As filed with the U.S. Securities and Exchange Commission on July 31, 2000
Registration Nos. 333-11125 and 811-07795
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 26
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 27
J.P. MORGAN SERIES TRUST
(formerly JPM Series Trust)
(Exact Name of Registrant as Specified in Charter)
60 State Street, Suite 1300, Boston, Massachusetts 02109
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (617) 557-0700
Margaret W. Chambers, c/o Funds Distributor, Inc.
60 State Street, Suite 1300, Boston, Massachusetts 02109
(Name and Address of Agent for Service)
Copy to: John E. Baumgardner, Jr., Esq.
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
It is proposed that this filing will become effective (check appropriate box):
[X ] Immediately upon filing pursuant to paragraph (b)
[ ] on [ ] pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on [] pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[] on [ ] pursuant to paragraph (a)(ii) of Rule 485.
<PAGE>
Part A
<PAGE>
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AUGUST 1, 2000 | PROSPECTUS
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J.P. MORGAN INSTITUTIONAL
TAX AWARE U.S. EQUITY FUND
----------------------------------------------
Seeking to provide high after tax total return
through a disciplined management approach
This prospectus contains essential information for anyone investing in this
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 for anyone to state or suggest otherwise.
Distributed by Funds Distributor, Inc. JPMorgan
<PAGE>
CONTENTS
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1 | The fund's goal, principal strategies, principal risks, expenses and
performance
J.P. MORGAN INSTITUTIONAL TAX AWARE U.S. EQUITY FUND
Fund description ............................................................ 1
Performance. ................................................................ 2
Investor expenses ........................................................... 3
3 |
U.S. EQUITY MANAGEMENT APPROACH
J.P. Morgan ................................................................. 4
J.P. Morgan Institutional Tax Aware U.S. Equity Fund ........................ 4
Who may want to invest ...................................................... 4
Investment process .......................................................... 5
Tax aware investing at J.P. Morgan .......................................... 5
5 | Investing in the J.P. Morgan Institutional Tax Aware U.S. Equity Fund
YOUR INVESTMENT
Investing through a financial professional .................................. 6
Investing through an employer-sponsored retirement plan ..................... 6
Investing through an IRA or rollover IRA .................................... 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 business operations
FUND DETAILS
Business structure .......................................................... 9
Management and administration ............................................... 9
Risk and reward elements .................................................... 10
FOR MORE INFORMATION ............................................... back cover
<PAGE>
J.P. MORGAN INSTITUTIONAL
TAX AWARE U.S. EQUITY FUND
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[GRAPHIC OMITTED]
RISK/RETURN SUMMARY
For a more detailed discussion of the fund's investments and their main risks,
as well as fund strategies, please see pages 9-10.
[GRAPHIC OMITTED]
GOAL
The fund's goal is to provide high after tax total return from a portfolio of
selected equity securities. This goal can be changed without shareholder
approval.
[GRAPHIC OMITTED]
INVESTMENT APPROACH
Principal Strategies
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 4. 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 4.
Principal Risks
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 seeks to produce returns that exceed
those of the S&P 500. At the same time, by controlling the industry weightings
of the fund so that they 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.
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.
<PAGE>
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REGISTRANT: J.P. MORGAN SERIES TRUST
(J.P. MORGAN TAX AWARE U.S. EQUITY FUND:
INSTITUTIONAL SHARES)
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages
approximately $369 billion, including more than $2,869 million using similar
strategies as the fund.
The portfolio management team is led by Terry E. Banet, vice president, and
Louise Sclafani, vice president. Ms. Banet has been on the team since the fund's
inception in December 1996, and has been at J.P. Morgan since 1985. Prior to
managing this fund, Ms. Banet managed tax aware accounts and helped develop
Morgan's tax aware equity process. Ms. Sclafani has been at J.P. Morgan since
1994. Prior to managing this fund, Ms. Sclafani was an equity analyst and
portfolio manager at Brundage, Story and Rose.
--------------------------------------------------------------------------------
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.
1 | J.P. MORGAN INSTITUTIONAL TAX AWARE U.S. EQUITY FUND
<PAGE>
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PERFORMANCE OF A RELATED FUND(unaudited)
Shares of the fund have not previously been offered. Accordingly, the bar chart
and table shown below provide some indication of the risks of investing in the
fund because returns reflect performance of the J.P. Morgan Tax Aware U.S.
Equity Fund (Select shares), a related class of shares.
The bar chart indicates some of the risks by showing changes in the performance
of the Select shares from year to year for each of the Select shares' last 3
calendar years.
The table indicates some of the risks by showing how the Select shares average
annual returns for the past year and the life of the fund compare to those of
the S&P 500 Index. This is a widely recognized, unmanaged index of U.S. stocks
used as a measure of overall U.S. stock performance.
The Select shares past performance does not necessarily indicate how they or the
Institutional shares will perform in the future.
Year-by-year total return (%)Shows changes in returns by calendar year(1,2)
--------------------------------------------------------------------------------
1997 1998 1999
40%
30.32 31.18
20% 18.31
0%
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[ ] J.P. Morgan Tax Aware U.S. Equity Fund (Select shares)
The Select shares year-to-date total return as of 6/30/00 was 0.05%. For the
period covered by this year-by-year total return chart, the Select shares'
highest quarterly return was 21.64% (for the quarter ended 12/31/98) and the
lowest quarterly return was -8.86% (for the quarter ended 9/30/98).
<TABLE>
<CAPTION>
Average annual total return (%) Shows performance over time, for periods ended December 31, 1999(1)
-----------------------------------------------------------------------------------------------------------
Past 1 yr. Life of fund
<S> <C> <C>
J.P. Morgan Tax Aware U.S. Equity Fund (Select shares) (after expenses) 18.31 26.46
-----------------------------------------------------------------------------------------------------------
S&P 500 Index (no expenses) 21.04 27.56
-----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
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INVESTOR EXPENSES
The estimated expenses of the fund before and after 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 (%)
(expenses that are deducted from fund assets)
Management fees 0.45
Distribution (Rule 12b-1) fees none
Other expenses 0.26
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Total operating expenses 0.71
Fee waiver and expense
reimbursement(3) (0.01)
--------------------------------------------------------------------------------
Net expenses(3) 0.70
--------------------------------------------------------------------------------
Expense example(3)
--------------------------------------------------------------------------------
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:
$10,000 initial investment, 5% return each year, net expenses for the period
8/1/00 through 2/28/02 and total operating expenses thereafter, and all shares
sold at the end of each time period. The example is for comparison only; the
fund's actual return and your actual costs may be higher or lower.
--------------------------------------------------------------------------------
1 yr. 3 yrs.
Your cost($) 72 226
--------------------------------------------------------------------------------
(1) The The J.P. Morgan Tax Aware U.S. Equity Fund (Select shares) commenced
operations on 12/18/96, and returns reflect performance of the fund from
12/31/96.
(2) The fund's fiscal year end is 10/31.
(3) Reflects an agreement dated 8/1/00 by Morgan Guaranty Trust Company of New
York, an affiliate of J.P. Morgan, to reimburse the fund to the extent
expenses (excluding extraordinary expenses) exceed 0.70% of the fund's
average daily net assets through 2/28/02.
J.P. MORGAN INSTITUTIONAL TAX AWARE U.S. EQUITY FUND | 2
<PAGE>
U.S. EQUITY 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 approximately 420 analysts and portfolio
managers around the world and has approximately $369 billion in assets under
management, including assets managed by the funds' advisor, J.P. Morgan
Investment Management Inc.
J.P. MORGAN INSTITUTIONAL U.S. EQUITY FUND
The fund invests primarily in U.S. stocks directly. 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
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The fund is designed for investors who:
o are pursuing a long-term goal such as retirement
o want to add an investment with growth potential to further diversify a
portfolio
o want a fund that seeks to outperform the markets in which it invests over the
long term
o are individuals that could benefit from a strategy that pursues returns from
an after-tax perspective
The fund is not designed for investors who:
o want a fund that pursues market trends or focuses only on particular
industries or sectors
o require regular income or stability of principal
o are pursuing a short-term goal or investing emergency reserves
o are investing through a tax-deferred account such as an IRA.
3 | U.S. EQUITY MANAGEMENT APPROACH
<PAGE>
[GRAPHIC OMITTED]
J.P. Morgan analysts develop proprietary
fundamental research
[GRAPHIC OMITTED]
Stocks in each industry are ranked
with the help of models
[GRAPHIC OMITTED]
Using research and valuations,
the fund's management team
chooses stocks for the fund
<PAGE>
U.S. EQUITY INVESTMENT PROCESS
The J.P. Morgan U.S. equity funds invest primarily in U.S. stocks. The Tax Aware
Fund does so while seeking to enhance after-tax returns.
While the fund follows its own strategy, the fund has a single investment
philosophy. This philosophy, developed by the fund's advisor, focuses on stock
picking while largely avoiding sector or market-timing strategies.
In managing the fund, J.P. Morgan employs a three-step process:
Research J.P. Morgan takes an in-depth look at company prospects over a
relatively long period -- often as much as five years -- rather than focusing on
near-term expectations. This approach is designed to provide insight into a
company's real growth potential. J.P. Morgan's in-house research is developed by
an extensive worldwide network of over 125 career equity analysts. The team of
analysts dedicated to U.S. equities includes more than 20 members, with an
average of over ten years of experience.
Valuation The research findings allow J.P. Morgan to rank the companies in each
industry group according to their relative value. The greater a company's
estimated worth compared to the current market price of its stock, the more
undervalued the company. The valuation rankings are produced with the help of a
variety of models that quantify the research team's findings.
Stock selection The fund buys and sells stocks according to its own policies,
using the research and valuation rankings as a basis. In general, the management
team buys stocks that are identified as undervalued and considers selling them
when they appear overvalued. Along with attractive valuation, the fund's
managers often consider a number of other criteria:
o catalysts that could trigger a rise in a stock's price
o high potential reward compared to potential risk
o temporary mispricings caused by market overreactions
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TAX AWARE INVESTING AT J.P. MORGAN
The J.P. Morgan Institutional Tax Aware U.S. Equity 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 J.P. Morgan Institutional Tax Aware U.S. Equity 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.
U.S. EQUITY MANAGEMENT APPROACH | 4
<PAGE>
YOUR INVESTMENT
--------------------------------------------------------------------------------
For your convenience, the fund offers several ways to start and add to fund
investments.
INVESTING THROUGH A FINANCIAL PROFESSIONAL
If you work with a financial professional, either at J.P. Morgan or elsewhere,
he or she is prepared to handle your planning and transaction needs. Your
financial professional will be able to assist you in establishing your fund
account, executing transactions, and monitoring your investment. If your fund
investment is not held in the name of your financial professional and you prefer
to place a transaction order yourself, please use the instructions for investing
directly.
INVESTING THROUGH AN EMPLOYER-SPONSORED RETIREMENT PLAN
Your fund investments are handled through your plan. Refer to your plan
materials or contact your benefits office for information on buying, selling, or
exchanging fund shares.
INVESTING THROUGH AN IRA OR ROLLOVER IRA
Please contact a J.P. Morgan Retirement 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:
o Determine the amount you are investing. The minimum amount for initial
investment is $3,000,000 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.
o Complete the application, indicating how much of your investment you want to
allocate to which fund(s). Please apply now for any account privileges you
may want to use in the future, in order to avoid the delays associated with
adding them later on.
o Mail in your application, making your initial investment as shown on the
right.
For answers to any questions, please speak with a J.P. Morgan Funds Services
Representative at 1-800-766-7722.
<PAGE>
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:
Morgan Guaranty Trust Company of New York-Delaware
Routing number: 031-100-238
Credit: J.P.M. Institutional Shareholder Services
Account number: 001-57-689
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
Institutional 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
Institutional Funds.
o 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
o Call the Shareholder Services Agent to effect an exchange.
5 | YOUR INVESTMENT
<PAGE>
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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 cash amount, payable to the registered
owner(s), will be mailed to the address of record. For checks payable to any
other party or mailed to any other address, please make your request in
writing (see below).
In writing
o Write a letter of instruction that includes the following information: The
name of the registered owner(s) of the account; the account number; the fund
name; the amount you want to sell; and the recipient's name and address or
wire information, if different from those of the account registration.
o Indicate whether you want 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.
<PAGE>
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 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.
The fund may alter, limit, or suspend its exchange policy at any time.
Business days and NAV calculations The fund's regular business days and hours
are the same as those of the New York Stock Exchange (NYSE). 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 market quotes or pricing services. 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 on a foreign exchange after the close of trading on
that exchange that would materially impact a security's value at the time the
fund calculates its NAV), 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, as
permitted by law, and to postpone payment of proceeds for up to seven days.
--------------------------------------------------------------------------------
Shareholder Services Agent
Morgan Christiana Center
J.P. Morgan Funds Services - 2/OPS3
500 Stanton Christiana Road
Newark, DE 19713
1-800-766-7722
Representatives are available 8:00 a.m. to 6:00 p.m. eastern
time on fund business days.
YOUR INVESTMENT | 6
<PAGE>
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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 6) 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 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 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), the fund reserves the right to request that you buy more shares or
close your account. If your account balance is still below the minimum 60 days
after notification, the fund reserves the right to close out your account and
send the proceeds to the address of record.
DIVIDENDS AND DISTRIBUTIONS
The fund typically pays income dividends four times a year and makes capital
gains distributions, if any, once per year. However, the fund may make more or
fewer payments in a given year, depending on its investment results and its tax
compliance situation. 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 Institutional Fund.
<PAGE>
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TAX CONSIDERATIONS
In general, selling shares for cash, exchanging shares, and receiving
distributions (whether reinvested or taken in cash) are all taxable events.
These transactions typically create the following tax liabilities for taxable
accounts:
--------------------------------------------------------------------------------
Transaction Tax status
--------------------------------------------------------------------------------
Income dividends Ordinary income
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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, 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.
7 | YOUR INVESTMENT
<PAGE>
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
1-800-766-7722. 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 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, along with
J.P. Morgan, 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 0.45% of the fund's average
net assets
--------------------------------------------------------------------------------
Administrative services Fund's pro-rata portion of
(fee shared with Funds 0.09% of the first $7 billion
Distributor, Inc.) of average net assets in J.P.
