APRIL 1, 1999
PROSPECTUS
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J.P. MORGAN
TAX AWARE ENHANCED INCOME FUND
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Seeking high current after tax income consistent with principal preservation by
investing in tax exempt and taxable fixed income securities.
This prospectus contains essential information for anyone investing in the fund.
Please read it carefully and keep it for reference.
As with all mutual funds, the fact that these shares are registered with the
Securities and Exchange Commission does not mean that the commission approves
them or guarantees that the information in this prospectus is correct or
adequate. It is a criminal offense to state or suggest otherwise.
Distributed by Funds Distributor, Inc.
JPMorgan
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CONTENTS
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2 The fund's goal, investment approach, J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
risks and expenses
Fund description ............................................. 2
Investor expenses ............................................ 3
4 FIXED INCOME MANAGEMENT APPROACH
J.P. Morgan .................................................. 4
Who may want to invest ....................................... 4
Fixed income investment process .............................. 5
6 Investing in the J.P. Morgan Tax Aware YOUR INVESTMENT
Enhanced Income Fund
Investing through a financial professional ................... 6
Investing directly ........................................... 6
Opening your account ......................................... 6
Adding to your account ....................................... 6
Selling shares ............................................... 7
Account and transaction policies ............................. 7
Dividends and distributions .................................. 8
Tax considerations ........................................... 8
9 More about risk and the fund's FUND DETAILS
business operations
Business structure ........................................... 9
Management and administration ................................ 9
Risk and reward elements ..................................... 10
Investments .................................................. 12
FOR MORE INFORMATION ................................. back cover
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1
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J.P. Morgan
TAX AWARE ENHANCED INCOME FUND
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REGISTRANT: J.P. MORGAN SERIES TRUST
(J.P. MORGAN TAX AWARE ENHANCED INCOME FUND: SELECT SHARES)
- ------- RISK/RETURN SUMMARY
GRAPHIC For a more detailed discussion of the fund's investments and their main
- ------- risks, as well as fund strategies, please see pages 10-13.
GOAL
- ------- The fund's goal is to provide high current after tax income consistent
GRAPHIC with principal preservation. This goal can be changed without -------
shareholder approval.
INVESTMENT APPROACH
- ------- The fund invests in municipal securities that J.P. Morgan believes have
GRAPHIC the potential to provide high current income that is free from federal
- ------- income tax. The fund also may invest in taxable fixed income securities,
including U.S. government and agency securities, domestic and foreign corporate
bonds, asset-backed and mortgage-related securities, and money market
instruments, that J.P. Morgan believes have the potential to provide higher
current after tax income. These securities may be of any maturity, but under
normal market conditions the fund's duration will range between three and
eighteen months. The fund's tax aware investment strategies are described on
page 4. For a description of duration, please see fixed income investment
process on page 5.
Up to 25% of the fund's assets may be invested in foreign securities. All of the
securities purchased by the fund, at the time of purchase, must be rated
investment grade (BBB/Baa or better) by a nationally recognized statistical
rating organization or the unrated equivalent, including at least 75% in
securities rated A or better.
The fund's share price and total return will vary in response to changes in
interest rates. How well the fund's performance compares to that of similar
fixed income funds will depend on the success of the investment process, which
is described on page 5.
Although any rise in interest rates is likely to cause a fall in the price of
fixed income securities, the fund's comparatively short duration is designed to
help keep its share price within a relatively narrow range. Because it seeks to
minimize risk, the fund will generally offer less income and, during periods of
declining interest rates, may offer lower total returns than funds with longer
durations. Because of the sensitivity of the fund's mortgage related securities
to changes in interest rates, the performance and duration of the fund may be
more volatile than if it did not hold these securities. The fund may use
interest rate swaps, futures contracts and options to help manage duration. The
fund's tax aware strategies may reduce your taxable income but will not
eliminate it. Maximizing after tax income may require trade-offs that reduce
pre-tax income. To the extent the fund invests in foreign securities, it could
lose money because of foreign government actions, political instability,
currency fluctuations or lack of adequate and accurate information.
