As filed with the U.S. Securities and Exchange Commission on October 30, 1998.
Registration Nos. 333-11125 and 811-07795
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 13
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 14
J.P. MORGAN SERIES TRUST
(formerly JPM Series Trust)
(Exact Name of Registrant as Specified in Charter)
60 State Street, Suite 1300, Boston, Massachusetts 02109
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (617)
557-0700
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, Jr., Esq.
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
It is proposed that this filing will become effective (check appropriate box):
[ ] Immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[X] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
J.P. MORGAN SERIES TRUST
Cross-Reference Sheet Pursuant to Rule 495(a)
Items in
Part A of
FORM N-1A CAPTION J.P. Morgan J.P. Morgan J.P. Morgan
Large Cap Smart Index U.S. Market
Growth Fund 350 Fund Neutral Fund
1 Front and Back Cover Pages Covers
2 Risk/Return Summary:
Investments, Risks,
and Performance 1 4 7
3 Risk/Return Summary:
Fee Table 2 5 8
4 Investment Objectives,
Principal Investment
Strategies, and Related Risks 1 4 7
5 Management's Discussion of
Fund Performance * * *
6 Management, Organization,
and Capital Structure 18 18 18
7 Shareholder Information 13 13 13
8 Distribution Arrangements 13 13 13
9 Financial Highlights Information * * *
Items in
Part B of
Form N-1A
- ---------
Page
10 Cover Page and Table of Contents Cover
11 Funds History B-36
12 Description of the Funds and their
Investments and Risks B-1
13 Management of the Funds B-19
14 Control Persons and Principal
Holders of Securities *
15 Investment Advisory and Other
Services B-23
16 Brokerage Allocation and Other
Practices B-35
17 Capital Stock and Other
Securities B-37
18 Purchase, Redemption and Pricing
of Shares B-30, B-31
19 Taxation of the Funds B-38
20 Underwriters B-26
21 Calculation of Performance Data B-34
22 Financial Statements *
Items in
Part C of
Form N-1A
- ---------
23 Exhibits C-1
24 Persons Controlled by or Under
Common Control with the Fund C-2
25 Indemnification C-2
26 Business and Other Connections
of the Investment Adviser C-3
27 Principal Underwriters C-3
28 Location of Accounts and Records C-4
29 Management Services C-5
30 Undertakings C-5
- ----------------
*Omitted since answer is negative or inapplicable.
EXPLANATORY NOTE
This post-effective amendment No. 13 to the registration statement of J.P.
Morgan Series Trust (the "Registrant") on Form N-1A is being filed to register
shares of three new series of the Registrant: J.P. Morgan Large Cap Growth Fund,
J.P. Morgan U.S. Market Neutral Fund and J.P. Morgan Smart Index 350 Fund. Each
new series will initially offer Institutional Shares only. As a result, the
Amendment does not affect any of the Registrant's other currently effective
prospectuses or statements of additional information for each other series of
shares of the Registrant.
<PAGE>
____________, 199_ PROSPECTUS
J.P. MORGAN U.S. EQUITY FUNDS
Large Cap Growth Fund
Smart Index 350 Fund
U.S. Market Neutral Fund
---------------------------
Seeking to outperform U.S. stock
markets over the long term
through a disciplined management
approach
This prospectus contains essential information for anyone investing in these
funds. Please read it carefully and keep it for reference.
As with all mutual funds, the fact that these shares are registered with the
Securities and Exchange Commission does not mean that the Commission approves
them as an investment or guarantees that the information in this prospectus is
correct or adequate. It is a criminal offense to state or suggest otherwise.
JP MORGAN
Distributed by Funds Distributor, Inc.
<PAGE>
CONTENTS
J.P. MORGAN U.S. EQUITY FUNDS
- ------------------------------------------------------------------------------
Each fund's goal, -- J.P. Morgan Large Cap Growth Fund
investment approach, J.P. Morgan Smart Index 350 Fund
risks, and expenses J.P. Morgan U.S. Market Neutral Fund
U.S. EQUITY MANAGEMENT APPROACH
- ------------------------------------------------------------------------------
Principles and -- J.P. Morgan
techniques common to the J.P. Morgan U.S. equity funds
funds in the prospectus The spectrum of U.S. equity funds
Who may want to invest
U.S. equity investment process
YOUR INVESTMENT
- ------------------------------------------------------------------------------
Investing in J.P. Morgan -- Investing through a financial
U.S. Equity Funds professional
Investing through an employer-
sponsored retirement plan
Investing through an IRA or
rollover IRA
Investing directly
Opening your account
Adding to your account
Selling shares
Account and transaction policies
Dividends and distributions
Tax considerations
FUND DETAILS
- ------------------------------------------------------------------------------
More about risk and the -- Business structure
funds' business operations Management and administration
Risk and reward elements
FOR MORE INFORMATION
- ------------------------------------------------------------------------------
Where to learn more about -- Back cover
these and other J.P.
Morgan funds
<PAGE>
J.P. MORGAN LARGE CAP
GROWTH FUND
Ticker Symbol: ________
- ------------------------------------------------------------------------------
GOAL
The fund's goal is to provide high total return from a portfolio of
large company growth stocks. This goal can be changed without shareholder
approval.
INVESTMENT APPROACH
The fund invests primarily in large capitalization U.S. companies. The
fund focuses on those growth stocks that it believes have the potential to
provide returns that exceed those of the Russell 1000 Growth Index. The fund
expects to hold ordinarily a portfolio of 55 to 65 stocks. In searching for
companies, the fund combines the approach described on page ___ with a
growth-oriented approach that focuses on each company's business strategies and
its competitive environment. The fund seeks to buy stocks when they are
undervalued and are poised for long-term growth. The fund generally considers
selling stocks that appear overvalued based on expected growth rates.
RISK/RETURN SUMMARY
The value of your investment in the fund will fluctuate in response to
movements in the stock market. Fund performance also will depend on the
effectiveness of J.P. Morgan's research and the management team's stock picking
decisions.
Because different types of stocks tend to shift in and out of favor
depending on market and economic conditions, the performance of a fund which
invests primarily in large capitalization stocks may be lower than that of a
fund which invests primarily in small or medium capitalization stocks. Moreover,
since the fund invests in stocks that emphasize "growth" as an investment
characteristic, its investment return may fluctuate independently from the broad
stock market and may demonstrate greater volatility over short or extended
periods relative to the broad market.
An investment in the fund is not a deposit of any bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. You could lose money if you sell when the fund's share price
is lower than when you invested.
For a more detailed discussion of the fund's investments and their
main risks, as well as fund strategies, please see pages ________.
[Right Side Bar]
REGISTRANT: J.P. MORGAN SERIES TRUST
(J.P. Morgan Large Cap Growth Fund)
Portfolio Management
The fund's assets are managed by J.P. Morgan, which currently manages over $275
billion, including more than $ _______ billion using the same strategy as the
fund.
The portfolio management team is led by _______________, managing director, who
has been at J.P. Morgan since ____________.
[Right Side Bar]
Before you invest
Investors considering the fund should understand that:
o The value of the fund's shares will fluctuate over time.
o There is no assurance that the fund will meet its investment goal.
o The fund does not represent a complete investment program.
INVESTOR EXPENSES
The expenses of the fund Annual fund operating expenses (%)
are shown at right. The (expenses that are deducted from
fund has no sales, fund assets)
redemption, exchange, or
account fees, although Management fees 0.50
some institutions may Marketing (12b-1) fees none
charge you a fee for Other expenses 0.25
shares you buy through __________________________________
them. The annual fund Total annual fund
expenses are deducted from operating expenses 0.75
fund assets prior to __________________________________
performance calculations.
Expense example
The example below is intended
to help you compare the cost
of investing in the fund with
the cost of investing in other
mutual funds. The example
assumes: $10,000 initial
investment, 5% return each
year, total operating expenses
unchanged, and all shares sold
at the end of each time
period. The example is for
comparison only; the fund's
actual return and your actual
costs may be higher or lower.
1 year $_____
3 years $_____
<PAGE>
PERFORMANCE (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURN (%) Shows performance over time, for
periods ended December 31, 1997
1 Yr. 5 Yrs. Since ______
J.P. Morgan Large Cap Growth Fund
(after expenses) N/A N/A N/A
Private Account Composite
(after expenses)* ---- ---- ----
Russell 1000 Growth Index ---- ----- ----
TOTAL RETURNS (%) Shows changes in returns for periods ended
December 31, 1997
[Insert bar chart]
Year-by-year total return (%) Shows changes in returns by calendar year
[Insert bar chart]
- ----------------------
* THE PERFORMANCE OF THE PRIVATE ACCOUNT COMPOSITE DOES NOT REPRESENT THE
FUND'S PERFORMANCE AND SHOULD NOT BE INTERPRETED AS INDICATIVE OF THE FUND'S
FUTURE PERFORMANCE. The Composite reflects the historical performance of
discretionary investment management accounts under the management of the fund's
advisor with substantially similar objectives and policies as the fund.
Historical Composite performance information reflects the deduction of the
fund's total expenses of 0.75%. The performance of accounts in the Composite
might have been lower if they were subject to the extra restrictions imposed on
mutual funds. AIMR performance requirements went into effect 1/1/93 and prior
to that date the Composite may not have included all discretionary accounts.
J.P. MORGAN SMART
INDEX 350 FUND
Ticker Symbol: ________
- ------------------------------------------------------------------------------
GOAL
The fund'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. This goal can be changed
without shareholder approval.
INVESTMENT APPROACH
The fund invests primarily in large and medium capitalization U.S.
companies and foreign companies included in the S&P 500. Industry by industry,
the fund's sector weightings are expected to be similar to those of the S&P 500.
Within each industry, the fund may moderately overweight stocks that appear
undervalued or fairly valued and underweight or not hold stocks that appear
overvalued, according to the investment process described on page ____. The fund
expects to hold ordinarily a portfolio of approximately 350 stocks. The fund
generally considers selling stocks that appear significantly overvalued.
By controlling the industry weightings of the fund so they can differ
only moderately from the industry weightings of the S&P 500, the fund seeks to
limit its volatility to that of the overall market, as represented by this
index.
RISK/RETURN SUMMARY
The value of your investment in the fund will fluctuate in response to
movements in the stock market. Fund performance also will depend on the
effectiveness of J.P. Morgan's research and the management team's stock picking
decisions.
While the fund seeks to invest in a portfolio of stocks with risk
characteristics similar to the S&P 500 Index, the fund may invest a portion of
its assets in stocks which are not part of the index and, therefore, the fund's
performance may not match that of the S&P 500.
An investment in the fund is not a deposit of any bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. You could lose money if you sell when the fund's share price
is lower than when you invested.
For a more detailed discussion of the fund's investments and their
main risks, as well as fund strategies, please see pages ____.
[Right Side Bar]
REGISTRANT: J.P. MORGAN SERIES TRUST
(J.P. Morgan Smart Index 350 Fund)
Portfolio Management
The fund's assets are managed by J.P. Morgan, which currently manages over $275
billion, including more than $ _______ billion using the same strategy as the
fund.
The portfolio management team is led by _______________, managing director, who
has been at J.P. Morgan since ____________.
[Right Side Bar]
Before you invest
Investors considering the fund should understand that:
o The value of the fund's shares will fluctuate over time.
o There is no assurance that the fund will meet its investment goal.
o The fund does not represent a complete investment program.
INVESTOR EXPENSES
The expenses of the fund Annual fund operating expenses (%)
are shown at right. The (expenses that are deducted from fund
fund has no sales, assets)
redemption, exchange, or
account fees, although Management fees 0.25
some institutions may Marketing (12b-1) fees none
charge you a fee for Other expenses 0.10
shares you buy through ___________________________________
them. The annual fund Total annual fund
expenses are deducted from operating expenses 0.35
fund assets prior to ___________________________________
performance calculations.
Expense example
The example below is intended
to help you compare the cost
of investing in the fund with
the cost of investing in other
mutual funds. The example
assumes: $10,000 initial
investment, 5% return each
year, total operating expenses
unchanged, and all shares sold
at the end of each time
period. The example is for
comparison only; the fund's
actual return and your actual
costs may be higher or lower.
1 year $_____
3 years $_____
<PAGE>
PERFORMANCE (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURN (%) Shows performance over time, for
periods ended December 31, 1997
1 Yr. 5 Yrs. Since _______
J.P. Morgan Smart Index 350 Fund
(after expenses) N/A N/A N/A
Private Account Composite
(after expenses)* ---- ---- ----
Standard and Poor's 500 Stock Index ---- ----- ----
TOTAL RETURNS (%) Shows changes in returns for periods ended
December 31, 1997
[Insert bar chart]
Year-by-year total return (%) Shows changes in returns by calendar year
[Insert bar chart]
- ------------------------------
* THE PERFORMANCE OF THE PRIVATE ACCOUNT COMPOSITE DOES NOT REPRESENT THE
FUND'S PERFORMANCE AND SHOULD NOT BE INTERPRETED AS INDICATIVE OF THE FUND'S
FUTURE PERFORMANCE. The Composite reflects the historical performance of
discretionary investment management accounts under the management of the fund's
advisor with substantially similar objectives and policies as the fund.
Historical Composite performance information reflects the deduction of the
fund's total expenses of 0.25%. The performance of accounts in the Composite
might have been lower if they were subject to the extra restrictions imposed on
mutual funds. AIMR performance requirements went into effect 1/1/93 and prior
to that date the Composite may not have included all discretionary accounts.
J.P. MORGAN U.S. MARKET
NEUTRAL FUND
Ticker Symbol: ________
- ------------------------------------------------------------------------------
GOAL
The fund's goal is to provide high total return, while seeking to
maintain minimum exposure to general stock market risk. This goal can be changed
without shareholder approval.
INVESTMENT APPROACH
The fund takes both long and short positions primarily in U.S. large
capitalization equity securities. The fund simultaneously purchases stocks in
each sector represented in the Standard & Poor's 500 Stock Index that are ranked
as most undervalued and sells short stocks in each sector that are ranked as
most overvalued according to the investment process described on page ____. The
fund invests equal dollar amounts in stocks purchased and stocks sold short in
an attempt to insulate the combined portfolio from macroeconomic risks. The fund
pursues returns that exceed those of U.S. Treasury Bills. When the valuation of
a company purchased falls in the rankings, the stock is sold. Similarly, when
the valuation of a company sold short rises in the rankings, the short position
is closed out.
RISK/RETURN SUMMARY
The value of your investment in the fund will fluctuate in response to
movements in the stock market. Fund performance also will depend on the
effectiveness of J.P. Morgan's research and the management team's stock picking
decisions.
While the fund's market neutral approach seeks to minimize the risks
of investing in the overall stock market, it may involve more risk than other
funds that do not engage in the sophisticated hedging transactions of the fund.
It is possible that the fund's long positions could decline in value while the
value of the securities sold short increases, thereby increasing the potential
for loss. It also is possible that the combination of securities held long and
sold short will fail to protect the fund from overall stock market risk as
anticipated.
The fund will have substantial short positions and must borrow the
security to make delivery to the buyer. The fund may not always be able to
borrow a security it wants to sell short. The fund also may be unable to close
out an established short position at any particular time or at an acceptable
price, and may have to sell long positions at disadvantageous times to cover its
short positions.
An investment in the fund is not a deposit of any bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. You could lose money if you sell when the fund's share price
is lower than when you invested.
For a more detailed discussion of the fund's investments and their
main risks, as well as fund strategies, please see pages ____.
