate to the Advisor and consistent with the Portfolio's objective and
policies. Because combined options positions involve multiple trades, they
result in higher transaction costs and may be more difficult to open and close
out.
The use of options and futures is a highly specialized activity which
involves investment strategies and risks different from those associated with
ordinary portfolio securities transactions, and there can be no guarantee that
their use will increase 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.
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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.
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
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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. The Portfolio may purchase and sell (write) put and
call options on any securities index based on securities in which the Portfolio
may invest. Options on securities 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
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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, high quality assets in connection
with its use of options and futures contracts to the extent required by the
staff of the Securities and Exchange Commission. Securities held in a segregated
account cannot be sold while the futures contract or option is outstanding,
unless they are replaced with other suitable assets. As a result, there is a
possibility that segregation of a large percentage of the Portfolio's assets
could impede portfolio management or the Portfolio's ability to meet redemption
requests or other current obligations.
For further information about the Portfolio's use of futures and
options and a more detailed discussion of associated risks, see Item 13 in Part
B.
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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 (i) 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; (ii) 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); or (iii) 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
Guaranty as investment adviser. The Portfolio Trust has retained the services of
Signature Broker-Dealer Services, Inc. ("SBDS") as administrator (the
"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. SBDS, acting as agent for the Portfolio,
serves as exclusive placement agent of interests in the Portfolio. SBDS receives
no additional compensation for serving as exclusive placement agent to the
Portfolio.
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The Portfolio Trust has entered into a Portfolio Fund Services
Agreement with Pierpont Group, Inc. to assist the Trustees of the Portfolio
Trust in exercising their overall supervisory responsibilities for the Portfolio
Trust's affairs. The fees to be paid under the agreement approximate the
reasonable cost of Pierpont Group, Inc. in providing these services. Pierpont
Group, Inc. was organized in 1989 at the request of the Trustees of The Pierpont
Funds for the purpose of providing these services at cost to these funds. The
principal offices of Pierpont Group, Inc. are located at 461 Fifth Avenue, New
York, New York 10017. See Item 14 in Part B.
INVESTMENT ADVISOR. The Portfolio has retained the services of Morgan
Guaranty as investment advisor. Morgan Guaranty, 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 Guaranty 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 $178 billion (of which the Advisor
advises over $29 billion). Morgan Guaranty provides investment advice and
portfolio management services to the Portfolio. Subject to the supervision of
the Portfolio Trust's Trustees, Morgan Guaranty 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.
Morgan Guaranty 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 Guaranty 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 Guaranty'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 Guaranty'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 Guaranty
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 Guaranty since prior to 1991 as a portfolio
manager of Japanese equity investments).
As compensation for the services rendered and related expenses borne by
Morgan Guaranty under the Investment Advisory Agreement with the Portfolio
Trust,
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the Portfolio has agreed to pay Morgan Guaranty 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 provides certain financial, fund
accounting and administrative services to the Portfolio Trust. See Services
Agent below.
ADMINISTRATOR. Under an Administration Agreement with the Portfolio
Trust, SBDS serves as the Administrator for the Portfolio and in that capacity
supervises the Portfolio's day-to-day operations other than management of the
Portfolio's investments. In this capacity, SBDS administers and manages all
aspects of the Portfolio's day-to-day operations subject to the supervision of
the Trustees, except as set forth under "Investment Advisor," "Services Agent"
and "Custodian." In connection with its responsibilities as Administrator, SBDS
(i) furnishes ordinary clerical and related services for day-to-day operations
including certain recordkeeping responsibilities; (ii) takes responsibility for
compliance with all applicable federal and state securities and other regulatory
requirements; and (iii) performs such administrative and managerial oversight of
the activities of the Portfolio's custodian and transfer agent as the Trustees
may direct from time to time.
Under the Portfolio Trust's Administration Agreement with SBDS, the
Portfolio Trust has agreed to pay to SBDS a fee equal to its proportionate share
of an annual complex-wide charge. This charge is calculated daily based on the
aggregate net assets of the Portfolio and the other portfolios (collectively,
the "Master Portfolios") in which series of The JPM Advisor Funds, The Pierpont
Funds or The JPM Institutional Funds invest. This charge is calculated in
accordance with the following annual schedule: 0.03% on the first $7 billion of
the Master Portfolios' aggregate average daily net assets and 0.01% of the
Master Portfolios' aggregate average daily net assets in excess of $7 billion.
The portion of this charge payable by the Portfolio is determined by the
proportionate share that its net assets bear to the total of the net assets of
The JPM Advisor Funds, The Pierpont Funds, The JPM Institutional Funds and the
Master Portfolios.
SBDS, a registered broker-dealer, is a wholly owned subsidiary of
Signature Financial Group, Inc. ("Signature"). Signature and its affiliates
currently provide administration and distribution services for a number of
registered investment companies through offices located in Boston, New York,
London, Toronto and George Town, Grand Cayman. The principal business address of
SBDS is 6 St. James Avenue, Boston, Massachusetts 02116.
SERVICES AGENT. Under an Administrative Services Agreement with the
Portfolio Trust, Morgan is responsible for certain financial, fund accounting
and administrative services provided to the Portfolio Trust, including services
related to Portfolio tax returns and Portfolio financial reports.
Under the Portfolio Trust's Administrative Services Agreement effective
December 29, 1995, the Portfolio Trust has agreed to pay to Morgan a fee equal
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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.
This charge is calculated in accordance with the following annual schedule:
0.06% on the first $7 billion of the Master Portfolios' aggregate average daily
net assets and 0.03% of the Master Portfolios' aggregate average daily net
assets in excess of $7 billion. The portion of this charge payable by the
Portfolio is determined by the proportionate share that its net assets bear to
the total of the net assets of The JPM Advisor Funds, The Pierpont Funds, The
JPM Institutional Funds, the Master Portfolios and other investors in the Master
Portfolios for which Morgan provides similar services.
Under this agreement, Morgan may delegate one or more of its
responsibilities to other entities, including SBDS, at Morgan's expense.
EXPENSES. In addition to the fees payable to Morgan, SBDS and Pierpont
Group, Inc. under the various agreements discussed above, the Portfolio is
responsible for certain usual and customary expenses associated with its
operations. Such expenses include organization expenses, legal fees, accounting
expenses, insurance costs, the compensation and expenses of its Trustees,
registration fees under federal and foreign securities laws, custodian fees,
brokerage expenses and extraordinary expenses applicable to the Portfolio.
CUSTODIAN. State Street Bank and Trust Company, 225 Franklin Street,
Boston, Massachusetts 02101, serves as the Portfolio's Custodian and Transfer
Agent.
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 three active and seventeen inactive 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.
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
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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 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 SBDS, in care of Signature
Financial Group (Grand Cayman) Ltd. at P.O. Box 2494, Elizabethan Square, 2nd
Floor, George Town, Grand Cayman, Cayman Islands, B.W.I. ((809) 945-1824).
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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. 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 interest. The securities delivered in kind are
valued by the method described in Item 19 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 Guaranty,
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,
over-the-counter 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 SBDS 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 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
investor's investment in the Portfolio effected
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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-18
Control Persons and Principal Holder
of Securities . . . . . . . . . . . . . . . . . . . . B-20
Investment Advisory and Other Services . . . . . . . B-21
Brokerage Allocation and Other Practices . . . . . . B-26
Capital Stock and Other Securities . . . . . . . . . B-28
Purchase, Redemption and Pricing of
Securities . . . . . . . . . . . . . . . . . . . . . B-29
Tax Status . . . . . . . . . . . . . . . . . . . . . B-30
Underwriters . . . . . . . . . . . . . . . . . . . . B-32
Calculations of Performance Data . . . . . . . . . . B-32
Financial Statements . . . . . . . . . . . . . . . . B-33
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 and The Japan Equity
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
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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
markets. Under normal circumstances, the Asia Growth Portfolio expects to invest
at least 65% of its total assets in such securities. The Asia Growth Portfolio
does not intend to invest in U.S. securities (other than money market
instruments), except temporarily, when extraordinary circumstances prevailing at
the same time in a significant number of countries considered to be Asian growth
markets render investments in such countries inadvisable.
INVESTMENT PROCESS
Country allocation: Morgan's country allocation decision begins with a
forecast of equity risk premiums, which provide a valuation signal by measuring
the relative attractiveness of stocks versus bonds. Using a proprietary
approach, Morgan calculates this risk premium for each of the nations in the
Portfolio's universe, determines the extent of its deviation -- if any -- from
its historical norm, and then ranks countries according to the size of these
deviations. Countries with high (low) rankings are overweighted (underweighted)
to reflect the above-average (below average) attractiveness of their stock
markets. In determining weightings, Morgan analyzes a variety of qualitative
factors as well -- including the liquidity, earnings momentum and interest rate
climate of the market at hand. These qualitative assessments can change the
magnitude but not the direction of the country allocations called for by the
risk-premium forecast. In an effort to contain risk, Morgan places limits on the
total size of the Portfolio's country over- and under-weightings.
Stock selection: Morgan's six Asian equity analysts focused on Asian
markets -- each an industry and country specialist -- forecast normalized,
long-term earnings and dividend payouts for approximately 250 companies in this
region. These forecasts are converted into comparable expected returns by a
dividend discount model, and then companies are ranked from most to least
attractive by industry and country, and are grouped into quintiles. A
diversified portfolio is constructed using disciplined buy and sell rules. The
portfolio manager's objective is to concentrate purchases in the top 20% of the
rankings, and to keep sector weightings close to those of the benchmark. Once a
stock falls into the third quintile -- because its price has risen or its
fundamentals have deteriorated -- it generally becomes a sale candidate. Where
available, warrants and convertibles are purchased when they appear to have the
potential to add value over common stock.
THE 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.
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The European Equity Portfolio seeks to achieve its investment objective
by investing primarily in the Equity Securities of European companies. Under
normal circumstances, the European Equity Portfolio expects to invest at least
65% of its total assets in such securities. The European Equity Portfolio does
not intend to invest in U.S. securities (other than money market instruments),
except temporarily, when extraordinary circumstances prevailing at the same time
in a significant number of European countries render investments in such
countries inadvisable.
INVESTMENT PROCESS
Country allocation: Morgan's country allocation decision begins with a
forecast of equity risk premiums, which provide a valuation signal by measuring
the relative attractiveness of stocks versus bonds. Using a proprietary
approach, Morgan calculates this risk premium for each of the nations in the
Portfolio's universe, determines the extent of its deviation -- if any -- from
its historical norm, and then ranks countries according to the size of those
deviations. Countries with high (low) rankings are overweighted (underweighted)
in comparison to the Morgan Stanley Capital International Europe Index to
reflect the above-average (below-average) attractiveness of their stock markets.
In determining weightings, Morgan analyzes a variety of qualitative factors as
well -- including the liquidity, earnings momentum and interest rate climate of
the market at hand. These qualitative assessments can change the magnitude but
not the direction of the country allocations called for by the risk-premium
forecast. In an effort to contain risk, Morgan place limits on the total size of
the Portfolio's country over- and under-weightings.
Stock selection: Morgan's 15 European equity analysts, each an industry
and country specialist, forecast normalized earnings and dividend payouts for
roughly 600 companies, taking a long-term perspective rather than the short time
frame common to consensus estimates. The analysts' forecasts are converted into
comparable expected returns by a dividend discount model, and then companies are
ranked from most to least attractive by industry and country. A diversified
portfolio is constructed using disciplined buy and sell rules. The portfolio
manager's objective is to concentrate purchases in the top third of the
rankings, and to keep sector weightings close to those of the benchmark. Once a
stock falls into the bottom third of the rankings -- because its price has risen
or its fundamentals have deteriorated -- it generally becomes a sale candidate.
THE 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
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total assets in such securities. The Japan Equity Portfolio does not intend to
invest in U.S. securities (other than money market instruments), except
temporarily, when extraordinary circumstances prevailing in Japan render
investments there inadvisable.
INVESTMENT PROCESS
Systematic valuation: Morgan's ten Japanese equity analysts in Tokyo --
each an industry specialist -- follow a total of over 300 Japanese companies.
The most attractive names in that universe are identified by a multifactor model
which screens for low price/earnings ratios, high earnings growth rates and high
sales/price ratios. Within each sector, this subset of the universe is ranked by
these three measures and broken into quintiles; the companies in the top
quintile are considered the most attractive ones from both a growth and
valuation viewpoint. To provide an additional check on the valuation of selected
companies, the analysts prepare normalized, long-term earnings and dividend
forecasts which are converted into comparable expected returns by a dividend
discount model.
Warrant/convertible strategy: Once a company has been identified as a
buy candidate, the portfolio manager analyzes the yields on the company's
available equity vehicles -- stocks, warrants and convertibles -- to determine
which appears the most attractive means of purchase. In an effort to enhance
potential returns, the Portfolio also trades among these vehicles -- a strategy
that seeks to capitalize on the inefficiencies that pervade the Japanese equity
market. If the Portfolio invests in a warrant, it will set aside cash in an
amount approximately equal to the difference in the price of the warrant and the
market value of the underlying common stock. The cash is invested in money
market instruments.
Disciplined portfolio construction: The Portfolio is constructed using
disciplined buy and sell rules. The portfolio manager's objective is to
concentrate purchases in the top 20% of the rankings; the specific companies
selected reflect the portfolio manager's judgment concerning the liquidity of an
issue, the soundness of the underlying forecasts, and the magnitude of the risks
versus the rewards. Once a stock falls into the third quintile -- because its
price has risen or its fundamentals have deteriorated it generally becomes a
sale candidate. The portfolio manager strives to hold sector weightings close to
those of the benchmark in an effort to contain risk.
The following discussion supplements the information regarding the
investment objective of each of the Portfolios and the policies to be employed
to achieve this objective as set forth above and in the Part A.
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. See "Quality and Diversification
Requirements."
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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 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,
B-5
<PAGE>
pursuant to arrangements with such accounts. Interest and principal payments are
credited to such accounts. The Advisor, acting as a fiduciary on behalf of its
clients, has the right to increase or decrease the amount provided to the
borrower under an obligation. The borrower has the right to pay without penalty
all or any part of the principal amount then outstanding on an obligation
together with interest to the date of payment. Since these obligations typically
provide that the interest rate is tied to the Federal Reserve commercial paper
composite rate, the rate on master demand obligations is subject to change.
Repayment of a master demand obligation to participating accounts depends on the
ability of the borrower to pay the accrued interest and principal of the
obligation on demand which is continuously monitored by the Advisor. Since
master demand obligations typically are not rated by credit rating agencies, a
Portfolio may invest in such unrated obligations only if at the time of an
investment the obligation is determined by the Advisor to have a credit quality
which satisfies the Portfolio's quality restrictions. See "Quality and
Diversification Requirements." Although there is no secondary market for master
demand obligations, such obligations are considered by the Portfolios to be
liquid because they are payable upon demand. The Portfolios do not have any
specific percentage limitation on investments in master demand obligations.
REPURCHASE AGREEMENTS. Each of the Portfolios may enter into repurchase
agreements with brokers, dealers or banks that meet the credit guidelines
approved by the Portfolio's Trustees. In a repurchase agreement, a Portfolio
buys a security from a seller that has agreed to repurchase the same security at
a mutually agreed upon date and price. The resale price normally is in excess of
the purchase price, reflecting an agreed upon interest rate. This interest rate
is effective for the period of time the Portfolio is invested in the agreement
and is not related to the coupon rate on the underlying security. A repurchase
agreement may also be viewed as a fully collateralized loan of money by a
Portfolio to the seller. The period of these repurchase agreements will usually
be short, from overnight to one week, and at no time will the Portfolios invest
in repurchase agreements for more than thirteen months. The securities which are
subject to repurchase agreements, however, may have maturity dates in excess of
thirteen months from the effective date of the repurchase agreement. Each
Portfolio always will receive securities as collateral whose market value 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
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<PAGE>
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 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 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
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earnings are subordinated to the claims of all creditors and are senior to the
claims of common shareholders.
FOREIGN INVESTMENTS
The Portfolios make substantial investments in foreign countries.
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.
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 Portfolio invests in Japan, it 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
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 Portfolio invests in securities denominated in
yen, changes in exchange rates between the U.S. dollar and the yen affect the
U.S. dollar value of its 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.
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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
Portfolio.
Japan's economy has typically exhibited low inflation and low interest
rates. There can be no assurance that low inflation and low interest rates will
continue, and it is likely that a reversal of such factors would adversely
affect the Japanese economy. Moreover, the Japanese economy may differ,
favorably or unfavorably, from the U.S. economy in such respects as growth of
gross national product, rate of inflation, capital reinvestment, resources,
self-sufficiency and balance of payments position.
Japan has a parliamentary form of government. In 1993 a coalition
government was formed which, for the first time since 1955, did not include the
Liberal Democratic Party. Since mid-1993, there have been several changes in
leadership in Japan. What, if any, effect the current political situation will
have on prospective regulatory reforms of the economy in Japan cannot be
predicted. Recent and future developments in Japan and neighboring Asian
countries may lead to changes in policy that might adversely affect these
Portfolios.
ADDITIONAL INVESTMENTS
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. Each of the Portfolios may
purchase securities on a when-issued or delayed delivery basis. For example,
delivery of and payment for these securities can take place a month or more
after the date of the purchase commitment. The purchase price and the interest
rate payable, if any, on the securities are fixed on the purchase commitment
date or at the time the settlement date is fixed. The value of such securities
is subject to market fluctuation and for money market investments no interest
accrues to a Portfolio until settlement takes place. At the time a Portfolio
makes the commitment to purchase securities on a when-issued or delayed delivery
basis, it will record the transaction, reflect the value each day of such
securities in determining its net asset value and, if applicable, calculate the
maturity for the purposes of average maturity from that date. At the time of
settlement, a when-issued security may be valued at less than the purchase
price. To facilitate such acquisitions, each Portfolio will maintain with the
Custodian a segregated account with liquid assets, consisting of cash, U.S.
Government securities or other appropriate securities, in an amount at least
equal to such commitments. On delivery dates for such transactions, each
Portfolio will meet its obligations from maturities or sales of the securities
held in the segregated account and/or from cash flow. If a Portfolio chooses to
dispose of the right to acquire a when-issued security prior to its acquisition,
it could, as with the disposition of any other portfolio obligation, incur a
gain or loss due to market fluctuation. It is the current policy of each
Portfolio not to enter into when-issued commitments exceeding in the aggregate
15% of the market value of the
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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, it is also considered as the
borrowing of money by the Portfolio and, therefore, a form of leverage. The
Portfolios will invest the proceeds of borrowings under reverse repurchase
agreements. In addition, a Portfolio will enter into a reverse repurchase
agreement only when the interest income to be earned from the investment of the
proceeds is greater than the interest expense of the transaction. A Portfolio
will not invest the proceeds of a reverse repurchase agreement for a period
which exceeds the duration of the reverse repurchase agreement. A Portfolio may
not enter into reverse repurchase agreements exceeding in the aggregate
one-third of the market value of its total assets, less liabilities other than
the obligations created by reverse repurchase agreements. Each Portfolio will
establish and maintain with the Custodian a separate account with a segregated
portfolio of securities in an amount at least equal to its purchase obligations
under its reverse repurchase agreements.
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,
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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 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. 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
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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 (over-the-counter or OTC options) that
meet creditworthiness standards approved by the Portfolio's Board of Trustees.
While exchange-traded options are obligations of the Options Clearing
Corporation, in the case of OTC options, a Portfolio relies on the dealer from
which it purchased the option to perform if the option is exercised. Thus, when
a Portfolio purchases an OTC option, it relies on the dealer from which it
purchased the option to make or take delivery of the underlying securities.
Failure by the dealer to do so would result in the loss of the premium paid by
the Portfolio as well as loss of the expected benefit of the transaction.
The staff of the Securities and Exchange Commission (the "SEC") has
taken the position that, in general, purchased OTC options and the underlying
securities used to cover written OTC options are illiquid securities. However, a
Portfolio may treat as liquid the underlying securities used to cover written
OTC options, provided it has arrangements with certain qualified dealers who
agree that the Portfolio may repurchase any option it writes for a maximum price
to be calculated by a predetermined formula. In these cases, the OTC option
itself would only be considered illiquid to the extent that the maximum
repurchase price under the formula exceeds the intrinsic value of the option.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Portfolios
permitted to enter into futures and options transactions may purchase or sell
(write) futures contracts and purchase put and call options, including put and
call options on futures contracts. In addition, the 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.