An investment in the fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. You could lose money if you sell when the fund's share price is lower
than when you invested.
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages over $316
billion, including more than $1.2 billion using similar strategies as the fund.
The portfolio management team is led by Richard W. Oswald, vice president, who
joined J.P. Morgan from CBS Inc. in 1996 where he served as treasurer, and
Daniel B. Mulvey, vice president, who has been at J.P. Morgan since 1991.
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BEFORE YOU INVEST
Investors considering the fund should understand that:
o There is no assurance that the fund will meet its investment goal.
o The fund does not represent a complete investment program.
2 J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
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INVESTOR EXPENSES
The expenses of the fund before reimbursement 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 after
reimbursement are deducted from fund assets prior to performance calculations.
ANNUAL FUND OPERATING EXPENSES(1) (%)
(expenses that are deducted from fund assets)
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Management fees 0.25
Marketing (12b-1) fees none
Other expenses(2) 0.54
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TOTAL ANNUAL FUND
OPERATING EXPENSES(2) 0.79
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EXPENSE EXAMPLE
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The example below is intended to help you compare the cost of investing in the
fund with the cost of investing in other mutual funds. The example assumes:
$10,000 initial investment, 5% return each year, total operating expenses
(before reimbursement) unchanged, and all shares sold at the end of each time
period. The example is for comparison only; the fund's actual return and your
actual costs may be higher or lower.
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1 yr. 3 yrs.
YOUR COST($) 81 252
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1 This table shows the fund's estimated expenses for the current fiscal year
ending 10/31/99, before reimbursement, expressed as a percentage of the
fund's estimated average net assets.
2 AFTER REIMBURSEMENT, OTHER EXPENSES AND TOTAL OPERATING EXPENSES FOR THE
CURRENT FISCAL YEAR ENDING 10/31/99 WILL BE 0.25% AND 0.50%, RESPECTIVELY.
This reimbursement arrangement can be changed or terminated at any time
after 2/29/00 at the option of J.P. Morgan.
J.P. MORGAN TAX AWARE ENHANCED INCOME FUND 3
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FIXED INCOME MANAGEMENT APPROACH
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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 $316 billion in assets under management,
including assets managed by the fund's advisor, J.P. Morgan Investment
Management Inc.
J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
The fund is designed to provide a high level of after tax current income, price
stability and liquidity. The fund's strategy may therefore include purchasing
both municipal obligations that are exempt from federal income tax as well as
taxable securities, depending on which opportunity J.P. Morgan determines will
generate the highest after tax income (although the fund intends to invest at
least 50% of its assets in tax exempt securities). It seeks to capitalize on
fundamental and technical opportunities in the different markets to enhance
return.
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WHO MAY WANT TO INVEST The fund is designed for investors who:
o are in a high tax bracket and want to add a tax sensitive income investment
to further diversify a portfolio
o want an investment whose risk/return potential is higher than that of money
market funds but generally less than that of longer duration bond funds
o want to emphasize after tax return
The fund is not designed for investors who:
o are investing for aggressive long-term growth
o are investing through a tax-deferred account such as an IRA
o are in a low tax bracket
4 FIXED INCOME MANAGEMENT APPROACH
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FIXED INCOME INVESTMENT PROCESS
J.P. Morgan seeks to generate an information advantage through the depth of its
global fixed-income research and the sophistication of its analytical systems.
Using a team-oriented approach, J.P. Morgan seeks to gain insights in a broad
range of distinct areas and takes positions in many different areas, helping the
fund to limit exposure to concentrated sources of risk.
In managing the fund, J.P. Morgan employs a three-step process that combines
sector allocation, fundamental research for identifying portfolio securities,
and duration management.
-------
GRAPHIC
-------
The fund invests across a range
of different types of securities
SECTOR ALLOCATION The sector allocation team meets monthly, analyzing the
fundamentals of a broad range of sectors in which the fund may invest. The team
seeks to enhance performance and manage risk by underweighting or overweighting
sectors.