Morgan-advised portfo- lios, plus
0.04% of average net assets over
$7 billion
--------------------------------------------------------------------------------
Shareholder services 0.10% 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 | 8
<PAGE>
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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 certain funds manage
risk.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
Potential risks Potential rewards Policies to balance risk and
reward
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Market conditions
o The fund's share price and o Stocks have generally o Under normal circumstances the
fund plans 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. and
movements and cash equivalents) over foreign common stocks,
convertible securities,
the long term preferred stocks, trust or
partnership
o Adverse market conditions interests, warrants, rights,
and investment
may from time to time cause company
securities
the fund to take
temporary
defensive positions that are o The fund seeks to limit risk
through
inconsistent with its
diversification
principal
investment
strategies and may hinder a o During severe market downturns,
the fund has the
fund from achieving its option of investing up to 100%
of assets in
investment objective investment-grade short-term
securities
-----------------------------------------------------------------------------------------------------------------------------------
Management choices
o The fund could underperform o The fund could outperform o J.P. Morgan focuses its active
management on
its benchmark due to its its benchmark due to these securities selection, the area
where it believes
securities and asset same choices its commitment to research can
most enhance
allocation choices
returns
-----------------------------------------------------------------------------------------------------------------------------------
Foreign investments
o Currency exchange rate o Favorable exchange rate o The fund anticipates that its
total foreign
movements could reduce gains movements could generate investments will not exceed 20%
of assets
or create losses gains or reduce
losses
o The fund actively manages the
currency exposure
o The fund could lose money o Foreign investments, which of its foreign investments
relative to its
because of foreign represent a major portion of benchmark, and may hedge back
into the U.S.
government actions, the world's securities, dollar from time to time (see
also
political instability, or offer attractive potential
"Derivatives")
lack of adequate and performance and
accurate information opportunities for
diversification
-----------------------------------------------------------------------------------------------------------------------------------
When-issued and delayed
delivery securities
o When the fund buys o The fund can take advantage o The fund uses segregated
accounts to offset
securities before issue or of attractive transaction leverage
risk
for delayed delivery, it opportunities
could be exposed to leverage
risk if it does not use
segregated accounts
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Short-term trading
o Increased trading would o The fund could realize gains o The fund generally avoids
short-term trading,
raise the fund's brokerage in a short period of time except to take advantage of
attractive or
and related costs unexpected opportunities or to
meet demands
o The fund could protect generated by shareholder
activity. The portfolio
o Increased short-term capital against losses if a stock is turnover rate for the Select
shares of the fund
gains distributions would overvalued and its value for the fiscal year ended
10/31/99 was 29%.
raise shareholders' income later falls
tax liability
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
9 | FUND DETAILS
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
Potential risks Potential rewards Policies to balance risk and
reward
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Derivatives
o Derivatives such as futures, o Hedges that correlate well o The fund uses derivatives for
hedging and for
options, swaps, and forward with underlying positions risk management (i.e., to
establish or adjust
foreign currency contracts can reduce or eliminate exposure to particular
securities, markets or
that are used for hedging losses at low cost currencies); risk management
may include
the portfolio or specific management of the fund's
exposure relative to
securities may not fully o The fund could make money its
benchmark
offset the underlying and protect against
losses
positions1 and this could if management's analysis o The fund only establishes
hedges that it expects
result in losses to the fund proves correct will be highly correlated with
underlying
that would not have
positions
otherwise occurred o Derivatives that
involve
leverage could generate o While the fund may use
derivatives that
o Derivatives used for risk substantial gains at low incidentally involve leverage,
it does not use
management may not have the cost them for the specific purpose
of leveraging its
intended effects and may
portfolio
result in losses or missed
opportunities
o The counterparty to a
derivatives contract could
default
o Derivatives that involve
leverage could magnify
losses
o Certain types of derivatives
involve costs to the fund
which can reduce returns
-----------------------------------------------------------------------------------------------------------------------------------
Securities lending
o When the fund lends a o The fund may enhance income o J.P. Morgan maintains a list of
approved
security, there is a risk through the investment of
borrowers
that the loaned securities the collateral received
from
may not be returned if the the borrower o The fund receives collateral
equal to at least
borrower defaults 100% of the current value of
securities loaned
o The collateral will be o The lending agents indemnify a
fund against
subject to the risks of the borrower
default
securities in 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
-----------------------------------------------------------------------------------------------------------------------------------
Illiquid holdings
o The fund could have o These holdings may offer o The fund may not invest more
than 15% of net
difficulty valuing these more attractive yields or assets in illiquid
holdings
holdings precisely potential growth
than
comparable widely traded o To maintain adequate liquidity
to meet
o The fund could be unable to securities redemptions, the fund may hold
investment-grade
sell these holdings at the short-term securities
(including repurchase
time or price it desires agreements and reverse
repurchase agreements)
and, for temporary or
extraordinary purposes,
may borrow from banks up to 33
1/3% of the value
of its total
assets
-----------------------------------------------------------------------------------------------------------------------------------
</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 changes in the value of a securities index. An option is the right
to buy or sell a set quantity of an underlying instrument at a
pre-determined price. A swap is a privately negotiated agreement to exchange
one stream of payments for another. A forward foreign currency contract is
an obligation to buy or sell a given currency on a future date and at a set
price.
FUND DETAILS | 10
<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, along with other information
about the funds, may be obtained by contacting:
J.P. Morgan Funds
Morgan Christiana Center
J.P. Morgan Funds Services - 2/OPS3
500 Stanton Christiana Road
Newark, DE 19713
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, upon
payment of a duplicating fee, from the Public Reference Room of the Securities
and Exchange Commission in Washington, D.C. (1-202-942-8090) 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 MUTUAL FUNDS AND THE MORGAN TRADITION
J.P. Morgan mutual funds combine a heritage of integrity and financial
leadership with comprehensive, sophisticated analysis and techniques. Drawing on
J.P. Morgan's extensive experience and depth as an investment manager, J.P.
Morgan mutual funds offer a broad array of distinctive opportunities for mutual
fund investors.
JPMorgan
--------------------------------------------------------------------------------
J.P. Morgan Series Trust
Advisor Distributor
J.P. Morgan Investment Management Inc. Funds Distributor, Inc.
522 Fifth Avenue 60 State Street
New York, NY 10036 Boston, MA 02109
1-800-766-7722 1-800-221-7930
<PAGE>
Part B
PAGE>
J.P. MORGAN SERIES TRUST
J.P. MORGAN TAX AWARE DISCIPLINED EQUITY FUND
(INSTITUTIONAL SHARES)
J.P. MORGAN TAX AWARE U.S. EQUITY
(INSTITUTIONAL AND SELECT SHARES)
STATEMENT OF ADDITIONAL INFORMATION
AUGUST 1, 2000
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS BUT CONTAINS
ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUSES
DATED MARCH 1, 2000 FOR THE J.P. MORGAN TAX AWARE DISCIPLINED EQUITY FUND:
INSTITUTIONAL SHARES AND THE J.P. MORGAN U.S. EQUITY FUND: SELECT SHARES, AND
THE PROSPECTUS DATED AUGUST 1, 2000 FOR THE J.P. MORGAN TAX AWARE U.S. EQUITY
FUND: INSTITUTIONAL SHARES, AS SUPPLEMENTED FROM TIME TO TIME. ADDITIONALLY,
THIS STATEMENT OF ADDITIONAL INFORMATION INCORPORATES BY REFERENCE THE MORST
RECENT ANNUAL AND SEMI-ANNUAL FINANCIAL STATEMENTS RELATING TO J.P. MORGAN TAX
AWARE DISCIPLINED EQUITY FUND: INSTITUTIONAL SHARES AND J.P. MORGAN TAX AWARE
U.S. EUQITY FUND: SELECT SHARES, INCLUDING THE INDEPENDENT ACCOUNTANTS' REPORT
IN THE ANNUAL FINANCIAL STATEMENTS, THESE FINANCIAL STATEMENTS ARE AVAILABLE,
WITHOUT CHARGE, UPON REQUEST FROM FUNDS DISTRIBUTOR, INC., 60 STATE STREET,
SUITE 1300, BOSTON, MASSACHUSETTS 02109, ATTENTION: J.P. MORGAN SERIES TRUST
(800) 221-7930.
Table of Contents
Page
GENERAL...................................................................1
INVESTMENT OBJECTIVES AND POLICIES........................................1
INVESTMENT RESTRICTIONS..................................................16
TRUSTEES, MEMBERS OF THE ADVISORY BOARD AND OFFICERS.....................18
CODE OF ETHICS...........................................................23
INVESTMENT ADVISOR.......................................................23
DISTRIBUTOR..............................................................25
CO-ADMINISTRATOR.........................................................26
SERVICES AGENT...........................................................27
CUSTODIAN AND TRANSFER AGENT.............................................27
SHAREHOLDER SERVICING....................................................28
INDEPENDENT ACCOUNTANTS..................................................29
EXPENSES.................................................................29
PURCHASE OF SHARES.......................................................30
REDEMPTION OF SHARES.....................................................31
EXCHANGE OF SHARES.......................................................32
DIVIDENDS AND DISTRIBUTIONS..............................................33
NET ASSET VALUE..........................................................33
PERFORMANCE DATA.........................................................34
PORTFOLIO TRANSACTIONS...................................................36
DESCRIPTION OF SHARES....................................................38
TAXES....................................................................39
ADDITIONAL INFORMATION...................................................43
FINANCIAL STATEMENTS.....................................................44
APPENDIX A - Description of Security Ratings
<PAGE>
Each of J.P. Morgan Tax Aware Disciplined Equity Fund (the "Disciplined
Equity Fund") and J.P. Morgan Tax Aware U.S. Equity Fund (the " U.S. Equity
Fund", and together with the Disciplined Equity Fund, the "Funds") is a series
of J.P. Morgan Series Trust, an open-end management investment company organized
as a Massachusetts business trust (the "Trust"). The Trustees of the Trust have
authorized the issuance and sale of shares of one class of the Disciplined
Equity Fund (Institutional Shares) and two classes of the U.S. Equity Fund
(Select Shares and Institutional Shares).
This Statement of Additional Information provides additional
information with respect to the Funds and should be read in conjunction with the
applicable current prospectus (the "Prospectus"). Capitalized terms not
otherwise defined herein have the meanings assigned to them in the Prospectus.
The Trust's executive offices are located at 60 State Street, Suite 1300,
Boston, Massachusetts 02109.
The Funds are advised by J.P. Morgan Investment Management Inc. ("JPMIM" or
the "Advisor").
Shares of the Funds are not deposits or obligations of, or guaranteed
or endorsed by any bank. Shares of the Funds are not federally insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other
governmental agency. An investment in the Funds is subject to risk that may
cause the value of the investment to fluctuate, and at the time it is redeemed,
be higher or lower than the amount originally invested.
INVESTMENT OBJECTIVES AND POLICIES
The following discussion supplements the information in the Prospectus
regarding the investment objective and policies of each Fund.
Tax Aware Disciplined Equity Fund is designed for investors seeking
enhanced total return relative to that of large and medium sized companies,
typically represented by the S&P 500 Index. The Disciplined Equity Fund's
investment objective is to provide a consistently high after tax total return
from a broadly diversified portfolio of selected equity securities with risk
characteristics similar to the S&P 500 Index. This investment objective can be
changed without shareholder approval.
The Disciplined Equity Fund invests primarily in large- and
medium-capitalization U.S. companies. Industry by industry, the Fund's
weightings are similar to those of the S&P 500. The Fund does not look to
overweight or underweight industries.
Investment Process for the Tax Aware Disciplined Equity Fund
Research: The Advisor's more than 20 domestic equity analysts, each an
industry specialist with an average of over 10 years of experience, follow
approximately 600 medium and large capitalization U.S. companies. Their research
goal is to forecast intermediate-term earnings and prospective dividend growth
rates for the companies that they cover.
Valuation: The analysts' forecasts are converted into comparable
expected returns using a proprietary dividend discount model, which calculates
the intermediate-term earnings by comparing a company's current stock price with
its forecasted dividends and earnings. Within each sector, companies are ranked
according to their relative value and grouped into quintiles: those with the
highest expected returns (Quintile 1) are deemed the most undervalued relative
to their long-term earnings power, while those with the lowest expected returns
(Quintile 5) are deemed the most overvalued.
Stock Selection: A broadly diversified portfolio is constructed using
disciplined buy and sell rules. Purchases are allocated among stocks in the
first three quintiles. Once a stock falls into the fourth and fifth quintiles
either because its price has risen or its fundamentals have deteriorated -- it
generally becomes a candidate for sale. The Disciplined Equity Fund's sector
weightings are matched to those of the S&P 500 Index, the Fund's benchmark. The
Advisor also controls the Disciplined Equity Fund's exposure to style and theme
bets and maintains near-market security weightings in individual security
holdings. This process results in an investment portfolio containing
approximately 300 stocks.
Tax Aware U.S. Equity Fund is designed for investors who want an
actively managed portfolio of selected equity securities that seeks to
outperform the S&P 500 Index. The U.S. Equity Fund's investment objective is to
provide high after tax total return from a portfolio of selected equity
securities. This investment objective can be changed without shareholder
approval.
Under normal circumstances, the U.S. Equity Fund expects to be fully
invested in equity securities consisting of U.S. and foreign common stocks and
other securities with equity characteristics which are comprised of preferred
stock, warrants, rights, convertible securities, trust certifications, limited
partnership interests and investment company securities (collectively, "Equity
Securities"). The U.S. Equity Fund's primary equity investments are the common
stock of large- and medium-capitalization U.S.corporations and, to a limited
extent, similar securities of foreign corporations.
Investment Process for the Tax Aware U.S. Equity Fund
Research: The Advisor's more than 20 domestic equity analysts, each an
industry specialist with an average of over 10 years of experience, follow
approximately 700 predominantly large- and medium-sized U.S. companies --
approximately 500 of which form the universe for the U.S. Equity Fund's
investments. Their research goal is to forecast normalized, longer term earnings
and dividends for the companies that they cover. In doing this, they may work in
concert with the Advisor's international equity analysts in order to gain a
broader perspective for evaluating industries and companies in today's global
economy.
Valuation: The analysts' forecasts are converted into comparable
expected returns using a proprietary dividend discount model, which calculates
the long-term earnings by comparing a company's current stock price with its
forecasted dividends and earnings. Within each sector, companies are ranked
according to their relative value and grouped into quintiles: those with the
highest expected returns (Quintile 1) are deemed the most undervalued relative
to their long-term earnings power, while those with the lowest expected returns
(Quintile 5) are deemed the most overvalued.
Stock Selection: A diversified portfolio is constructed using
disciplined buy and sell rules. Purchases are concentrated among first-quintile
stocks; the specific names selected reflect the portfolio manager's judgment
concerning the soundness of the underlying forecasts, the likelihood that the
perceived misvaluation will be corrected within a reasonable time frame, and the
magnitude of the risks versus the rewards. Once a stock falls into the third
quintile -- because its price has risen or its fundamentals have deteriorated --
it generally becomes a candidate for sale. The portfolio manager seeks to hold
sector weightings close to those of the S&P 500 Index, the U.S. Equity Fund's
benchmark.
Tax Management Techniques
The Funds use the Advisor's proprietary tax sensitive optimization
model which is designed to reduce, but not eliminate, the impact of capital
gains taxes on shareholders' after tax total returns. Each Fund will try to
minimize the realization of net short-term and long-term capital gains by
matching securities sold at a gain with those sold at a loss to the extent
practicable. In addition, when selling a portfolio security, each Fund will
generally select the highest cost basis shares of the security to reduce the
amount of realized capital gains. Because the gain on securities that have been
held for more than one year is subject to a lower federal income tax rate, these
securities will generally be sold before securities held less than one year. The
use of these tax management techniques will not necessarily reduce a Fund's
portfolio turnover rate or prevent the Funds from selling securities to the
extent warranted by shareholder transactions, actual or anticipated economic,
market or issuer-specific developments or other investment considerations.
However, the annual portfolio turnover rate of each Fund is generally not
expected to exceed 100%.
The various types of securities in which the Funds may invest are
described below.
Equity Investments
The Funds invest primarily in Equity Securities consisting of
exchange-traded, OTC and unlisted common and preferred stocks. A discussion of
the various types of equity investments which may be purchased by the Funds
appears below. See also "Quality and Diversification Requirements."
Equity Securities. The Equity Securities in which the Funds may invest may
or may not pay dividends and may or may not carry voting rights. Common stock
occupies the most junior position in a company's capital structure.
The convertible securities in which the Funds may invest include any
debt securities or preferred stock which may be converted into common stock or
which carry the right to purchase common stock. Convertible securities entitle
the holder to exchange the securities for a specified number of shares of common
stock, usually of the same company, at specified prices within a certain period
of time.
The terms of any convertible security determine its ranking in a
company's capital structure. In the case of subordinated convertible debentures,
the holders' claims on assets and earnings are subordinated to the claims of
other creditors and are senior to the claims of preferred and common
shareholders. In the case of convertible preferred stock, the holders' claims on
assets and earnings are subordinated to the claims of all creditors and are
senior to the claims of common shareholders.
Common Stock Warrants
The Funds may invest in common stock warrants that entitle the holder
to buy common stock from the issuer at a specific price (the strike price) for a
specific period of time. The market price of warrants may be substantially lower
than the current market price of the underlying common stock, yet warrants are
subject to similar price fluctuations. As a result, warrants may be more
volatile investments than the underlying common stock.
Warrants generally do not entitle the holder to dividends or voting
rights with respect to the underlying common stock and do not represent any
rights in the assets of the issuer company. A warrant will expire worthless if
it is not exercised prior to the expiration date.
Foreign Investments
Each of the Funds may invest up to 20% of their respective total
assets, at the time of purchase, in securities of foreign issuers. This 20%
limit is designed to accommodate the increased globalization of companies as
well as the re-domiciling of companies for tax treatment purposes. It is not
currently expected to be used to increase direct non-U.S. exposure.
Investors should realize that the value of the Funds' investments in
foreign securities may be adversely affected by changes in political or social
conditions, diplomatic relations, confiscatory taxation, expropriation,
nationalization, limitation on the removal of funds or assets, or imposition of
(or change in) exchange control or tax regulations in those foreign countries.
