JANUARY 8, 1998 PROSPECTUS
J.P MORGAN INSTITUTIONAL
U.S. EQUITY FUNDS
Disciplined Equity Fund
U.S. Equity Fund
U.S. Small Company Fund
Tax Aware Disciplined Equity 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.
Shares in these funds are not bank deposits and are not guaranteed or insured by
any bank, government entity, or the FDIC.
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 for anyone to state or suggest
otherwise.
Distributed by Funds Distributor, Inc. JPMORGAN
<PAGE>
CONTENTS
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2
- ----
Principles and techniques common to the funds in this prospectus
U.S. EQUITY MANAGEMENT APPROACH
U.S. equity investment process . . . . . . . . . . . . . . . . . . . . . . . 2
The spectrum of U.S. equity funds. . . . . . . . . . . . . . . . . . . . . . 3
Tax aware investing at J.P. Morgan . . . . . . . . . . . . . . . . . . . . . 3
4
- ----
Each fund's goal, investment approach, risks, expenses, performance, and
financial highlights
J.P. MORGAN INSTITUTIONAL U.S. EQUITY FUNDS
J.P. Morgan Institutional Disciplined Equity Fund. . . . . . . . . . . . . . 4
J.P. Morgan Institutional U.S. Equity Fund . . . . . . . . . . . . . . . . . 8
J.P. Morgan Institutional U.S. Small Company Fund. . . . . . . . . . . . . . 10
J.P. Morgan Institutional Tax Aware Disciplined Equity Fund. . . . . . . . . 12
14
- ----
Investing in the J.P. Morgan Institutional U.S. Equity Funds
YOUR INVESTMENT
Investing through a financial professional . . . . . . . . . . . . . . . . . 14
Investing through an employer-sponsored retirement plan. . . . . . . . . . . 14
Investing through an IRA or rollover IRA . . . . . . . . . . . . . . . . . . 14
Investing directly . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Opening your account . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Adding to your account . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Selling shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Account and transaction policies . . . . . . . . . . . . . . . . . . . . . . 15
Dividends and distributions. . . . . . . . . . . . . . . . . . . . . . . . . 16
Tax considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
17
- ----
More about risk and the funds' business operations
FUND DETAILS
Business structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Management and administration. . . . . . . . . . . . . . . . . . . . . . . . 17
Risk and reward elements . . . . . . . . . . . . . . . . . . . . . . . . . . 18
FOR MORE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . back cover
<PAGE>
INTRODUCTION
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J.P. MORGAN INSTITUTIONAL U.S. EQUITY FUNDS
These funds invest primarily in U.S. stocks either directly or through another
fund. As a shareholder, you should anticipate risks and rewards beyond those of
a typical bond fund or a typical balanced fund.
WHO MAY WANT TO INVEST
The funds are designed for investors who:
- - are pursuing a long-term goal such as retirement
- - want to add an investment with growth potential to further diversify a
portfolio
- - want funds that seek to outperform the markets in which they each invest
over the long term
- - with regard to the Tax Aware Fund, are individuals that could benefit from
a strategy that pursues returns from an after-tax perspective
The funds are NOT designed for investors who:
- - want funds that pursue market trends or focus only on particular industries
or sectors
- - require regular income or stability of principal
- - are pursuing a short-term goal or investing emergency reserves
- - with regard to the Tax Aware Fund, are investing through a tax-deferred
account such as an IRA
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 $240 billion in assets under management,
including assets managed by the funds' advisor, Morgan Guaranty Trust Company of
New York.
- --------------------------------------------------------------------------------
BEFORE YOU INVEST
Investors considering these funds should understand that:
- - The value of each fund's shares will fluctuate over time. You could lose
money if you sell when your fund's share price is lower than when you
invested.
- - There is no assurance that these funds will meet their investment goals.
- - Future returns will not necessarily resemble past performance.
- - These funds (except for the Tax Aware Fund) invest in another fund with an
identical goal -- the master portfolio. The Tax Aware Fund invests directly
in individual securities.
1
<PAGE>
U.S. EQUITY MANAGEMENT APPROACH
- --------------------------------------------------------------------------------
The J.P. Morgan Institutional U.S. equity funds invest primarily in U.S. stocks.
The Tax Aware Fund does so while seeking to enhance the after-tax returns of its
shareholders.
While each fund follows its own strategy, the funds as a group share a single
investment philosophy. This philosophy, developed by the funds' advisor, focuses
on stock picking while largely avoiding sector or market-timing strategies.
Also, under normal market conditions, each fund will remain fully invested.
U.S. EQUITY INVESTMENT PROCESS
In managing the funds described in this prospectus, J.P. Morgan employs a three-
step process:
[GRAPHIC]
J.P. Morgan analysts develop proprietary fundamental research
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.
[GRAPHIC]
Stocks in each industry are ranked with the help of models
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.
[GRAPHIC]
Using research and valuations, each fund's management team chooses stocks for
its fund
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:
- - catalysts that could trigger a rise in a stock's price
- - high potential reward compared to potential risk
- - temporary mispricings caused by market overreactions
2 U.S. EQUITY MANAGEMENT APPROACH
<PAGE>
- --------------------------------------------------------------------------------
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 between these funds include:
- - how much emphasis they give to the most undervalued stocks
- - how closely they follow the industry weightings of their benchmarks
- - how many securities they typically maintain in their portfolios
- - the size or market capitalization of the companies in which they invest
- - whether they focus on before-tax or after-tax returns
The table below shows degrees of the relative risk and return that these funds
potentially offer. These and other distinguishing features of each U.S. equity
fund are described on the following pages.
POTENTIAL RISK AND RETURN
- --------------------------------------------------------------------------------
[CHART]
The positions of the funds in this graph reflect long-term performance goals
only, and are relative, not absolute.
TAX AWARE INVESTING AT J.P. MORGAN
The Tax Aware Fund is designed to reduce, but not eliminate, capital gains
distributions to shareholders. In doing so, the fund sells securities when the
anticipated performance benefit justifies the resulting tax liability. This
strategy often includes holding securities long enough to avoid higher,
short-term capital gains taxes, selling shares with a higher cost basis first,
and offsetting gains realized in one security by selling another security at a
capital loss. The fund is aided in this process by a tax-sensitive optimization
model developed by J.P. Morgan.
The Tax Aware Fund generally intends to pay redemption proceeds in cash; however
it reserves the right at its sole discretion to pay redemptions over $500,000
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. At the same time, it can give the
redeeming shareholder greater flexibility in managing tax consequences of the
redemption and is not subject to a redemption fee by the fund. However, the
stocks received will continue to fluctuate in value after redemption and will be
subject to brokerage or other transaction costs when liquidated.
U.S. EQUITY MANAGEMENT APPROACH 3
<PAGE>
J.P. MORGAN INSTITUTIONAL DISCIPLINED EQUITY FUND
- --------------------------------------------------------------------------------
REGISTRANT: J.P. MORGAN INSTITUTIONAL FUNDS
(J.P. MORGAN INSTITUTIONAL DISCIPLINED EQUITY FUND)
[GRAPHIC]
GOAL
The fund seeks to provide high total return from a broadly diversified
portfolio of equity securities.
[GRAPHIC]
INVESTMENT APPROACH
The fund invests primarily in large- and medium-capitalization U.S. companies.
Industry by industry, the fund's weightings are similar to those of the Standard
& Poor's 500 Stock Index (S&P 500). The fund does not look to overweight or
underweight industries.
Within each industry, the fund modestly overweights stocks that are ranked as
undervalued or fairly valued while modestly underweighting or not holding stocks
that appear overvalued. (The process used to rank stocks according to their
relative valuations is described on page 2.) Therefore, the fund tends to own a
larger number of stocks within the S&P 500 than the U.S. Equity Fund.
[GRAPHIC]
POTENTIAL RISKS AND REWARDS
The value of your investment in the fund will fluctuate in response to movements
in the stock market. Fund performance will also depend on the effectiveness of
J.P. Morgan's research and the management team's stock picking decisions.
By owning a large number of stocks within the S&P 500, with an emphasis on those
that appear undervalued or fairly valued, and by tracking the industry
weightings of that index, the fund seeks returns that modestly exceed those of
the S&P 500 over the long term with virtually the same level of volatility.
The fund's securities and their main risks, as well as fund strategies, are
described in more detail on page 18.
POTENTIAL RISK AND RETURN
[CHART]
The positions of the funds in this graph reflect long-term performance goals
only, and are relative, not absolute.
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages over $240
billion, including more than $27 billion using the same strategy as the fund.
The portfolio management team is led by James C. Wiess and Timothy J. Devlin,
both vice presidents, who have been on the team since the fund's inception in
January of 1997. Mr. Wiess has been at J.P. Morgan since 1992, Mr. Devlin since
July of 1996. Prior to managing this fund, Mr. Wiess had been managing
structured equity portfolios and Mr. Devlin was an equity portfolio manager at
Mitchell Hutchins Asset Management Inc.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
The current expenses you should expect to pay as an investor in the fund are
shown at right. The fund has no sales, redemption, exchange, or account fees,
although some institutions may charge you a fee for shares you buy through them.
The annual fund expenses shown are deducted from fund assets prior to
performance calculations.
Footnotes for this section are shown on next page.
ANNUAL FUND OPERATING EXPENSES(1) (%)
- ------------------------------------------------------
Management fees (actual) 0.35
Marketing (12b-1) fees none
Other expenses(2)
(after reimbursement) 0.10
- ------------------------------------------------------
TOTAL OPERATING EXPENSES(2)(AFTER REIMBURSEMENT) 0.45
- ------------------------------------------------------
EXPENSE EXAMPLE
- --------------------------------------------------------------------------------
The example below uses the same assumptions as other fund prospectuses: $1,000
initial investment, 5% annual total return, expenses unchanged, all shares sold
at the end of each time period. The example is for comparison only; the fund's
actual return and expenses will be different.
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
YOUR COST($) 5 14 25 57
- --------------------------------------------------------------------------------
4 J.P. MORGAN INSTITUTIONAL DISCIPLINED EQUITY FUND
<PAGE>
PERFORMANCE (UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN (%) Shows performance over time, for periods ended September 30, 1997
- ----------------------------------------------------------------------------------------------------------------------
1 yr. 5 yrs. Since 10/31/89(3)
<S> <C> <C> <C>
J.P. MORGAN INSTITUTIONAL DISCIPLINED EQUITY FUND (AFTER EXPENSES) N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------------
PRIVATE ACCOUNT COMPOSITE (AFTER EXPENSE)(4) 41.71 21.51 17.90
- ----------------------------------------------------------------------------------------------------------------------
S&P 500 INDEX(5) (no expenses) 40.45 20.77 17.05
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
TOTAL RETURNS (%) Shows changes in returns for periods ended September 30, 1997
- ----------------------------------------------------------------------------------------------------------------------
[GRAPH]
3 mos. Since inception(6)
<S> <C> <C>
J.P. MORGAN INSTITUTIONAL DISCIPLINED EQUITY FUND 7.66 22.83
- ----------------------------------------------------------------------------------------------------------------------
PRIVATE ACCOUNT COMPOSITE(4) 7.62 22.76
- ----------------------------------------------------------------------------------------------------------------------
S&P 500 INDEX(5) 7.49 22.02
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN (%) Shows changes in returns by calendar year
- ----------------------------------------------------------------------------------------------------------------------
[GRAPH]
1990 1991 1992 1993 1994 1995 1996
<C> <C> <C> <C> <C> <C> <C> <C>
PRIVATE ACCOUNT COMPOSITE(4) (2.94) 30.39 11.75 10.20 2.21 37.87 23.26
- ----------------------------------------------------------------------------------------------------------------------
S&P 500 INDEX(5) (3.11) 30.47 7.62 10.08 1.32 37.58 22.96
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The fund has a master/feeder structure as described on page 17. This table
shows the fund's expenses and its share of master portfolio expenses for
the past fiscal period, expressed as a percentage of the fund's average net
assets and reflecting reimbursement for ordinary expenses over 0.45%.
(2) Without reimbursement, other expenses and total operating expenses would
have been 0.99% and 1.34%, respectively, on an annualized basis. There is
no guarantee that reimbursement will continue beyond 9/30/98.
(3) The inception date of the Private Account Composite is 10/31/89.
(4) 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 0.45%. 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.
(5) The S&P 500 Index is an unmanaged index of U.S. stocks widely used as a
measure of overall stock market performance.
(6) The fund commenced operations on 1/3/97 and performance is calculated as of
1/31/97.