-------
GRAPHIC
-------
The fund makes its portfolio decisions as
described earlier in this prospectus
SECURITY SELECTION Relying on the insights of different specialists, including
credit analysts, quantitative researchers, and dedicated fixed income traders,
the portfolio managers make buy and sell decisions according to the fund's goal
and strategy.
-------
GRAPHIC
-------
J.P. Morgan uses a disciplined process
to control the fund's sensitivity
to interest rates
DURATION MANAGEMENT Forecasting teams use fundamental economic factors to
develop strategic forecasts of the direction of interest rates. Based on these
forecasts, strategists establish the fund's target duration, a common
measurement of a security's sensitivity to interest rate movements. For
securities owned by the fund, duration measures the average time needed to
receive the present value of all principal and interest payments by analyzing
cash flows and interest rate movements. The fund's duration may be shorter than
the fund's average maturity because the maturity of a security only measures the
time until final payment is due. The fund's target duration typically remains
relatively short, between three and eighteen months. The strategists closely
monitor the fund and make tactical adjustments as necessary.
FIXED INCOME MANAGEMENT APPROACH 5
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YOUR INVESTMENT
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For your convenience, the J.P. Morgan Funds offer several ways to start and add
to fund investments.
INVESTING THROUGH A FINANCIAL PROFESSIONAL
If you work with a financial professional, either at J.P. Morgan or elsewhere,
he or she is prepared to handle your planning and transaction needs. Your
financial professional will be able to assist you in establishing your fund
account, executing transactions, and monitoring your investment. If your fund
investment is not held in the name of your financial professional and you prefer
to place a transaction order yourself, please use the instructions for investing
directly.
INVESTING DIRECTLY
Investors may establish accounts without the help of an intermediary by using
the instructions below and at right:
o Determine the amount you are investing. The minimum amount for initial
investments is $2,500 and for additional investments $500, although these
minimums may be less for some investors. For more information on minimum
investments, call 1-800-521-5411.
o Complete the application, indicating how much of your investment you want
to allocate to which fund(s). Please apply now for any account privileges
you may want to use in the future, in order to avoid the delays associated
with adding them later on.
o Mail in your application, making your initial investment as shown at 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
o Mail your completed application to the Shareholder Services Agent.
o 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.
o After placing your purchase order, instruct your bank to wire the amount of
your investment to:
State Street Bank & Trust Company
Routing number: 011-000-028
Credit: J.P. Morgan Funds
Account number: 9904-226-9
FFC: your account number, name of registered owner(s) and fund name
BY CHECK
o Make out a check for the investment amount payable to J.P. Morgan Funds.
o Mail the check with your completed application to the Shareholder Services
Agent.
BY EXCHANGE
o Call the Shareholder Services Agent to effect an exchange.
ADDING TO YOUR ACCOUNT
BY WIRE
o Call the Shareholder Services Agent to place a purchase order. Funds that
are wired without a purchase order will be returned uninvested.
o Once you have placed your purchase order, instruct your bank to wire the
amount of your investment as described above.
BY CHECK
o Make out a check for the investment amount payable to J.P. Morgan Funds.
o Mail the check with a completed investment slip to the Transfer Agent. If
you do not have an investment slip, attach a note indicating your account
number and how much you wish to invest in which fund(s).
BY EXCHANGE
o Call the Shareholder Services Agent to effect an exchange.
6 YOUR INVESTMENT
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SELLING SHARES
BY PHONE -- WIRE PAYMENT
o Call the Shareholder Services Agent to verify that the wire redemption
privilege is in place on your account. If it is not, a representative can
help you add it.
o Place your wire request. If you are transferring money to a non-Morgan
account, you will need to provide the representative with the personal
identification number (PIN) that was provided to you when you opened your
fund account.
BY PHONE -- CHECK PAYMENT
o Call the Shareholder Services Agent and place your request. Once your
request has been verified, a check for the net amount, payable to the
registered owner(s), will be mailed to the address of record. For checks
payable to any other party or mailed to any other address, please make your
request in writing (see below).