In addition, changes in government administrations or economic or monetary
policies in the United States or abroad could result in appreciation or
depreciation of portfolio securities and could favorably or unfavorably affect
the Funds' operations. Furthermore, the economies of individual foreign nations
may differ from the U.S. economy, whether favorably or unfavorably, in areas
such as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position; it may
also be more difficult to obtain and enforce a judgment against a foreign
issuer. Any foreign investments made by the Funds must be made in compliance
with U.S. and foreign currency restrictions and tax laws restricting the amounts
and types of foreign investments.
Foreign investments may be made directly in securities of foreign
issuers or in the form of American Depository Receipts ("ADRs"), European
Depository Receipts ("EDRs") and Global Depository Receipts ("GDRs") or other
similar securities of foreign issuers. ADRs are securities, typically issued by
a U.S. financial institution (a "depository"), that evidence ownership interests
in a security or a pool of securities issued by a foreign issuer and deposited
with the depository. ADRs include American Depository Shares and New York
Shares. EDRs are receipts issued by a European financial institution. GDRs,
which are sometimes referred to as Continental Depository Receipts ("CDRs"), are
securities, typically issued by a non-U.S. financial institution, that evidence
ownership interests in a security or a pool of securities issued by either a
U.S. or foreign issuer. ADRs, EDRs, GDRs and CDRs may be available for
investment through "sponsored" or "unsponsored" facilities. A sponsored facility
is established jointly by the issuer of the security underlying the receipt and
a depository, whereas an unsponsored facility may be established by a depository
without participation by the issuer of the receipt's underlying security.
Holders of an unsponsored depository receipt generally bear all costs
of the unsponsored facility. The depository of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited security or to pass through to the
holders of the receipts voting rights with respect to the deposited securities.
Since investments in foreign securities may involve foreign currencies,
the value of a Fund's assets as measured in U.S. dollars may be affected
favorably or unfavorably by changes in currency rates and in exchange control
regulations, including currency blockage.
Additional Investments
When-Issued and Delayed Delivery Securities. Each of the Funds may
purchase securities on a when-issued or delayed delivery basis. For example,
delivery of and payment for these securities can take place a month or more
after the date of the purchase commitment. The purchase price and the interest
rate payable, if any, on the securities are fixed on the purchase commitment
date or at the time the settlement date is fixed. The value of such securities
is subject to market fluctuation and no interest accrues to a Fund until
settlement takes place. At the time a Fund makes the commitment to purchase
securities on a when-issued or delayed delivery basis, it will record the
transaction and reflect the value each day of such securities in determining its
net asset value. At the time of settlement a when-issued security may be valued
at less than the purchase price. To facilitate such acquisitions, each Fund will
maintain with the custodian a segregated account with liquid assets, consisting
of cash or other liquid assets, in an amount at least equal to such commitments.
If a Fund chooses to dispose of the right to acquire a when-issued security
prior to its acquisition, it could, as with the disposition of any other fund
obligation, incur a gain or loss due to market fluctuation. Also, a Fund may be
disadvantaged if the other party to the transaction defaults.
Investment Company Securities. Securities of other investment companies
may be acquired by each of the Funds to the extent permitted under the 1940 Act
or any order pursuant thereto. These limits currently require that, as
determined immediately after a purchase is made, (i) not more than 5% of the
value of a Fund's total assets will be invested in the securities of any one
investment company, (ii) not more than 10% of the value of its total assets will
be invested in the aggregate in securities of investment companies as a group,
and (iii) not more than 3% of the outstanding voting stock of any one investment
company will be owned by the a Fund, provided however, that a Fund may invest
all of its investable assets in an open-end investment company that has the same
investment objective as the Fund. As a shareholder of another investment
company, a Fund or Portfolio would bear, along with other shareholders, its pro
rata portion of the other investment company's expenses, including advisory
fees. These expenses would be in addition to the advisory and other expenses
that a Fund bears directly in connection with its own operations.
The Securities and Exchange Commission ("SEC") has granted the Funds an
exemptive order permitting it to invest its uninvested cash in any of the
following affiliated money market funds: J.P. Morgan Institutional Prime Money
Market Fund, J.P. Morgan Institutional Tax Exempt Money Market Fund, J.P. Morgan
Institutional Federal Money Market Fund and J.P. Morgan Institutional Treasury
Money Market Fund. The order sets the following conditions: (1) the Fund may
invest in one or more of the permitted money market funds up to an aggregate
limit of 25% of its assets; and (2) the Advisor will waive and/or reimburse its
advisory fee from the Fund in an amount sufficient to offset any doubling up of
investment advisory and shareholder servicing fees.
Reverse Repurchase Agreements. Each of the Funds may enter into reverse
repurchase agreements. In a reverse repurchase agreement, a Fund sells a
security and agrees to repurchase the same security at a mutually agreed upon
date and price reflecting the interest rate effective for the term of the
agreement. For purposes of the 1940 Act a reverse repurchase agreement is also
considered as the borrowing of money by the Fund and, therefore, a form of
leverage. Leverage may cause any gains or losses for a Fund to be magnified. The
Funds will invest the proceeds of borrowings under reverse repurchase
agreements. In addition, except for liquidity purposes, a Fund will enter into a
reverse repurchase agreement only when the expected return from the investment
of the proceeds is greater than the expense of the transaction. A Fund will not
invest the proceeds of a reverse repurchase agreement for a period which exceeds
the duration of the reverse repurchase agreement. Each Fund will establish and
maintain with the custodian a separate account with a segregated portfolio of
securities in an amount at least equal to its purchase obligations under its
reverse repurchase agreements. All forms of borrowing (including reverse
repurchase agreement) are limited in the aggregate must not exceed 33-1/3??% of
the fund's total assets. See "Investment Restrictions."
Loans of Portfolio Securities. Each Fund is permitted to lend its
securities if such loans are secured continuously by cash or equivalent
collateral or by a letter of credit in favor of the Fund at least equal at all
times to 100% of the market value of the securities loaned, plus accrued
interest. While such securities are on loan, the borrower will pay the Fund any
income accruing thereon. Loans will be subject to termination by the Funds in
the normal settlement time, generally three business days after notice, or by
the borrower on one day's notice. Borrowed securities must be returned when the
loan is terminated. Any gain or loss in the market price of the borrowed
securities which occurs during the term of the loan inures to a Fund and its
respective shareholders. The Funds may pay reasonable finders' and custodial
fees in connection with a loan. In addition, a Fund will consider all facts and
circumstances before entering into such an agreement including the
creditworthiness of the borrowing financial institution, and no Fund will make
any loans in excess of one year. The Funds will not lend their securities to any
officer, Trustee, Member of the Advisory Board, Director, employee or other
affiliate of the Funds, the Advisor or the Funds' distributor, unless otherwise
permitted by applicable law. All forms of borrowing (including reverse
repurchase agreement) are limited in the aggregate must not exceed 33-1/3??% of
the fund's total assets.
Illiquid Investments; Privately Placed and Other Unregistered
Securities. No Fund may acquire any illiquid securities if, as a result thereof,
more than 15% of its net assets would be in illiquid investments. Subject to
this non-fundamental policy limitation, each Fund may acquire investments that
are illiquid or have limited liquidity, such as private placements or
investments that are not registered under the Securities Act of 1933, as amended
(the "1933 Act"), and cannot be offered for public sale in the United States
without first being registered under the 1933 Act. An illiquid investment is any
investment that cannot be disposed of within seven days in the normal course of
business at approximately the amount at which it is valued by a Fund. The price
a Fund pays for illiquid securities or receives upon resale may be lower than
the price paid or received for similar securities with a more liquid market.
Accordingly the valuation of these securities will reflect any limitations on
their liquidity.
As to illiquid investments, these restricted holdings are subject to
the risk that the Fund will not be able to sell them at a price the Fund deems
representative of their value. If a restricted holding must be registered under
the Securities Act of 1933, as amended (the "1933 Act"), before it may be sold,
a Fund may be obligated to pay all or part of the registration expenses. Also, a
considerable period may elapse between the time of the decision to sell and the
time the Fund is permitted to sell a holding under an effective registration
statement. If, during such a period, adverse market conditions were to develop,
a Fund might obtain a less favorable price than prevailed when it decided to
sell.
Money Market Instruments
Although the Funds intend, under normal circumstances and to the extent
practicable, to be fully invested in equity securities, each Fund may invest in
money market instruments to the extent consistent with its investment objective
and policies. The Funds may invest in money market instruments to invest
temporary cash balances, to maintain liquidity to meet redemptions or as a
defensive measure during, or in anticipation of, adverse market conditions. A
description of the various types of money market instruments that may be
purchased by the Funds appears below. See "Quality and Diversification
Requirements."
U.S. Treasury Securities. Each of the Funds may invest in direct
obligations of the U.S. Treasury, including Treasury bills, notes and bonds, all
of which are backed as to principal and interest payments by the full faith and
credit of the United States.
Additional U.S. Government Obligations. Each of the Funds may invest in
obligations issued or guaranteed by U.S. Government agencies or
instrumentalities. These obligations may or may not be backed by the "full faith
and credit" of the United States. Securities which are backed by the full faith
and credit of the United States include obligations of the Government National
Mortgage Association, the Farmers Home Administration, and the Export-Import
Bank. In the case of securities not backed by the full faith and credit of the
United States, each Fund must look principally to the federal agency issuing or
guaranteeing the obligation for ultimate repayment and may not be able to assert
a claim against the United States itself in the event the agency or
instrumentality does not meet its commitments. Securities in which each Fund may
invest that are not backed by the full faith and credit of the United States
include, but are not limited to: (i) obligations of the Tennessee Valley
Authority, the Federal Home Loan Mortgage Corporation, the Federal Home Loan
Banks and the U.S. Postal Service, each of which has the right to borrow from
the U.S. Treasury to meet its obligations; (ii) securities issued by the Federal
National Mortgage Association, which are supported by the discretionary
authority of the U.S. Government to purchase the agency's obligations; and (iii)
obligations of the Federal Farm Credit System and the Student Loan Marketing
Association, each of whose obligations may be satisfied only by the individual
credits of the issuing agency.
Bank Obligations. Unless otherwise noted below, each of the Funds may
invest in negotiable certificates of deposit, time deposits and bankers'
acceptances of (i) banks, savings and loan associations and savings banks which
have more than $2 billion in total assets and are organized under the laws of
the United States or any state, (ii) foreign branches of these banks or of
foreign banks of equivalent size (Euros) and (iii) U.S. branches of foreign
banks of equivalent size (Yankees). The Funds will not invest in obligations for
which the Advisor, or any of its affiliated persons, is the ultimate obligor or
accepting bank. Each of the Funds may also invest in obligations of
international banking institutions designated or supported by national
governments to promote economic reconstruction, development or trade between
nations (e.g., the European Investment Bank, the Inter-American Development
Bank, or the World Bank).
Commercial Paper. Each of the Funds may invest in commercial paper,
including master demand obligations. Master demand obligations are obligations
that provide for a periodic adjustment in the interest rate paid and permit
daily changes in the amount borrowed. Master demand obligations are governed by
agreements between the issuer and Morgan Guaranty Trust Company of New York
("Morgan"), an affiliate acting as agent, for no additional fee. The monies
loaned to the borrower come from accounts managed by Morgan or its affiliates,
pursuant to arrangements with such accounts. Interest and principal payments are
credited to such accounts. Morgan, an affiliate of the Advisor, has the right to
increase or decrease the amount provided to the borrower under an obligation.
The borrower has the right to pay without penalty all or any part of the
principal amount then outstanding on an obligation together with interest to the
date of payment. Since these obligations typically provide that the interest
rate is tied to the Federal Reserve commercial paper composite rate, the rate on
master demand obligations is subject to change. Repayment of a master demand
obligation to participating accounts depends on the ability of the borrower to
pay the accrued interest and principal of the obligation on demand, which is
continuously monitored by Morgan. Since master demand obligations typically are
not rated by credit rating agencies, the Funds may invest in such unrated
obligations only if, at the time of investment, the obligation is determined by
the Advisor to have a credit quality which satisfies the Fund's quality
restrictions. See "Quality and Diversification Requirements." Although there is
no secondary market for master demand obligations, such obligations are
considered by the Funds to be liquid because they are payable upon demand. The
Funds do not have any specific percentage limitation on investments in master
demand obligations. It is possible that the issuer of a master demand obligation
could be a client of Morgan to whom Morgan, an affiliate of the Advisor, in its
capacity as a commercial bank, has made a loan.
Repurchase Agreements. Each of the Funds may enter into repurchase
agreements with brokers, dealers or banks that meet the credit guidelines
approved by the Advisor. In a repurchase agreement, a Fund buys a security from
a seller that has agreed to repurchase the same security at a mutually agreed
upon date and price. The resale price normally is in excess of the purchase
price, reflecting an agreed upon interest rate. This interest rate is effective
for the period of time the agreement is in effect and is not related to the
coupon rate on the underlying security. A repurchase agreement may also be
viewed as a fully collateralized loan of money by a Fund to the seller. The
period of these repurchase agreements will usually be short, from overnight to
one week, and at no time will the Funds invest in repurchase agreements for more
than thirteen months. The securities which are subject to repurchase agreements,
however, may have maturity dates in excess of thirteen months from the effective
date of the repurchase agreement. The Funds will always receive securities as
collateral whose market value is, and during the entire term of the agreement
remains, at least equal to 100% of the dollar amount invested by the Funds in
each agreement plus accrued interest, and the Funds will make payment for such
securities only upon physical delivery or upon evidence of book entry transfer
to the account of the custodian. If the seller defaults, a Fund might incur a
loss if the value of the collateral securing the repurchase agreement declines
and might incur disposition costs in connection with liquidating the collateral.
In addition, if bankruptcy proceedings are commenced with respect to the seller
of the security, realization upon disposal of the collateral by a Fund may be
delayed or limited.
Quality and Diversification Requirements
Each of the Funds intends to meet the diversification requirements of
the 1940 Act. To meet these requirements, 75% of the assets of each Fund is
subject to the following fundamental limitations: (1) the Fund may not invest
more than 5% of its total assets in the securities of any one issuer, except
obligations of the U.S. Government, its agencies and instrumentalities, and (2)
the Fund may not own more than 10% of the outstanding voting securities of any
one issuer. As for the other 25% of the Fund's assets not subject to the
limitation described above, there is no limitation on investment of these assets
under the 1940 Act, so that all of such assets may be invested in securities of
any one issuer. Investments not subject to the limitations described above could
involve an increased risk to a Fund should an issuer, or a state or its related
entities, be unable to make interest or principal payments or should the market
value of such securities decline.
The Funds will also comply with the diversification requirements imposed by
the Internal Revenue Code of 1986, as amended (the "Code"), for qualification as
a regulated investment company. See "Taxes."
The Funds may invest in convertible debt securities, for which there
are no specific quality requirements. In addition, at the time a Fund invests in
any commercial paper, bank obligation or repurchase agreement, the issuer must
have outstanding debt rated A or higher by Moody's or Standard & Poor's, the
issuer's parent corporation, if any, must have outstanding commercial paper
rated Prime-1 by Moody's or A-1 by Standard & Poor's, or if no such ratings are
available, the investment must be of comparable quality in the Advisor's
opinion. At the time a Fund invests in any other short-term debt securities,
they must be rated A or higher by Moody's or Standard & Poor's, or if unrated,
the investment must be of comparable quality in the Advisor's opinion.
In determining suitability of investment in a particular unrated
security, the Advisor takes into consideration asset and debt service coverage,
the purpose of the financing, history of the issuer, existence of other rated
securities of the issuer, and other relevant conditions, such as comparability
to other issuers.
Options and Futures Transactions
Each of the Funds may (a) purchase and sell exchange traded and
over-the-counter (OTC) put and call options on equity securities or indexes of
equity securities, (b) purchase and sell futures contracts on indexes of equity
securities and (c) purchase and sell put and call options on futures contracts
on indexes of equity securities. Each of these instruments is a derivative
instrument as its value derives from the underlying asset or index.
Each Fund may use futures contracts and options for hedging and risk
management purposes. See "Risk Management" below. The Funds may not use futures
contracts and options for speculation.
Each Fund may utilize options and futures contracts to manage its
exposure to changing interest rates and/or security prices. Some options and
futures strategies, including selling futures contracts and buying puts, tend to
hedge a Fund's investments against price fluctuations. Other strategies,
including buying futures contracts, writing puts and calls, and buying calls,
tend to increase market exposure. Options and futures contracts may be combined
with each other or with forward contracts in order to adjust the risk and return
characteristics of a Fund's overall strategy in a manner deemed appropriate to
the Advisor and consistent with the Fund's objective and policies. Because
combined options positions involve multiple trades, they result in higher
transaction costs and may be more difficult to open and close out.
