As filed with the Securities and Exchange Commission on
September 28, 2000.
File No. 811-07882
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 18
THE SERIES PORTFOLIO
(Exact Name of Registrant as Specified in Charter)
(Address of Principal Executive Offices)
60 State Street, Suite 1300, Boston, Massachusetts 02109
Registrant's Telephone Number, Including Area Code: (800) 221 - 7930
Margaret W. Chambers, c/o Funds Distributor, Inc.
60 State Street, Suite 1300, Boston, Massachusetts 02109
(Name and Address of Agent for Service)
Copy to:John E. Baumgardner, Esq.
Sullivan & Cromwell
125 Broad Street
New York, NY 10004
<PAGE>
EXPLANATORY NOTE
This Registration Statement has been filed by the Registrant pursuant to
Section 8(b) of the Investment Company Act of 1940, as amended. However,
beneficial interests in the Registrant are not being registered under the
Securities Act of 1933, as amended (the "1933 Act"), because such interests will
be issued solely in private placement transactions that do not involve any
"public offering" within the meaning of Section 4(2) of the 1933 Act.
Investments in the Registrant may only be made by other investment companies,
insurance
company separate accounts, common or commingled trust funds or similar
organizations or entities that are "accredited investors" within the meaning of
Regulation D under the 1933 Act. This Registration Statement does not constitute
an offer to sell, or the solicitation of an offer to buy, any beneficial
interests in the Registrant.
<PAGE>
A-9
PART A (THE DISCIPLINED EQUITY PORTFOLIO)
Responses to Items 1,2,3,5 and 9 have been omitted pursuant to paragraph
2(b) of Instruction B of the General Instructions to Form N-1A.
Item 4. Investment Objectives, Principal Investment Strategies, and Related
Risks
INVESTMENT OBJECTIVE
The Portfolio's goal is to provide a consistently high total return
from a broadly diversified portfolio of equity securities with risk
characteristics similar to the Standard & Poor's 500 Stock Index (S&P 500). This
goal can be changed without investor approval.
PRINCIPAL INVESTMENT STRATEGIES AND RELATED RISKS
The Portfolio invests primarily in large- and medium-capitalization
U.S. companies. Industry by industry, the Portfolio's weightings are similar to
those of the S&P 500. The Portfolio does not look to overweight or underweight
industries.
Within each industry, the Portfolio modestly overweights stocks that
are ranked as undervalued or fairly valued while modestly underweighting or not
holding stocks that appear overvalued. Therefore, the Portfolio tends to own a
larger number of stocks within the S&P 500 than The U.S. Equity Portfolio.
The value of an investment in the Portfolio will fluctuate in response
to movements in the stock market. Performance will also depend on the
effectiveness of J.P. Morgan's research and the management team's stock picking
decisions.
By owning a large number of stocks within the S&P 500, with an emphasis
on those that appear undervalued or fairly valued, and by tracking the industry
weightings of that index, the Portfolio seeks returns that modestly exceed those
of the S&P 500 over the long term with virtually the same level of volatility.
INVESTMENT PROCESS
In managing the Portfolio, J.P. Morgan employs a three-step process:
RESEARCH J.P. Morgan takes an in-depth look at company prospects over a
relatively long period - often as much as five years - rather than focusing on
near-term expectations. This approach is designed to provide insight into a
company's real growth potential. J.P. Morgan's in-house research is developed by
an extensive worldwide network of over 120 career analysts. The team of analysts
dedicated to U.S. equities includes more than 20 members, with an average of
over ten years of experience.
VALUATION The research findings allow J.P. Morgan to rank companies in each
industry group according to their relative value. The greater a company's
estimated worth compared to the current market price of its stock, the more
undervalued the company. The valuation rankings are produced with the help of a
variety of models that quantify the research team's findings.
STOCK SELECTION The Portfolio buys and sells stocks according to its own
policies, using the research and valuation rankings as a basis. In general, the
management team buys stocks that are identified as undervalued and considers
selling them when they appear overvalued. Along with attractive valuation, the
Portfolio's managers often consider a number of other criteria:
- catalysts that could trigger a rise in a stock's price - high potential reward
compared to potential risk - temporary mispricings caused by market
overreactions
This table discusses the main elements that make up the Portfolio's
overall risk and reward characteristics. It also outlines the Portfolio's
policies toward various securities, including those that are designed to help
the Portfolio manage risk.
<TABLE>
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<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------
POTENTIAL RISKS POLICIES TO BALANCE
RISK AND REWARD
------------------------------------------------------------------------
MARKET CONDITIONS
-The Portfolio's price, -Under normal
yield, and total return circumstances the
will fluctuate in response Portfolio plans to
to stock market movements remain fully
invested with at
-Adverse market conditions least 65% in U.S.
may from time to time cause small company stocks;
the Portfolio to take stock investments may
temporary defensive positions include U.S. and
that are inconsistent with foreign common
its principal investment stocks, convertible
strategies and may hinder securities, preferred
the Portfolio from achieving stocks, trust or
its investment objective partnership interests,
warrants, rights, and
investment company
securities.
-The Portfolio seeks
to limit risk through
diversification.
-During severe market
downturns, the Portfolio
has the option of investing
up to 100% of assets in
investment-grade short-term
securities.
MANAGEMENT CHOICES
-The Portfolio could - J.P. Morgan focuses
underperform its its active management
benchmark due to its on securities
securities and asset selection, the area
allocation choices where it believes its
commitment to
research can most
enhance returns
FOREIGN INVESTMENTS
-The Portfolio could lose -The Portfolio anticipates
money because of foreign that its total foreign
government actions, investments will not
political instability, exceed 20% of assets
or lack of adequate and
accurate information -The Portfolio actively
manages the currency
-Currency exchange rate exposure of its foreign
movements could reduce investments relative to
gains or create losses its benchmark, and may
hedge back into the U.S.
dollar from time to time
(see also "Derivatives")
DERIVATIVES
-Derivatives such as -The Portfolio uses
futures, options, swaps derivatives for
and foreign currency hedging and for
forward contracts that risk management
are used for hedging the (i.e., to adjust
portfolio or specific duration or to
securities may not fully establish or
offset the underlying adjust exposure to
positions (1) particular
-Derivatives used for securities,
risk management may not markets, or
have the intended effects currencies); risk
and may result in losses management may
or missed opportunities include
management of the
Portfolio's
exposure relative
-The counterparty to a to its benchmark
derivatives contract
could default -The Portfolio only
establishes hedges
-Derivatives that involve that it expects
leverage could magnify will be highly
losses correlated with
underlying
positions
-While the
Portfolio may use
derivatives that
incidentally
involve leverage,
it does not use
them for the
specific purpose
of leveraging the
Portfolio
</TABLE>
-------------------------------------
(1) A futures contract is an agreement to buy or sell a set quantity of an
underlying instrument at a future date, or to make or receive a cash payment
based on the value of a securities index. An option is the right to buy or sell
securities that is granted in exchange for an agreed-upon sum. A swap is a
privately negotiated agreement to exchange one stream of payments for another. A
foreign currency forward contract is an obligation to buy or sell a given
currency on a future date and at a set price.
ILLIQUID HOLDINGS
-The Portfolio could -The Portfolio may
have difficulty valuing not invest more
holdings precisely than 15% of net
assets in illiquid
-The Portfolio could be holdings
unable to sell these
holdings at the time -To maintain
or price it desires adequate liquidity
to meet redemptions, the Portfolio may hold
investment-grade short-term securities
(including repurchase agreements) and, for
temporary or extraordinary purposes, may
borrow from banks up to 33 1/3% of the value
of its assets
WHEN-ISSUED AND DELAYED
DELIVERY SECURITIES
-When the Portfolio buys -The Portfolio uses
securities before issue segregated
or for delayed delivery, accounts to offset
it could be exposed to leverage risk
leverage risk if it
does not use segregated
accounts
SHORT-TERM TRADING
-Increased trading -The Portfolio
would raise the anticipates a
Portfolio's portfolio turnover
brokerage and related rate of approximately
costs 100%
-Increased short-term
capital gains
distributions would -The Portfolio
raise shareholders' generally avoids
income tax liability short-term trading
except to take
advantage of
attractive or
unexpected
opportunities or
to meet demands
generated by
shareholder
activity
ITEM 5. MANAGEMENT OF THE PORTFOLIO.
The Portfolio is advised by J.P. Morgan Investment Management Inc. ("JPMIM"
or the "Advisor").
Subject to the supervision of the Portfolio's Trustees, the Advisor
makes the Portfolio's day-to-day investment decisions, arranges for the
execution of portfolio transactions and generally manages the Portfolio's
investments. Effective October 1, 1998 the Portfolio's Investment Advisor is
JPMIM. Prior to that date, Morgan was the Investment Advisor.
JPMIM, a wholly owned subsidiary of J.P. Morgan & Co. Incorporated
("J.P. Morgan"), is a registered investment adviser under the Investment
Advisers Act of 1940, as amended, and 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 Morgan serves as trustee.
J.P. Morgan, through the Advisor and other subsidiaries, acts as investment
advisor to individuals, governments, corporations, employee benefit plans,
mutual funds and other institutional investors with combined assets under
management of approximately $369 billion.
The basis of the Advisor's investment process is fundamental investment
research as the firm believes that fundamentals should determine an asset's
value over the long term. J.P. Morgan currently employs over 100 full time
research analysts, among the largest research staffs in the money management
industry, in its investment management divisions located in New York, London,
Tokyo, Frankfurt and Singapore to cover companies, industries and countries on
site. In addition, the investment management divisions employ approximately 300
capital market researchers, portfolio managers and traders. The conclusions of
the equity analysts' fundamental research is quantified into a set of projected
returns for individual companies through the use of a dividend discount model.
These returns are projected for 2 to 5 years to enable analysts to take a longer
term view. These returns, or normalized earnings, are used to establish relative
values among stocks in each industrial sector. These values may not be the same
as the markets' current valuations of these companies. This provides the basis
for ranking the attractiveness of the companies in an industry according to five
distinct quintiles or rankings. This ranking is one of the factors considered in
determining the stocks purchased and sold in each sector.
The investment advisory services the Advisor provides to the Portfolios
are not exclusive under the terms of the Advisory Agreements. The Advisor is
free to and does render similar investment advisory services to others. The
Advisor serves as investment advisor to personal investors and other investment
companies and acts as fiduciary for trusts, estates and employee benefit plans.
Certain of the assets of trusts and estates under management are invested in
common trust funds for which the Advisor serves as trustee. The accounts which
are managed or advised by the Advisor have varying investment objectives and the
Advisor invests assets of such accounts in investments substantially similar to,
or the same as, those which are expected to constitute the principal investments
of the Portfolios. Such accounts are supervised by officers and employees of the
Advisor who may also be acting in similar capacities for the Portfolio.
Morgan, also a wholly owned subsidiary of J.P. Morgan, is a bank
holding company organized under the laws of the State of Delaware. Morgan, whose
principal offices are at 60 Wall Street, New York, New York 10260, is a New York
trust company which conducts a general banking and trust business. Morgan is
subject to regulation by the New York State Banking Department and is a member
bank of the Federal Reserve System. Through offices in New York City and abroad,
Morgan offers a wide range of services, primarily to governmental,
institutional, corporate and high net worth individual customers in the United
States and throughout the world.
The Portfolio is managed by officers of the Advisor who, in acting for
their customers, including the Portfolio, do not discuss their investment
decisions with any personnel of J.P. Morgan or any personnel of other divisions
of the Advisor or with any of its affiliated persons, with the exception of
certain investment management affiliates of J.P. Morgan.
As compensation for the services rendered and related expenses such as
salaries of advisory personnel borne by the Advisor under the Advisory
Agreements, the Portfolio corresponding has agreed to pay the Advisor a fee,
which is computed daily and may be paid monthly, equal to the annual rate of
0.35% of the Portfolio's average daily net assets.
The portfolio management team is led by Bernard A. Kroll, managing
director, Timothy J. Devlin, vice president and Nanette J. Buziak, vice
president. Mr. Kroll has been at J.P. Morgan since August of 1996 and prior to
that time was an equity derivatives specialist at Goldman Sachs & Co. Mr. Devlin
has been at J.P. Morgan since July of 1996, and prior to that time was an equity
portfolio manager at Mitchell Hutchins Asset Management Inc. Ms. Buziak has been
at J.P. Morgan since March of 1997 and prior to that time was an index arbitrage
trader and convertible bond portfolio manager at First Marathon America, Inc.
ITEM 6. MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE
BUSINESS STRUCTURE
The Series Portfolio (the "Portfolio Trust") is an open-end management
investment company which was organized as a trust under the laws of the State of
New York on June 24, 1994. Beneficial interests of the Portfolio Trust are
divided into series, one of which, The Disciplined Equity Portfolio (the
"Portfolio") is described herein. The Portfolio is diversified for purposes of
the Investment Company Act of 1940, as amended (the "1940 Act"). Beneficial
interests in the Portfolio are issued solely in private placement transactions
that do not involve any "public offering" within the meaning of Section 4(2) of
the Securities Act of 1933 (the "1933 Act"). Investments in the Portfolio may
only be made by other investment companies, insurance company separate accounts,
common or commingled trust funds or similar organizations or entities that are
"accredited investors" within the meaning of Regulation D under the 1933 Act.
This Registration Statement does not constitute an offer to sell, or the
solicitation of an offer to buy, any "security" within the meaning of the 1933
Act.
MANAGEMENT AND ADMINISTRATION
The Board of Trustees provides broad supervision over the affairs of
the Portfolio Trust. The Portfolio Trust has retained the services of JPMIM as
investment adviser and Morgan as administrative services agent. The Portfolio
Trust has retained the services of Funds Distributor, Inc. ("FDI") as
co-administrator (the "Co-Administrator").
The Portfolio has not retained the services of a principal underwriter
or distributor, since interests in the Portfolio are offered solely in private
placement transactions. FDI, acting as agent for the Portfolio, serves as
exclusive placement agent of interests in the Portfolio. FDI receives no
additional compensation for serving as exclusive placement agent to the
Portfolio.
The Portfolio Trust has entered into a Portfolio Fund Services
Agreement with Pierpont Group to assist the Trustees in exercising their overall
supervisory responsibilities for the Portfolio Trust's affairs. Pierpont Group
was organized in July 1989 to provide services for The Pierpont Family of Funds
(now the J.P. Morgan Family of Funds), and the Trustees are the equal and sole
shareholders of Pierpont Group. The Portfolios have agreed to pay Pierpont Group
a fee in an amount representing its reasonable costs in performing these
services to the Portfolio Trust and certain other registered investment
companies subject to similar agreements with Pierpont Group. See Item 14 in Part
B The principal offices of Pierpont Group, Inc. are located at 461 Fifth Avenue,
New York, New York 10017.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------------- -----------------------------------------------------
Advisory services 0.35% of the portfolio's average net assets
....................................................... .....................................................
Administrative services (fee shared with Funds Portfolio's pro-rata portions of 0.09% of the first
Distributor, Inc.) $7 billion of average net assets in J.P.
Morgan-advised portfolios, plus 0.04% of average
net assets over $7 billion
....................................................... .....................................................
</TABLE>
J.P. Morgan may pay fees to certain firms and professionals for providing
recordkeeping or other services in connection with investments in a fund.
ITEM 7. SHAREHOLDER INFORMATION
INVESTING
Beneficial interests in the Portfolio are issued solely in private
placement transactions that do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. Investments in the Portfolio may only
be made by other investment companies, insurance company separate accounts,
common or commingled trust funds, or similar organizations or entities which are
"accredited investors" as defined in Rule 501 under the 1933 Act. This
Registration Statement does not constitute an offer to sell, or the solicitation
of an offer to buy, any "security" within the meaning of the 1933 Act.