IN WRITING
o Write a letter of instruction that includes the following information: The
name of the registered owner(s) of the account; the account number; the
fund name; the amount you want to sell; and the recipient's name and
address or wire information, if different from those of the account
registration.
o Indicate whether you want the proceeds sent by check or by wire.
o Make sure the letter is signed by an authorized party. The Shareholder
Services Agent may require additional information, such as a signature
guarantee.
o Mail the letter to the Shareholder Services Agent.
BY EXCHANGE
o Call the Shareholder Services Agent to effect an exchange.
REDEMPTION IN KIND
o The Fund reserves the right to make redemptions of over $250,000 in
securities rather than in cash.
ACCOUNT AND TRANSACTION POLICIES
TELEPHONE ORDERS The fund accepts telephone orders from all shareholders. To
guard against fraud, the fund requires shareholders to use a PIN, and may record
telephone orders or take other reasonable precautions. However, if the fund does
take such steps to ensure the authenticity of an order, you may bear any loss if
the order later proves fraudulent.
EXCHANGES You may exchange shares in this fund 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.
The fund may alter, limit, or suspend its exchange policy at any time.
BUSINESS HOURS AND NAV CALCULATIONS The fund's regular business days and hours
are the same as those of the New York Stock Exchange (NYSE). The fund calculates
its net asset value per share (NAV) every business day as of the close of
trading on the NYSE (normally 4:00 p.m. eastern time). The fund's securities are
typically priced using pricing services or market quotes. When these methods are
not available or do not represent a security's value at the time of pricing
(e.g. when an event occurs after the close of trading that would materially
impact a security's value), the security is valued in accordance with the fund's
fair valuation procedures.
TIMING OF ORDERS Orders to buy or sell shares are executed at the next NAV
calculated after the order has been accepted. Orders are accepted until the
close of trading on the NYSE every business day and are executed the same day,
at that day's NAV. The 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.
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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 7
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TIMING OF SETTLEMENTS When you buy shares, you will become the owner of record
when the fund receives your payment, generally the day following execution. When
you sell shares, proceeds are generally available the day following execution
and will be forwarded according to your instructions.
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 fund sends monthly account statements as well as
confirmations after each purchase or sale of shares (except reinvestments).
Every six months the fund sends out an annual or semi-annual report containing
information on the fund's 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), the fund reserves the right to request that you buy more shares or
close your account. If your account balance is still below the minimum 60 days
after notification, the fund may close out your account and send the proceeds to
the address of record.
DIVIDENDS AND DISTRIBUTIONS
The fund typically declares income dividends daily and pays them monthly. If an
investor's shares are redeemed during the month, accrued but unpaid dividends
are paid with the redemption proceeds. Shares of the fund earn dividends on the
business day the purchase is effective, but not on the business day the
redemption is effective. The fund distributes capital gains, if any, once a
year. However, the fund may make more or fewer payments in a given year,
depending on its investment results and its tax compliance situation. These
dividends and distributions consist of most or all of the fund's 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, exchanging shares, and receiving distributions
(whether reinvested or taken in cash) are all taxable events. These transactions
typically create the following tax liabilities:
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Transaction Tax status
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Income dividends on Generally tax exempt
municipal obligations
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Income dividends on Ordinary income
taxable securities
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Short-term capital gains Ordinary income
distributions
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Long-term capital gains Capital gains
distributions
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Sales or exchanges of Capital gains or
shares owned for more losses
than one year
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Sales or exchanges of Gains are treated as ordinary
shares owned for one year income; losses are subject
or less 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 the fund is about to declare a long-term capital
gains distribution. A portion of the fund's returns may be subject to federal,
state, or local tax, or the alternative minimum tax.
Every January, the fund issues tax information on its distributions for the
previous year.
Any investor for whom the 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.
8 YOUR INVESTMENT
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FUND DETAILS
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BUSINESS STRUCTURE
The fund is a series of J.P. Morgan Series Trust, a Massachusetts business
trust. Information about other series or classes is available by calling
1-800-521-5411. In the future, the trustees could create other series or share
classes, which would have different expenses.