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Unlike a futures contract, which requires the parties to buy and sell a
security or make a cash settlement payment based on changes in a financial
instrument or securities index on an agreed date, an option on a futures
contract entitles its holder to decide on or before a future date whether to
enter into such a contract. If the holder decides not to exercise its option,
the holder may close out the option position by entering into an offsetting
transaction or may decide to let the option expire and forfeit the premium
thereon. The purchaser of an option on a futures contract pays a premium for the
option but makes no initial margin payments or daily payments of cash in the
nature of "variation" margin payments to reflect the change in the value of the
underlying contract as does a purchaser or seller of a futures contract.
The seller of an option on a futures contract receives the premium paid
by the purchaser and may be required to pay initial margin. Amounts equal to the
initial margin and any additional collateral required on any options on futures
contracts sold by a Portfolio are paid by the Portfolio into a segregated
account, in the name of the Futures Commission Merchant, as required by the 1940
Act and the SEC's interpretations thereunder.
COMBINED POSITIONS. The Portfolios permitted to purchase and write
options may do so in combination with each other, or in combination with futures
or forward contracts, to adjust the risk and return characteristics of the
overall position. For example, a Portfolio may purchase a put option and write a
call option on the same underlying instrument, in order to construct a combined
position whose risk and return characteristics are similar to selling a futures
contract. Another possible combined position would involve writing a call option
at one strike price and buying a call option at a lower price, in order to
reduce the risk of the written call option in the event of a substantial price
increase. Because combined options positions involve multiple trades, they
result in higher transaction costs and may be more difficult to open and close
out.
CORRELATION OF PRICE CHANGES. Because there are a limited number of
types of exchange-traded options and futures contracts, it is likely that the
standardized options and futures contracts available will not match a
Portfolio's current or anticipated investments exactly. A Portfolio may invest
in options and futures contracts based on securities with different issuers,
maturities or other characteristics from the securities in which 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
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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 such strategies include synthetically altering the
duration of a portfolio or the mix of securities in a portfolio. For example, if
the Advisor wishes to extend maturities in a fixed income portfolio in order to
take advantage of an anticipated decline in interest rates, but does not wish to
purchase the underlying long-term securities, it might cause the Portfolio to
purchase futures contracts on long-term debt securities. Similarly, if the
Advisor wishes to decrease fixed income securities or purchase equities, it
could
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cause the Portfolio to sell futures contracts on debt securities and purchase
futures contracts on a stock index. Such non-hedging risk management techniques
are not speculative, but because they involve leverage include, as do all
leveraged transactions, the possibility of losses as well as gains that are
greater than if these techniques involved the purchase and sale of the
securities themselves rather than their synthetic derivatives.
PORTFOLIO TURNOVER
Set forth below are the portfolio turnover rates for the Portfolios. 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%.
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)
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enter into reverse repurchase agreements for any purpose; provided that
(i) and (ii) in total do not exceed 33 1/3% of the value of the
Portfolio's total assets (including the amount borrowed) less
liabilities (other than borrowings). If at any time any borrowings come
to exceed 33 1/3% of the value of the Portfolio's total assets, the
Portfolio will reduce its borrowings within three business days to the
extent necessary to comply with the 33 1/3% limitation;
3. With respect to 75% of its total assets, purchase any security if, as a
result, (a) more than 5% of the value of the Portfolio's total assets
would be invested in securities or other obligations of any one issuer;
or (b) the Portfolio would hold more than 10% of the outstanding voting
securities of that issuer. This limitation shall not apply to
Government securities (as defined in the 1940 Act);
4. Make loans to other persons, except through the purchase of debt
obligations, loans of portfolio securities and participation in
repurchase agreements;
5. Purchase or sell physical commodities or contracts thereon, unless
acquired as a result of the ownership of securities or instruments, but
the Portfolio may purchase or sell futures contracts or options
(including options on futures contracts, but excluding options or
futures contracts on physical commodities) and may enter into foreign
currency forward contracts;
6. Purchase or sell real estate, but the Portfolio may purchase or sell
securities that are secured by real estate or issued by companies
(including real estate investment trusts) that invest or deal in real
estate;
7. Underwrite securities of other issuers, except to the extent the
Portfolio, in disposing of portfolio securities, may be deemed an
underwriter within the meaning of the 1933 Act; or
8. Issue senior securities, except as permitted under the 1940 Act or any
rule, order or interpretation thereunder.
Unless Sections 8(b)(1) and 13(a) of the 1940 Act or any SEC or SEC
staff interpretations thereof are amended or modified, 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
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Portfolio's total assets (including the amount borrowed) less
liabilities (other than borrowings). If at any time any borrowings come
to exceed 33 1/3% of the value of the Portfolio's total assets, the
Portfolio will reduce its borrowings within three business days to the
extent necessary to comply with the 33 1/3% limitation;
3. Make loans to other persons, except through the purchase of debt
obligations, loans of portfolio securities and participation in
repurchase agreements;
4. Purchase or sell physical commodities or contracts thereon, unless
acquired as a result of the ownership of securities or instruments, but
the Portfolio may purchase or sell futures contracts or options
(including options on futures contracts, but excluding options or
futures contracts on physical commodities) and may enter into foreign
currency forward contracts;
5. Purchase or sell real estate, but the Portfolio may purchase or sell
securities that are secured by real estate or issued by companies
(including real estate investment trusts) that invest or deal in real
estate;
6. Underwrite securities of other issuers, except to the extent the
Portfolio, in disposing of portfolio securities, may be deemed an
underwriter within the meaning of the 1933 Act; or
7. Issue senior securities, except as permitted under the 1940 Act or any
rule, order or interpretation thereunder.
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;
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(ii) Purchase any security if, as a result, the Portfolio would then
have more than 5% of its total assets invested in securities of companies
(including predecessors) that have been in continuous operation for fewer than
three years;
(iii) Invest in warrants (other than warrants acquired by the Portfolio
as part of a unit or attached to securities at the time of purchase) if, as a
result, the investments (valued at the lower of cost or market) would exceed 5%
of the value of the Portfolio's net assets or if, as a result, more than 2% of
the Portfolio's net assets would be invested in warrants not listed on a
recognized U.S. or foreign stock exchange, to the extent permitted by applicable
state securities laws;
(iv) Sell any security short, unless it owns or has the right to obtain
securities equivalent in kind and amount to the securities sold or unless it
covers such short sales as required by the current rules or positions of the SEC
or its staff. Transactions in futures contracts and options shall not constitute
selling securities short;
(v) Purchase securities on margin, but the Portfolio may obtain such
short term credits as may be necessary for the clearance of transactions;
(vi) Purchase or retain securities of any issuer if, to the knowledge
of the Portfolio, any of the Portfolio's officers or Trustees or any officer of
the Advisor individually owns more than 1/2 of 1% of the issuer's outstanding
securities and such persons owning more than 1/2 of 1% of such securities
together beneficially own more than 5% of such securities, all taken at market;
or
(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;
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(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.
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.
ITEM 14. MANAGEMENT OF THE PORTFOLIO TRUST.
The Trustees and officers of the Portfolio Trust and their addresses
and principal occupations during the past five years 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.
WILLIAM G. BURNS--Trustee; Retired; Former Vice Chairman, Nynex. His
address is 2200 Alaqua Drive, Longwood, FL 32779.
ARTHUR C. ESCHENLAUER--Trustee; Retired; Senior Vice President, Morgan
Guaranty Trust Company of New York until 1987. His address is 14 Alta Vista
Drive, RD #2, Princeton, NJ 08540.
MATTHEW HEALEY (*)--Trustee; Chairman and Chief Executive Officer, The
Pierpont Funds and The JPM Institutional Funds; Chairman, Pierpont Group, Inc.,
since 1989. His address is Pine Tree Club Estates, 10286 Saint Andrews Road,
Boynton Beach, FL 33436.
MICHAEL P. MALLARDI--Trustee; Senior Vice President, Capital Cities/
ABC, Inc., President, Broadcast Group, since 1986. His address is 77 West 66th
Street, New York, NY 10017.
- ------------------------
(*) Mr. Healey is an "interested person" of the Portfolio Trust as that term is
defined in the 1940 Act.
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Each Trustee is paid an annual fee as follows for serving as Trustee of
The Pierpont Funds, The JPM Institutional Funds, the other portfolios in which
these funds invest, and the Portfolio Trust, and is reimbursed for any expenses
incurred in connection with service as a Trustee. The compensation paid to each
Trustee in calendar 1995 is set forth below. The Trustees may hold various other
directorships unrelated to the Portfolio Trust.
<TABLE>
<S>
<C> <C> <C> <C>
TOTAL COMPENSATION FROM
THE JPM ADVISOR FUNDS,
AGGREGATE PENSION OR THE PIERPONT FUNDS, THE
COMPENSATION RETIREMENT JPM INSTITUTIONAL FUNDS,
FROM THE BENEFITS ESTIMATED THEIR CORRESPONDING
PORTFOLIO TRUST ACCRUED AS PART ANNUAL BENEFITS PORTFOLIOS AND PORTFOLIO
DURING 1995 OF FUND EXPENSES UPON RETIREMENT TRUST PAID TO TRUSTEES
DURING 1995
Frederick S. Addy, Trustee $2,309 None None $62,500
William G. Burns, Trustee $2,309 None None $62,500
Arthur C. Eschenlauer, Trustee $2,309 None None $62,500
Matthew Healey, Trustee,
Chairman and Chief Executive
Officer(*) $2,309 None None $62,500
Michael P. Mallardi, Trustee $2,309 None None $62,500
</TABLE>
------------------------------------
(*) During 1995, Pierpont Group,
Inc. paid Mr. Healey, in his role as Chairman of Pierpont Group, Inc.,
compensation in the amount of $140,000, contributed $21,000 to a defined
contribution plan on his behalf, and paid $20,000 in insurance premiums for his
benefit.
As of April 1, 1995 the annual fee paid to each Trustee for serving as
a Trustee of each of the Portfolio Trust, The JPM Advisor Funds, The JPM
Institutional Funds, The Pierpont Funds and other registered investment
companies in which series of these fund families invest was adjusted to $65,000.
The Trustees, 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, Inc.
to assist the Trustees in exercising their overall supervisory responsibilities
for the Portfolio Trust's affairs. Pierpont Group, Inc. was organized in July
1989 to provide services for The Pierpont Funds. The Portfolio Trust has agreed
to pay Pierpont Group, Inc. a fee in an amount representing its reasonable costs
in performing these services. These costs are periodically reviewed by the
Trustees. The aggregate fees paid by each 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.
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The Portfolio Trust has no employees; its officers listed below, with
the exception of the Chief Executive Officer, are provided and compensated by
Signature Broker-Dealer Services, Inc. ("SBDS"), a wholly owned subsidiary of
Signature Financial Group, Inc. ("Signature"). 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, Inc.
The officers of the Portfolio Trust and their principal occupations
during the past five years are set forth below. The business address of each of
the officers unless otherwise noted is Signature Broker-Dealer Services, Inc., 6
St. James Avenue, Boston, Massachusetts 02116.
MATTHEW HEALEY; Chief Executive Officer; Chairman, Pierpont Group,
Inc., since 1989. His address is Pine Tree Club Estates, 10286 Saint Andrews
Road, Boynton Beach, FL 33436.
PHILIP W. COOLIDGE; President; Chairman, Chief Executive Officer and
President, Signature since December 1988 and SBDS.
DAVID G. DANIELSON; Assistant Treasurer; Assistant Manager, Signature
since May 1991; Graduate Student, Northeastern University from April 1990 to
March 1991.
JOHN R. ELDER; Treasurer; Vice President, Signature (since April 1995);
Treasurer, Phoenix Family of Mutual Funds (Phoenix Home Life Mutual Insurance
Company) (from 1983 to March 1995).
LINDA T. GIBSON; Assistant Secretary; Legal Counsel and Assistant
Secretary, Signature since June 1991; Assistant Secretary, SBDS since November
1992; law student, Boston University School of Law prior to May 1992.
JAMES E. HOOLAHAN; Vice President; Senior Vice President, Signature
since December 1989.
SUSAN JAKUBOSKI; Assistant Secretary and Assistant Treasurer; Manager
and Senior Fund Administrator, Signature and Signature (Cayman) (since August
1994); Assistant Treasurer, SBDS (since September 1994); Fund Compliance
Administrator, Concord Financial Group, Inc. (from November 1990 to August
1994); Senior Fund Accountant, Neuberger & Berman Management Incorporated (since
prior to 1990). Her address is P.O. Box 2494, Elizabethan Square, George Town,
Grand Cayman, Cayman Islands, B.W.I.
THOMAS M. LENZ; Secretary; Vice President and Associate General
Counsel, Signature since November 1989; Assistant Secretary, SBDS since February
1991.
MOLLY S. MUGLER; Assistant Secretary; Legal Counsel and Assistant
Secretary, Signature since December 1988; Assistant Secretary, SBDS since April
1989.
ANDRES E. SALDANA; Assistant Secretary; Legal Counsel and Assistant
Secretary, Signature since November 1992; Assistant Secretary, SBDS since
September 1993; Attorney, Ropes & Gray from September 1990 to November 1992.
B-21
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DANIEL E. SHEA; Assistant Treasurer; Assistant Manager of Fund
Administration, Signature since November 1993; Supervisor and Senior Technical
Advisor, Putnam Investments since prior to 1990.
Messrs. Coolidge, Danielson, Elder, Hoolahan, Lenz, Saldana and Shea
and Mss. Gibson, Mugler and Jakuboski hold similar positions for other
investment companies for which SBDS or an affiliate serves as principal
underwriter.
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 wilful 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 April 24, 1996, the following entities owned the percentages of
total outstanding beneficial interests noted below for each of the Portfolios:
European Equity Portfolio: JPM Europe Fund, Ltd., 99.5%
Asia Growth Portfolio: JPM Asia Growth Fund, Ltd., 98.0%
Japan Equity Portfolio: JPM Japan Equity Fund, Ltd., 99.4%
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.
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ITEM 16. INVESTMENT ADVISORY AND OTHER SERVICES.
INVESTMENT ADVISOR. The investment advisor to the Portfolios is Morgan
Guaranty, a wholly owned subsidiary of J.P. Morgan, a bank holding company
organized under the laws of the State of Delaware. Guaranty, whose principal
offices are at 60 Wall Street, New York, New York 10260, is a New York trust
company which conducts a general banking and trust business. Morgan Guaranty is
subject to regulation by the New York State Banking Department and is a member
bank of the Federal Reserve System. Through offices in New York City and abroad,
Morgan Guaranty 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 $179 billion (of which the Advisor advises over $28 billion).
J.P. Morgan has a long history of service as adviser, underwriter and
lender to an extensive roster of major companies and as a financial advisor to
national governments. The firm was founded in and has been managing investments
since 1913.
The basis of Morgan Guaranty'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 Advisor who may also be acting in similar
capacities for the Portfolios. See Item 17.
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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; and The Asia Growth Portfolio--the MSCI indexes for
Hong Kong and Singapore and the International Finance Corporation Investable
indexes for China, Indonesia, Malaysia, Philippines, South Korea, Taiwan and
Thailand.
J.P. Morgan Investment Management Inc., 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. which provides
securities trading and investment research services for Morgan Guaranty's
investment advisory and fiduciary accounts. See Item 17 below for a description
of services provided to the Portfolios by J.P. Morgan Investment Management Inc.
As compensation for the services rendered and related expenses such as
salaries of advisory personnel borne by the Advisor under the 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%
The table below sets forth for each Portfolio 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.
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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 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 Guaranty and by Morgan Guaranty on 90 days'
written notice to the Portfolio.
The Glass-Steagall Act and other applicable laws generally prohibit
banks such as Morgan Guaranty 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 Guaranty 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 Guaranty from continuing
to perform such services for the Portfolios.
If Morgan Guaranty 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 certain financial,
fund accounting and administrative services to the Portfolio Trust (see Services
Agent).
ADMINISTRATOR. SBDS serves as the Portfolio Trust's Administrator and
in that capacity administers and manages all aspects of the Portfolios'
day-to-day operations subject to the supervision of the Trustees, except as set
forth under Investment Advisor, Services Agent and Custodian. In connection with
its responsibilities as Administrator, SBDS (i) furnishes ordinary clerical and
related services for day-to-day operations including certain record keeping
responsibilities; (ii) takes responsibility for compliance with all applicable
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federal and state securities and other regulatory requirements including,
without limitation, preparing and mailing and filing (but not paying for)
registration statements, and information statements and all required reports to
the Portfolios' investors, the SEC, and state securities commissions, if any
(but not the Portfolios' federal and state tax returns); and (iii) performs such
administrative and managerial oversight of the activities of the Portfolio
Trust's custodian and transfer agent as the Trustees may direct from time to
time. The principal offices of SBDS are located at 6 St. James Avenue, Boston,
Massachusetts 02116.
Under the Portfolio Trust's Administration Agreements, the Portfolio
Trust has agreed to pay SBDS a fee equal to its proportionate share of an annual
complex-wide charge. This charge is calculated daily based on the aggregate net
assets of the Portfolio Trust and the other portfolios (collectively the "Master
Portfolios") in which series of The JPM Advisor Funds, The Pierpont Funds or The
JPM Institutional Funds invest. This charge is calculated daily in accordance
with the following annual schedule: 0.03% of the first $7 billion of the Master
Portfolios' aggregate average daily net assets, and 0.01% of the Master
Portfolios' average daily net assets in excess of $7 billion. The portion of
this charge payable by a Portfolio is determined by the proportionate share that
its net assets bear to the total net assets of The JPM Advisor Funds, The
Pierpont Funds, The JPM Institutional Funds and the Master Portfolios.
Below are set forth for each Portfolio the administrative fees paid to
the Administrator for the fiscal periods indicated.
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.
The Administration Agreement may be renewed or amended by the Trustees
without a investor vote. The Administration Agreement 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 on not more than 60 days' written notice nor
less than 30 days' written notice to the other party. The Administrator may
subcontract for the performance of its obligations under the Administration
Agreement only if the Trustees approve such subcontract and find the
subcontracting party to be qualified to perform the obligations sought to be
subcontracted, provided, however, that unless the Portfolio Trust expressly
agrees in writing, the Administrator shall be fully responsible for the acts and
omissions of any subcontractor as it would for its own acts or omissions.
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<PAGE>
SERVICES AGENT. The Portfolio Trust, on behalf of each Portfolio, has
entered into an Administrative Services Agreement (the "Services Agreement")
with Morgan Guaranty pursuant to which Morgan Guaranty is responsible for
certain financial, fund accounting and administrative services provided to the
Portfolios. The services to be provided by Morgan Guaranty as Services Agent
under the Services Agreement include, but are not limited to, monitoring the
fund accounting activities of the Portfolios' custodian, assisting the
Administrator in preparing tax returns, reviewing financial reports,
coordinating annual audits, assisting in the development of the Portfolios'
budget, monitoring the fund accounting activities and daily partnership
allocation for each Portfolio, and providing other related services as
applicable to the Portfolios.
Under the Services Agreement effective December 29, 1995, the Portfolio
Trust, on behalf of each Portfolio, has agreed to pay to Morgan a fee equal to
its proportionate share of an annual complex-wide charge. This charge is
calculated daily based on the aggregate net assets of the Master Portfolios in
which series of The JPM Advisor Funds, The Pierpont Funds or The JPM
Institutional Funds invest. This charge is calculated in accordance with the
following annual schedule: 0.06% on the first $7 billion of the Master
Portfolios' aggregate average daily net assets, and 0.03% of the Master
Portfolios' aggregate average daily net assets in excess of $7 billion. The
portion of this charge payable by each Portfolio is determined by the
proportionate share that its net assets bear to the total of the net assets of
the JPM Advisor Funds, The Pierpont Funds, The JPM Institutional Funds, the
Master Portfolios and other investors in the Master Portfolios for which Morgan
provides similar services.
Prior to December 29, 1995, the Portfolio Trust had entered into an
agreement with Morgan, the provisions of which included the activities described
above and, prior to September 1, 1995, also included reimbursement of the
Portfolio Trust's usual and customary expenses. Below are set forth for each
Portfolio 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.
Under the Services Agreement, Morgan may delegate one or more of its
responsibilities to other entities, including SBDS, at Morgan's expense. The
agreement may be terminated at any time, without penalty, by the Trustees or
Morgan, in each case on not more than 60 days' nor less than 30 days' written
notice to the other party.