An investment in the Portfolio may be made without a sales load. All
investments are made at net asset value next determined after an order is
received in "good order" by the Portfolio Trust. The net asset value of the
Portfolio is determined at the Valuation Time on each Portfolio Business Day.
There is no minimum initial or subsequent investment in the Portfolio.
However, because the Portfolio intends to be as fully invested at all times as
is reasonably practicable in order to enhance the yield on its assets,
investments must be made in federal funds (i.e., monies credited to the account
of the Custodian by a Federal Reserve Bank.)
The Portfolio may, at its own option, accept securities in payment for
investments in its beneficial interests. The securities delivered in kind are
valued by the method described in Item 19 of Part B 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 the
Advisor, appropriate investments for the Portfolio. In addition, securities
accepted in payment for beneficial interests must: (i) meet the investment
objective and policies of the Portfolio; (ii) be acquired by the Portfolio for
investment and not for resale; (iii) be liquid securities which are not
restricted as to transfer either by law or liquidity of market; and (iv) if
stock, have a value which is readily ascertainable as evidenced by a listing on
a stock exchange, OTC market or by readily available market quotations from a
dealer in such securities. The Portfolio reserves the right to accept or reject
at its own option any and all securities offered in payment for beneficial
interests.
The Portfolio and FDI reserve the right to cease accepting investments
at any time or to reject any investment order.
ADDING TO YOUR ACCOUNT
Each investor in the Portfolio may add to or reduce its investment in
the Portfolio on each Portfolio Business Day. At the Valuation Time on each such
day, the value of each investor's beneficial interest in the Portfolio will be
determined by multiplying the net asset value of the Portfolio by the
percentage, effective for that day, which represents that investor's share of
the aggregate beneficial interests in the Portfolio. Any additions or
reductions, which are to be effected at the Valuation Time on such day, will
then be effected. The investor's percentage of the aggregate beneficial
interests in the Portfolio will then be recomputed as the percentage equal to
the fraction (i) the numerator of which is the value of such investor's
investment in the Portfolio at the Valuation Time on such day plus or minus, as
the case may be, the amount of net additions to or reductions in the investor's
investment in the Portfolio effected as of the Valuation Time, and (ii) the
denominator of which is the aggregate net asset value of the Portfolio as of the
Valuation Time on such day, plus or minus, as the case may be, the amount of net
additions to or reductions in the aggregate investments in the Portfolio by all
investors in the Portfolio. The percentage so determined will then be applied to
determine the value of the investor's interest in the Portfolio as of the
Valuation Time on the following Portfolio Business Day.
SELLING SHARES
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 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.
REDEMPTION IN KIND
If the Portfolio determines that it would be detrimental to the best
interest of the remaining shareholders of 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. If shares are redeemed in kind, the redeeming shareholder might incur
costs in converting the assets into cash. The Portfolio has received exemptive
relief from the SEC with respect to redemptions in kind by the Portfolio. The
Portfolio is permitted to pay redemptions to greater than 5% shareholders in
securities, rather than in cash, to the extent permitted by the SEC and
applicable law. The method of valuing portfolio securities is described under
"Net Asset Value," and such valuation will be made as of the same time the
redemption price is determined. The Portfolio on behalf of the Fund and the
Portfolio has elected to be governed by Rule 18f-1 under the 1940 Act pursuant
to which the Fund and the Portfolio are obligated to redeem shares solely in
cash up to the lesser of $250,000 or one percent of the net asset value of the
Fund during an 90 day period for any one shareholder. The Portfolio will redeem
Fund shares in-kind only if it has received a redemption in kind from the
Portfolio and therefore shareholders of the Fund that receive redemptions
in-kind will receive securities of the Portfolio. The Portfolio has advised the
Trust the Portfolio will not redeem in-kind except in circumstances in which the
Fund is permitted to redeem in -kind.
ACCOUNT AND TRANSACTION POLICIES
Business Hours and NAV Calculations
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 the close of
trading on the NYSE (normally 4:00 pm eastern time) (the "valuation Time").
DIVIDENDS AND DISTRIBUTIONS
It is intended that the Portfolio's assets, income and distributions
will be managed in such a way that an investor in the Portfolio will be able to
satisfy the requirements of Subchapter M of the Code assuming that the investor
invested all of its assets in the Portfolio.
Investor inquiries may be directed to FDI located at 60 State Street, Suite
1300, Boston, MA 02109 (800-221-7930).
TAX CONSIDERATIONS
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.
<PAGE>
PART A (THE U.S. SMALL COMPANY OPPORTUNITIES PORTFOLIO)
Responses to Items 1,2,3,5 and 9 have been omitted pursuant to paragraph
2(b) of Instruction B of the General Instructions to Form N-1A.
Item 4. Investment Objectives, Principal Investment Strategies, and Related
Risks
INVESTMENT OBJECTIVE
The Portfolio's goal is to provide long-term growth from a portfolio of
small company growth stocks.
PRINCIPAL INVESTMENT STRATEGIES AND RELATED RISKS
The Portfolio invests primarily in stocks of small U.S. companies whose
market capitalization is greater than $150 million and less than $1.25 billion
when purchased. While the Portfolio holds stocks in many industries to reduce
the impact of poor performance in any one sector, it tends to emphasize
industries with higher growth potential and does not track the sector weightings
of the overall small company stock market.
In searching for companies, the Portfolio combines the approach
described under "Investment Process" with a growth-oriented approach that
focuses on each company's business strategies and competitive environment. The
Portfolio seeks to buy stocks when they are undervalued or fairly valued and are
poised for long-term growth. Stocks become candidates for sale when they appear
overvalued or when the company is no longer a small-cap company, but the
Portfolio may also to hold them if it believes further substantial growth is
possible.
The value of an investment in the Portfolio will fluctuate in response
to movements in the stock market. Performance will also depend on the
effectiveness of J.P Morgan's research and the management team's stock picking
decisions.
Small-cap stocks have historically offered higher long-term growth than
medium-cap stocks, and have also involved higher risks. The Portfolio's
small-cap emphasis means it is likely to be more sensitive to economic news and
is likely to fall further in value during broad market downturns. Because the
Portfolio seeks to outperform the Russell 2000 Growth Index while not tracking
its industry weightings, investors should expect higher volatility compared to
this index or to more conservatively managed small-cap funds.
INVESTMENT PROCESS
In managing the Portfolio, J.P. Morgan employs a three-step process:
RESEARCH J.P. Morgan takes an in-depth look at company prospects over a
relatively long period - often as much as five years - rather than focusing on
near-term expectations. This approach is designed to provide insight into a
company's real growth potential. J.P. Morgan's in-house research is developed by
an extensive worldwide network of approximately 125 career equity analysts. The
team of analysts dedicated to U.S. equities includes more than 20 members, with
an average of over ten years of experience.
VALUATION The research findings allow J.P. Morgan to rank companies in each
industry group according to their relative value. The greater a company's
estimated worth compared to the current market price of its stock, the more
undervalued the company. The valuation rankings are produced with the help of a
variety of models that quantify the research team's findings.
STOCK SELECTION The Portfolio buys and sells stocks according to its own
policies, using the research and valuation rankings as a basis. In general, the
management team buys stocks that are identified as undervalued and considers
selling them when they appear overvalued. Along with attractive valuation, the
Portfolio's managers often consider a number of other criteria:
- catalysts that could trigger a rise in a stock's price - high potential reward
compared to potential risk - temporary mispricings caused by market
overreactions
This table discusses the main elements that make up the Portfolio's
overall risk and reward characteristics. It also outlines the Portfolio's
policies toward various securities, including those that are designed to help
the Portfolio manage risk.
------------------------------------------------------------------------
POTENTIAL RISKS POLICIES TO BALANCE
RISK AND REWARD
------------------------------------------------------------------------
MARKET CONDITIONS
-The Portfolio's price, -Under normal
yield, and total return circumstances the
will fluctuate in response Portfolio plans to
to stock market movements remain fully
invested with at
-Adverse market conditions least 65% in U.S.
may from time to time cause small company stocks;
the Portfolio to take stock investments may
temporary defensive positions include U.S. and
that are inconsistent with foreign common
its principal investment stocks, convertible
strategies and may hinder securities, preferred
the Portfolio from achieving stocks, trust or
its investment objective partnership interests,
warrants, rights, and
investment company
securities.
-The Portfolio seeks
to limit risk through
diversification.
-During severe market
downturns, the Portfolio
has the option of investing
up to 100% of assets in
investment-grade short-term
securities.
MANAGEMENT CHOICES
-The Portfolio could - J.P. Morgan focuses
underperform its its active management
benchmark due to its on securities
securities and asset selection, the area
allocation choices where it believes its
commitment to
research can most
enhance returns
FOREIGN INVESTMENTS
-The Portfolio could lose -The Portfolio anticipates
money because of foreign that its total foreign
government actions, investments will not
political instability, exceed 20% of assets
or lack of adequate and
accurate information -The Portfolio actively
manages the currency
-Currency exchange rate exposure of its foreign
movements could reduce investments relative to
gains or create losses its benchmark, and may
hedge back into the U.S.
dollar from time to time
(see also "Derivatives")
DERIVATIVES
-Derivatives such as -The Portfolio uses
futures, options, swaps derivatives for
and foreign currency hedging and for
forward contracts that risk management
are used for hedging the (i.e., to adjust
portfolio or specific duration or to
securities may not fully establish or
offset the underlying adjust exposure to
positions (1) particular
-Derivatives used for securities,
risk management may not markets, or
have the intended effects currencies); risk
and may result in losses management may
or missed opportunities include
management of the
Portfolio's
exposure relative
-The counterparty to a to its benchmark
derivatives contract
could default -The Portfolio only
establishes hedges
-Derivatives that involve that it expects
leverage could magnify will be highly
losses correlated with
underlying
positions
-While the
Portfolio may use
derivatives that
incidentally
involve leverage,
it does not use
them for the
specific purpose
of leveraging the
Portfolio
-------------------------------------
(1) A futures contract is an agreement to buy or sell a set quantity of an
underlying instrument at a future date, or to make or receive a cash payment
based on the value of a securities index. An option is the right to buy or sell
securities that is granted in exchange for an agreed-upon sum. A swap is a
privately negotiated agreement to exchange one stream of payments for another. A
foreign currency forward contract is an obligation to buy or sell a given
currency on a future date and at a set price.
ILLIQUID HOLDINGS
-The Portfolio could -The Portfolio may
have difficulty valuing not invest more
holdings precisely than 15% of net
assets in illiquid
-The Portfolio could be holdings
unable to sell these
holdings at the time -To maintain
or price it desires adequate liquidity
to meet redemptions, the Portfolio may hold
investment-grade short-term securities
(including repurchase agreements) and, for
temporary or extraordinary purposes, may
borrow from banks up to 33 1/3% of the value
of its assets
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
-When the Portfolio buys -The Portfolio uses
securities before issue segregated
or for delayed delivery, accounts to offset
it could be exposed to leverage risk
leverage risk if it
does not use segregated
accounts
SHORT-TERM TRADING
-Increased trading -The Portfolio
would raise the anticipates a
Portfolio's portfolio turnover
brokerage and related rate of approximately
costs 100%
-Increased short-term
capital gains
distributions would -The Portfolio
raise shareholders' generally avoids
income tax liability short-term trading
except to take
advantage of
attractive or
unexpected
opportunities or
to meet demands
generated by
shareholder
activity
ITEM 5. MANAGEMENT OF THE PORTFOLIO.
The Portfolio is advised by J.P. Morgan Investment Management Inc. ("JPMIM"
or the "Advisor").
Subject to the supervision of the Portfolio's Trustees, the Advisor
makes the Portfolio's day-to-day investment decisions, arranges for the
execution of portfolio transactions and generally manages the Portfolio's
investments. Effective October 1, 1998 the Portfolio's Investment Advisor is
JPMIM. Prior to that date, Morgan was the Investment Advisor.
JPMIM, a wholly owned subsidiary of J.P. Morgan & Co. Incorporated
("J.P. Morgan"), is a registered investment adviser under the Investment
Advisers Act of 1940, as amended, and 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 Morgan serves as trustee.
J.P. Morgan, through the Advisor and other subsidiaries, acts as
investment advisor to individuals, governments, corporations, employee benefit
plans, mutual funds and other institutional investors with combined assets under
management of approximately $369 billion.
The basis of the Advisor's investment process is fundamental investment
research as the firm believes that fundamentals should determine an asset's
value over the long term. J.P. Morgan currently employs over 100 full time
research analysts, among the largest research staffs in the money management
industry, in its investment management divisions located in New York, London,
Tokyo, Frankfurt and Singapore to cover companies, industries and countries on
site. In addition, the investment management divisions employ approximately 300
capital market researchers, portfolio managers and traders. The conclusions of
the equity analysts' fundamental research is quantified into a set of projected
returns for individual companies through the use of a dividend discount model.
These returns are projected for 2 to 5 years to enable analysts to take a longer
term view. These returns, or normalized earnings, are used to establish relative
values among stocks in each industrial sector. These values may not be the same
as the markets' current valuations of these companies. This provides the basis
for ranking the attractiveness of the companies in an industry according to five
distinct quintiles or rankings. This ranking is one of the factors considered in
determining the stocks purchased and sold in each sector.
The investment advisory services the Advisor provides to the Portfolios
are not exclusive under the terms of the Advisory Agreements. The Advisor is
free to and does render similar investment advisory services to others. The
Advisor serves as investment advisor to personal investors and other investment
companies and acts as fiduciary for trusts, estates and employee benefit plans.
Certain of the assets of trusts and estates under management are invested in
common trust funds for which the Advisor serves as trustee. The accounts which
are managed or advised by the Advisor have varying investment objectives and the
Advisor invests assets of such accounts in investments substantially similar to,
or the same as, those which are expected to constitute the principal investments
of the Portfolios. Such accounts are supervised by officers and employees of the
Advisor who may also be acting in similar capacities for the Portfolio.
Morgan, also a wholly owned subsidiary of J.P. Morgan, is a bank
holding company organized under the laws of the State of Delaware. Morgan, whose
principal offices are at 60 Wall Street, New York, New York 10260, is a New York
trust company which conducts a general banking and trust business. Morgan is
subject to regulation by the New York State Banking Department and is a member
bank of the Federal Reserve System. Through offices in New York City and abroad,
Morgan offers a wide range of services, primarily to governmental,
institutional, corporate and high net worth individual customers in the United
States and throughout the world.
The Portfolio is managed by officers of the Advisor who, in acting for
their customers, including the Portfolio, do not discuss their investment
decisions with any personnel of J.P. Morgan or any personnel of other divisions
of the Advisor or with any of its affiliated persons, with the exception of
certain investment management affiliates of J.P. Morgan.
As compensation for the services rendered and related expenses such as
salaries of advisory personnel borne by the Advisor under the Advisory
Agreements, the Portfolio corresponding has agreed to pay the Advisor a fee,
which is computed daily and may be paid monthly, equal to the annual rate of
0.40% of the Portfolio's average daily net assets.
The portfolio management team is led by Marian U. Pardo, managing
director, Saira Durcanin, vice president and CFA, and Carolyn Jones, associate.
Ms. Pardo has been at J.P. Morgan since 1968, except for five months in 1998
when she was president of a small investment management firm. Prior to managing
the fund, Ms. Pardo managed small and large cap equity portfolios, equity and
convertible funds, and several institutional protfolios. Ms. Durcanin has been
with J.P. Morgan since July of 1995 as a small company equity analyst and
portfolio manager after graduating from the University of Wisconsin with an M.S.
in finance. Ms Jones has been with J.P. Morgan since July 1998. Prior to
managing this fund, Ms Jones served as a portfolio manager in J.P. Morgan's
private banking group and as a product specialist at Merrill Lynch Asset
Management.