MANAGEMENT AND ADMINISTRATION
The fund and the other series of J.P. Morgan Series Trust are 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, along with J.P. Morgan,
provides fund officers. J.P. Morgan, as co-administrator, oversees the 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 0.25% of the fund's average net
assets
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ADMINISTRATIVE SERVICES Fund's prorata portion of
(fee shared with Funds 0.09% of the first $7 billion
Distributor, Inc.) of average net assets in
J.P. Morgan-advised portfolios,
plus 0.04% of average net assets
over $7 billion
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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 the fund.
YEAR 2000 Fund operations and shareholders could be adversely affected if the
computer systems used by J.P. Morgan, the fund's other service providers and
other entities with computer systems linked to the fund do not properly process
and calculate the date January 1, 2000 and dates thereafter. J.P. Morgan is
working to avoid these problems and to obtain assurances from other service
providers that they are taking similar steps. However, it is not certain that
these actions will be sufficient to prevent these date-related problems from
adversely impacting fund operations and shareholders. In addition, to the extent
that operations of issuers of securities held by the fund are impaired by
date-related problems or prices of securities decline as a result of real or
perceived date-related problems of issuers held by the fund or generally, the
net asset value of the fund will decline.
FUND DETAILS 9
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RISK AND REWARD ELEMENTS
This table discusses the main elements that make up the fund's overall risk and
reward characteristics. It also outlines the fund's policies toward various
investments, including those that are designed to help the fund manage risk.
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POTENTIAL RISKS POTENTIAL REWARDS POLICIES TO BALANCE RISK AND REWARD
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MARKET CONDITIONS
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o The fund's share price, yield, o Bonds have generally o Under normal circumstances the fund
plans to remain
and total return will fluctuate outperformed money market fully invested in bonds and other
fixed income
in response to bond market investments over the long term, securities as noted in the table on
pages 12-13
movements with less risk than stocks o The fund seeks to limit risk and
enhance after tax o The value of most bonds will o Most bonds will rise in value
yields through careful management, sector allocation,
fall when interest rates rise; when interest rates fall individual securities selection, and
duration
the longer a bond's maturity and o Mortgage-backed and
management
the lower its credit quality, the asset-backed securities can offer o During severe market downturns, the
fund has the
more its value typically falls attractive returns option of investing up to 100% of
assets in
o Adverse market conditions may investment-grade short-term
securities
from time to time cause the fund o J.P. Morgan monitors interest rate
trends, as well
to take temporary defensive as geographic and demographic
information related to
positions that are inconsistent mortgage-backed securities and
mortgage prepayments
with its principal investment
strategies and may hinder the
fund from achieving its
investment objective
o Mortgage-backed and
asset-backed securities
(securities representing an
interest in, or secured by, a
pool of mortgages or other assets such as receivables) could generate capital
losses or periods of low yields if they are paid off substantially earlier or
later than anticipated
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MANAGEMENT CHOICES
o The fund could underperform its o The fund could outperform its o J.P. Morgan focuses its active
management on those
benchmark due to its sector, benchmark due to these same areas where it believes its commitment
to research can
securities, or duration choices choices most enhance after tax income and
manage risks in a
o The fund could generate lower consistent
way
after tax income if its o An optimal allocation could
taxable/tax exempt allocation is enhance after tax income
not optimal
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CREDIT QUALITY
o The default of an issuer would o Investment-grade bonds have a o The fund maintains its own policies
for balancing
leave the fund with unpaid lower risk of default credit quality against potential
yields and gains in
interest or principal light of its investment
goals
o J.P. Morgan develops its own ratings
of unrated
securities and makes a credit quality
determination
for unrated
securities
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SHORT-TERM TRADING
o Increased trading would raise o The fund could realize gains in o The fund
anticipates a portfolio turnover rate of
the fund's transaction costs a short period of time approximately
300%
o Increased short-term
capital
gains distributions would raise o The fund could protect against o The fund generally avoids short-term
trading, except