As discussed under "Investment Advisor," the Glass-Steagall Act and
other applicable laws and regulations limit the activities of bank holding
companies and certain of their subsidiaries in connection with registered
open-end
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<PAGE>
investment companies. The activities of Morgan Guaranty in providing accounting
and operational services to the Portfolios under the Services Agreement and in
acting as Advisor to the Portfolios under the Investment Advisory Agreement, may
raise issues under these laws. However, Morgan Guaranty believes that it may
properly perform these services and the other activities described in Part A
without violation of the Glass-Steagall Act or other applicable banking laws or
regulations.
If Morgan Guaranty were prohibited from providing any of the services
under the Services Agreement, the Trustees would seek an alternative provider of
such services. In such event, changes in the operation of the Portfolios might
occur and an investor might no longer be able to avail himself or herself of any
services then being provided to investors by Morgan Guaranty.
CUSTODIAN. State Street Bank and Trust Company ("State Street"), 225
Franklin Street, Boston, Massachusetts 02101, serves as the Portfolio Trust's
Custodian and Transfer Agent. Pursuant to the Custodian Contract with the
Portfolio Trust, it is responsible for maintaining the books 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.
The Portfolios are responsible for the fees of State Street as the custodian for
the Portfolios.
As Transfer Agent, State Street is responsible for maintaining account
records detailing the ownership of interests in the Portfolios.
INDEPENDENT ACCOUNTANTS. Price Waterhouse LLP, 1177 Avenue of the
Americas, New York, New York 10036, serves as the Portfolio Trust's independent
accountants providing audit and accounting services including (i) conducting an
annual audit of the financial statements of each of the Portfolios, (ii)
assisting in the preparation and/or review of each Portfolio's federal and state
income tax returns and (iii) consulting with the Portfolio Trust as to matters
of accounting and federal and state income taxation.
ITEM 17. BROKERAGE ALLOCATION AND OTHER PRACTICES.
J.P. Morgan Investment Management Inc., acting as agent for Morgan
Guaranty, places orders for the Portfolios for all purchases and sales of
portfolio securities. Morgan Guaranty enters into repurchase agreements and
reverse repurchase agreements and executes 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.
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In connection with portfolio transactions for the Portfolios, the
overriding objective is to obtain the best possible execution of purchase and
sale orders.
In selecting a broker, J.P. Morgan Investment Management Inc. considers
a number of factors including: the price per unit of the security; the broker's
reliability for prompt, accurate confirmations and on-time delivery of
securities; the firm's financial condition; as well as the commissions charged.
A broker may be paid a brokerage commission in excess of that which another
broker might have charged for effecting the same transaction if, after
considering the foregoing factors, J.P. Morgan Investment Management Inc.
decides that the broker chosen will provide the best possible execution. J.P.
Morgan Investment Management Inc. and the Advisor monitor 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 J.P. Morgan Investment Management Inc. has allocated brokerage
business in the past include economic statistics and forecasting services,
industry and company analyses, portfolio strategy services, quantitative data,
and consulting services from economists and political analysts. Research
services furnished by brokers are used for the benefit of all the Advisor's
clients and not solely or necessarily for the benefit of 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 to
the value of such services.
The 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, J.P. Morgan Investment Management Inc. may allocate a
portion of a Portfolio's brokerage transactions to affiliates of Morgan
Guaranty. In order for affiliates of Morgan Guaranty 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.
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Portfolio securities will not be purchased from or through or sold to
or through the Portfolio Trust's Administrator, exclusive placement agent or
Advisor or any "affiliated person" (as defined in the 1940 Act) of the
Administrator, 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 Morgan Guaranty deems the purchase or sale of a
security to be in the best interests of a Portfolio as well as other customers,
J.P. Morgan Investment Management Inc. to the extent permitted by applicable
laws and regulations may, but is not obligated to, aggregate the securities to
be sold or purchased for a Portfolio with those to be sold or purchased for
other customers in order to obtain best execution, including lower brokerage
commissions if appropriate. In such event, allocation of the securities so
purchased or sold as well as any expenses incurred in the transaction will be
made by J.P. Morgan Investment Management Inc. in the manner it considers to be
most equitable and consistent with Morgan Guaranty's 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 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 series of The Series Portfolio (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.
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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 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
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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 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 day prior to maturity, if their original maturity when acquired by the
Portfolio was more than 60 days, unless this is determined not to represent fair
value by the Trustees.
Trading in securities on most foreign exchanges and over-the-counter
markets is normally completed before the close of the New York Stock Exchange
and
B-32
<PAGE>
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 or the Commonwealth of Massachusetts. 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.
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 the Portfolio acquires a put or
writes a call thereon. Other gains or losses on the sale of securities will be
short-term capital gains or losses. Gains and losses on the sale, lapse or other
termination of options on securities will be treated as gains and losses from
the sale of securities. If an option written by a Portfolio lapses or is
terminated through a closing transaction, such as 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.
B-33
<PAGE>
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 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. Straddles may also result in the loss of the holding
period of underlying securities for purposes of the 30% of gross income test
described above, and therefore, 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 fiscal year will be required to be "marked to
market" for federal income tax purposes--i.e., treated as having been sold at
market value. For options and futures contracts, 60% of any gain or loss
recognized on these deemed sales and on actual dispositions will be treated as
long-term capital gain or loss, and the remainder will be treated as short-term
capital gain or loss regardless of how long the Portfolio has held such options
or futures. Any gain or loss recognized on foreign currency contracts will be
treated as ordinary income.
The Portfolios may invest in equity securities of foreign issuers. If a
Portfolio purchases shares in certain foreign investment funds (referred to as
passive foreign investment companies under the Internal Revenue Code), that
Portfolio may be subject to federal income tax on a portion of an "excess
distribution" from such foreign investment fund or gain from the disposition of
such shares, even though such income may have to be allocated as taxable income
by the Portfolio to its investors. In addition, certain interest charges may be
imposed on the Portfolio or its investors in respect of unpaid taxes arising
from such income or gains. Alternatively, the Portfolio may each year include in
its income and allocate to investors a pro rata portion of the foreign
investment fund's income, whether or not distributed to the Portfolio.
FOREIGN INVESTORS. 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). Allocations of Portfolio interest or short term or
net long term capital gains to foreign investors will not be subject to U.S.
withholding 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
B-34
<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 advisers 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 SBDS, 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 financial statements contained in the Portfolio Trust's current
reports B to investors filed with the SEC pursuant to Section 30(b) of the 1940
Act and Rule 30b2-1 thereunder are hereby incorporated herein by reference. A
copy of such report will be provided, without charge, to each person receiving
this Part B.
B-35
<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.
Appendix-1
<PAGE>
MOODY'S
CORPORATE AND MUNICIPAL BONDS
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
COMMERCIAL PAPER, INCLUDING TAX EXEMPT
Prime-1 - Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
- - Leading market positions in well established industries.
- - High rates of return on funds employed.
- - Conservative capitalization structures with moderate reliance on debt and
ample asset protection. - Broad margins in earnings coverage of fixed financial
charges and high internal cash generation. - Well established access to a range
of financial markets and assured sources of alternate liquidity.
Appendix-2
<PAGE>
SHORT-TERM TAX EXEMPT NOTES
MIG-1 - The short-term tax-exempt note rating MIG-1 is the highest rating
assigned by Moody's for notes judged to be the best quality. Notes with this
rating enjoy strong protection from established cash flows of funds for their
servicing or from established and broad-based access to the market for
refinancing, or both.
MIG-2 - MIG-2 rated notes are of high quality but with margins of protection not
as large as MIG-1.
Appendix-3
<PAGE>
APPENDIX B
INVESTING IN JAPAN AND ASIAN GROWTH MARKETS
JAPAN AND ITS SECURITIES MARKETS
The Japan Equity Portfolio will be subject to general economic and
political conditions in Japan. These include future political and economic
developments, the possible imposition of, or changes in, exchange controls or
other Japanese governmental laws or restrictions applicable to such investments,
diplomatic developments, political or social unrest and natural disasters.
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
Appendix-4
<PAGE>
repatriation of investment capital for certain foreign investors. Although these
restrictions may in the future make it undesirable to invest in the countries to
which they apply, the Advisor does not believe that any current repatriation
restrictions would preclude the Portfolio from effectively managing its assets.
If, because of restrictions on repatriation or conversion, the
Portfolio were unable to distribute substantially all of its net investment
income and long-term capital gains within applicable time periods, the Portfolio
could be subject to U.S. Federal income and excise taxes which would not
otherwise be incurred and may cease to qualify for the favorable tax treatment
afforded to regulated investment companies under the Code, in which case it
would become subject to U.S. federal income tax on all of its income and gains.
Generally, there are restrictions on foreign investment in certain
Asian growth markets, although these restrictions vary in form and content. In
India, Indonesia, Korea, Malaysia, the Philippines, Singapore and Thailand, the
Portfolio may be limited by government regulation or a company's charter to a
maximum percentage of equity ownership in any one company.
The Advisor intends to apply 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.
Appendix-5
<PAGE>
In Hong Kong, Korea, the Philippines, Taiwan and Thailand, there are
restrictions on the percentage of permitted foreign investment in shares of
certain companies, mainly those in highly regulated industries, although in
Taiwan there are limitations on foreign ownership of shares of any listed
company. In addition, Korea also prohibits foreign investment in specified
telecommunications companies and the Philippines prohibits foreign investment in
mass media companies and companies providing certain professional services.
MARKET CHARACTERISTICS
DIFFERENCES BETWEEN THE U.S. AND ASIAN SECURITIES MARKETS. The
securities markets of Asian growth markets have substantially less volume than
the New York Stock Exchange, and equity and debt securities of most companies in
Asian growth markets are less liquid and more volatile than equity and debt
securities of U.S. companies of comparable size. Some of the stock exchanges in
Asian growth markets, such as those in the PRC, are in the earliest stages of
their development. Many companies traded on securities markets in Asian growth
markets are smaller, newer and less seasoned than companies whose securities are
traded on securities markets in the United States. Investments in smaller
companies involve greater risk than is customarily associated with investing in
larger companies. Smaller companies may have limited product lines, markets or
financial or managerial resources and may be more susceptible to losses and
risks of bankruptcy. Additionally, market making and arbitrage activities are
generally less extensive in such markets, which may contribute to increased
volatility and reduced liquidity of such markets. Accordingly, each of these
markets may be subject to greater influence by adverse events generally
affecting the market, and by large investors trading significant blocks of
securities, than is usual in the United States. To the extent that any Asian
growth market experiences rapid increases in its money supply and investment in
equity securities for speculative purposes, the equity securities traded in any
such country may trade at price-earnings multiples higher than those of
comparable companies trading on securities markets in the United States, which
may not be sustainable. Securities markets in Asian growth markets may also be
subject to substantial governmental control, which may cause sudden or prolonged
disruptions in market prices unrelated to supply and demand considerations. This
may also be true of currency markets.
Brokerage commissions and other transaction costs on securities
exchanges in Asian growth markets are generally higher than in the United
States. In addition, security settlements may in some instance be subject to
delays and related administrative uncertainties, including risk of loss
associated with the credit of local brokers.
GOVERNMENT SUPERVISION OF ASIAN SECURITIES MARKETS; LEGAL SYSTEMS.
There is less government supervision and regulation of foreign securities
exchanges, listed companies and brokers in Asian growth markets than exists in
the United States. Less information, therefore, may be available to the Fund
than in respect of investments in the United States. Further, in certain Asian
growth markets, less information may be available to the Fund than to local
market participants. Brokers in Asian growth markets may not be as well
capitalized as those in the United States, so that they are more susceptible to
financial failure in times of market, political, or economic stress. In
addition, existing
Appendix-6
<PAGE>
laws and regulations are often inconsistently applied. As legal systems in some
of the Asian growth markets develop, foreign investors may be adversely affected
by new laws and regulations, changes to existing laws and regulations and
preemption of local laws and regulations by national laws. In circumstances
where adequate laws exist, it may not be possible to obtain swift and equitable
enforcement of the law. Currently a mixture of legal and structural restrictions
affect the securities markets of certain Asian growth markets.
Korea, in an attempt to avoid market manipulation, requires
institutional investors to deposit in their broker's account a percentage of the
amount to be invested prior to execution of a purchase order. That deposit
requirement will expose the Fund to the broker's credit risk. These examples
demonstrate that legal and structural developments can be expected to affect the
Portfolio, potentially affecting liquidity of positions held by the Portfolio,
in unexpected and significant ways from time to time.
FINANCIAL INFORMATION AND STANDARDS. Issuers in Asian growth markets
generally are subject to accounting, auditing and financial standards and
requirements that differ, in some cases significantly, from those applicable to
U.S. issuers. In particular, the assets and profits appearing on the financial
statements of an Asian growth market issuer may not reflect its financial
position or results of operations in accordance with U.S. generally accepted
accounting principles. In addition, for an issuer that keeps accounting records
in local currency, inflation accounting rules may require, for both tax and
accounting purposes, that certain assets and liabilities be restated on the
issuer's balance sheet in order to express items in terms of currency of
constant purchasing power. Inflation accounting may indirectly generate losses
or profits. Consequently, financial data may be materially affected by
restatements for inflation and may not accurately reflect the real condition of
those issuers and securities markets. Moreover, substantially less information
may be publicly available about issuers in Asian growth markets than is
available about U.S.
issuers.
SOCIAL, POLITICAL AND ECONOMIC FACTORS
Asian growth markets may be subject to a greater degree of social,
political and economic instability than is the case in the United States and
Western European countries. Such instability may result from, among other
things, the following: (i) authoritarian governments or military involvement in
political and economic decision-making, and changes in government through extra-
constitutional means; (ii) popular unrest associated with demand for improved
political, economic and social conditions; (iii) internal insurgencies, (iv) war
or hostile relations with neighboring countries; and (v) ethnic, religious and
racial disaffection. Such social, political and economic instability could
significantly disrupt the principal financial markets in which the Portfolio
invests and adversely affect the value of the Portfolio's assets. In addition,
there may be the possibility of asset expropriations or future confiscatory
levels of taxation affecting the Portfolio.
Few Asian growth markets have western-style or fully democratic
governments. Some governments in the region are authoritarian and influenced by
security forces. During the course of the last 25 years, governments in the
Appendix-7
<PAGE>
region have been installed or removed as a result of military coups, while
others have periodically demonstrated repressive police state characteristics.
Disparities of wealth, among other factors, have also led to social unrest in
some Asian growth markets, accompanied, in certain cases, by violence and labor
unrest. Ethnic, religious and racial disaffection, as evidenced in India,
Pakistan and Sri Lanka, have created social, economic and political problems.
Several Asian growth markets have or in the past have had hostile
relationships with neighboring nations or have experienced internal insurgency.
Thailand has experienced border conflicts with Laos and Cambodia, and India is
engaged in border disputes with several of its neighbors, including the PRC and
Pakistan. Tension between the Tamil and Sinhalese communities in Sri Lanka has
resulted in periodic outbreaks of violence. An uneasy truce exists between North
Korea and South Korea, and the recurrence of hostilities remains possible.
Reunification of North Korea and South Korea could have a detrimental effect on
the economy of South Korea. Also, the PRC continues to claim sovereignty over
Taiwan. The PRC is acknowledged to possess nuclear weapons capability; North
Korea is alleged to possess or be in the process of developing such a
capability.
The economies of most Asian growth markets are heavily dependent upon
international trade and are accordingly affected by protective barriers and the
economic conditions of their trading partners, principally, the United States,
Japan, the PRC and the European Community. The enactment by the United States or
other principal trading partners of protectionist trade legislation, reduction
of foreign investment in the local economies and general declines in the
international securities markets could have a significant adverse effect upon
the securities markets of the Asian growth markets. In addition, the economies
of some Asian growth markets, Indonesia and Malaysia, for example, are
vulnerable to weakness in world prices for their commodity exports, including
crude oil.
Governments in certain Asian growth markets participate to a
significant degree, through ownership interest or regulation, in their
respective economies. Action by these governments could have a significant
adverse effect on market prices of securities and payment of dividends.
The PRC has only recently permitted private economic activities and the
PRC government has exercised and continues to exercise substantial control over
virtually every sector of the PRC economy through regulation and state
ownership. Continued economic growth and development in the PRC, as well as
opportunities for foreign investment, and prospects of private sector
enterprises, in the PRC, 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
Appendix-8
<PAGE>
developments and statements, which in turn can affect markets and business
performance.
With respect to investments in Taiwan, it should be noted that Taiwan
lacks formal diplomatic relations with many nations, although it conducts trade
and financial relations with most major economic powers. Both the government of
the PRC and the government of the Republic of China in Taiwan claim sovereignty
over all of China. Although relations between Taiwan and the PRC are currently
peaceful, renewed frictions or hostility could interrupt operations of Taiwanese
companies in which the Portfolio invests and create uncertainty that could
adversely affect the value and marketability of its Taiwan investments.
With regard to India, agriculture occupies a more prominent position in
the Indian economy than in the United States, and the Indian economy therefore
is more susceptible to adverse changes in weather. The government of India has
exercised and continues to exercise significant influence over many aspects of
the economy, and the number of public sector enterprises in India is
substantial. Accordingly government actions in the future could have a
significant effect on the Indian economy which could affect private sector
companies, market conditions and prices and yields of securities held by the
Portfolio. Religious and ethnic unrest persists in India. The long standing
grievances between the Hindu and Muslim populations resulted in communal
violence during 1993 in the aftermath of the destruction of a mosque in Ayodhya
by radical elements of the Hindu population. The Indian government is also
confronted by separatist movements in several states and the long standing
border dispute with Pakistan over the State of Jammu and Kashmir, a majority of
whose population is Muslim, remains unsolved. In addition, Indian stock
exchanges have in the past been subject to repeated closure including for ten
days in December 1993 due to a broker's strike, and there can be no assurance
that this will not recur.
THINLY TRADED MARKETS
Compared to securities traded in the United States, all securities of
Asian growth market issuers may generally be considered to be thinly traded.
Even relatively widely held securities in such countries may not be able to
absorb trades of a size customarily transacted by institutional investors,
without price disruptions. Accordingly, the Portfolio's ability to reposition
itself will be more constrained than would be the case for a typical equity
mutual fund.
SETTLEMENT PROCEDURES AND DELAYS
Settlement procedures in Asian growth markets are less developed and
reliable than those in the United States and in other developed markets, and the
Portfolio may experience settlement delays or other material difficulties. This
problem is particularly severe in India where settlement is through physical
delivery and, where currently, a severe shortage of vault capacity exists among
custodial banks, although efforts are being undertaken to alleviate the
shortage. In addition, significant delays are common in registering transfers of
securities, and the Portfolio may be unable to sell such securities until the
registration process is completed and may experience delays in receipt of
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
Appendix-9
<PAGE>
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.
Appendix-10
<PAGE>
PART C
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS
The 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
Notes to Financial Statements 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
Notes to Financial Statements 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
Notes to Financial Statements December 31, 1995
C-1
<PAGE>
(B) EXHIBITS
1 Declaration of Trust of the Registrant.2
2 By-Laws of the Registrant as amended.2
5 Investment Advisory Agreement between the Registrant and Morgan
Guaranty Trust Company of New York ("Morgan Guaranty").2
8 Custodian Contract between the Registrant and State Street Bank and
Trust Company ("State Street").1
9(a) Administration Agreement between the Registrant and Signature Broker-
Dealer Services, Inc.2
9(b) Transfer Agency and Service Agreement between the Registrant and State
Street.1
9(c) Financial and Fund Accounting Services Agreement between the Registrant
and Morgan Guaranty.1
9(d) Portfolio Fund Services Agreement between the Registrant and Pierpont
Group, Inc.1
9(e) Administrative Services Agreement between the Registrant and Morgan
Guaranty.2
13 Investment representation letters of initial investors.1
18 Financial Data Schedules.2
----------------------
1 Incorporated herein by reference from the Registrant's initial Registration
Statement as filed with the Securities and Exchange Commission on March 28,
1995.
2 Filed herewith.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
No person is controlled by or under common control with the Registrant.
C-2
<PAGE>
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
Title of Class: Beneficial Interests
As of April 25, 1996, the number of record holders were as follows:
The Asia Growth Portfolio 3
The European Equity Portfolio 3
The Japan Equity Portfolio 3
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 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 Guaranty is a New York trust company which is a wholly-owned
subsidiary of J.P. Morgan & Co. Incorporated. Morgan Guaranty 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 Guaranty 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 Guaranty also hold various positions with, and engage in business for,
J.P. Morgan & Co. Incorporated, which owns all the outstanding stock of Morgan
Guaranty. Set forth below is the name, address, and principal business of each
director of Morgan Guaranty who is engaged in another business, profession,
vocation or employment of a substantial nature.