J.P. MORGAN INSTITUTIONAL DISCIPLINED EQUITY FUND 5
<PAGE>
FINANCIAL HIGHLIGHTS
PER-SHARE DATA For fiscal period ended May 31
- --------------------------------------------------------------------------------
1997(1)
NET ASSET VALUE, BEGINNING OF PERIOD ($) 10.00
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.04
Net realized and unrealized gain
on investment ($) 1.43
- --------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS ($) 1.47
- --------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD ($) 11.47
- --------------------------------------------------------------------------------
TOTAL RETURN (%) 14.70(2)
- --------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD ($ thousands) 49,726
- --------------------------------------------------------------------------------
RATIO TO AVERAGE NET ASSETS:
- --------------------------------------------------------------------------------
EXPENSES (%) 0.45(3)
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME (%) 1.58(3)
- --------------------------------------------------------------------------------
DECREASE REFLECTED IN EXPENSE RATIO DUE TO
EXPENSE REIMBURSEMENT (%) 0.89(3)
- --------------------------------------------------------------------------------
The Financial Highlights above have been audited by Price Waterhouse LLP, the
fund's independent accountants.
(1) The fund commenced operations on 1/3/97.
(2) Not annualized.
(3) Annualized.
6 J.P. MORGAN INSTITUTIONAL DISCIPLINED EQUITY FUND
<PAGE>
- --------------------------------------------------------------------------------
(THIS PAGE IS INTENTIONALLY LEFT BLANK)
7
<PAGE>
J.P. MORGAN INSTITUTIONAL
U.S. EQUITY FUND TICKER SYMBOL: JMUEX
- --------------------------------------------------------------------------------
REGISTRANT: J.P. MORGAN INSTITUTIONAL FUNDS
(J.P. MORGAN INSTITUTIONAL U.S. EQUITY FUND)
[GRAPHIC]
GOAL
The fund seeks to provide high total return from a portfolio of selected stocks.
[GRAPHIC]
INVESTMENT APPROACH
The fund invests primarily in large- and medium-capitalization U.S. companies.
Industry by industry, the fund's weightings are similar to those of the Standard
& Poor's 500 Stock Index (S&P 500). The fund can moderately underweight or
overweight industries when it believes it will benefit performance.
Within each industry, the fund focuses on those stocks that are ranked as most
undervalued according to the investment process described on page 2. The fund
generally considers selling stocks that appear overvalued.
[GRAPHIC]
POTENTIAL RISKS AND REWARDS
The value of your investment in the fund will fluctuate in response to movements
in the stock market. Fund performance will also depend on the effectiveness of
J.P. Morgan's research and the management team's stock picking decisions.
By emphasizing undervalued stocks, the fund has the potential to produce returns
that exceed those of the S&P 500. At the same time, 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.
The fund's securities and their main risks, as well as fund strategies, are
described in more detail on page 18.
POTENTIAL RISK AND RETURN
[CHART]
The positions of the funds in this graph reflect long-term performance goals
only, and are relative, not absolute.
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages over $240
billion, including more than $13 billion using the same strategy as the fund.
The portfolio management team is led by William B. Petersen and William M.
Riegel, Jr. Both are managing directors at J.P. Morgan and both have been on the
team since 1993. Mr. Petersen has been at J.P. Morgan since 1972, Mr. Riegel
since 1979. Both served as managers of U.S. equity portfolios prior to managing
this fund.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
The current expenses you should expect to pay as an investor in the fund are
shown at right. The fund has no sales, redemption, exchange, or account fees,
although some institutions may charge you a fee for shares you buy through them.
The annual fund expenses shown are deducted from fund assets prior to
performance calculations.
Footnotes for this section are shown on next page
ANNUAL FUND OPERATING EXPENSES(1)(%)
Management fees (actual) 0.40
Marketing (12b-1) fees none
Other expenses(2) 0.20
(after reimbursement)
- -------------------------------------------------
TOTAL OPERATING EXPENSES(2)
(AFTER REIMBURSEMENT) 0.60
- -------------------------------------------------
EXPENSE EXAMPLE
The example below uses the same assumptions as other fund prospectuses: $1,000
initial investment, 5% annual total return, expenses unchanged, all shares sold
at the end of each time period. The example is for comparison only; the fund's
actual return and expenses will be different.
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
YOUR COST($) 6 19 33 75
- --------------------------------------------------------------------------------
8 J.P. MORGAN INSTITUTIONAL U.S. EQUITY FUND
<PAGE>
PERFORMANCE (unaudited)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL (%) Shows performance over time, for periods ended December 31, 1996
- ------------------------------------------------------------------------------------------------------------
1 yr. 3 yrs. Since Inception(3)
<S> <C> <C> <C>
J.P. MORGAN INSTITUTIONAL U.S. EQUITY FUND (after expenses) 21.22 17.08 17.38
- ------------------------------------------------------------------------------------------------------------
S&P 500 INDEX(4) (no expenses) 22.96 19.67 18.87
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN (%) Shows changes in returns by calendar year
- ------------------------------------------------------------------------------------------------------------
1994 1995 1996
<S> <C> <C> <C>
J.P. MORGAN INSTITUTIONAL U.S. EQUITY FUND (0.32) 32.83 21.22
- ------------------------------------------------------------------------------------------------------------
S&P 500 INDEX(4) 1.32 37.58 22.96
- ------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
PER-SHARE DATA For fiscal periods ended May 31
- ------------------------------------------------------------------------------------------------------------
1994(3) 1995 1996 1997
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ($) 10.00 10.92 12.10 14.00
- ------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.08 0.18 0.27 0.17
Net realized and unrealized gain (loss)
on investments ($) 0.88 1.42 2.66 3.02
- ------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS ($) 0.96 1.60 2.93 3.19
- ------------------------------------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) (0.04) (0.14) (0.20) (0.25)
Net realized gains ($) -- (0.28) (0.83) (1.28)
- ------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS ($) (0.04) (0.42) (1.03) (1.53)
- ------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR ($) 10.92 12.10 14.00 15.66
- ------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) 9.61(5) 15.40 25.43 25.21
- ------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR ($ thousands) 47,473 172,479 221,368 329,776
- ------------------------------------------------------------------------------------------------------------
RATIO TO AVERAGE NET ASSETS:
EXPENSES (%) 0.60(6) 0.60 0.60 0.60
- ------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (%) 1.74(6) 2.07 2.08 1.33
- ------------------------------------------------------------------------------------------------------------
DECREASE REFLECTED IN EXPENSE RATIO DUE
TO EXPENSE REIMBURSEMENT (%) 0.43(6) 0.11 0.02 0.05
- ------------------------------------------------------------------------------------------------------------
</TABLE>
The Financial Highlights above have been audited by Price Waterhouse LLP,
the fund's independent accountants.
(1) The fund has a master/feeder structure as described on page 17. This table
shows the fund's expenses and its share of master portfolio expenses for
the past fiscal year, expressed as a percentage of the fund's average net
assets and reflecting reimbursement for ordinary expenses over 0.60%.
(2) Without reimbursement, other expenses and total operating expenses would
have been 0.25% and 0.65%, respectively. There is no guarantee that
reimbursement will continue beyond 9/30/98.
(3) The fund commenced operations on 7/19/93 and commenced public investment
operations on 9/17/93. Except in the Financial Highlights, returns reflect
performance of the fund from 9/30/93 through 12/31/93.
(4) The S&P 500 Index is an unmanaged index of U.S. stocks widely used as a
measure of overall stock market performance.
(5) Not annualized.
(6) Annualized.
J.P. MORGAN INSTITUTIONAL U.S. EQUITY FUND 9
<PAGE>
J.P. MORGAN INSTITUTIONAL U.S.
SMALL COMPANY FUND TICKER SYMBOL: JUSSX
- --------------------------------------------------------------------------------
REGISTRANT: J.P. MORGAN INSTITUTIONAL FUNDS
(J.P. MORGAN INSTITUTIONAL U.S. SMALL
COMPANY FUND)
[GRAPHIC]
GOAL
The fund seeks to provide high total return from a portfolio of small company
stocks.
[GRAPHIC]
INVESTMENT APPROACH
The fund invests primarily in small and medium sized U.S. companies whose market
capitalizations are greater than $100 million and less than $3 billion. Industry
by industry, the fund's weightings are similar to those of the Russell 2500
Index. The fund can moderately underweight or overweight industries when it
believes it will benefit performance.
Within each industry, the fund focuses on those stocks that are ranked as most
undervalued according to the process described on page 2. The fund generally
considers selling stocks that appear overvalued or have grown into large-cap
stocks.
[GRAPHIC]
POTENTIAL RISKS AND REWARDS
The value of your investment in the fund will fluctuate in response to movements
in the stock market. Fund performance will also depend on the effectiveness of
J.P. Morgan's research and the management team's stock picking decisions.
Small- and medium-cap stocks have historically offered higher long-term growth
than large-cap stocks, and have also involved higher risks. The fund's small-cap
emphasis means it is likely to be more sensitive to economic news and is likely
to fall further in value during broad market downturns. The fund pursues returns
that exceed those of the Russell 2500 Index while seeking to limit its
volatility relative to this index.
The fund's securities and their main risks, as well as fund strategies, are
described in more detail on page 18.
POTENTIAL RISK AND RETURN
[CHART]
The positions of the funds in this graph reflect long-term performance goals
only, and are relative, not absolute.
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages over $240
billion, including more than $4.2 billion using the same strategy as the fund.
The portfolio management team is led by James B. Otness, managing director, and
Michael J. Kelly, vice president. Mr. Otness began managing the fund in February
of 1993, has managed small-cap U.S. equity portfolios since 1985, and has been
at J.P. Morgan since 1970. Mr. Kelly joined the team in May of 1996, has managed
other U.S. equity portfolios for J.P. Morgan prior to managing this fund, and
has been at J.P. Morgan since 1985.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
The current expenses you should expect to pay as an investor in the fund are
shown at right. The fund has no sales, redemption, exchange, or account fees,
although some institutions may charge you a fee for shares you buy through them.
The annual fund expenses shown are deducted from fund assets prior to
performance calculations.
Footnotes for this section are shown on next page.
ANNUAL FUND OPERATING EXPENSES(1) (%)
Management fees (actual) 0.60
Marketing (12b-1) fees none
Other expenses(2)
(after reimbursement) 0.20
- -------------------------------------------------
TOTAL OPERATING EXPENSES(2)
(AFTER REIMBURSEMENT) 0.80
- -------------------------------------------------
EXPENSE EXAMPLE
The example below uses the same assumptions as other fund prospectuses: $1,000
initial investment, 5% annual total return, expenses unchanged, all shares sold
at the end of each time period. The example is for comparison only; the fund's
actual return and expenses will be different.
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
YOUR COST($) 8 26 44 99
- --------------------------------------------------------------------------------
10 J.P. MORGAN INSTITUTIONAL U.S. SMALL COMPANY FUND
<PAGE>
PERFORMANCE (unaudited)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN (%) Shows performance over time, for periods ended December 31, 1996
- -------------------------------------------------------------------------------------------------------------------
1 yr. 3 yrs. Since Inception(3)
<S> <C> <C> <C>
J.P. MORGAN INSTITUTIONAL U.S. SMALL COMPANY FUND (after expenses) 20.84 14.50 15.21
- -------------------------------------------------------------------------------------------------------------------
RUSSELL 2500 INDEX(4) (no expenses) 19.03 15.76 16.74
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN (%) Shows changes in returns by calendar year
- -------------------------------------------------------------------------------------------------------------------
1994 1995 1996
<S> <C> <C> <C>
J.P. MORGAN INSTITUTIONAL U.S. SMALL COMPANY FUND (5.81) 31.88 20.84
- -------------------------------------------------------------------------------------------------------------------
RUSSELL 2500 INDEX(4) (1.06) 31.70 19.03
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
FINANCIAL HIGHLIGHTS
PER-SHARE DATA For fiscal periods ended May 31
- -------------------------------------------------------------------------------------------------------------------
1994(3) 1995 1996 1997
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ($) 10.00 10.03 11.16 13.97
- -------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) ($) 0.04 0.10 0.13 0.10
Net realized and unrealized gain
on investment ($) -- 1.12 3.66 1.07
- -------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS ($) 0.04 1.22 3.79 1.17
- -------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income ($) (0.01) (0.09) (0.12) (0.13)
Net realized gain ($) -- -- (0.86) (0.92)
- -------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS ($) (0.01) (0.09) (0.98) (1.05)
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD ($) 10.03 11.16 13.97 14.09
- -------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) 0.42(5) 12.26 35.60 9.44
- -------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD ($ thousands) 71,141 149,279 291,931 401,797
- -------------------------------------------------------------------------------------------------------------------
RATIO TO AVERAGE NET ASSETS:
- -------------------------------------------------------------------------------------------------------------------
EXPENSES (%) 0.80(6) 0.80 0.80 0.80
- -------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) (%) 0.93(6) 1.14 1.20 0.81
- -------------------------------------------------------------------------------------------------------------------
DECREASE REFLECTED IN EXPENSE RATIO DUE TO
EXPENSE REIMBURSEMENT (%) 0.27(6) 0.11 0.03 0.05
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The Financial Highlights above have been audited by Price Waterhouse LLP, the
fund's independent accountants.