ITEM 6. MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE
The Series Portfolio (the "Portfolio Trust") is an open-end management
investment company which was organized as a trust under the laws of the State of
New York on June 24, 1994. Beneficial interests of the Portfolio Trust are
divided into series, one of which, The U.S. Small Company Opportunities
Portfolio (formerly The Small Company 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.
MANAGEMENT AND ADMINISTRATION
The Board of Trustees provides broad supervision over the affairs of
the Portfolio Trust. The Portfolio Trust has retained the services of JPMIM as
investment adviser and Morgan as administrative services agent. The Portfolio
Trust has retained the services of Funds Distributor, Inc. ("FDI") as
co-administrator (the "Co-Administrator").
The Portfolio Trust has not retained the services of a principal
underwriter or distributor, since interests in the Portfolio are offered solely
in private placement transactions. FDI, acting as agent for the Portfolio,
serves as exclusive placement agent of interests in the Portfolio. FDI receives
no additional compensation for serving as exclusive placement agent to the
Portfolio.
The Portfolio Trust has entered into an Amended and Restated Portfolio
Services Agreement, dated July 11, 1996 with Pierpont Group, Inc. ("Pierpont
Group") to assist the Trustees in exercising their overall supervisory
responsibilities over the affairs of the Portfolio. The fees to be paid under
the agreement approximate the reasonable cost of Pierpont Group in providing
these services to the Portfolio Trust and other registered investment companies
subject to similar agreements with Pierpont Group. Pierpont Group was organized
in 1989 at the request of the Trustees of The Pierpont Family of Funds (now the
J.P. Morgan Family of Funds) for the purpose of providing these services at cost
to those funds. The principal offices of Pierpont Group are located at 461 Fifth
Avenue, New York, New York 10017.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------------- -----------------------------------------------------
Advisory services 0.60% of the portfolio's average net assets
....................................................... .....................................................
Administrative services (fee shared with Funds Portfolio's pro-rata portions of 0.09% of the first
Distributor, Inc.) $7 billion of average net assets in J.P.
Morgan-advised portfolios, plus 0.04% of average
net assets over $7 billion
....................................................... .....................................................
J.P. Morgan may pay fees to certain firms and professionals for providing
recordkeeping or other services in connection with investments in a fund.
</TABLE>
ITEM 7. SHAREHOLDER INFORMATION
INVESTING
Beneficial interests in the Portfolio are issued solely in private
placement transactions that do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. Investments in the Portfolio may only
be made by other investment companies, insurance company separate accounts,
common or commingled trust funds, or similar organizations or entities which are
"accredited investors" as defined in Rule 501 under the 1933 Act. This
Registration Statement does not constitute an offer to sell, or the solicitation
of an offer to buy, any "security" within the meaning of the 1933 Act.
An investment in the Portfolio may be made without a sales load. All
investments are made at net asset value next determined after an order is
received in "good order" by the Portfolio Trust. The net asset value of the
Portfolio is determined at the Valuation Time on each Portfolio Business Day.
There is no minimum initial or subsequent investment in the Portfolio.
However, because the Portfolio intends to be as fully invested at all times as
is reasonably practicable in order to enhance the yield on its assets,
investments must be made in federal funds (i.e., monies credited to the account
of the Custodian by a Federal Reserve Bank.)
The Portfolio may, at its own option, accept securities in payment for
investments in its beneficial interests. The securities delivered in kind are
valued by the method described in Net Asset Value as of the business day prior
to the day the Portfolio receives the securities. Securities may be accepted in
payment for beneficial interests only if they are, in the judgment of the
Advisor, appropriate investments for the Portfolio. In addition, securities
accepted in payment for beneficial interests must: (i) meet the investment
objective and policies of the Portfolio; (ii) be acquired by the Portfolio for
investment and not for resale; (iii) be liquid securities which are not
restricted as to transfer either by law or liquidity of market; and (iv) if
stock, have a value which is readily ascertainable as evidenced by a listing on
a stock exchange, OTC market or by readily available market quotations from a
dealer in such securities. The Portfolio reserves the right to accept or reject
at its own option any and all securities offered in payment for beneficial
interests.
The Portfolio and FDI reserve the right to cease accepting investments
at any time or to reject any investment order.
ADDING TO YOUR ACCOUNT
Each investor in the Portfolio may add to or reduce its investment in
the Portfolio on each Portfolio Business Day. At the Valuation Time on each such
day, the value of each investor's beneficial interest in the Portfolio will be
determined by multiplying the net asset value of the Portfolio by the
percentage, effective for that day, which represents that investor's share of
the aggregate beneficial interests in the Portfolio. Any additions or
reductions, which are to be effected at the Valuation Time on such day, will
then be effected. The investor's percentage of the aggregate beneficial
interests in the Portfolio will then be recomputed as the percentage equal to
the fraction (i) the numerator of which is the value of such investor's
investment in the Portfolio at the Valuation Time on such day plus or minus, as
the case may be, the amount of net additions to or reductions in the investor's
investment in the Portfolio effected as of the Valuation Time, and (ii) the
denominator of which is the aggregate net asset value of the Portfolio as of the
Valuation Time on such day, plus or minus, as the case may be, the amount of net
additions to or reductions in the aggregate investments in the Portfolio by all
investors in the Portfolio. The percentage so determined will then be applied to
determine the value of the investor's interest in the Portfolio as of the
Valuation Time on the following Portfolio Business Day.
SELLING SHARES
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 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.
REDEMPTION IN KIND
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.
ACCOUNT AND TRANSACTION POLICIES
Business Hours and NAV Calculations
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 the close of
trading on the NYSE (normally 4:00 pm eastern time) (the "valuation Time").
DIVIDENDS AND DISTRIBUTIONS It is intended that the Portfolio's assets,
income and distributions will be managed in such a way that an investor in the
Portfolio will be able to satisfy the requirements of Subchapter M of the Code
assuming that the investor invested all of its assets in the Portfolio.
Investor inquiries may be directed to FDI located at 60 State Street, Suite
1300, Boston, MA 02109. (800) 221 - 7930.
TAX CONSIDERATIONS
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.
<PAGE>
B-21
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 . . . . . . . . . . . . . B-20
Control Persons and Principal Holders
of Securities . . . . . . . . . . . . . . . . . . . . B-24
Code of Ethics. . . . . . . . . . . . . . . . . . . . B-24
Investment Advisory and Other Services . . . . . . . B-24
Brokerage Allocation and Other Practices . . . . . . B-29
Capital Stock and Other Securities . . . . . . . . . B-30
Purchase, Redemption and Pricing of Securities Being
Offered . . . . . . . . . . . . . . . . . . . . . . B-32
Tax Status . . . . . . . . . . . . . . . . . . . . . B-33
Underwriters . . . . . . . . . . . . . . . . .B-36
Calculations of Performance Data . . . . . . . . . . B-36
Financial Statements . . . . . . . . . . . . . . . . B-37
Appendix A . . . . . . . . . . . . . . . . . . . . . Appendix-1
ITEM 12. GENERAL INFORMATION AND HISTORY.
Not applicable.
ITEM 13. INVESTMENT OBJECTIVES AND POLICIES.
The investment objective of The Disciplined Equity Portfolio (the
"Disciplined Equity Portfolio") is to provide a consistently high total return
from a broadly diversified portfolio of equity securities with risk
characteristics similar to the S&P 500 Index.
The investment objective of The U.S. Small Company Opportunities
Portfolio's (the "U.S. Small Company Opportunities Portfolio") is to provide
long-term growth from a portfolio of small company growth stocks. This
investment objective can be changed without investor approval.
The Disciplined Equity Portfolio and the U.S. Small Company Opportunities
Portfolio (collectively, "the Portfolios") are advised by J.P. Morgan Investment
Management Inc. ("JPMIM" or the "Advisor").
INVESTMENT PROCESS
INVESTMENT PROCESS FOR THE DISCIPLINED EQUITY PORTFOLIO
Research: The Advisor's more than 20 domestic equity analysts, each an
industry specialist with an average of over 10 years of experience, follow
approximately 600 medium and large capitalization U.S. companies. Their research
goal is to forecast intermediate-term earnings and prospective dividend growth
rates for the companies that they cover.
Valuation: The analysts' forecasts are converted into comparable
expected returns using a proprietary dividend discount model, which calculates
the intermediate-term earnings by comparing a company's current stock price with
its forecasted dividends and earnings. Within each sector, companies are ranked
according to their relative value and grouped into quintiles: those with the
highest expected returns (Quintile 1) are deemed the most undervalued relative
to their long-term earnings power, while those with the lowest expected returns
(Quintile 5)
are deemed the most overvalued.
Stock Selection: A broadly diversified portfolio is constructed using
disciplined buy and sell rules. Purchases are allocated among stocks in the
first three quintiles. Once a stock falls into the fourth and fifth quintiles,
either because its price has risen or its fundamentals have deteriorated - it
generally becomes a candidate for sale. The Disciplined Equity Portfolio's
sector weightings are matched to those of the S&P 500 Index, The Disciplined
Equity Portfolio's benchmark. The Advisor, also controls The Disciplined Equity
Portfolio's exposure to style and theme bets and maintains near-market security
weightings in individual security holdings. This process results in an
investment portfolio containing approximately 300 stocks.
INVESTMENT PROCESS FOR THE U.S. SMALL COMPANY OPPORTUNITES PORTFOLIO
Research: The Advisor's more than 20 domestic equity analysts, each an
industry specialist with an average of over 10 years of experience, continuously
monitor the small cap stocks in their respective sectors with the aim of
identifying companies that exhibit superior financial strength and operating
returns. Meetings with management and on-site visits play a key role in shaping
their assessments. Their research goal is to forecast normalized, long-term
earnings and dividends for the most attractive small cap companies among those
they monitor -- a universe that contains a total of approximately 600 names.
Because the Advisor's analysts follow both the larger and smaller companies in
their industries -- in essence, covering their industries from top to bottom --
they are able to bring broad perspective to the research they do on both.
Valuation: The analysts' forecasts are converted into comparable
expected returns using a proprietary dividend discount model, which calculates
the long-term earnings by comparing a company's current stock price with the its
forecasted dividends and earnings. Within each industry, companies are ranked
according to their relative value and grouped into quintiles: those with the
highest expected returns (Quintile 1) are deemed the most undervalued relative
to their long-term earnings power, while those with the lowest expected returns
(Quintile 5)
are deemed the most overvalued.
Stock Selection: A diversified portfolio is constructed using
disciplined buy and sell rules. Purchases are concentrated among the stocks in
the top two quintiles of the rankings; the specific names selected reflect the
portfolio manager's judgment concerning the soundness of the underlying
forecasts, the likelihood that the perceived misvaluation will soon be
corrected, and the magnitude of the risks versus the rewards. Once a stock falls
into the third quintile -- because its price has risen or its fundamentals have
deteriorated -- it generally becomes a candidate for sale. While The U.S. Small
Company Opportunities Portfolio holds stocks in many industries to reduce the
impact of poor performance in any one sector, it tends to emphasize industries
with higher growth potential and does not track the sector weightings of the
overall small company stock market.
The following discussion supplements the information regarding the
investment objectives of the Portfolios and the policies to be employed to
achieve these objectives as set forth in Part A.
EQUITY INVESTMENTS
The Portfolios invest primarily in equity securities consisting of
common stock and other securities with equity characteristics. The securities in
which the Portfolios invest include those listed on any domestic or foreign
securities exchange or traded in the over-the-counter (OTC) market as well as
certain restricted or unlisted securities. A discussion of the various types of
equity investments which may be purchased by the Portfolios appears below.
EQUITY SECURITIES. The common stock in which the Portfolios may invest
include the common stock of any class or series of domestic or foreign
corporations or any similar equity interest, such as trust or partnership
interests. T he Portfolios' equity investments may also include preferred stock,
warrants, rights and convertible securities. These investments may or may not
pay dividends and may or may not carry voting rights. Common stock occupies the
most junior position in a company's capital structure.
The convertible securities in which the Portfolios may invest include
any debt securities or preferred stock which may be converted into common stock
or which carry the right to purchase common stock. Convertible securities
entitle the holder to exchange the securities for a specified number of shares
of common stock, usually of the same company, at specified prices within a
certain period of time.
The terms of any convertible security determine its ranking in a
company's capital structure. In the case of subordinated convertible debentures,
the holders' claims on assets and earnings are subordinated to the claims of
other creditors, and are senior to the claims of preferred and common
shareholders. In the case of convertible preferred stock, the holders' claims on
assets and earnings are subordinated to the claims of all creditors and are
senior to the claims of common shareholders.
COMMON STOCK WARRANTS. The Portfolios may invest in common stock
warrants that entitle the holder to buy common stock from the issuer of the
warrant at a specific price (the strike price) for a specific period of time.
The market price of warrants may be substantially lower than the current market
price of the underlying common stock, yet warrants are subject to similar price
fluctuations. As a result, warrants may be more volatile investments than the
underlying common stock.
Warrants generally do not entitle the holder to dividends or voting
rights with respect to the underlying common stock and do not represent any
rights in the assets of the issuer company. A warrant will expire worthless if
it is not exercised on or prior to the expiration date.
FOREIGN INVESTMENTS
The Portfolios may invest in certain foreign securities. The Portfolios
do not expect to invest more than 20% of their respective investments, at the
time of purchase, to be in securities of foreign issuers. This 20% limit is
designed to accommodate the increased globalization of companies as well as the
re-domiciling of companies for tax treatment purposes. It is not currently
expected to be used to increase direct non-U.S. exposure.
Investors should realize that the value of the Portfolios' 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 Portfolios' 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 Portfolios 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, a Portfolio's foreign
investments may be less liquid and their prices may be more volatile than
comparable investments in securities of U.S. companies. Moreover, the settlement
periods for foreign securities, which are often longer than those for securities
of U.S. issuers, may affect portfolio liquidity. In buying and selling
securities on foreign exchanges, purchasers normally pay fixed commissions that
are generally higher than the negotiated commissions charged in the 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.
Foreign investments may be made directly in securities of foreign
issuers or in the form of American Depository Receipts ("ADRs"), European
Depository Receipts ("EDRs") and Global Depository Receipts ("GDRs") or other
similar securities of foreign issuers. ADRs are securities, typically issued by
a U.S. financial institution (a "depository"), that evidence ownership interests
in a security or a pool of securities issued by a foreign issuer and deposited
with the depository. ADRs include American Depository Shares and New York
Shares. EDRs are receipts issued by a European financial institution. GDRs,
which are sometimes referred to as Continental Depository Receipts ("CDRs"), are
securities, typically issued by a non-U.S. financial institution, that evidence
ownership interests in a security or a pool of securities issued by either a
U.S. or foreign issuer. ADRs, EDRs, GDRs and CDRs may be available for
investment through "sponsored" or "unsponsored" facilities. A sponsored facility
is established jointly by the issuer of the security underlying the receipt and
a depository, whereas an unsponsored facility may be established by a depository
without participation by the issuer of the receipt's underlying security.
Holders of an unsponsored depository receipt generally bear all costs
of the unsponsored facility. The depository of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited security or to pass through to the
holders of the receipts voting rights with respect to the deposited securities.
Since investments in foreign securities may involve foreign currencies,
the value of the Portfolios' 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. 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 Portfolios'
currency exposure related to foreign investments.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Because the Portfolios may buy and sell securities and receive interest
and dividends in currencies other than the U.S. dollar, the Portfolios may enter
from time to time into foreign currency exchange transactions. The Portfolios
either enter into these transactions on a spot (i.e., cash) basis at the spot
rate prevailing in the foreign currency exchange market or uses forward
contracts to purchase or sell foreign currencies. The cost of the Portfolios'
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
Portfolios 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. Neither spot transactions nor forward foreign currency
exchange contracts eliminate fluctuations in the prices of the Portfolios'
securities or in foreign exchange rates, or prevent loss if the prices of these
securities should decline.