The use of options and futures is a highly specialized activity which
involves investment strategies and risks different from those associated with
ordinary portfolio securities transactions, and there can be no guarantee that
their use will increase a Fund's return. While the use of these instruments by a
Fund may reduce certain risks associated with owning its portfolio securities,
these techniques themselves entail certain other risks. If the Advisor applies a
strategy at an inappropriate time or judges market conditions or trends
incorrectly, options and futures strategies may lower a Fund's return. Certain
strategies limit a Fund's possibilities to realize gains as well as limiting its
exposure to losses. A Fund could also experience losses if the prices of its
options and futures positions were poorly correlated with its other investments,
or if it could not close out its positions because of an illiquid secondary
market. In addition, a Fund will incur transaction costs, including trading
commissions and option premiums, in connection with its futures and options
transactions and these transactions could significantly increase the Fund's
turnover rate.
Each Fund may purchase put and call options on securities, indexes of
securities and futures contracts, or purchase and sell futures contracts, only
if such options are written by other persons and if the aggregate premiums paid
on all such options and the aggregate margin deposits required on all such
futures or options thereon held at any time do not exceed 5% of the Fund's total
assets.
Purchasing Put and Call Options. By purchasing a put option, a Fund
obtains the right (but not the obligation) to sell the instrument underlying the
option at a fixed strike price. In return for this right, the Fund pays the
current market price for the option (known as the option premium). Options have
various types of underlying instruments, including specific securities, indexes
of securities, indexes of securities prices, and futures contracts. A Fund may
terminate its position in a put option it has purchased by allowing it to expire
or by exercising the option. A Fund may also close out a put option position by
entering into an offsetting transaction, if a liquid market exists. If the
option is allowed to expire, a Fund will lose the entire premium it paid. If a
Fund exercises a put option on a security, it will sell the instrument
underlying the option at the strike price. If a Fund exercises an option on an
index, settlement is in cash and does not involve the actual sale of securities.
If an option is American style, it may be exercised on any day up to its
expiration date. A European style option may be exercised only on its expiration
date.
The buyer of a typical put option can expect to realize a gain if the
price of the underlying instrument falls substantially. However, if the price of
the instrument underlying the option does not fall enough to offset the cost of
purchasing the option, a put buyer can expect to suffer a loss (limited to the
amount of the premium paid, plus related transaction costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the instrument underlying the option at the option's
strike price. A call buyer typically attempts to participate in potential price
increases of the instrument underlying the option with risk limited to the cost
of the option if security prices fall. At the same time, the buyer can expect to
suffer a loss if security prices do not rise sufficiently to offset the cost of
the option.
Selling (Writing) Put and Call Options. When a Fund writes a put
option, it takes the opposite side of the transaction from the option's
purchaser. In return for receipt of the premium, the Fund assumes the obligation
to pay the strike price for the instrument underlying the option if the other
party to the option chooses to exercise it. A Fund may seek to terminate its
position in a put option it writes before exercise by purchasing an offsetting
option in the market at its current price. If the market is not liquid for a put
option the Fund has written, however, the Fund must continue to be prepared to
pay the strike price while the option is outstanding, regardless of price
changes, and must continue to post margin as discussed below.
If the price of the underlying instrument rises, a put writer would
generally expect to profit, although its gain would be limited to the amount of
the premium it received. If security prices remain the same over time, it is
likely that the writer will also profit, because it should be able to close out
the option at a lower price. If security prices fall, the put writer would
expect to suffer a loss. This loss should be less than the loss from purchasing
and holding the underlying instrument directly, however, because the premium
received for writing the option should offset a portion of the decline.
Writing a call option obligates a Fund to sell or deliver the option's
underlying instrument in return for the strike price upon exercise of the
option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium a call writer offsets part of the effect of a price decline. At the same
time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is greater,
a call writer gives up some ability to participate in security price increases.
The writer of an exchange traded put or call option on a security, an
index of securities or a futures contract is required to deposit cash or
securities or a letter of credit as margin and to make mark to market payments
of variation margin as the position becomes unprofitable.
Options on Indexes. Options on securities indexes are similar to
options on securities, except that the exercise of securities index options is
settled by cash payment and does not involve the actual purchase or sale of
securities. In addition, these options are designed to reflect price
fluctuations in a group of securities or segment of the securities market rather
than price fluctuations in a single security. A Fund, in purchasing or selling
index options, is subject to the risk that the value of its portfolio securities
may not change as much as an index because the Fund's investments generally will
not match the composition of an index.
For a number of reasons, a liquid market may not exist and thus a Fund
may not be able to close out an option position that it has previously entered
into. When a Fund purchases an OTC option, it will be relying on its
counterparty to perform its obligations, and the Fund may incur additional
losses if the counterparty is unable to perform.
Exchange Traded and Options. All options purchased or sold by the Funds
will be traded on a securities exchange or will be purchased or sold by
securities dealers ("OTC options") that meet creditworthiness standards approved
by the Advisor. While exchange-traded options are obligations of the Options
Clearing Corporation, in the case of OTC options, a Fund relies on the dealer
from which it purchased the option to perform if the option is exercised. Thus,
when a Fund purchases an OTC option, it relies on the dealer from which it
purchased the option to make or take delivery of the underlying securities.
Failure by the dealer to do so would result in the loss of the premium paid by a
Fund as well as loss of the expected benefit of the transaction.
Provided that a Fund has arrangements with certain qualified dealers
who agree that the Fund may repurchase any option it writes for a maximum price
to be calculated by a predetermined formula, a Fund may treat the underlying
securities used to cover written OTC options as liquid. In these cases, the OTC
option itself would only be considered illiquid to the extent that the maximum
repurchase price under the formula exceeds the intrinsic value of the option.
Futures Contracts and Options on Futures Contracts. The Funds may
purchase or sell (write) futures contracts and purchase or sell put and call
options, including put and call options on futures contracts. In addition, the
funds may sell (write) put and call options, including options on futures.
Futures contracts obligate the buyer to take and the seller to make delivery at
a future date of a specified quantity of a financial instrument or an amount of
cash based on the value of a securities index. Currently, futures contracts are
available on various types of fixed income securities, including but not limited
to U.S. Treasury bonds, notes and bills, Eurodollar certificates of deposit and
on indexes of fixed income securities and indexes of equity securities.
Unlike a futures contract, which requires the parties to buy and sell a
security or make a cash settlement payment based on changes in a financial
instrument or securities index on an agreed date, an option on a futures
contract entitles its holder to decide on or before a future date whether to
enter into such a contract. If the holder decides not to exercise its option,
the holder may close out the option position by entering into an offsetting
transaction or may decide to let the option expire and forfeit the premium
thereon. The purchaser of an option on a futures contract pays a premium for the
option but makes no initial margin payments or daily payments of cash in the
nature of "variation" margin payments to reflect the change in the value of the
underlying contract as does a purchaser or seller of a futures contract.
The seller of an option on a futures contract receives the premium paid
by the purchaser and may be required to pay initial margin. Amounts equal to the
initial margin and any additional collateral required on any options on futures
contracts sold by a Fund are paid by the Fund into a segregated account, in the
name of the Futures Commission Merchant, as required by the 1940 Act and the
SEC's interpretations thereunder.
Combined Positions. The Funds are permitted to purchase and write
options in combination with each other, or in combination with futures or
forward contracts, to adjust the risk and return characteristics of the overall
position. For example, a Fund may purchase a put option and write a call option
on the same underlying instrument, in order to construct a combined position
whose risk and return characteristics are similar to selling a futures contract.
Another possible combined position would involve writing a call option at one
strike price and buying a call option at a lower price, in order to reduce the
risk of the written call option in the event of a substantial price increase.
Because combined options positions involve multiple trades, they result in
higher transaction costs and may be more difficult to open and close out.
Correlation of Price Changes. Because there are a limited number of
types of exchange-traded options and futures contracts, it is likely that the
standardized options and futures contracts available will not match a Fund's
current or anticipated investments exactly. A Fund may invest in options and
futures contracts based on securities with different issuers, maturities, or
other characteristics from the securities in which it typically invests, which
involves a risk that the options or futures position will not track the
performance of the Fund's other investments.
Options and futures contracts prices can also diverge from the prices
of their underlying instruments, even if the underlying instruments match a
Fund's investments well. Options and futures contracts prices are affected by
such factors as current and anticipated short term interest rates, changes in
volatility of the underlying instrument, and the time remaining until expiration
of the contract, which may not affect security prices the same way. Imperfect
correlation may also result from differing levels of demand in the options and
futures markets and the securities markets, from structural differences in how
options and futures and securities are traded, or from imposition of daily price
fluctuation limits or trading halts. A Fund may purchase or sell options and
futures contracts with a greater or lesser value than the securities it wishes
to hedge or intends to purchase in order to attempt to compensate for
differences in volatility between the contract and the securities, although this
may not be successful in all cases. If price changes in a Fund's options or
futures positions are poorly correlated with its other investments, the
positions may fail to produce anticipated gains or result in losses that are not
offset by gains in other investments.
Liquidity of Options and Futures Contracts. There is no assurance a
liquid market will exist for any particular option or futures contract at any
particular time even if the contract is traded on an exchange. In addition,
exchanges may establish daily price fluctuation limits for options and futures
contracts and may halt trading if a contract's price moves up or down more than
the limit in a given day. On volatile trading days when the price fluctuation
limit is reached or a trading halt is imposed, it may be impossible for a Fund
to enter into new positions or close out existing positions. If the market for a
contract is not liquid because of price fluctuation limits or otherwise, it
could prevent prompt liquidation of unfavorable positions, and could potentially
require a Fund to continue to hold a position until delivery or expiration
regardless of changes in its value. As a result, a Fund's access to other assets
held to cover its options or futures positions could also be impaired. (See
"Exchange Traded and OTC Options" above for a discussion of the liquidity of
options not traded on an exchange.)
Position Limits. Futures exchanges can limit the number of futures and
options on futures contracts that can be held or controlled by an entity. If an
adequate exemption cannot be obtained, a Fund or the Advisor may be required to
reduce the size of its futures and options positions or may not be able to trade
a certain futures or options contract in order to avoid exceeding such limits.
Asset Coverage for Futures Contracts and Options Positions. Although
the Funds will not be a commodity pools, certain derivatives subject the Funds
to the rules of the Commodity Futures Trading Commission which limit the extent
to which a Fund can invest in such derivatives. Each of the Funds may invest in
futures contracts and options with respect thereto for hedging purposes without
limit. However, a Fund may not invest in such contracts and options for other
purposes if the sum of the amount of initial margin deposits and premiums paid
for unexpired options with respect to such contracts, other than for bona fide
hedging purposes, exceeds 5% of the liquidation value of a Fund's assets, after
taking into account unrealized profits and unrealized losses on such contracts
and options; provided, however, that in the case of an option that is
in-the-money at the time of purchase, the in-the-money amount may be excluded in
calculating the 5% limitation.
In addition, each of the Funds will comply with guidelines established
by the SEC with respect to coverage of options and futures contracts by mutual
funds, and if the guidelines so require, will set aside appropriate liquid
assets in a segregated custodial account in the amount prescribed. Securities
held in a segregated account cannot be sold while the futures contract or option
is outstanding, unless they are replaced with other suitable assets. As a
result, there is a possibility that segregation of a large percentage of a
Fund's assets could impede portfolio management or a Fund's ability to meet
redemption requests or other current obligations.
Risk Management
The Funds may employ non-hedging risk management techniques. Risk
management strategies are used to keep the Funds fully invested and to reduce
the transaction costs associated with cash flows into and out of a Fund. The
objective where equity futures are used to "equitize" cash is to match the
notional value of all futures contracts to a Fund's cash balance. The notional
value of futures and of the cash is monitored daily. As the cash is invested in
securities and/or paid out to participants in redemptions, the Advisor
simultaneously adjusts the futures positions. Through such procedures, a Fund
not only gains equity exposure from the use of futures, but also benefits from
increased flexibility in responding to client cash flow needs. Additionally,
because it can be less expensive to trade a list of securities as a package or
program trade rather than as a group of individual orders, futures provide a
means through which transaction costs can be reduced. Such non-hedging risk
management techniques are not speculative, but because they involve leverage
include, as do all leveraged transactions, the possibility of losses as well as
gains that are greater than if these techniques involved the purchase and sale
of the securities themselves rather than their synthetic derivatives.
Portfolio Turnover
The Funds' portfolio turnover rates are set forth below. A rate of 100%
indicates that the equivalent of all of a Fund's assets have been sold and
reinvested in a year. High portfolio turnover may result in the realization of
substantial net capital gains or losses. To the extent that net short term
capital gains are realized, any distributions resulting from such gains are
considered ordinary income for federal income tax purposes. See "Taxes" below.
Tax Aware Disciplined Equity Fund (institutional shares) -- For the period
January 30, 1997 (commencement of operations) through October 31, 1997, and the
for the fiscal years ended October 31, 1998 and 1999: 35%, 57% and 40%,
respectively. For the semi-annual period ended April 30, 1999 (unaudited): 26%.
Tax Aware U.S. Equity Fund (select shares) -- For the period December 18, 1996
(commencement of operations) through October 31, 1997, and for the fiscal years
ended October 31, 1998 and 1999: 23%, 44% and 29%, respectively. For the
semi-annual period ended April 30, 1999 (unaudited): 8%.
INVESTMENT RESTRICTIONS
The investment restrictions set forth below have been adopted by the
Trust with respect to each Fund. Except as otherwise noted, these investment
restrictions are "fundamental" policies which, under the 1940 Act, may not be
changed without the vote of a majority of the outstanding voting securities of
the Funds. A "majority of the outstanding voting securities" is defined in the
1940 Act as the lesser of (a) 67% or more of the voting securities present at a
meeting if the holders of more than 50% of the outstanding voting securities are
present or represented by proxy, or (b) more than 50% of the outstanding voting
securities. The percentage limitations contained in the restrictions below apply
at the time of purchasing securities to the market value of a Fund's assets.
The Funds:
1. May not make any investments inconsistent with a Fund's classification
as a diversified investment company under the Investment Company Act of 1940;
2. May not purchase any security which would cause a Fund to concentrate its
investments in the securities of issuers primarily engaged in any particular
industry except as permitted by the SEC;
3. May not issue senior securities, except as permitted under the Investment
Company Act of 1940 or any rule, order or interpretation thereunder;
4. May not borrow money, except to the extent permitted by applicable law;
5. May not underwrite securities of other issuers, except to the extent that a
Fund, in disposing of portfolio securities, may be deemed an underwriter within
the meaning of the 1933 Act;
6. May not purchase or sell real estate, except that, to the extent permitted by
applicable law, a Fund may (a) invest in securities or other instruments
directly or indirectly secured by real estate, and (b) invest in securities or
other instruments issued by issuers that invest in real estate;
7. May not purchase or sell commodities or commodity contracts unless acquired
as a result of ownership of securities or other instruments issued by persons
that purchase or sell commodities or commodities contracts; but this shall not
prevent a Fund from purchasing, selling and entering into financial futures
contracts (including futures contracts on indices of securities, interest rates
and currencies), options on financial futures contracts (including futures
contracts on indices of securities, interest rates and currencies), warrants,
swaps, forward contracts, foreign currency spot and forward contracts or other
derivative instruments that are not related to physical commodities; and
8. May make loans to other persons, in accordance with their respective
investment objectives and policies and to the extent permitted by applicable
law.
Non-Fundamental Investment Restrictions. The investment restrictions
described below are not fundamental policies of each Fund and may be changed by
their Trustees. These non-fundamental investment policies require that the
Funds:
(i) May not acquire any illiquid securities, such as repurchase agreements with
more than seven days to maturity or fixed time deposits with a duration of over
seven calendar days, if as a result thereof, more than 15% of the market value
of a Fund's net assets would be in investments which are illiquid;
(ii) May not purchase securities on margin, make short sales of securities, or
maintain a short position, provided that this restriction shall not be deemed to
be applicable to the purchase or sale of when-issued or delayed delivery
securities, or to short sales that are covered in accordance with SEC rules; and
(iii) May not acquire securities of other investment companies, except as
permitted by the 1940 Act or any order pursuant thereto.