[Right Side Bar]
REGISTRANT: J.P. MORGAN SERIES TRUST
(J.P. Morgan U.S. Market Neutral Fund)
Portfolio Management
The fund's assets are managed by J.P. Morgan, which currently manages over $275
billion, including more than $ _______ billion using the same strategy as the
fund.
The portfolio management team is led by _______________, managing director, who
has been at J.P. Morgan since ____________.
[Right Side Bar]
Before you invest
Investors considering the fund should understand that:
o The value of the fund's shares will fluctuate over time.
o There is no assurance that the fund will meet its investment goal.
o The fund does not represent a complete investment program.
INVESTOR EXPENSES
The expenses of the fund Annual fund operating expenses (%)
are shown at right. The (expenses that are deducted from fund
fund has no sales, assets)
redemption, exchange, or
account fees, although Management fees 1.50
some institutions may Marketing (12b-1) fees none
charge you a fee for Other expenses 0.50
shares you buy through ____________________________________
them. The annual fund Total annual fund
expenses are deducted from operating expenses 2.00
fund assets prior to ____________________________________
Expense example
The example below is intended
to help you compare the cost
of investing in the fund with
the cost of investing in other
mutual funds. The example
assumes: $10,000 initial
investment, 5% return each
year, total operating expenses
unchanged, and all shares sold
at the end of each time
period. The example is for
comparison only; the fund's
actual return and your actual
costs may be higher or lower.
1 year $_____
3 years $_____
PERFORMANCE (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURN (%) Shows performance over time, for
periods ended December 31, 1997
1 Yr. 5 Yrs. Since ________
J.P. Morgan U.S. Market Neutral Fund
(after expenses) N/A N/A N/A
Private Account Composite
(after expenses)* ---- ---- ----
U.S. Treasury Bills ---- ----- ----
TOTAL RETURNS (%) Shows changes in returns for periods ended
December 31, 1997
[Insert bar chart]
Year-by-year total return (%) Shows changes in returns by calendar year
[Insert bar chart]
- ------------------------------
* THE PERFORMANCE OF THE PRIVATE ACCOUNT COMPOSITE DOES NOT REPRESENT THE
FUND'S PERFORMANCE AND SHOULD NOT BE INTERPRETED AS INDICATIVE OF THE FUND'S
FUTURE PERFORMANCE. The Composite reflects the historical performance of
discretionary investment management accounts under the management of the fund's
advisor with substantially similar objectives and policies as the fund.
Historical Composite performance information reflects the deduction of the
fund's total expenses of 1.50%. The performance of accounts in the Composite
might have been lower if they were subject to the extra restrictions imposed on
mutual funds. AIMR performance requirements went into effect 1/1/93 and prior
to that date the Composite may not have included all discretionary accounts.
<PAGE>
U.S. EQUITY MANAGEMENT APPROACH
- ------------------------------------------------------------------------
J.P. MORGAN
Known for its commitment to proprietary research and its disciplined investment
strategies, J.P. Morgan is the asset management choice for many of the world's
most respected corporations, financial institutions, governments and
individuals. Today, J.P. Morgan employs over 300 analysts and portfolio managers
around the world and has more than $275 billion in assets under management,
including assets managed by the funds' adviser, J.P. Morgan Investment
Management Inc.
J.P. MORGAN U.S. EQUITY FUNDS
These funds invest primarily in U.S. stocks. As a shareholder, you should
anticipate risks and rewards beyond those of a typical bond fund or a typical
balanced fund.
While each fund follows its own strategy, the funds as a group share a single
investment philosophy. This philosophy, developed by the funds' adviser, focuses
on stock picking while largely avoiding sector or market-timing strategies.
Also, under normal market conditions, each fund will remain fully invested.
THE SPECTRUM OF U.S. EQUITY FUNDS
The funds described in this prospectus pursue a range of goals and offer varying
degrees of risk and potential reward. Differences among these funds include:
o how much emphasis they give to the most undervalued stocks
o how closely they follow the industry weightings of their benchmarks
o how many securities they typically maintain in their portfolios
o the size or market capitalization of the companies in which they invest
o how much emphasis they give to using hedging techniques to attempt to minimize
general stock market risk
The table below shows degrees of the relative risk and return that these funds
potentially offer. These and other distinguishing features of each fund are
described on the preceding pages.
[Insert Potential risk/return table]
[Right Side Bar]
Who May Want To Invest
The Large Cap Growth Fund and Smart Index 350 Fund are designed for investors
who:
o are pursuing a long-term goal such as retirement
o want to add an investment with growth potential to further diversity a
portfolio
o want funds that seek to outperform the markets in which they each
invest over the long term
The U.S. Market Neutral Fund is designed for investors who:
o are pursuing long-term capital appreciation but want to minimize their
exposure to general stock market risk
o want to add an investment to hedge a portion of their portfolio
o want returns that exceed those of U.S. Treasury Bills with controlled risk
The funds are not designed for investors who:
o want funds that pursue market trends or focus only on particular industries
or sectors
o require regular income or stability of principal
o are pursuing a short-term goal or investing emergency reserves
- -------------------------
The positions of the funds in this graph reflect long-term performance goals
only, and are relative, not absolute.
<PAGE>
U.S. EQUITY INVESTMENT PROCESS
In managing the funds described in this prospectus, 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 the 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 Each fund buys and sells stocks according to its own policies,
using the research and valuation rankings as a basis. In general, each
management team buys stocks that are identified as undervalued and considers
selling them when they appear overvalued. Along with attractive valuation, the
funds' managers often consider a number of other criteria:
o catalysts that could trigger a rise in a stock's price
o high potential reward compared to potential risk
o temporary mispricings caused by market overreactions
<PAGE>
YOUR INVESTMENT
For your convenience, the J.P. Morgan Funds offer several ways to start and add
to fund investments.
INVESTING THROUGH A FINANCIAL PROFESSIONAL
If you work with a financial professional, either at J.P. Morgan or elsewhere,
he or she is prepared to handle your planning and transaction needs. Your
financial professional will be able to assist you in establishing your fund
account, executing transactions and monitoring your investment. If your fund
investment is not held in the name of your financial professional and you prefer
to place a transaction order yourself, please use the instructions for investing
directly.
INVESTING THROUGH AN EMPLOYER-SPONSORED RETIREMENT PLAN
Your fund investments are handled through your plan. Refer to your plan
materials or contact your benefits office for information on buying, selling, or
exchanging fund shares.
INVESTING THROUGH AN IRA OR ROLLOVER IRA
Please contact a J.P. Morgan Retirement service Specialist at 1-888-576-4472 for
information on J.P. Morgan's comprehensive IRA services, including lower minimum
investments.
INVESTING DIRECTLY
Investors may establish accounts without the help of an intermediary by using
the instructions below and at right:
o Choose a fund (or funds) and determine the amount you are investing. The
minimum amount for initial investments in a fund is $2,500 and for
additional investments $500, although these minimums may be less for some
investors. For more information on minimum investments, call
1-800-521-5411.
o Complete the application, indicating how much of your investment you want
to allocate to which fund(s). Please apply now for any account privileges
you may want to use in the future, in order to avoid the delays associated
with adding them later on.
o Mail in your application, making your initial investment as shown on the
right.
For answers to any questions, please speak with a J.P. Morgan Funds Service
representative at 1-800-521-5411.
OPENING YOUR ACCOUNT
By wire
o Mail your completed application to the Shareholder Services Agent.
o Call the shareholder Service Agent to obtain an account number and to
place a purchase order. Funds that are wired without a purchase order
will be returned uninvested.
o After placing your purchase order, instruct your bank to wire the amount of
your investment to:
State Street Bank & Trust Company
Routing number: 011-000-028
Credit: J.P. Morgan Funds
Account number: 9904-226-9
FCC: Your account number, name of registered owner(s) and fund name.
By check
o Make out a check for the investment amount payable to J.P. Morgan
Funds.
o Mail the check with your completed application to the Transfer Agent.
By exchange
o Call the Shareholder Services Agent to effect an exchange.
ADDING TO YOUR ACCOUNT
By wire
o Call the Shareholder Services Agent to place a purchase order. Funds that
are wired without a purchase order will be returned uninvested.
o Once you have placed your purchase order, instruct your bank to wire the
amount of your investment as described above.
By check
o Make out a check for the investment amount payable to J.P. Morgan
Funds.
o Mail the check with a completed investment slip to the Transfer Agent. If
you do not have an investment slip, attach a note indicating your account
number and how much you wish to invest in which fund(s).
By exchange
o Call the Shareholder Services Agent to effect an exchange.
SELLING SHARES
By phone - wire payment
o Call the Shareholder Services Agent to verify that the wire redemption
privilege is in place on your account. If it is not, a representative can
help you add it.
o Place your wire request. If you are transferring money to a non-Morgan
account, you will need to provide the representative with the personal
identification number (PIN) that was provided to you when you opened your
fund account.
By phone - check payment
o Call the Shareholder Services Agent and place your request. Once your
request has been verified, a check for the net cash amount, payable to the
registered owner(s), will be mailed to the address of record. For checks
payable to any other party or mailed to any other address, please make your
request in writing (see below).
In writing
o Write a letter of instruction that includes the following information: the
name of the registered owner(s) of the account; the account number; the
fund name; the amount you want to sell and the recipient's name and address
or wire information, if different from those of the account registration.
o Indicate whether you want any cash proceeds sent by check or by wire.
o Make sure the letter is signed by an authorized party. The Shareholder
Services Agent may require additional information, such as a signature
guarantee.
o Mail the letter to the Shareholder Services Agent.
By exchange
o Call the Shareholder Services Agent to effect an exchange.
ACCOUNT AND TRANSACTION POLICIES
Telephone orders The funds accept telephone orders from all shareholders. To
guard against fraud, the funds require shareholders to use a PIN, and may record
telephone orders or take other reasonable precautions. However, if a fund does
take such steps to ensure the authenticity of an order, you may bear any loss if
the order later proves fraudulent.
Exchanges You may exchange shares in these funds for shares in any other J.P.
Morgan or J.P. Morgan Institutional mutual fund at no charge (subject to the
securities laws of your state). When making exchanges, it is important to
observe any applicable minimums. Keep in mind that for tax purposes an exchange
is considered a sale.
A fund may alter, limit or suspend its exchange policy at any time.
Business days and NAV calculations The fund's regular business days and hours
are the same as those of the New York Stock Exchange (NYSE). Each fund
calculates its net asset value per share (NAV) every business day as of the
close of trading on the NYSE (normally 4:00 p.m. eastern time). Each fund's
securities are typically priced using market quotes or pricing services. When
these methods are not available or do not represent a security's value at the
time of pricing, the security is valued in accordance with a fund's fair
valuation procedures.
Timing of orders Orders to buy or sell shares are executed at the next NAV
calculated after the order has been accepted. Orders are accepted until the
close of trading on the NYSE every business day and are executed the same day,
at that day's NAV. A fund has the right to suspend redemption of shares and to
postpone payment of proceeds for up to seven days or as permitted by law.
Timing of settlements When you buy shares, you will become the owner of record
when a fund receives your payment, generally the day following execution. When
you sell shares, cash proceeds are generally available the day following
execution and will be forwarded according to your instructions. Each fund
reserves the right at its sole discretion to pay redemptions over $250,000
in-kind as a portfolio of representative stocks rather than cash. An in-kind
redemption payment can shield the fund--and other shareholders--from tax
liabilities that might otherwise be incurred. The stocks received will continue
to fluctuate in value after redemption and will be subject to brokerage or other
transaction costs when liquidated.
When you sell shares that you recently purchased by check, your order will be
executed at the next NAV but the proceeds will not be available until your check
clears. This may take up to 15 days.
Statements and reports The funds send monthly account statements as well as
confirmations after each purchase or sale of shares (except reinvestments).
Every six months each fund sends out an annual or semi-annual report containing
information on its holdings and a discussion of recent and anticipated market
conditions and fund performance.
Shareholder Services Agent
J.P. Morgan Funds Services
522 Fifth Avenue
New York, NY 10036
1-800-521-5411
Representatives are available 8:00 a.m. to 5:00 p.m. eastern time on fund
business days.
Accounts with below-minimum balances If your account balance falls below the
minimum for 30 days as a result of selling shares (and not because of
performance), each fund reserves the right to request that you buy more shares
or close your account. If your account balance is still below the minimum 60
days after notification, each fund reserves the right to close out your account
and send the proceeds to the address of record.
DIVIDENDS AND DISTRIBUTIONS
Income dividends are typically paid [four] times a year for each fund. Each fund
typically makes capital gains distributions, if any, once per year. However, a
fund may make more or fewer payments in a given year, depending on its
investment results and its tax compliance situation. Each fund's dividends and
distributions consist of most or all of its net investment income and net
realized capital gains.
Dividends and distributions are reinvested in additional fund shares.
Alternatively, you may instruct your financial professional or J.P. Morgan Funds
Services to have them sent to you by check, credited to a separate account or
invested in another J.P. Morgan Fund.
TAX CONSIDERATIONS
In general, selling shares for cash, exchanging shares and receiving
distributions (whether reinvested or taken in cash) are all taxable events.
These transactions typically create the following tax liabilities for taxable
accounts:
Transaction Tax status
Income dividends Ordinary income
Short-term capital gains Ordinary income
distributions
Long-term capital gains Capital gains
distributions
Sales or exchanges of Capital gains or losses
shares owned for more
than one year
Sales or exchanges of Gains are treated as
shares owned for one ordinary income; losses are
year or less subject to special rules
Because long-term capital gains distributions are taxable as capital gains
regardless of how long you have owned your shares, you may want to avoid making
a substantial investment when a fund is about to declare a long-term capital
gains distribution.
Every January, each fund issues tax information on its distributions for the
previous year.
Any investor for whom a fund does not have a valid taxpayer identification
number will be subject to backup withholding for taxes.
The tax considerations described in this section do not apply to tax-deferred
accounts or other non-taxable entities.
Because each investor's tax circumstances are unique, please consult your tax
professional about your fund investment.
BUSINESS STRUCTURE
Each fund is a series of J.P. Morgan Series Trust, a Massachusetts business
trust. Information about other series or classes is available by calling
1-800-521-5411. In the future, the trustees could create other series or share
classes, which would have different expenses.
MANAGEMENT AND ADMINISTRATION
The trustees are responsible for overseeing all business activities. The
trustees are assisted by Pierpont Group, Inc., which they own and operate on a
cost basis; costs are shared by all funds governed by these trustees. Funds
Distributor, Inc., as co-administrator, along with J.P. Morgan, provides fund
officers. J.P. Morgan, as a co-administrator, oversees each fund's other service
providers.
J.P. Morgan receives the following fees for investment advisory and other
services:
Advisory services Percentage of the fund's
average daily net assets
Large Cap Growth Fund 0.50%
Smart Index 350 Fund 0.25%
U.S. Market Neutral Fund 1.50%
Administrative services Fund's pro-rata portion of 0.09%
(fee shared with of the first $7 billion in J.P. Morgan-advised
Funds Distributor, Inc.) portfolios, plus 0.04% of average net assets
over $7 billion
Shareholder services 0.10% of the fund's average daily net assets
J.P. Morgan may pay fees to certain firms and professionals for providing
recordkeeping or other services in connection with investments in a fund.
Year 2000 Fund operations and shareholders could be adversely affected if the
computer systems used by J.P. Morgan, the funds' other service providers and
other entities with computer systems linked to the funds do not properly process
and calculate January 1, 2000 and after date-related information. J.P. Morgan
is working to avoid these problems and to obtain assurances from other service
providers that they are taking similar steps. However, it is not certain that
these actions will be sufficient to prevent these problems from adversely
impacting fund operations and shareholders. In addition, to the extent that
operations of issuers of securities held by the funds are impaired by
date-related problems or prices of securities decline as a result of real or
perceived date-related problems of issuers held by the funds or generally, the
net asset value of the funds will decline.