The Portfolios 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 Portfolios 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 Portfolios 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 Portfolios 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 Portfolios to assume the
risk of fluctuations in the value of the currency purchased vis a vis the hedged
currency and the U.S. dollar. The precise matching of the forward contract
amounts and the value of the securities involved will not generally be possible
because the future value of such securities in foreign currencies will change as
a consequence of market movements in the value of such securities between the
date the forward contract is entered into and the date it matures. The
projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly uncertain.
ADDITIONAL INVESTMENTS
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolios may
purchase securities on a when-issued or delayed delivery basis. For example,
delivery of and payment for these securities can take place a month or more
after the date of the purchase commitment. The purchase price and the interest
rate payable, if any, on the securities are fixed on the purchase commitment
date or at the time the settlement date is fixed. The value of such securities
is subject to market fluctuation and for money market instruments and other
fixed income securities no interest accrues to the Portfolios until settlement
takes place. At the time the Portfolios make the commitment to purchase
securities on a when-issued or delayed delivery basis, they will record the
transaction, reflect the value each day of such securities in determining its
net asset value and 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, the Portfolios
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, the Portfolios will meet their obligations from maturities or
sales of the securities held in the segregated account and/or from cash flow. If
the Portfolios choose to dispose of the right to acquire a when-issued security
prior to its acquisition, they could, as with the disposition of any other
portfolio obligation, incur a gain or loss due to market fluctuation. Also, the
Portfolios may be disadvantaged if the other party to the transaction defaults.
It is the current policy of the Portfolios not to enter into when-issued
commitments exceeding in the aggregate 15% of the market value of the
Portfolios' 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 the Portfolios to the extent permitted under the Investment
Company Act of 1940, as amended (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 Portfolios' total assets will be invested in the securities of any
one investment company, (ii) not more than 10% of the value of their 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 Portfolios. As a shareholder of
another investment company, the Portfolios 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 Portfolios bear directly in connection with their own
operations.
The Securities and Exchange Commission ("SEC") has granted the
Portfolios an exemptive order permitting it to invest its uninvested cash in any
of the following affiliated money market funds: J.P. Morgan Institutional Prime
Money Market Fund, J.P. Morgan Institutional Tax Exempt Money Market Fund, J.P.
Morgan Institutional Federal Money Market Fund and J.P. Morgan Institutional
Treasury Money Market Fund. The order sets the following conditions: (1) the
Portfolio may invest in one or more of the permitted money market funds up to an
aggregate limit of 25% of its assets; and (2) the Advisor will waive and/or
reimburse its advisory fee from the Portfolio in an amount sufficient to offset
any doubling up of investment advisory and shareholder servicing fees. The
Portfolio has applied for additional exemptive relief from the SEC to permit the
Portfolio to invest in additional affiliated investment companies. If the
requested relief is granted, the Portfolio would then be permitted to invest in
non-money market affiliated funds, subject to certain conditions specified in
the applicable order.
REVERSE REPURCHASE AGREEMENTS. The Portfolios may enter into reverse
repurchase agreements. In a reverse repurchase agreement, the Portfolios sell a
security and agree to repurchase the same security at a mutually agreed upon
date and price reflecting the interest rate effective for the term of the
agreement. For purposes of the 1940 Act a reverse repurchase agreement is also
considered as the borrowing of money by the Portfolios and, therefore, a form of
leverage. Leverage may cause any gains or losses for the Portfolios to be
magnified. The Portfolios will invest the proceeds of borrowings under reverse
repurchase agreements. In addition, except for liquidity purposes, the
Portfolios will enter into a reverse repurchase agreement only when the expected
return from the investment of the proceeds is greater than the expense of the
transaction. The Portfolios will not invest the proceeds of a reverse repurchase
agreement for a period which exceeds the duration of the reverse repurchase
agreement. The Portfolios will establish and maintain with the custodian a
separate account with a segregated portfolio of securities in an amount at least
equal to its purchase obligations under its reverse repurchase agreements. See
"Investment Restrictions" for each Portfolio's limitations on reverse repurchase
agreements and bank borrowings.
LOANS OF PORTFOLIO SECURITIES. The Portfolios are permitted to lend
their securities in an amount up to 331/3% of the value of their net assets. The
Portfolios may lend their securities if such loans are secured continuously by
cash or equivalent collateral or by a letter of credit in favor of the
Portfolios 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 Portfolios 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 the Portfolios and their investors. The
Portfolios may pay reasonable finders' and custodial fees in connection with a
loan. In addition, the Portfolios will consider all facts and circumstances
before entering into such an agreement, including the creditworthiness of the
borrowing financial institution, and the Portfolios will not make any loans in
excess of one year. The Portfolios will not lend their securities to any
officer, Trustee, Director, employee or other affiliate of the Portfolios,
Advisor, Private Placement Agent or Administrator, unless otherwise permitted by
applicable law.
IILIQUID INVESTMENTS; PRIVATELY PLACED AND OTHER UNREGISTERED
SECURITIES. No Portfolio may not acquire any illiquid securities if, as a result
thereof, more than 15% of its net assets would be in illiquid investments.
Subject to this non-fundamental policy limitation, the Portfolios may acquire
investments that are illiquid or have limited liquidity, such as private
placements or investments that are not registered under the Securities Act of
1933, as amended (the "1933 Act") and cannot be offered for public sale in the
United States without first being registered under the 1933 Act. An illiquid
investment is any investment that cannot be disposed of within seven days in the
normal course of business at approximately the amount at which it is valued by
the Portfolios. The price the Portfolios pay for illiquid securities or receive
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 Portfolios 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. The Trustees will
monitor the Advisor's implementation of these guidelines on a periodic basis.
As to illiquid investments, the Portfolios are subject to a risk that
should the Portfolios decide to sell them when a ready buyer is not available at
a price the Portfolios deem representative of their value, the value of the
Portfolios' net assets could be adversely affected. Where an illiquid security
must be registered under 1933 Act, before it may be sold, the Portfolios 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
Portfolios may be permitted to sell a security under an effective registration
statement. If, during such a period, adverse market conditions were to develop,
the Portfolios may obtain a less favorable price than prevailed when it decided
to sell.
MONEY MARKET INSTRUMENTS
Although the Portfolios intend, under normal circumstances and to the
extent practicable, to be fully invested in equity securities, the Portfolios
may invest in money market instruments to the extent consistent with their
investment objectives and policies. The Portfolios may make money market
investments pending other investment or settlement, for liquidity or in adverse
market conditions. A description of the various types of money market
instruments that may be purchased by the Portfolios appears below. Also see
"Quality and Diversification Requirements".
U.S. TREASURY SECURITIES. 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. 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. 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. In the case of securities not backed by the full faith and credit of the
United States, the Portfolios 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 themselves in the event the
agency or instrumentality does not meet their commitments. Securities in which
the Portfolios may invest that are not backed by the full faith and credit of
the United States include, but are not limited to: (i) obligations of the
Tennessee Valley Authority, the Federal Home Loan Mortgage Corporation, the
Federal Home Loan Banks and the U.S. Postal Service, each of which has the right
to borrow from the U.S. Treasury to meet its obligations; (ii) securities issued
by the Federal National Mortgage Association, which are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; and (iii) obligations of the Federal Farm Credit System and the
Student Loan Marketing Association, each of whose obligations may be satisfied
only by the individual credits of the issuing agency.
FOREIGN GOVERNMENT OBLIGATIONS. The Portfolios, subject to their 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. The Portfolios, unless otherwise noted in 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 total assets (the "Asset Limitation")
and are organized under the laws of the United States or any state, (ii) foreign
branches of these banks or of foreign banks of equivalent size (Euros) and (iii)
U.S. branches of foreign banks of equivalent size (Yankees). See "Foreign
Investments" The Portfolios will not invest in obligations for which the
Advisor, or any of its affiliated persons, is the ultimate obligor or accepting
bank. The Portfolios may also invest in obligations of international banking
institutions designated or supported by national governments to promote economic
reconstruction, development or trade between nations (e.g., the European
Investment Bank, the Inter-American Development Bank, or the World Bank).
COMMERCIAL PAPER. The Portfolios may invest in commercial paper,
including master demand obligations. Master demand obligations are obligations
that provide for a periodic adjustment in the interest rate paid and permit
daily changes in the amount borrowed. Master demand obligations are governed by
agreements between the issuer and Morgan Guaranty Trust Company of New York
("Morgan"), an affiliate of the Advisor, acting as agent, for no additional fee.
The monies loaned to the borrower come from accounts managed by Morgan or its
affiliates, pursuant to arrangements with such accounts. Interest and principal
payments are credited to such accounts. Morgan, an affiliate of the Advisor, 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 Morgan. Since master demand obligations typically are
not rated by credit rating agencies, the Portfolios may invest in such unrated
obligations only if at the time of an investment the obligation is determined by
the Advisor to have a credit quality which satisfies the Portfolios' quality
restrictions. See "Quality and Diversification Requirements". It is possible
that the issuer of a master demand obligation could be a client of Morgan, to
whom Morgan, an affiliate of the Advisor, in its capacity as a commercial bank,
has made a loan.
REPURCHASE AGREEMENTS. The Portfolios may enter into repurchase
agreements with brokers, dealers or banks that meet the credit guidelines
approved by the Trustees. In a repurchase agreement, the Portfolios buy 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 Portfolios are 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 the
Portfolios 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. The
Portfolios will always receive securities as collateral whose market value is,
and during the entire term of the agreement remains, at least equal to 100% of
the dollar amount invested by the Portfolios in each agreement plus accrued
interest, and the Portfolios will make payment for such securities only upon
physical delivery or upon evidence of book entry transfer to the account of the
Portfolios' custodian (the "Custodian"). If the seller defaults, the Portfolios
may incur a loss if the value of the collateral securing the repurchase
agreement declines and might incur disposition costs in connection with
liquidating the collateral. In addition, if bankruptcy proceedings are commenced
with respect to the seller of the security, realization upon disposal of the
collateral by the Portfolios may be delayed or limited.
The Portfolios may make investments in other debt securities with
remaining effective maturities of not more than thirteen months, including
without limitation corporate and foreign bonds, asset-backed securities and
other obligations described in this Part B.
QUALITY AND DIVERSIFICATION REQUIREMENTS
The Portfolios intend to meet the diversification requirements of the
1940 Act. To meet these requirements, 75% of the assets of the Portfolios are
subject to the following fundamental limitations: (1) the Portfolios 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 Portfolios may not own more than 10% of the outstanding voting
securities of any one issuer. As for the other 25% of the Portfolios' 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. Investments not subject to the limitations
described above could involve an increased risk to the Portfolios 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.
The Portfolios may invest in convertible debt securities, for which
there are no specific quality requirements. In addition, at the time the
Portfolios invest in any commercial paper, bank obligation or repurchase
agreement, the issuer must have outstanding debt rated A or higher by Moody's
Investors Service, Inc. ("Moody's") or Standard & Poor's Ratings Group
("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 Portfolios invest
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. A description of illustrative
credit ratings is set forth in Appendix A attached to this Part B.
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
The Portfolios may (a) purchase and sell exchange traded and
over-the-counter (OTC) put and call options on equity securities or indexes of
equity securities, (b) purchase and sell futures contracts on indexes of equity
securities and (c) purchase and sell 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 Portfolios may utilize options and futures contracts to manage
their 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 Portfolios' 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 Portfolios' overall strategy in a manner
deemed appropriate to the Advisor and consistent with the Portfolios' objectives
and policies. Because combined options positions involve multiple trades, they
result in higher transaction costs and may be more difficult to open and close
out.
The use of options and futures is a highly specialized activity which
involves investment strategies and risks different from those associated with
ordinary portfolio securities transactions, and there can be no guarantee that
their use will increase a Portfolio's return. While the use of these instruments
by the Portfolios may reduce certain risks associated with owning their
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
Portfolios' returns. Certain strategies limit the Portfolios' possibilities to
realize gains as well as limiting their exposure to losses. The Portfolios could
also experience losses if the prices of their options and futures positions were
poorly correlated with their other investments, or if they could not close out
their positions because of an illiquid secondary market. In addition, the
Portfolios will incur transaction costs, including trading commissions and
option premiums, in connection with their futures and options transactions and
these transactions could significantly increase the Portfolios' turnover rates.
Each 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 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.
OPTIONS
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, the
Portfolios obtain the right (but not the obligation) to sell the instrument
underlying the option at a fixed strike price. In return for this right, the
Portfolios pay 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 Portfolios may terminate their position in a put option
they have purchased by allowing it to expire or by exercising the option. The
Portfolios 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 Portfolios will lose the entire premium they paid. If the Portfolios
exercise a put option on a security, they will sell the instrument underlying
the option at the strike price. If the Portfolios exercise an option on an
index, settlement is in cash and does not involve the actual sale of securities.
If an option is American style, it may be exercised on any day up to its
expiration date. A European style option may be exercised only on its expiration
date.
The buyer of a typical put option can expect to realize a gain if the
price of the underlying instrument falls substantially. However, if the price of
the instrument underlying the option does not fall enough to offset the cost of
purchasing the option, a put buyer can expect to suffer a loss (limited to the
amount of the premium paid, plus related transaction costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the instrument underlying the option at the option's
strike price. A call buyer typically attempts to participate in potential price
increases of the instrument underlying the option with risk limited to the cost
of the option if security prices fall. At the same time, the buyer can expect to
suffer a loss if security prices do not rise sufficiently to offset the cost of
the option.
SELLING (WRITING) PUT AND CALL OPTIONS. When the Portfolios write a put
option, they take the opposite side of the transaction from the option's
purchaser. In return for receipt of the premium, the Portfolios assume 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 Portfolios may seek to
terminate their position in a put option they write 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 Portfolios have written, however, the
Portfolios 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 Portfolios to sell or deliver the
option's underlying instrument in return for the strike price upon exercise of
the option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium a call writer offsets part of the effect of a price decline. At the same
time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is greater,
a call writer gives up some ability to participate in security price increases.
The writer of an exchange traded put or call option on a security, an
index of securities or a futures contract is required to deposit cash or
securities or a letter of credit as margin and to make mark to market payments
of variation margin as the position becomes unprofitable.
OPTIONS ON INDEXES. Options on securities indexes are similar to
options on securities, except that the exercise of securities index options is
settled by cash payment and does not involve the actual purchase or sale of
securities. In addition, these options are designed to reflect price
fluctuations in a group of securities or segment of the securities market rather
than price fluctuations in a single security. The Portfolios, in purchasing or
selling index options, are subject to the risk that the value of their portfolio
securities may not change as much as an index because the Portfolios'
investments generally will not match the composition of an index.
For a number of reasons, a liquid market may not exist and thus the
Portfolios may not be able to close out an option position that they have
previously entered into. When the Portfolios purchase an OTC option, it will be
relying on its counterparty to perform their obligations, and the Portfolios may
incur additional losses if the counterparty is unable to perform.
EXCHANGE TRADED AND OVER-THE-COUNTER OPTIONS. All options purchased or
sold by the Portfolios will be traded on a securities exchange or will be
purchased or sold by securities dealers (OTC options) that meet creditworthiness
standards approved by the Board of Trustees. While exchange-traded options are
obligations of the Options Clearing Corporation, in the case of OTC options, the
Portfolios rely on the dealer from which it purchased the option to perform if
the option is exercised. Thus, when the Portfolios purchase an OTC option, they
rely on the dealer from which they 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 Portfolios as well as loss of the expected
benefit of the transaction. Provided that the Portfolios have arrangements with
certain qualified dealers who agree that the Portfolios may repurchase any
option they write for a maximum price to be calculated by a predetermined
formula, the Portfolios may treat the underlying securities used to cover
written OTC options as liquid. In these cases, the OTC option itself would only
be considered illiquid to the extent that the maximum repurchase price under the
formula exceeds the intrinsic value of the option.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. In entering into
futures and options transactions the Portfolios may purchase or sell (write)
futures contracts and purchase or sell put and call options, including put and
call options on futures contracts. Futures contracts obligate the buyer to take
and the seller to make delivery at a future date of a specified quantity of a
financial instrument or an amount of cash based on the value of a securities
index. Currently, futures contracts are available on various types of fixed
income securities, including but not limited to U.S. Treasury bonds, notes and
bills, Eurodollar certificates of deposit and on indexes of fixed income
securities and indexes of equity securities.