shareholders' income tax losses if a bond is overvalued to take advantage of attractive or
unexpected
liability and its value later falls opportunities or to meet demands
generated by
shareholder
activity
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10 FUND DETAILS
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POTENTIAL RISKS POTENTIAL REWARDS POLICIES TO BALANCE RISK AND REWARD
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FOREIGN INVESTMENTS
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o The fund could lose money o Foreign bonds, which represent a o Foreign bonds may be a significant
investment
because of foreign government major portion of the world's fixed (25% of assets) for the
fund
actions, political instability, or income securities,
offer
lack of adequate and accurate attractive potential performance o To the extent that the fund invests
in foreign
information and opportunities for bonds, it will hedge its currency
exposure into
diversification the U.S. dollar (see also
"Derivatives")
o Currency exchange rate movements o Favorable exchange rate
could reduce gains or create movements could generate gains or
losses reduce losses
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DERIVATIVES
o Derivatives such as futures, o Hedges that correlate well with o The fund uses derivatives such as
futures,
options, swaps and forward foreign underlying positions can reduce or options, swaps and forward foreign
currency
currency contracts that are used eliminate losses at low cost contracts for hedging and for risk
management
for hedging the portfolio or o The fund could make money and (i.e., to adjust duration or to
establish or
specific securities may not fully protect against losses if adjust exposure to particular
securities, markets,
offset the underlying positions(1) management's analysis proves or
currencies)
and this could result in losses to
correct
the fund that would not have o Derivatives that involve o The fund only establishes hedges
that it expects
otherwise occurred leverage could generate will be highly correlated with
underlying
o Derivatives used for risk substantial gains at low cost
positions
management may not have
the
intended effects and may result in o While the fund may use derivatives
that
losses or missed opportunities incidentally involve leverage, it
does not use
o The counterparty to a them for the specific purpose of
leveraging the
derivatives contract could default
portfolio
o Certain types of derivatives
involve costs to the fund which
can reduce returns
o Derivatives that involve
leverage could magnify losses
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SECURITIES LENDING
o When a fund lends a security, o A fund may enhance income o J.P. Morgan maintains a list of
approved
there is a risk that the loaned through the investment of the
borrowers
securities may not be returned if collateral received from the o The fund receives collateral equal
to at least
the borrower defaults borrower 100% of the current value of
securities loaned
o The collateral will be subject o The lending agents indemnify a fund
against
to the risks of the securities in borrower
default
which it is invested o J.P. Morgan's collateral investment
guidelines
limit the quality and duration of
collateral
investment to minimize
losses
o Upon recall, the borrower must
return the
securities loaned within the normal
settlement
period
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ILLIQUID HOLDINGS
o The fund could have difficulty o These holdings may offer more o The fund may not invest more than
15% of net
valuing these holdings precisely attractive yields or potential assets in illiquid
holdings
growth than comparable
widely
o The fund could be unable to sell traded securities o To maintain adequate liquidity to
meet
these holdings at the time or redemptions, the fund may hold
investment-grade
price desired short-term securities (including
repurchase
agreements) and, for temporary or
extraordinary
purposes, may borrow from banks up
to 331/3% of
the value of its total
assets
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WHEN-ISSUED AND DELAYED
DELIVERY SECURITIES
o When the fund buys securities o The fund can take advantage of o The fund uses segregated accounts to
offset
before issue or for delayed attractive transaction leverage
risk
delivery, it could be exposed to opportunities
leverage risk if it does not use
segregated accounts
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</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 a set quantity of an underlying instrument at a predetermined price. A
swap is a privately negotiated agreement to exchange one stream of payments
for another. A forward foreign currency contract is an obligation to buy or
sell a given currency on a future date and at a set price.
FUND DETAILS 11
<PAGE>
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INVESTMENTS
This table discusses the customary types of investments which can be held by the
fund. In each case the principal types of risk are listed on the following page
(see below for definitions).This table reads across two pages.
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ASSET-BACKED securities Interests in a stream of payments from specific assets,
such as auto or credit card receivables.