MARTIN FELDSTEIN: 1050 Massachusetts Avenue, Cambridge, MA 02138;
President and Chief Executive Officer, National Bureau of Economic Research,
Inc. (economic research).
HANNA H. GRAY: 5801 Ellis Avenue, Chicago, IL 60637; President Emeritus and
Professor of History, The University of Chicago (academic).
JAMES R. HOUGHTON: Corning, NY 14831; Chairman and Chief Executive Officer,
Corning Incorporated (glass products).
JAMES L. KETELSEN: Tenneco Building, P.O. Box 2511, Houston, TX 77001; Retired
Chairman and Chief Executive Officer, Tenneco Inc. (oil, pipe-lines and
manufacturing).
WILLIAM S. LEE: 422 South Church Street, Charlotte, NC 28242; Chairman
Emeritus, Duke Power Company (utility).
C-3
<PAGE>
LEE R. RAYMOND: 1251 Avenue of the Americas, New York, NY 10020; Chairman of
the Board and Chief Executive Officer, Exxon Corporation (natural gas and other
petroleum products).
RICHARD D. SIMMONS: 1150 Fifteenth Street NW, Washington, DC 20071; President,
International Herald Tribune (newspaper).
JOHN G. SMALE: P.O. Box 599, Cincinnati, OH 54201; Chairman of the Board,
General Motors Corporation (automobiles); Retired Chairman of the Board and
Executive Officer, The Procter and Gamble Company (household products).
DOUGLAS C. YEARLEY: 2600 N. Central Avenue, Phoenix, AZ 85004; Chairman,
President and Chief Executive Officer, Phelps Dodge Corporation (chemical
products).
ITEM 29. PRINCIPAL UNDERWRITER
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:
Morgan Guaranty Trust Company of New York, 60 Wall Street, New York, NY 10260-
0060 and 9 West 57th Street, New York, NY 10019 (records relating to its
functions as investment adviser and services agent)
State Street Bank and Trust Company, 1776 Heritage Drive, North Quincy, MA 02179
(records relating to its functions as custodian and transfer agent)
Signature Broker-Dealer Services, Inc., 6 St. James Avenue, Boston, MA 02116
(records relating to its functions as administrator and exclusive placement
agent)
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)
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
Not applicable
C-4
<PAGE>
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 1st day of May, 1996.
THE SERIES PORTFOLIO
By /S/SUSAN JAKUBOSKI
Susan Jakuboski
Assistant Secretary and
Assistant Treasurer
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
- ----------- ----------------------
EX-99.B1 Declaration of Trust of the Registrant.
EX-99.B2 By-Laws of the Registrant
EX-99.B5 Investment Advisory Agreement between the Registrant and Morgan
Guaranty Trust Company of New York.
EX-99.B9(i) Administration Agreement between the Registrant and Signature
Broker-Dealer Services, Inc.
EX-99.B9(ii) Administrative Services Agreement between the Registrant and
Morgan Guaranty Trust Company of New York.
EX-27.1 through Financial Data Schedule.
EX-27.3
THE SERIES PORTFOLIO
DECLARATION OF TRUST
Dated as of June 24, 1994
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I--THE TRUST . . . . . . . . . . . . . . . . . . . . . . . . . 1
---------
Section 1.1 Name . . . . . . . . . . . . . . . . . . . . . . .1
Section 1.2 Definitions . . . . . . . . . . . . . . . . . . . 1
ARTICLE II--TRUSTEES . . . . . . . . . . . . . . . . . . . . . . . . . 3
--------
Section 2.1 Number and Qualification . . . . . . . . . . . . .3
Section 2.2 Term and Election . . . . . . . . . . . . . . . . 3
Section 2.3 Resignation, Removal and Retirement . . . . . . . 4
Section 2.4 Vacancies . . . . . . . . . . . . . . . . . . . . 4
Section 2.5 Meetings . . . . . . . . . . . . . . . . . . . . .5
Section 2.6 Chairman of the Board; Officers . . . . . . . . . 5
Section 2.7 By-Laws . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE III--POWERS OF TRUSTEES . . . . . . . . . . . . . . . . . . . 6
------------------
Section 3.1 General . . . . . . . . . . . . . . . . . . . . 6
Section 3.2 Investments . . . . . . . . . . . . . . . . . . . 6
Section 3.3 Legal Title . . . . . . . . . . . . . . . . . . . 7
Section 3.4 Sale and Increases of Interests . . . . . . . . . 7
Section 3.5 Decreases and Redemptions of Interests . . . . . 7
Section 3.6 Borrow Money . . . . . . . . . . . . . . . . . . .8
Section 3.7 Delegation; Committees . . . . . . . . . . . . . .8
Section 3.8 Collection and Payment . . . . . . . . . . . . . .8
Section 3.9 Expenses . . . . . . . . . . . . . . . . . . . . .8
Section 3.10 Miscellaneous Powers . . . . . . . . . . . . . . 9
Section 3.11 Further Powers . . . . . . . . . . . . . . . . . 9
ARTICLE IV--INVESTMENT ADVISORY, ADMINISTRATION AND PLACEMENT
AGENT ARRANGEMENTS; CUSTODIAN . . . . . . . . . . . . . . . . 9
-----------------------------
Section 4.1 Investment Advisory and Other Arrangements . . . 9
Section 4.2 Parties to Contract . . . . . . . . . . . . . . 10
Section 4.3 Custodian . . . . . . . . . . . . . . . . . . . 10
Section 4.4 1940 Act Governance . . . . . . . . . . . . . . 10
ARTICLE V--LIABILITY OF HOLDERS; LIMITATIONS OF LIABILITY OF TRUSTEES,
OFFICERS, ETC. . . . . . . . . . . . . . . . . . . . . . .11
Section 5.1 Liability of Holders; Indemnification 11
Section 5.2 Limitations of Liability of Trustees, Officers,
Employees, Agents, Independent Contractors
to Third Parties . . . . . . . . . . . . . . . .11
Section 5.3 Limitations of Liability of Trustees, Officers,
Employees, Agents, Independent Contractors
to Trust, Holders, etc. . . . . . . . . . . . 11
Section 5.4 Mandatory Indemnification . . . . . . . . . . . 11
Section 5.5 No Bond Required of Trustees . . . . . . . . . . 12
i
<PAGE>
PAGE
Section 5.6 No Duty of Investigation; Notice in Trust
Instruments, etc. . . . . . . . . . . . . . . 12
Section 5.7 Reliance on Experts, etc. . . . . . . . . . . . 13
Section 5.8 No Repeal or Modification . . . . . . . . . . . 13
ARTICLE VI--INTERESTS . . . . . . . . . . . . . . . . . . . . . . . 13
---------
Section 6.1 Interests . . . . . . . . . . . . . . . . . . . 13
Section 6.2 Establishment and Designation of Series . . . . 14
Section 6.3 Non-Transferability . . . . . . . . . . . . . . 15
Section 6.4 Register of Interests . . . . . . . . . . . . . 15
ARTICLE VII--INCREASES, DECREASES AND REDEMPTIONS OF INTERESTS . . . 15
ARTICLE VIII--DETERMINATION OF BOOK CAPITAL ACCOUNT BALANCES,
AND DISTRIBUTIONS . . . . . . . . . . . . . . . . . . 16
-----------------
Section 8.1 Book Capital Account Balances . . . . . . . . . 16
Section 8.2 Allocations and Distributions to Holders . . . . 16
Section 8.3 Power to Modify Foregoing Procedures . . . . . . 16
ARTICLE IX--HOLDERS . . . . . . . . . . . . . . . . . . . . . . . . .16
-------
Section 9.1 Rights of Holders . . . . . . . . . . . . . . . 16
Section 9.2 Meetings of Holders . . . . . . . . . . . . . . 17
Section 9.3 Notice of Meetings . . . . . . . . . . . . . . . 17
Section 9.4 Record Date for Meetings, Distributions, etc. . 18
Section 9.5 Proxies, etc. . . . . . . . . . . . . . . . . . 18
Section 9.6 Reports . . . . . . . . . . . . . . . . . . . . 18
Section 9.7 Holder Action by Written Consent . . . . . . . . 18
Section 9.8 Notices . . . . . . . . . . . . . . . . . . . . 19
ARTICLE X--DURATION; TERMINATION; DISSOLUTION; AMENDMENT; MERGERS; ETC. . 19
Section 10.1 Duration . . . . . . . . . . . . . . . . . . . .19
Section 10.2 Dissolution . . . . . . . . . . . . . . . . . .19
Section 10.3 Termination . . . . . . . . . . . . . . . . . .20
Section 10.4 Amendment Procedure . . . . . . . . . . . . . .21
Section 10.5 Merger, Consolidation and Sale of Assets . . . .21
Section 10.6 Incorporation . . . . . . . . . . . . . . . . .22
ARTICLE XI--MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . 22
-------------
Section 11.1 Certificate of Designation; Agent for
Service of Process . . . . . . . . . . . . . . 22
Section 11.2 Governing Law . . . . . . . . . . . . . . . . . 22
Section 11.3 Counterparts . . . . . . . . . . . . . . . . . 22
Section 11.4 Reliance by Third Parties . . . . . . . . . . . 22
Section 11.5 Provisions in Conflict with Law or Regulations. 23
ii
<PAGE>
JPM275
DECLARATION OF TRUST
OF
THE SERIES PORTFOLIO
This DECLARATION OF TRUST of The Series Portfolio is made as
of the 24th day of June, 1994 by the parties signatory hereto, as Trustees (as
defined in Section 1.2 hereof).
W I T N E S S E T H:
WHEREAS, the Trustees desire to form a master trust fund or
"Trust" (as defined in Section 1.2 hereof) under the law of the State of New
York consisting of one or more subtrusts or "Series" (as defined in Section 1.2
hereof) for the investment and reinvestment of assets contributed thereto; and
WHEREAS, it is proposed that the trust assets be composed of
money and other property contributed to the Series, such assets to be held and
managed in trust for the benefit of the holders of beneficial interests in such
Series;
NOW, THEREFORE, the Trustees hereby declare that they will
hold in trust all money and other property contributed to the Trust and will
manage and dispose of the same for the benefit of such holders of beneficial
interests and subject to the provisions hereof, to wit:
ARTICLE I
THE TRUST
1.1. NAME. The name of the Trust shall be The Series Portfolio
and so far as may be practicable the Trustees shall conduct the Trust's
activities, execute all documents and sue or be sued under that name, which name
(and the term "Trust" wherever hereinafter used) shall refer to the Trustees as
Trustees, and not individually, and shall not refer to the officers, employees,
agents or independent contractors of the Trust or its holders of beneficial
interests.
1.2. DEFINITIONS. As used in this Declaration, the following
terms shall have the following meanings:
"ADMINISTRATOR" shall mean any party furnishing services to
one or more Series pursuant to any administration contract described in Section
4.1 hereof.
"BOOK CAPITAL ACCOUNT" shall mean, for any Holder (as
hereinafter defined) at any time, the Book Capital Account of the Holder at such
time with respect to the Holder's beneficial interest in the Trust Property (as
hereinafter defined) of any Series, determined in accordance with the method
established by the Trustees pursuant to Section 8.1 hereof. The Trust shall
maintain separate records of Book Capital Accounts for each such Series.
<PAGE>
"CODE" shall mean the United States Internal Revenue Code of
1986, as amended from time to time, as well as any non-superseded provisions of
the Internal Revenue Code of 1954, as amended (or any corresponding provision or
provisions of succeeding law).
"COMMISSION" shall mean the United States Securities and
Exchange Commission.
"DECLARATION" shall mean this Declaration of Trust as amended
from time to time. References in this Declaration to "DECLARATION", "HEREOF",
"HEREIN" and "HEREUNDER" shall be deemed to refer to this Declaration rather
than the article or section in which any such word appears.
"FISCAL YEAR" shall mean an annual period(s) of the Series
determined by the Trustees which ends on a date specified by the Trustees or on
such other day as is permitted or required by the Code.
"HOLDER" shall mean the record holder of any Interest.
"INSTITUTIONAL INVESTOR(S)" shall mean any regulated
investment company, segregated asset account, foreign investment company, common
trust fund, group trust or other investment arrangement, whether organized
within or without the United States of America, other than an individual, S
corporation, partnership or grantor trust beneficially owned by any individual,
S corporation or partnership.
"INTERESTED PERSON" shall have the meaning given it in the
1940 Act (as hereinafter defined).
"INTEREST" shall mean the beneficial interest of a Holder in
the Trust Property of any Series, including all rights, powers and privileges
accorded to Holders by this Declaration, which interest may be expressed as a
percentage, determined by calculating for a particular Series, at such times and
on such basis as the Trustees shall from time to time determine, the ratio of
each Holder's Book Capital Account balance to the total of all Holders' Book
Capital Account balances. Reference herein to a specified percentage of, or
fraction of, Interests, means Holders whose combined Book Capital Account
balances represent such specified percentage or fraction of the combined Book
Capital Account balances of all, or a specified group of, Holders.
"INVESTMENT ADVISER" shall mean any party furnishing services
to one or more Series of the Trust pursuant to any investment advisory contract
described in Section 4.1 hereof.
"MAJORITY INTERESTS VOTE" shall mean the vote, at a meeting of
Holders of one or more Series as the context may require, of (A) 67% or more of
the Interests present or represented at such meeting, if Holders of more than
50% of all Interests in such one or more Series are present or represented by
proxy, or (B) more than 50% of all Interests in such one or more Series,
whichever is less.
"1940 ACT" shall mean the United States Investment Company Act
of 1940, as amended from time to time, and the rules and regulations thereunder.
2
<PAGE>
"PERSON" shall mean and include individuals, corporations,
partnerships, trusts, associations, joint ventures and other entities, whether
or not legal entities, and governments and agencies and political subdivisions
thereof.
"REDEMPTION" shall mean the complete withdrawal of an Interest
of a Holder the result of which is to reduce the Book Capital Account balance of
that Holder to zero, and the term "redeem" shall mean to effect a Redemption.
"SERIES" shall mean the subtrusts of the Trust as the same are
established and designated pursuant to Article VI hereof, each of which shall be
a separate subtrust.
"TRUST" shall mean the master trust fund established hereby
and shall include each Series hereof.
"TRUST PROPERTY" shall mean as of any particular time any and
all assets or other property, real or personal, tangible or intangible, which at
such time is owned or held by or for the account of any Series or for the
account of the Trustees, each component of which shall be allocated and belong
to a specific Series to the exclusion of all other Series.
"TRUSTEES" shall mean each signatory to this Declaration, so
long as such signatory shall continue in office in accordance with the terms
hereof, and all other individuals who at the time in question have been duly
elected or appointed and have qualified as Trustees in accordance with the
provisions hereof and are then in office, and reference in this Declaration to a
Trustee or Trustees shall refer to such individual or individuals in their
capacity as Trustees hereunder.
ARTICLE II
TRUSTEES
2.1. NUMBER AND QUALIFICATION. The number of Trustees shall be
fixed from time to time by action of the Trustees taken as provided in Section
2.5 hereof; provided, however, that the number of Trustees so fixed shall in no
event be less than three. Any vacancy created by an increase in the number of
Trustees may be filled by the appointment of an individual having the
qualifications described in this Section 2.1 made by action of the Trustees
taken as provided in Section 2.5 hereof. Any such appointment shall not become
effective, however, until the individual named in the written instrument of
appointment shall have accepted in writing such appointment and agreed in
writing to be bound by the terms of this Declaration. No reduction in the number
of Trustees shall have the effect of removing any Trustee from office. Whenever
a vacancy occurs, until such vacancy is filled as provided in Section 2.4
hereof, the Trustees continuing in office, regardless of their number, shall
have all the powers granted to the Trustees and shall discharge all the duties
imposed upon the Trustees by this Declaration. A Trustee shall be an individual
at least 21 years of age who is not under legal disability.
2.2. TERM AND ELECTION. Each Trustee named herein, or elected
or appointed prior to the first meeting of Holders, shall (except in the event
of
3
<PAGE>
resignations, retirements, removals or vacancies pursuant to Section 2.3 or
Section 2.4 hereof) hold office until a successor to such Trustee has been
elected at such meeting and has qualified to serve as Trustee, as required under
the 1940 Act. Subject to the provisions of Section 16(a) of the 1940 Act and
except as provided in Section 2.3 hereof, each Trustee shall hold office during
the lifetime of the Trust and until its termination as hereinafter provided.
2.3. RESIGNATION, REMOVAL AND RETIREMENT. Any Trustee may
resign his or her trust (without need for prior or subsequent accounting) by an
instrument in writing executed by such Trustee and delivered or mailed to the
Chairman, if any, the President or the Secretary of the Trust and such
resignation shall be effective upon such delivery, or at a later date according
to the terms of the instrument. Any Trustee may be removed with or without cause
by the affirmative vote of Holders of two-thirds of the Interests or (provided
the aggregate number of Trustees, after such removal and after giving effect to
any appointment made to fill the vacancy created by such removal, shall not be
less than the number required by Section 2.1 hereof) by the action of two-thirds
of the remaining Trustees. Any Trustee who has attained a mandatory retirement
age, if any, established pursuant to any written policy adopted from time to
time by a majority of the Trustees shall, automatically and without action by
such Trustee or the remaining Trustees, be deemed to have retired in accordance
with the terms of such policy, effective as of the date determined in accordance
with such policy. Any Trustee who has become incapacitated by illness or injury
as determined by a majority of the other Trustees, may be retired by written
instrument executed by a majority of the other Trustees, specifying the date of
such Trustee's retirement. Upon the resignation, retirement or removal of a
Trustee, or a Trustee otherwise ceasing to be a Trustee, such resigning,
retired, removed or former Trustee shall execute and deliver such documents as
the remaining Trustees shall require for the purpose of conveying to the Trust
or the remaining Trustees any Trust Property held in the name of such resigning,
retired, removed or former Trustee. Upon the death of any Trustee or upon
removal, retirement or resignation due to any Trustee's incapacity to serve as
Trustee, the legal representative of such deceased, removed, retired or
resigning Trustee shall execute and deliver on behalf of such deceased, removed,
retired or resigning Trustee such documents as the remaining Trustees shall
require for the purpose set forth in the preceding sentence.
2.4. VACANCIES. The term of office of a Trustee shall
terminate and a vacancy shall occur in the event of the death, resignation,
retirement or removal of a Trustee. No such vacancy shall operate to annul this
Declaration or to revoke any existing agency created pursuant to the terms of
this Declaration. In the case of a vacancy, Holders of at least a majority of
the Interests entitled to vote, acting at any meeting of Holders held in
accordance with Section 9.2 hereof, or, to the extent permitted by the 1940 Act,
a majority vote of the Trustees continuing in office acting by written
instrument or instruments, may fill such vacancy, and any Trustee so elected by
the Trustees or the Holders shall hold office as provided in this Declaration.
The Trustees may appoint a new Trustee as provided above in anticipation of a
vacancy expected to occur because of the retirement, resignation or removal of a
Trustee, or an increase in number of Trustees, provided that such appointment
shall become effective only when or after the expected vacancy occurs. Subject
to the foregoing sentence, as soon as any Trustee has accepted such appointment
in writing, the Trust estate shall vest in the new Trustee, together with the
4
<PAGE>
continuing Trustees, without any further act or conveyance, and he or she shall
be deemed a Trustee hereunder. The power of appointment is subject to Section
16(a) of the 1940 Act.
2.5. MEETINGS. Meetings of the Trustees shall be held from
time to time upon the call of the Chairman, if any, or any two Trustees or any
officer authorized to call such meetings by the By-Laws of the Trust. Regular
meetings of the Trustees may be held without call or notice at a time and place
fixed by the By-Laws or 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. 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. The Trustees
may act with or without a meeting. A quorum for all meetings of the Trustees
shall be a majority of the Trustees. Unless provided otherwise in this
Declaration, any action of the Trustees may be taken at a meeting by vote of a
majority of the Trustees present (a quorum being present) or without a meeting
by written consent of a majority (or such larger percentage as may be specified
by the By-Laws) of the Trustees.
Any committee of the Trustees, including an executive
committee, if any, may act with or without a meeting. A quorum for all meetings
of any such committee shall be a majority of the members thereof. Unless
provided otherwise in this Declaration, any action of any such committee may be
taken at a meeting by vote of a majority of the members present (a quorum being
present) or without a meeting by written consent of a majority (or such larger
percentage as may be specified by the By-Laws) of the members.