If any percentage restriction described above is adhered to at the time
of investment, a subsequent increase or decrease in the percentage resulting
from a change in the value of a Fund's assets will not constitute a violation of
the restriction.
For purposes of fundamental investment restrictions regarding industry
concentration, the Advisor may classify issuers by industry in accordance with
classifications set forth in the Directory of Companies Filing Annual Reports
With The Securities and Exchange Commission or other sources. In the absence of
such classification or if the Advisor determines in good faith based on its own
information that the economic characteristics affecting a particular issuer make
it more appropriately considered to be engaged in a different industry, the
Advisor may classify an issuer accordingly. For instance, personal credit
finance companies and business credit finance companies are deemed to be
separate industries and wholly owned finance companies are considered to be in
the industry of their parents if their activities are primarily related to
financing the activities of their parents.
TRUSTEES, MEMBERS OF THE ADVISORY BOARD AND OFFICERS
Trustees
The Trustees of the Trust, their principal occupations during the past
five years, business addresses and dates of birth are set forth below. The
mailing address of the Trustees is c/o Pierpont Group Inc., 461 Fifth Avenue,
New York, New York 10017.
FREDERICK S. ADDY--Trustee; Retired; Former, Executive Vice President and
Chief Financial Officer, Amoco Corporation. His date of birth is January 1,
1932.
WILLIAM G. BURNS--Trustee; Retired, Former Vice Chairman and Chief
Financial Officer, NYNEX. His date of birth is November 2, 1932.
ARTHUR C. ESCHENLAUER--Trustee; Retired; Former Senior Vice President,
Morgan Guaranty Trust Company of New York. His date of birth is May 23, 1934.
MATTHEW HEALEY1--Trustee, Chairman and Chief Executive Officer;
Chairman, Pierpont Group, Inc., since prior to 1995. His date of birth is August
23, 1937.
MICHAEL P. MALLARDI--Trustee; Retired; Prior to April 1996, Senior Vice
President, Capital Cities/ABC, Inc. and President, Broadcast Group. His date of
birth is March 17, 1934.
Each Trustee is currently paid an annual fee of $75,000 for serving as
Trustee of the Trust, each of the Master Portfolios (as defined below), the J.P.
Morgan Institutional Funds and J.P. Morgan Funds and is reimbursed for expenses
incurred in connection with service as a Trustee. The Trustees may hold various
other directorships unrelated to these funds.
<PAGE>
Trustee compensation paid by the Trust for the calendar year ended
December 31, 1999 is set forth below.
<TABLE>
<CAPTION>
<S> <C> <C>
TOTAL TRUSTEE COMPENSATION ACCRUED
BY THE
MASTER PORTFOLIOS (*), J.P. MORGAN
AGGREGATE TRUSTEE COMPENSATION PAID INSTITUTIONAL FUNDS, J.P. MORGAN
FUNDS AND THE
NAME OF TRUSTEE BY THE TRUST DURING 1999 TRUST DURING 1999(**)
Frederick S. Addy, Trustee $1,018 $75,000
William G. Burns, Trustee $1,018 $75,000
Arthur C. Eschenlauer, Trustee $1,018 $75,000
Matthew Healey, Trustee (***)Chairman $1,018 $75,000
and Chief Executive Officer
Michael P. Mallardi, Trustee $1,018 $75,000
</TABLE>
(*) Includes each portfolio in which a series of J.P. Morgan Funds or J.P.
Morgan Institutional Funds invests.
(**) No investment company within the fund complex has a pension or
retirement plan. Currently there are 17 investment companies (14 investment
companies comprising the Master Portfolios, J.P. Morgan Funds, J.P. Morgan
Institutional Funds and the Trust) in the fund complex.
(***) During 1999, Pierpont Group, Inc. paid Mr. Healey, in his role as
Chairman of Pierpont Group, Inc., compensation in the amount of $153,800,
contributed $23,100 to a defined contribution plan on his behalf and paid
$17,300 in insurance premiums for his benefit.
The Trustees decide upon general policies and are responsible for
overseeing the Trust's business affairs. The Trust has entered into a Fund
Services Agreement with Pierpont Group, Inc. to assist the Trustees in
exercising their overall supervisory responsibilities over the affairs of the
Trust. Pierpont Group, Inc. was organized in July 1989 to provide services for
The Pierpont Family of Funds (now the J.P. Morgan Family of Funds), and the
Trustees are the equal and sole shareholders of Pierpont Group, Inc. The Trust
has agreed to pay Pierpont Group, Inc. a fee in an amount representing its
reasonable costs in performing these services to the Trust and certain other
registered investment companies subject to similar agreements with Pierpont
Group, Inc. These costs are periodically reviewed by the Trustees. The principal
offices of Pierpont Group, Inc. are located at 461 Fifth Avenue, New York, New
York 10017.
The aggregate fees paid to Pierpont Group, Inc. by each Fund during the
indicated fiscal periods are set forth below:
Tax Aware Disciplined Equity Fund (institutional shares) -- For the period
January 30, 1997 (commencement of operations) through October 31, 1997 and for
the fiscal years ended October 31, 1998 and 1999: $157, $1,578 and $4,110,
respectively. For the semi-annual period ended April 30, 1999 (unaudited):
$3,309.
Tax Aware U.S. Equity Fund (select shares) -- For the period December 18, 1996
(commencement of operations) through October 31, 1997 and for the fiscal years
ended October 31, 1998 and 1999: $451, $1,552 and $2,425, respectively. For the
semi-annual period ended April 30, 1999 (unaudited): $1,527.
Advisory Board
The Trustees determined as of January 26, 2000 to establish an advisory
board and appoint four members ("Members of the Advisory Board") thereto. Each
member serves at the pleasure of the Trustees. The advisory board is distinct
from the Trustees and provides advice to the Trustees as to investment,
management and operations of the Trust; but has no power to vote upon any matter
put to a vote of the Trustees. The advisory board and the members thereof also
serve each of the Trusts and the Master Portfolios. It is also the current
intention of the Trustees that the Members of the Advisory Board will be
proposed at the next shareholders' meeting, expected to be held within a year
from the date hereof, for election as Trustees of each of the Trusts and the
Master Portfolios. The creation of the Advisory Board and the appointment of the
members thereof was designed so that the Board of Trustees will continuously
consist of persons able to assume the duties of Trustees and be fully familiar
with the business and affairs of each of the Trusts and the Master Portfolios,
in anticipation of the current Trustees reaching the mandatory retirement age of
seventy. Each member of the Advisory Board is paid an annual fee of $75,000 for
serving in this capacity for the Trust, each of the Master Portfolios, the J.P.
Morgan Funds and the J.P. Morgan Series Trust and is reimbursed for expenses
incurred in connection for such service. The members of the Advisory Board may
hold various other directorships unrelated to these funds. The mailing address
of the Members of the Advisory Board is c/o Pierpont Group, Inc., 461 Fifth
Avenue, New York, New York 10017. Their names, principal occupations during the
past five years and dates of birth are set forth below:
Ann Maynard Gray - Former President, Diversified Publishing Group and Vice
President, Capital Cities/ABC, Inc. Her date of birth is August 22, 1945.
John R. Laird -- Retired; Former Chief Executive Officer, Shearson Lehman
Brothers and The Boston Company. His date of birth is June 21, 1942.
Gerard P. Lynch -- Retired; Former Managing Director, Morgan Stanley Group and
President and Chief Operating Officer, Morgan Stanley Services, Inc. His date of
birth is October 5, 1936.
James J. Schonbachler -- Retired; Prior to September, 1998, Managing Director,
Bankers Trust Company and Chief Executive Officer and Director, Bankers Trust
A.G., Zurich and BT Brokerage Corp. His date of birth is January 26, 1943.
Officers
The Trust's executive officers (listed below), other than the Chief
Executive Officer and the officers who are employees of the Advisor, are
provided and compensated by Funds Distributor, Inc. ("FDI"), a wholly owned
indirect subsidiary of Boston Institutional Group, Inc. The officers conduct and
supervise the business operations of the Trust. The Trust has no employees.
The officers of the Trust, their principal occupations during the past
five years and dates of birth are set forth below. The business address of each
of the officers unless otherwise noted is Funds Distributor, Inc., 60 State
Street, Suite 1300, Boston, Massachusetts 02109.
MATTHEW HEALEY; Chairman and Chief Executive Officer; Chairman,
Pierpont Group, since prior to 1995. His address is c/o Pierpont Group Inc., 461
Fifth Avenue, New York, New York 10017. His date of birth is August 23, 1937.
MARGARET W. CHAMBERS; Vice President and Secretary. Senior Vice President
and General Counsel of FDI since April, 1998. From August 1996 to March 1998,
Ms. Chambers was Vice President and Assistant General Counsel for Loomis, Sayles
& Company, L.P. From January 1986 to July 1996, she was an associate with the
law firm of Ropes & Gray. Her date of birth is October 12, 1959.
MARIE E. CONNOLLY; Vice President and Assistant Treasurer. President, Chief
Executive Officer, Chief Compliance Officer and Director of FDI, Premier Mutual
Fund Services, Inc., an affiliate of FDI ("Premier Mutual") and an officer of
certain investment companies distributed or administered by FDI. Her date of
birth is August 1, 1957.
DOUGLAS C. CONROY; Vice President and Assistant Treasurer. Assistant Vice
President and Assistant Department Manager of Treasury Services and
Administration of FDI and an officer of certain investment companies distributed
or administered by FDI. Prior to April 1997, Mr. Conroy was Supervisor of
Treasury Services and Administration of FDI. From April 1993 to January 1995,
Mr. Conroy was a Senior Fund Accountant for Investors Bank & Trust Company. His
date of birth is March 31, 1969.
KAREN JACOPPO-WOOD; Vice President and Assistant Secretary. Vice
President and Senior Counsel of FDI and an officer of certain investment
companies distributed or administered by FDI. From June 1994 to January 1996,
Ms. Jacoppo-Wood was a Manager of SEC Registration at Scudder, Stevens & Clark,
Inc. Her date of birth is December 29, 1966.
CHRISTOPHER J. KELLEY; Vice President and Assistant Secretary. Vice
President and Senior Associate General Counsel of FDI and Premier Mutual and an
officer of certain investment companies distributed or administered by FDI. From
April 1994 to July 1996, Mr. Kelley was Assistant Counsel at Forum Financial
Group. His date of birth is December 24, 1964.
KATHLEEN K. MORRISEY; Vice President and Assistant Secretary. Vice
President and Assistant Secretary of FDI. Manager of Treasury Services
Administration and an officer of certain investment companies advised or
administered by Montgomery Asset Management, L.P. and Dresdner RCM Global
Investors, Inc., and their respective affiliates. From July 1994 to November
1995, Ms. Morrisey was a Fund Accountant II for Investors Bank & Trust Company.
Her date of birth is July 5, 1972.
MARY A. NELSON; Vice President and Assistant Treasurer. Vice President and
Manager of Treasury Services and Administration of FDI and Premier Mutual and an
officer of certain investment companies distributed or administered by FDI. Her
date of birth is April 22, 1964.
MARY JO PACE; Assistant Treasurer. Vice President, Morgan Guaranty Trust
Company of New York. Ms. Pace serves in the Funds Administration group as a
Manager for the Budgeting and Expense Processing Group. Prior to September 1995,
Ms. Pace served as a Fund Administrator for Morgan Guaranty Trust Company of New
York. Her address is 60 Wall Street, New York, New York 10260. Her date of birth
is March 13, 1966.
GEORGE A. RIO; President and Treasurer. Executive Vice President and Client
Service Director of FDI since April 1998. From June 1995 to March 1998, Mr. Rio
was Senior Vice President and Senior Key Account Manager for Putnam Mutual
Funds. From May 1994 to June 1995, Mr. Rio was Director of Business Development
for First Data Corporation. His date of birth is January 2, 1955.
CHRISTINE ROTUNDO; Assistant Treasurer. Vice President, Morgan Guaranty
Trust Company of New York. Ms. Rotundo serves as Manager of the Funds
Infrastructure group and is responsible for the management of special projects.
Prior to January 2000, she served as a Manager of the Tax Group in the Funds
Administration group and was responsible for U.S. mutual fund tax matters. Prior
to September 1995, Ms. Rotundo served as a Senior Tax Manager in the Investment
Company Services Group of Deloitte & Touche LLP. Her address is 60 Wall Street,
New York, New York 10260. Her date of birth is September 26, 1965.
ELBA VASQUEZ-Vice President and Assistant Secretary. Currently, services as
Vice President. Prior serviced as Assistant Vice President since 1997 and Sales
Associate since May 1996 of FDI. (March 1990 to May 1996, employed in various
mutual fund sales and marketing positions by the U.S. Trust Company of New York.
Her date of birth is December 14, 1961.
CODE OF ETHICS
The Trust, Advisor and FDI have adopted codes of ethics pursuant to
Rule 17j-1 under the 1940 Act. Each of these codes permits personnel subject to
such code to invest in securities, including securities that may be purchased or
held by the Portfolio. Such purchases, however, are subject to procedures
reasonably necessary to prevent access persons from engaging in any unlawful
conduct set forth in Rule 17j-1.
INVESTMENT ADVISOR
The Trust has retained JPMIM as Investment Advisor to provide
investment advice and portfolio management services to the Funds. Subject to the
supervision of the Fund's Trustees, the Advisor makes each Fund's day-to-day
investment decisions, arranges for the execution of portfolio transactions and
generally manages each Fund's investments. Effective October 1, 1998 each Fund's
Investment Advisor is JPMIM. Prior to that date, Morgan was the Investment
Advisor.
JPMIM, a wholly owned subsidiary of J.P. Morgan & Co. Incorporated
("J.P. Morgan"), is a registered investment adviser under the Investment
Advisers Act of 1940, as amended, and manages employee benefit funds of
corporations, labor unions and state and local governments and the accounts of
other institutional investors, including investment companies. Certain of the
assets of employee benefit accounts under its management are invested in
commingled pension trust funds for which Morgan serves as trustee.
J.P. Morgan, through the Advisor and other subsidiaries, acts as
investment advisor to individuals, governments, corporations, employee benefit
plans, mutual funds and other institutional investors with combined assets under
management of approximately $369 billion.
J.P. Morgan has a long history of service as an advisor, underwriter
and lender to an extensive roster of major companies and as a financial advisor
to national governments. The firm, through its predecessor firms, has been in
business for over a century and has been managing investments since 1913.
The basis of the Advisor's investment process is fundamental investment
research because the firm believes that fundamentals should determine an asset's
value over the long term. The Advisor currently employs approximately 420
research analysts, capital market researchers, portfolio managers, and traders
and one of the largest research staffs in the money management industry. The
Advisor has investment management divisions located in New York, London, Tokyo,
Frankfurt and Singapore to cover companies, industries and countries on site.
The conclusions of the equity analysts' fundamental research is quantified into
a set of projected returns for individual companies through the use of a
dividend discount model. These returns are projected for 2 to 5 years to enable
analysts to take a longer term view. These returns, or normalized earnings, are
used to establish relative values among stocks in each industrial sector. These
values may not be the same as the markets' current valuations of these
companies. This provides the basis for ranking the attractiveness of the
companies in an industry according to five distinct quintiles or rankings. This
ranking is one of the factors considered in determining the stocks purchased and
sold in each sector.
The investment advisory services the Advisor provides to the Funds are
not exclusive under the terms of the Investment Advisory Agreement. The Advisor
is free to and does render similar investment advisory services to others. The
Advisor serves as investment advisor to personal investors and other investment
companies and acts as fiduciary for trusts, estates and employee benefit plans.
Certain of the assets of trusts and estates under management are invested in
common trust funds for which the Advisor serves as trustee. The accounts which
are managed or advised by the Advisor have varying investment objectives and the
Advisor invests assets of such accounts in investments substantially similar to,
or the same as, those which are expected to constitute the principal investments
of the Funds. Such accounts are supervised by officers and employees of the
Advisor who may also be acting in similar capacities for the Funds. See
"Portfolio Transactions."
Sector weightings are generally similar to a benchmark with the
emphasis on security selection as the method to achieve investment performance
superior to the benchmark. The benchmark for the Funds is currently the S&P 500
Index.