<PAGE>
RISK AND REWARD ELEMENTS
This table discusses the main elements that make up each fund's overall risk and
reward characteristics. It also outlines each fund's policies toward various
securities, including those that designed to help certain are funds manage
risk.
- -------------------------------------------------------------------------------
Potential risks Potential Policies to balance
rewards risk and reward
- -------------------------------------------------------------------------------
Market conditions
o Each funds' share price o Stocks have o Under normal
and performance will generally circumstances, the
fluctuate in response outperformed funds plan to remain
to stock market more stable fully invested, with
movements investments at least 65% in
(such as bonds stocks; stock
and cash investments may
equivalents) include U.S. and
over long term foreign common
stoocks, convertible
securities,
preferred stocks,
trust or partnership
interests, warrants,
rights, and
investment company
securities
o Adverse market conditions o The funds seek to
may from time to time limit risk through
cause a fund to take diversification.
temporary defensive
positions that are o During severe market
inconsistent with downturns, the funds
its principal investment have the option of
strategies and may hinder investing up to 100%
a fund from achieving its of assets in
investment objective investment-grade
short-term
securities
Management choices
o A fund could underperform o A fund could out- o J.P. Morgan focuses
its benchmark due to its perform its its active manage-
securities and asset benchmark due to ment on securities
allocation choices these same choices selection, the area
where it believes
its commitment to
research can most
enhance returns
Foreign investments
o Currency exchange rate o Favorable exchange o Each of these funds
movements cou1d rate movements anticipates that its
reduce gains or create could generate total foreign
losses gains or reduce investments
losses will not exceed 20%
of assets
o A fund could lose money o Foreign investments, o Each of these funds
because of foreign which represent a actively manages the
government actions, major portion of the currency exposure of
political world's securities, foreign investments
instability or offer attractive relative to its
lack of adequate potential benchmark, and may
and accurate performance and hedge back into the
information opportunities for U.S.dollar from time
and to time (see also
opportunities "Derivatives")
for
diversification
Derivatives
o Derivatives such as o Hedges that correlate o The funds may use
futures, options well with under- derivates for
seaps and forward lying positions can hedging and for risk
foreign currency reduce or eliminate management (i.e., to
contracts that may losses at low cost establish or adjust
be used for hedging exposure to
the portfolio or securities, markets
specific securities or currencies);
may not fully offset risk management
the underlying positions1 o A fund could make may include
money and protect management of a
against losses if fund's exposure
management's analysis relative to its
proves correct benchmark
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 changes in the value of a securities index. An option is
the right to buy or sell quantity of an underlying instrument at a
pre-determined price. A swap is a privately negotiated agreement to
exchange one stream of payments for another. A forward foreign currency
contract is an obligation to buy or sell a given currency on a future date
and at a set price.
o Derivatives used for risk o Derivates that o The funds only
effects may not have involve leverage establish hedges
the intended effects could generate that they expect
and may result in losses substantial gains will be highly
or missed opportunities at low cost correlated with
underlying positions
o The counterparty to a o While the funds may
derivatives contract could use derivatives
default that incidentally
involve leverage,
they do not
use them for the
specific purpose of
leveraging their
portfolios
o Derivatives that involve
leverage could magnify
losses
Short selling (U.S. Market
Neutral Fund only)
o Short sales may not have o The fund could make o The fund will not
the intende1 effects and money and protect engage in short
may result in losses against losses if selling if the total
management's hedging market value of all
o The fund may not be able analysis proves securities sold
to close out a short correct short would exceed
position at a particular 100% of the fund's
time or at an acceptable net assets.
price
o The fund may not be able to
borrow certain securities to
sell short, resulting in
missed opportunities
Illiquid holdings
o A fund could have difficulty o These holdings may o No fund may invest
valuing these holdings offer more attractive more than 15% of
precisely yields or potential net assets in
growth than com- illiquid holdings
o A fund could be unable to parable widely
sell these holdings at the traded securities o To maintain adequate
time or price it desires liquidity to meet
redemptions, each
fund may hold
investment-grade
short-term
securities (in-
cluding repurchase
agreements) and, for
temporary or extra-
ordinary purposes,
may borrow from
banks up to 33-1/3%
of the value of its
assets
When-issued and
delayed delivery
securities
o When a fund buys o A fund can take o Each fund uses
securities before advantage of segregated accounts
issue or for delayed attractive trans- to offset leverage
delivery, it could action opportunities risk
be exposed to leverage
risk if it does not
use segregated
accounts
Short-term trading
o Increased trading would o A fund could realize o The expected turn-
raise a fund's brokerage gains in a short over rate for each
and related costs period of time fund is as follows:
Large Cap Growth
Fund 75%
Smart Index 350 Fund
75%
U.S. Market Neutral
Fund 100%
o Increased short-term o A fund could protect o The funds generally
capital gains against losses if a avoid short-term
distributions would stock is overvalued trading, except to
raise shareholders' and its value later take advantage of
income tax liability falls attractive or
unexpected oppor-
tunities or to
meet demands
generated by
shareholder activity
FOR MORE INFORMATION
For investors who want more information on these funds, the following documents
are available free upon request:
Statement of Additional Information (SAI) Provides a fuller technical and legal
description of a fund's policies, investment restrictions and business
structure.
This prospectus incorporates each fund's SAI by reference.
Copies of the current versions of these documents, along with other information
about the funds, may be obtained by contacting:
J.P. Morgan
J.P. Morgan Funds Services Telephone: 1-800-521-5411
522 Fifth Avenue Hearing impaired: 1-888-468-4015
New York, NY 10036 Email: [email protected]
Text-only versions of these documents and this prospectus are available, upon
payment of a duplicating fee, from the Public Reference Room of the Securities
and Exchange Commission in Washington, D.C. (1-800-SEC-0330) and may be viewed
on-screen or downloaded from the SEC's Internet site at http://www.sec.gov. Each
fund's investment company and 1933 Act registration numbers are:
J.P. Morgan Large Cap Growth Fund....................811-07795 and 333-11125
J.P. Morgan Smart Index 350 Fund.....................811-07795 and 333-11125
J.P. Morgan U.S. Market Neutral Fund.................811-07795 and 333-11125
[Right Side Bar]
J.P. MORGAN FUNDS AND THE MORGAN TRADITION
The J.P. Morgan Funds combine a heritage of integrity and financial leadership
with comprehensive and sophisticated analysis and management techniques. Drawing
on J.P. Morgan's extensive experience and depth as an investment manager, the
J.P. Morgan Funds offer a broad array of distinctive opportunities for mutual
fund investors.
JP Morgan
- ------------------------------------------------------------------------------
J.P. Morgan Funds
Advisor Distributor
J.P. Morgan Investment Management Inc. Funds Distributor, Inc.
522 Fifth Avenue 60 State Street
New York, NY 10036 Boston, MA 02109
1-800-521-5411 1-800-221-7930
<PAGE>
J.P. MORGAN SERIES TRUST
J.P. MORGAN LARGE CAP GROWTH FUND
J.P. MORGAN SMART INDEX 350 FUND
J.P. MORGAN U.S. MARKET NEUTRAL FUND
STATEMENT OF ADDITIONAL INFORMATION
_______________, 199_
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS BUT CONTAINS
ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS
DATED ____________, 199_ FOR EACH OF THE FUNDS LISTED ABOVE, AS SUPPLEMENTED
FROM TIME TO TIME. THE FUNDS' PROSPECTUS IS AVAILABLE, WITHOUT CHARGE, UPON
REQUEST FROM FUNDS DISTRIBUTOR, INC., 60 STATE STREET, SUITE 1300, BOSTON,
MASSACHUSETTS 02109, ATTENTION: J.P. MORGAN SERIES TRUST (800) 221-7930.
<PAGE>
Table of Contents
PAGE
GENERAL...................................................................
INVESTMENT OBJECTIVES AND POLICIES........................................
INVESTMENT RESTRICTIONS...................................................
TRUSTEES AND OFFICERS.....................................................
INVESTMENT ADVISOR........................................................
DISTRIBUTOR...............................................................
CO-ADMINISTRATOR..........................................................
SERVICES AGENT............................................................
CUSTODIAN AND TRANSFER AGENT..............................................
SHAREHOLDER SERVICING.....................................................
FINANCIAL PROFESSIONALS...................................................
INDEPENDENT ACCOUNTANTS...................................................
EXPENSES..................................................................
PURCHASE OF SHARES........................................................
REDEMPTION OF SHARES......................................................
EXCHANGE OF SHARES........................................................
DIVIDENDS AND DISTRIBUTIONS...............................................
NET ASSET VALUE...........................................................
PERFORMANCE DATA..........................................................
PORTFOLIO TRANSACTIONS....................................................
MASSACHUSETTS TRUST.......................................................
DESCRIPTION OF SHARES.....................................................
TAXES.....................................................................
ADDITIONAL INFORMATION....................................................
<PAGE>
GENERAL
Each of J.P. Morgan Large Cap Growth Fund (the "Large Cap Growth
Fund"), J.P. Morgan Smart Index 350 Fund (the "Smart Index Fund") and J.P.
Morgan U.S. Market Neutral Fund (the "U.S. Market Neutral Fund," and together
with the Large Cap Growth Fund and Smart Index Fund, the "Funds") is a series of
J.P. Morgan Series Trust, an open-end management investment company organized as
a Massachusetts business trust (the "Trust"). To date, the Trustees of the Trust
have authorized the creation of seven series of shares and the issuance of two
classes of shares--Institutional Shares and Select Shares. Each Fund currently
offers Institutional Shares only.
This Statement of Additional Information provides additional
information with respect to the Funds and should be read in conjunction with the
applicable current prospectus (the "Prospectus"). Capitalized terms not
otherwise defined herein have the meanings assigned to them in the Prospectus.
The Trust's executive offices are located at 60 State Street, Suite 1300,
Boston, Massachusetts 02109.
The Funds are advised by J.P. Morgan Investment Management Inc.
("JPMIM" or the "Advisor").
Shares of the Funds are not deposits or obligations of, or guaranteed
or endorsed by any bank. Shares of the Funds are not federally insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other
governmental agency. An investment in the Funds is subject to risk that may
cause the value of the investment to fluctuate, and at the time it is redeemed,
be higher or lower than the amount originally invested.
INVESTMENT OBJECTIVES AND POLICIES
The following discussion supplements the information in the Prospectus
regarding the investment objective and policies of each Fund.
LARGE CAP GROWTH FUND is designed for investors seeking high total
return from a portfolio of large company growth stocks, focusing on those growth
stocks that the Advisor believes can provide returns in excess of the Russell
1000 Growth Index.
INVESTMENT PROCESS FOR THE LARGE CAP GROWTH FUND
Research: The Advisor's more than 20 domestic equity analysts, each an
industry specialist with an average of over 10 years' experience, follow over
650 medium- and large- capitalization U.S. companies. Their research goal is to
forecast intermediate- and long-term earnings and cash flow for the companies
that they cover. The Advisor selects a growth universe based on internal
normalized growth projections.
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 its
forecasted dividends and earnings and the short-term proprietary earnings
estimates. 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: The portfolio manager selects stocks from the top two
quintiles of its growth stock universe after consulting with analysts and
examining certain financial indicators, such as consensus earnings revisions,
earnings surprises and earnings momentum. The portfolio manager uses
quantitative tools for risk management purposes, and the portfolio is reviewed
for its degree of relative risk and factor exposures.
SMART INDEX FUND is designed for investors seeking high total return
from a portfolio of equity securities with risk characteristics similar to that
of the Standard & Poor's 500 Stock Index ("S&P 500").
INVESTMENT PROCESS FOR THE SMART INDEX FUND
Research: The Advisor's more than 20 domestic equity analysts, each an
industry specialist with an average of over 10 years' experience, follow over
650 medium- and large- capitalization U.S. companies. Their research goal is to
forecast intermediate- and long-term earnings and cash flow 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 long-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: The portfolio manager primarily selects stocks that
are ranked in the top four quintiles. Industry by industry, the fund's sector
weightings are expected to be similar to those of the S&P 500. Within each
industry, the Fund may moderately overweight stocks in the top quintiles and
underweight or not hold stocks in the bottom quintiles.
U.S. MARKET NEUTRAL FUND is designed for investors seeking high total
return, while seeking to maintain minimum exposure to general stock market risk.
INVESTMENT PROCESS FOR THE U.S. MARKET NEUTRAL FUND
Research: The Advisor's more than 20 domestic equity analysts, each an
industry specialist with an average of over 10 years' experience, follow over
650 medium- and large- capitalization U.S. companies. Their research goal is to
forecast long term earnings which act as the driving force within the Advisor's
valuation model.
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 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: The portfolio manager purchases those stocks with the
highest dividend discount rates (most undervalued) within each sector, typically
in the top two quintiles, and sells short those stocks with the lowest dividend
discount rates (most overvalued) within such sectors, typically in the lowest
two quintiles. The sector and risk characteristics of the long and short
positions are closely matched.
The various types of securities in which the Funds may invest are
described below.
EQUITY INVESTMENTS
The Funds invest primarily in equity securities consisting of U.S.
and, to a lesser extent, foreign common stocks and other securities with equity
characteristics which are comprised of preferred stock, warrants, rights,
convertible securities, trust certifications, limited partnership interests and
investment company securities (collectively, "Equity Securities"). The Equity
Securities in which the Funds invest may include exchange-traded,
over-the-counter ("OTC") and unlisted common and preferred stocks. A discussion
of the various types of equity investments that may be purchased by the Funds
appears below. See also "Quality and Diversification Requirements."
EQUITY SECURITIES. The Equity Securities in which the Funds may invest
may or may not pay dividends and may or may not carry voting rights. Common
stock occupies the most junior position in a company's capital structure.
The convertible securities in which the Funds 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 Funds may invest in common stock warrants that entitle the holder
to buy common stock from the issuer 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 prior to the expiration date.
FOREIGN INVESTMENTS
Each of the Funds may invest up to 20% of its respective total assets
at the time of purchase, 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 these Funds' 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
these Funds' 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 these Funds must be made in compliance
with U.S. and foreign currency restrictions and tax laws restricting the amounts
and types of foreign investments.
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 (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 voting
rights to the holders of the receipts with respect to the deposited securities.
Since investments in foreign securities may involve foreign
currencies, the value of a Fund's assets as measured in U.S. dollars may be
affected favorably or unfavorably by changes in currency rates and in exchange
control regulations, including currency blockage.
ADDITIONAL INVESTMENTS
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. Each of the Funds may
purchase securities on a when-issued or delayed delivery basis. For example,
delivery of and payment for these securities can take place a month or more
after the date of the purchase commitment. The purchase price and the interest
rate payable, if any, on the securities are fixed on the purchase commitment
date or at the time the settlement date is fixed. The value of such securities
is subject to market fluctuation and no interest will accrue to a Fund until
settlement takes place. At the time a Fund makes the commitment to purchase
securities on a when-issued or delayed delivery basis, it will record the
transaction and reflect the value each day of such securities in determining its
net asset value. At the time of settlement, a when-issued security may be valued
at less than the purchase price. To facilitate such acquisitions each Fund will
maintain with the custodian a segregated account with liquid assets, consisting
of cash or other liquid assets, in an amount at least equal to such commitments.
If a Fund chooses to dispose of the right to acquire a when-issued security
prior to its acquisition, it could (as with the disposition of any other fund
obligation) incur a gain or loss due to market fluctuation. Also, a Fund may be
disadvantaged if the other party to the transaction defaults.