Any notice, waiver or written consent hereunder may be
provided and delivered to the Trust or a Trustee by facsimile or other similar
electronic mechanism.
With respect to actions of the Trustees and any committee 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 under
this Section 2.5 and shall be entitled to vote to the extent permitted by the
1940 Act.
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 participation in a meeting by means of
such communications equipment shall constitute presence in person at such
meeting.
2.6. CHAIRMAN OF THE BOARD; OFFICERS. The Trustees may elect
or appoint, from time to time, a Chairman of the Board who shall preside at all
meetings of the Trustees and carry out such other duties as the Trustees may
designate. The Trustees may elect or appoint a President, a Secretary, a
Treasurer and such other officers, agents or independent contractors with such
powers as the Trustees may deem to be advisable and may authorize such officers
to appoint such subordinate officers, agents or independent contractors with
such
5
<PAGE>
powers as the Trustees may deem to be advisable. The Chairman, if any, shall be
and each officer may, but need not, be a Trustee.
2.7. BY-LAWS. The Trustees may adopt and, from time to time,
amend or repeal By-Laws for the conduct of the business of the Trust.
ARTICLE III
POWERS OF TRUSTEES
3.1. GENERAL. The Trustees shall have exclusive and absolute
control over the Trust Property and over the business of the Trust and each
Series to the same extent as if the Trustees were the sole owners of the Trust
Property and such business in their own right, but with such powers of
delegation as may be permitted by this Declaration. The Trustees may perform
such acts as in their sole discretion they deem proper for conducting the
business of the Trust and any Series. The enumeration of or failure to mention
any specific power herein shall not be construed as limiting such exclusive and
absolute control. The powers of the Trustees may be exercised without order of
or resort to any court.
The Trustees shall have full power and authority to do any and all acts
and to make and execute any and all contracts and instruments that they may
consider necessary or appropriate in connection with the management of the
Trust. The Trustees shall have full authority and power to make any and all
investments which they, in their uncontrolled discretion, shall deem proper to
accomplish the purposes of this Trust.
3.2. INVESTMENTS. The Trustees shall have the power with
respect to the Trust and each Series to:
(a) conduct, operate and carry on the business of an
investment company;
(b) subscribe for, invest in, reinvest in, purchase or
otherwise acquire, hold, pledge, sell, assign, transfer, exchange, distribute or
otherwise deal in or dispose of United States and foreign currencies and related
instruments including forward contracts, and securities, including common and
preferred stock, warrants, bonds, debentures, time notes and all other evidences
of indebtedness, negotiable or non-negotiable instruments, obligations,
certificates of deposit or indebtedness, commercial paper, repurchase
agreements, reverse repurchase agreements, convertible securities, forward
contracts, options, futures contracts, and other securities, including, without
limitation, those issued, guaranteed or sponsored by any state, territory or
possession of the United States and the District of Columbia and their political
subdivisions, agencies and instrumentalities, or by the United States
Government, any foreign government, or any agency, instrumentality or political
subdivision of the United States Government or any foreign government, or any
international instrumentality, or by any bank, savings institution, corporation
or other business entity organized under the laws of the United States or any
state or under any foreign laws; and to exercise any and all rights, powers and
privileges of ownership or interest in respect of any and all such investments
of any kind and description, including, without limitation, the right to consent
and
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otherwise act with respect thereto, with power to designate one or more Persons
to exercise any of such rights, powers and privileges in respect of any of such
investments; and the Trustees shall be deemed to have the foregoing powers with
respect to any additional instruments in which the Trustees may determine to
invest;
(c) definitively interpret the investment objectives, policies
and limitations of any Series.
The Trustees shall not be limited to investing in obligations
maturing before the possible termination of the Trust, nor shall the Trustees be
limited by any law limiting the investments which may be made by fiduciaries.
3.3. LEGAL TITLE. Legal title to all Trust Property shall be
vested in the Trustees as joint tenants except that the Trustees shall have the
power to cause legal title to any Trust Property to be held by or in the name of
one or more of the Trustees, or in the name of the Trust or any Series, or in
the name or nominee name of any other Person on behalf of the Trust or any
Series, on such terms as the Trustees may determine.
The right, title and interest of the Trustees in the Trust
Property shall vest automatically in each individual who may hereafter become a
Trustee upon his due election and qualification. Upon the resignation, removal
or death of a Trustee, such resigning, removed or deceased Trustee shall
automatically cease to have any right, title or interest in any Trust Property,
and the right, title and interest of such resigning, removed or deceased Trustee
in the Trust Property shall vest automatically in the remaining Trustees. Such
vesting and cessation of title shall be effective whether or not conveyancing
documents have been executed and delivered.
3.4. SALE AND INCREASES OF INTERESTS. The Trustees, in their
discretion, may, from time to time, without a vote of the Holders, permit any
Institutional Investor to purchase an Interest in a Series, or increase such
Interest, for such type of consideration, including cash or property, at such
time or times (including, without limitation, each business day), and on such
terms as the Trustees may deem best, and may in such manner acquire other assets
(including the acquisition of assets subject to, and in connection with the
assumption of, liabilities) and businesses. Individuals, S corporations,
partnerships and grantor trusts that are beneficially owned by any individual, S
corporation or partnership may not purchase Interests. The Trustees, in their
discretion, may refuse to sell an Interest in a Series to any person without any
cause or reason therefor. A Holder which has redeemed its Interest in a Series
may not be permitted to purchase an Interest in such Series until the later of
60 calendar days after the date of such Redemption or the first day of the
Fiscal Year next succeeding the Fiscal Year during which such Redemption
occurred.
3.5 DECREASES AND REDEMPTIONS OF INTERESTS. Subject to Article
VII hereof, the Trustees, in their discretion, may, from time to time, without a
vote of the Holders, permit a Holder to redeem its Interest in a Series, or
decrease such Interest, for either cash or property, at such time or times
(including, without limitation, each business day), and on such terms as the
Trustees may deem best.
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3.6. BORROW MONEY. The Trustees shall have power on behalf of
any Series to borrow money or otherwise obtain credit and to secure the same by
mortgaging, pledging or otherwise subjecting as security the assets belonging to
such Series, as appropriate, including the lending of portfolio securities, and
to endorse, guarantee, or undertake the performance of any obligation, contract
or engagement of any other Person.
3.7. DELEGATION; COMMITTEES. The Trustees shall have power,
consistent with their continuing exclusive and absolute control over the Trust
Property and over the business of the Trust and any Series, to delegate from
time to time to such of their number or to officers, employees, agents or
independent contractors of the Trust or any Series the doing of such things and
the execution of such instruments in either the name of the Trust or any Series
or the names of the Trustees or otherwise as the Trustees may deem expedient.
3.8. COLLECTION AND PAYMENT. The Trustees shall have power to
collect all property due to the Trust; and to pay all claims, including taxes,
against the Trust Property on behalf of any Series; to prosecute, defend,
compromise or abandon any claims relating to the Trust or the Trust Property on
behalf of any Series; to foreclose any security interest securing any
obligation, by virtue of which any property is owed to the Trust; and to enter
into releases, agreements and other instruments.
3.9. EXPENSES. The Trustees shall have power to incur and pay
any expenses from the Trust Property which in the opinion of the Trustees are
necessary or incidental to carry out any of the purposes of this Declaration,
and to pay reasonable compensation from the Trust Property to themselves as
Trustees. Permitted expenses of the Trust include, but are not limited to,
interest charges, taxes, brokerage fees and commissions; expenses of sales,
increases, decreases or redemptions of Interests; certain insurance premiums;
applicable fees, interest charges and expenses of third parties, including the
Trust's investment advisers, managers, administrators, placement agents,
custodians transfer agents and fund accountants; fees of pricing, interest,
dividend, credit and other reporting services; costs of membership in trade
associations; telecommunications expenses; costs of forming the Trust and its
Series and maintaining its and their existence; costs of preparing and printing
the registration statements and Holder reports of the Trust and each Series and
delivering them to Holders; expenses of meetings of Holders; costs of
maintaining books and accounts; costs of reproduction, stationery and supplies;
fees and expenses of the Trustees; compensation of the Trust's officers and
employees and costs of other personnel performing services for the Trust or any
Series; costs of Trustee meetings; Commission registration fees and related
expenses; state or foreign securities laws registration fees and related
expenses; and for such non-recurring items as may arise, including litigation to
which the Trust or a Series (or a Trustee or officer of the Trust acting as
such) is a party, and for all losses and liabilities by them incurred in
administering the Trust. The Trustees shall have a lien on the assets belonging
to the appropriate Series, or in the case of an expense allocable to more than
one Series, on the assets of each such Series, prior to any rights or interests
of the Holders thereto, for the reimbursement to them of such expenses,
disbursements, losses and liabilities. The Trustees shall fix the compensation
of all officers, employees and Trustees. The Trustees may pay themselves such
compensation for special services, including legal and brokerage services, as
they in good faith may deem reasonable, and
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reimbursement for expenses reasonably incurred by themselves on behalf of the
Trust or any Series.
3.10. MISCELLANEOUS POWERS. The Trustees shall have power to:
(a) employ or contract with such Persons as the Trustees may deem appropriate
for the transaction of the business of the Trust or any Series and terminate
such employees or contractual relationships as they consider appropriate; (b)
enter into joint ventures, partnerships and any other combinations or
associations; (c) purchase, and pay for out of Trust Property insurance policies
insuring the Investment Adviser, Administrator, placement agent, Holders,
Trustees, officers, employees, agents or independent contractors of the Trust
against all claims arising by reason of holding any such position or by reason
of any action taken or omitted by any such Person in such capacity, whether or
not the Trust would have the power to indemnify such Person against such
liability; (d) establish pension, profit-sharing and other retirement, incentive
and benefit plans for the Trustees, officers, employees or agents of the Trust
or any Series; (e) prosecute, defend and settle lawsuits in the name of the
Trust or any Series and pay settlements and judgments out of the Trust Property;
(f) to the extent permitted by law, indemnify any Person with whom the Trust has
dealings, including the Investment Adviser, Administrator, placement agent,
Holders, Trustees, officers, employees, agents or independent contractors of the
Trust, to such extent as the Trustees shall determine; (g) guarantee
indebtedness or contractual obligations of others; (h) determine and change the
Fiscal Year of the Trust or any Series and the method by which its accounts
shall be kept; and (i) adopt a seal for the Trust or any Series, but the absence
of such a seal shall not impair the validity of any instrument executed on
behalf of the Trust or such Series.
3.11. FURTHER POWERS. The Trustees shall have power to conduct
the business of the Trust or any Series and carry on its operations in any and
all of its branches and maintain offices, whether within or without the State of
New York, in any and all states of the United States of America, in the District
of Columbia, and in any and all commonwealths, territories, dependencies,
colonies, possessions, agencies or instrumentalities of the United States of
America and of foreign governments, and to do all such other things and execute
all such instruments as they deem necessary, proper, appropriate or desirable in
order to promote the interests of the Trust or any Series although such things
are not herein specifically mentioned. Any determination as to what is in the
interests of the Trust or any Series which is made by the Trustees in good faith
shall be conclusive. In construing the provisions of this Declaration, the
presumption shall be in favor of a grant of power to the Trustees. The Trustees
shall not be required to obtain any court order in order to deal with Trust
Property.
ARTICLE IV
Investment Advisory, Administration
AND PLACEMENT AGENT ARRANGEMENTS; CUSTODIAN
4.1. INVESTMENT ADVISORY AND OTHER ARRANGEMENTS. The Trustees
may in their discretion, from time to time, enter into investment advisory
contracts, administration contracts, placement agent agreements or other service
agreements whereby the other party to such contract or agreement shall undertake
to furnish with respect to one or more particular Series such investment
advisory,
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administration, placement agent and/or other services as the Trustees shall,
from time to time, consider appropriate or desirable and all upon such terms and
conditions as the Trustees may in their sole discretion determine. The other
party to any such investment advisory contract or administration contract is
referred to as an "Investment Adviser" or "Administrator," respectively.
Notwithstanding any provision of this Declaration, the Trustees may authorize
any Investment Adviser (subject to such general or specific instructions as the
Trustees may, from time to time, adopt) to employ one or more subadvisers and to
effect purchases, sales, loans or exchanges of Trust Property on behalf of any
Series or may authorize any officer, employee or Trustee to effect such
purchases, sales, loans or exchanges pursuant to recommendations of any such
Investment Adviser (all without any further action by the Trustees).
4.2. PARTIES TO CONTRACT. Any contract of the character
described in Section 4.1 or Section 4.3 hereof or in the By-Laws of the Trust
may be entered into with any corporation, firm, trust or association, although
one or more of the Trustees or officers of the Trust may be an officer,
director, Trustee, shareholder or member of such other party to the contract,
and no such contract shall be invalidated or rendered voidable by reason of the
existence of any such relationship, nor shall any individual holding such
relationship be liable merely by reason of such relationship for any loss or
expense to the Trust or any Series under or by reason of any such contract or
accountable for any profit realized directly or indirectly therefrom, provided
that the contract when entered into was reasonable and fair and not inconsistent
with the provisions of this Article IV or the By-Laws. The same Person may be
the other party to one or more contracts entered into pursuant to Section 4.1 or
Section 4.3 hereof or the By-Laws, and any individual may be financially
interested or otherwise affiliated with Persons who are parties to any or all of
the contracts mentioned in this Section 4.2 or in the By-Laws.
4.3 CUSTODIAN. The Trustees shall at all times place and
maintain the securities and similar investments of the Trust on behalf of each
Series in custody meeting the requirements of Section 17(f) of the 1940 Act and
the rules thereunder. The Trustees, on behalf of the Trust or any Series, may
enter into an agreement with a custodian on terms and conditions acceptable to
the Trustees, providing for the custodian, among other things, (a) to hold the
securities owned by the Trust on behalf of any Series and deliver the same upon
written order or oral order confirmed in writing, (b) to receive and receipt for
any moneys due to the Trust on behalf of any Series and deposit the same in its
own banking department or elsewhere, (c) to disburse such funds upon orders or
vouchers, and (d) to employ one or more subcustodians.
4.4. 1940 ACT GOVERNANCE. Any contract referred to in Section
4.1 hereof shall be consistent with and subject to the applicable requirements
of Section 15 of the 1940 Act and the rules and orders thereunder with respect
to its continuance in effect, its termination, and the method of authorization
and approval of such contract or renewal. No amendment to a contract referred to
in Section 4.1 hereof shall be effective unless assented to in a manner
consistent with the requirements of Section 15 of the 1940 Act, and the rules
and orders thereunder.
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ARTICLE V
Liability of Holders; Limitations of
LIABILITY OF TRUSTEES, OFFICERS, ETC.
5.1. LIABILITY OF HOLDERS; INDEMNIFICATION. Each Holder of an
Interest in a Series shall be jointly and severally liable with every other
Holder of an Interest in that Series (with rights of contribution INTER SE in
proportion to their respective Interests in the Series) for the liabilities and
obligations of that Series (and of no other Series) in the event that the Trust
fails to satisfy such liabilities and obligations from the assets of that
Series; provided, however, that, to the extent assets of that Series are
available in the Trust, the Trust shall indemnify and hold each Holder harmless
from and against any claim or liability to which such Holder may become subject
by reason of being or having been a Holder of an Interest in that Series to the
extent that such claim or liability imposes on the Holder an obligation or
liability which, when compared to the obligations and liabilities imposed on
other Holders of Interests in that Series, is greater than such Holder's
Interest (proportionate share), and shall reimburse such Holder for all legal
and other expenses reasonably incurred by such Holder in connection with any
such claim or liability. The rights accruing to a Holder under this Section 5.1
shall not exclude any other right to which such Holder may be lawfully entitled,
nor shall anything contained herein restrict the right of the Trust to indemnify
or reimburse a Holder in any appropriate situation even though not specifically
provided herein. Notwithstanding the indemnification procedure described above,
it is intended that each Holder of an Interest in a Series shall remain jointly
and severally liable to the creditors of that Series as a legal matter. The
liabilities of a particular Series and the right to indemnification granted
hereunder to Holders of Interests in such Series shall not be enforceable
against any other Series or Holders of Interests in any other Series.
5.2. LIMITATIONS OF LIABILITY OF TRUSTEES, OFFICERS,
EMPLOYEES, AGENTS, INDEPENDENT CONTRACTORS TO THIRD PARTIES. No Trustee,
officer, employee, agent or independent contractor (except in the case of an
agent or independent contractor to the extent expressly provided by written
contract) of the Trust or any Series shall be subject to any personal liability
whatsoever to any Person, other than the Trust or the Holders, in connection
with Trust Property or the affairs of the Trust; and all such Persons shall look
solely to the Trust Property for satisfaction of claims of any nature against a
Trustee, officer, employee, agent or independent contractor (except in the case
of an agent or independent contractor to the extent expressly provided by
written contract) of the Trust arising in connection with the affairs of the
Trust.
5.3. LIMITATIONS OF LIABILITY OF TRUSTEES, OFFICERS OR
EMPLOYEES TO TRUST, HOLDERS, ETC. No Trustee, officer or employee of the Trust
shall be liable to the Trust or the Holders for any action or failure to act
(including, without limitation, the failure to compel in any way any former or
acting Trustee to redress any breach of trust) except for such Person's own bad
faith, willful misfeasance, gross negligence or reckless disregard of such
Person's duties.
5.4. MANDATORY INDEMNIFICATION. The Trust shall indemnify, to
the fullest extent permitted by law (including the 1940 Act), each Trustee,
officer or employee of the Trust (including any Person who serves at the Trust's
request
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as a director, officer or trustee of another organization in which the Trust has
any interest as a shareholder, creditor or otherwise) against all liabilities
and expenses (including amounts paid in satisfaction of judgments, in
compromise, as fines and penalties, and as counsel fees) reasonably incurred by
such Person in connection with the defense or disposition of any action, suit or
other proceeding, whether civil or criminal, in which such Person may be
involved or with which such Person may be threatened, while in office or
thereafter, by reason of such Person being or having been such a Trustee,
officer, employee, agent or independent contractor, except with respect to any
matter as to which such Person shall have been adjudicated to have acted in bad
faith, willful misfeasance, gross negligence or reckless disregard of such
Person's duties, such liabilities and expenses being liabilities only of the
Series out of which such claim for indemnification arises; provided, however,
that as to any matter disposed of by a compromise payment by such Person,
pursuant to a consent decree or otherwise, no indemnification either for such
payment or for any other expenses shall be provided unless there has been a
determination that such Person did not engage in willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
such Person's office (i) by the court or other body approving the settlement or
other disposition; or (ii) based upon a review of readily available facts (as
opposed to a full trial- type inquiry), by written opinion from independent
legal counsel approved by the Trustees; or (iii) by a majority of the Trustees
who are neither Interested Persons of the Trust nor parties to the matter, based
upon a review of readily available facts (as opposed to a full trial-type
inquiry). The rights accruing to any Person under these provisions shall not
exclude any other right to which such Person may be lawfully entitled; provided
that no Person may satisfy any right of indemnity or reimbursement granted in
this Section 5.4 or in Section 5.2 hereof or to which such Person may be
otherwise entitled except out of the Trust Property. The rights of
indemnification provided herein may be insured against by policies maintained by
the Trust. The Trustees may make advance payments in connection with
indemnification under this Section 5.4, provided that the indemnified Person
shall have given a written undertaking to reimburse the Trust in the event it is
subsequently determined that such Person is not entitled to such
indemnification, and provided further that either (i) such Person shall have
provided appropriate security for such undertaking, or (ii) the Trust is insured
against losses arising out of any such advance payments, or (iii) either a
majority of the Trustees who are neither Interested Persons of the Trust nor
parties to the matter, or independent legal counsel in a written opinion, shall
have determined, based upon a review of readily available facts (as opposed to a
trial-type inquiry or full investigation), that there is reason to believe that
such Person will not be disqualified from indemnification under this Section
5.4.
5.5. NO BOND REQUIRED OF TRUSTEES. No Trustee shall, as such,
be obligated to give any bond or surety or other security for the performance of
any of such Trustee's duties hereunder.