(1) The fund has a master/feeder structure as described on page 17. This table
shows the fund's expenses and its share of master portfolio expenses for
the past fiscal year, expressed as a percentage of the fund's average net
assets and reflecting reimbursement for ordinary expenses over 0.80%
(2) Without reimbursement, other expenses and total operating expenses would
have been 0.25% and 0.85%, respectively. There is no guarantee that
reimbursement will continue beyond 9/30/98.
(3) The fund commenced operations on 7/19/93 and commenced public investment
operations on 11/4/93. Except in the Financial Highlights, returns reflect
performance of the fund from 11/30/93 through 12/31/93.
(4) The Russell 2500 Index is an unmanaged index of medium and small U.S.
stocks.
(5) Not annualized.
(6) Annualized.
J.P. MORGAN INSTITUTIONAL U.S. SMALL COMPANY FUND 11
<PAGE>
J.P. MORGAN INSTITUTIONAL TAX AWARE DISCIPLINED EQUITY FUND
- --------------------------------------------------------------------------------
REGISTRANT: J.P. MORGAN SERIES TRUST
(J.P. MORGAN TAX AWARE DISCIPLINED EQUITY
FUND: INSTITUTIONAL SHARES)
[GRAPHIC]
GOAL
The fund seeks to provide high total return while being sensitive to the impact
of capital gains taxes on investors' returns.
[GRAPHIC]
INVESTMENT APPROACH
The fund invests primarily in large- and medium-capitalization U.S. companies.
Industry by industry, the fund's weightings are similar to those of the Standard
& Poor's 500 Stock Index (S&P 500). The fund does not look to overweight or
underweight industries.
Within each industry, the fund modestly overweights stocks that are ranked as
undervalued or fairly valued while modestly underweighting or not holding stocks
that appear overvalued. (The process used to rank stocks according to their
relative valuations is described on page 2.) Therefore, the fund tends to own a
larger number of stocks within the S&P 500 than the U.S. Equity Fund.
To this investment approach the fund adds the element of tax aware investing.
The fund's tax aware investment strategies are described on page 3.
[GRAPHIC]
POTENTIAL RISKS AND REWARDS
The value of your investment in the fund will fluctuate in response to movements
in the stock market. Fund performance will also depend on the effectiveness of
J.P. Morgan's research and the management team's stock picking decisions.
By owning a large number of stocks within the S&P 500, with an emphasis on those
that appear undervalued or fairly valued, and by tracking the industry
weightings of that index, the fund seeks returns that modestly exceed those of
the S&P 500 over the long term with virtually the same level of volatility. The
fund's tax aware strategies may reduce your capital gains but will not eliminate
them. Maximizing after-tax returns may require trade-offs that reduce pre-tax
returns.
The fund's securities and their main risks, as well as fund strategies, are
described in more detail on page 18.
POTENTIAL RISK AND RETURN
[CHART]
The positions of the funds in this graph reflect long-term performance goals
only, and are relative, not absolute.
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages over $240
billion, including more than $27 billion using the same strategy as the fund.
The portfolio management team is led by Robin B. Chance, vice president, and
Frederic A. Nelson, managing director, who have been on the team since the
fund's inception in January of 1997. Ms. Chance has been at J.P. Morgan since
1987, Mr. Nelson since May of 1994. Prior to managing this fund, both were
responsible for structured equity strategies. Prior to joining Morgan, Mr.
Nelson was a portfolio manager at Bankers Trust.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
The current expenses you should expect to pay as an investor in the fund are
shown at right. The fund has no sales, exchange, or account fees, although some
institutions may charge you a fee for shares you buy through them. The fund's
redemption fee is paid out of the proceeds you receive when you sell applicable
shares; this fee does not apply to in-kind redemptions. The annual fund expenses
shown are deducted from fund assets prior to performance calculations.
Footnotes for this section are shown on next page.
SHAREHOLDER TRANSACTION EXPENSES
- ------------------------------------------------------
REDEMPTION FEES (% OF YOUR CASH PROCEEDS)
- ------------------------------------------------------
Shares held for less than five years 1.00
Shares held five years or longer None
ANNUAL EXPENSES(1) (% OF FUND ASSETS)
- ------------------------------------------------------
Management fees (actual) 0.35
Marketing (12b-1) fees none
Other expenses(2) (after reimbursement) 0.20
- ------------------------------------------------------
TOTAL OPERATING EXPENSES(2)
(AFTER REIMBURSEMENT) 0.55
- ------------------------------------------------------
EXPENSE EXAMPLE
- --------------------------------------------------------------------------------
The example below uses the same assumptions as other fund prospectuses: $1,000
initial investment, 5% annual total return, expenses unchanged. The first number
assumes that you continued to hold your shares, the second that you sold all
shares for cash at the end of each time period. The example is for comparison
only; the fund's actual return and expenses will be different.
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
YOUR COST($) 6/16 18/28 31/31 69/69
- --------------------------------------------------------------------------------
12 J.P. MORGAN INSTITUTIONAL TAX AWARE DISCIPLINED EQUITY FUND
<PAGE>
PERFORMANCE (unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN (%) Shows performance over time, for the period ended September 30, 1997
- -------------------------------------------------------------------------------------------------------
Since inception(3)
<S> <C>
J.P. MORGAN INSTITUTIONAL TAX AWARE DISCIPLINED EQUITY FUND (after expenses) 24.73
- -------------------------------------------------------------------------------------------------------
S&P 500 INDEX(4) (no expenses) 22.02
- -------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN (%) Shows changes in returns for the period ended September 30, 1997
- -------------------------------------------------------------------------------------------------------
[GRAPH]
1997(3)
<S> <C>
J.P. MORGAN INSTITUTIONAL TAX AWARE DISCIPLINED EQUITY FUND 24.73
- -------------------------------------------------------------------------------------------------------
S&P 500 INDEX(4) 22.02
- -------------------------------------------------------------------------------------------------------
<CAPTION>
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------------------------------
PER-SHARE DATA For fiscal period ended October 31
- -------------------------------------------------------------------------------------------------------
1997(3)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ($) 10.00
- -------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.06
Net realized and unrealized gain
on investments ($) 2.02
- -------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS ($) 2.08
- -------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD ($) 12.08
- -------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) 20.80(5)
- -------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD ($ thousands) 12,026
- -------------------------------------------------------------------------------------------------------
RATIO TO AVERAGE NET ASSETS:
- -------------------------------------------------------------------------------------------------------
EXPENSES (%) 0.55(6)
- -------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (%) 1.19(6)
- -------------------------------------------------------------------------------------------------------
DECREASE REFLECTED IN EXPENSE RATIO DUE
TO EXPENSE REIMBURSEMENT (%) 4.04(6)
- -------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE (%) .38(5)
- -------------------------------------------------------------------------------------------------------
AVERAGE BROKER COMMISSIONS PER SHARE ($) 0.0261
- -------------------------------------------------------------------------------------------------------
</TABLE>
The financial highlights above have been audited by Price Waterhouse LLP,
the fund's independent accountants.
(1) This table shows expenses for the fiscal period ended 10/31/97, expressed
as a percentage of average net assets and reflecting reimbursement for
ordinary expenses over 0.55%.
(2) Without reimbursement, other expenses and total operating expenses would
have been 4.24% and 4.59%, respectively, on an annualized basis. There is
no guarantee that reimbursement will continue beyond 2/28/99.
(3) The fund commenced operations on 1/30/97 and performance is calculated as
of 1/31/97.
(4) The S&P 500 Index is an unmanaged index of U.S. stocks widely used as a
measure of overall stock market performance.
(5) Not annualized.
(6) Annualized.
J.P. MORGAN INSTITUTIONAL TAX AWARE DISCIPLINED EQUITY FUND 13
<PAGE>
YOUR INVESTMENT
- --------------------------------------------------------------------------------
For your convenience, the J.P. Morgan Institutional Funds offer several ways to
start and maintain 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 Services 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:
- - Choose a fund (or funds) and determine the amount you are investing. The
minimum amount for initial investments is $1,000,000 for the Disciplined
Equity and U.S. Small Company funds and $3,000,000 for the U.S Equity and
Tax Aware funds and for additional investments $25,000, although these
minimums may be less for some investors. For more information on minimum
investments, call 1-800-766-7722.
- - 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.
- - 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 Services
Representative at 1-800-766-7722.
OPENING YOUR ACCOUNT
BY WIRE
- - Mail your completed application to the Shareholder Services Agent.
- - Call the Shareholder Services Agent to obtain an account number and to
place a purchase order. FUNDS THAT ARE WIRED WITHOUT A PURCHASE ORDER WILL
BE RETURNED UNINVESTED.
- - After placing your purchase order, instruct your bank to wire the amount of
your investment to:
Morgan Guaranty Trust Company of New York
ROUTING NUMBER: 021-000-238
CREDIT: J.P. Morgan Institutional Funds
ACCOUNT NUMBER: 001-57-689
FFC: your account number, name of registered owner(s) and fund name
BY CHECK
- - Make out a check for the investment amount payable to J.P. Morgan
Institutional Funds.
- - Mail the check with your completed application to the Shareholder Services
Agent.
BY EXCHANGE
- - Call the Shareholder Services Agent for an exchange.
ADDING TO YOUR ACCOUNT
BY WIRE
- - Call the Shareholder Services Agent to place a purchase order. FUNDS THAT
ARE WIRED WITHOUT A PURCHASE ORDER WILL BE RETURNED UNINVESTED.
- - Once you have placed your purchase order, instruct your bank to wire the
amount of your investment as described above.
BY CHECK
- - Make out a check for the investment amount payable to J.P. Morgan
Institutional Funds.
- - Mail the check with a completed investment slip to the Shareholder Services
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
- - Call the Shareholder Services Agent for an exchange.
14 YOUR INVESTMENT
<PAGE>
SELLING SHARES
BY WIRE
- - 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.
- - 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
- - 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
- - 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.
- - Indicate whether you want any cash proceeds sent by check or by wire.
- - Make sure the letter is signed by an authorized party. The Shareholder
Services Agent may require additional information, such as a signature
guarantee.
- - Mail the letter to the Shareholder Services Agent.
BY EXCHANGE
- - Call the Shareholder Services Agent for an exchange, if available.
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 With the exception of the Tax Aware Fund, you may exchange shares in
these funds for shares in any other J.P. Morgan Institutional or J.P. Morgan
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 HOURS AND NAV CALCULATIONS The funds' regular business days and hours
are the same as those of the New York Stock Exchange. Each fund calculates its
net asset value per share (NAV) every business day at 4:15 p.m. eastern time.
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 4:00
p.m. eastern time 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.
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICES AGENT
J.P. Morgan Funds Services
522 Fifth Avenue
New York, NY 10036
1-800-766-7722
Representatives are available 8:00 a.m.
to 5:00 p.m. eastern time on fund
business days.
YOUR INVESTMENT 15
<PAGE>
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. In-kind
redemptions (described on page 3) will be available as promptly as is feasible.
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.
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), a fund may request that you buy more shares or close your account.
If your account balance is still below the minimum 60 days after notification, a
fund may 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 the Disciplined
Equity, U.S. Equity and Tax Aware funds; and twice a year for the U.S. Small
Company 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 Institutional 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:
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 shares Capital gains or losses
owned for more than one year
- --------------------------------------------------------------------------------
Sales or exchanges of shares Gains are treated as ordinary
owned for one year or less income; losses are 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.
16 YOUR INVESTMENT
<PAGE>
FUND DETAILS
- --------------------------------------------------------------------------------
BUSINESS STRUCTURE
As noted earlier, each fund (except the Tax Aware Fund) is a "feeder" fund that
invests in a master portfolio. (Except where indicated, this prospectus uses the
term "the fund" to mean the feeder fund and its master portfolio taken
together.)
Each master portfolio accepts investments from other feeder funds, and all the
feeders of a given master portfolio bear the portfolio's expenses in proportion
to their assets. However, each feeder can set its own transaction minimums,
fund-specific expenses, and other conditions. This means that one feeder could
offer access to the same master portfolio on more attractive terms, or could
experience better performance, than another feeder. Information about other
feeders is available by calling 1-800-766-7722. Generally, when a master
portfolio seeks a vote, its feeder fund will hold a shareholder meeting and cast
its vote proportionately, as instructed by its shareholders. Fund shareholders
(except Tax Aware Fund shareholders) are entitled to one vote per fund share.