REVERSE REPURCHASE AGREEMENTS. Each of the Funds may enter into
reverse repurchase agreements. In a reverse repurchase agreement, a Fund sells a
security and agrees to repurchase the same security at a mutually agreed upon
date and price, reflecting the interest rate effective for the term of the
agreement. For purposes of the Investment Company Act of 1940, as amended ("the
1940 Act"), a reverse repurchase agreement may be deemed to be a borrowing of
money by the Fund and, therefore, a form of leverage. Leverage may cause any
gains or losses for a Fund to be magnified. The Funds will invest the proceeds
of borrowings under reverse repurchase agreements. In addition, a Fund will
enter into a reverse repurchase agreement only when the expected return to be
earned from the investment of the proceeds is greater than the interest expense
of the transaction. A Fund may not enter into reverse repurchase agreements
exceeding in the aggregate one-third of the market value of its total assets
less liabilities (other than reverse repurchase agreements and other
borrowings). See "Investment Restrictions."
LOANS OF PORTFOLIO SECURITIES. Each Fund is permitted to lend its
securities in an amount up to 33-1/3% of the value of such Fund's net assets.
Each of the Funds may lend its securities if such loans are secured continuously
by cash or equivalent collateral or by a letter of credit in favor of the Fund
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 Fund any income accruing thereon. Loans will be subject to
termination by the Funds 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 that occurs during the term of the loan
inures to a Fund and its respective shareholders. The Funds may pay reasonable
finders' and custodial fees in connection with a loan. In addition, a Fund will
consider all facts and circumstances before entering into such an agreement,
including the creditworthiness of the borrowing financial institution, and no
Fund will make any loans in excess of one year. The Funds will not lend their
securities to any officer, Trustee, Director, employee or other affiliate of the
Funds, the Advisor or the Funds' distributor, unless otherwise permitted by
applicable law.
ILLIQUID INVESTMENTS; PRIVATELY PLACED AND OTHER UNREGISTERED
SECURITIES. No Fund may 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, each Fund 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 a Fund. The price
a Fund pays for illiquid securities or receives upon resale may be lower than
the price paid or received for similar securities with a more liquid market.
Accordingly, the valuation of these securities will reflect any limitations on
their liquidity.
As to illiquid investments, these restricted holdings are subject to
the risk that the Fund will not be able to sell them at a price the Fund deems
representative of their value. If a restricted holding must be registered under
the 1933 Act, before it may be sold, a Fund may be obligated to pay all or part
of the registration expenses. Also, a considerable period may elapse between the
time of the decision to sell and the time the Fund is permitted to sell a
holding under an effective registration statement. If during such a period
adverse market conditions were to develop, a Fund might obtain a less favorable
price than prevailed when it decided to sell.
MONEY MARKET INSTRUMENTS
Although the Funds intend, under normal circumstances and to the
extent practicable, to be fully invested in equity securities, each Fund may
invest in money market instruments to the extent consistent with its investment
objective and policies. The Funds may invest in money market instruments to
invest temporary cash balances, to maintain liquidity to meet redemptions or as
a defensive measure during, or in anticipation of, adverse market conditions. In
addition, with respect to the Market Neutral Fund, cash generated by short sales
will be left on deposit with brokers as collateral to cover short positions and
the Fund will derive income on this cash. A description of the various types of
money market instruments that may be purchased by the Funds appears below. See
"Quality and Diversification Requirements."
U.S. TREASURY SECURITIES. Each of the Funds may invest in direct
obligations of the U.S. Treasury, including Treasury bills, notes and bonds, all
of which are backed as to principal and interest payments by the full faith and
credit of the United States.
ADDITIONAL U.S. GOVERNMENT OBLIGATIONS. Each of the Funds 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, each Fund must look principally to the federal agency issuing or
guaranteeing the obligation for ultimate repayment and may not be able to assert
a claim against the United States itself in the event the agency or
instrumentality does not meet its commitments. Securities in which each Fund 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
credit of the issuing agency.
BANK OBLIGATIONS. Unless otherwise noted below, each of the Funds 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 and are organized under the laws of
the United States or any state, (ii) foreign branches of these banks or of
foreign banks of equivalent size (Euros) and (iii) U.S. branches of foreign
banks of equivalent size (Yankees). The Funds will not invest in obligations for
which the Advisor, or any of its affiliated persons, is the ultimate obligor or
accepting bank. Each of the Funds may also invest in obligations of
international banking institutions designated or supported by national
governments to promote economic reconstruction, development or trade between
nations (e.g., the European Investment Bank, the Inter-American Development
Bank, or the World Bank).
COMMERCIAL PAPER. Each of the Funds 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 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 Funds may invest in such unrated
obligations only if, at the time of investment, the obligation is determined by
the Advisor to have a credit quality which satisfies the Fund's quality
restrictions. See "Quality and Diversification Requirements." Although there is
no secondary market for master demand obligations, such obligations are
considered by the Funds to be liquid because they are payable upon demand. The
Funds do not have any specific percentage limitation on investments in master
demand obligations. 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. Each of the Funds may enter into repurchase
agreements with brokers, dealers or banks that meet the credit guidelines
approved by the Trust's Trustees. In a repurchase agreement, a Fund buys a
security from a seller that has agreed to repurchase the same security at a
mutually agreed upon date and price. The resale price normally is in excess of
the purchase price, reflecting an agreed upon interest rate. This interest rate
is effective for the period of time the agreement is in effect and is not
related to the coupon rate on the underlying security. A repurchase agreement
may also be viewed as a fully collateralized loan of money by a Fund to the
seller. The period of these repurchase agreements will usually be short, from
overnight to one week, and at no time will the Funds 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 Funds 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 Funds in each agreement plus accrued interest, and the
Funds will make payment for such securities only upon physical delivery or upon
evidence of book entry transfer to the account of the custodian. If the seller
defaults, a Fund might 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 a Fund may be delayed or limited.
QUALITY AND DIVERSIFICATION REQUIREMENTS
Each of the Funds intends to meet the diversification requirements of
the 1940 Act. To meet these requirements, 75% of the assets of each Fund is
subject to the following fundamental limitations: (1) the Fund 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 Fund may not own more than 10% of the outstanding voting securities of any
one issuer. As for the other 25% of the Fund's assets not subject to the
limitation described above, there is no limitation on investment of these assets
under the 1940 Act, so that all of such assets may be invested in securities of
any one issuer. Investments not subject to the limitations described above could
involve an increased risk to a Fund 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 Funds will also comply with the diversification requirements
imposed by the Internal Revenue Code of 1986, as amended (the "Code"), for
qualification as a regulated investment company. See "Taxes."
The Funds may invest in convertible debt securities, for which there
are no specific quality requirements. In addition, at the time a Fund invests 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 ("S&P"), the issuer's parent
corporation, if any, must have outstanding commercial paper rated Prime-1 by
Moody's or A-1 by S&P, or if no such ratings are available, the investment must
be of comparable quality in the Advisor's opinion. At the time a Fund invests in
any other short-term debt securities, they must be rated A or higher by Moody's
or S&P, or if unrated, the investment must be of comparable quality in the
Advisor's opinion.
In determining suitability of investment in a particular unrated
security, the Advisor takes into consideration asset and debt service coverage,
the purpose of the financing, history of the issuer, existence of other rated
securities of the issuer, and other relevant conditions, such as comparability
to other issuers.
OPTIONS AND FUTURES TRANSACTIONS
Each Fund may use futures contracts and options for hedging and risk
management purposes. See "Risk Management" below. The Funds may not use futures
contracts and options for speculation.
Each Fund may use options and futures contracts to manage its exposure
to changing security prices. Some options and futures strategies, including
selling futures contracts and buying puts, tend to hedge a Fund's investments
against price fluctuations. Other strategies, including buying futures
contracts, writing puts and calls, and buying calls, tend to increase market
exposure. Options and futures contracts may be combined with each other or with
forward contracts in order to adjust the risk and return characteristics of a
Fund's overall strategy in a manner deemed appropriate to the Advisor and
consistent with a Fund's objective and policies. Because combined options
positions involve multiple trades, they result in higher transaction costs and
may be more difficult to open and close out.
The use of options and futures is a highly specialized activity which
involves investment strategies and risks different from those associated with
ordinary portfolio securities transactions, and there can be no guarantee that
their use will increase a Fund's return. While the use of these instruments by a
Fund may reduce certain risks associated with owning its portfolio securities,
these techniques themselves entail certain other risks. If the Advisor applies a
strategy at an inappropriate time or judges market conditions or trends
incorrectly, options and futures strategies may lower a Fund's return. Certain
strategies limit a Fund's possibilities to realize gains as well as limiting its
exposure to losses. A Fund could also experience losses if the prices of its
options and futures positions were poorly correlated with its other investments,
or if it could not close out its positions because of an illiquid secondary
market. In addition, a Fund will incur transaction costs, including trading
commissions and option premiums, in connection with its futures and options
transactions and these transactions could significantly increase a Fund's
turnover rate.
Each Fund may purchase put and call options on securities, indexes of
securities and futures contracts, or purchase and sell futures contracts, only
if such options are written by other persons and if (i) the aggregate premiums
paid on all such options which are held at any time do not exceed 20% of a
Fund'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 a Fund's total
assets.
OPTIONS
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, a Fund
obtains the right (but not the obligation) to sell the instrument underlying the
option at a fixed strike price. In return for this right, a Fund pays the
current market price for the option (known as the option premium). Options have
various types of underlying instruments, including specific securities, indexes
of securities, indexes of securities prices, and futures contracts. A Fund may
terminate its position in a put option it has purchased by allowing it to expire
or by exercising the option. A Fund also may close out a put option position by
entering into an offsetting transaction, if a liquid market exists. If the
option is allowed to expire, a Fund will lose the entire premium it paid. If a
Fund exercises a put option on a security, it will sell the instrument
underlying the option at the strike price. If a Fund exercises an option on an
index, settlement is in cash and does not involve the actual sale of securities.
If an option is American style, it may be exercised on any day up to its
expiration date. A European style option may be exercised 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 a Fund writes a put
option, it takes the opposite side of the transaction from the option's
purchaser. In return for receipt of the premium, a Fund assumes the obligation
to pay the strike price for the instrument underlying the option if the other
party to the option chooses to exercise it. A Fund may seek to terminate its
position in a put option it writes before exercise by purchasing an offsetting
option in the market at its current price. If the market is not liquid for a put
option a Fund has written, however, a Fund 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 also will 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 a Fund 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. A Fund, in purchasing or selling
index options, is subject to the risk that the value of its portfolio securities
may not change as much as an index because a Fund's investments generally will
not match the composition of an index.
For a number of reasons, a liquid market may not exist and thus a Fund
may not be able to close out an option position into which it has previously
entered. When a Fund purchases an OTC option (as defined below), it will be
relying on its counterparty to perform its obligations, and a Fund may incur
additional losses if the counterparty is unable to perform.
EXCHANGE TRADED AND OTC OPTIONS. All options purchased or sold by the
Funds 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, a Fund relies on the
dealer from which it purchased the option to perform if the option is exercised.
Thus, when a Fund purchases an OTC option, it relies on the dealer from which it
purchased the option to make or take delivery of the underlying securities.
Failure by the dealer to do so would result in the loss of the premium paid by a
Fund as well as the loss of the expected benefit of the transaction.
Provided that a Fund has arrangements with certain qualified dealers
who agree that the Fund may repurchase any option it writes for a maximum price
to be calculated by a predetermined formula, a Fund may treat the underlying
securities used to cover written OTC options as liquid. In these cases, the OTC
option itself would only be considered illiquid to the extent that the maximum
repurchase price under the formula exceeds the intrinsic value of the option.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Funds may
purchase or sell (write) futures contracts and purchase or sell put and call
options, including put and call options on futures contracts. In addition, the
funds may sell (write) put and call options, including options on futures.
Futures contracts obligate the buyer to take and the seller to make delivery at
a future date of a specified quantity of a financial instrument or an amount of
cash based on the value of a securities index. Currently, futures contracts are
available on various types of fixed income securities, including, but not
limited to, U.S. Treasury bonds, notes and bills, Eurodollar certificates of
deposit and on indexes of fixed income securities and indexes of equity
securities.
Unlike a futures contract, which requires the parties to buy and sell
a security or make a cash settlement payment based on changes in a financial
instrument or securities index on an agreed date, an option on a futures
contract entitles its holder to decide on or before a future date whether to
enter into such a contract. If the holder decides not to exercise its option,
the holder may close out the option position by entering into an offsetting
transaction or may decide to let the option expire and forfeit the premium
thereon. The purchaser of an option on a futures contract pays a premium for the
option but makes no initial margin payments or daily payments of cash in the
nature of "variation" margin payments to reflect the change in the value of the
underlying contract as does a purchaser or seller of a futures contract.
The seller of an option on a futures contract receives the premium
paid by the purchaser and may be required to pay initial margin. Amounts equal
to the initial margin and any additional collateral required on any options on
futures contracts sold by a Fund are paid by a Fund into a segregated account,
in the name of the Futures Commission Merchant, as required by the 1940 Act and
the interpretations of the Securities and Exchange Commission ("SEC")
thereunder.
COMBINED POSITIONS. The Funds are permitted to 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, a Fund may purchase a put option and write a call option
on the same underlying instrument, in order to construct a combined position
whose risk and return characteristics are similar to selling a futures contract.
Another possible combined position would involve writing a call option at one
strike price and buying a call option at a lower price, in order to reduce the
risk of the written call option in the event of a substantial price increase.
Because combined options positions involve multiple trades, they result in
higher transaction costs and may be more difficult to open and close out.
CORRELATION OF PRICE CHANGES. Because there are a limited number of
types of exchange traded options and futures contracts, it is likely that the
standardized options and futures contracts available will not match a Fund's
current or anticipated investments exactly. A Fund 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 a Fund's other investments.
Options and futures contracts prices also can diverge from the prices
of their underlying instruments, even if the underlying instruments match a
Fund's investments well. Options and futures contracts prices are affected by
such factors as current and anticipated short term interest rates, changes in
volatility of the underlying instrument, and the time remaining until expiration
of the contract, which may not affect security prices the same way. Imperfect
correlation also may result from differing levels of demand in the options and
futures markets and the securities markets, from structural differences in how
options and futures and securities are traded, or from imposition of daily price
fluctuation limits or trading halts. A Fund may purchase or sell options and
futures contracts with a greater or lesser value than the securities it wishes
to hedge or intends to purchase in order to attempt to compensate for
differences in volatility between the contract and the securities, although this
may not be successful in all cases. If price changes in a Fund's options or
futures positions are poorly correlated with its other investments, the
positions may fail to produce anticipated gains or result in losses that are not
offset by gains in other investments.
LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a
liquid market will exist for any particular option or futures contract at any
particular time even if the contract is traded on an exchange. In addition,
exchanges may establish daily price fluctuation limits for options and futures
contracts and may halt trading if a contract's price moves up or down more than
the limit in a given day. On volatile trading days when the price fluctuation
limit is reached or a trading halt is imposed, it may be impossible for a Fund
to enter into new positions or close out existing positions. If the market for a
contract is not liquid because of price fluctuation limits or otherwise, it
could prevent prompt liquidation of unfavorable positions, and could potentially
require a Fund to continue to hold a position until delivery or expiration
regardless of changes in its value. As a result, a Fund's access to other assets
held to cover its options or futures positions also could be impaired. See
"Exchange Traded and OTC Options" above for a discussion of the liquidity of
options not traded on an exchange.