5.6. NO DUTY OF INVESTIGATION; NOTICE IN TRUST INSTRUMENTS,
ETC. No purchaser, lender or other Person dealing with any Trustee, officer,
employee, agent or independent contractor of the Trust or any Series shall be
bound to make any inquiry concerning the validity of any transaction purporting
to be made by such Trustee, officer, employee, agent or independent contractor
or be liable for the application of money or property paid, loaned or delivered
to or on the order of such Trustee, officer, employee, agent or independent
contractor. Every
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obligation, contract, instrument, certificate or other interest or undertaking
of the Trust or any Series, and every other act or thing whatsoever executed in
connection with the Trust or any Series shall be conclusively taken to have been
executed or done by the executors thereof only in their capacity as Trustees,
officers, employees, agents or independent contractors of the Trust or any
Series. Every written obligation, contract, instrument, certificate or other
interest or undertaking of the Trust or any Series made or sold by any Trustee,
officer or employee of the Trust or any Series, in such capacity, shall contain
an appropriate recital to the effect that the Trustee, officer or employee of
the Trust or any Series shall not personally be bound by or liable thereunder,
nor shall resort be had to their private property for the satisfaction of any
obligation or claim thereunder, and appropriate references shall be made therein
to the Declaration, and may contain any further recital which they may deem
appropriate, but the omission of such recital shall not operate to impose
personal liability on any Trustee, officer or employee of the Trust or any
Series. Subject to the provisions of the 1940 Act, the Trust may maintain
insurance for the protection of the Trust Property, the Holders, and the
Trustees, officers or employees of the Trust and any Series in such amount as
the Trustees shall deem adequate to cover possible tort liability, and such
other insurance as the Trustees in their sole judgment shall deem advisable.
5.7. RELIANCE ON EXPERTS, ETC. Each Trustee, officer or
employee of the Trust and any Series shall, in the performance of such Person's
duties, be fully and completely justified and protected with regard to any act
or any failure to act resulting from reliance in good faith upon the books of
account or other records of the Trust or any Series (whether or not the Trust or
any Series would have the power to indemnify such Persons against such
liability), upon an opinion of counsel, or upon reports made to the Trust or any
Series by any of its officers or employees or by any Investment Adviser or
Administrator, accountant, appraiser or other experts or consultants selected
with reasonable care by the Trustees, officers or employees of the Trust or any
Series, regardless of whether such counsel or expert may also be a Trustee.
5.8. NO REPEAL OR MODIFICATION. Any repeal or modification of
this Article V by the Holders, or adoption or modification of any other
provision of this Declaration or the By-Laws inconsistent with this Article V,
shall be prospective only, to the extent that such repeal or modification would,
if applied retrospectively, adversely affect any limitation on the liability of
any Person or indemnification available to any indemnified Person with respect
to any act or omission which occurred prior to such repeal, modification or
adoption.
ARTICLE VI
INTERESTS
6.1. INTERESTS. The beneficial interest in the Trust Property
shall consist of non-transferable Interests. Interests may be sold only to
Institutional Investors, as may be approved by the Trustees, for cash or other
consideration acceptable to the Trustees, subject to the requirements of the
1940 Act. The Interests shall be personal property giving only the rights in
this Declaration specifically set forth. The value of an Interest shall be equal
to the Book Capital Account balance of the Holder of the Interest.
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The Trustees shall have authority, from time to time, to
establish Series, each of which shall be a separate subtrust and the Interests
in which shall be separate and distinct from the Interests in any other Series.
The Series shall include, without limitation, those Series specifically
established and designated pursuant to Section 6.2 hereof, and such other Series
as the Trustees may deem necessary or desirable. The Trustees shall have
exclusive power without the requirement of Holder approval to establish and
designate such separate and distinct Series, and, subject to the provisions of
this Declaration and the 1940 Act, to fix and determine the rights of Holders of
Interests in such Series, including with respect to the price, terms and manner
of purchase and redemption, dividends and other distributions, rights on
liquidation, sinking or purchase fund provisions, conversion rights and
conditions under which the Holders of the several Series shall have separate
voting rights or no voting rights.
6.2. ESTABLISHMENT AND DESIGNATION OF SERIES. The
establishment and designation of any Series shall be effective upon the
execution by the Secretary or an Assistant Secretary of the Trust, pursuant to
authorization by a majority of the Trustees, of an instrument setting forth such
establishment and designation and the relative rights and preferences of the
Interests in such Series, or as otherwise provided in such instrument. At any
time that there are no Interests outstanding of any particular Series previously
established and designated, the Trustees may by resolution adopted by a majority
of their number, and evidenced by an instrument executed by the Secretary or an
Assistant Secretary of the Trust, abolish that Series and the establishment and
designation thereof. Each instrument referred to in this paragraph shall have
the status of an amendment to this Declaration of Trust.
Without limiting the authority of the Trustees set forth above
to establish and designate further Series, the Trustees hereby establish and
designate the Series set forth on Schedule A hereto. The Interests in each of
these Series and any Interests in any further Series that may from time to time
be established and designated by the Trustees shall (unless the Trustees
otherwise determine with respect to some further Series at the time of
establishing and designating the same) have the following relative rights and
preferences:
(a) ASSETS BELONGING TO SERIES. All consideration received by
the Trust for the issue or sale of Interests in a particular Series, together
with all assets in which such consideration is invested or reinvested, all
income, earnings, profits, and proceeds thereof, including any proceeds derived
from the sale, exchange or liquidation of such assets, and any funds or payments
derived from any reinvestment of such proceeds in whatever form the same may be,
shall be held by the Trustees in a separate trust for the benefit of the Holders
of Interests in that Series and shall irrevocably belong to that Series for all
purposes, and shall be so recorded upon the books of account of the Trust. Such
consideration, assets, income, earnings, profits, and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation of such
assets, and any funds or payments derived from any reinvestment of such
proceeds, in whatever form the same may be, are herein referred to as "assets
belonging to" that Series. No Series shall have any right to or interest in the
assets belonging to any other Series, and no Holder shall have any right or
interest with respect to the assets belonging to any Series in which it does not
hold an Interest.
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(b) LIABILITIES BELONGING TO SERIES. The assets belonging to
each particular Series shall be charged with the liabilities in respect of that
Series and all expenses, costs, charges and reserves attributable to that
Series. The liabilities, expenses, costs, charges and reserves so charged to a
Series are herein referred to as "liabilities belonging to" that Series. No
Series shall be liable for or charged with the liabilities belonging to any
other Series, and no Holder shall be subject to any liabilities belonging to any
Series in which it does not hold an Interest.
(c) VOTING. On each matter submitted to a vote of the Holders,
each Holder shall be entitled to a vote proportionate to its Interest as
recorded on the books of the Trust. Each Series shall vote as a separate class
except as to voting for 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 all Series, only the Holders in the
one or more affected Series shall be entitled to vote. On each matter submitted
to a vote of the Holders, a Holder may apportion its vote with respect to a
proposal in the same proportion as its own shareholders voted with respect to
that proposal.
6.3. NON-TRANSFERABILITY. A Holder may not transfer its
Interest.
6.4. REGISTER OF INTERESTS. A register shall be kept at the
Trust under the direction of the Trustees which shall contain the name, address
and Book Capital Account balance of each Holder in each Series. Such register
shall be conclusive as to the identity of the Holders. No Holder shall be
entitled to receive payment of any distribution, nor to have notice given to it
as herein provided, until it has given its address to such officer or agent of
the Trust as is keeping such register for entry thereon.
ARTICLE VII
INCREASES, DECREASES AND REDEMPTIONS OF INTERESTS
Subject to applicable law, to the provisions of this
Declaration and to such restrictions as may from time to time be adopted by the
Trustees, each Holder may vary its Interest in any Series at any time by
increasing (through a capital contribution) or decreasing (through a capital
withdrawal) or by a Redemption of its Interest. An increase in the Interest of a
Holder in a Series shall be reflected as an increase in the Book Capital Account
balance of that Holder in that Series and a decrease in the Interest of a Holder
in a Series or the Redemption of the Interest of that Holder shall be reflected
as a decrease in the Book Capital Account balance of that Holder in that Series.
The Trust shall, upon appropriate and adequate notice from any Holder, increase,
decrease or redeem such Holder's Interest for an amount determined by the
application of a formula adopted for such purpose by resolution of the Trustees;
provided that (a) the amount received by the Holder upon any such decrease or
Redemption shall not exceed the decrease in the Holder's Book Capital Account
balance effected by such decrease or Redemption of its Interest, and (b) if so
authorized by the Trustees, the Trust may, at any time and from time to time,
charge fees for effecting any such decrease or Redemption, at such rates as the
Trustees may establish, and may, at any time and from time to time, suspend such
right of decrease or Redemption. The procedures for effecting decreases or
Redemptions shall be as determined by the Trustees from time to time.
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ARTICLE VIII
Determination of Book Capital Account
BALANCES AND DISTRIBUTIONS
8.1. BOOK CAPITAL ACCOUNT BALANCES. The Book Capital Account
balance of Holders with respect to a particular Series shall be determined on
such days and at such time or times as the Trustees may determine. The Trustees
shall adopt resolutions setting forth the method of determining the Book Capital
Account balance of each Holder. The power and duty to make calculations pursuant
to such resolutions may be delegated by the Trustees to the Investment Adviser
or Administrator, custodian, or such other Person as the Trustees may determine.
Upon the Redemption of an Interest, the Holder of that Interest shall be
entitled to receive the balance of its Book Capital Account. A Holder may not
transfer its Book Capital Account balance.
8.2. ALLOCATIONS AND DISTRIBUTIONS TO HOLDERS. The Trustees
shall, in compliance with the Code, the 1940 Act and generally accepted
accounting principles, establish the procedures by which the Trust shall make
with respect to each Series (i) the allocation of unrealized gains and losses,
taxable income and tax loss, and profit and loss, or any item or items thereof,
to each Holder, (ii) the payment of distributions, if any, to Holders, and (iii)
upon liquidation, the final distribution of items of taxable income and expense.
Such procedures shall be set forth in writing and be furnished to the Trust's
accountants. The Trustees may amend the procedures adopted pursuant to this
Section 8.2 from time to time. The Trustees may retain from the net profits of
each Series such amount as they may deem necessary to pay the liabilities and
expenses of that Series.
8.3. POWER TO MODIFY FOREGOING PROCEDURES. Notwithstanding any
of the foregoing provisions of this Article VIII, the Trustees may prescribe, in
their absolute discretion, such other bases and times for determining the net
income and net assets of the Trust and of each Series, the allocation of income
of the Trust and of each Series, the Book Capital Account balance of each
Holder, or the payment of distributions to the Holders as they may deem
necessary or desirable to enable the Trust or a Series to comply with any
provision of the 1940 Act or any order of exemption issued by the Commission or
with the Code.
ARTICLE IX
HOLDERS
9.1. RIGHTS OF HOLDERS. The ownership of the Trust Property
and the right to conduct any business described herein are vested exclusively in
the Trustees, and the Holders shall have no right or title therein other than
the beneficial interest conferred by their Interests and they shall have no
power or right to call for any partition or division of any Trust Property.
The Trust shall be entitled to treat a Holder of record as the holder
in fact and shall not be bound to recognize any equitable or other claim of
interest in such Holder's Interest on the part of any other entity except as may
be otherwise expressly provided by law.
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In addition, the Holders shall have power to vote only with respect to
(a) the election of Trustees as provided in Article II, Section 2.4; (b) the
removal of Trustees as provided in Article II, Section 2.3; (c) any investment
advisory contract as provided in Article IV, Section 4.1; (d) any dissolution of
a Series as provided in Article X, Section 10.2; (e) the amendment of this
Declaration to the extent and as provided in Article X, Section 10.4; (f) any
merger, consolidation or sale of assets as provided in Article X, Section 10.5;
and (g) such additional matters relating to the Trust as may be required or
authorized by law, by this Declaration or the By-Laws or any registration
statement of the Trust filed with the Commission, or as the Trustees may
consider desirable.
9.2. 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 one or more Series (if the meeting relates solely to such Series),
or not less than 10% of the Interests in the Trust (if the meeting relates to
the Trust and not solely to one or more particular Series), 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 New York and within or
without the United States of America on such day and at such time as the
Trustees shall designate. Holders of at least one-third of the Interests in one
or more Series (if the meeting relates solely to such one or more Series) or
Holders of at least one-third of the Interests in the Trust (if the meeting
relates to the Trust and not solely to one or more particular Series), 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, this Declaration or the 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 of the Holders present in a Series or the Trust,
as applicable, either in person or by proxy, at such meeting constitutes the
action of the Holders in such Series or the Trust, as applicable, unless a
greater number of affirmative votes is required by the 1940 Act, other
applicable law, this Declaration or the By-Laws, and except that a plurality of
the total Interests of the Holders present shall elect a Trustee. All or any one
of 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.
9.3. NOTICE OF MEETINGS. Notice of each meeting of Holders,
stating the time, place and purposes of the meeting, shall be given by the
Trustees by mail to each Holder of the Series or the Trust, as the case may be,
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.
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9.4. RECORD DATE FOR MEETINGS, DISTRIBUTIONS, ETC. For the
purpose of determining the Holders who are entitled to notice of and to vote at
any meeting, or to participate in any distribution, or for the purpose of any
other action, the Trustees may from time to time fix a date, not more than 90
days prior to the date of any meeting of Holders or the payment of any
distribution or the taking of any other action, as the case may be, as a record
date for the determination of the Persons to be treated as Holders of the Series
or the Trust, as the case may be, for such purpose.
9.5. PROXIES, ETC. 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. Only Holders on the record date shall be entitled to vote. Each
such Holder shall be entitled to a vote proportionate to its Interest in the
Series or the Trust, as the case may be. When an Interest is held jointly by
several Persons, any one of them may vote at any meeting in person or by proxy
in respect of such Interest, 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. A proxy purporting to be executed by or on behalf of a Holder,
including proxies received via telecopy, shall be deemed valid unless challenged
at or prior to its exercise, and the burden of proving invalidity shall rest on
the challenger.
9.6. REPORTS. As to each Series, the Trustees shall cause to
be prepared and furnished to each Holder thereof, at least annually as of the
end of each Fiscal Year, a report of operations containing a balance sheet and a
statement of income of such Series prepared in conformity with generally
accepted accounting principles and an opinion of an independent public
accountant on such financial statements. The Trustees shall, in addition, with
respect to each Series furnish to each Holder of such Series at least
semi-annually interim reports of operations containing an unaudited balance
sheet as of the end of such period and an unaudited statement of income for the
period from the beginning of the then-current Fiscal Year to the end of such
period.
9.7. HOLDER ACTION BY WRITTEN CONSENT. Any action which may be
taken on behalf of the Trust or any Series by Holders may be taken without a
meeting if Holders holding more than 50% of all Interests entitled to vote (or
such larger proportion thereof as shall be required by any express provision of
this Declaration or of applicable law) 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
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by a sufficient number of Holders to take such action are filed with the records
of the meetings of Holders.
9.8. NOTICES. Any and all communications, including any and
all notices to which any Holder may be entitled, shall be deemed duly served or
given if mailed, postage prepaid, addressed to a Holder at its last known
address as recorded on the register of the Trust or if delivered to a Holder by
courier or by facsimile or other similar electronic mechanism.
ARTICLE X
Duration; Termination; Dissolution;
AMENDMENT; MERGERS; ETC.
10.1. DURATION. Subject to possible dissolution or termination
in accordance with the provisions of Section 10.2 and Section 10.3 hereof,
respectively, the Trust created hereby shall continue until the expiration of 20
years after the death of the last survivor of the initial Trustees named herein
and the following named persons:
<TABLE>
<CAPTION>
Date of
NAME ADDRESS BIRTH
<S> <C> <C>
Emily Shea O'Dette 256 Oldham Street
Pembroke, MA 02359 06/01/94
Gray Tilton Gibson c/o The Fay School
48 Main Street
Southboro, MA 01772-9106 5/27/94
Abigail Foote Coolidge 483 Pleasant Street, No. 9 05/04/94
Belmont, MA 02178
Michelle Muriel Rumery 18 Rio Vista Street 07/11/93
North Billerica, MA 01862
Nicole Catherine Rumery 18 Rio Vista Street 12/21/91
North Billerica, MA 01862
Shelby Sara Wyetzner 8 Oak Brook Lane 10/18/90
Merrick, NY 11566
Amanda Jehan Sher Coolidge 483 Pleasant Street, No. 9 08/16/89
Belmont, MA 02178
Caroline Bolger Cima 11 Beechwood Lane 12/23/88
Scarsdale, NY 10583
Adriana L. Saldana 58 Newell Road 03/22/88
Newton, MA 02166
</TABLE>
10.2. DISSOLUTION. Any Series shall be dissolved (i) by the
affirmative vote of the Holders of not less than two-thirds of the Interests in
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the Series at any meeting of the Holders or by an instrument in writing, without
a meeting, signed by a majority of the Trustees and consented to by the Holders
of not less than two-thirds of such Interests, (ii) by the Trustees by written
notice of dissolution to the Holders of the Interests in the Series, or (iii)
upon the bankruptcy or withdrawal of a Holder of an Interest in the Series,
unless the remaining Holders of Interests in such Series, by majority vote,
agree to continue the Series. The Trust may be dissolved by action of the
Trustees upon the dissolution of the last remaining Series.
10.3. TERMINATION.
(a) Upon an event of dissolution of the Trust or a
Series, unless the Trust or Series is continued in accordance with the proviso
to Section 10.2 above, the Trust or Series, as applicable, shall be terminated
in accordance with the following provisions:
(i) the Trust or Series, as applicable,
shall carry on no business except for the purpose of winding
up its affairs;
(ii) the Trustees shall proceed to wind up
the affairs of the Trust or Series, as applicable, and all of
the powers of the Trustees under this Declaration shall
continue until the affairs of the Trust or Series have been
wound up, including the power to fulfill or discharge the
contracts of the Trust or Series, collect the assets of the
Trust of Series, sell, convey, assign, exchange or otherwise
dispose of all or any part of the Trust Property affected to
one or more Persons at public or private sale for
consideration which may consist in whole or in part of cash,
securities or other property of any kind, discharge or pay
the liabilities of the Trust or Series, and do all other acts
appropriate to liquidate the business of the Trust or Series;
provided that any sale, conveyance, assignment, exchange or
other disposition of all or substantially all the Trust
Property or substantially all of the assets belonging to a
particular Series, other than for cash, shall require
approval of the principal terms of the transaction and the
nature and amount of the consideration by the vote of Holders
holding more than 50% of the total Interests in the Trust or
Series, as applicable; and
(iii) after paying or adequately providing
for the payment of all liabilities of the Trust or of the
Series being terminated, and upon receipt of such releases,
indemnities and refunding agreements as they deem necessary
for their protection, the Trustees shall distribute the
remaining Trust Property of the Trust or Series, as
applicable, in cash or in kind or partly each, among the
Holders according to their respective rights as set forth in
the procedures established pursuant to Section 8.2 hereof.
(b) Upon termination of the Trust or Series and
distribution to the Holders as herein provided, a majority of the Trustees shall
execute and file with the records of the Trust an instrument in writing setting
forth the fact of such termination and distribution. Upon termination of the
Trust, the Trustees shall thereupon be discharged from all further liabilities
and duties hereunder, and the rights and interests of all Holders shall
thereupon cease.
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10.4. AMENDMENT PROCEDURE.
(a) The Trustees may, without any vote of Holders,
amend or otherwise supplement this Declaration by an instrument in writing
executed by a majority of the Trustees, provided that Holders shall have the
right to vote on any amendment (a) which would affect the voting rights of
Holders granted in Article IX, Section 9.1, (b) to this Section 10.4, (c)
required to be approved by Holders by law or by the Trust's registration
statement filed with the Commission, or (d) submitted to them by the Trustees.
Any amendment submitted to Holders which the Trustees determine would affect the
Holders of certain but not all Series shall be authorized by vote of the Holders
of such Series affected and no vote shall be required of Holders of a Series not
affected. Any amendment applicable to the Trust as a whole, unless otherwise
required by law or by this Declaration or the By-Laws, shall be authorized by
vote of the Holders of the Trust. Notwithstanding anything else herein, any
amendment to Article V which would have the effect of reducing the
indemnification and other rights provided thereby and any repeal or amendment of
this sentence shall each require the affirmative vote of the Holders of
two-thirds of the Interests entitled to vote thereon.
(b) No amendment may be made under Section 10.4(a)
hereof which would change any rights with respect to any Interest by reducing
the amount payable thereon upon liquidation of the Trust or any Series or by
diminishing or eliminating any voting rights pertaining thereto, except with the
vote or consent of Holders of two-thirds of all Interests which would be so
affected by such amendment.
(c) A certification in recordable form executed by a
majority of the Trustees setting forth an amendment and reciting that it was
duly adopted by the Holders or by the Trustees as aforesaid or a copy of the
Declaration, as amended, in recordable form, and executed by a majority of the
Trustees, shall be conclusive evidence of such amendment when filed with the
records of the Trust.