Unlike a futures contract, which requires the parties to buy and sell a
security or make a cash settlement payment based on changes in a financial
instrument or securities index on an agreed date, an option on a futures
contract entitles its holder to decide on or before a future date whether to
enter into such a contract. If the holder decides not to exercise its option,
the holder may close out the option position by entering into an offsetting
transaction or may decide to let the option expire and forfeit the premium
thereon. The purchaser of an option on a futures contract pays a premium for the
option but makes no initial margin payments or daily payments of cash in the
nature of "variation" margin payments to reflect the change in the value of the
underlying contract as does a purchaser or seller of a futures contract.
The seller of an option on a futures contract receives the premium paid
by the purchaser and may be required to pay initial margin. Amounts equal to the
initial margin and any additional collateral required on any options on futures
contracts sold by the Portfolios are paid by the Portfolios 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 may purchase and write options in
combination with each other, or in combination with futures or forward
contracts, to adjust the risk and return characteristics of the overall
position. For example, the Portfolios 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 the
Portfolios' current or anticipated investments exactly. The Portfolios 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 Portfolios' other investments.
Options and futures contracts prices can also diverge from the prices
of their underlying instruments, even if the underlying instruments match the
Portfolios' 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. The Portfolios may purchase or sell options
and futures contracts with a greater or lesser value than the securities they
wish to hedge or intend 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 the Portfolios' options
or futures positions are poorly correlated with their 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 the
Portfolios 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 the Portfolios to continue to hold a position until
delivery or expiration regardless of changes in its value. As a result, the
Portfolios' access to other assets held to cover their 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, the Portfolios or the Advisor may be
required to reduce the size of their 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 the Portfolios 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 the Portfolios' assets could impede
portfolio management or the Portfolios' ability to meet redemption requests or
other current obligations.
Although the Portfolio will not be commodity pools, certain derivatives
subject the Portfolio to the rules of the Commodity Futures Trading Commission
which limit the extent to which the Fund can invest in such derivatives. The
Portfolio may invest in futures contracts and options with respect thereto for
hedging purposes without limit. However, the Portfolio may not invest in such
contracts and options for other purposes if the sum of the amount of initial
margin deposits and premiums paid for unexpired options with respect to such
contracts, other than for bona fide hedging purposes, exceeds 5% of the
liquidation value of the Portfolio's assets, after taking into account
unrealized profits and unrealized losses on such contracts and options;
provided, however, that in the case of an option that is in-the-money at the
time of purchase, the in-the-money amount may be excluded in calculating the 5%
limitation.
SWAPS AND RELATED SWAP PRODUCTS
The Portfolios may engage in swap transactions, including, but not
limited to, interest rate, currency, securities index, basket, specific security
and commodity swaps, interest rate caps, floors and collars and options on
interest rate swaps (collectively defined as "swap transactions").
The Portfolios may enter into swap transactions for any legal purpose
consistent with their investment objectives and policies, such as for the
purpose of attempting to obtain or preserve a particular return or spread at a
lower cost than obtaining that return or spread through purchases and/or sales
of instruments in cash markets, to protect against currency fluctuations, as a
duration management technique, to protect against any increase in the price of
securities the Portfolio anticipates purchasing at a later date, or to gain
exposure to certain markets in the most economical way possible. The Portfolios
will not sell interest rate caps, floors or collars if it does not own
securities with coupons which provide the interest that the Portfolios may be
required to pay.
Swap agreements are two-party contracts entered into primarily by
institutional counterparties for periods ranging from a few weeks to several
years. In a standard swap transaction, two parties agree to exchange the returns
(or differentials in rates of return) that would be earned or realized on
specified notional investments or instruments. The gross returns to be exchanged
or "swapped" between the parties are calculated by reference to a "notional
amount," i.e., the return on or increase in value of a particular dollar amount
invested at a particular interest rate, in a particular foreign currency or
commodity, or in a "basket" of securities representing a particular index. The
purchaser of an interest rate cap or floor, upon payment of a fee, has the right
to receive payments (and the seller of the cap is obligated to make payments) to
the extent a specified interest rate exceeds (in the case of a cap) or is less
than (in the case of a floor) a specified level over a specified period of time
or at specified dates. The purchaser of an interest rate collar, upon payment of
a fee, has the right to receive payments (and the seller of the collar is
obligated to make payments) to the extent that a specified interest rate falls
outside an agreed upon range over a specified period of time or at specified
dates. The purchaser of an option on an interest rate swap, upon payment of a
fee (either at the time of purchase or in the form of higher payments or lower
receipts within an interest rate swap transaction) has the right, but not the
obligation, to initiate a new swap transaction of a pre-specified notional
amount with pre-specified terms with the seller of the option as the
counterparty.
The "notional amount" of a swap transaction is the agreed upon basis
for calculating the payments that the parties have agreed to exchange. For
example, one swap counterparty may agree to pay a floating rate of interest
(e.g., 3 month LIBOR) calculated based on a $10 million notional amount on a
quarterly basis in exchange for receipt of payments calculated based on the same
notional amount and a fixed rate of interest on a semi-annual basis. In the
event a Portfolio is obligated to make payments more frequently than it receives
payments from the other party, it will incur incremental credit exposure to that
swap counterparty. This risk may be mitigated somewhat by the use of swap
agreements which call for a net payment to be made by the party with the larger
payment obligation when the obligations of the parties fall due on the same
date. Under most swap agreements entered into by a Portfolio, payments by the
parties will be exchanged on a "net basis", and a Portfolio will receive or pay,
as the case may be, only the net amount of the two payments.
The amount of a Portfolio's potential gain or loss on any swap
transaction is not subject to any fixed limit. Nor is there any fixed limit on a
Portfolio's potential loss if it sells a cap or collar. If a Portfolio buys a
cap, floor or collar, however, a Portfolio's potential loss is limited to the
amount of the fee that it has paid. When measured against the initial amount of
cash required to initiate the transaction, which is typically zero in the case
of most conventional swap transactions, swaps, caps, floors and collars tend to
be more volatile than many other types of instruments.
The use of swap transactions, caps, floors and collars involves
investment techniques and risks which are different from those associated with
portfolio security transactions. If the Advisor is incorrect in its forecasts of
market values, interest rates, and other applicable factors, the investment
performance of the Portfolios will be less favorable than if these techniques
had not been used. These instruments are typically not traded on exchanges.
Accordingly, there is a risk that the other party to certain of these
instruments will not perform its obligations to the Portfolios or that the
Portfolios may be unable to enter into offsetting positions to terminate its
exposure or liquidate its position under certain of these instruments when it
wishes to do so. Such occurrences could result in losses to the Portfolios.
The Advisor will, however, consider such risks and will enter into
swap and other derivatives transactions only when it believes that the risks are
not unreasonable.
The Portfolios will maintain cash or liquid assets in a segregated
account with its custodian in an amount sufficient at all times to cover its
current obligations under its swap transactions, caps, floors and collars. If
the Portfolios enter into a swap agreement on a net basis, it will segregate
assets with a daily value at least equal to the excess, if any, of the
Portfolios' accrued obligations under the swap agreement over the accrued
amounts the Portfolios are entitled to receive under the agreement. If a
Portfolio enters into a swap agreement on other than a net basis, or sells a
cap, floor or collar, it will segregate assets with a daily value at least equal
to the full amount of a Portfolio's accrued obligations under the agreement.
The Portfolios will not enter into any swap transaction, cap, floor, or
collar, unless the counterparty to the transaction is deemed creditworthy by the
Advisor. If a counterparty defaults, the Portfolios may have contractual
remedies pursuant to the agreements related to the transaction. The swap markets
in which many types of swap transactions are traded have grown substantially in
recent years, with a large number of banks and investment banking firms acting
both as principals and as agents utilizing standardized swap documentation. As a
result, the markets for certain types of swaps (e.g., interest rate swaps) have
become relatively liquid. The markets for some types of caps, floors and collars
are less liquid.
The liquidity of swap transactions, caps, floors and collars will be as
set forth in guidelines established by the Advisor and approved by the Trustees
which are based on various factors, including (1) the availability of dealer
quotations and the estimated transaction volume for the instrument, (2) the
number of dealers and end users for the instrument in the marketplace, (3) the
level of market making by dealers in the type of instrument, (4) the nature of
the instrument (including any right of a party to terminate it on demand) and
(5) the nature of the marketplace for trades (including the ability to assign or
offset the Portfolios' rights and obligations relating to the instrument). Such
determination will govern whether the instrument will be deemed within the 15%
restriction on investments in securities that are not readily marketable.
During the term of a swap, cap, floor or collar, changes in the value
of the instrument are recognized as unrealized gains or losses by marking to
market to reflect the market value of the instrument. When the instrument is
terminated, a Portfolio will record a realized gain or loss equal to the
difference, if any, between the proceeds from (or cost of) the closing
transaction and a Portfolio's basis in the contract.
The federal income tax treatment with respect to swap transactions,
caps, floors, and collars may impose limitations on the extent to which a
Portfolio may engage in such transactions.
RISK MANAGEMENT
The Portfolios may employ non-hedging risk management techniques. Risk
management strategies are used to keep the Portfolios fully invested and to
reduce the transaction costs associated with cash flows into and out of the
Portfolios. The objective where equity futures are used to "equitize" cash is to
match the notional value of all futures contracts to the Portfolios' cash
balance. The notional value of futures and of cash is monitored daily. As the
cash is invested in securities and/or paid out to participants in redemptions,
the Advisor simultaneously adjusts the futures positions. Through such
procedures, the Portfolios not only gain equity exposure from the use of
futures, but also benefit from increased flexibility in responding to client
cash flow needs. Additionally, because it can be less expensive to trade a list
of securities as a package or program trade rather than as a group of individual
orders, futures provide a means through which transaction costs can be reduced.
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
The Disciplined Equity Portfolio portfolio turnover rates for the
fiscal years ended May 31, 1998, 1999 and 2000 were 61% , 51% and 51%,
respectively. The U.S. Small Company Opportunities Portfolio portfolio turnover
rates for the period June 16, 1997 (commencement of operations) through May 31,
1998 and for the fiscal year ended May 31, 1999 and 2000 were 73% , 116% and
132% respectively. 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. To the
extent net short term capital gains are realized, any distributions resulting
from such gains are considered ordinary income for federal income purposes. See
Item 20 below.
INVESTMENT RESTRICTIONS
The investment restrictions below have been adopted by the Portfolios.
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" (as defined in the 1940 Act) of
the Portfolios. 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 security holders 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.
The Portfolios:
1. May not make any investments inconsistent with a Portfolio's classification
as a diversified investment company under the Investment Company Act of 1940;
2. May not purchase any security which would cause a Portfolio to concentrate
its investments in the securities of issuers primarily engaged in any particular
industry except as permitted by the SEC;
3. May not issue senior securities, except as permitted under the Investment
Company Act of 1940 or any rule, order or interpretation thereunder;
4. May not borrow money, except to the extent permitted by applicable law;
5. May not underwrite securities of other issuers, except to the extent that a
Portfolio, in disposing of portfolio securities, may be deemed an underwriter
within the meaning of the 1933 Act;
6. May not purchase or sell real estate, except that, to the extent permitted by
applicable law, a Portfolio may (a) invest in securities or other instruments
directly or indirectly secured by real estate, and (b) invest in securities or
other instruments issued by issuers that invest in real estate;
7. May not purchase or sell commodities or commodity contracts unless acquired
as a result of ownership of securities or other instruments issued by persons
that purchase or sell commodities or commodities contracts; but this shall not
prevent the Portfolios from purchasing, selling and entering into financial
futures contracts (including futures contracts on indices of securities,
interest rates and currencies), options on financial futures contracts
(including futures contracts on indices of securities, interest rates and
currencies), warrants, swaps, forward contracts, foreign currency spot and
forward contracts or other derivative instruments that are not related to
physical commodities; and
8. May make loans to other persons, in accordance with their respective
investment objectives and policies and to the extent permitted by applicable
law.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS. The investment restrictions
described below are not fundamental policies of the Portfolios and may be
changed by their Trustees. These non-fundamental investment policies require
that the Portfolios:
(i) May not 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 a Portfolio's net assets would be in investments which are illiquid;
(ii) May not purchase securities on margin, make short sales of securities, or
maintain a short position, provided that this restriction shall not be deemed to
be applicable to the purchase or sale of when-issued or delayed delivery
securities, or to short sales that are covered in accordance with SEC rules; and
(iii) May not acquire securities of other investment companies, except as
permitted by the 1940 Act or any order pursuant thereto.
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.
For purposes of fundamental investment restrictions regarding industry
concentration, the Advisor may classify issuers by industry in accordance with
classifications set forth in the Directory of Companies Filing Annual Reports
With The Securities and Exchange Commission or other sources. In the absence of
such classification or if the Advisor determines in good faith based on its own
information that the economic characteristics affecting a particular issuer make
it more appropriately considered to be engaged in a different industry, the
Advisor may classify an issuer accordingly. For instance, personal credit
finance companies and business credit finance companies are deemed to be
separate industries and wholly owned finance companies are considered to be in
the industry of their parents if their activities are primarily related to
financing the activities of their parents.
ITEM 14. MANAGEMENT OF THE PORTFOLIOS.
The Trustees and officers of the Portfolios, their business addresses, and
principal occupations during the past five years and dates of birth are set
forth below. Their titles may have varied during that period. A footnote
indicates that a trustee is an "interested person" (as defined in the 1940 Act)
of the Portfolios.
TRUSTEES AND OFFICERS
Trustees
Frederick S. Addy -- Trustee; Retired; Former Executive Vice President
and Chief Financial Officer, Amoco Corporation. His address is 5300 Arbutus
Cove, Austin, Texas 78746, and his date of birth is January 1, 1932.
William G. Burns -- Trustee; Retired; Former Vice Chairman and Chief
Financial Officer, NYNEX. His address is 2200 Alaqua Drive, Longwood, Florida
32779, and his date of birth is November 2, 1932.
Arthur C. Eschenlauer -- Trustee; Retired; Former Senior Vice
President, Morgan Guaranty Trust Company of New York. His address is 14 Alta
Vista Drive, RD #2, Princeton, New Jersey 08540, and his date of birth is May
23, 1934.
Matthew Healey1 -- Trustee; Chairman and Chief Executive Officer; Chairman,
Pierpont Group, Inc. ("Pierpont Group") since prior to 1993. His address is Pine
Tree Country Club Estates, 10286 St. Andrews Road, Boynton Beach, Florida 33436,
and his date of birth is August 23, 1937.
Michael P. Mallardi -- Trustee; Retired; Prior to April 1996, Senior
Vice President, Capital Cities/ABC, Inc. and President, Broadcast Group prior to
April 1996. His address is 10 Charnwood Drive, Suffern, New York 10901, and his
date of birth is March 17, 1934.
The Trustees of the Portfolio Trust are the same as the Trustees of
each of the other Master Portfolios, J.P. Morgan Funds, J.P. Morgan
Institutional Funds and J.P. Morgan Series Trust. In accordance with applicable
state requirements, a majority of the disinterested Trustees have adopted
written procedures reasonably appropriate to deal with potential conflicts of
interest arising from the fact that the same individuals are Trustees of the
Master Portfolios, J.P. Morgan Funds and J.P. Morgan Institutional Funds, up to
and including creating a separate board of trustees.