Tax Aware Fund shareholders are entitled to one full or fractional vote for each
dollar or fraction of a dollar invested.
The Tax Aware Fund is a series of J.P. Morgan Series Trust, a Massachusetts
business trust. The Tax Aware Fund is one of three series of shares currently
offered by the trust. Information about other series or classes is available by
calling 1-800-766-7722. In the future, the trustees could create other series or
share classes, which would have different expenses.
MANAGEMENT AND ADMINISTRATION
The feeder funds described in this prospectus, their corresponding master
portfolios, and J.P. Morgan Series Trust, are all governed by the same trustees.
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, provides fund officers. J.P. Morgan, as
co-administrator, oversees each fund's other service providers.
J.P. Morgan, subject to the expense reimbursements described earlier in this
prospectus, receives the following fees for investment advisory and other
services:
- --------------------------------------------------------------------------------
ADVISORY SERVICES PERCENTAGE OF THE MASTER
PORTFOLIO'S AVERAGE NET ASSETS
- --------------------------------------------------------------------------------
Disciplined Equity 0.35%
- --------------------------------------------------------------------------------
U.S. Equity 0.40%
- --------------------------------------------------------------------------------
U.S. Small Company 0.60%
- --------------------------------------------------------------------------------
ADMINISTRATIVE SERVICES Master portfolio's and fund's pro-
(fee shared with Funds rata portions of 0.09% of the
Distributor, Inc.) first $7 billion in J.P. Morgan-
advised portfolios, plus 0.04% of
average net assets over
$7 billion
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICES 0.10% of the fund's average
net assets
- --------------------------------------------------------------------------------
The Tax Aware Fund, subject to the expense reimbursements described earlier in
this prospectus, pays J.P. Morgan the following fees for investment advisory and
other services:
- --------------------------------------------------------------------------------
ADVISORY SERVICES 0.35% of the fund's average net assets
- --------------------------------------------------------------------------------
ADMINISTRATIVE SERVICES Fund's pro-rata portion of 0.09%
(fee shared with Funds of the first $7 billion in
Distributor, Inc.) J.P. Morgan-advised portfolios,
plus 0.04% of average
net assets over $7 billion
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICES 0.25% of the fund's average 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.
FUND DETAILS 17
<PAGE>
- --------------------------------------------------------------------------------
RISK AND REWARD ELEMENTS
This table discusses the main elements that make up each fund's overall risk and
reward characteristics (described on pages 4-13). It also outlines each fund's
policies toward various securities, including those that are designed to help
certain funds manage risk.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
POTENTIAL RISKS POTENTIAL REWARDS POLICIES TO BALANCE RISK AND REWARD
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
MARKET CONDITIONS
- - Each fund's share price and - Stocks have generally - Under normal circumstances the funds plan to
performance will fluctuate outperformed more stable remain fully invested, with at least 65% in
in response to stock market investments (such as bonds stocks; stock investments may include U.S.
movements and cash equivalents) over and foreign common stocks, convertible
the long term securities, preferred stocks, trust or
partnership interests, warrants, rights, and
investment company securities
- The funds seek to limit risk through
diversification
- During severe market downturns, the funds have
the option of investing up to 100% of assets
in investment-grade short-term securities
- ---------------------------------------------------------------------------------------------------------------------------------
MANAGEMENT CHOICES
- - A fund could underperform - A fund could outperform - J.P. Morgan focuses its active management on
its benchmark due to its its benchmark due to these securities selection, the area where it
securities and asset same choices believes its commitment to research can most
allocation choices enhance returns
- ---------------------------------------------------------------------------------------------------------------------------------
FOREIGN INVESTMENTS
- - Currency exchange rate - Favorable exchange rate - The Disciplined Equity and Tax Aware
movements could reduce movements could generate gains funds anticipate that their total foreign
gains or create losses or reduce losses investments will be similar to the weightings of
foreign securities in the S&P 500 Index; the
- - A fund could lose money - Foreign investments, which U.S. Equity and U.S. Small Company funds
because of foreign represent a major portion of anticipate that their total foreign invesments
government actions, the world's securities, offer will not exceed 5% of assets
political instability, or attractive potential
lack of adequate and performance and opportunities - Each fund actively manages the currency exposure
accurate information for diversification of its foreign investments relative to its
benchmark, and may hedge into the U.S. dollar
from time to time (see also "Derivatives")
- ---------------------------------------------------------------------------------------------------------------------------------
DERIVATIVES
- - Derivatives such as futures, - Hedges that correlate well with - The funds use derivatives for hedging and for
options, and foreign currency underlying positions can reduce risk management (i.e., to establish or adjust
forward contracts that are or eliminate losses at low cost exposure to particular securities, markets or
used for hedging the portfolio currencies); risk management may include
or specific securities may not - A fund could make money and management of a fund's exposure relative to its
fully offset the underlying protect against losses if benchmark (risk management techniques that
positions(1) management's analysis proves involve derivatives are not permitted to be
correct used by the U.S. Equity and U.S. Small Company
- - Derivatives used for risk funds; foreign currency forward contracts are
management may not have the - Derivatives that involve not permitted to be used by the Tax Aware Fund)
intended effects and may leverage could generate
result in losses or missed substantial gains at low cost - The funds only establish hedges that they
opportunities expect will be highly correlated with
underlying positions
- - Derivatives that involve
leverage could magnify losses - While the funds may use derivatives that
incidentally involve leverage, they do not use
them for the specific purpose of leveraging
their portfolios
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) A futures contract is an agreement to buy or sell a set quantity of an
underlying instrument at a future date, or to make or receive a cash
payment based on the value of a securities index. An option is the right to
buy or sell securities that is granted in exchange for an agreed-upon sum.
A foreign currency forward contract is an obligation to buy or sell a given
currency on a future date and at a set price.
18 FUND DETAILS
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
POTENTIAL RISKS POTENTIAL REWARDS POLICIES TO BALANCE RISK AND REWARD
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
ILLIQUID HOLDINGS
- - A fund could have difficulty - These holdings may offer more - No fund may invest more than 15% of net assets
valuing these holdings precisely attractive yields or potential in illiquid holdings
growth than comparable widely
- - A fund could be unable to sell traded securities - To maintain adequate liquidity to meet
these holdings at the time or redemptions, each fund may hold investment-grade
price it desires short-term securities (including repurchase
agreements) and, for temporary or extraordinary
purposes, may borrow from banks up to 33 1/3%
(with respect to the Disciplined Equity and Tax
Aware funds) or 10% (with respect to the U.S.
Equity and U.S. Small Company funds) of the
value of its total assets
- ---------------------------------------------------------------------------------------------------------------------------------
WHEN-ISSUED AND DELAYED
DELIVERY SECURITIES
- - When a fund buys securities - A fund can take advantage - Each fund uses segregated accounts to offset
before issue or for delayed of attractive transaction leverage risk
delivery, it could be exposed opportunities
to leverage risk if it does
not use segregated accounts
- ---------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM TRADING
- - Increased trading would raise - A fund could realize gains - Each Fund anticipates a portfolio turnover rate
a fund's brokerage and related in a short period of time of approximately 100%
costs
- A fund could protect against - The funds generally avoid short-term trading,
- - Increased short-term capital losses if a stock is overvalued except to take advantage of attractive or
gains distributions would and its value later falls unexpected opportunities or to meet demands
raise shareholders' income generated by shareholder activity
tax liability
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
FUND DETAILS 19
<PAGE>
- --------------------------------------------------------------------------------
(THIS PAGE IS INTENTIONALLY LEFT BLANK)
20
<PAGE>
- --------------------------------------------------------------------------------
(THIS PAGE IS INTENTIONALLY LEFT BLANK)
21
<PAGE>
FOR MORE INFORMATION
- --------------------------------------------------------------------------------
For investors who want more information on these funds, the following documents
are available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS Contain financial statements, performance data,
information on portfolio holdings, and a written analysis of market conditions
and fund performance for a fund's most recently completed fiscal year or
half-year.
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 may be obtained by contacting:
J.P. MORGAN INSTITUTIONAL FUNDS
J.P. Morgan Funds Services
522 Fifth Avenue
New York, NY 10036
TELEPHONE: 1-800-766-7722
HEARING IMPAIRED: 1-888-468-4015
EMAIL: [email protected]
Text-only versions of these documents and this prospectus are available 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 Institutional Disciplined Equity Fund. . . . 811-07342 and 033-54642
J.P. Morgan Institutional U.S. Equity Fund . . . . . . . 811-07342 and 033-54642
J.P. Morgan Institutional U.S. Small Company Fund. . . . 811-07342 and 033-54642
J.P. Morgan Institutional Tax Aware
Disciplined Equity Fund. . . . . . . . . . . . . . . . 811-07795 and 333-11125
J.P. MORGAN INSTITUTIONAL FUNDS AND THE MORGAN TRADITION
The J.P. Morgan Institutional Funds combine a heritage of integrity and
financial leadership with comprehensive, sophisticated analysis and management
techniques. Drawing on J.P. Morgan's extensive experience and depth as an
investment manager, the J.P. Morgan Institutional Funds offer a broad array of
distinctive opportunities for mutual fund investors.
JPMORGAN
- --------------------------------------------------------------------------------
J.P. MORGAN INSTITUTIONAL FUNDS
ADVISOR DISTRIBUTOR
Morgan Guaranty Trust Company of New York Funds Distributor, Inc.
522 Fifth Avenue 60 State Street
New York, NY 10036 Boston, MA 02109
1-800-766-7722 1-800-221-7930
PROSIDEQ-981
<PAGE>
JANUARY 8, 1998 PROSPECTUS
J.P MORGAN U.S. EQUITY FUNDS
DISCIPLINED EQUITY FUND
U.S. EQUITY FUND
U.S. SMALL COMPANY FUND
U.S. SMALL COMPANY OPPORTUNITIES FUND
TAX AWARE U.S. EQUITY 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.
Shares in these funds are not bank deposits and are not guaranteed or insured by
any bank, government entity, or the FDIC.
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 for anyone to state or suggest
otherwise.
Distributed by Funds Distributor, Inc. JPMORGAN
<PAGE>
CONTENTS
- --------------------------------------------------------------------------------
2
- ----
Principles and techniques common to the funds in this prospectus
U.S. EQUITY MANAGEMENT APPROACH
U.S. equity investment process . . . . . . . . . . . . . . . . . . . . . . . 2
The spectrum of U.S. equity funds. . . . . . . . . . . . . . . . . . . . . . 3
Tax aware investing at J.P. Morgan . . . . . . . . . . . . . . . . . . . . . 3
4
- ----
Each fund's goal, investment approach, risks, expenses, performance, and
financial highlights
J.P. MORGAN U.S. EQUITY FUNDS
J.P. Morgan Disciplined Equity Fund. . . . . . . . . . . . . . . . . . . . . 4
J.P. Morgan U.S. Equity Fund . . . . . . . . . . . . . . . . . . . . . . . . 6
J.P. Morgan U.S. Small Company Fund. . . . . . . . . . . . . . . . . . . . . 8
J.P. Morgan U.S. Small Company Opportunities Fund. . . . . . . . . . . . . . 10
J.P. Morgan Tax Aware U.S. Equity Fund . . . . . . . . . . . . . . . . . . . 14
16
- ----
Investing in the J.P. Morgan U.S. Equity Funds
YOUR INVESTMENT
Investing through a financial professional . . . . . . . . . . . . . . . . . 16
Investing through an employer-sponsored retirement plan. . . . . . . . . . . 16
Investing through an IRA or rollover IRA . . . . . . . . . . . . . . . . . . 16
Investing directly . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Opening your account . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Adding to your account . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Selling shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Account and transaction policies . . . . . . . . . . . . . . . . . . . . . . 17
Dividends and distributions. . . . . . . . . . . . . . . . . . . . . . . . . 18
Tax considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
19
- ----
More about risk and the funds' business operations
FUND DETAILS
Business structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Management and administration. . . . . . . . . . . . . . . . . . . . . . . . 19
Risk and reward elements . . . . . . . . . . . . . . . . . . . . . . . . . . 20
FOR MORE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . back cover
<PAGE>
INTRODUCTION
- --------------------------------------------------------------------------------
J.P. MORGAN U.S. EQUITY FUNDS
These funds invest primarily in U.S. stocks either directly or through another
fund. As a shareholder, you should anticipate risks and rewards beyond those of
a typical bond fund or a typical balanced fund.