Notwithstanding any other provision hereof, until such time as
Interests are first sold, this Declaration may be terminated or amended in any
respect by the affirmative vote of a majority of the Trustees at any meeting of
Trustees or by an instrument executed by a majority of the Trustees.
10.5. MERGER, CONSOLIDATION AND SALE OF ASSETS. The Trust or
any Series may merge or consolidate with any other corporation, association,
trust or other organization or may sell, lease or exchange all or substantially
all of the Trust Property, or assets belonging to such Series, as applicable,
including good will, upon such terms and conditions and for such consideration
when and as authorized at any meeting of Holders called for such purpose by
Majority Interests Vote of Interests in the Series affected by such action, or
by an instrument in writing without a meeting, consented to by Holders of not
less than a majority of the Interests in the Series affected by such action, and
any such merger, consolidation, sale, lease or exchange shall be deemed for all
purposes to have been accomplished under and pursuant to the law of the State of
New York, provided however that no such vote shall be required where by
reorganization,
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purchase of assets or otherwise, the Trust or any affected Series is the
surviving entity.
10.6. INCORPORATION. Upon a Majority Interests Vote, the
Trustees may cause to be organized or assist in organizing a corporation or
corporations under the law of any jurisdiction or a trust, partnership,
association or other organization to take over the Trust Property or to carry on
any business in which the Trust directly or indirectly has any interest, and to
sell, convey and transfer the Trust Property to any such corporation, trust,
partnership, association or other organization in exchange for the equity
interests thereof or otherwise, and to lend money to, subscribe for the equity
interests of, and enter into any contract with any such corporation, trust,
partnership, association or other organization, or any corporation, trust,
partnership, association or other organization in which the Trust holds or is
about to acquire equity interests. The Trustees may also cause a merger or
consolidation between the Trust or any successor thereto and any such
corporation, trust, partnership, association or other organization if and to the
extent permitted by law. Nothing contained herein shall be construed as
requiring approval of the Holders for the Trustees to organize or assist in
organizing one or more corporations, trusts, partnerships, associations or other
organizations and selling, conveying or transferring a portion of the Trust
Property to one or more of such organizations or entities.
ARTICLE XI
MISCELLANEOUS
11.1. CERTIFICATE OF DESIGNATION; AGENT FOR SERVICE OF
PROCESS. If required by New York law, the Trust shall file, with the Department
of State of the State of New York, a certificate, in the name of the Trust and
executed by an officer of the Trust, designating the Secretary of State of the
State of New York as an agent upon whom process in any action or proceeding
against the Trust or any Series may be served.
11.2. GOVERNING LAW. This Declaration is executed by the
Trustees and delivered in the State of New York and with reference to the law
thereof, and the rights of all parties and the validity and construction of
every provision hereof shall be subject to and construed in accordance with the
law of the State of New York and reference shall be specifically made to the
trust law of the State of New York as to the construction of matters not
specifically covered herein or as to which an ambiguity exists.
11.3. COUNTERPARTS. This Declaration may be simultaneously
executed in several counterparts, each of which shall be deemed to be an
original, and such counterparts, together, shall constitute one and the same
instrument, which shall be sufficiently evidenced by any one such original
counterpart.
11.4. RELIANCE BY THIRD PARTIES. Any certificate executed by
an individual who, according to the records of the Trust or of any recording
office in which this Declaration may be recorded, appears to be a Trustee
hereunder, certifying to: (a) the number or identity of Trustees or Holders, (b)
the due authorization of the execution of any instrument or writing, (c) the
form of any
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vote passed at a meeting of Trustees or Holders, (d) the fact that the number of
Trustees or Holders present at any meeting or executing any written instrument
satisfies the requirements of this Declaration, (e) the form of any By-Laws
adopted by or the identity of any officer elected by the Trustees, or (f) the
existence of any fact or facts which in any manner relate to the affairs of the
Trust, shall be conclusive evidence as to the matters so certified in favor of
any Person dealing with the Trustees.
11.5. PROVISIONS IN CONFLICT WITH LAW OR REGULATIONS.
(a) The provisions of this Declaration are severable,
and if the Trustees shall determine, with the advice of counsel, that any of
such provisions is in conflict with the 1940 Act, or with other applicable law
and regulations, the conflicting provision shall be deemed never to have
constituted a part of this Declaration; provided, however, that such
determination shall not affect any of the remaining provisions of this
Declaration or render invalid or improper any action taken or omitted prior to
such determination.
(b) If any provision of this Declaration shall be
held invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall attach only to such provision in such jurisdiction and
shall not in any manner affect such provision in any other jurisdiction or any
other provision of this Declaration in any jurisdiction.
IN WITNESS WHEREOF, the undersigned have executed this
Declaration of Trust of The Series Portfolio as of the day and year first above
written.
/s/James B. Craver
As Trustee and not individually
/s/Thomas M. Lenz
As Trustee and not individually
/s/Andres E. Saldana
As Trustee and not individually
JPM275
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SCHEDULE A
The Series Portfolio
INITIAL SERIES
The Asia Growth Portfolio
The Japan Equity Portfolio
The European Equity Portfolio
The China Portfolio
The India Portfolio
The Latin American Equity 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
BY-LAWS
OF
EACH HUB TRUST LISTED ON SCHEDULE I
AND
EACH SPOKE TRUST LISTED ON SCHEDULE II
ARTICLE I
DEFINITIONS
Each Trust listed on Schedule I is referred to in these By-Laws as a
"HUB TRUST".* Each Trust listed on Schedule II is referred to in these By-Laws
as a "SPOKE TRUST".*
In the case of each Hub Trust and each Spoke 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
or II, as amended from time to time. In the case of each Spoke Trust, the term
"Holder" has the meaning given the term "Shareholder" in the Declaration.
ARTICLE II
OFFICES
SECTION 1. PRINCIPAL OFFICE. In the case of each Hub 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
Spoke 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.
- --------
*"Hub" and "Spoke" are service marks of Signature
Financial Group, Inc.
1
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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 Hub Trust or 10% of the Shares issued and
outstanding and entitled to vote thereat in the case of each Spoke 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 Hub
Trust only without, the United States of America on such day and at such time as
the Trustees shall designate. Holders of one third of the Interests in the case
of each Hub Trust or one third of the Shares issued and outstanding and entitled
to vote thereat in the case of each Spoke 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 Hub Trust, or 50% of the total Shares issued and
outstanding and entitled to vote thereat in the case of each Spoke 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 Spoke 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 Spoke
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 Spoke Trust, to vote on such matter, or hold separate
meetings of Holders of each of the individual series to vote
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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 outstanding Interests or Shares, as the case may be, 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 ByLaws and (iii) a quorum consisting of the Holders of one third of all
Interests or Shares, as the,case may be, 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 Spoke 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, 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 Spoke 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
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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 Hub 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 Spoke Trust, (i) only Holders on the record
date shall be entitled to vote; (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; (iii) Shares shall be voted by
individual series 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 (iv) at any meeting
of Holders of the Trust or of any series of the Trust, 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 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
4
<PAGE>
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 Hub
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 Spoke 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
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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.
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
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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
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
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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.
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
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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.
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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 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.
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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 the
Trust and the net asset value of the Trust or, in the case of each
Spoke 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.
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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 Hub 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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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 Hub Trusts and the Spoke
Trusts immediately prior to such addition.
In the case of each Hub 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 Spoke 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.
JPM345
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SCHEDULE I
HUB TRUSTS
STATE OF DATE OF DATE
ORGANIZA- DECLARA- BY-LAWS
TRUST TION TION ADOPTED
The Treasury Money Market New York 11/4/92 10/13/94
Portfolio
The Money Market Portfolio New York 1/29/93 10/13/94
The Tax Exempt Money Market New York 1/29/93 10/13/94
Portfolio
The Short Term Bond Portfolio New York 1/29/93 10/13/94
The U.S. Fixed Income Portfolio New York 1/29/93 10/13/94
The Tax Exempt Bond Portfolio New York 1/29/93 10/13/94
The Selected U.S. Equity Portfolio New York 1/29/93 10/13/94
The U.S. Stock Portfolio New York 1/29/93 10/13/94
The U.S. Small Company Portfolio New York 1/29/93 10/13/94
The Non-U.S. Equity Portfolio New York 1/29/93 10/13/94
The Diversified Portfolio New York 1/29/93 10/13/94
The Non-U.S. Fixed Income New York 6/13/93 10/13/94
Portfolio
The Emerging Markets Equity New York 6/13/93 10/13/94
Portfolio
The New York Total Return Bond New York 6/13/93 10/13/94
Portfolio (name changed)
The Series Portfolio New York 6/14/94 10/13/94
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SCHEDULE II
SPOKE TRUSTS
STATE OF DATE OF DATE
ORGANIZATION DECLARA- BY-LAWS
TRUST TION ADOPTED
The Pierpont Funds Massachusetts 11/4/92 10/13/94
The JPM Institutional
Funds Massachusetts 11/4/92 10/13/94
The JPM Institutional
Plus Funds Massachusetts 11/4/92 10/13/94
15
THE SERIES PORTFOLIO
INVESTMENT ADVISORY AGREEMENT
Agreement, made this 21st day of March, 1995, between The Series
Portfolio, a master trust organized under the law of the State of New York (the
"Series Portfolio") and Morgan Guaranty Trust Company of New York, a New York
trust company authorized to conduct a general banking business (the "Advisor"),
WHEREAS, the Series Portfolio is an open-end diversified management
investment company registered under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS, the Series Portfolio desires to retain the Advisor to render
investment advisory services to the Series Portfolio's existing separate and
distinct subtrusts or series (each, a "Portfolio") and other future Portfolios
as agreed to from time to time between the Series Portfolio and the Advisor, and
the Advisor is willing to render such services;
NOW, THEREFORE, this Agreement
W I T N E S S E T H:
that in consideration of the premises and mutual promises hereinafter set forth,
the parties hereto agree as follows:
1. The Series Portfolio hereby appoints the Advisor to act as
investment adviser to the Portfolios for the period and on the terms set forth
in this Agreement. The Advisor accepts such appointment and agrees to render the
services herein set forth, for the compensation herein provided.
2. Subject to the general supervision of the Trustees of the
Series Portfolio, the Advisor shall manage the investment operations of each
Portfolio and the composition of the Portfolio's holdings of securities and
investments, including cash, the purchase, retention and disposition thereof and
agreements relating thereto, in accordance with the Portfolio's investment
objectives and policies as stated in the Series Portfolio's registration
statement on Form N-1A, as such may be amended from time to time (the
"Registration Statement"), with respect to the Portfolio, under the Investment
Company Act of 1940, as amended (the "1940 Act"), and subject to the following
understandings:
(a) the Advisor shall furnish a continuous investment program
for each Portfolio and determine from time to time what investments or
securities will be purchased, retained, sold or lent by the Portfolio,
and what portion of the assets will be invested or held uninvested as
cash;
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(b) the Advisor shall use the same skill and care in the
management of each Portfolio's investments as it uses in the
administration of other accounts for which it has investment
responsibility as agent;
(c) the Advisor, in the performance of its duties and
obligations under this Agreement, shall act in conformity with the
Series Portfolio's Declaration of Trust (such Declaration of Trust, as
presently in effect and as amended from time to time, is herein called
the "Declaration of Trust"), the Series Portfolio's By-Laws (such
By-Laws, as presently in effect and as amended from time to time, are
herein called the "By-Laws") and the Registration Statement and with
the instructions and directions of the Trustees of the Series Portfolio
and will conform to and comply with the requirements of the 1940 Act
and all other applicable federal and state laws and regulations;
(d) the Advisor shall determine the securities to be
purchased, sold or lent by each Portfolio and as agent for the
Portfolio will effect portfolio transactions pursuant to its
determinations either directly with the issuer or with any broker
and/or dealer in such securities; in placing orders with brokers and/or
dealers the Advisor intends to seek best price and execution for
purchases and sales; the Advisor shall also determine whether the
Portfolio shall enter into repurchase or reverse repurchase agreements;
On occasions when the Advisor deems the purchase or sale of a
security to be in the best interest of one of the Portfolios as well as
other customers of the Advisor, including any other of the Portfolios,
the Advisor may, to the extent permitted by applicable laws and
regulations, but shall not be obligated to, aggregate the securities to
be so sold or purchased in order to obtain best execution, including
lower brokerage commissions, if applicable. In such event, allocation
of the securities so purchased or sold, as well as the expenses
incurred in the transaction, will be made by the Advisor in the manner
it considers to be the most equitable and consistent with its fiduciary
obligations to the Portfolio;
(e) the Advisor shall maintain books and records with respect
to each Portfolio's securities transactions and shall render to the
Series Portfolio's Trustees such periodic and special reports as the
Trustees may reasonably request; and
(f) the investment management services of the Advisor to any
of the Portfolios under this Agreement are not to be deemed exclusive,
and the Advisor shall be free to render similar services to others.
3. The Series Portfolio has delivered copies of each of the
following documents to the Advisor and will promptly notify and deliver to it
all future amendments and supplements, if any:
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(a) The Declaration of Trust;
(b) The By-Laws;
(c) Certified resolutions of the Trustees of the Series
Portfolio authorizing the appointment of the Advisor and approving the
form of this Agreement;
(d) The Series Portfolio's Notification of Registration on
Form N-8A and Registration Statement as filed with the Securities and
Exchange Commission (the "Commission").
4. The Advisor shall keep each Portfolio's books and records
required to be maintained by it pursuant to paragraph 2(e). The Advisor agrees
that all records which it maintains for any Portfolio are the property of the
Series Portfolio and it will promptly surrender any of such records to the
Series Portfolio upon the Series Portfolio's request. The Advisor further agrees
to preserve for the periods prescribed by Rule 31a-2 of the Commission under the
1940 Act any such records as are required to be maintained by the Advisor with
respect to any Portfolio by Rule 31a-1 of the Commission under the 1940 Act.
5. During the term of this Agreement the Advisor will pay all
expenses incurred by it in connection with its activities under this Agreement,
other than the cost of securities and investments purchased for a Portfolio
(including taxes and brokerage commissions, if any).
6. For the services provided and the expenses borne pursuant
to this Agreement, each Portfolio will pay to the Advisor as full compensation
therefor a fee at an annual rate set forth on Schedule A attached hereto. Such
fee will be computed daily and payable as agreed by the Series Portfolio and the
Advisor, but no more frequently than monthly.
7. The Advisor shall not be liable for any error of judgment
or mistake of law or for any loss suffered by any Portfolio in connection with
the matters to which this Agreement relates, except a loss resulting from a
breach of fiduciary duty with respect to the receipt of compensation for
services (in which case any award of damages shall be limited to the period and
the amount set forth in Section 36(b)(3) of the 1940 Act) or a loss resulting
from willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard by it of its obligations
and duties under this Agreement.
8. This Agreement shall continue in effect with respect to
each Portfolio for a period of more than two years from the Portfolio's
commencement of investment operations only so long as such continuance is
specifically approved at least annually in conformity with the requirements of
the 1940 Act; provided,
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however, that this Agreement may be terminated with respect to each Portfolio at
any time, without the payment of any penalty, by vote of a majority of all the
Trustees of the Series Portfolio or by vote of a majority of the outstanding
voting securities of that Portfolio on 60 days' written notice to the Advisor,
or by the Advisor at any time, without the payment of any penalty, on 90 days'
written notice to the Series Portfolio. This Agreement will automatically and
immediately terminate in the event of its "assignment" (as defined in the 1940
Act).
9. The Advisor shall for all purposes herein be deemed to be
an independent contractor and shall, unless otherwise expressly provided herein
or authorized by the Trustees of the Series Portfolio from time to time, have no
authority to act for or represent the Series Portfolio in any way or otherwise
be deemed an agent of the Portfolios.
10. This Agreement may be amended, with respect to any
Portfolio, by mutual consent, but the consent of the Series Portfolio must be
approved (a) by vote of a majority of those Trustees of the Series Portfolio who
are not parties to this Agreement or interested persons of any such party, cast
in person at a meeting called for the purpose of voting on such amendment, and
(b) by vote of a majority of the outstanding voting securities of the Portfolio.
11. Notices of any kind to be given to the Advisor by the
Series Portfolio shall be in writing and shall be duly given if mailed or
delivered to the Advisor at 9 West 57th Street, New York, New York 10019,
Attention: Managing Director, Funds Management Division, or at such other
address or to such other individual as shall be specified by the Advisor to the
Series Portfolio. Notices of any kind to be given to the Series Portfolio by the
Advisor shall be in writing and shall be duly given if mailed or delivered to
the Series Portfolio c/o Signature Financial Group (Cayman) Limited at P.O. Box
268, Elizabethan Square, 2nd Floor, George Town, Grand Cayman BWI or at such
other address or to such other individual as shall be specified by the Series
Portfolio to the Advisor.
12. The Trustees of the Series Portfolio have authorized the
execution of this Agreement in their capacity as Trustees and not individually,
and the Advisor agrees that neither the Trustees nor any officer or employee of
the Series Portfolio nor any Portfolio's investors nor any representative or
agent of the Series Portfolio or of the Portfolio(s) shall be personally liable
upon, or shall resort be had to their private property for the satisfaction of,
obligations given, executed or delivered on behalf of or by the Series Portfolio
or the Portfolio(s), that such Trustees, officers, employees, investors,
representatives and agents shall not be personally liable hereunder, and that it
shall look solely to the trust property for the satisfaction of any claim
hereunder.
13. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original.
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14. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated below as of the 21st day
of March, 1995.
THE SERIES PORTFOLIO
By:
/s/Susan Jakuboski
Assistant Secretary
and Assistant Treasurer
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK
By:
/s/Kathleen H. Tripp
Vice President
5
<PAGE>
SCHEDULE A
The Series Portfolio
Investment Advisory Fees
THE ASIA GROWTH PORTFOLIO
.80% of the average daily net assets of the Portfolio
THE JAPAN EQUITY PORTFOLIO
.65% of the average daily net assets of the Portfolio
THE EUROPEAN EQUITY PORTFOLIO
.65% of the average daily net assets of the Portfolio
Approved July 7, 1994
THE SERIES PORTFOLIO
ADMINISTRATION AGREEMENT
ADMINISTRATION AGREEMENT, dated as of March 21, 1995 by and between The
Series Portfolio, a master trust organized under the laws of the State of
New York (the "Series Portfolio"), and Signature Broker-Dealer Services,
Inc., a Delaware corporation (the "Administrator").
W I T N E S S E T H:
WHEREAS, the Series Portfolio is engaged in business as an open-end
investment company registered under the Investment Company Act of 1940
(collectively with the rules and regulations promulgated thereunder, the "1940
Act");
WHEREAS, the Series Portfolio wishes to engage the Administrator to
provide certain administrative and management services, and the Administrator is
willing to provide such administrative and management services to the Series
Portfolios's existing separate and distinct substrusts or series (each, a
"Portfolio") and other future Portfolios as agreed to from time to time between
the Series Portfolio and the Administrator, on the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and agreements of
the parties hereto as herein set forth, the parties covenant and agree as
follows:
1. Duties of the Administrator. Subject to the general direction and
control of the Board of Trustees of the Series Portfolio, the Administrator
shall perform such administrative and management services as may from time to
time be reasonably requested by the Series Portfolio, which shall include
without limitation: (a) providing office space, equipment and clerical personnel
necessary for maintaining the organization of the Series Portfolio and for
performing the administrative and management functions herein set forth; (b)
arranging, if desired by the Series Portfolio, for Directors, officers and
employees of the Administrator to serve as Trustees, officers or agents of the
Series Portfolio if duly elected or appointed to such positions and subject to
their individual consent and to any limitations imposed by law; (c) preparing
and, if applicable, filing all documents required for compliance by the Series
Portfolio with applicable laws and regulations, including registration
statements, registration fee filings, semi-annual and annual reports to
investors, proxy statements and tax returns; (d) preparation of agendas and
supporting documents for and minutes of meetings of Trustees, committees of
Trustees and investors; and (e) maintaining books and records of the Series
Portfolio. In the performance of its duties under this
<PAGE>
Agreement, the Administrator will comply with the provisions of the
Declaration of Trust and By-Laws of the Series Portfolio, and the stated
investment objective, policies and restrictions of the Portfolios, and will use
its best efforts to safeguard and promote the welfare of the Series Portfolio,
and to comply with other policies which the Board of Trustees may from time to
time determine. Notwithstanding the foregoing, the Administrator shall not be
deemed to have assumed any duties with respect to, and shall not be responsible
for, the management of the Series Portfolios' assets or the rendering of
investment advice and supervision with respect thereto, nor shall the
Administrator be deemed to have assumed or have any responsibility with respect
to functions specifically assumed by any transfer agent or custodian of the
Series Portfolio.