Each Trustee is currently paid an annual fee of $75,000 (adjusted as of
April 1, 1997) for serving as Trustee of the Master Portfolios (as defined
below), J.P. Morgan Funds, J.P. Morgan Institutional Funds and J.P. Morgan
Series Trust and is reimbursed for expenses incurred in connection with service
as a Trustee. The Trustees may hold various other directorships unrelated to the
Portfolio.
<PAGE>
Trustee compensation expenses paid by the Master Portfolios(as
defined below), J.P. Morgan Institutional Funds and J.P. Morgan Funds for the
calendar year ended December 31, 1999 are set forth below.
---------------------------------------------------- --------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
TOTAL TRUSTEE COMPENSATION PAID
BY THE MASTER PORTFOLIOS(*), J.P.
MORGAN INSTITUTIONAL FUNDS, J.P.
AGGREGATE MORGAN FUNDS AND J.P. MORGAN
TRUSTEE COMPENSATION SERIES TRUST DURING
PAID BY THE PORTFOLIO 1999(**)______________
TRUST
DURING 1999____
NAME OF TRUSTEE
---------------------------------------------------- -------------------------- -----------------------------------
---------------------------------------------------- -------------------------- -----------------------------------
Frederick S. Addy, Trustee $12,720 $75,000
---------------------------------------------------- -------------------------- -----------------------------------
---------------------------------------------------- -------------------------- -----------------------------------
William G. Burns, Trustee $12,720 $75,000
---------------------------------------------------- -------------------------- -----------------------------------
---------------------------------------------------- -------------------------- -----------------------------------
Arthur C. Eschenlauer, Trustee $12,720 $75,000
---------------------------------------------------- -------------------------- -----------------------------------
---------------------------------------------------- -------------------------- -----------------------------------
Matthew Healey, Trustee(***) $12,720 $75,000
Chairman and Chief Executive
Officer
---------------------------------------------------- -------------------------- -----------------------------------
---------------------------------------------------- -------------------------- -----------------------------------
Michael P. Mallardi, Trustee $12,720 $75,000
---------------------------------------------------- -------------------------- -----------------------------------
</TABLE>
(*) Includes the Portfolio Trust (which is currently comprised of five
active subtrusts) and 16 other portfolios (collectively, the "Master
Portfolios") for which JPMIM acts as investment adviser.
(**) No investment company within the fund complex has a pension or
retirement plan. Currently there are 17 investment companies (14 investment
companies comprising the Master Portfolios, J.P. Morgan Funds, J.P. Morgan
Institutional Funds and J.P. Morgan Series Trust) in the fund complex.
(***) During 1998, Pierpont Group paid Mr. Healey, in his role as Chairman of
Pierpont Group compensation in the amount of $153,800, contributed
$23,100 to a defined contribution plan on his behalf and paid $17,300
in insurance premiums for his benefit.
The Trustees of the Portfolios decide upon general policies and are
responsible for overseeing the Portfolios' business affairs. The Portfolio Trust
has entered into a Portfolio Fund Services Agreement with Pierpont Group to
assist the Trustees in exercising their overall supervisory responsibilities for
the Portfolio Trust's affairs. Pierpont Group was organized in July 1989 to
provide services for The Pierpont Family of Funds (now the J.P. Morgan Family of
Funds), and the Trustees are the equal and sole shareholders of Pierpont Group.
The Portfolios have agreed to pay Pierpont Group a fee in an amount representing
its reasonable costs in performing these services to the Portfolio Trust and
certain other registered investment companies subject to similar agreements with
Pierpont Group. These costs are periodically reviewed by the Trustees. The
principal offices of Pierpont Group, Inc. are located at 461 Fifth Avenue, New
York, New York 10017.
The aggregate fees paid to Pierpont Group by the Portfolios during the
indicated fiscal periods are set forth below:
THE DISCIPLINED EQUITY PORTFOLIO -- For the period December 30, 1996
(commencement of operations) through May 31, 1997 and for the fiscal years ended
May 31, 1998, 1999 and 2000: $607, $5,818, $14,804 and $24,487, respectively.
THE U.S. SMALL COMPANY OPPORTUNITIES PORTFOLIO -- For the period June 16, 1997
(commencement of operations) through May 31, 1998 and for the fiscal years ended
May 31, 1999 and 2000: $3,088, $5,046 and $8,042, respectively.
The Portfolio Trust has no employees; its executive officers (listed
below), other than the Chief Executive Officer and the officers who are
employees of the Advisor, are provided and compensated by Funds Distributor,
Inc. ("FDI"), a wholly owned, indirect subsidiary of Boston Institutional Group,
Inc. The Portfolio Trust's officers conduct and supervise the business
operations of the Portfolio Trust.
The officers of the Portfolio Trust, their principal occupations during the
past five years and dates of birth are set forth below. The business address of
each of the officers unless otherwise noted is Funds Distributor, Inc., 60 State
Street, Suite 1300, Boston, Massachusetts 02109.
MATTHEW HEALEY; Chief
Executive Officer; Chairman, Pierpont Group, since prior to 1993. His address is
c/o Pierpont Group, Inc. 451 Fifth Avenue, New York, New York 10017. His date of
birth is August 23, 1937.
MARGARET W. CHAMBERS; Vice President and Secretary. Senior Vice President
and General Counsel of FDI since April, 1998. From August 1996 to March 1998,
Ms. Chambers was Vice President and Assistant General Counsel for Loomis, Sayles
& Company, L.P. From January 1986 to July 1996, she was an associate with the
law firm of Ropes & Gray. Her date of birth is October 12, 1959.
MARIE E. CONNOLLY; Vice President and Assistant Treasurer. President,
Chief Executive Officer, Chief Compliance Officer and Director of FDI, Premier
Mutual Fund Services, Inc., an affiliate of FDI ("Premier Mutual") and an
officer of certain investment companies distributed or administered by FDI. Her
date of birth is August 1, 1957.
DOUGLAS C. CONROY; Vice President and Assistant Treasurer. Assistant Vice
President and Assistant Department Manager of Treasury Services and
Administration of FDI and an officer of certain investment companies distributed
or administered by FDI. Prior to April 1997, Mr. Conroy was Supervisor of
Treasury Services and Administration of FDI. From April 1993 to January 1995,
Mr. Conroy was a Senior Fund Accountant for Investors Bank & Trust Company. His
date of birth is March 31, 1969.
KAREN JACOPPO-WOOD; Vice President and Assistant Secretary. Vice
President and Senior Counsel of FDI and an officer of certain investment
companies distributed or administered by FDI. From June 1994 to January 1996,
Ms. Jacoppo-Wood was a Manager of SEC Registration at Scudder, Stevens & Clark,
Inc. Her date of birth is December 29, 1966.
CHRISTOPHER J. KELLEY; Vice President and Assistant Secretary. Vice
President and Senior Associate General Counsel of FDI and Premier Mutual and an
officer of certain investment companies distributed or administered by FDI. From
April 1994 to July 1996, Mr. Kelley was Assistant Counsel at Forum Financial
Group. His date of birth is December 24, 1964.
MARY A. NELSON; Vice President and Assistant Treasurer. Vice President and
Manager of Treasury Services and Administration of FDI and Premier Mutual and an
officer of certain investment companies distributed or administered by FDI. Her
date of birth is April 22, 1964.
MARY JO PACE; Assistant Treasurer. Vice President, Morgan Guaranty Trust
Company of New York. Ms. Pace serves in the Funds Administration group as a
Manager for the Budgeting and Expense Processing Group. Prior to September 1995,
Ms. Pace served as a Fund Administrator for Morgan Guaranty Trust Company of New
York. Her address is 522 Fifth Avenue, New York, New York 10036. Her date of
birth is March 13, 1966.
ELBA VASQUEZ - Vice President and Assistant Secretary. Vice President
since February 1999, Assistant Vice President (since June 1997), and Sales
Associate (since May 1996) of FDI. Formerly (March 1990 - May 1996), employed in
various mutual fund sales and marketing positions by U.S. Trust Company of New
York. Her address is 200 Park Avenue, New York, New York 10166. Her date of
birth is December 14, 1961.
GEORGE A. RIO; President and Treasurer. Executive Vice President and Client
Service Director of FDI since April 1998. From June 1995 to March 1998, Mr. Rio
was Senior Vice President and Senior Key Account Manager for Putnam Mutual
Funds. From May 1994 to June 1995, Mr. Rio was Director of Business Development
for First Data Corporation. His date of birth is January 2, 1955.
CHRISTINE ROTUNDO; Assistant Treasurer. Vice President. Ms. Rotundo serves
in the Funds Administration group as Head of Infrastructure and is responsible
for special projects. Prior to January 2000, she served as the Manager of the
Tax Group and is responsible for U.S. mutual fund tax matters. Prior to
September 1995, Ms. Rotundo served as a Senior Tax Manager in the Investment
Company Services Group of Deloitte & Touche LLP. Her address is 522 Fifth
Avenue, New York, New York 10036. Her date of birth is September 26, 1965.
CODE OF ETHICS
.........The Portfolios, the Advisor and FDI have adopted codes of ethics
pursuant to Rule 17j-1 under the 1940 Act. Each of these codes permits personnel
subject to such code to invest in securities, including securities that may be
purchased or held by the Portfolios. Such purchases, however, are subject to
preclearance and other procedures reasonably necessary to prevent Access Persons
from engaging in any unlawful conduct set forth in Rule 17j-1.
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 Portfolios, unless, as to liability to the Portfolios or their
investors, it is finally adjudicated that they engaged in willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in
their offices, or unless with respect to any other matter it is finally
adjudicated that they did not act in good faith in the reasonable belief that
their actions were in the best interests of the Portfolios. 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 willful misfeasance, bad faith, gross negligence or reckless disregard of
their duties.
ITEM 15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.
As of August 31, 2000, J.P. Morgan Institutional Disciplined Equity
Fund and J.P. Morgan Disciplined Equity Fund (series of the J.P. Morgan
Institutional Funds and J.P. Morgan Funds, respectively) (the "Funds") owned
31.68% and 58.03%, respectively, of the outstanding beneficial interests in The
Disciplined Equity Portfolio. So long as the Funds control The Disciplined
Equity Portfolio, they may take actions without the approval of any other holder
of beneficial interests in The Disciplined Equity Portfolio.
The Funds have informed the Portfolios that whenever they are requested
to vote on matters pertaining to the Portfolios (other than a vote by the
Portfolios to continue the operation of the Portfolios upon the withdrawal of
another investor in the Portfolios), they will hold a meeting of its
shareholders and will cast its vote as instructed by those shareholders.
The officers and trustees of the Portfolios own none of the outstanding
beneficial interests in the Portfolios.
ITEM 16. INVESTMENT ADVISORY AND OTHER SERVICES.
INVESTMENT ADVISOR. Effective October 1, 1998 the Portfolios'
investment advisor is JPMIM. Prior to that date, Morgan was the investment
advisor. JPMIM, a wholly owned subsidiary of J.P. Morgan & Co. Incorporated
("J.P. Morgan"), is a registered investment adviser under the Investment
Advisers Act of 1940, as amended, and 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 Morgan serves as trustee.
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 more than $326 billion.
J.P. Morgan has a long history of service as adviser, underwriter and
lender to an extensive roster of major companies and as a financial advisor to
national governments. The firm, through its predecessor firms, has been in
business for over a century and has been managing investments since 1913.
The basis of the Advisor's investment process is fundamental investment
research as the firm believes that fundamentals should determine an asset's
value over the long term. J.P. Morgan currently employs over 120 full time
research analysts, among the largest research staffs in the money management
industry, in its investment management divisions located in New York, London,
Tokyo, Frankfurt and Singapore to cover companies, industries and countries on
site. In addition, the investment management divisions employ approximately 420
capital market researchers, portfolio managers and traders. The conclusions of
the equity analysts' fundamental research is quantified into a set of projected
returns for individual companies through the use of a dividend discount model.
These returns are projected for 2 to 5 years to enable analysts to take a longer
term view. These returns, or normalized earnings, are used to establish relative
values among stocks in each industrial sector. These values may not be the same
as the markets' current valuations of these companies. This provides the basis
for ranking the attractiveness of the companies in an industry according to five
distinct quintiles or rankings. This ranking is one of the factors considered in
determining the stocks purchased and sold in each sector.
The investment advisory services the Advisor provides to the Portfolios
are not exclusive under the terms of the 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 16 below.
Sector weightings are generally similar to a benchmark with the
emphasis on security selection as the method to achieve investment performance
superior to the benchmark. The benchmark for The Disciplined Equity Portfolio is
currently the S&P 500. The benchmark for The U.S. Small Company Opportunities
Portfolio is currently the Russell 2000 Growth Index.
Morgan, also a wholly owned subsidiary of J.P. Morgan, is a bank
holding company organized under the laws of the State of Delaware. Morgan, whose
principal offices are at 60 Wall Street, New York, New York 10260, is a New York
trust company which conducts a general banking and trust business. Morgan is
subject to regulation by the New York State Banking Department and is a member
bank of the Federal Reserve System. Through offices in New York City and abroad,
Morgan offers a wide range of services, primarily to governmental,
institutional, corporate and high net worth individual customers in the United
States and throughout the world.
The Portfolios are managed by employees of the Advisor who, in acting
for their customers, including the Portfolios, do not discuss their investment
decisions with any personnel of J.P. Morgan or any personnel of other divisions
of the Advisor or with any of its affiliated persons, with the exception of
certain investment management affiliates of J.P. Morgan.
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 the Portfolios has agreed
to pay the Advisor a fee, which is computed daily and may be paid monthly, equal
to the annual rates of each Portfolios' average daily net assets shown below.
THE DISCIPLINED EQUITY PORTFOLIO: 0.35%
THE U.S. SMALL COMPANY OPPORTUNITIES PORTFOLIO: 0.60%
The table below sets forth for each Portfolio the advisory fees paid by
the Portfolios to Morgan and JPMIM, as applicable, for the fiscal periods
indicated.
THE DISCIPLINED EQUITY PORTFOLIO -- For the fiscal years ended May 31,
1998, 1999 and 2000: $628,965, $2,310,525 and $5,016,217, respectively.
THE U.S. SMALL COMPANY OPPORTUNITIES PORTFOLIO -- For the period June 16, 1997
(commencement of operations) through May 31, 1998 and for the fiscal years ended
May 31, 1999 and 2000: $596,695, $1,260,259 and $2,833,187, respectively.
The Investment Advisory Agreement provides that it will continue in
effect 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 its 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 at any time
without penalty by a vote of a majority of the Trustees of the Portfolios or by
a vote of the holders of a majority of the Portfolios' voting securities on 60
days' written notice to the Advisor and by the Advisor on 90 days' written
notice to the Portfolios.
If the Advisor were prohibited from acting as investment advisor to the
Portfolios, it is expected that the Trustees of the Portfolios would recommend
to investors that they approve the Portfolios' entering into a new investment
advisory agreement with another qualified investment advisor selected by the
Trustees.
Under a separate agreement, Morgan provides administrative and related
services to the Portfolios. See "Administrative Services Agent" in Part A above.
CO-ADMINISTRATOR. Under the Portfolio Trust's Co-Administration
Agreement dated August 1, 1996, FDI serves as the Portfolio Trust's
Co-Administrator. The Co-Administration Agreement may be renewed or amended by
the Trustee without an investor vote. The Co-Administration Agreement is
terminable at any time without penalty by a vote of a majority of the Trustees
of the Portfolio Trust on not more than 60 days' written notice nor less than 30
days' written notice to the other party. The Co-Administrator may, subject to
the consent of the Trustees of the Portfolio Trust, subcontract for the
performance of its obligations, provided, however, that unless the Portfolios
expressly agrees in writing, the Co-Administrator shall be fully responsible for
the acts and omissions of any subcontractor as it would for its own acts or
omissions. See "Administrative Services Agent" below.