POSITION LIMITS. Futures exchanges can limit the number of futures and
options on futures contracts that can be held or controlled by an entity. If an
adequate exemption cannot be obtained, a Fund or the Advisor may be required to
reduce the size of its futures and options positions or may not be able to trade
a certain futures or options contract in order to avoid exceeding such limits.
ASSET COVERAGE FOR FUTURES CONTRACTS AND OPTIONS POSITIONS. Although
the Funds will not be commodity pools, certain derivatives subject the Funds to
the rules of the Commodity Futures Trading Commission which limit the extent to
which the Funds can invest in such derivatives. The Funds may invest in futures
contracts and options with respect thereto for hedging purposes without limit.
However, the Funds 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 Funds' 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
Each Fund 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 Fund may enter into swap transactions for any legal purpose
consistent with its investment objective 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 a Fund anticipates purchasing at a later date, or to gain exposure to
certain matters in the most economical way possible. The Fund will not sell
interest rate caps, floors or collars if it does not own securities with coupons
which provide the interest that the Fund 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 specified interest rate falls
outside an agreed upon range over a specified period of time or at specified
dates. The purchase 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., three 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 the Fund 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 the Fund, payments by the
parties will be exchanged on a "net basis," and the Fund will receive or pay, as
the case may be, only the net amount of the two payments.
The amount of the Fund's potential gain or loss on any swap
transaction is not subject to any fixed limit. Nor is there any fixed limit on
the Fund's potential loss if it sells a cap or collar. If the Fund buys a cap,
floor, or collar, however, the Fund'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 Fund will be less favorable than if these techniques had not
been used. These instruments typically are 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 Fund or that the Fund 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 Fund.
The Advisor will, however, consider such risks and will enter into
swap and other derivative transactions only when it believes that the risks are
not unreasonable.
The Fund 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 Fund
enters into a swap agreement on a net basis, it will segregate assets with daily
value at least equal to the excess, if any, of the Fund's accrued obligations
under the swap agreement over the accrued amount the Fund is entitled to receive
under the agreement. If the Fund 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 Fund's accrued obligations
under the agreement.
The Fund 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, a Fund 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 using 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 Fund's 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, the Fund will record a realized gain or loss equal to the
difference, if any, between the proceeds from (or cost of) the closing
transaction and the Fund'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 the Fund
may engage in such transactions.
SHORT SELLING
The U.S. Market Neutral Fund will engage heavily in short selling. In
these transactions, the Fund sells a security it does not own in anticipation of
a decline in the market value of the security. To complete the transaction, the
Fund must borrow the security to make delivery to the buyer. The Fund is
obligated to replace the security borrowed by purchasing it subsequently at the
market price at the time of replacement. The price at such time may be more or
less than the price at which the security was sold by the Fund, which may result
in a loss or gain, respectively. Unlike purchasing a stock, where potential
losses are limited to the purchase price, short sales have no cap on maximum
losses, and gains are limited to the price of the stock at the time of the short
sale.
The U.S. Market Neutral Fund will not sell securities short if, after
effect is given to any such short sale, the total market value of all securities
sold short would exceed 100% of the Fund's net assets.
The U.S. Market Neutral Fund also may make short sales "against the
box," in which the Fund enters into a short sale of a security it owns.
RISK MANAGEMENT
The Funds may employ non-hedging risk management techniques. Risk
management strategies are used to keep the Funds fully invested and to reduce
the transaction costs associated with cash flows into and out of the Funds. The
objective where equity futures are used to "equitize" cash is to match the
notional value of all futures contracts to a Fund's cash balance. The notional
value of futures and of the 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 Funds
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.
INVESTMENT RESTRICTIONS
The investment restrictions set forth below have been adopted by the
Trust with respect to each Fund. Except as otherwise noted, these investment
restrictions are "fundamental" policies which, under the 1940 Act, may not be
changed without the vote of a majority of the outstanding voting securities of
the Funds. A "majority of the outstanding voting securities" is defined in the
1940 Act as the lesser of (a) 67% or more of the voting securities present at a
meeting if the holders of more than 50% of the outstanding voting securities are
present or represented by proxy, or (b) more than 50% of the outstanding voting
securities. The percentage limitations contained in the restrictions below apply
at the time of purchasing securities to the market value of a Fund's assets.
Unless Sections 8(b)(1) and 13(a) of the 1940 Act or any SEC or SEC
staff interpretations thereof are amended or modified, the Funds:
1. May not make any investments inconsistent with a Fund's
classification as a diversified investment company under the 1940 Act;
2. May not purchase any security which would cause a Fund 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 1940
Act 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 Fund, 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 Fund 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 a Fund 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 each Fund and may be changed by
the Trustees. These non-fundamental investment policies require that the Funds:
(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 Fund's net assets would be in investments which are
illiquid; and
(ii) May not acquire securities of other investment companies, except
as permitted by the 1940 Act or any order pursuant thereto.
In addition, as a non-fundamental investment restriction, the Large
Cap Growth Fund and Smart Index Fund:
(iii) 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.
If any percentage restriction described above is adhered to at the
time of investment, a subsequent increase or decrease in the percentage
resulting from a change in the value of a Fund's assets will not constitute a
violation of the restriction.
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.
TRUSTEES AND OFFICERS
TRUSTEES
The Trustees of the Trust, their principal occupations during the past
five years, business addresses and dates of birth are set forth below.
FREDERICK S. ADDY-Trustee; Retired; Prior to April 1994, 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 HEALEY(1)-Trustee, Chairman and Chief Executive Officer;
Chairman, Pierpont Group, Inc., since prior to 1992. His address is Pine Tree
Country Club Estates, 10286 Saint 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. His address
is 10 Charnwood Drive, Suffern, New York 10910, and his date of birth is March
17, 1934.
- --------------------
(1) Mr. Healy is an "interested person" of the Trust and the Advisor as that
term is defined in the 1940 Act.
Each Trustee is currently paid an annual fee of $75,000 for serving as
Trustee of the Trust, each of the Master Portfolios (as defined below), the J.P.
Morgan Institutional Funds and J.P. Morgan Funds and is reimbursed for expenses
incurred in connection with service as a Trustee. The Trustees may hold various
other directorships unrelated to these funds.
Trustee compensation expenses paid by the Trust for the calendar year
ended December 31, 1997 is set forth below.
TOTAL TRUSTEE COMPENSATION
ACCRUED BY THE MASTER
AGGREGATE PORTFOLIOS(*), J.P. MORGAN
TRUSTEE COMPENSATION INSTITUTIONAL FUNDS, J.P.
NAME OF TRUSTEE PAID BY THE TRUST MORGAN FUNDS AND THE TRUST
AND TITLE DURING 1997 DURING 1997(**)
- --------------- --------------------- ---------------------------
Frederick S. Addy, $90.92 $72,500
Trustee
William G. Burns, $90.92 $72,500
Trustee
Arthur C. Eschenlauer, $90.92 $72,500
Trustee
Matthew Healey, $90.92 $72,500
Trustee (***)
Chairman and Chief
Executive Officer
Michael P. Mallardi, $90.92 $72,500
Trustee
(*) The J.P. Morgan Funds and J.P. Morgan Institutional Funds are each
multi-series registered investment companies that are part of a two-tier
(master-feeder) investment fund structure. Each series of the J.P. Morgan Funds
and J.P. Morgan Institutional Funds is a feeder fund that invests all of its
investable assets in one of 15 registered investment companies comprised of 22
separate master portfolios (collectively, the "Master Portfolios").
(**) No investment company within the fund complex has a pension or
retirement plan.
(***) During 1997, Pierpont Group, Inc. paid Mr. Healey, in his role
as Chairman of Pierpont Group, Inc., compensation in the amount of $147,500,
contributed $21,100 to a defined contribution plan on his behalf and paid
$20,500 in insurance premiums for his benefit.
The Trustees decide upon general policies and are responsible for
overseeing the Trust's business affairs. The Trust has entered into a Fund
Services Agreement with Pierpont Group, Inc. to assist the Trustees in
exercising their overall supervisory responsibilities over the affairs of the
Trust. Pierpont Group, Inc. was organized in July 1989 to provide services for
the J.P. Morgan Family of Funds (formerly, The Pierpont Family of Funds), and
the Trustees are the equal and sole shareholders of Pierpont Group, Inc. The
Trust has agreed to pay Pierpont Group, Inc. a fee in an amount representing its
reasonable costs in performing these services to the Trust and certain other
registered investment companies subject to similar agreements with Pierpont
Group, Inc. 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.
OFFICERS
The Trust's 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 Chief Executive
Officer receives no compensation in his capacity as an officer of the Trust. The
officers conduct and supervise the business operations of the Trust. The Trust
has no employees.
The officers of the 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 Pine Tree Country Club Estates, 10286 Saint
Andrews Road, Boynton Beach, Florida 33436. 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.
Prior to July 1994, she was President and Chief Compliance Officer of 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. Prior to May 1994, Ms. Jacoppo-Wood was a senior paralegal at The Boston
Company Advisors, Inc. ("TBCA"). 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. Prior to April 1994, Mr. Kelley was employed by Putnam Investments in
legal and compliance capacities. His date of birth is December 24, 1964.
KATHLEEN K. MORRISEY-Vice President and Assistant Secretary. Vice
President and Assistant Secretary of FDI. Manager of Treasury Services
Administration and an officer of certain investment companies advised or
administered by Montgomery Asset Management, L.P. and Dresdner RCM Global
Investors, Inc., and their respective affiliates. From July 1994 to November
1995, Ms. Morrisey was a Fund Accountant for Investors Bank & Trust Company.
Prior to July 1994 she was a finance student at Stonehill College. Her date of
birth is July 5, 1972.
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. Prior to August 1994, Ms. Nelson was an Assistant Vice President and Client
Manager for The Boston Company, Inc. 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 60 Wall Street, New York, New York 10260. Her date
of birth is March 13, 1966.
MICHAEL S. PETRUCELLI-Vice President and Assistant Secretary. Senior
Vice President and Director of Strategic Client Initiatives for FDI since
December 1996. From December 1989 through November 1996, Mr. Petrucelli was
employed with GE Investments where he held various financial, business
development and compliance positions. He also served as Treasurer of the GE
Funds and as Director of GE Investment Services. His address is 200 Park Avenue,
New York, New York, 10166. His date of birth is May 18, 1961.
STEPHANIE D. PIERCE-Vice President and Assistant Secretary. Vice
President and Client Development Manager for FDI since April 1998. From April
1997 to March 1998, Ms. Pierce was employed by Citibank, NA as an officer of
Citibank and Relationship Manager on the Business and Professional Banking team
handling over 22,000 clients. From August 1995 to April 1997, she was an
Assistant Vice President with Hudson Valley Bank, and from September 1990 to
August 1995, she was a Second Vice President with Chase Manhattan Bank. Her
address is 200 Park Avenue, New York, New York 10166. Her date of birth is
August 18, 1968.
GEORGE A. RIO-President and Assistant 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. From September 1983 to May
1994, Mr. Rio was Senior Vice President & Manager of Client Services and
Director of Internal Audit at The Boston Company. His date of birth is January
2, 1955.
CHRISTINE ROTUNDO-Assistant Treasurer. Vice President, Morgan Guaranty
Trust Company of New York. Ms. Rotundo serves in the Funds Administration group
as a 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
60 Wall Street, New York, New York 10260. Her date of birth is September 26,
1965.
INVESTMENT ADVISOR
The Trust has retained JPMIM as Investment Advisor to provide
investment advice and portfolio management services to the Funds. Subject to the
supervision of the Fund's Trustees, the Advisor makes each Fund's day-to-day
investment decisions, arranges for the execution of portfolio transactions and
generally manages each Fund's investments.
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 $275 billion.
J.P. Morgan has a long history of service as an advisor, 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 because the firm believes that fundamentals should determine
an asset's value over the long term. The Advisor 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 are quantified into
a set of projected returns for individual companies through the use of a
dividend discount model. These returns are projected for two to five 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 Funds are
not exclusive under the terms of the Investment Advisory Agreement. The Advisor
is free to and does render similar investment advisory services to others. The
Advisor serves as investment advisor to personal investors and other investment
companies and acts as fiduciary for trusts, estates and employee benefit plans.
Certain of the assets of trusts and estates under management are invested in
common trust funds for which the Advisor serves as trustee. The accounts which
are managed or advised by the Advisor have varying investment objectives and the
Advisor invests assets of such accounts in investments substantially similar to,
or the same as, those which are expected to constitute the principal investments
of the Funds. Such accounts are supervised by officers and employees of the
Advisor who may also be acting in similar capacities for the Funds. See
"Portfolio Transactions."
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 benchmarks for the Large Cap Growth Fund, Smart
Index Fund and U.S. Market Neutral Fund are the Russell 1000 Growth Index, the
S&P 500 and U.S. Treasury Bills, respectively.
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 Funds are managed by officers of the Advisor who, in acting for
their clients, including the Funds, do not discuss their investment decisions
with any personnel of J.P. Morgan or any personnel of other divisions of J.P.
Morgan 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 Funds have agreed to pay the Advisor a fee, which is computed
daily and may be paid monthly, equal to the annual rates of each Fund's average
daily net assets shown below.
Large Cap Growth Fund: 0.50%
Smart Index Fund: 0.25%
U.S. Market Neutral Fund: 1.50%
The Investment Advisory Agreement between the Advisor and the Trust,
on behalf of each Fund, provides that it will continue in effect for a period of
two years after execution only if specifically approved thereafter annually in
the same manner as the Distribution Agreement. See "Distributor" below. The
Investment Advisory Agreement will terminate automatically if assigned and is
terminable at any time with respect to a Fund without penalty by a vote of a
majority of the Trust's Trustees or by a vote of the holders of a majority of
the Fund's outstanding voting securities on 60 days' written notice to the
Advisor and by the Advisor on 90 days' written notice to the Fund. See
"Additional Information."
The Glass-Steagall Act and other applicable laws generally prohibit
banks and their subsidiaries, such as the Advisor, from engaging in the business
of underwriting or distributing securities. The Board of Governors of the
Federal Reserve System has issued an interpretation to the effect that under
these laws a bank holding company registered under the federal Bank Holding
Company Act or certain subsidiaries thereof may not sponsor, organize, or
control a registered open-end investment company that continuously issues
shares, such as the Trust. The interpretation does not prohibit a holding
company or a subsidiary thereof from acting as investment advisor,
administrator, shareholder servicing agent or custodian to such an investment
company. The Advisor believes that it may perform the services for the Funds
contemplated by the Investment Advisory Agreement without violation of the
Glass-Steagall Act or other applicable banking laws or regulations. State laws
on this issue may differ from the interpretation of relevant federal law, and
banks and financial institutions may be required to register as dealers pursuant
to state securities laws. However, it is possible that future changes in either
federal or state statutes and regulations concerning the permissible activities
of banks or trust companies, as well as further judicial or administrative
decisions and interpretations of present and future statutes and regulations,
might prevent the Advisor from continuing to perform such services for the
Funds.
If the Advisor were prohibited from acting as investment advisor to
any Fund, it is expected that the Trustees of the Trust would recommend to
shareholders that they approve the Fund's entering into a new investment
advisory agreement with another qualified investment advisor selected by the
Trustees.
Under separate agreements, Morgan provides certain financial, fund
accounting, administrative and shareholder services to the Trust. See "Services
Agent" and "Shareholder Servicing" below.
DISTRIBUTOR
FDI serves as the Trust's exclusive distributor and holds itself
available to receive purchase orders for each Fund's shares. In that capacity,
FDI has been granted the right, as agent of the Trust, to solicit and accept
orders for the purchase of each Fund's shares in accordance with the terms of
the Distribution Agreement between the Trust and FDI. Under the terms of the
Distribution Agreement between FDI and the Trust, FDI receives no compensation
in its capacity as the Funds' distributor.