2. Books and Records. In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Administrator hereby agrees that all records which it
maintains for the Series Portfolio and/or the Portfolios are the property of the
Series Portfolio and further agrees to surrender promptly to the Series
Portfolio any such records upon the Series Portfolio's request.
3. Allocation of Charges and Expenses. The Administrator shall pay the
entire salaries and wages of all of the Series Portfolio's Trustees, officers
and agents who devote part or all of their time to the affairs of the
Administrator or its affiliates, and the wages and salaries of such persons
shall not be deemed to be expenses incurred by the Series Portfolio for purposes
of this Section 3. Except as provided in the foregoing sentence, the
Administrator shall not pay other expenses relating to the Series Portfolio
including, without limitation, compensation of Trustees not affiliated with the
Administrator; governmental fees; interest charges; taxes; membership dues in
the Investment Company Institute allocable to the Portfolios; fees and expenses
of the Series Portfolio's independent auditors, of legal counsel and of any
transfer agent or registrar of the Series Portfolio or the Portfolios; expenses
of preparing, printing and mailing reports, notices, proxy statements and
reports to investors and governmental officers and commissions; expenses of
preparing and mailing agendas and supporting documents for meetings of Trustees
and committees of Trustees; expenses connected with the execution, recording and
settlement of security transactions; insurance premiums; fees and expenses of
the custodian(s) of the Portfolios for all services to the Portfolios, including
safekeeping of funds and securities and maintaining required books and accounts;
expenses of calculating the net asset value of interests of the Portfolios;
expenses of meetings of investors in the Portfolios; and expenses relating to
the issuance, registration and qualification of interests in the Portfolios.
<PAGE>
4. Compensation of Administrator. For the services to be rendered and the
facilities to be provided by the Administrator hereunder, the Administrator will
receive a fee from the Series Portfolio as agreed by the Administrator and the
Series Portfolio from time to time as set forth on Schedule A attached hereto.
This fee will be computed daily and will be payable as agreed by the Series
Portfolio and the Administrator, but no more frequently than monthly.
5. Limitation of Liability of the Administrator. The Administrator shall
not be liable for any error of judgment or mistake of law or for any act or
omission in the administration or management of the Series Portfolio or the
performance of its duties hereunder, except for wilful misfeasance, bad faith
or gross negligence in the performance of its duties, or by reason of the
reckless disregard of its obligations and duties hereunder. As used in this
Section 5, the term "Administrator" shall include Signature Broker-Dealer
Services, Inc. and/or any of its affiliates and the Directors, officers and
employees of Signature Broker-Dealer Services, Inc. and/or of its affiliates.
6. Activities of the Administrator. The services of the Administrator
to the Series Portfolio are not to be deemed to be exclusive, the Administrator
being free to render administrative and/or other services to other parties. It
is understood that Trustees and officers of the Series Portfolio and the
investors in the Portfolios are or may become interested in the Administrator
and/or any of its affiliates, as Directors, officers, employees, or otherwise,
and that Directors, officers and employees of the Administrator and/or any of
its affiliates are or may become similarly interested in the Series Portfolio
and/or the Portfolios and that the Administrator and/or any of its affiliates
may be or become interested in the Series Portfolio or the Portfolios as an
investor or otherwise.
7. Termination. This Agreement may be terminated at any time with
respect to a Portfolio, without the payment of any penalty, by the Board of
Trustees of the Series Portfolio or by the Administrator, in each case on not
more than 60 days' nor less than 30 days' written notice to the other party.
8. Subcontracting by the Administrator. The Administrator may subcontract
for the performance of its obligations hereunder with any one or more persons;
provided, however, that the Administrator shall not enter into any such
subcontract unless the Trustees of the Series Portfolio shall have approved such
subcontract and found the subcontracting party to be qualified to perform the
obligations sought to be subcontracted; and provided, further, that, unless the
Series Portfolio otherwise expressly agrees in writing, the Administrator shall
be as fully responsible to the Series Portfolio for
<PAGE>
the acts and omissions of any subcontractor as it would be for its own acts
or omissions.
9. Further Actions. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
10. Amendments. This Agreement may be amended only by mutual written
consent.
11. Miscellaneous. This agreement embodies the entire agreement and
understanding between the parties hereto and supersedes all prior agreements and
understandings relating to the subject matter hereof. The captions in this
Agreement are included for convenience of reference only and in no way define or
delimit any of the provisions hereof or otherwise affect their construction or
effect. Should any part of this Agreement be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement shall not
be affected thereby. This Agreement shall be binding and shall inure to the
benefit of the parties hereto and their respective successors, to the extent
permitted by law.
12. Notice. Any notice or other communication required to be given pursuant
to this Agreement shall be deemed duly given if delivered or mailed by
registered mail, postage prepaid, (1) to the Administrator at Signature
Broker-Dealer Services, Inc., 6 St. James Avenue, Suite 900, Boston,
Massachusetts 02116; or (2) to the Series Portfolio c/o Signature Financial
Group (Cayman) Limited at P.O. Box 268, Elizabethan Square, 2nd Floor, George
Town, Grand Cayman BWI, Attention: Treasurer.
13. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written. The
undersigned officer of the Series Portfolio has executed this Agreement not
individually, but as an officer of the Series Portfolio under the Series
Portfolio's Declaration of Trust, dated June 24, 1994, and the obligations of
this Agreement are not binding upon any of the Trustees of the Series Portfolio
or the investors in the Portfolios individually, but bind only the
trust estate.
THE SERIES PORTFOLIO
By /s/ Susan Jakuboski
Assistant Treasurer
Assistant Secretary
SIGNATURE BROKER-DEALER SERVICES, INC.
By /s/ Linwood C. Downs
Treasurer
<PAGE>
SCHEDULE A
ADMINISTRATION FEES
PORTFOLIOS LISTED ON SCHEDULE B (THE "MASTER PORTFOLIOS")
The annual administration fee charged to and payable by each Master Portfolio
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 registered
investment companies (collectively the "Master Portfolios") and in accordance
with the following annual schedule:
0.03% on the first $7 billion of the Master Portfolios'
aggregate average daily net assets; and
0.01% of the Master Portfolios' aggregate average daily net
assets in excess of
$7 billion
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 Pierpont Funds, The JPM Institutional Funds and
The JPM Advisor Funds.
Approved: December 26, 1995
Effective December 29, 1995
(supersedes schedule approved 7/7/94 for The Series
Portfolio, 3/9/94 for The New York Total Return Bond
Portfolio and 9/24/93 for all other Master Portfolios)
EACH MASTER PORTFOLIO
/s/ Matthew Healey
Matthew Healey, Chairman and
Chief Executive Officer
SIGNATURE BROKER-DEALER SERVICES, INC.
/s/ Linwood C. Downs
Name: Linwood C. Downs
Title: Treasurer
<PAGE>
SCHEDULE B
MASTER PORTFOLIOS
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 Non-U.S. Fixed Income Portfolio
The Emerging Markets Equity Portfolio
The New York Total Return Bond 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
THE SERIES PORTFOLIO
ADMINISTRATIVE SERVICES AGREEMENT
ADMINISTRATIVE SERVICES AGREEMENT, dated as of December 29, 1995, by and
between The Series Series Portfolio, a master trust organized under the laws of
the State of New York (the "Series Portfolio"), and Morgan Guaranty Trust
Company of New York, a New York trust company ("Morgan").
W I T N E S S E T H:
WHEREAS, the Series Portfolio is engaged in business as an open-end
investment company registered under the Investment Company Act of 1940
(collectively with the rules and regulations promulgated thereunder, the "1940
Act");
WHEREAS, the Series Portfolio wishes to engage Morgan to provide
certain financial, fund accounting oversight and administrative services to the
Series Portfolio's existing separate and distrinct subtrust or series and other
future series (each a "Portfolio"), as agreed to from time to time between the
Series Portfolio and Morgan, and Morgan is willing to provide such services for
the Series Portfolio, on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and agreements of
the parties hereto as herein set forth, the parties covenant and agree as
follows:
1. Duties of Morgan. Subject to the general direction and control of
the Board of Trustees of the Series Portfolio, Morgan shall perform such
financial, fund accounting oversight, administrative and related services as may
from time to time be reasonably requested by the Series Portfolio, which shall
include without limitation: a) preparing each Portfolio's tax returns and
financial statements and other financial reports for review by the Series
Portfolio's independent auditors; b) coordinating each Portfolio's annual
audit; c) developing each Portfolio's budget and establishing its rate of
expense accrual; d) preparing the tax information necessary for investors in
each Portfolio including the calculation of the allocated amount of income
attributable to each investor, if any, which has been subject to withholding or
other tax assessments or other governmental charges by non-United States tax
jurisdictions; e) calculating the daily partnership allocation for each
Portfolio from the financial information furnished to it by the Series
Portfolio's custodian; f) overseeing the Series Portfolio's custodian and
transfer agent, including monitoring the daily income accrual and collection,
expense accrual and disbursement, and computation of each Portfolio's net asset
value; verifying the calculation of performance data for each Portfolio;
monitoring the trade reporting for each Portfolio's portfolio securities
transactions; monitoring the pricing of each Portfolio's portfolio securities
and compliance with amortized cost procedures, if applicable; and monitoring the
computation of each Portfolio's income and capital gains and confirming that
they have been properly allocated to the Portfolio's holders of record; and g)
providing such other related services as the Series Portfolio may reasonably
request, to the extent permitted by applicable law. Morgan shall provide all
personnel and facilities necessary in order for it to provide the services
contemplated by this paragraph.
Morgan assumes no responsibilities under this Agreement other than to
render the services called for hereunder, on the terms and conditions provided
herein. In the performance of its duties under this Agreement, Morgan will
comply with the provisions of the Declaration of Trust and By-Laws of the Series
Portfolio and each Portfolio's stated investment objective, policies and
restrictions, and will use its best efforts to safeguard and promote the welfare
of the Series Portfolio and each Portfolio, and to comply with other policies
which the Board of Trustees may from time to time determine.
<PAGE>
2. Books and Records. In compliance with the requirements of Rule 31a-3
under the 1940 Act, Morgan hereby agrees that all records which it maintains for
the Portfolios are the property of the Series Portfolio and further agrees
to surrender promptly to the Series Portfolio any such records upon the Series
Portfolio's request.
3. Liaison with and Opinion of Independent Public Accountants.
3.1. Morgan shall act as liaison with the Series Portfolio's independent
public accountants and shall provide, upon request, account analyses, fiscal
year summaries and other audit-related schedules. Morgan shall take all
reasonable action in the performance of its obligations under this Agreement to
assure that the necessary information is made available to such accountants for
the expression of their opinion, as such may be required by the Series Portfolio
from time to time.
3.2. Morgan shall take all reasonable action, as the Series Portfolio may
from time to time request, to obtain from year to year favorable opinions from
the Series Portfolio's independent public accountants with respect to its
activities hereunder in connection with the preparation of the Series
Portfolio's registration statement on Form N-1A, reports on Form N-SAR or other
periodic reports to the Securities and Exchange Commission and with respect to
any other requirements of such Commission.
4. Reports to Portfolio by Independent Public Accountants. Morgan
shall provide the Series Portfolio, at such times as the Series Portfolio may
reasonably require, with reports by independent public accountants on the
accounting system and internal accounting control relating to the services
provided by Morgan under Sections 1(d) and 1(e) of this Agreement; such reports,
shall be of sufficient scope and in sufficient detail, as may reasonably be
required by the Series Portfolio 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.
5. Allocation of Charges and Expenses. Morgan shall bear all of the
expenses incurred in connection with carrying out its duties hereunder. Each
Portfolio shall pay the usual, customary or extraordinary expenses incurred by
the Portfolio or, as appropriate, the Series Portfolio and allocable to the
Portfolio, including without limitation compensation of Trustees; federal and
state governmental fees; interest charges; taxes; membership dues in the
Investment Company Institute; fees and expenses of the Series Portfolio's
administrator, Morgan pursuant to the Series Portfolio's Investment Advisory
Agreement and this Agreement, Pierpont Group, Inc. pursuant to the Portfolio
Fund Services Agreement, the Series Portfolio's custodian for all services to
the Portfolio (including safekeeping of funds and securities and maintaining
required books and accounts), independent auditors, legal counsel and of any
transfer agent, registrar or dividend disbursing agent of the Portfolio;
brokerage expenses; expenses of preparing, printing and mailing reports,
notices, proxy statements and reports to investors and governmental offices and
commissions; expenses of preparing and mailing agendas and supporting documents
for meetings of Trustees and committees of Trustees; insurance premiums;
expenses of calculating the net asset value of interests in the Portfolio;
expenses of meetings of investors in the Portfolio; expenses relating to
the issuance of interests in the Portfolio; and litigation and
indemnification expenses.
6. Compensation of Morgan. For the services to be rendered and the expenses
to be borne by Morgan hereunder, each Portfolio shall pay Morgan a fee at
an annual rate as set forth on Schedule A attached hereto. This fee will be
computed daily and payable as agreed by the Series Portfolio and Morgan, but no
more frequently than monthly.
<PAGE>
7. Limitation of Liability of Morgan. Morgan shall not be liable for any
error of judgment or mistake of law or for any act or omission in the
performance of its duties hereunder, except for willful misfeasance, bad faith
or gross negligence in the performance of its duties, or by reason of the
reckless disregard of its obligations and duties hereunder.
8. Activities of Morgan. The services of Morgan to the Series Portfolio are
not to be deemed to be exclusive, Morgan being free to engage in any other
business or to render services of any kind to any other corporation, firm,
individual or association.
9. Termination. This Agreement may be terminated at any time, without the
payment of any penalty, by the Board of Trustees of the Series Portfolio or by
Morgan, in each case on not more than 60 days' nor less than 30 days' written
notice to the other party.
10. Subcontracting by Morgan. Morgan may subcontract for the performance of
its obligations hereunder with any one or more persons; provided, however, that,
unless the Series Portfolio otherwise expressly agrees in writing, Morgan shall
be as fully responsible to the Series Portfolio for the acts and omissions of
any subcontractor as it would be for its own acts or omissions.
11. Further Actions. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
12. Amendments. This Agreement may be amended only by mutual written
consent.
13. Miscellaneous. This Agreement embodies the entire agreement and
understanding between the parties hereto and supersedes all prior agreements,
terminations, extensions or other understandings relating to Morgan's provision
of financial, fund accounting oversight or administrative services for the
Series Portfolio. The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. Should any part of this Agreement
be held or made invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby. This Agreement shall
be binding and shall inure to the benefit of the parties hereto and their
respective successors, to the extent permitted by law.
14. Notice. Any notice or other communication required to be given pursuant
to this Agreement shall be deemed duly given if delivered or mailed by
registered mail, postage prepaid (1) to Morgan at Morgan Guaranty Trust Company
of New York, 522 Fifth Avenue, New York, New York 10036, Attention: Managing
Director, Funds Management Division, or (2) to the Series Portfolio c/o
Signature Financial Group (Grand Cayman), Ltd. at P.O. Box 2494, Elizabethan
Square, 2nd Floor, George Town, Grand Cayman BWI, Attention: Treasurer.
15. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered in their names and on their behalf by the undersigned,
thereunto duly authorized, all as of the day and year first above written. The
undersigned officer of the Series Portfolio has executed this Agreement not
individually, but as an officer of the
<PAGE>
Portfolio under the Portfolio's Declaration of Trust, dated
June 24, 1994, and the obligations of this Agreement are not binding upon any of
the Trustees or investors of the Series Portfolio individually, but bind only
the trust estate.
THE SERIES PORTFOLIO
By /s/ Matthew Healey, Chairman and
Chief Executive Officer
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
By /s/ Kathleen H. Tripp, Vice President
<PAGE>
SCHEDULE A
ADMINISTRATIVE SERVICES FEES
PORTFOLIOS LISTED ON SCHEDULE B (THE "MASTER PORTFOLIOS")
The financial, fund accounting oversight and administrative services
fee charged to and payable by each Master Portfolio 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:
0.06% on 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
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 Pierpont Funds, The JPM Institutional Funds, The
JPM Advisor Funds and other investors in the Master Portfolios for which Morgan
provides similar services.
Approved:December 26, 1995
Effective December 29, 1995
<PAGE>
SCHEDULE B
MASTER PORTFOLIOS
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. 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 New York Total Return Bond 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
Revised December, 1995
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE ASIA GROWTH
PORTFOLIOS ANNUAL REPORT DATED 12/31/95 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE SUCH ANNUAL REPORT.
</LEGEND>
<CIK> 0000943180
<NAME> THE SERIES PORTFOLIOS
<SERIES>
<NUMBER> 1
<NAME> THE ASIA GROWTH PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 83,766,057
<INVESTMENTS-AT-VALUE> 86,180,770
<RECEIVABLES> 954,569
<ASSETS-OTHER> 881,691
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 88,017,030
<PAYABLE-FOR-SECURITIES> 865,658
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 169,984
<TOTAL-LIABILITIES> 1,035,642
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,414,409
<NET-ASSETS> 86,981,388
<DIVIDEND-INCOME> 1,550,136
<INTEREST-INCOME> 157,189
<OTHER-INCOME> 0
<EXPENSES-NET> 924,185
<NET-INVESTMENT-INCOME> 783,185
<REALIZED-GAINS-CURRENT> 2,768,176
<APPREC-INCREASE-CURRENT> 2,414,409
<NET-CHANGE-FROM-OPS> 5,965,725
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 89,583,254
<NUMBER-OF-SHARES-REDEEMED> 7,031,554
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 86,981,188
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 528,956
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 924,185
<AVERAGE-NET-ASSETS> 89,053,987
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 1.4
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY SUMMARY FINANCIAL DATA EXTRACTED FROM THE
EUROPEAN EQUITY PORTFOLIO ANNUAL REPORT DATED 12/31/95 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH ANNUAL REPORT.
</LEGEND>
<CIK> 0000943180
<NAME> THE SERIES PORTFOLIOS
<SERIES>
<NUMBER> 2
<NAME> THE EUROPEAN EQUITY PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 398,757,211
<INVESTMENTS-AT-VALUE> 435,687,174
<RECEIVABLES> 1,328,304
<ASSETS-OTHER> 808,963
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 437,824,441
<PAYABLE-FOR-SECURITIES> 5,527,640
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 403,836
<TOTAL-LIABILITIES> 5,931,476
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 431,892,965
<DIVIDEND-INCOME> 6,145,435
<INTEREST-INCOME> 473,518
<OTHER-INCOME> 0
<EXPENSES-NET> 2,318,206
<NET-INVESTMENT-INCOME> 4,300,747
<REALIZED-GAINS-CURRENT> 6,759,498
<APPREC-INCREASE-CURRENT> 36,897,712
<NET-CHANGE-FROM-OPS> 47,957,957
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 314,269,254
<NUMBER-OF-SHARES-REDEEMED> 27,868,219
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 383,934,808
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,675,355
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,318,747
<AVERAGE-NET-ASSETS> 337,195,747
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> .90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARRY FINANCIAL DATA EXTRACTED FROM THE JAPAN EQUITY
PORTDOLIO ANNUAL REPORT DATED 12/31/95 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH ANNUAL REPORT.
</LEGEND>
<CIK> 0000943180
<NAME> THE SERIES PORTFOLIO
<SERIES>
<NUMBER> 3
<NAME> THE JAPAN EQUITY PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 403,792,902
<INVESTMENTS-AT-VALUE> 410,908,580
<RECEIVABLES> 875,246
<ASSETS-OTHER> 4,806,103
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 416,589,929
<PAYABLE-FOR-SECURITIES> 3,671,308
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 407,700
<TOTAL-LIABILITIES> 4,079,008
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 412,079,921
<DIVIDEND-INCOME> 2,078,331
<INTEREST-INCOME> 607,344
<OTHER-INCOME> 0
<EXPENSES-NET> 2,370,892
<NET-INVESTMENT-INCOME> 314,783
<REALIZED-GAINS-CURRENT> 5,011,111
<APPREC-INCREASE-CURRENT> 7,095,295
<NET-CHANGE-FROM-OPS> 12,421,189
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 12,421,189
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,777,126
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,370,892
<AVERAGE-NET-ASSETS> 357,675,501
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> .90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