Morgan, whose principal offices are at 60 Wall Street, New York, New
York 10260, is a New York trust company which conducts a general banking and
trust business. Morgan is subject to regulation by the New York State Banking
Department and is a member bank of the Federal Reserve System. Through offices
in New York City and abroad, Morgan offers a wide range of services, primarily
to governmental, institutional, corporate and high net worth individual
customers in the United States and throughout the world. Morgan is also a wholly
owned subsidiary of J.P. Morgan, which is a bank holding company organized under
the laws of the State of Delaware.
The Funds are managed by officers of the Advisor who, in acting for
their clients, including the Funds, do not discuss their investment decisions
with any personnel of J.P. Morgan with any of its affiliated persons, with the
exception of certain investment management affiliates of J.P. Morgan or broker
affiliates of J.P. Morgan which transactions of behalf of the Fund.
As compensation for the services rendered and related expenses such as
salaries of advisory personnel borne by the Advisor under the Advisory
Investment Agreements, the Funds have agreed to pay the Advisor a fee, which is
computed daily and may be paid monthly, equal to the annual rates of each Fund's
average daily net assets shown below.
Tax Aware Disciplined Equity Fund: 0.35%
Tax Aware U.S. Equity Fund: 0.45%
The table below sets forth the advisory fees paid by each Fund to the
Advisor for the fiscal periods indicated.
Tax Aware Disciplined Equity Fund (institutional shares) -- For the period
January 30, 1997 (commencement of operations) through October 31, 1997 and for
the fiscal years ended October 31, 1998 and 1999: $16,524, $195,083 and
$754,945, respectively. For the semi-annual period ended April 30, 2000
(unaudited): $702,201.
Tax Aware U.S. Equity Fund (select shares) -- For the period December 18, 1996
(commencement of operations) through October 31, 1997 and for the fiscal years
ended October 31, 1998 and 1999: $62,523, $243,124 and $554,907, respectively.
For the semi-annual period ended April 30, 2000 (unaudited): $415,380.
The Investment Advisory Agreement between the Advisor and the Trust, on
behalf of each Fund, provides that it will continue in effect for a period of
two years after execution only if specifically approved thereafter annually in
the same manner as the Distribution Agreement. See "Distributor" below. The
Investment Advisory Agreement will terminate automatically if assigned and is
terminable at any time with respect to a Fund without penalty by a vote of a
majority of the Trust's Trustees or by a vote of the holders of a majority of
the Fund's outstanding voting securities on 60 days' written notice to the
Advisor and by the Advisor on 90 days' written notice to the Fund. See
"Additional Information."
Under separate agreements, Morgan provides certain financial, fund
accounting, administrative and shareholder services to the Trust. See "Services
Agent" and "Shareholder Servicing" below.
DISTRIBUTOR
FDI serves as the Trust's exclusive distributor and holds itself
available to receive purchase orders for each Fund's shares. In that capacity,
FDI has been granted the right, as agent of the Trust, to solicit and accept
orders for the purchase of each Fund's shares in accordance with the terms of
the Distribution Agreement between the Trust and FDI. Under the terms of the
Distribution Agreement between FDI and the Trust, FDI receives no compensation
in its capacity as the Funds' distributor.
The Distribution Agreement will continue in effect with respect to each
Fund for a period of two years after execution only if it is approved at least
annually thereafter (i) by a vote of the holders of a majority of the Fund's
outstanding voting securities or by its Trustees and (ii) by a vote of a
majority of the Trustees of the Trust who are not "interested persons" (as
defined by the 1940 Act) of the parties to the Distribution Agreement, cast in
person at a meeting called for the purpose of voting on such approval (see
"Trustees" and "Members of the Advisory Board and Officers"). The Distribution
Agreement will terminate automatically if assigned by either party. The
Distribution Agreement is also terminable with respect to a Fund at any time
without penalty by a vote of a majority of the Trustees of the Trust, a vote of
a majority of the Trustees who are not "interested persons" of the Trust, or by
a vote of (i) 67% or more of the Fund's outstanding voting securities present at
a meeting if the holders of more than 50% of the Fund's outstanding voting
securities are present or represented by proxy, or (ii) more than 50% of the
Fund's outstanding voting securities, whichever is less. FDI is a wholly owned
indirect subsidiary of Boston Institutional Group, Inc. The principal offices of
FDI are located at 60 State Street, Suite 1300, Boston, Massachusetts 02109.
CO-ADMINISTRATOR
Under a Co-Administration Agreement with the Trust, dated August 1,
1996, FDI also serves as the Trust's Co-Administrator. The Co-Administration
Agreement may be renewed or amended by the Trustees without a shareholder vote.
The Co-Administration Agreement is terminable at any time without penalty by a
vote of a majority of the Trustees of the Trust on not more than 60 days'
written notice nor less than 30 days' written notice to the other party. The
Co-Administrator may subcontract for the performance of its obligations,
provided, however, that unless the Trust expressly agrees in writing, the
Co-Administrator shall be fully responsible for the acts and omissions of any
subcontractor as it would for its own acts or omissions. See "Services Agent"
below.
FDI (i) provides office space, equipment and clerical personnel for
maintaining the organization and books and records of the Funds; (ii) provides
officers for the Trust; (iii) prepares and files documents required for
notification of state securities administrators; (iv) reviews and files
marketing and sales literature; (v) files regulatory documents and mails
communications to Trustees, Members of the Advisory Board and investors; and
(vi) maintains related books and records.
For its services under the Co-Administration Agreement, each Fund has
agreed to pay FDI fees equal to its allocable share of an annual complex-wide
charge of $425,000 plus FDI's out-of-pocket expenses. The amount allocable to
each Fund is based on the ratio of the Fund's net assets to the aggregate net
assets of the Trust and certain other registered investment companies subject to
similar arrangements with FDI.
The table below sets forth for each Fund listed the administrative fees
paid to FDI for the fiscal periods indicated.
Tax Aware Disciplined Equity Fund -- For the period January 30, 1997
(commencement of operations) through October 31, 1997 and for the fiscal years
ended October 31, 1998 and 1999: $84, $744 and $1,911, respectively. For the
semi-annual period ended April 30, 2000 (unaudited): $1,396.
Tax Aware U.S. Equity Fund -- For the period December 18, 1996
(commencement of operations) through October 31, 1997 and for the fiscal years
ended October 31, 1998 and 1999: $252, $734 and $1,108, respectively. For the
semi-annual period ended April 30, 2000 (unaudited): $641.
SERVICES AGENT
The Trust, on behalf of each Fund, has entered into an Administrative
Services Agreement (the "Services Agreement") with Morgan pursuant to which
Morgan is responsible for certain administrative and related services provided
to each Fund. The Services Agreement may be terminated at any time, without
penalty, by the Trustees or Morgan, in each case on not more than 60 days' nor
less than 30 days' written notice to the other party.
Under the Services Agreement, Morgan provides certain administrative
and related services to each Fund, including services related to tax compliance,
preparation of financial statements, calculation of performance data, oversight
of service providers and certain regulatory and Board of Trustee matters.
Under the Services Agreement, each Fund has agreed to pay Morgan fees
equal to its allocable share of an annual complex-wide charge. This charge is
calculated daily based on the aggregate net assets of the Funds and the Master
Portfolios in accordance with the following annual schedule: 0.09% of the first
$7 billion of their aggregate average daily net assets, and 0.04% of their
aggregate average daily net assets in excess of $7 billion, less the
complex-wide fees payable to FDI. The portion of this charge payable by each
Fund is determined by the proportionate share that its net assets bear to the
total net assets of the Trust and the other investment companies provided
administrative services by Morgan.
The table below sets forth for each Fund listed the fees paid to Morgan
as Services Agent.
Tax Aware Disciplined Equity Fund -- For the period January 30, 1997
(commencement of operations) through October 31, 1997 and for the fiscal years
ended October 31, 1998 and 1999: $2,693, $32,142 and $111,033, respectively. For
the semi-annual period ended April 30, 2000 (unaudited): $98,494.
Tax Aware U.S. Equity Fund -- For the period December 18, 1996
(commencement of operations) through October 31, 1997 and for the fiscal years
ended October 31, 1998 and 1999: $7,649, $31,306 and $63,722, respectively. For
the semi-annual period ended April 30, 2000 (unaudited): $45,305.
CUSTODIAN AND TRANSFER AGENT
The Bank of New York ("BONY"), One Wall Street, New York, New York
10286, serves as the Trust's custodian and fund accounting agent. Pursuant to
the Custodian Contract and Fund Accounting Agreement with the Trust, BONY is
responsible for holding portfolio securities and cash and maintaining the books
of account and records of the Fund's portfolio transactions.
State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02110, serves as the Trust's transfer and dividend
disbursing agent. As transfer agent and dividend disbursing agent, State Street
is responsible for maintaining account records detailing the ownership of Fund
shares and for crediting income, capital gains and other changes in share
ownership to shareholder accounts.
SHAREHOLDER SERVICING
The Trust on behalf of each of the Funds has entered into a Shareholder
Servicing Agreement with Morgan pursuant to which Morgan acts as shareholder
servicing agent for Fund shareholders. Under this agreement, Morgan is
responsible for performing, directly or through an agent, shareholder account
administrative and servicing functions, which include but are not limited to
answering inquiries regarding account status and history, the manner in which
purchases and redemptions of Fund shares may be effected, and certain other
matters pertaining to a Fund; assisting customers in designating and changing
dividend options, account designations and addresses; providing necessary
personnel and facilities to coordinate the establishment and maintenance of
shareholder accounts and records with the Funds' transfer agent; transmitting
purchase and redemption orders to the Funds' transfer agent and arranging for
the wiring or other transfer of funds to and from customer accounts in
connection with orders to purchase or redeem Fund shares; verifying purchase and
redemption orders, transfers among and changes in accounts; informing FDI of the
gross amount of purchase orders for Fund shares; and providing other related
services.
Under the Shareholder Servicing Agreement, the Tax Aware U.S. Equity
Fund has agreed to pay Morgan for these services a fee of 0.25% for the Select
Shares and .10% for the Institutional Shares (expressed as a percentage of the
average daily net asset values of Fund shares owned by or for shareholders for
whom Morgan is acting as shareholder servicing agent); and effective October 1,
1998, the Tax Aware Disciplined Equity Fund has agreed to pay Morgan for these
services a fee of 0.10% (expressed as a percentage of the average daily net
asset values of Fund shares owned by or for shareholders for whom Morgan is
acting as Shareholder Servicing Agent).
Morgan acts as Shareholder Servicing Agent for all shareholders.
The table below sets forth for each Fund listed the shareholder
servicing fees paid by each Fund to Morgan for the fiscal periods indicated.
Tax Aware Disciplined Equity Fund -- For the period January 30, 1997
(commencement of operations) through October 31, 1997 and for the fiscal years
ended October 31, 1998 and 1999: $11,803, $108,894 and $215,699, respectively.
For the semi-annual period ended April 30, 2000 (unaudited): $200,629.
Tax Aware U.S. Equity Fund (Select Shares): -- For the period December 18,
1996 (commencement of operations) through October 31, 1997 and for the fiscal
years ended October 31, 1998 and 1999: $34,735, $135,069 and $308,281,
respectively. For the semi-annual period ended April 30, 2000 (unaudited):
$230,766.
The Funds may be sold to or through financial intermediaries who are
customers of J.P. Morgan ("financial professionals"), including financial
institutions and broker-dealers, that may be paid fees by J.P. Morgan or its
affiliates for services provided to their clients that invest in the Funds. See
"Financial Professionals" below. Organizations that provide recordkeeping or
other services to certain employee benefit or retirement plans that includes the
Funds as an investment alternative may also be paid a fee.
INDEPENDENT ACCOUNTANTS
The independent accountants of the Trust are PricewaterhouseCoopers
LLP, 1177 Avenue of the Americas, New York, New York 10036.
PricewaterhouseCoopers LLP conducts an annual audit of the financial statements
of each of the Funds, assists in the preparation and/or review of each of the
Fund's federal and state income tax returns and consults with the Funds as to
matters of accounting and federal and state income taxation.
EXPENSES
In addition to the fees payable to Pierpont Group, Inc., JPMIM, Morgan
and FDI under various agreements discussed under "Trustees, Members of the
Advisory Board and Officers," "Investment Advisor," "Co-Administrator",
"Distributor", "Services Agent" and "Shareholder Servicing" above, the Funds are
responsible for usual and customary expenses associated with the Trust's
operations. Such expenses include organization expenses, legal fees, accounting
and audit expenses, insurance costs, the compensation and expenses of the
Trustees and Members of the Advisory Board, registration fees under federal
securities laws, extraordinary expenses, transfer, registrar and dividend
disbursing costs, the expenses of printing and mailing reports, notices and
proxy statements to Fund shareholders, fees under state securities laws,
custodian fees and brokerage expenses.
J.P. Morgan has agreed that it will reimburse each Fund, as described
in the Prospectuses, to the extent necessary to maintain each of the Fund's
total operating expenses at the following annual rates of each of the Fund's
average daily net assets.
These limits do not cover extraordinary expenses.
Tax Aware Disciplined Equity Fund (institutional shares):
0.55% until February 28, 2001
Tax Aware U.S. Equity Fund (Select Shares):
0.85% until February 28, 2001
Tax Aware U.S. Equity Fund (Institutional Shares):
0.70% until February 28, 2001
The table below sets forth for each Fund listed the fees and other
expenses J.P. Morgan reimbursed under the expense reimbursement arrangements
described above or pursuant to prior expense reimbursement arrangements for the
fiscal periods indicated.
Tax Aware Disciplined Equity Fund (institutional shares) -- For the period
January 30, 1997 (commencement of operations) through October 31, 1997 and for
the fiscal years ended October 31, 1998 and 1999: $190,599, $261,143 and
$207,236, respectively. For the semi-annual period ended April 30, 2000
(unaudited): $34,234.
Tax Aware U.S. Equity Fund (select shares) -- For the period December 18, 1996
(commencement of operations) through October 31, 1997 and for the fiscal years
ended October 31, 1998 and 1999: $182,588, $130,293 and $67,977, respectively.
For the semi-annual period ended April 30, 2000 (unaudited): $11,624.
PURCHASE OF SHARES
Additional Minimum Balance Information. For investors who purchased
shares of the Disciplined Equity Fund prior to January 2, 1998, the minimum
account balance will remain $100,000 and the minimum subsequent investment
remains $5,000.
If your account balance falls below the minimum for 30 days as a result
of selling shares (and not because of performance), the Fund reserves the right
to request that you buy more shares or close your account. If your account
balance is still below the minimum 60 days after notification, the Fund reserves
the right to close out your account and send the proceeds to the address of
record.
Method of Purchase. Investors may open accounts with a Fund only
through the Distributor. All purchase transactions in Fund accounts are
processed by Morgan as shareholder servicing agent and each Fund is authorized
to accept any instructions relating to a Fund account from Morgan as shareholder
servicing agent for the customer. All purchase orders must be accepted by the
Distributor. Prospective investors who are not already customers of Morgan may
apply to become customers of Morgan for the sole purpose of Fund transactions.
There are no charges associated with becoming a Morgan customer for this
purpose. Morgan reserves the right to determine the customers that it will
accept, and the Funds reserve the right to determine the purchase orders that
they will accept.
References in the Prospectuses and this Statement of Additional
Information to customers of J.P. Morgan or a financial professional include
customers of their affiliates and references to transactions by customers with
J.P. Morgan or a financial professional include transactions with their
affiliates. Only Fund investors who are using the services of a financial
institution acting as shareholder servicing agent pursuant to an agreement with
the Trust on behalf of a Fund may make transactions in shares of a Fund.
Each Fund may, at its own option, accept securities in payment for
shares. The securities so delivered are valued by the method described under
"Net Asset Value" as of the day a Fund receives the securities. This is a
taxable transaction to the shareholder. Securities may be accepted in payment
for shares only if they are, in the judgment of the Advisor, appropriate
investments for a Fund. In addition, securities accepted in payment for shares
must: (i) meet the investment objective and policies of the acquiring Fund; (ii)
be acquired by the applicable Fund for investment and not for resale; (iii) be
liquid securities which are not restricted as to transfer; and (iv) if stock,
have a value which is readily ascertainable as evidenced by a listing on a stock
exchange, OTC market or by readily available market quotations from a dealer in
such securities. Each Fund reserves the right to accept or reject at its own
option any and all securities offered in payment for its shares.