WHO MAY WANT TO INVEST
The funds are designed for investors who:
- - are pursuing a long-term goal such as retirement
- - want to add an investment with growth potential to further diversify a
portfolio
- - want funds that seek to outperform the markets in which they each invest over
the long term
- - with regard to the Tax Aware Fund, are individuals that could benefit from
a strategy that pursues returns from an after-tax perspective
The funds are NOT designed for investors who:
- - want funds that pursue market trends or focus only on particular industries or
sectors
- - require regular income or stability of principal
- - are pursuing a short-term goal or investing emergency reserves
- - with regard to the Tax Aware Fund, are investing through a tax-deferred
account such as an IRA
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 $240 billion in assets under management,
including assets managed by the funds' advisor, Morgan Guaranty Trust Company of
New York.
BEFORE YOU INVEST
Investors considering these funds should understand that:
- - The value of each fund's shares will fluctuate over time. You could lose money
if you sell when your fund's share price is lower than when you invested.
- - There is no assurance that these funds will meet their investment goals.
- - Future returns will not necessarily resemble past performance.
- - These funds (except for the Tax Aware Fund) invest in another fund with an
identical goal -- the master portfolio. The Tax Aware Fund invests directly in
individual securities.
1
<PAGE>
U.S. EQUITY MANAGEMENT APPROACH
- --------------------------------------------------------------------------------
The J.P. Morgan U.S. equity funds invest primarily in U.S. stocks. The
Tax Aware Fund does so while seeking to enhance the after-tax returns of its
shareholders.
While each fund follows its own strategy, the funds as a group share a single
investment philosophy. This philosophy, developed by the funds' advisor, focuses
on stock picking while largely avoiding sector or market-timing strategies.
Also, under normal market conditions, each fund will remain fully invested.
U.S. EQUITY INVESTMENT PROCESS
In managing the funds described in this prospectus, J.P. Morgan employs a
three-step process:
[GRAPHIC]
J.P. Morgan analysts develop proprietary fundamental research
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.
[GRAPHIC]
Stocks in each industry are ranked with the help of models
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.
[GRAPHIC]
Using research and valuations, each fund's management team chooses stocks for
its fund
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:
- - catalysts that could trigger a rise in a stock's price
- - high potential reward compared to potential risk
- - temporary mispricings caused by market overreactions
2 U.S. EQUITY MANAGEMENT APPROACH
<PAGE>
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 between these funds include:
- - how much emphasis they give to the most undervalued stocks
- - how closely they follow the industry weightings of their benchmarks
- - how many securities they typically maintain in their portfolios
- - the size or market capitalization of the companies in which they invest
- - whether they focus on before-tax or after-tax returns
The table below shows degrees of the relative risk and return that these funds
potentially offer. These and other distinguishing features of each U.S. equity
fund are described on the following pages.
POTENTIAL RISK AND RETURN
[CHART]
The positions of the funds in this graph reflect long-term performance goals
only, and are relative, not absolute.
TAX AWARE INVESTING AT J.P. MORGAN
The Tax Aware Fund is designed to reduce, but not eliminate, capital gains
distributions to shareholders. In doing so, the fund sells securities when the
anticipated performance benefit justifies the resulting tax liability. This
strategy often includes holding securities long enough to avoid higher,
short-term capital gains taxes, selling shares with a higher cost basis first,
and offsetting gains realized in one security by selling another security at a
capital loss. The fund is aided in this process by a tax-sensitive optimization
model developed by J.P. Morgan.
The Tax Aware Fund generally intends to pay redemption proceeds in cash; however
it 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. At the same time, it can give the
redeeming shareholder greater flexibility in managing tax consequences of the
redemption and is not subject to a redemption fee by the fund. However, the
stocks received will continue to fluctuate in value after redemption and will be
subject to brokerage or other transaction costs when liquidated.
U.S. EQUITY MANAGEMENT APPROACH 3
<PAGE>
J.P. MORGAN DISCIPLINED EQUITY FUND
- --------------------------------------------------------------------------------
REGISTRANT: J.P. MORGAN FUNDS
(J.P. MORGAN DISCIPLINED EQUITY FUND)
[GRAPHIC]
GOAL
The fund seeks to provide high total return from a broadly diversified
portfolio of equity securities.
[GRAPHIC]
INVESTMENT APPROACH
The fund invests primarily in large- and medium-capitalization U.S. companies.
Industry by industry, the fund's weightings are similar to those of the Standard
& Poor's 500 Stock Index (S&P 500). The fund does not look to overweight or
underweight industries.
Within each industry, the fund modestly overweights stocks that are ranked as
undervalued or fairly valued while modestly underweighting or not holding stocks
that appear overvalued. (The process used to rank stocks according to their
relative valuations is described on page 2.) Therefore, the fund tends to own a
larger number of stocks within the S&P 500 than the U.S. Equity Fund or the Tax
Aware U.S. Equity Fund.
[GRAPHIC]
POTENTIAL RISKS AND REWARDS
The value of your investment in the fund will fluctuate in response to movements
in the stock market. Fund performance will also depend on the effectiveness of
J.P. Morgan's research and the management team's stock picking decisions.
By owning a large number of stocks within the S&P 500, with an emphasis on those
that appear undervalued or fairly valued, and by tracking the industry
weightings of that index, the fund seeks returns that modestly exceed those of
the S&P 500 over the long term with virtually the same level of volatility.
The fund's securities and their main risks, as well as fund strategies, are
described in more detail on page 20.
POTENTIAL RISK AND RETURN
[CHART]
The positions of the funds in this graph reflect long-term performance goals
only, and are relative, not absolute.
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages over $240
billion, including more than $27 billion using the same strategy as the fund.
The portfolio management team is led by James C. Wiess and Timothy J. Devlin,
both vice presidents, who have been on the team since the fund's inception. Mr.
Wiess has been at J.P. Morgan since 1992, Mr. Devlin since July of 1996. Prior
to managing this fund, Mr. Wiess had been managing structured equity portfolios
and Mr. Devlin was an equity portfolio manager at Mitchell Hutchins Asset
Management Inc.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
The current expenses you should expect to pay as an investor in the fund are
shown at right. The fund has no sales, redemption, exchange, or account fees,
although some institutions may charge you a fee for shares you buy through them.
The annual fund expenses shown are deducted from fund assets prior to
performance calculations.
Footnotes for this section are shown on next page.
ANNUAL FUND OPERATING EXPENSES(1) (%)
Management fees (actual) 0.35
Marketing (12b-1) fees none
Other expenses(2)
(after reimbursement) 0.40
- ------------------------------------------------------
TOTAL OPERATING EXPENSES(2)
(AFTER REIMBURSEMENT) 0.75
- ------------------------------------------------------
EXPENSE EXAMPLE
The example below uses the same assumptions as other fund prospectuses: $1,000
initial investment, 5% annual total return, expenses unchanged, all shares sold
at the end of each time period. The example is for comparison only; the fund's
actual return and expenses will be different.
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
YOUR COST($) 8 24 42 93
- --------------------------------------------------------------------------------
4 J.P. MORGAN DISCIPLINED EQUITY FUND
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE (UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN (%) Shows performance over time, for periods ended September 30, 1997
- --------------------------------------------------------------------------------------------------------------------------------
1 yr. 5 yrs. Since 10/31/89(3)
<S> <C> <C> <C>
J.P. MORGAN INSTITUTIONAL DISCIPLINED EQUITY FUND(4) (after expenses) N/A N/A N/A
- --------------------------------------------------------------------------------------------------------------------------------
PRIVATE ACCOUNT COMPOSITE (after expense)(5) 41.29 21.15 17.55
- --------------------------------------------------------------------------------------------------------------------------------
S&P 500 INDEX(6) (no expenses) 40.45 20.77 17.05
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
TOTAL RETURNS (%) Shows changes in returns for periods ended September 30, 1997
- --------------------------------------------------------------------------------------------------------------------------------
3 mos. Since inception(7)
<S> <C> <C>
J.P. MORGAN INSTITUTIONAL DISCIPLINED EQUITY FUND(4) 7.66 22.83
- --------------------------------------------------------------------------------------------------------------------------------
PRIVATE ACCOUNT COMPOSITE(5) 7.54 22.52
- --------------------------------------------------------------------------------------------------------------------------------
S&P 500 INDEX(6) 7.49 22.02
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN (%) Shows changes in returns by calendar year
- --------------------------------------------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C>
PRIVATE ACCOUNT COMPOSITE(5) (3.24) 30.01 11.42 9.87 1.90 37.47 22.90
- --------------------------------------------------------------------------------------------------------------------------------
S&P 500 INDEX(6) (3.11) 30.47 7.62 10.08 1.32 37.58 22.96
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The fund has a master/feeder structure as described on page 19. This table
shows expenses and its share of master portfolio expenses, expressed as a
percentage of average net assets and reflecting reimbursement for ordinary
expenses over 0.75%.
(2) There is no guarantee that reimbursement will continue beyond 9/30/99.
(3) The inception date of the Private Account Composite is 10/31/89.
(4) As of the date of this prospectus, the fund has not commenced operations so
performance reflects the performance of J.P. Morgan Institutional
Disciplined Equity Fund (a separate feeder fund investing in the same
master portfolio) from 1/31/97 through 9/30/97. Historical performance
information reflects operating expenses which are 0.30% of net assets lower
than those of the fund. Accordingly, performance returns for the fund would
have been lower if an investment had been made in the fund during the same
time periods.
(5) 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.
(6) The S&P 500 Index is an unmanaged index of U.S. stocks widely used as a
measure of overall stock market performance.
(7) J.P. Morgan Institutional Disciplined Equity Fund commenced operations on
1/3/97 and performance is calculated as of 1/31/97.
J.P. MORGAN DISCIPLINED EQUITY FUND 5
<PAGE>
J.P. MORGAN U.S. EQUITY FUND TICKER SYMBOL: PPEQX
- --------------------------------------------------------------------------------
REGISTRANT: J.P. MORGAN FUNDS
(J.P. MORGAN U.S. EQUITY FUND)
[GRAPHIC]
GOAL
The fund seeks to provide high total return from a portfolio of
selected stocks.
[GRAPHIC]
INVESTMENT APPROACH
The fund invests primarily in large- and medium-capitalization U.S. companies.
Industry by industry, the fund's weightings are similar to those of the Standard
& Poor's 500 Stock Index (S&P 500). The fund can moderately underweight or
overweight industries when it believes it will benefit performance.
Within each industry, the fund focuses on those stocks that are ranked as most
undervalued according to the investment process described on page 2. The fund
generally considers selling stocks that appear overvalued.
[GRAPHIC]
POTENTIAL RISKS AND REWARDS
The value of your investment in the fund will fluctuate in response to movements
in the stock market. Fund performance will also depend on the effectiveness of
J.P. Morgan's research and the management team's stock picking decisions.
By emphasizing undervalued stocks, the fund has the potential to produce returns
that exceed those of the S&P 500. At the same time, 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.
The fund's securities and their main risks, as well as fund strategies, are
described in more detail on page 20.
POTENTIAL RISK AND RETURN
[CHART]
The positions of the funds in this graph reflect long-term performance goals
only, and are relative, not absolute.
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages over $240
billion, including more than $13 billion using the same strategy as the fund.
The portfolio management team is led by William B. Petersen and William M.
Riegel, Jr. Both are managing directors at J.P. Morgan and both have been on the
team since 1993. Mr. Petersen has been at J.P. Morgan since 1972, Mr. Riegel
since 1979. Both served as managers of U.S. equity portfolios prior to managing
this fund.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
The current expenses you should expect to pay as an investor in the fund are
shown at right. The fund has no sales, redemption, exchange, or account fees,
although some institutions may charge you a fee for shares you buy through them.
The annual fund expenses shown are deducted from fund assets prior to
performance calculations.
Footnotes for this section are shown on next page
ANNUAL FUND OPERATING EXPENSES (%)
Management fees (actual) 0.40
Marketing (12b-1) fees none
Other expenses 0.40
- ------------------------------------------------------
TOTAL OPERATING EXPENSES 0.80
- ------------------------------------------------------
EXPENSE EXAMPLE
The example below uses the same assumptions as other fund prospectuses: $1,000
initial investment, 5% annual total return, expenses unchanged, all shares sold
at the end of each time period. The example is for comparison only; the fund's
actual return and expenses will be different.