The Distribution Agreement will continue in effect with respect to
each Fund for a period of two years after execution and will continue thereafter
only if it is approved at least annually (i) by a vote of the holders of a
majority of the Fund's outstanding voting securities or by its Trustees and (ii)
by a vote of a majority of the Trustees of the Trust who are not "interested
persons" (as defined by the 1940 Act) of the parties to the Distribution
Agreement, cast in person at a meeting called for the purpose of voting on such
approval (see "Trustees and Officers"). The Distribution Agreement will
terminate automatically if assigned by either party. The Distribution Agreement
is also terminable with respect to a Fund at any time without penalty by a vote
of a majority of the Trustees of the Trust, a vote of a majority of the Trustees
who are not "interested persons" of the Trust, or by a vote of (i) 67% or more
of the Fund's outstanding voting securities present at a meeting if the holders
of more than 50% of the Fund's outstanding voting securities are present or
represented by proxy, or (ii) more than 50% of the Fund's outstanding voting
securities, whichever is less. FDI is a wholly owned indirect subsidiary of
Boston Institutional Group, Inc. The principal offices of FDI are located at 60
State Street, Suite 1300, Boston, Massachusetts 02109.
CO-ADMINISTRATOR
Under a Co-Administration Agreement with the Trust, FDI also serves as
the Trust's Co-Administrator. The Co-Administration Agreement may be renewed or
amended by the Trustees without a shareholder vote. The Co-Administration
Agreement is terminable at any time without penalty by a vote of a majority of
the Trustees of the Trust on not more than 60 days' written notice nor less than
30 days' written notice to the other party. The Co-Administrator may subcontract
for the performance of its obligations, provided, however, that unless the Trust
expressly agrees in writing, the Co-Administrator shall be fully responsible for
the acts and omissions of any subcontractor as it would for its own acts or
omissions. See "Services Agent" below.
FDI (i) provides office space, equipment and clerical personnel for
maintaining the organization and books and records of the Funds; (ii) provides
officers for the Trust; (iii) prepares and files documents required for
notification of state securities administrators; (iv) reviews and files
marketing and sales literature; (v) files regulatory documents and mails
communications to Trustees and investors; and (vi) maintains related books and
records.
For its services under the Co-Administration Agreement, each Fund 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 Fund is based on the ratio of the Fund's net assets to the aggregate net
assets of the Trust and certain other registered investment companies subject to
similar arrangements with FDI.
SERVICES AGENT
The Trust, on behalf of each Fund, has entered into an Administrative
Services Agreement (the "Services Agreement") with Morgan pursuant to which
Morgan is responsible for certain administrative and related services provided
to each Fund. The Services Agreement may be terminated at any time, without
penalty, by the Trustees or Morgan, in each case on not more than 60 days' nor
less than 30 days' written notice to the other party.
Under the Services Agreement, Morgan provides certain administrative
and related services to each Fund, including services related to tax compliance,
preparation of financial statements, calculation of performance data, oversight
of service providers and certain regulatory and Board of Trustee matters.
Under the Services Agreement, each Fund has agreed to pay Morgan fees
equal to its allocable share of an annual complex-wide charge. This charge is
calculated daily based on the aggregate net assets of the Funds, the Trust's
other series and the Master Portfolios 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 each Fund is determined by the proportionate share that its net
assets bear to the total net assets of the Trust and the other investment
companies provided administrative services by Morgan.
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02110, serves as the Trust's custodian and fund
accounting, transfer and dividend disbursing agent. Pursuant to the Custodian
Contract with the Trust, State Street is responsible for maintaining the books
and records of each Fund's portfolio transactions and for holding portfolio
securities and cash. The Custodian maintains portfolio transaction records. As
transfer agent and dividend disbursing agent, State Street is responsible for
maintaining account records detailing the ownership of Fund shares and for
crediting income, capital gains and other changes in share ownership to
shareholder accounts.
SHAREHOLDER SERVICING
The Trust, on behalf of each of the Funds, has entered into a
Shareholder Servicing Agreement with Morgan pursuant to which Morgan acts as
shareholder servicing agent for Fund shareholders. Under this agreement, Morgan
is responsible for performing, directly or through an agent, shareholder account
administrative and servicing functions, which include but are not limited to
answering inquiries regarding account status and history, the manner in which
purchases and redemptions of Fund shares may be effected, and certain other
matters pertaining to a Fund; assisting customers in designating and changing
dividend options, account designations and addresses; providing necessary
personnel and facilities to coordinate the establishment and maintenance of
shareholder accounts and records with the Funds' transfer agent; transmitting
purchase and redemption orders to the Funds' transfer agent and arranging for
the wiring or other transfer of funds to and from customer accounts in
connection with orders to purchase or redeem Fund shares; verifying purchase and
redemption orders, transfers among and changes in accounts; informing FDI of the
gross amount of purchase orders for Fund shares; and providing other related
services.
Under the Shareholder Servicing Agreement, each Fund has agreed to pay
Morgan for these services a fee of 0.10% (expressed as a percentage of the
average daily net asset value of Fund shares owned by or for shareholders for
whom Morgan is acting as shareholder servicing agent). Morgan acts as
Shareholder Servicing Agent for all shareholders.
As discussed under "Investment Advisor," the Glass-Steagall Act and
other applicable laws and regulations limit the activities of bank holding
companies and certain of their subsidiaries in connection with registered
open-end investment companies. The activities of Morgan in acting as shareholder
servicing agent for Fund shareholders under the Shareholder Servicing Agreement
and for providing administrative services to the Funds under the Services
Agreement, and JPMIM in acting as Advisor to the Funds under the Investment
Advisory Agreement may raise issues under these laws. However, Morgan and JPMIM
believe that they may properly perform these services and the other activities
described in the Prospectuses without violating the Glass-Steagall Act or other
applicable banking laws or regulations.
If Morgan were prohibited from providing any of the services under the
Shareholder Servicing and the Services Agreements, the Trustees would seek an
alternative provider of such services. In such event, changes in the operation
of the Funds might occur and a shareholder might no longer be able to avail
himself or herself of any services then being provided to shareholders by
Morgan.
The Funds may be sold to or through financial intermediaries who are
customers of J.P. Morgan ("financial professionals"), including financial
institutions and broker-dealers, that may be paid fees by J.P. Morgan or its
affiliates for services provided to their clients that invest in the Funds. See
"Financial Professionals" below. Organizations that provide recordkeeping or
other services to certain employee benefit or retirement plans that includes the
Funds as an investment alternative may also be paid a fee.
FINANCIAL PROFESSIONALS
The services provided by financial professionals may include
establishing and maintaining shareholder accounts, processing purchase and
redemption transactions, arranging for bank wires, performing shareholder
subaccounting, answering client inquiries regarding the Trust, assisting clients
in changing dividend options, account designations and addresses, providing
periodic statements showing the client's account balance and integrating these
statements with those of other transactions and balances in the client's other
accounts serviced by the financial professional, transmitting proxy statements,
periodic reports, updated prospectuses and other communications to shareholders
and, with respect to meetings of shareholders, collecting, tabulating and
forwarding executed proxies and obtaining such other information and performing
such other services as J.P. Morgan or the financial professional's clients may
reasonably request and agree upon with the financial professional.
Although there is no sales charge levied directly by the Funds,
financial professionals may establish their own terms and conditions for
providing their services and may charge investors a transaction-based or other
fee for their services. Such charges may vary among financial professionals but
in all cases will be retained by the financial professional and not be remitted
to the Fund or J.P. Morgan.
Each Fund has authorized one or more brokers to accept purchase and
redemption orders on its behalf. Such brokers are authorized to designate other
intermediaries to accept purchase and redemption orders on a Fund's behalf. A
Fund will be deemed to have received a purchase or redemption order when an
authorized broker or, it applicable, a broker's authorized designee, accepts the
order. These orders will be priced at the Fund's net asset value next calculated
after they are so accepted.
INDEPENDENT ACCOUNTANTS
The independent accountants of the Trust are
__________________________. __________________________ conducts an annual audit
of the financial statements of each of the Funds, assists in the preparation
and/or review of each of the Fund's federal and state income tax returns and
consults with the Funds as to matters of accounting and federal and state income
taxation.
EXPENSES
In addition to the fees payable to Pierpont Group, Inc., JPMIM, Morgan
and FDI under various agreements discussed under "Trustees and Officers,"
"Investment Advisor," "Co-Administrator", "Distributor", "Services Agent" and
"Shareholder Servicing" above, the Funds are responsible for usual and customary
expenses associated with the Trust's operations. Such expenses include
organization expenses, legal fees, accounting and audit expenses, insurance
costs, the compensation and expenses of the Trustees, registration fees under
federal securities laws, extraordinary expenses, transfer, registrar and
dividend disbursing costs, the expenses of printing and mailing reports, notices
and proxy statements to Fund shareholders, fees under state securities laws,
custodian fees and brokerage expenses.
PURCHASE OF SHARES
ADDITIONAL MINIMUM BALANCE INFORMATION. If your account balance falls
below the minimum for 30 days as a result of selling shares (and not because of
performance), the Fund reserves the right to request that you buy more shares or
close your account. If your account balance is still below the minimum 60 days
after notification, the Fund reserves the right to close out your account and
send the proceeds to the address of record.
METHOD OF PURCHASE. Investors may open accounts with a Fund only
through the Distributor. All purchase transactions in Fund accounts are
processed by Morgan as shareholder servicing agent and each Fund is authorized
to accept any instructions relating to a Fund account from Morgan as shareholder
servicing agent for the customer. All purchase orders must be accepted by the
Distributor. Prospective investors who are not already customers of Morgan may
apply to become customers of Morgan for the sole purpose of Fund transactions.
There are no charges associated with becoming a Morgan customer for this
purpose. Morgan reserves the right to determine the customers that it will
accept, and the Funds reserve the right to determine the purchase orders that
they will accept.
References in the Prospectus and this Statement of Additional
Information to customers of J.P. Morgan or a financial professional include
customers of their affiliates, and references to transactions by customers with
J.P. Morgan or a financial professional include transactions with their
affiliates. Only Fund investors who are using the services of a financial
institution acting as shareholder servicing agent pursuant to an agreement with
the Trust on behalf of a Fund may make transactions in shares of a Fund.
Each Fund may, at its own option, accept securities in payment for
shares. The securities so delivered are valued by the method described under
"Net Asset Value" as of the day the Fund receives the securities. This is a
taxable transaction to the shareholder. Securities may be accepted in payment
for shares only if they are, in the judgment of the Advisor, appropriate
investments for a Fund. In addition, securities accepted in payment for shares
must: (i) meet the investment objective and policies of the acquiring Fund; (ii)
be acquired by the applicable Fund for investment and not for resale; (iii) be
liquid securities which are not restricted as to transfer; 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. Each Fund reserves the right to accept or reject at its own
option any and all securities offered in payment for its shares.
Prospective investors may purchase shares with the assistance of a
financial professional and the financial professional may charge the investor a
fee for this service and other services it provides to its customers. J.P.
Morgan may pay fees to financial professionals for services in connection with
fund investments. See "Financial Professionals" above.
REDEMPTION OF SHARES
Investors may redeem shares of the Funds as described in the
Prospectus. The Funds generally intend to pay redemption proceeds in cash;
however, they reserve the right at their sole discretion to pay redemptions over
$250,000 in-kind as a portfolio of representative stocks rather than cash. See
below and "Exchange of Shares."
The Trust, on behalf of each Fund, reserves the right to suspend the
right of redemption and to postpone the date of payment upon redemption as
follows: (i) for up to seven days, (ii) during periods when the New York Stock
Exchange is closed for other than weekends and holidays or when trading thereon
is restricted as determined by the SEC by rule or regulation, (iii) during
periods in which an emergency, as determined by the SEC, exists that causes
disposal by a Fund of, or evaluation of the net asset value of, its portfolio
securities to be unreasonable or impracticable, or (iv) for such other periods
as the SEC may permit.
If the Trust determines that it would be detrimental to the best
interests of the remaining shareholders of the Funds 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 Fund, in lieu of cash. If
shares are redeemed in-kind, the redeeming shareholder might incur costs in
converting the assets into cash. The Trust is in the process of seeking
exemptive relief from the SEC with respect to redemptions in-kind by the Funds.
If the requested relief is granted, each Fund would then be 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.
In general, a Fund will attempt to select securities for in-kind
redemptions that approximate the overall characteristics of the Fund's
portfolio. A Fund will not distribute illiquid securities to satisfy in-kind
redemptions. For purposes of effecting in-kind redemptions, securities will be
valued in the manner regularly used to value a Fund's portfolio securities. A
Fund will not redeem its shares in-kind in a manner that after giving effect to
the redemption would cause it to violate its investment restrictions or
policies. See the Prospectus for information on redemptions in-kind.
OTHER REDEMPTION PROCESSING INFORMATION. Redemption requests may not
be processed if the redemption request is not submitted in proper form. A
redemption request is not in proper form unless a Fund has received the
shareholder's certified taxpayer identification number and address. In addition,
if shares were paid for by check and the check has not yet cleared, redemption
proceeds will not be transmitted until the check has cleared, which may take up
to 15 days. Each Fund reserves the right to suspend the right of redemption or
postpone the payment of redemption proceeds to the extent permitted by the SEC.
Shareholders may realize taxable gains upon redeeming shares.
For information regarding redemption orders placed through a financial
professional, please see "Financial Professionals" above.
EXCHANGE OF SHARES
Subject to the limitations below, an investor may exchange shares from
a Fund into any other J.P. Morgan Fund or J.P. Morgan Institutional Fund without
charge. An exchange may be made so long as after the exchange the investor has
shares, in each fund in which he or she remains an investor, with a value of at
least that fund's minimum investment amount. Shareholders should read the
prospectus of the fund into which they are exchanging and may only exchange
between fund accounts that are registered in the same name, address and taxpayer
identification number. Shares are exchanged on the basis of relative net asset
value per share. Exchanges are in effect redemptions from one fund and purchases
of another fund and the usual purchase and redemption procedures and
requirements are applicable to exchanges. See "Redemption of Shares."
Shareholders subject to federal income tax who exchange shares in one fund for
shares in another fund may recognize capital gain or loss for federal income tax
purposes. Shares of a fund to be acquired are purchased for settlement when the
proceeds from redemption become available. In the case of investors in certain
states, state securities laws may restrict the availability of the exchange
privilege. The Trust reserves the right to discontinue, alter or limit the
exchange privilege at any time.
DIVIDENDS AND DISTRIBUTIONS
Each Fund declares and pays dividends and distributions as described
under "Dividends and Distributions" in the Prospectus.
Dividends and capital gains distributions paid by a Fund are
automatically reinvested in additional shares of the Fund unless the shareholder
has elected to have them paid in cash. Dividends and distributions to be paid in
cash are credited to the shareholder's account at Morgan or at his financial
professional or, in the case of certain Morgan customers, are mailed by check in
accordance with the customer's instructions. Each Fund reserves the right to
discontinue, alter or limit the automatic reinvestment privilege at any time.
If a shareholder has elected to receive dividends and/or capital gains
distributions in cash and the postal or other delivery service is unable to
deliver checks to the shareholder's address of record, such shareholder's
distribution option will automatically be converted to having all dividend and
other distributions reinvested in additional shares. No interest will accrue on
amounts represented by uncashed distribution or redemption checks.