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BANK OBLIGATIONS Negotiable certificates of deposit, time deposits and bankers'
acceptances of domestic and foreign issuers.
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COMMERCIAL PAPER Unsecured short term debt issued by domestic and foreign banks
or corporations. These securities are usually discounted and are rated by S&P or
Moody's.
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CONVERTIBLE SECURITIES Domestic and foreign debt securities that can be
converted into equity securities at a future time and price.
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CORPORATE BONDS Debt securities of domestic and foreign industrial, utility,
banking, and other financial institutions.
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MORTGAGES (DIRECTLY HELD) Domestic debt instrument which gives the lender a lien
on property as security for the loan payment.
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MORTGAGE-BACKED SECURITIES Domestic and foreign securities (such as Ginnie Maes,
Freddie Macs, Fannie Maes) which represent interests in pools of mortgages,
whereby the principal and interest paid every month is passed through to the
holder of the securities.
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MORTGAGE DOLLAR ROLLS The sale of mortgage-backed securities with the promise to
purchase similar securities at a later date. Segregated accounts are used to
offset leverage risk.
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PARTICIPATION INTERESTS Interests that represent a share of bank debt or similar
securities or obligations.
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PRIVATE PLACEMENTS Bonds or other investments that are sold directly to an
institutional investor.
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REITS AND OTHER REAL-ESTATE RELATED INSTRUMENTS Securities of issuers that
invest in real estate or are secured by real estate.
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<PAGE>
REPURCHASE AGREEMENTS Contracts whereby the fund agrees to purchase a security
and resell it to to the seller on a particular date and at a specific price.
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REVERSE REPURCHASE AGREEMENTS Contracts whereby the fund sells a security and
agrees to repurchase it from the buyer on a particular date and at a specific
price. Considered a form of borrowing.
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SOVEREIGN DEBT, BRADY BONDS, AND DEBT OF SUPRANATIONAL ORGANIZATIONS Dollar- or
non-dollar-denominated securities issued by foreign governments or supranational
organizations. Brady bonds are issued in connection with debt restructurings.
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SWAPS Contractual agreement whereby a party agrees to exchange periodic payments
with a counterparty. Segregated accounts are used to offset leverage risk.
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TAX EXEMPT MUNICIPAL SECURITIES Securities, generally issued as general
obligation and revenue bonds, whose interest is exempt from federal taxation and
state and/or local taxes in the state where the securities were issued.
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U.S. GOVERNMENT SECURITIES Debt instruments (Treasury bills, notes, and bonds)
guaranteed by the U.S. government for the timely payment of principal and
interest.
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ZERO COUPON, PAY-IN-KIND, AND DEFERRED PAYMENT SECURITIES Domestic and foreign
securities offering non-cash or delayed-cash payment. Their prices are typically
more volatile than those of some other debt instruments and involve certain
special tax considerations.
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RISK RELATED TO CERTAIN INVESTMENTS HELD BY J.P. MORGAN FIXED INCOME FUNDS:
CREDIT RISK The risk a financial obligation will not be met by the issuer of a
security or the counterparty to a contract, resulting in a loss to the
purchaser.
CURRENCY RISK The risk currency exchange rate fluctuations may reduce gains or
increase losses on foreign investments.
ENVIRONMENTAL RISK The risk that an owner or operator of real estate may be
liable for the costs associated with hazardous or toxic substances located on
the property.
EXTENSION RISK The risk a rise in interest rates will extend the life of a
mortgage-backed security to a date later than the anticipated prepayment date,
causing the value of the investment to fall.
INTEREST RATE RISK The risk a change in interest rates will adversely affect the
value of an investment. The value of fixed income securities generally moves in
the opposite direction of interest rates (decreases when interest rates rise and
increases when interest rates fall).
LEVERAGE RISK The risk of gains or losses disproportionately higher than the
amount invested.