For its services under the Co-Administration Agreement, the Portfolio
Trust has agreed to pay FDI fees equal to its allocable share of an annual
complex-wide charge of $425,000, plus FDI's out-of-pocket expenses. The amount
allocable to each Portfolio is based on the ratio of its net assets to the
aggregate net assets of the Master Portfolios and certain other investment
companies subject to similar agreements with FDI.
The following administrative fees were paid by the Portfolios to FDI:
THE DISCIPLINED EQUITY PORTFOLIO -- For the fiscal years ended May 31,
1998, 1999 and 2000: $3,742, $9,294 and $13,826, respectively.
THE U.S. SMALL COMPANY OPPORTUNITIES PORTFOLIO - For the period June 16, 1997
(commencement of operations) through May 31, 1998 and for the fiscal year ended
May 31, 1999 and 2000: $22,248, $3,103 and $6,159, respectively.
ADMINISTRATIVE SERVICES AGENT. The Portfolio Trust has entered into a
Restated Administrative Services Agreement (the "Services Agreement") with
Morgan, pursuant to which Morgan is responsible for certain administrative and
related services provided to the Portfolios.
Under the Services Agreement, effective August 1, 1996, the Portfolios
have agreed to pay Morgan fees equal to their allocable share of an annual
complex-wide charge. This charge is calculated daily based on the aggregate net
assets of the Master Portfolios and J.P. Morgan Series Trust in accordance with
the following annual schedule: 0.09% of the first $7 billion of their aggregate
average daily net assets and 0.04% of their aggregate average daily net assets
in excess of $7 billion, less the complex-wide fees payable to FDI. 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 Master Portfolios, the
other investors in the Master Portfolios for which Morgan provides similar
services and J.P.
Morgan Series Trust.
THE DISCIPLINED EQUITY PORTFOLIO -- For the fiscal years ended May 31,
1998, 1999 and 2000: $53,654, $176,331 and $359,899, respectively.
THE U.S. SMALL COMPANY OPPORTUNITIES PORTFOLIO -- For the period June 16,
1997 (commencement of operations) through May 31, 1998: $29,566. For the fiscal
year ended May 31, 1999 and 2000: $56,809 and $118,303.
CUSTODIAN AND TRANSFER AGENT
The Bank of New York ("BONY"), One Wall Street, New York, New York
10286, serves as the Trust's and each of the Portfolio's custodian and fund
accounting agent. Pursuant to the Custodian Contracts, BONY is responsible for
holding portfolio securities and cash and maintaining the books of account and
records of portfolio transactions. In the case of foreign assets held outside
the United States, the custodian employs various subcustodians in accordance
with the regulations of the SEC.
State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02110, serves as each Fund's transfer and dividend
disbursing agent. As transfer agent and dividend disbursing agent, State Street
is responsible for maintaining account records detailing the ownership of Fund
shares and for crediting income, capital gains and other changes in share
ownership to shareholder accounts.
INDEPENDENT ACCOUNTANTS. The independent accountants of the Portfolios
are PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York
10036. PricewaterhouseCoopers LLP conducts an annual audit of the financial
statements of the Portfolios, assists in the preparation and/or review of each
of the Portfolios' federal and state income tax returns and consults with the
Portfolios as to matters of accounting and federal and state income taxation.
EXPENSES. In addition to the fees payable to the service providers
identified above, the Portfolios are responsible for usual and customary
expenses associated with their operations. Such expenses include organization
expenses, legal fees, insurance costs, the compensation and expenses of the
Trustees, registration fees under federal securities laws, and extraordinary
expenses applicable to the Portfolios. Such expenses also include registration
fees under foreign securities laws and brokerage expenses.
J.P. Morgan has agreed that it will reimburse the J.P. Morgan
Institutional Disciplined Equity Fund and J.P. Morgan Disciplined Equity Fund
until September 30, 2000, as described in each Fund's Prospectus, to the extent
necessary to maintain the Fund's total operating expenses (which includes
expenses of the Fund and the Portfolio) at 0.75% and 0.45%, respectively, of
average daily net assets. This limit does not cover extraordinary expenses.
The table below sets forth for each Portfolio listed the fees and other
expenses Morgan reimbursed under the expense reimbursement arrangements
described above or pursuant to prior expense reimbursement arrangements for the
fiscal periods indicated.
THE DISCIPLINED EQUITY PORTFOLIO -- For the fiscal years ended May 31,
1998, 1999 and 2000: $110,241, $0 and $0, respectively.
THE U.S. SMALL COMPANY OPPORTUNITIES PORTFOLIO -- For the period June 16,
1997 (commencement of operations) through May 31, 1998: $3,597. For the fiscal
years ended May 31, 1999 and 2000: $0 and $0.
ITEM 17. BROKERAGE ALLOCATION AND OTHER PRACTICES.
The Advisor places orders for the Portfolios for all purchases and
sales of portfolio securities, enters into repurchase agreements, and may enter
into reverse repurchase agreements and execute loans of portfolio securities on
behalf of the Portfolios. See Item 12 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. The Advisor intends to seek best execution on
a competitive basis for both purchases and sales of securities.
In selecting a broker, the Advisor considers a number of factors
including: the price per unit of the security; the broker's reliability for
prompt, accurate confirmations and on-time delivery of securities; the firm's
financial condition; as well as the commissions charged. A broker may be paid a
brokerage commission in excess of that which another broker might have charged
for effecting the same transaction if, after considering the foregoing factors,
the Advisor decides that the broker chosen will provide the best execution. The
Advisor monitors the reasonableness of the brokerage commissions paid in light
of the execution received. The Trustees of the Portfolio review regularly the
reasonableness of commissions and other transaction costs incurred by the
Portfolio in light of facts and circumstances deemed relevant from time to time,
and, in that connection, will receive reports from the Advisor and published
data concerning transaction costs incurred by institutional investors generally.
Research services provided by brokers to which the Advisor has allocated
brokerage business in the past include economic statistics and forecasting
services, industry and company analyses, portfolio strategy services,
quantitative data, and consulting services from economists and political
analysts. Research services furnished by brokers are used for the benefit of all
the Advisor's clients and not solely or necessarily for the benefit of the
Portfolios. 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 following fiscal periods:
THE DISCIPLINED EQUITY PORTFOLIO - For the fiscal years ended May 31, 1998,
1999 and 2000: $175,629, $504,145 and $833,195, respectively.
THE U.S. SMALL COMPANY OPPORTUNITIES PORTFOLIO -- For the period June 16,
1997 (commencement of operations) through May 31, 1998 $126,261 and for the
fiscal years ended May 31, 1999 and 2000: $93,960 and $242,461.
Subject to the overriding objective of obtaining the best execution of
orders, the Advisor may allocate a portion of the Portfolios' portfolio
brokerage transactions to affiliates of the Advisor. In order for affiliates of
the Advisor to effect any portfolio transactions for the Portfolios, 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 Portfolios,
including a majority of the Trustees who are not "interested persons," have
adopted procedures which are reasonably designed to provide that any
commissions, fees, or other remuneration paid to such affiliates are consistent
with the foregoing standard.
The Portfolio Trust's portfolio securities will not be purchased from
or through or sold to or through the Exclusive Placement Agent or Advisor or any
other "affiliated person" (as defined in the 1940 Act), of the Exclusive
Placement Agent or Advisor when such entities are acting as principals, except
to the extent permitted by law. In addition, the Portfolios will not purchase
securities during the existence of any underwriting group relating thereto of
which the Advisor or an affiliate of the Advisor is a member, except to the
extent permitted by law.
On those occasions when the Advisor deems the purchase or sale of a
security to be in the best interests of the Portfolios as well as other
customers including other Portfolios, the Advisor, to the extent permitted by
applicable laws and regulations, may, but is not obligated to, aggregate the
securities to be sold or purchased for the Portfolios with those to be sold or
purchased for other customers in order to obtain best execution, including lower
brokerage commissions if appropriate. In such event, allocation of the
securities so purchased or sold as well as any expenses incurred in the
transaction will be made by the Advisor in the manner it considers to be most
equitable and consistent with its fiduciary obligations to the Portfolios. In
some instances, this procedure might adversely affect the Portfolios.
If the Portfolios effect a closing purchase transaction with respect to
an option written by them, normally such transactions will be executed by the
same broker-dealer who executed the sale of the option. The writing of options
by the Portfolios 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 the Portfolios 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.
The Portfolios are subtrusts (or series) of the Portfolio Trust, which
is organized as a trust under the laws of the State of New York. Under the
Portfolio Trust's Declaration of Trust, the Trustees are authorized to issue
beneficial interests in one or more series (each a "Series"), including the
Portfolios. Investors in a Series will be held personally liable for the
obligations and liabilities of that Series (and of no other Series), subject,
however, to indemnification by the Portfolio Trust in the event that there is
imposed upon an investor a greater portion of the liabilities and obligations of
the Series than its proportionate beneficial interest in the Series. The
Declaration of Trust also provides that the Portfolio Trust shall maintain
appropriate insurance (for example, a fidelity bond and errors and omissions
insurance) for the protection of the Portfolio Trust, its investors, Trustees,
officers, employees and agents, and covering possible tort and other
liabilities. Thus, the risk of an investor incurring financial loss on account
of investor liability is limited to circumstances in which both inadequate
insurance existed and the Portfolio Trust itself was unable to meet its
obligations.
Investors in a Series are entitled to participate pro rata in
distributions of taxable income, loss, gain and credit of their respective
Series only. Upon liquidation or dissolution of a Series, investors are entitled
to share pro rata in that Series' (and no other Series) net assets available for
distribution to its investors. The Portfolio Trust reserves the right to create
and issue additional Series of beneficial interests, in which case the
beneficial interests in each new Series would participate equally in the
earnings, dividends and assets of that particular Series only (and no other
Series). Any property of the Portfolio Trust is allocated and belongs to a
specific Series to the exclusion of all other Series. All consideration received
by the Portfolio Trust for the issuance and sale of beneficial interests in a
particular Series, together with all assets in which such consideration is
invested or reinvested, all income, earnings and proceeds thereof, and any funds
or payments derived from any reinvestment of such proceeds, is held by the
Trustees in a separate subtrust (a Series) for the benefit of investors in that
Series and irrevocably belongs to that Series for all purposes. Neither a Series
nor investors in that Series possess any right to or interest in the assets
belonging to any other Series.
Investments in a Series have no preference, preemptive, conversion or
similar rights and are fully paid and nonassessable, except as set forth below.
Investments in a Series may not be transferred. Certificates representing an
investor's beneficial interest in a Series are issued only upon the written
request of an investor.
Each investor is entitled to a vote in proportion to the amount of its
investment in each Series. Investors in a Series do not have cumulative voting
rights, and investors holding more than 50% of the aggregate beneficial
interests in all outstanding Series may elect all of the Trustees if they choose
to do so and in such event other investors would not be able to elect any
Trustees. Investors in each Series will vote as a separate class except as to
voting of Trustees, as otherwise required by the 1940 Act, or if determined by
the Trustees to be a matter which affects all Series. As to any matter which
does not affect the interest of a particular Series, only investors in the one
or more affected Series are entitled to vote. The Portfolio Trust is not
required and has no current intention of holding annual meetings of investors,
but the Portfolio Trust will hold special meetings of investors when in the
judgment of the Portfolio Trust's Trustees it is necessary or desirable to
submit matters for an investor vote. The Portfolio Trust's Declaration of Trust
may be amended without the vote of investors, except that investors have the
right to approve by 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 the Portfolios) may enter
into a merger or consolidation, or sell all or substantially all of its assets,
if approved by the vote of two thirds of its investors (with the vote of each
being in proportion to its percentage of the beneficial interests in the
Series), except that if the Trustees recommend such sale of assets, the approval
by vote of a majority of the investors (with the vote of each being in
proportion to its percentage of the beneficial interests in the Series) will be
sufficient. The Portfolio Trust or any Series (including any Portfolios) 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 willful misfeasance, bad faith, gross negligence, or reckless disregard of
the duties involved in the conduct of his office.
<PAGE>
ITEM 19. PURCHASE, REDEMPTION AND PRICING OF SECURITIES BEING OFFERED.
Beneficial interests in the Portfolios 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 or foreign securities
exchange, including National Association of Securities Dealers Automated
Quotations ("NASDAQ"), other than options on stock indexes, is based on the last
sale prices on the exchange on which the security is principally traded (the
"primary exchange"). If there has been no sale on the primary exchange on the
valuation date, and the spread between bid and asked quotations on the primary
exchange is less than or equal to 10% of the bid price for the security, the
security shall be valued at the average of the closing bid and asked quotations
on the primary exchange. Under all other circumstances (e.g. there is no last
sale on the primary exchange, there are no bid and asked quotations on the
primary exchange, or the spread between bid and asked quotations is greater than
10% of the bid price), the value of the security shall be the last sale price on
the primary exchange up to ten days prior to the valuation date unless, in the
judgment of the portfolio manager, material events or conditions since such last
sale necessitate fair valuation of the security. The value of each security for
which readily available market quotations exist is based on a decision as to the
broadest and most representative market for such security. For purposes of
calculating net asset value all assets and liabilities initially expressed in
foreign currencies will be converted into U.S. dollars at the prevailing rate
currency average on the valuation date.
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. Options
and futures traded on foreign exchanges are valued at the last sale price
available prior to the calculation of the Fund's net asset value. Securities or
other assets for which market quotations are not readily available (including
certain restricted and illiquid securities) are valued at fair value in
accordance with procedures established by and under the general supervision and
responsibility of the 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 markets is normally completed
before the close of trading in U.S. markets and may also take place on days on
which the U.S. markets are closed. If events materially affecting the value of
securities occur between the time when the market in which they are traded
closes and the time when the Fund'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 the Portfolios determine that it would be detrimental to the best
interest of the remaining investors in the Portfolios 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 Portfolios, 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. The Portfolios have elected to be governed by Rule 18f-1 under the
1940 Act pursuant to which the Portfolios are obligated to redeem interests
solely in cash up to the lesser of $250,000 or 1% of the net asset value of the
Portfolios during any 90 day period for any one investor. The Portfolios will
not redeem in kind except in circumstances in which an investor is permitted to
redeem in kind.
The net asset value of the Portfolios will not be computed on the days
the following legal holidays are observed: New Year's Day, Martin Luther King,
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day. On days when U.S. trading markets close
early in observance of these holidays, the Portfolios would expect to close for
purchases and withdrawals at the same time. The Portfolios may also close for
purchases and withdrawals at such other times as may be determined by the
Trustees to the extent permitted by applicable law. The days on which net asset
value is determined are the Portfolios' business days.
ITEM 20. TAX STATUS.
The Portfolios are organized as New York trusts. The Portfolios are not
subject to any income or franchise tax in the State of New York. However, each
investor in a Portfolio will be subject to U.S. Federal income tax in the manner
described below on its share (as determined in accordance with the governing
instruments of the Portfolios) of a 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.
Although, as described above, the Portfolios will not be subject to
federal income tax, it will file appropriate income tax returns.
It is intended that the Portfolios' assets will be managed in such a
way that an investor in a Portfolio will be able to satisfy the requirements of
Subchapter M of the Code. To ensure that investors will be able to satisfy the
requirements of subchapter M, the Portfolios must satisfy certain gross income
and diversification requirements.
Gains or losses on sales of portfolio securities will be treated as
long-term capital gains or losses if the securities have been held for more than
one year except in certain cases where, if applicable, a put is acquired or a
call option is written thereon. Other gains or losses on the sale of securities
will be short-term capital gains or losses. Gains and losses on the sale, lapse
or other termination of options on securities will be treated as gains and
losses from the sale of securities. If an option written by a Portfolio lapses
or is terminated through a closing transaction, such as a repurchase by a
Portfolio of the option from its holder, a 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 a Portfolio in the closing transaction. If securities
are purchased by a Portfolio pursuant to the exercise of a put option written by
it, a Portfolio will subtract the premium received from its cost basis in the
securities purchased.