NET ASSET VALUE
Each of the Funds computes its net asset value separately for each
class of shares outstanding once daily as of the close of trading on the New
York Stock Exchange (normally 4:00 p.m. eastern time) on each business day as
described in the Prospectus. The net asset value will not be computed on the day
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 Fund will close for purchases and
redemptions at the same time. The Funds also may close for purchases and
redemptions at such other times as may be determined by the Board of Trustees to
the extent permitted by applicable law. The days on which net asset value is
determined are the Funds' business days.
Portfolio securities are valued at the last sale price on the
securities exchange or national securities market on which such securities are
primarily traded. Unlisted securities are valued at the last average of the
quoted bid and asked prices in the OTC market. The value of each security for
which readily available market quotations exist is based on a decision as to the
broadest and most representative market for such security. For purposes of
calculating net asset value all assets and liabilities initially expressed in
foreign currencies will be converted into U.S. dollars at the prevailing average
currency exchange rate on the valuation date.
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 in most foreign markets is normally completed
before the close of trading in U.S. markets and may also take place on days on
which the U.S. markets are closed. If events materially affecting the value of
securities occur between the time when the market in which they are traded
closes and the time when the Portfolio's net asset value is calculated, such
securities will be valued at fair value in accordance with procedures
established by and under the general supervision of the Trustees.
PERFORMANCE DATA
From time to time, the Funds may quote performance in terms of actual
distributions, total return or capital appreciation for the various Fund classes
in reports, sales literature and advertisements published by the Trust. Current
performance information may be obtained by calling Morgan at (800) _________ for
Large Cap Growth Fund: Institutional Shares; (800) __________ for Smart Index
Fund: Institutional Shares; and (800) __________ for U.S. Market Neutral Fund:
Institutional Shares.
The classes of shares of each Fund may bear different shareholder
servicing fees and other expenses, which may cause the performance of a class to
differ from the performance of another class. Performance quotations will be
computed separately for each class of a Fund's shares. Any fees charged by an
institution directly to its customers' accounts in connection with investments
in the Funds will not be included in calculations of total return.
TOTAL RETURN QUOTATIONS. As required by regulations of the SEC,
average annual total return of each Fund's class of shares for a period is
computed by assuming a hypothetical initial payment of $10,000. It is then
assumed that all of the dividends and distributions by the Fund over the period
are reinvested. It is then assumed that at the end of the period, the entire
amount is redeemed. The average annual total return is then calculated by
determining the annual rate required for the initial payment to grow to the
amount which would have been received upon redemption.
Aggregate total returns, reflecting the cumulative percentage change
over a measuring period, also may be calculated.
GENERAL. Performance will vary from time to time depending upon market
conditions, the composition of the portfolio and operating expenses.
Consequently, any given performance quotation should not be considered
representative of a Fund's performance for any specified period in the future.
In addition, because performance will fluctuate, it may not provide a basis for
comparing an investment in a Fund with certain bank deposits or other
investments that pay a fixed yield or return for a stated period of time.
Comparative performance information may be used from time to time in
advertising the Funds' shares, including appropriate market indices including
the benchmarks indicated under "Investment Advisor" above or data from Lipper
Analytical Services, Inc., Micropal, Inc., Ibbotson Associates, Morningstar
Inc., the Dow Jones Industrial Average and other industry publications.
From time to time, the Funds may, in addition to any other permissible
information, include the following types of information in advertisements,
supplemental sales literature and reports to shareholders: (1) discussions of
general economic or financial principles (such as the effects of compounding and
the benefits of dollar-cost averaging); (2) discussions of general economic
trends; (3) presentations of statistical data to supplement such discussions;
(4) descriptions of past or anticipated portfolio holdings for one or more of
the Funds; (5) descriptions of investment strategies for one or more of the
Funds; (6) descriptions or comparisons of various savings and investment
products (including, but not limited to, qualified retirement plans and
individual stocks and bonds), which may or may not include the Funds; (7)
comparisons of investment products (including the Funds) with relevant markets
or industry indices or other appropriate benchmarks; (8) discussions of Fund
rankings or ratings by recognized rating organizations; and (9) discussions of
various statistical methods quantifying a Fund's volatility relative to its
benchmark or to past performance, including risk adjusted measures. The Funds
may also include calculations, such as hypothetical compounding examples, which
describe hypothetical investment results in such communications. Such
performance examples will be based on an express set of assumptions and are not
indicative of the performance of any of the Funds.
PORTFOLIO TRANSACTIONS
The Advisor places orders for all Funds 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 all the Funds. See "Investment Objectives and Policies."
Fixed income and debt securities 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 broker's
financial condition; and 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 Trust's Trustees review regularly the
reasonableness of commissions and other transaction costs incurred by the Funds
in light of facts and circumstances deemed relevant from time to time and, in
that connection, will receive reports from Morgan 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 of the Advisor's clients and not solely or necessarily for the
benefit of an individual Fund. The Advisor believes that the value of research
services received is not determinable and does not significantly reduce its
expenses. The Funds do not reduce their fee to the Advisor by any amount that
might be attributable to the value of such services.
Subject to the overriding objective of obtaining the best execution of
orders, the Advisor may allocate a portion of a Fund's brokerage transactions to
affiliates of the Advisor. In order for affiliates of the Advisor to effect any
portfolio transactions for a Fund, 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 Trust's Trustees, including a majority of the Trustees who are not
"interested persons," have adopted procedures which are reasonably designed to
provide that any commissions, fees, or other remuneration paid to such
affiliates are consistent with the foregoing standard.
Portfolio securities will not be purchased from or through or sold to
or through the Advisor or FDI or any "affiliated person" (as defined in the 1940
Act) thereof when such entities are acting as principals, except to the extent
permitted by law. In addition, the Funds will not purchase securities from any
underwriting group of which the Advisor or an affiliate of the Advisor is a
member, except to the extent permitted by law.
Investment decisions made by the Advisor are the product of many
factors in addition to basic suitability for the particular Fund or other client
in question. Thus, a particular security may be bought or sold for certain
clients even though it could have been bought or sold for other clients at the
same time. Likewise, a particular security may be bought for one or more clients
when one or more other clients are selling the same security. The Funds only may
sell a security to each other or to other accounts managed by the Advisor or its
affiliates in accordance with procedures adopted by the Trustees.
It also sometimes happens that two or more clients simultaneously
purchase or sell the same security. On those occasions when the Advisor deems
the purchase or sale of a security to be in the best interests of a Fund, as
well as other clients including other Funds, the Advisor to the extent permitted
by applicable laws and regulations, may, but is not obligated to, aggregate the
securities to be sold or purchased for a Fund with those to be sold or purchased
for other clients 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 the Advisor's fiduciary obligations to a Fund. In some
instances, this procedure might adversely affect a Fund.
MASSACHUSETTS TRUST
The Trust is a "Massachusetts business trust" of which each Fund is a
separate and distinct series. A copy of the Declaration of Trust for the Trust
is on file in the office of the Secretary of The Commonwealth of Massachusetts.
Under Massachusetts law, shareholders of such a trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
trust. However, the Trust's Declaration of Trust provides that the shareholders
will not be subject to any personal liability for the acts or obligations of any
Fund and that every written agreement, obligation, instrument or undertaking
made on behalf of any Fund will contain a provision to the effect that the
shareholders are not personally liable thereunder.
The Trust's Declaration of Trust further provides that no Trustee,
officer, employee or agent of the Trust is liable to a Fund or to a shareholder,
and that no Trustee, officer, employee or agent is liable to any third persons
in connection with the affairs of a Fund, except as such liability may arise
from his or its own bad faith, willful misfeasance, gross negligence or reckless
disregard of his or its duties to such third persons ("disabling conduct"). It
also provides that all third persons must look solely to Fund property for
satisfaction of claims arising in connection with the affairs of a Fund. The
Trust's Declaration of Trust provides that a Trustee, officer, employee or agent
is entitled to be indemnified against all liability in connection with the
affairs of a Fund, except liabilities arising from disabling conduct.
DESCRIPTION OF SHARES
Each Fund represents a separate series of shares of beneficial
interest of the Trust. Fund shares are further divided into separate classes.
See "Massachusetts Trust."
The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares ($0.001 par value) of one or more series
and classes within any series and to divide or combine the shares of any series
without changing the proportionate beneficial interest of each shareholder in a
Fund. To date, each Fund is authorized to issue Institutional Shares and Select
Shares, but only Institutional Shares are currently offered.
Each share represents an equal proportional interest in a Fund with
each other share of the same class. Upon liquidation of a Fund, holders are
entitled to share pro rata in the net assets of a Fund available for
distribution to such shareholders. Shares of a Fund have no preemptive or
conversion rights.
The shareholders of the Trust are entitled to one full or fractional
vote for each dollar or fraction of a dollar invested in shares. Subject to the
1940 Act, the Trustees have the power to alter the number and the terms of
office of the Trustees, to lengthen their own terms, or to make their terms of
unlimited duration, subject to certain removal procedures, and to appoint their
own successors. However, immediately after such appointment, the requisite
majority of the Trustees must have been elected by the shareholders of the
Trust. The voting rights of shareholders are not cumulative. The Trust does not
intend to hold annual meetings of shareholders. The Trustees may call meetings
of shareholders for action by shareholder vote if required by either the 1940
Act or the Trust's Declaration of Trust.
Shareholders of the Trust have the right, upon the declaration in
writing or vote of shareholders whose shares represent two-thirds of the net
asset value of the Trust, to remove a Trustee. The Trustees will call a meeting
of shareholders to vote on removal of a Trustee upon the written request of the
shareholders whose shares represent 10% of the net asset value of the Trust. The
Trustees also are required, under certain circumstances, to assist shareholders
in communicating with other shareholders.
TAXES
The following discussion of tax consequences is based on U.S. federal
tax laws in effect on the date of the Prospectuses. These laws and regulations
are subject to change by legislative or administrative action.
Each Fund intends to qualify and remain qualified as a regulated
investment company under Subchapter M of the Code. As a regulated investment
company, a Fund must, among other things, (a) derive at least 90% of its gross
income from dividends, interest, payments with respect to loans of stock and
securities, gains from the sale or other disposition of stock or securities and
other income (including but not limited to gains from options and futures
contracts) derived with respect to its business of investing in such stock or
securities; and (b) diversify its holdings so that, at the end of each fiscal
quarter, (i) at least 50% of the value of a Fund's total assets is represented
by cash, U.S. Government securities, investments in other regulated investment
companies and other securities limited, in respect of any one issuer, to an
amount not greater than 5% of a Fund's total assets, and 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of its
total assets is invested in the securities of any one issuer (other than U.S.
Government securities or the securities of other regulated investment
companies).
As a regulated investment company, a Fund (as opposed to its
shareholders) will not be subject to federal income taxes on the net investment
income and capital gains that it distributes to its shareholders, provided that
at least 90% of its net investment income and realized net short-term capital
gains in excess of net long-term capital losses for the taxable year is
distributed in accordance with the Code's requirements. If a Fund does not
qualify as a regulated investment company, it will be treated for tax purposes
as an ordinary corporation subject to federal income tax.
Under the Code, a Fund will be subject to a 4% excise tax on a portion
of its undistributed taxable income and capital gains if it fails to meet
certain distribution requirements by the end of the calendar year. Each Fund
intends to make distributions in a timely manner and accordingly does not expect
to be subject to the excise tax.
For federal income tax purposes, dividends that are declared by a Fund
in October, November or December as of a record date in such month and actually
paid in January of the following year will be treated as if they were paid on
December 31 of the year declared. Therefore, such dividends will generally be
taxable to a shareholder in the year declared rather than the year paid.
Distributions of net investment income and realized net short-term
capital gain in excess of net long-term capital loss is generally taxable to
shareholders of the Funds as ordinary income whether such distributions are
taken in cash or reinvested in additional shares. The Funds expect that a
portion of these distributions to corporate shareholders will be eligible for
the dividends-received deduction, subject to applicable limitations under the
Code. If dividend payments exceed income earned by a Fund, the overdistribution
would be considered a return of capital rather than a dividend payment. The
Funds intend to pay dividends in such a manner so as to minimize the possibility
of a return of capital. Distributions of net long-term capital gain (i.e., net
long-term capital gain in excess of net short-term capital loss) are taxable to
shareholders of a Fund as long-term capital gain, regardless of whether such
distributions are taken in cash or reinvested in additional shares and
regardless of how long a shareholder has held shares in a Fund. In general,
long-term capital gain of an individual shareholder will be subject to a reduced
rate of tax. Investors should consult their tax advisors concerning the
treatment of capital gains and losses.
Any distribution of net investment income or capital gains will have
the effect of reducing the net asset value of Fund shares held by a shareholder
by the same amount as the distribution. If the net asset value of the shares is
reduced below a shareholder's cost as a result of such a distribution, the
distribution, although constituting a return of capital to the shareholder, will
be taxable as described above.
Any gain or loss realized on the redemption or exchange of Fund shares
by a shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held for more than one year, and
otherwise as short-term capital gain or loss. However, any loss realized by a
shareholder upon the redemption or exchange of shares in the Fund held for six
months or less will be treated as a long-term capital loss to the extent of any
long-term capital gain distributions received by the shareholder with respect to
such shares. In addition, no loss will be allowed on the redemption or exchange
of shares of a Fund, if within a period beginning 30 days before the date of
such redemption or exchange and ending 30 days after such date, the shareholder
acquires (such as through dividend reinvestment) securities that are
substantially identical to shares of the Fund.
Ordinarily, gains and losses realized from portfolio transactions,
including short sales, will be treated as capital gains or losses. However, a
portion of any gain or loss realized from the disposition of certain non-U.S.
dollar denominated securities (including debt instruments, certain forward
contracts and option transactions and certain preferred stock) may be treated as
ordinary income or loss under Section 988 of the Code. In addition, all or a
portion of any gain realized from the sale or other disposition of certain
market discount bonds will be treated as ordinary income under Section 1276 of
the Code. Finally, all or a portion of any gain realized from engaging in
"conversion transactions" may be treated as ordinary income under Section 1258
of the Code. "Conversion transactions" are defined to include certain forward,
futures, option and straddle transactions, transactions marketed or sold to
produce capital gains, or transactions described in Treasury regulations to be
issued in the future.
Under Section 1256 of the Code, any gain or loss a Fund realizes from
certain forward contracts and options transactions will be treated as 60%
long-term capital gain or loss and 40% short-term capital gain or loss. Gain or
loss will arise upon exercise or lapse of such contracts and options as well as
from closing transactions. In addition, any such contracts or options remaining
unexercised at the end of the Fund's taxable year will be treated as sold for
their then fair market value, resulting in additional gain or loss to the Fund
characterized in the manner described above.
Offsetting positions held by a Fund involving certain foreign currency
forward contracts and options may constitute "straddles." "Straddles" are
defined to include "offsetting positions" in actively traded personal property.
The tax treatment of "straddles" is governed by Sections 1092 and 1258 of the
Code, which, in certain circumstances, override or modify the provisions of
Sections 1256 and 988 of the Code. As such, all or a portion of any short- or
long-term capital gain from certain "straddle" and/or conversion transactions
may be recharacterized as ordinary income.
If a Fund were treated as entering into "straddles" by reason of its
engaging in certain forward contracts or options transactions, such "straddles"
would be characterized as "mixed straddles" if the forward contracts or options
transactions comprising a part of such "straddles" were governed by Section 1256
of the Code. A Fund may make one or more elections with respect to "mixed
straddles." Depending on which election is made, if any, the results to the Fund
may differ. If no election is made, to the extent the "straddle" and conversion
transaction rules apply to positions established by the Fund, losses realized by
the Fund will be deferred to the extent of unrealized gain in the offsetting
position. Moreover, as a result of the "straddle" and conversion transaction
rules, short-term capital losses on "straddle" positions may be recharacterized
as long-term capital losses, and long-term capital gains on "straddle" positions
may be treated as short-term capital gains or ordinary income.