- ---------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
YOUR COST($) 8 26 44 99
- ---------------------------------------------------------
6 J.P. MORGAN U.S. EQUITY FUND
<PAGE>
PERFORMANCE (UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN (%) Shows performance over time, for periods ended December 31, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
<S> <C> <C> <C> <C>
J.P. MORGAN U.S. EQUITY FUND(2) (after expenses) 21.06 16.82 13.99 14.75
- ------------------------------------------------------------------------------------------------------------------------------------
S&P 500 INDEX(3) (no expenses) 22.96 19.67 15.22 15.29
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
[GRAPH]
YEAR-BY-YEAR TOTAL RETURN (%) Shows changes in returns by calendar year
- ------------------------------------------------------------------------------------------------------------------------------------
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
J.P. MORGAN U.S. EQUITY FUND(2) 0.85 14.12 31.43 1.38 34.12 8.73 11.02 (0.61) 32.48 21.06
- ------------------------------------------------------------------------------------------------------------------------------------
S&P 500 Index(3) 5.22 16.61 31.69 (3.11) 30.47 7.62 10.08 1.32 37.58 22.96
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA For fiscal years ended May 31
- ------------------------------------------------------------------------------------------------------------------------------------
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF YEAR ($) 14.23 12.04 14.54 16.51 18.21 19.02 19.30 19.38 19.42 22.15
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income ($) 0.42 0.46 0.44 0.44 0.37 0.38 0.27 0.32 0.38 0.25
Net realized and
unrealized gain (loss)
on investments ($) (1.53) 2.49 2.20 1.90 2.13 1.35 1.32 2.17 4.23 4.72
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT
OPERATIONS ($) (1.11) 2.95 2.64 2.34 2.50 1.73 1.59 2.49 4.61 4.97
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions to
shareholders from:
Net investment income ($) 0.41) (0.45) (0.44) (0.45) (0.40) (0.36) (0.29) (0.28) (0.29) (0.36)
Net realized gains ($) (0.67) -- (0.23) (0.19) (1.29) (1.09) (1.22) (2.17) (1.59) (2.13)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS ($) (1.08) (0.45) (0.67) (0.64) (1.69) (1.45) (1.51) (2.45) (1.88) (2.49)
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END
OF YEAR ($) 12.04 14.54 16.51 18.21 19.02 19.30 19.38 19.42 22.15 24.63
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) (8.08) 25.12 18.75 14.81 14.60 10.02 8.54 15.11 25.18 25.00
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR
($ thousands) 24,970 27,677 40,032 55,144 109,246 202,474 231,306 259,338 330,014 362,603
- ------------------------------------------------------------------------------------------------------------------------------------
RATIO TO AVERAGE NET ASSETS:
EXPENSES (%) 1.00 1.00 0.93 0.91 0.90 0.90 0.90 0.90 0.81 0.80
- ------------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (%) 3.26 3.52 2.97 2.81 2.16 2.20 1.43 1.74 1.87 1.13
- ------------------------------------------------------------------------------------------------------------------------------------
DECREASE REFLECTED IN EXPENSE
RATIO DUE TO EXPENSE
REIMBURSEMENT (%) 0.34 0.45 0.41 0.38 0.19 0.08 0.03 0.01 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER (%) 29 18 23 43 99 60 10(4) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Financial Highlights above have been audited by Price Waterhouse LLP, the
fund's independent accountants.
(1) The fund has a master/feeder structure as described on page 19. This table
shows the fund's expenses and its share of master portfolio expenses for
the past fiscal year, expressed as a percentage of the fund's average net
assets.
(2) The fund commenced operations on 7/18/93. Returns reflect performance of
The Pierpont Equity Fund, the fund's predecessor, prior to that date. The
Pierpont Equity Fund commenced operations on 6/27/85.
(3) An unmanaged index of U.S. stocks widely used as a measure of overall stock
market performance.
(4) Portfolio turnover reflects the period June 1, 1993 to July 18, 1993 and
has not been annualized. In July, 1993 the Fund's predecessor contributed
all of its investable assets to The U.S. Equity Portfolio.
J.P. MORGAN U.S. EQUITY FUND 7
<PAGE>
J.P. MORGAN U.S. SMALL COMPANY FUND TICKER SYMBOL: PPCAX
- -------------------------------------------------------------------------------
REGISTRANT: J.P. MORGAN FUNDS
(J.P. MORGAN U.S. SMALL COMPANY FUND)
[GRAPHIC]
GOAL
The fund seeks to provide high total return from a portfolio of small
company stocks.
[GRAPHIC]
INVESTMENT APPROACH
The fund invests primarily in small and medium sized U.S. companies whose market
capitalizations are greater than $100 million and less than $3 billion. Industry
by industry, the fund's weightings are similar to those of the Russell 2500
Index. The fund can moderately underweight or overweight industries when it
believes it will benefit performance.
Within each industry, the fund focuses on those stocks that are ranked as
most undervalued according to the process described on page 2. The fund
generally considers selling stocks that appear overvalued or have grown into
large-cap stocks.
[GRAPHIC]
POTENTIAL RISKS AND REWARDS
The value of your investment in the fund will fluctuate in response to movements
in the stock market. Fund performance will also depend on the effectiveness of
J.P. Morgan's research and the management team's stock picking decisions.
Small- and medium-cap stocks have historically offered higher long-term growth
than large-cap stocks, and have also involved higher risks. The fund's small-cap
emphasis means it is likely to be more sensitive to economic news and is likely
to fall further in value during broad market downturns. The fund pursues returns
that exceed those of the Russell 2500 Index while seeking to limit its
volatility relative to this index.
The fund's securities and their main risks, as well as fund strategies, are
described in more detail on page 20.
POTENTIAL RISK AND RETURN
[CHART]
The positions of the funds in this graph reflect long-term performance goals
only, and are relative, not absolute.
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages over $240
billion, including more than $4.2 billion using the same strategy as the fund.
The portfolio management team is led by James B. Otness, managing director, and
Michael J. Kelly, vice president. Mr. Otness began managing the fund in February
of 1993, has managed small-cap U.S. equity portfolios since 1985, and has been
at J.P. Morgan since 1970. Mr. Kelly joined the team in May of 1996, has managed
other U.S. equity portfolios for J.P. Morgan prior to managing this fund, and
has been at J.P. Morgan since 1985.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
The current expenses you should expect to pay as an investor in the fund are
shown at right. The fund has no sales, redemption, exchange, or account fees,
although some institutions may charge you a fee for shares you buy through them.
The annual fund expenses shown are deducted from fund assets prior to
performance calculations.
Footnotes for this section are shown on next page.
ANNUAL FUND OPERATING EXPENSES(1) (%)
Management fees (actual) 0.60
Marketing (12b-1) fees none
Other expenses(2)
(after reimbursement) 0.41
- -------------------------------------------------
TOTAL OPERATING EXPENSES(2)
(AFTER REIMBURSEMENT) 1.01
- -------------------------------------------------
EXPENSE EXAMPLE
The example below uses the same assumptions as other fund prospectuses: $1,000
initial investment, 5% annual total return, expenses unchanged, all shares sold
at the end of each time period. The example is for comparison only; the fund's
actual return and expenses will be different.
- -------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
YOUR COST($) 10 32 56 124
- -------------------------------------------------------------------
8 J.P. MORGAN U.S. SMALL COMPANY FUND
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE (UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN (%) Shows performance over time, for periods ended December 31, 1996
- -------------------------------------------------------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
<S> <C> <C> <C> <C>
J.P. MORGAN U.S. SMALL COMPANY FUND(3) (after expenses) 20.75 14.43 14.12 12.72
- -------------------------------------------------------------------------------------------------------------------------------
RUSSELL 2500 INDEX(4) (no expenses) 19.03 15.76 16.00 13.87
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN (%) Shows changes in returns by calendar year
- -------------------------------------------------------------------------------------------------------------------------------
[GRAPH]
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
- - J.P. MORGAN U.S. SMALL COMPANY FUND(3) (3.38) 13.67 29.01 (24.34) 59.59 18.98 8.58 (5.89) 31.86 20.75
- -------------------------------------------------------------------------------------------------------------------------------
- - RUSSELL 2500 INDEX(4) (4.68) 22.73 19.43 (14.88) 46.70 16.19 16.54 (1.06) 31.70 19.03
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
PER-SHARE DATA For fiscal years ended May 31
- -------------------------------------------------------------------------------------------------------------------------------
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ($) 15.71 12.91 16.83 18.68 17.98 20.03 25.12 21.40 22.02 26.20
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss)(5) ($) (0.02) (0.03) (0.03) (0.02) (0.04) (0.01) 0.20 0.22 0.26 0.18
Net realized and unrealized gain
on investment ($) (2.13) 3.95 1.88 (0.33) 2.09 5.10 0.19 2.13 6.96 2.00
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS ($) (2.15) 3.92 1.85 (0.35) 2.05 5.09 0.39 2.35 7.22 2.18
- -------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income ($) -- -- -- -- -- -- (0.09) (0.21) (0.26) (0.21)
Net realized gain ($) (0.65) -- -- (0.35) -- -- (4.02) (1.52) (2.78) (2.13)
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS ($) (0.65) -- -- (0.35) -- -- (4.11) (1.73) (3.04) (2.34)
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD ($) 12.91 16.83 18.68 17.98 20.03 25.12 21.40 22.02 26.20 26.04
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) (14.25) 30.36 10.99 (1.90) 11.40 25.41 1.14 12.28 35.48 9.49
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD ($ thousands) 30,866 42,403 47,921 58,859 97,548 186,887 204,445 179,130 220,917 237,985
- -------------------------------------------------------------------------------------------------------------------------------
RATIO TO AVERAGE NET ASSETS:
- -------------------------------------------------------------------------------------------------------------------------------
EXPENSES (%) 1.00 1.00 0.93 0.91 0.90 0.90 0.90 0.90 0.90 0.90
- -------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) (%) (0.15) (0.23) (0.18) (0.15) (0.25) (0.06) 0.75 1.02 1.10 0.71
- -------------------------------------------------------------------------------------------------------------------------------
DECREASE REFLECTED IN EXPENSE RATIO DUE TO
EXPENSE REIMBURSEMENT (%) 0.31 0.36 0.32 0.31 0.13 0.05 0.20 0.22 0.13 0.13
- -------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER (%) .78 .38 .66 .56 .58 .50 .146 -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Financial Highlights above have been audited by Price Waterhouse LLP, the
fund's independent accountants.
1 The fund has a master/feeder structure as described on page 19. This table
shows the fund's expenses and its share of master portfolio expenses,
expressed as a percentage of the fund's average net assets for the past
fiscal year and reflecting current reimbursement arrangements for ordinary
expenses over 1.01%. This limit does not cover extraordinary expenses and
upon notice to shareholders may be revoked at any time.
2 Without reimbursement, other expenses and total operating expenses would
have been 0.43% and 1.03%, respectively.
3 The fund commenced operations on 7/19/93. Returns reflect performance of
The Capital Appreciation Fund, the fund's predecessor, prior to that date.
The Capital Appreciation Fund commenced operations on 6/27/85.
4 The Russell 2500 Index is an unmanaged index of medium and small U.S.
stocks.
5 Based on shares outstanding at the beginning and end of each fiscal period
except for the fiscal year ended May 31, 1991, where average shares
outstanding were used.
6 Portfolio turnover reflects the period June 1, 1993 to July 18, 1993 and
has not been annualized. In July, 1993 the Fund's predecessor contributed
all of its investable assets to The U.S. Small Company Portfolio.
J.P. MORGAN U.S. SMALL COMPANY FUND 9
<PAGE>
J.P. MORGAN U.S. SMALL COMPANY
OPPORTUNITIES FUND
- --------------------------------------------------------------------------------
[GRAPHIC]
GOAL
The fund seeks to provide long-term growth from a portfolio of small
company growth stocks.
[GRAPHIC]
INVESTMENT APPROACH
The fund invests primarily in stocks of small U.S. companies whose market
capitalization is greater than $150 million and less than $1.25 billion when
purchased. While the fund holds stocks in many industries to reduce the impact
of poor performance in any one sector, it tends to emphasize industries with
higher growth potential and does not track the sector weightings of the overall
small company stock market.
In searching for companies, the fund combines the approach described on page 2
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 or fairly valued and are poised for long-term growth.
Stocks become candidates for sale when they appear overvalued or when the
company is no longer a small-cap company, but the fund may also continue to hold
them if it believes further substantial growth is possible.
[GRAPHIC]
POTENTIAL RISKS AND REWARDS
The value of your investment in the fund will fluctuate in response to movements
in the stock market. Fund performance will also depend on the effectiveness of
J.P. Morgan's research and the management team's stock picking decisions.
Small-cap stocks have historically offered higher long-term growth than medium-
or large-cap stocks, and have also involved higher risks. The fund's small-cap
emphasis means it is likely to be more sensitive to economic news and is likely
to fall further in value during broad market downturns. Because the fund seeks
to outperform the Russell 2000 Growth Index while not tracking its industry
weightings, investors should expect higher volatility compared to this index, to
more conservatively managed small-cap funds, and to the U.S. Small Company Fund.