Under the Code, gains or losses attributable to disposition of foreign
currency or to foreign currency contracts, or to fluctuations in exchange rates
between the time a Portfolio accrue income or receivables or expenses or other
liabilities denominated in a foreign currency and the time a Portfolio actually
collects such income or pays such liabilities, are treated as ordinary income or
ordinary loss. Similarly, gains or losses on the disposition of debt securities
held by a Portfolio, if any, denominated in foreign currency, to the extent
attributable to fluctuations in exchange rates between the acquisition and
disposition dates are also treated as ordinary income or loss.
Forward currency contracts, options and futures contracts entered into
by a Portfolio may create "straddles" for U.S. federal income tax purposes and
this may affect the character and timing of gains or losses realized by a
Portfolio on forward currency contracts, options and futures contracts or on the
underlying securities.
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 a Portfolio has held such options or
futures. Any gain or loss recognized on foreign currency contracts will be
treated as ordinary income.
A Portfolio may invest in equity securities of foreign issuers. If a
Portfolio purchases shares in certain foreign investment funds (referred to as
passive foreign investment companies ("PFICs") under the Code), investors who
are U.S. persons generally would be subject to special rules on any "excess
distribution" from such foreign investment fund, including any gain from the
disposition of such shares. Under these special rules, (i) the gain or excess
distribution would be allocated ratably over the investor's holding period for
such shares, (ii) the amount allocated to the taxable year in which the gain or
excess distribution was realized would be taxable as ordinary income, (iii) the
amount allocated to each prior year, with certain exceptions, would be subject
to tax at the highest tax rate in effect for that year and (iv) the interest
charge generally applicable to underpayments of tax would be imposed in respect
of the tax attributable to each such year. Alternatively, an investor may, if
certain conditions are met, include in its income each year a pro rata portion
of the foreign investment fund's income, whether or not distributed to a
Portfolio.
A Portfolio will be permitted to "mark to market" any marketable stock
held by a Portfolio in a PFIC. If a Portfolio made such an election, the
investor in a Portfolio would include in income each year an amount equal to its
share of the excess, if any, of the fair market value of the PFIC stock as of
the close of the taxable year over the adjusted basis of such stock. The
investor would be allowed a deduction for its share of the excess, if any, of
the adjusted basis of the PFIC stock over its fair market value as of the close
of the taxable year, but only to the extent of any net mark-to-market gains with
respect to the stock included by the investor for prior taxable years.
FOREIGN INVESTORS. It is intended that the Portfolios will conduct
their affairs such that their income and gains will not be effectively connected
with the conduct of a U.S. trade or business. Provided the Portfolios conduct
their affairs in such a manner, allocations of U.S. source dividend income to an
investor who, as to the United States, is a foreign trust, foreign corporation
or other foreign investor will be subject to U.S. withholding tax at the rate of
30% (or lower treaty rate), and allocations of portfolio interest (as defined in
the Code) or short term or net long term capital gains to such investors
generally will not be subject to U.S. tax.
STATE AND LOCAL TAXES. The Portfolios may be subject to state or local
taxes in jurisdictions in which the Portfolios are deemed to be doing business.
In addition, the treatment of the Portfolios and their investors in those states
which have income tax laws might differ from treatment under the federal income
tax laws. Investors should consult their own tax advisors with respect to any
state or local taxes.
FOREIGN TAXES. The Portfolios may be subject to foreign withholding taxes
with respect to income received from sources within foreign countries.
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. Investors are advised to consult their own tax advisors with respect
to the particular tax consequences to them of an investment in the Portfolio.
ITEM 21. UNDERWRITERS.
The exclusive placement agent for the Portfolios is FDI, which receives
no additional compensation for serving in this capacity. Investment companies,
insurance company separate accounts, common and commingled trust funds and
similar organizations and entities may continuously invest in the Portfolio
Trust.
ITEM 22. CALCULATIONS OF PERFORMANCE DATA.
Not applicable.
ITEM 23. FINANCIAL STATEMENTS
The Portfolios' May 31, 2000 annual reports filed with the SEC pursuant to
Section 30(b) of the 1940 Act and rule 30b2-1 thereunder are incorporated herein
by reference.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
--------------------------------------------------------- ----------------------------------------------------
Date of Annual Report; Date Annual Report Filed;
Name of Portfolio and Accession Number
--------------------------------------------------------- ----------------------------------------------------
The Disciplined Equity Portfolio 5/31/00; 7/26/00
0000912057-00-033173
--------------------------------------------------------- ----------------------------------------------------
--------------------------------------------------------- ----------------------------------------------------
The U.S. Small Company Opportunities Portfolio 5/31/00; _7/26/00
0000912057-00-033180
--------------------------------------------------------- ----------------------------------------------------
</TABLE>
<PAGE>
Appendix A-4
<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.
B - An obligation rated B is more vulnerable to nonpayment than
obligations rated BB, but the obligor currently has the capacity
to meet its financial commitment on the obligation. Adverse
business, financial, or economic conditions will likely impair
the obligor's capacity or willingness to meet its financial
commitment on the obligation.
CCC - An obligation rated CCC is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial, and economic conditions
for the obligor to meet its financial commitment on the obligation. In
the event of adverse business, financial, or economic conditions, the
obligor is not likely to have the capacity to meet its financial
commitment on the obligation.
CC - An obligation rated CC is currently highly vulnerable to nonpayment.
C - The C rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action has been taken, but payments
on this obligation are being continued.
COMMERCIAL PAPER, INCLUDING TAX EXEMPT
A - Issues assigned this highest rating are regarded as having
the greatest capacity for timely payment. Issues in this
category are further refined with the designations 1, 2, and 3
to indicate the relative degree of safety.
A-1 - This designation indicates that the degree of safety regarding timely
payment is very strong.
SHORT-TERM TAX-EXEMPT NOTES
SP-1 - The short-term tax-exempt note rating of SP-1 is the highest
rating assigned by Standard & Poor's and has a very strong or
strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics are
given a "plus" (+) designation.
SP-2 - The short-term tax-exempt note rating of SP-2 has a satisfactory
capacity to pay principal and interest.
MOODY'S
CORPORATE AND MUNICIPAL BONDS
Aaa - Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and
are generally referred to as "gilt edge." Interest payments
are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of
such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what
are generally known as high grade bonds. They are rated lower
than the best bonds because margins of protection 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.
<PAGE>
Ba - Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well-assured.
Often the protection of interest and principal payments may be
very moderate, and thereby not well safeguarded during both
good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of
the desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over
any long period of time may be small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default
or have other marked shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds
and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
<PAGE>
COMMERCIAL PAPER, INCLUDING TAX EXEMPT
Prime-1 - Issuers rated Prime-1 (or related supporting
institutions) have a superior capacity for repayment
of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the
following characteristics:
- Leading market positions in well established industries. - High rates of
return on funds employed. - Conservative capitalization structures with moderate
reliance on debt and ample asset protection. - Broad margins in earnings
coverage of fixed financial charges and high internal cash generation. - Well
established access to a range of financial markets and assured sources of
alternate liquidity.
SHORT-TERM TAX EXEMPT NOTES
MIG-1 - The short-term tax-exempt note rating MIG-1 is the highest
rating assigned by Moody's for notes judged to be the best
quality. Notes with this rating enjoy strong protection from
established cash flows of funds for their servicing or from
established and broad-based access to the market for
refinancing, or both.
MIG-2 - MIG-2 rated notes are of high quality but with margins of
protection not as large as MIG-1.
<PAGE>
PART C
ITEM 23. EXHIBITS.
(a)1 Declaration of Trust of the Registrant incorporated herein by
reference from Amendment No. 2 to Registrant's Registration Statement as filed
with the Securities and Exchange Commission (the "SEC") on May 1, 1996
(Accession No. 0000943185-96-000061).
(a)2 Amendment No. 1 to Declaration of Trust incorporated herein by
reference from Amendment No. 4 to Registrant's Registration Statement as filed
with the SEC on December 27, 1996 (Accession No. 0001016964-96-000062).
(a)3 Amendment No. 2 to Declaration of Trust incorporated herein by
reference from Amendment No. 6 to Registrant's Registration Statement as filed
with the SEC on April 29, 1997 (Accession No. 0001016964-97-000057).
(a)4 Amendment No. 5 to Declaration of Trust; Amendment and Fifth Amended
and Restated Establishment and Designation of Series of Shares of Beneficial
Interest.*
(a)5 Amendment No. 6 to Declaration of Trust; Amendment and Sixth Amended
and Restated Establishment and Designation of Series of Shares of Beneficial
Interest was filed as Exhibit No. 1(b) to Post-Effective Amendment No. 32 to the
Registration Statement on February 28, 1997 (Accession Number
0001016964-97-000038).
(a)6 Amendment No. 7 to Declaration of Trust; Amendment and Seventh Amended
and Restated Establishment and Designation of Series of Shares of Beneficial
Interest was filed as Exhibit No. 1(c) to Post-Effective Amendment No. 34 to the
Registration Statement on April 30, 1997 (Accession Number
0001019694-97-000063).
(a)7 Amendment No. 8 to Declaration of Trust; Amendment and Eighth Amended
and Restated Establishment and Designation of Series of Shares of Beneficial
Interest was filed as Exhibit No. 1(d) to Post-Effective Amendment No. 41 to the
Registration Statement on October 21, 1997 (Accession Number
0001042058-97-000006).
(a)8 Amendment No. 9 to Declaration of Trust; Amendment and Ninth Amended
and Restated Establishment and Designation of Series of Shares of Beneficial
Interest was filed as Exhibit No. 1(e) to Post-Effective Amendment No. 45 to the
Registration Statement on December 29, 1997 (Accession Number
0001041455-97-000013).
(a)9 Amendment No. 10 to Declaration of Trust; Amendment and Tenth Amended
and Restated Establishment and Designation of Series of Shares of Beneficial
Interest and change voting procedures to dollar-based voting was filed as
Exhibit No. (a)6 to Post-Effective Amendment No. 59 to the Registration
Statement on December 31, 1998 (Accession Number 0001041455-98-000098).
(b) Restated By-Laws of the Registrant incorporated herein by reference
from Amendment No. 4 to Registrant's Registration Statement as filed
with the SEC on December 27, 1996 (Accession No. 0001016964-96-000062).
(b)(1) Amendment to Restated By-Laws of Registrant filed as Exhibit No. (b)
1 to Post Effective Amendment No. 67 to the Registration Statement on February
28, 2000 (Accession Number 0001041455-00-000057)
(d)1 Investment Advisory Agreement between the Registrant and Morgan
Guaranty Trust Company of New York ("Morgan Guaranty") incorporated
herein by reference from Amendment No. 2 to Registrant's Registration
Statement as filed with the Securities and Exchange Commission (the
"SEC") on May 1, 1996 (Accession No.
0000943185-96-000061).
(d)2 Amended Schedule A to Investment Advisory Agreement incorporated herein
by reference from Amendment No. 4 to Registrant's Registration
Statement as filed with the SEC on December 27, 1996 (Accession No.
0001016964-96-000062).
(d)3 Form of Investment Advisory Agreement between the Registrant and J.P.
Morgan Investment Management Inc. ("JPMIM") incorporated herein by reference
from Amendment No. 11 to Registrant's Registration Statement as filed with the
SEC on October 1, 1998 (Accession No. 0001042058-98-000105).
(g) Custodian Contract between the Registrant and State Street Bank and
Trust Company ("State Street") incorporated herein by reference from
Amendment No. 4 to Registrant's Registration Statement as filed with
the SEC on December 27, 1996 (Accession No. 0001016964-96-000062).
(g)1 Custodian Contract between Registrant and The Bank of New York filed
as Exhibit (g)2 to Post Effective Amendment No. 67 to Registrant's registration
statement on Form N-1A on February 28, 2000 (Accession number
0001041455-00-000057)
(h)1 Co-Administration Agreement between the Registrant and Funds
Distributor, Inc. dated August 1, 1996 ("Co-Administration Agreement")
incorporated herein by reference from Amendment No. 3 to Registrant's
Registration Statement as filed with the SEC on October 9, 1996 (Accession No.
0000912057-96-022359).
(h)1a Amended Exhibit I to Co-Administration Agreement incorporated herein by
reference from Amendment No. 4 to Registrant's Registration Statement
as filed with the SEC on December 27, 1996 (Accession No.
0001016964-96-000062).
(h)2 Restated Administrative Services Agreement between the Registrant and
Morgan dated August 1, 1996 ("Administrative Services Agreement")
incorporated herein by reference from Amendment No. 3 to Registrant's
Registration Statement as filed with the SEC on October 9, 1996
(Accession No. 0000912057-96-022359).
(h)2a Amended Exhibit I to Administrative Services Agreement between the
Registrant and Morgan incorporated herein by reference from Amendment No. 4 to
Registrant's Registration Statement as filed with the SEC on December 27, 1996
(Accession No. 0001016964-96-000062).
(h)3 Transfer Agency and Service Agreement between the Registrant and State
Street incorporated herein by reference from Amendment No. 4 to Registrant's
Registration Statement as filed with the SEC on December 27, 1996 (Accession No.
0001016964-96-000062).
(h)4 Amended and Restated Portfolio Fund Services Agreement between the
Registrant and Pierpont Group, Inc. dated July 11, 1996 incorporated herein by
reference from Amendment No. 3 to Registrant's Registration Statement as filed
with the SEC on October 9, 1996 (Accession No. 0000912057-96-022359).
(l) Investment representation letters of initial investors incorporated
herein by reference from Amendment No. 4 to Registrant's Registration
Statement as filed with the SEC on December 27, 1996 (Accession No.
0001016964-96-000062).
(n) Financial Data Schedules. Not applicable.
(p) Codes of Ethics filed herewith.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Not applicable.
ITEM 25. INDEMNIFICATION.
Reference is hereby made to Article V of the Registrant's Declaration
of Trust, filed as an Exhibit hereto.
The Trustees and officers of the Registrant and the personnel of the
Registrant's co-administrator are insured under an errors and omissions
liability insurance policy. The Registrant and its officers are also insured
under the fidelity bond required by Rule 17g-1 under the Investment Company Act
of 1940, as amended.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER.
JPMIM is a registered investment adviser under the Investment Advisers
Act of 1940, as amended, and is a wholly owned subsidiary of J.P. Morgan & Co.
Incorporated. JPMIM manages employee benefit funds of corporations, labor unions
and state and local governments and the accounts of other institutional
investors, including investment companies.
To the knowledge of the Registrant, none of the directors, except those
set forth below, or executive officers of JPMIM, 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 JPMIM also hold various positions with, and engage in business for, J.P.
Morgan & Co. Incorporated, which owns all the outstanding stock of JPMIM.
ITEM 27. PRINCIPAL UNDERWRITERS.
Not applicable.
ITEM 28. 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,
New York 10260-0060 or 522 Fifth Avenue, New York, New York 10036 (records
relating to its functions as investment adviser and administrative services
agent).
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110 or 40 King Street West, Toronto, Ontario, Canada M5H 3Y8
(records relating to its functions as custodian and fund accounting and transfer
agent).
Funds Distributor, Inc., 60 State Street, Suite 1300, Boston, Massachusetts
02109.
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 29. MANAGEMENT SERVICES.
Not applicable.
ITEM 30. UNDERTAKINGS.
Not applicable.
<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 New York, New
York, on the 28th day of September, 2000
.
THE SERIES PORTFOLIO
By: /S/ Christopher Kelley
------------------------
Christopher Kelley
Vice President and Assistant Secretary
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT
CODE OF ETHICS for JP MORGAN FUNDS, FUNDS
DISTRIBUTOR, INC. and JP MORGAN INVESTMENT INC.