The Taxpayer Relief Act of 1997 included constructive sale provisions
that generally apply if a Fund either (1) holds an appreciated financial
position with respect to stock, certain debt obligations, or partnership
interests ("appreciated financial position") and then enters into a short sale,
futures, forward, or offsetting notional principal contract (collectively, a
"Contract") respecting the same or substantially identical property or (2) holds
an appreciated financial position that is a Contract and then acquires property
that is the same as, or substantially identical to, the underlying property. In
each instance, with certain exceptions, a Fund generally will be taxed as if the
appreciated financial position were sold at its fair market value on the date a
Fund enters into the financial position or acquires the property, respectively.
Transactions that are identified as hedging or straddle transactions under other
provisions of the Code can be subject to the constructive sale provisions.
If a Fund invests in an entity that is classified as a "passive
foreign investment company" ("PFIC") for federal income tax purposes, the
operation of certain provisions of the Code applying to PFICs could result in
the imposition of certain federal income taxes on the Fund. In addition, gain
realized from the sale or other disposition of PFIC securities may be treated as
ordinary income under Section 1291 of the Code and, for tax years beginning
after December 31, 1997, gain realized with respect to PFIC securities that are
marked-to-market will be treated as ordinary income under Section 1296 of the
Code.
If a correct and certified taxpayer identification number is not on
file, a Fund is required, subject to certain exemptions, to withhold 31% of
certain payments made or distributions declared to non-corporate shareholders.
FOREIGN SHAREHOLDERS. Dividends of net investment income and
distributions of realized net short-term gain in excess of net long-term loss to
a shareholder who, as to the United States, is a nonresident alien individual,
fiduciary of a foreign trust or estate, foreign corporation or foreign
partnership (a "foreign shareholder") will be subject to U.S. withholding tax at
the rate of 30% (or lower treaty rate) unless the dividends are effectively
connected with a U.S. trade or business of the shareholder, in which case the
dividends will be subject to tax on a net income basis at the graduated rates
applicable to U.S. individuals or domestic corporations. Distributions treated
as long term capital gains to foreign shareholders will not be subject to U.S.
tax unless the distributions are effectively connected with the shareholder's
trade or business in the United States or, in the case of a shareholder who is a
nonresident alien individual, the shareholder was present in the United States
for more than 182 days during the taxable year and certain other conditions are
met.
In the case of a foreign shareholder who is a nonresident alien
individual or foreign entity, a Fund may be required to withhold U.S. federal
income tax as "backup withholding" at the rate of 31% from distributions treated
as long-term capital gains from the proceeds of redemptions, exchanges or other
dispositions of Fund shares unless IRS Form W-8 is provided. Transfers by gift
of shares of a Fund by a foreign shareholder who is a nonresident alien
individual will not be subject to U.S. federal gift tax, but the value of shares
of a Fund held by such a shareholder at his or her death will be includible in
his or her gross estate for U.S. federal estate tax purposes.
STATE AND LOCAL TAXES. Each Fund may be subject to state or local
taxes in jurisdictions in which a Fund is deemed to be doing business. In
addition, the treatment of a Fund and its shareholders in those states that have
income tax laws might differ from treatment under the federal income tax laws.
Shareholders should consult their own tax advisors with respect to any state or
local taxes.
OTHER TAXATION. The Trust is organized as a Massachusetts business
trust and, under current law, neither the Trust nor any Fund is liable for any
income or franchise tax in The Commonwealth of Massachusetts, provided that each
Fund continues to qualify as a regulated investment company under Subchapter M
of the Code.
ADDITIONAL INFORMATION
Telephone calls to the Funds, J.P. Morgan or State Street may be tape
recorded. With respect to the securities offered hereby, this Statement of
Additional Information and the Prospectus do not contain all the information
included in the Trust's registration statement filed with the SEC. Pursuant to
the rules and regulations of the SEC, certain portions have been omitted. The
registration statement, including the exhibits filed therewith, may be examined
at the office of the SEC in Washington, D.C.
Statements contained in this Statement of Additional Information and
the Prospectus concerning the contents of any contract or other document are not
necessarily complete, and, in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the applicable
Registration Statements. Each such statement is qualified in all respects by
such reference.
No dealer, salesman or any other person has been authorized to give
any information or to make any representations, other than those contained in
the Prospectus and this Statement of Additional Information, in connection with
the offer contained therein and, if given or made, such other information or
representations must not be relied upon as having been authorized by any of the
Trust, the Funds or FDI. The Prospectus and this Statement of Additional
Information do not constitute an offer by any Fund or by FDI to sell or solicit
any offer to buy any of the securities offered hereby in any jurisdiction to any
person to whom it is unlawful for the Fund or FDI to make such offer in such
jurisdictions.
THE YEAR 2000 INITIATIVE
With the new millennium rapidly approaching, organizations are
examining their computer systems to ensure they are year 2000 compliant. The
issue, in simple terms, is that many existing computer systems use only two
numbers to identify a year in the date field with the assumption that the first
two digits are always "19." As the century is implied in the date, on January 1,
2000, computers that are not year 2000 compliant will assume the year is 1900.
Systems that calculate, compare or sort using the incorrect date will cause
erroneous results, ranging from system malfunctions to incorrect or incomplete
transaction processing. If not remedied, potential risks include business
interruption or shutdown, financial loss, reputation loss and/or legal
liability.
J.P. Morgan has undertaken a firmwide initiative to address the year
2000 issue and has developed a comprehensive plan to prepare, as appropriate,
its computer systems. Each business line has taken responsibility for
identifying and fixing the problem within its own area of operation and for
addressing all interdependencies. A multidisciplinary team of internal and
external experts supports the business teams by providing direction and firmwide
coordination. Working together, the business and multidisciplinary teams have
completed a thorough education and awareness initiative and a global inventory
and assessment of J.P. Morgan's technology and application portfolio to
understand the scope of the year 2000 impact at J.P. Morgan. J.P. Morgan
presently is renovating and testing these technologies and applications in
partnership with external consulting and software development organizations, as
well as with year 2000 tool providers. J.P. Morgan is on target with its plan to
substantially complete renovation, testing and validation of its key systems by
year-end 1998 and to participate in industry-wide testing (or streetwide
testing) in 1999. J.P. Morgan is also working with key external parties,
including clients, counterparties, vendors, exchanges, depositories, utilities,
suppliers, agents and regulatory agencies, to stem the potential risks the year
2000 problem poses to J.P. Morgan and to the global financial community.
Costs associated with efforts to prepare J.P. Morgan's systems for the
year 2000 approximated $95 million in 1997. In 1998, J.P. Morgan will continue
its efforts to prepare its systems for the year 2000. The total cost to become
year-2000 compliant is estimated at $250 million, for internal systems
renovation and testing, testing equipment and both internal and external
resources working on the project. Remaining costs will be incurred primarily in
1998. The costs associated with J.P. Morgan becoming year-2000 compliant will be
borne by J.P. Morgan and not the Funds.
<PAGE>
PART C
ITEM 23. EXHIBITS.
(a) Declaration of Trust.(1)
(a)1 Amendment No. 1 to Declaration of Trust, Amended and Restated
Establishment and Designation of Series and Classes of Shares of
Beneficial Interest.(2)
(a)2 Amendment No. 2 to Declaration of Trust, Second Amended and
Restated Establishment and Designation of Series and Classes of
Shares of Beneficial Interest.(3)
(a)3 Amendment No. 3 to Declaration of Trust, Third Amended and
Restated Establishment and Designation of Series and Classes of
Shares of Beneficial Interest.(4)
(a)4 Amendment No. 4 to Declaration of Trust, Fourth Amended and
Restated Establishment and Designation of Series and Classes of
Shares of Beneficial Interest.(5)
(b) Restated By-Laws.(2)
(d) Amended Investment Advisory Agreement between Registrant and
J.P. Morgan Investment Management Inc. ("JPMIM").(6)
(e) Form of Distribution Agreement between Registrant and Funds
Distributor, Inc. ("FDI").(2)
(g) Form of Custodian Contract between Registrant and State Street
Bank and Trust Company ("State Street").(2)
(h)1 Form of Co-Administration Agreement between Registrant and FDI.(2)
(h)2 Form of Administrative Services Agreement between Registrant and
Morgan Guaranty Trust Company of New York ("Morgan").(2)
(h)3 Form of Transfer Agency and Service Agreement between Registrant
and State Street.(2)
(h)4 Form of Restated Shareholder Servicing Agreement between Registrant
and Morgan.(7)
(j) Consent of independent accountants.(8)
(l) Purchase agreement with respect to Registrant's
initial shares.(2)
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(1) Incorporated herein from Registrant's registration statement on Form N-1A
as filed on August 29, 1996 (Accession No. 0000912057-96-019242).
(2) Incorporated herein from Registrant's registration statement on Form N-1A
as filed on November 8, 1996 (Accession No. 0001016964-96-000034).
(3) Incorporated herein from Registrant's registration statement on Form N-1A
as filed on June 19, 1997 (Accession No. 0001016964-97-000117).
(4) Incorporated herein from Registrant's registration statement on Form N-1A
as filed on January 2, 1998 (Accession No.0001041455-98-000012).
(5) Incorporated herein from Registrant's registration statement on Form N-1A
as filed on July 28, 1998 (Accession No. 0001041455-98-000039).
(6) Incorporated herein from Registrant's registration statement on Form N-1A
as filed on October 30, 1998 (Accession No.0001042058-98-000118).
(7) Incorporated herein from Registrant's registration statement on Form N-1A
as filed on August 25, 1998 (Accession No. 0001041455-98-000054).
(8) To be filed by amendment.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND.
Not applicable.
ITEM 25. INDEMNIFICATION.
Reference is made to Section 5.3 of Registrant's Declaration of Trust and
Section 5 of Registrant's Distribution Agreement.
Registrant, its Trustees and officers are insured against certain expenses in
connection with the defense of claims, demands, actions, suits, or proceedings,
and certain liabilities that might be imposed as a result of such actions, suits
or proceedings.
Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended (the "1933 Act"), may be permitted to directors, trustees,
officers and controlling persons of the Registrant and the principal underwriter
pursuant to the foregoing provisions or otherwise, the Registrant has been
advised that in the opinion of the SEC such indemnification is against public
policy as expressed in the 1933 Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, trustee,
officer, or controlling person of the Registrant and the principal underwriter
in connection with the successful defense of any action, suite or proceeding) is
asserted against the Registrant by such director, trustee, officer or
controlling person or principal underwriter in connection with the shares being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the 1933 Act and will be governed by the final
adjudication of such issue.
ITEM 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.
(a) Funds Distributor, Inc. (the "Distributor") is the principal underwriter
of the Registrant's shares.
Funds Distributor, Inc. acts as principal underwriter for the following
investment companies other than the Registrant:
American Century California Tax-Free and Municipal Funds
American Century Capital Portfolios, Inc.
American Century Government Income Trust
American Century International Bond Funds
American Century Investment Trust
American Century Municipal Trust
American Century Mutual Funds, Inc.
American Century Premium Reserves, Inc.
American Century Quantitative Equity Funds
American Century Strategic Asset Allocations, Inc.
American Century Target Maturities Trust
American Century Variable Portfolios, Inc.
American Century World Mutual Funds, Inc.
BJB Investment Funds
The Brinson Funds
Dresdner RCM Capital Funds, Inc.
Dresdner RCM Equity Funds, Inc.
Founders Funds, Inc.
Harris Insight Funds Trust
HT Insight Funds, Inc. d/b/a Harris Insight Funds
J.P. Morgan Funds
J.P. Morgan Institutional Funds
J.P. Morgan Series Trust II
LaSalle Partners Funds, Inc.
Monetta Fund, Inc.
Monetta Trust
The Montgomery Funds
The Montgomery Funds II
The Munder Framlington Funds Trust
The Munder Funds Trust
The Munder Funds, Inc.
Orbitex Group of Funds
St. Clair Funds, Inc.
The Skyline Funds
Waterhouse Investors Family of Funds, Inc.
WEBS Index Fund, Inc.
Funds Distributor, Inc. does not act as depositor or investment adviser to
any of the investment companies.
Funds Distributor, Inc. is registered with the Securities and Exchange
Commission as a broker-dealer and is a member of the National Association of
Securities Dealers. Funds Distributor, Inc. is located at 60 State Street, Suite
1300, Boston, Massachusetts 02109. Funds Distributor, Inc. is an indirect
wholly-owned subsidiary of Boston Institutional Group, Inc., a holding company
all of whose outstanding shares are owned by key employees.
(b) The following is a list of the executive officers, directors and partners
of Funds Distributor, Inc.:
Director, President and Chief Executive Officer: Marie E. Connolly
Executive Vice President: George Rio
Executive Vice President: Donald R. Roberson
Executive Vice President: William S. Nichols
Senior Vice President: Michael S. Petrucelli
Director, Senior Vice President, Treasurer and
Chief Financial Officer: Joseph F. Tower, III
Senior Vice President: Paula R. David
Senior Vice President: Allen B. Closser
Senior Vice President: Bernard A. Whalen
Director: William J. Nutt
(c) Not applicable
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940, as amended (the "1940
Act"), and the Rules thereunder will be maintained at the offices of:
Morgan Guaranty Trust Company of New York and J.P. Morgan Investment
Management Inc.: 60 Wall Street, New York, New York 10260-0060, 9 West 57th
Street, New York, New York 10019 or 522 Fifth Avenue, New York, New York
10036 (records relating to its functions as investment advisor, shareholder
servicing agent and administrative services agent).
State Street Bank and Trust Company: 1776 Heritage Drive, North Quincy,
Massachusetts 02171 (records relating to its functions as custodian,
transfer agent and dividend disbursing agent).
Funds Distributor, Inc.: 60 State Street, Suite 1300, Boston, Massachusetts
02109 (records relating to its functions as distributor and
co-administrator).
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.
(a) If the information called for by Item 5A of Form N-1A is contained in
the latest annual report to shareholders, the Registrant shall furnish
each person to whom a prospectus is delivered with a copy of the
Registrant's latest annual report to shareholders upon request and
without charge.
(b) The Registrant undertakes to comply with Section 16(c) of the 1940 Act
as though such provisions of the 1940 Act were applicable to the
Registrant, except that the request referred to in the second full
paragraph thereof may only be made by shareholders who hold in the
aggregate at least 10% of the outstanding shares of the Registrant,
regardless of the net asset value of shares held by such requesting
shareholders.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this registration statement
to be signed on its behalf by the undersigned, thereto duly authorized, in the
City of New York and State of New York on the 30th day of October, 1998.
J.P. MORGAN SERIES TRUST
By /s/ Michael S. Petrucelli
---------------------------------------
Michael S. Petrucelli
Vice President and Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed below by the following persons in the capacities
indicated on October 30, 1998.
George Rio*
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George Rio
President and Treasurer
Officer of the Portfolios
Matthew Healey*
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Matthew Healey
Trustee, Chairman and Chief Executive Officer
(Principal Executive Officer)
Frederick S. Addy*
- ------------------------------
Frederick S. Addy
Trustee
William G. Burns*
- ------------------------------
William G. Burns
Trustee
Arthur C. Eschenlauer*
- ------------------------------
Arthur C. Eschenlauer
Trustee
Michael P. Mallardi*
- ------------------------------
Michael P. Mallardi
Trustee
*By /s/ Michael S. Petrucelli
----------------------------
Michael S. Petrucelli
as attorney-in-fact pursuant to a power of attorney.