Prospective investors may purchase shares with the assistance of a
Financial Professional and the Financial Professional may charge the investor a
fee for this service and other services it provides to its customers. J.P.
Morgan may pay fees to financial professionals for services in connection with
fund investments. See "Financial Professionals" above.
REDEMPTION OF SHARES
Investors may redeem shares of the Funds as described in the
Prospectus. The Funds generally intend to pay redemption proceeds in cash;
however, they reserve the right at their sole discretion to pay redemptions over
$250,000 in-kind as a portfolio of representative stocks rather than cash. See
below and "Exchange of Shares".
The Trust, on behalf of each Fund, reserves the right to suspend the
right of redemption and to postpone the date of payment upon redemption as
follows: (i) for up to seven days, (ii) during periods when the New York Stock
Exchange is closed for other than weekends and holidays or when trading thereon
is restricted as determined by the SEC by rule or regulation, (iii) during
periods in which an emergency, as determined by the SEC, exists that causes
disposal by a Fund of, or evaluation of the net asset value of, its portfolio
securities to be unreasonable or impracticable, or (iv) for such other periods
as the SEC may permit.
If the Trust determines that it would be detrimental to the best
interest of the remaining shareholders of the Funds to make payment wholly or
partly in cash, payment of the redemption price may be made in whole or in part
by a distribution in kind of securities from the Fund, in lieu of cash. If
shares are redeemed in-kind, the redeeming shareholder might incur costs in
converting the assets into cash. The Trust has been granted exemptive relief
from the SEC with respect to redemptions in-kind by the Funds. Each Fund is
permitted to pay redemptions to greater than 5% shareholders in securities,
rather than in cash, to the extent permitted by the SEC and applicable law. The
method of valuing portfolio securities is described under "Net Asset Value", and
such valuation will be made as of the same time the redemption price is
determined.
In general, a Fund will attempt to select securities for in-kind
redemptions that approximate the overall characteristics of the Fund's
portfolio. A Fund will not distribute illiquid securities to satisfy in-kind
redemptions. For purposes of effecting in-kind redemptions, securities will be
valued in the manner regularly used to value a Fund's portfolio securities. A
Fund will not redeem its shares in-kind in a manner that after giving effect to
the redemption would cause it to violate its investment restrictions or
policies. See the Prospectuses for information on redemptions in-kind.
Redemption Fee. A redemption fee of 1% will be imposed on shares held
for less than one year and paid to each Fund on the gross dollar amount of
shares redeemed for cash.
The redemption fees help cover transaction costs and the tax costs
long-term investors may bear when a Fund realizes capital gains as a result of
selling securities to meet redemptions. By being paid directly to the Funds, the
fees tend to be more advantageous to long-term investors and less advantageous
to short-term investors.
There will be no redemption fee charged on the cash redemption of (i)
shares acquired through reinvested dividends and distributions, (ii) shares
redeemed in connection with the settlement of an estate, or (iii) shares subject
to a mandatory redemption.
For federal income tax purposes, the redemption fee will reduce the
proceeds paid to the shareholder upon the redemption of shares.
Other Redemption Processing Information. Redemption requests may not be
processed if the redemption request is not submitted in proper form. A
redemption request is not in proper form unless a Fund has received the
shareholder's certified taxpayer identification number and address. In addition,
if shares were paid for by check and the check has not yet cleared, redemption
proceeds will not be transmitted until the check has cleared, which may take up
to 15 days. Each Fund reserves the right to suspend the right of redemption or
postpone the payment of redemption proceeds to the extent permitted by the SEC.
Shareholders may realize taxable gains upon redeeming shares.
For information regarding redemption orders placed through a financial
professional, please see "Financial Professionals" above.
EXCHANGE OF SHARES
Subject to the limitations below, an investor may exchange shares from
a Fund into any other J.P. Morgan Fund or J.P. Morgan Institutional Fund without
charge. An exchange may be made so long as after the exchange the investor has
shares, in each fund in which he or she remains an investor, with a value of at
least that fund's minimum investment amount. Shareholders should read the
prospectus of the fund into which they are exchanging and may only exchange
between fund accounts that are registered in the same name, address and taxpayer
identification number. Shares are exchanged on the basis of relative net asset
value per share. Exchanges are in effect redemptions from one fund and purchases
of another fund and the usual purchase and redemption procedures and
requirements are applicable to exchanges. The Funds generally intend to pay
redemption proceeds in cash; however, since they reserve the right at their sole
discretion to pay redemptions over $500,000 (in the case of the Tax Aware
Disciplined Equity Fund) or $250,000 (in the case of the Tax Aware U.S. Equity
Fund) in-kind as a portfolio of representative stocks rather than cash, each
Fund reserves the right to deny an exchange request in excess of those amounts.
See "Redemption of Shares". Shareholders subject to federal income tax who
exchange shares in one fund for shares in another fund may recognize capital
gain or loss for federal income tax purposes. Shares of a fund to be acquired
are purchased for settlement when the proceeds from redemption become available.
The Trust reserves the right to discontinue, alter or limit the exchange
privilege at any time.
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
Each Fund declares and pays dividends and distributions as described in
the Prospectus.
A Fund's dividends and distributions are paid in additional shares
unless the shareholder elects to have them paid in cash. The tax effects of
dividends and distributions are the same whether they are paid in shares or
cash. Cash dividends and distributions either (1) are credited to the
shareholder's account at J.P. Morgan or at his financial professional or (2) in
the case of certain J.P. Morgan clients, are paid by a check mailed in
accordance with the client's instructions.
NET ASSET VALUE
Each of the Funds computes its net asset value separately for each
class of shares outstanding once daily as of the close of trading on the New
York Stock Exchange (normally 4:00 p.m. eastern time) on each business day as
described in the Prospectus. The net asset value will not be computed on the day
the following legal holidays are observed: New Year's Day, Martin Luther King
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day. On days when U.S. trading markets close
early in observance of these holidays, each of the Funds will close for
purchases and redemptions at the same time. Each of the Funds also may close for
purchases and redemptions at such other times as may be determined by the Board
of Trustees to the extent permitted by applicable law. The days on which net
asset value is determined are the Funds' business days.
The value of investments listed on a domestic or foreign securities
exchange, including National Association of Securities Dealers Automated
Quotations ("NASDAQ"), other than options on stock indexes, is based on the last
sale prices on the exchange on which the security is principally traded (the
"primary exchange"). If there has been no sale on the primary exchange on the
valuation date, and the spread between bid and asked quotations on the primary
exchange is less than or equal to 10% of the bid price for the security, the
security shall be valued at the average of the closing bid and asked quotations
on the primary exchange. Under all other circumstances (e.g. there is no last
sale on the primary exchange, there are no bid and asked quotations on the
primary exchange, or the spread between bid and asked quotations is greater than
10% of the bid price), the value of the security shall be the last sale price on
the primary exchange up to ten days prior to the valuation date unless, in the
judgment of the portfolio manager, material events or conditions since such last
sale necessitate fair valuation of the security. The value of each security for
which readily available market quotations exist is based on a decision as to the
broadest and most representative market for such security. For purposes of
calculating net asset value all assets and liabilities initially expressed in
foreign currencies will be converted into U.S. dollars at the prevailing
currency rate average on the valuation date.
Options on stock indexes traded on national securities exchanges are
valued at the close of options trading on such exchanges which is currently 4:10
p.m. New York time. Stock index futures and related options, which are traded on
commodities exchanges, are valued at their last sales price as of the close of
such commodities exchanges which is currently 4:15 p.m., New York time. Options
and futures traded on foreign exchanges are valued at the last sale price
available prior to the calculation of each Fund's net asset value. Securities or
other assets for which market quotations are not readily available (including
certain illiquid securities) are valued at fair value in accordance with
procedures established by and under the general supervision and responsibility
of the Trustees. Such procedures include the use of independent pricing services
which use prices based upon yields or prices of securities of comparable
quality, coupon, maturity and type; indications as to values from dealers; and
general market conditions. Short-term investments which mature in 60 days or
less are valued at amortized cost if their original maturity was 60 days or
less, or by amortizing their value on the 61st day prior to maturity, if their
original maturity when acquired by the Fund was more than 60 days, unless this
is determined not to represent fair value by the Trustees.
Trading in securities on most foreign markets is normally completed
before the close of trading in U.S. markets and may also take place on days on
which the U.S. markets are closed. If events materially affecting the value of
securities occur between the time when the market in which they are traded
closes and the time when each Fund's net asset value is calculated, such
securities will be valued at fair value in accordance with procedures
established by and under the general supervision of the Trustees.
PERFORMANCE DATA
From time to time, the Funds may quote performance in terms of actual
distributions, total return or capital appreciation for the various Fund classes
in reports, sales literature and advertisements published by the Trust. Current
performance information may be obtained by calling Morgan at (800) 766-7722 for
J.P. Morgan Tax Aware Disciplined Equity Fund and J.P. Morgan Tax Aware U.S.
Equity Fund: Institutional Shares and (800) 521-5411 for J.P. Morgan Tax Aware
U.S. Equity Fund: Select Shares.
The classes of shares of each Fund may bear different shareholder
servicing fees and other expenses, which may cause the performance of a class to
differ from the performance of another class. Performance quotations will be
computed separately for each class of a Fund's shares. Any fees charged by an
institution directly to its customers' accounts in connection with investments
in the Funds will not be included in calculations of total return.
Total Return Quotations. As required by regulations of the SEC, average
annual total return of each Fund's class of shares for a period is computed by
assuming a hypothetical initial payment of $1,000. It is then assumed that all
of the dividends and distributions by the Fund over the period are reinvested.
It is then assumed that at the end of the period, the entire amount is redeemed.
The average annual total return is then calculated by determining the annual
rate required for the initial payment to grow to the amount which would have
been received upon redemption.
Aggregate total returns, reflecting the cumulative percentage change
over a measuring period, may also be calculated.
The historical performance information shown below with regards to Tax
Aware U.S. Equity Fund (Select shares), a separate class of shares, reflects
operating expenses which were lower than those of the Tax Aware U.S. Equity Fund
(Institutional shares). The Tax Aware U.S. Equity Fund's (Institutional shares)
returns wound have been lower had it existed during the same period.
Below is set forth historical return information for the Funds for the
periods indicated:
Tax Aware Disciplined Equity Fund (institutional shares) (04/30/00):
Average annual total return, 1 year: 5.27%; average annual total return, 5
years: N/A; average annual total return, commencement of operations (January 30,
1997) to period end: 22.79%; aggregate total return, 1 year: 5.27%; aggregate
total return, 5 years: N/A; aggregate total return, commencement of operations
(January 30, 1997) to period end: 94.85%.
Tax Aware U.S. Equity Fund (select shares) (04/30/00): Average annual total
return, 1 year: 8.78%; average annual total return, 5 years: N/A; average annual
total return, commencement of operations (December 18, 1996) to period end:
23.87%; aggregate total return, 1 year: 8.78%; aggregate total return, 5 years:
N/A; aggregate total return, commencement of operations (December 18, 1996) to
period end: 105.61%.
General. Performance will vary from time to time depending upon market
conditions, the composition of the portfolio, and operating expenses.
Consequently, any given performance quotation should not be considered
representative of a Fund's performance for any specified period in the future.
In addition, because performance will fluctuate, it may not provide a basis for
comparing an investment in a Fund with certain bank deposits or other
investments that pay a fixed yield or return for a stated period of time.
Comparative performance information may be used from time to time in
advertising the Funds' shares, including appropriate market indices including
the benchmarks indicated under "Investment Advisor" above or data from Lipper
Analytical Services, Inc., Micropal, Inc., Ibbotson Associates, Morningstar
Inc., the Dow Jones Industrial Average and other industry publications.
From time to time, the Funds may, in addition to any other permissible
information, include the following types of information in advertisements,
supplemental sales literature and reports to shareholders: (1) discussions of
general economic or financial principles (such as the effects of compounding and
the benefits of dollar-cost averaging); (2) discussions of general economic
trends; (3) presentations of statistical data to supplement such discussions;
(4) descriptions of past or anticipated portfolio holdings for one or more of
the Funds; (5) descriptions of investment strategies for one or more of the
Funds; (6) descriptions or comparisons of various savings and investment
products (including, but not limited to, qualified retirement plans and
individual stocks and bonds), which may or may not include the Funds; (7)
comparisons of investment products (including the Funds) with relevant markets
or industry indices or other appropriate benchmarks; (8) discussions of Fund
rankings or ratings by recognized rating organizations; and (9) discussions of
various statistical methods quantifying a Fund's volatility relative to its
benchmark or to past performance, including risk adjusted measures. The Funds
may also include calculations, such as hypothetical compounding examples, which
describe hypothetical investment results in such communications. Such
performance examples will be based on an express set of assumptions and are not
indicative of the performance of any of the Funds.
PORTFOLIO TRANSACTIONS
The Advisor places orders for all Funds for all purchases and sales of
portfolio securities, enters into repurchase agreements and may enter into
reverse repurchase agreements and execute loans of portfolio securities on
behalf of all the Funds.
See "Investment Objectives and Policies."
Fixed income and debt securities are generally traded at a net price
with dealers acting as principal for their own accounts without a stated
commission. The price of the security usually includes profit to the dealers. In
underwritten offerings, securities are purchased at a fixed price which includes
an amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount. On occasion, certain securities may be
purchased directly from an issuer, in which case no commissions or discounts are
paid. The Advisor intends to seek best execution on a competitive basis for both
purchases and sales of securities.
In selecting a broker, the Advisor considers a number of factors
including: the price per unit of the security; the broker's reliability for
prompt, accurate confirmations and on-time delivery of securities; the broker's
financial condition; and the commissions charged. A broker may be paid a
brokerage commission in excess of that which another broker might have charged
for effecting the same transaction if, after considering the foregoing factors,
the Advisor decides that the broker chosen will provide the best execution. The
Advisor monitors the reasonableness of the brokerage commissions paid in light
of the execution received. The Trust's Trustees review regularly the
reasonableness of commissions and other transaction costs incurred by the Funds
in light of facts and circumstances deemed relevant from time to time and, in
that connection, will receive reports from Morgan and published data concerning
transaction costs incurred by institutional investors generally.
Research services provided by brokers to which the Advisor has
allocated brokerage business in the past include economic statistics and
forecasting services, industry and company analyses, portfolio strategy
services, quantitative data, and consulting services from economists and
political analysts. Research services furnished by brokers are used for the
benefit of all of the Advisor's clients and not solely or necessarily for the
benefit of an individual Fund. the Advisor believes that the value of research
services received is not determinable and does not significantly reduce its
expenses. The Funds do not reduce their fee to the Advisor by any amount that
might be attributable to the value of such services.
The Funds paid the following approximate brokerage commissions for the
indicated fiscal periods:
Tax Aware Disciplined Equity Fund: For the period January 30, 1997
(commencement of operations) through October 31, 1997 and for the fiscal years
ended October 31, 1998 and 1999: $2,800, $59,170 and $188,634, respectively. For
the semi-annual period ended April 30, 2000 (unaudited): $152,277.
Tax Aware U.S. Equity Fund: For the period December 18, 1996 (commencement
of operations) through October 31, 1997 and for the fiscal years ended October
31, 1998 and 1999: $4,971, $48,738 and $76,033, respectively. For the
semi-annual period ended April 30, 2000 (unaudited): $34,203.
Subject to the overriding objective of obtaining the best execution of
orders, the Advisor may allocate a portion of a Fund's brokerage transactions to
affiliates of the Advisor. Under the 1940 Act, persons affiliated with the Fund
and persons who are affiliated with such persons are prohibited from dealing
with the Fund as principal in the purchase and sale of securities unless a
permissive order allowing such transactions is obtained from the SEC. However,
affiliated persons of the Fund may serve as its broker in listed or
over-the-counter transactions conducted on an agency basis provided that, among
other things, the fee or commission received by such affiliated broker is
reasonable and fair compared to the fee or commission received by non-affiliated
brokers in connection with comparable transactions. In addition, the Fund may
not purchase securities during the existence of any underwriting syndicate for
such securities of which the Advisor or an affiliate is a member or in a private
placement in which the Advisor or an affiliate serves as placement agent except
pursuant to procedures adopted by the Board of Trustees of the Fund that either
comply with rules adopted by the SEC or with interpretations of the SEC's staff.