12 FUND DETAILS
<PAGE>
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* Permitted - bold
o Permitted, but not typically used
Principal Types of Risk
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
<S> <C>
credit, interest rate, market, prepayment *
- ----------------------------------------------------------------------------------------------
credit, currency, liquidity, political *(1)
- ----------------------------------------------------------------------------------------------
credit, currency, interest rate, liquidity, market, political *(1)
- ----------------------------------------------------------------------------------------------
credit, currency, interest rate, liquidity, market, political, valuation *(1)
- ----------------------------------------------------------------------------------------------
credit, currency, interest rate, liquidity, market, political, valuation *(1)
- ----------------------------------------------------------------------------------------------
credit, environmental, extension, interest rate, liquidity, market, o
natural event, political, prepayment, valuation
- ----------------------------------------------------------------------------------------------
credit, currency, extension, interest rate, leverage, market, political, *(1)
prepayment
- ----------------------------------------------------------------------------------------------
credit, currency, extension, interest rate, leverage, liquidity, market, political, o(1)
prepayment
- ----------------------------------------------------------------------------------------------
credit, currency, extension, interest rate, liquidity, political, prepayment *
- ----------------------------------------------------------------------------------------------
credit, interest rate, liquidity, market, valuation *
- ----------------------------------------------------------------------------------------------
credit, environmental, interest rate, liquidity, market, natural event, prepayment,
valuation *
- ----------------------------------------------------------------------------------------------
credit *
- ----------------------------------------------------------------------------------------------
credit o(2)
- ----------------------------------------------------------------------------------------------
credit, currency, interest rate, market, political *(1)
- ----------------------------------------------------------------------------------------------
credit, currency, interest rate, leverage, market, political *
- ----------------------------------------------------------------------------------------------
credit, interest rate, market, natural event, political *
- ----------------------------------------------------------------------------------------------
interest rate *
- ----------------------------------------------------------------------------------------------
credit, currency, interest rate, liquidity, market, political, valuation *(1)
- ----------------------------------------------------------------------------------------------
</TABLE>
LIQUIDITY RISK The risk the holder may not be able to sell the security at the
time or price it desires.
MARKET RISK The risk that when the market as a whole declines, the value of a
specific investment will decline proportionately. This systematic risk is common
to all investments and the mutual funds that purchase them.
NATURAL EVENT RISK The risk a natural disaster, such as a hurricane or similar
event, will cause severe economic losses and default in payments by the issuer
of the security.
POLITICAL RISK The risk governmental policies or other political actions will
negatively impact the value of the investment.
PREPAYMENT RISK The risk declining interest rates will result in unexpected
prepayments, causing the value of the investment to fall.
VALUATION RISK The risk the estimated value of a security does not match the
actual amount that can be realized if the security is sold.
1 All foreign securities in the aggregate may not exceed 25% of the fund's
assets.
2 All forms of borrowing (including securities lending, mortgage dollar rolls
and reverse repurchase agreements) are limited in the aggregate and may not
exceed 33 1/3% of the fund's total assets.
FUND DETAILS 13
<PAGE>
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FOR MORE INFORMATION
For investors who want more information on the fund, 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 the fund's most recently completed fiscal year or
half-year.
STATEMENT OF ADDITIONAL INFORMATION (SAI) Provides a fuller technical and legal
description of the fund's policies, investment restrictions, and business
structure. This prospectus incorporates the fund's SAI by reference.
Copies of the current versions of these documents, along with other information
about the fund, may be obtained by contacting:
J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
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, upon
payment of a duplicating fee, from the Public Reference Room of the Securities
and Exchange Commission in Washington, D.C. (1-800-SEC-0330) and may be viewed
on-screen or downloaded from the SEC's Internet site at http://www.sec.gov. The
fund's investment company and 1933 Act registration numbers are 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.
JPMorgan
- ----------------------------------------------------------------------
J.P. MORGAN FUNDS
Advisor Distributor
J.P. Morgan Investment Management Inc. Funds Distributor, Inc.
522 Fifth Avenue 60 State Street
New York, NY 10036 Boston, MA 02109
1-800-521-5411 1-800-221-7930