The fund's securities and their main risks, as well as fund strategies, are
described in more detail on page 20.
REGISTRANT: J.P. MORGAN FUNDS
(J.P. MORGAN U.S. SMALL COMPANY OPPORTUNITIES FUND)
POTENTIAL RISK AND RETURN
[GRAPH]
- U.S. Small Company Opportunities Fund
- U.S. Small Company Fund
- Tax Aware U.S. Equity Fund
U.S. Equity Fund
- Disciplined Equity Fund
The positions of the funds in this graph reflect long-term performance goals
only, and are relative, not absolute.
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages over $240
billion, including more than $4.2 billion using the same strategy as the fund.
The portfolio management team is led by Marian U. Pardo, managing director, who
has been on the team since the fund's inception in June of 1997 and has been at
J.P. Morgan since 1968. Prior to managing this fund, she managed equity and
convertible funds, large cap equity portfolios, as well as several institutional
portfolios.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
The current expenses you should expect to pay as an investor in the fund are
shown at right. The fund has no sales, redemption, exchange, or account fees,
although some institutions may charge you a fee for shares you buy through them.
The annual fund expenses shown are deducted from fund assets prior to
performance calculations.
Footnotes for this section are shown on next page.
ANNUAL FUND OPERATING EXPENSES(1) (%)
Management fees (actual) 0.60
Marketing (12b-1) fees none
Other expenses(2)
(after reimbursement) 0.60
- --------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES(2)
(AFTER REIMBURSEMENT) 1.20
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
The example below uses the same assumptions as other fund prospectuses: $1,000
initial investment, 5% annual total return, expenses unchanged, all shares sold
at the end of each time period. The example is for comparison only; the fund's
actual return and expenses will be different.
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
YOUR COST($) 12 38 66 145
- --------------------------------------------------------------------------------
10 J.P. MORGAN U.S. SMALL COMPANY OPPORTUNITIES FUND
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE (UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN Shows performance over time, for periods ended September 30, 1997
- ---------------------------------------------------------------------------------------------------------------------------
1 yr. 3 yrs. Since 8/31/94(3)
<S> <C> <C> <C>
J.P. MORGAN U.S. SMALL COMPANY OPPORTUNITIES FUND (after expenses) N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------
PRIVATE ACCOUNT COMPOSITE(4) (after expenses) 32.55 31.85 30.24
- ---------------------------------------------------------------------------------------------------------------------------
RUSSELL 2000 GROWTH INDEX(5) (no expenses) 23.26 21.17 20.71
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
TOTAL RETURNS (%) Shows changes in returns for period ended September 30, 1997
- ---------------------------------------------------------------------------------------------------------------------------
[GRAPH]
Since inception(6)
<S> <C>
- - J.P. MORGAN U.S. SMALLCOMPANY OPPORTUNITIES FUND 18.97
- - PRIVATE ACCOUNT COMPOSITE(4) 17.10
- - RUSSELL 2000 GROWTH INDEX(5) 16.92
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN (%) Shows changes in returns by calendar year
- ---------------------------------------------------------------------------------------------------------------------------
[GRAPH]
1995 1996
<S> <C> <C>
- - PRIVATE ACCOUNT COMPOSITE(4) 41.61 23.90
- - RUSSELL 2000 GROWTH INDEX(5) 31.04 11.26
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
1 The fund has a master/feeder structure as described on page 19. This table
shows expenses and its share of master portfolio expenses for the fiscal
period ended 10/31/97, expressed as a percentage of average net assets and
reflecting reimbursement for ordinary expenses over 1.20%.
2 Without reimbursement, other expenses and total operating expenses would
have been 0.78% and 1.38% respectively. There is no guarantee that
reimbursement will continue beyond 9/30/98.
3 The inception date of the Private Account Composite is 8/31/94.
4 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 all 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 1.20%.The performance of
accounts in the Composite might have been lower if they were subject to the
extra restrictions imposed on mutual funds.
5 The Russell 2000 Growth Index is an unmanaged index of small,
growth-oriented U.S. stocks.
6 The fund commenced operations on 6/16/97 and performance is calculated as
of 6/30/97.
J.P. MORGAN U.S. SMALL COMPANY OPPORTUNITIES FUND 11
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (UNAUDITED)
<TABLE>
<CAPTION>
PER-SHARE DATA For period ended October 31
- ---------------------------------------------------------------------------------------------------------------------------
1997(1)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ($) 10.00
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) ($) (0.01)
Net realized and unrealized gain
on investment ($) 1.53
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS ($) 1.52
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD ($) 11.52
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) 15.20(2)
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD ($ thousands) 90,93(9)
- ---------------------------------------------------------------------------------------------------------------------------
RATIO TO AVERAGE NET ASSETS:
- ---------------------------------------------------------------------------------------------------------------------------
EXPENSES (%) 1.19(3)
- ---------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) (%) (0.34)(3)
- ---------------------------------------------------------------------------------------------------------------------------
DECREASE REFLECTED IN EXPENSE RATIO DUE TO
EXPENSE REIMBURSEMENT (%) 0.18(3)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
1 The fund commenced operations on 6/16/97.
2 Not annualized.
3 Annualized.
12 J.P. MORGAN U.S. SMALL COMPANY OPPORTUNITIES FUND
<PAGE>
- --------------------------------------------------------------------------------
(THIS PAGE IS INTENTIONALLY LEFT BLANK)
13
<PAGE>
J.P. MORGAN TAX AWARE
U.S. EQUITY FUND
- --------------------------------------------------------------------------------
REGISTRANT: J.P. MORGAN SERIES TRUST
(J.P. MORGAN TAX AWARE U.S. EQUITY
FUND: SELECT SHARES)
[GRAPHIC]
GOAL
The fund seeks to provide high total return while being sensitive to the impact
of capital gains taxes on investors' returns.
[GRAPHIC]
INVESTMENT APPROACH
The fund invests primarily in large- and medium-capitalization U.S. companies.
Industry by industry, the fund's weightings are similar to those of the Standard
& Poor's 500 Stock Index (S&P 500). The fund can moderately underweight or
overweight industries by when it believes it will benefit performance.
Within each industry, the fund focuses on those stocks that are ranked as most
undervalued according to the investment process described on page 2. The fund
generally considers selling stocks that appear overvalued.
To this investment approach the fund adds the element of tax aware investing.
The fund's tax aware investment strategies are described on page 3.
[GRAPHIC]
POTENTIAL RISKS AND REWARDS
The value of your investment in the fund will fluctuate in response
to movements in the stock market. Fund performance will also depend on
the effectiveness of J.P. Morgan's research and the management team's stock
picking decisions.
By emphasizing undervalued stocks, the fund has the potential to produce returns
that exceed those of the S&P 500. At the same time, 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. The fund's tax aware strategies
may reduce your capital gains but will not eliminate them. Maximizing after-tax
returns may require trade-offs that reduce pre-tax returns.
The fund's securities and their main risks, as well as fund strategies, are
described in more detail on page 20.
POTENTIAL RISK AND RETURN
[CHART]
The positions of the funds in this graph reflect long-term performance goals
only, and are relative, not absolute.
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages over $240
billion, including more than $13 billion using the same strategy as the fund.
The portfolio management team is led by Terry E. Banet, vice president, and
Gordon B. Fowler, managing director, who have been on the team since the fund's
inception in December of 1996. Ms. Banet has been at J.P. Morgan since 1985, Mr.
Fowler since 1981. Prior to managing this fund, Ms. Banet managed tax aware
accounts and helped develop Morgan's tax aware equity process while Mr. Fowler
was responsible for structured equity products for both the institutional and
the private client markets.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
The current expenses you should expect to pay as an investor in the fund are
shown at right. The fund has no sales, exchange, or account fees, although some
institutions may charge you a fee for shares you buy through them. The fund's
redemption fee is paid out of the proceeds you receive when you sell applicable
shares; this fee does not apply to in-kind redemptions. The annual fund expenses
shown are deducted from fund assets prior to performance calculations.
Footnotes for this section are shown on next page.
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
- --------------------------------------------------------------------------------
REDEMPTION FEES (% OF YOUR CASH PROCEEDS)
- --------------------------------------------------------------------------------
Shares held for less than five years 1.00
Shares held five years or longer None
ANNUAL EXPENSES(1) (% OF FUND ASSETS)
- --------------------------------------------------------------------------------
Management fees (actual) 0.45
Marketing (12b-1) fees none
Other expenses(2) (after reimbursement) 0.40
- --------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES(2)
(AFTER REIMBURSEMENT) 0.85
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
- --------------------------------------------------------------------------------
The example below uses the same assumptions as other fund prospectuses: $1,000
initial investment, 5% annual total return, expenses unchanged. The first number
assumes that you continued to hold your shares, the second that you sold all
shares for cash at the end of each time period. The example is for comparison
only; the fund's actual return and expenses will be different.
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
YOUR COST($) 9/19 27/37 47/47 105/105
- --------------------------------------------------------------------------------
14 J.P. MORGAN TAX AWARE U.S. EQUITY FUND
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
PERFORMANCE (UNAUDITED)
AVERAGE ANNUAL TOTAL RETURN (%) Shows performance over time, for the period ended September 30, 1997
- -------------------------------------------------------------------------------------------------------------------
Since inception(3)
J.P. MORGAN TAX AWARE U.S. EQUITY FUND (after expenses) 29.70
- -------------------------------------------------------------------------------------------------------------------
S&P 500 INDEX(4) (no expenses) 29.64
- -------------------------------------------------------------------------------------------------------------------
YEAR-BY-YEAR TOTAL RETURN (%) Shows changes in returns for the period ended September 30, 1997
- -------------------------------------------------------------------------------------------------------------------
1997(3)
40%
- ---
20%
- ---
0%
- ---
[GRAPH]
J.P. Morgan Tax Aware U.S. Equity Fund 29.70
S&P 500 Index(4) 29.64
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
PER-SHARE DATA For fiscal period ended October 31
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
1997(3)
NET ASSET VALUE, BEGINNING OF PERIOD ($) 10.00
Income from investment operations:
Net investment income ($) 0.06
Net realized and unrealized gain
on investments ($) 2.52
- -------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS ($) 2.58
- -------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
NET INVESTMENT INCOME ($) (0.01)
- -------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD ($) 12.57
- -------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) 25.835
- -------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD ($ THOUSANDS)` 25,649
- -------------------------------------------------------------------------------------------------------------------
RATIO TO AVERAGE NET ASSETS:
- -------------------------------------------------------------------------------------------------------------------
EXPENSES (%) 0.856
- -------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (%) 0.706
- -------------------------------------------------------------------------------------------------------------------
DECREASE REFLECTED IN EXPENSE RATIO DUE TO
EXPENSE REIMBURSEMENT (%) 1.316
- -------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE (%) 255
- -------------------------------------------------------------------------------------------------------------------
AVERAGE BROKER COMMISSIONS PER SHARE ($) 0.0321
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The financial highlights above have been audited by Price Waterhouse LLP, the
fund's independent accountants.
(1) This table shows expenses for the fiscal period ended 10/31/97, expressed
as a percentage of average net assets and reflecting reimbursement for
ordinary expenses over 0.85%.
(2) Without reimbursement, other expenses and total operating expenses would
have been 1.71% and 2.16%, respectively, on an annualized basis. There is
no guarantee that reimbursement will continue beyond 2/28/99.
(3) The fund commenced operations on 12/18/96 and performance is calculated as
of 12/31/96.
(4) The S&P 500 Index is an unmanaged index of U.S. stocks widely used as a
measure of overall stock market performance.
(5) Not annualized.
(6) Annualized.
J.P. MORGAN TAX AWARE U.S. EQUITY FUND 15
<PAGE>
YOUR INVESTMENT
- --------------------------------------------------------------------------------
For your convenience, the J.P. Morgan Funds offer several ways to start and
maintain 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 Services 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:
- - 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.
- - 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.
- - 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 Services
Representative at 1-800-521-5411.
OPENING YOUR ACCOUNT
BY WIRE
- - Mail your completed application to the Shareholder Services Agent.
- - Call the Shareholder Services Agent to obtain an account number and to
place a purchase order. FUNDS THAT ARE WIRED WITHOUT A PURCHASE ORDER WILL
BE RETURNED UNINVESTED.
- - 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
FFC: your account number, name of registered owner(s) and fund name
BY CHECK
- - Make out a check for the investment amount payable to J.P. Morgan Funds.
- - Mail the check with your completed application to the Transfer Agent.
BY EXCHANGE
- - Call the Shareholder Services Agent for an exchange.
ADDING TO YOUR ACCOUNT
BY WIRE
- - Call the Shareholder Services Agent to place a purchase order. FUNDS THAT
ARE WIRED WITHOUT A PURCHASE ORDER WILL BE RETURNED UNINVESTED.
- - Once you have placed your purchase order, instruct your bank to wire the
amount of your investment as described above.
BY CHECK
- - Make out a check for the investment amount payable to J.P. Morgan Funds.
- - 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
- - Call the Shareholder Services Agent for an exchange.
16 YOUR INVESTMENT
<PAGE>
SELLING SHARES
BY WIRE
- - 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.
- - 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
- - 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
- - 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.
- - Indicate whether you want any cash proceeds sent by check or by wire.
- - Make sure the letter is signed by an authorized party. The Shareholder
Services Agent may require additional information, such as a signature
guarantee.
- - Mail the letter to the Shareholder Services Agent.
BY EXCHANGE
- - Call the Shareholder Services Agent for an exchange, if available.
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 With the exception of the Tax Aware Fund, 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 HOURS AND NAV CALCULATIONS The funds' regular business days and
hours are the same as those of the New York Stock Exchange. Each fund
calculates its net asset value per share (NAV) every business day at 4:15
p.m. eastern time.
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 4:00
p.m. eastern time 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.
- --------------------------------------------------------------------------------
TRANSFER AGENT SHAREHOLDER SERVICES AGENT
STATE STREET BANK AND TRUST COMPANY J.P. MORGAN FUNDS SERVICES
P.O. Box 8411 522 Fifth Avenue
Boston, MA 02266-8411 New York, NY 10036
Attention: J.P. Morgan Funds Services 1-800-521-5411
Representatives are available
8:00 a.m. to 5:00 p.m. eastern
time on fund business days.
YOUR INVESTMENT 17
<PAGE>
- --------------------------------------------------------------------------------
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. In-kind
redemptions (described on page 3) will be available as promptly as is feasible.
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.
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), a fund may request that you buy more shares or close your account.
If your account balance is still below the minimum 60 days after notification, a
fund may 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 the Disciplined
Equity, U.S. Equity and Tax Aware funds; and twice a year for the U.S. Small
Company and U.S. Small Company Opportunities funds. 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:
- --------------------------------------------------------------------------------
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 shares Capital gains or losses
owned for more than one year
- --------------------------------------------------------------------------------
Sales or exchanges of shares Gains are treated as ordinary income;
owned for one year or less losses are 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.
18 YOUR INVESTMENT
<PAGE>
FUND DETAILS
- --------------------------------------------------------------------------------
BUSINESS STRUCTURE
As noted earlier, each fund (except the Tax Aware Fund) is a "feeder" fund that
invests in a master portfolio. (Except where indicated, this prospectus uses the
term "the fund" to mean the feeder fund and its master portfolio taken
together.)
Each master portfolio accepts investments from other feeder funds, and all the
feeders of a given master portfolio bear the portfolio's expenses in proportion
to their assets. However, each feeder can set its own transaction minimums,
fund-specific expenses, and other conditions. This means that one feeder could
offer access to the same master portfolio on more attractive terms, or could
experience better performance, than another feeder. Information about other
feeders is available by calling 1-800-521-5411. Generally, when a master
portfolio seeks a vote, its feeder fund will hold a shareholder meeting and cast
its vote proportionately, as instructed by its shareholders. Fund shareholders
(except Tax Aware Fund shareholders) are entitled to one vote per fund share.
Tax Aware Fund shareholders are entitled to one full or fractional vote for each
dollar or fraction of a dollar invested.
The Tax Aware Fund is a series of J.P. Morgan Series Trust, a Massachusetts
business trust. The Tax Aware Fund is one of three series of shares currently
offered by the 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 feeder funds described in this prospectus, their corresponding master
portfolios, and J.P. Morgan Series Trust, are all governed by the same trustees.
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, provides fund officers. J.P. Morgan, as
co-administrator, oversees each fund's other service providers.
J.P. Morgan, subject to the expense reimbursements described earlier in this
prospectus, receives the following fees for investment advisory and other
services:
- --------------------------------------------------------------------------------
ADVISORY SERVICES Percentage of the master
portfolio's average net assets
- --------------------------------------------------------------------------------
Disciplined Equity 0.35%
- --------------------------------------------------------------------------------
U.S. Equity 0.40%
- --------------------------------------------------------------------------------
U.S. Small Company 0.60%
- --------------------------------------------------------------------------------
U.S. Small Company 0.60%
Opportunities
- --------------------------------------------------------------------------------
ADMINISTRATIVE SERVICES Master portfolio's and fund's pro-
(fee shared with Funds rata portions of 0.09% of the
Distributor, Inc.) first $7 billion in J.P. Morgan-
advised portfolios, plus 0.04% of
average net assets over
$7 billion
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICES 0.25% of the fund's average
net assets
- --------------------------------------------------------------------------------
The Tax Aware Fund, subject to the expense reimbursements described earlier in
this prospectus, pays J.P. Morgan the following fees for investment advisory and
other services:
- --------------------------------------------------------------------------------
ADVISORY SERVICES 0.45% of the fund's average
net assets
- --------------------------------------------------------------------------------
ADMINISTRATIVE SERVICES Fund's pro-rata portion of 0.09%
(fee shared with Funds of the first $7 billion in
Distributor, Inc.) J.P. Morgan-advised portfolios,
plus 0.04% of average
net assets over $7 billion
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICES 0.25% of the fund's average
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.
FUND DETAILS 19
<PAGE>
- --------------------------------------------------------------------------------
RISK AND REWARD ELEMENTS
This table discusses the main elements that make up each fund's overall risk and
reward characteristics (described on pages 4-15). It also outlines each fund's
policies toward various securities, including those that are designed to
help certain funds manage risk.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
POTENTIAL RISKS POTENTIAL REWARDS POLICIES TO BALANCE RISK AND REWARD
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
MARKET CONDITIONS
- - Each fund's share price and - Stocks have generally outper- - Under normal circumstances the funds plan to remain fully
performance will fluctuate formed more stable invest- invested, with at least 65% in stocks; stock investments may
in response to stock market ments (such as bonds and include U.S. and foreign common stocks, convertible
movements cash equivalents) over the securities, preferred stocks, trust or partnership
long term interests, warrants, rights, and investment company
securities
- The funds seek to limit risk through diversification
- During severe market downturns, the funds have the option
of investing up to 100% of assets in investment-grade
short-term securities
- ------------------------------------------------------------------------------------------------------------------------------------
MANAGEMENT CHOICES
- - A fund could underperform - A fund could outperform - J.P. Morgan focuses its active management on securities
its benchmark due to its its benchmark due to these selection, the area where it believes its commitment to
securities and asset alloc- same choices research can most enhance returns
ation choices
- ------------------------------------------------------------------------------------------------------------------------------------
FOREIGN INVESTMENTS
- - Currency exchange rate move- - Favorable exchange rate move- - The Disciplined Equity
ments could reduce gains or ments could generate gains or Fund anticipates that its total foreign investments
create losses reduce losses will be similar to the weightings of foreign securities in
the S&P 500 Index; the U.S. Equity, U.S. Small Company and
- - A fund could lose money - Foreign investments, which Tax Aware funds anticipate that their total foreign
because of foreign govern- represent a major portion of invesments will not exceed 5% of assets; the U.S. Small
ment actions, political the world's securities, offer Company Opportunities Fund is permitted to enter into
instability, or lack of attractive potential foreign investments, however, it has no current intention
adequate and accurate performance and opportunities to do so
information for diversification
- Each fund actively manages the currency exposure of its
foreign investments relative to its benchmark, and may
hedge into the U.S. dollar from time to time (see also
"Derivatives")
- ------------------------------------------------------------------------------------------------------------------------------------
DERIVATIVES
- - Derivatives such as futures, - Hedges that correlate well - The funds use derivatives for hedging and for risk
options, and foreign currency with underlying positions management (i.e., to establish or adjust exposure to
forward contracts that are can reduce or eliminate particular securities, markets or currencies); risk
used for hedging the portfolio losses at low cost management may include management of a fund's exposure
or specific securities may not relative to its benchmark (risk management techniques that
fully offset the underlying - A fund could make money and involve derivatives are not permitted to be used by the
positions(1) protect against losses if U.S. Equity and U.S. Small Company funds; foreign
management's analysis proves currency forward contracts are not permitted to be used
correct by the Tax Aware Fund; the U.S. Small Company
Opportunities Fund is permitted to use derivatives,
- - Derivatives used for risk man- - Derivatives that involve however, it has no current intention to do so)
agement may not have the leverage could generate
intended effects and may substantial gains at low - The funds only establish hedges that they expect
result in losses or missed cost will be highly correlated with underlying positions
opportunities
- While the funds may use derivatives that incidentally
- - Derivatives that involve lever- involve leverage, they do not use them for the specific
age could magnify losses purpose of leveraging their portfolios
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) A futures contract is an agreement to buy or sell a set quantity of an
underlying instrument at a future date, or to make or receive a cash
payment based on the value of a securities index. An option is the right to
buy or sell securities that is granted in exchange for an agreed-upon sum.
A foreign currency forward contract is an obligation to buy or sell a given
currency on a future date and at a set price.
20 FUND DETAILS
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
POTENTIAL RISKS POTENTIAL REWARDS POLICIES TO BALANCE RISK AND REWARD
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
ILLIQUID HOLDINGS
- - A fund could have difficulty - These holdings may offer more - No fund may invest more than 15% of net assets in
valuing these holdings attractive yields or potential illiquid holdings
precisely growth than comparable widely
traded securities - To maintain adequate liquidity to meet redemptions,
- - A fund could be unable to each fund may hold investment-grade short-term securities
sell these holdings at the (including repurchase agreements) and, for temporary or
time or price it desires extraordinary purposes, may borrow from banks up to 33 1/3%
(with respect to the Disciplined Equity, U.S. Small Company
Opportunities and Tax Aware funds) or 10% (with respect to
the U.S. Equity and U.S. Small Company funds) of the value
of its total assets
- ------------------------------------------------------------------------------------------------------------------------------------
WHEN-ISSUED AND DELAYED
DELIVERY SECURITIES
- - When a fund buys securities - A fund can take advantage - Each fund uses segregated accounts to offset
before issue or for delayed of attractive transaction leverage risk
delivery, it could be exposed opportunities
to leverage risk if it does
not use segregated accounts
- ------------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM TRADING
- - Increased trading would raise - A fund could realize gains - Each Fund anticipates a portfolio turnover rate of
a fund's brokerage and in a short period of time approximately 100%
related costs
- -Increased short-term capital - A fund could protect against - The funds generally avoid short-term trading, except
gains distributions would losses if a stock is to take advantage of attractive or unexpected opportunities
raise shareholders' income overvalued and its value or to meet demands generated by shareholder activity
tax liability later falls
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
FUND DETAILS 21
<PAGE>
- --------------------------------------------------------------------------------
FOR MORE INFORMATION
- --------------------------------------------------------------------------------
For investors who want more information on these funds, the following documents
are available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS Contain financial statements, performance data,
information on portfolio holdings, and a written analysis of market conditions
and fund performance for a fund's most recently completed fiscal year or
half-year.
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 may be obtained by contacting:
J.P. MORGAN FUNDS
J.P. Morgan Funds Services
522 Fifth Avenue
New York, NY 10036
TELEPHONE: 1-800-521-5411
HEARING IMPAIRED: 1-888-468-4015
EMAIL: [email protected]
Text-only versions of these documents and this prospectus are available 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 Disciplined Equity Fund. . . . . . . . . . . 811-07340 and 033-54632
J.P. Morgan U.S. Equity Fund . . . . . . . . . . . . . . 811-07340 and 033-54632
J.P. Morgan U.S. Small Company Fund. . . . . . . . . . . 811-07340 and 033-54632
J.P. Morgan U.S. Small Company Opportunities Fund. . . . 811-07340 and 033-54632
J.P. Morgan Tax Aware U.S. Equity Fund . . . . . . . . . 811-07795 and 333-11125
J.P. MORGAN FUNDS AND
THE MORGAN TRADITION
The J.P. Morgan Funds combine a heritage of integrity and financial
leadership with comprehensive, 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.
J.P. MORGAN
- --------------------------------------------------------------------------------
J.P. MORGAN FUNDS
ADVISOR DISTRIBUTOR
Morgan Guaranty Trust Company of New York Funds Distributor, Inc.
522 Fifth Avenue 60 State Street
New York, NY 10036 Boston, MA 02109
1-800-521-5411 1-800-221-7930
PROSPDEQ-981