Investment decisions made by the Advisor are the product of many
factors in addition to basic suitability for the particular Fund or other client
in question. Thus, a particular security may be bought or sold for certain
clients even though it could have been bought or sold for other clients at the
same time. Likewise, a particular security may be bought for one or more clients
when one or more other clients are selling the same security. The Funds may only
sell a security to each other or to other accounts managed by the Advisor or its
affiliates in accordance with procedures adopted by the Trustees.
It also sometimes happens that two or more clients simultaneously
purchase or sell the same security. On those occasions when the Advisor deems
the purchase or sale of a security to be in the best interests of a Fund, as
well as other clients including other Funds, the Advisor to the extent permitted
by applicable laws and regulations, may, but is not obligated to, aggregate the
securities to be sold or purchased for a Fund with those to be sold or purchased
for other clients in order to obtain best execution, including lower brokerage
commissions if appropriate. In such event, allocation of the securities so
purchased or sold as well as any expenses incurred in the transaction will be
made by the Advisor in the manner it considers to be most equitable and
consistent with the Advisor 's fiduciary obligations to a Fund. In some
instances, this procedure might adversely affect a Fund.
MASSACHUSETTS TRUST
The Trust is a "Massachusetts business trust" of which each Fund is a
separate and distinct series. A copy of the Declaration of Trust for the Trust
is on file in the office of the Secretary of The Commonwealth of Massachusetts.
Under Massachusetts law, shareholders of such a trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
trust. However, the Trust's Declaration of Trust provides that the shareholders
will not be subject to any personal liability for the acts or obligations of any
Fund and that every written agreement, obligation, instrument or undertaking
made on behalf of any Fund will contain a provision to the effect that the
shareholders are not personally liable thereunder.
Effective May 12, 1997, the name of the U.S. Equity Fund was changed
from "Tax Aware Equity Fund" to "Tax Aware U.S. Equity Fund". Effective January
1, 1998, the name of the Trust was changed from "JPM Series Trust" to "J.P.
Morgan Series Trust", the name of the U.S. Equity Fund was changed from "Tax
Aware U.S. Equity Fund" to "J.P. Morgan Tax Aware U.S. Equity Fund", the name of
the Disciplined Equity Fund was changed from "Tax Aware Disciplined Equity Fund"
to "J.P. Morgan Tax Aware Disciplined Equity Fund", the "JPM Pierpont Shares"
were renamed "Select Shares", and "JPM Pierpont Shares" of "Tax Aware
Disciplined Equity Fund" were renamed "Institutional Shares" of "J.P. Morgan Tax
Aware Disciplined Equity Fund".
The Trust's Declaration of Trust further provides that no Trustee,
Member of the Advisory Board, officer, employee, or agent of the Trust is liable
to a Fund or to a shareholder, and that no Trustee, Member of the Advisory
Board, officer, employee, or agent is liable to any third persons in connection
with the affairs of a Fund, except as such liability may arise from his or its
own bad faith, willful misfeasance, gross negligence or reckless disregard of
his or its duties to such third persons ("disabling conduct"). It also provides
that all third persons must look solely to Fund property for satisfaction of
claims arising in connection with the affairs of a Fund. The Trust's Declaration
of Trust provides that a Trustee, Member of the Advisory Board, officer,
employee, or agent is entitled to be indemnified against all liability in
connection with the affairs of a Fund, except liabilities arising from disabling
conduct.
DESCRIPTION OF SHARES
Each Fund represents a separate series of shares of beneficial interest of
the Trust. Fund shares are further divided into separate classes. See
"Massachusetts Trust."
The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares ($0.001 par value) of one or more series
and classes within any series and to divide or combine the shares of any series
without changing the proportionate beneficial interest of each shareholder in a
Fund. To date, shares of each Fund described in this Statement of Additional
Information have been authorized and are currently available for sale to the
public.
Each share represents an equal proportional interest in a Fund with
each other share of the same class. Upon liquidation of a Fund, holders are
entitled to share pro rata in the net assets of a Fund available for
distribution to such shareholders. Shares of a Fund have no preemptive or
conversion rights.
The shareholders of the Trust are entitled to one full or fractional
vote for each dollar or fraction of a dollar invested in shares. Subject to the
1940 Act, the Trustees have the power to alter the number and the terms of
office of the Trustees, to lengthen their own terms, or to make their terms of
unlimited duration, subject to certain removal procedures, and to appoint their
own successors. However, immediately after such appointment, the requisite
majority of the Trustees must have been elected by the shareholders of the
Trust. The voting rights of shareholders are not cumulative. The Trust does not
intend to hold annual meetings of shareholders. The Trustees may call meetings
of shareholders for action by shareholder vote if required by either the 1940
Act or the Trust's Declaration of Trust.
Shareholders of the Trust have the right, upon the declaration in
writing or vote of shareholders whose shares represent two-thirds of the net
asset value of the Trust, to remove a Trustee. The Trustees will call a meeting
of shareholders to vote on removal of a Trustee upon the written request of the
shareholders whose shares represent 10% of the net asset value of the Trust. The
Trustees are also required, under certain circumstances, to assist shareholders
in communicating with other shareholders.
As of June 30, 2000, the following owned of record or, to the knowledge of
management, beneficially owned more than 5% of the outstanding shares of:
Tax Aware Disciplined Equity Fund (institutional shares) - Charles Schwab &
Co. Inc. Special Custody Account for the benefit of Customers (34.03%).
Tax Aware U.S. Equity Fund (select shares) - Charles Schwab & Co. Inc.
Special Custody Account for the benefit of Customers (11.37%).
The address of each owner listed above is c/o JPMIM, 522 Fifth Avenue,
New York, New York 10036. As of the date of this Statement of Additional
Information the officers, Trustees and Members of the Advisory Board as a group
owned less than 1% of the beneficial shares of each Fund.
TAXES
The following discussion of tax consequences is based on U.S. federal
tax laws in effect on the date of this Statement of Additional Information.
These laws and regulations are subject to change by legislative or
administrative action, possibly on a retroactive basis.
Each Fund intends to qualify and remain qualified as a regulated
investment company under Subchapter M of the Code. As a regulated investment
company, a Fund must, among other things, (a) derive at least 90% of its gross
income from dividends, interest, payments with respect to loans of stock and
securities, gains from the sale or other disposition of stock or securities and
other income (including but not limited to gains from options and futures
contracts) derived with respect to its business of investing in such stock or
securities; and (b) diversify its holdings so that, at the end of each fiscal
quarter, (i) at least 50% of the value of a Fund's total assets is represented
by cash, U.S. Government securities, investments in other regulated investment
companies and other securities limited, in respect of any one issuer, to an
amount not greater than 5% of a Fund's total assets, and 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of its
total assets is invested in the securities of any one issuer (other than U.S.
Government securities or the securities of other regulated investment
companies).
As a regulated investment company, a Fund (as opposed to its
shareholders) will not be subject to federal income taxes on the net investment
income and capital gains that it distributes to its shareholders, provided that
at least 90% of its net investment income and realized net short-term capital
gains in excess of net long-term capital losses for the taxable year is
distributed in accordance with the Code's requirements.
Under the Code, a Fund will be subject to a 4% excise tax on a portion
of its undistributed taxable income and capital gains if it fails to meet
certain distribution requirements by the end of the calendar year. Each Fund
intends to make distributions in a timely manner and accordingly does not expect
to be subject to the excise tax.
For federal income tax purposes, dividends that are declared by a Fund
in October, November or December as of a record date in such month and actually
paid in January of the following year will be treated as if they were paid on
December 31 of the year declared. Therefore, such dividends will generally be
taxable to a shareholder in the year declared rather than the year paid.
For federal income tax purposes, the Tax Aware U.S. Equity Fund had a
capital loss carryforward of $5,184,197 at October 31, 1999, of which $81,365
will expire in the year 2005 and $498,314 will expire in the year 2006, and
$4,604,518 will expire in the year 2007. In addition, the Tax Aware Disciplined
Equity had a capital loss carry forward of $802,394 at October 31, 1999, which
will expire in the year 2006. To the extent that these capital losses are used
by the respective Fund to offset future capital gains, it is probable that the
gains so offset will not be distributed to shareholders.
Distributions of net investment income and realized net short-term
capital gain in excess of net long-term capital loss generally taxable to
shareholders of the Funds as ordinary income whether such distributions are
taken in cash or reinvested in additional shares. The Funds expect that a
portion of these distributions to corporate shareholders will be eligible for
the dividends-received deduction, subject to applicable limitations under the
Code. If dividend payments exceed income earned by a Fund, the overdistribution
would be considered a return of capital rather than a dividend payment. The
Funds intend to pay dividends in such a manner so as to minimize the possibility
of a return of capital. Distributions of net long-term capital gain (i.e., net
long-term capital gain in excess of net short-term capital loss) are taxable to
shareholders of a Fund as long-term capital gain, regardless of whether such
distributions are taken in cash or reinvested in additional shares and
regardless of how long a shareholder has held shares in a Fund. In general,
long-term capital gain of an individual shareholder will be subject to a 20%
rate of tax.
Gains or losses on sales of portfolio securities will be treated as
long-term capital gains or losses if the securities have been held for more than
one year except in certain cases where, if applicable, a put option is acquired
or a call option is written thereon or the straddle rules described below are
otherwise applicable. Other gains or losses on the sale of securities will be
short-term capital gains or losses. Gains and losses on the sale, lapse or other
termination of options on securities will be treated as gains and losses from
the sale of securities. Except as described below, if an option written by a
Fund lapses or is terminated through a closing transaction, such as a repurchase
by the Fund of the option from its holder, the Fund will realize a short-term
capital gain or loss, depending on whether the premium income is greater or less
than the amount paid by the Fund in the closing transaction. If securities are
purchased by a Fund pursuant to the exercise of a put option written by it, the
Fund will subtract the premium received from its cost basis in the securities
purchased.
Any distribution of net investment income or capital gains will have
the effect of reducing the net asset value of Fund shares held by a shareholder
by the same amount as the distribution. If the net asset value of the shares is
reduced below a shareholder's cost as a result of such a distribution, the
distribution, although constituting a return of capital to the shareholder, will
be taxable as described above. Investors should consider the consequences of
purchasing shares in the Fund shortly before the Fund declares a sizable
dividend distribution.
Any gain or loss realized on the redemption or exchange of Fund shares
by a shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held for more than one year, and
otherwise as short-term capital gain or loss. Long-term capital gain of an
individual holder is subject to maximum tax rate of 20%. However, any loss
realized by a shareholder upon the redemption or exchange of shares in a Fund
held for six months or less will be treated as a long-term capital loss to the
extent of any long-term capital gain distributions received by the shareholder
with respect to such shares. In addition, no loss will be allowed on the
redemption or exchange of shares of a Fund, if within a period beginning 30 days
before the date of such redemption or exchange and ending 30 days after such
date, the shareholder acquires (such as through dividend reinvestment)
securities that are substantially identical to shares of the Fund. Investors are
urged to consult their tax advisors concerning the limitations on the
deductibility of capital losses.
Under the Code, gains or losses attributable to fluctuations in
exchange rates between the time a Fund accrues income or receivables or expenses
or other liabilities denominated in a foreign currency and the time a Fund
actually collects such income or pays such liabilities, are generally treated as
ordinary income or ordinary loss. Similarly, gains or losses on the disposition
of debt securities held by a Fund, if any, denominated in foreign currency, to
the extent attributable to fluctuations in exchange rates between the
acquisition and disposition dates are also treated as ordinary income or loss.
Options and futures contracts entered into by a Fund may create
"straddles" for U.S. federal income tax purposes and this may affect the
character and timing of gains or losses realized by the Fund on options and
futures contracts or on the underlying securities.
Certain options and futures held by a Fund at the end of each taxable
fiscal year will be required to be "marked to market" for federal income tax
purposes -- i.e., treated as having been sold at market value. For options and
futures contracts, 60% of any gain or loss recognized on these deemed sales and
on actual dispositions will be treated as long-term capital gain or loss, and
the remainder will be treated as short-term capital gain or loss regardless of
how long the Fund has held such options or futures.
The Funds may invest in Equity Securities of foreign issuers. If a Fund
purchases shares in certain foreign investment funds (referred to as passive
foreign investment companies ("PFICs") under the Code), the Fund may be subject
to federal income tax on a portion of an "excess distribution" from such foreign
investment fund, including any gain from the disposition of such shares, even
though such income may have to be distributed as a taxable dividend by a Fund to
its shareholders. In addition, certain interest charges may be imposed on a Fund
as a result of such distributions. Alternatively, a Fund may in certain
circumstances include each year in its income and distribute to shareholders a
pro rata portion of the PFIC's income, whether or not distributed to a Fund.
The Funds will be permitted to "mark to market" any marketable stock
held by a Fund in a PFIC. If a Fund made such an election, it would include in
income each year an amount equal to its share of the excess, if any, of the fair
market value of the PFIC stock as of the close of the taxable year over the
adjusted basis of such stock. A Fund would be allowed a deduction for its share
of the excess, if any, of the adjusted basis of the PFIC stock over its fair
market value as of the close of the taxable year, but only to the extent of any
net mark-to-market gains with respect to the stock included by a Fund for prior
taxable years.
If a correct and certified taxpayer identification number is not on
file, a Fund is required, subject to certain exemptions, to withhold 31% of
certain payments made or distributions declared to non-corporate shareholders.
Foreign Shareholders. Dividends of net investment income and
distributions of realized net short-term gain in excess of net long-term loss to
a shareholder who, as to the United States, is a nonresident alien individual,
fiduciary of a foreign trust or estate, foreign corporation or foreign
partnership (a "foreign shareholder") will be subject to U.S. withholding tax at
the rate of 30% (or lower treaty rate) unless the dividends are effectively
connected with a U.S. trade or business of the shareholder, in which case the
dividends will be subject to tax on a net income basis at the graduated rates
applicable to U.S. individuals or domestic corporations. Distributions treated
as long term capital gains to foreign shareholders will not be subject to U.S.
tax unless the distributions are effectively connected with the shareholder's
trade or business in the United States or, in the case of a shareholder who is a
nonresident alien individual, the shareholder was present in the United States
for more than 182 days during the taxable year and certain other conditions are
met.
In the case of a foreign shareholder who is a nonresident alien
individual or foreign entity, a Fund may be required to withhold U.S. federal
income tax as "backup withholding" at the rate of 31% from distributions treated
as long-term capital gains from the proceeds of redemptions, exchanges or other
dispositions of Fund shares unless IRS Form W-8BEN (or any successor form) is
provided. Transfers by gift of shares of a Fund by a foreign shareholder who is
a nonresident alien individual will not be subject to U.S. federal gift tax, but
the value of shares of a Fund held by such a shareholder at his or her death
will be includible in his or her gross estate for U.S. federal estate tax
purposes.
Foreign Taxes. It is expected that the Funds may be subject to foreign
withholding taxes or other foreign taxes with respect to income (possibly
including, in some cases, capital gains received from sources within foreign
countries.
State and Local Taxes. Each Fund may be subject to state or local taxes
in jurisdictions in which a Fund is deemed to be doing business. In addition,
the treatment of a Fund and its shareholders in those states which have income
tax laws might differ from treatment under the federal income tax laws.
Shareholders should consult their own tax advisors with respect to any state or
local taxes.
Other Taxation. The Trust is organized as a Massachusetts business
Trust and, under current law, neither the Trust nor any Fund is liable for any
income or franchise tax in The Commonwealth of Massachusetts, provided that each
Fund continues to qualify as a regulated investment company under Subchapter M
of the Code.
ADDITIONAL INFORMATION
Telephone calls to the Funds, J.P. Morgan or State Street may be tape
recorded. With respect to the securities offered hereby, this Statement of
Additional Information and the Prospectus do not contain all the information
included in the Trust's registration statement filed with the SEC under the 1933
Act and the Trust's registration statement filed under the 1940 Act. Pursuant to
the rules and regulations of the SEC, certain portions have been omitted. The
registration statement including the exhibits filed therewith may be examined at
the office of the SEC in Washington, D.C.
Statements contained in this Statement of Additional Information and
the Prospectus concerning the contents of any contract or other document are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the applicable
Registration Statements. Each such statement is qualified in all respects by
such reference.
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in the
Prospectus and this Statement of Additional Information, in connection with the
offer contained therein and, if given or made, such other information or
representations must not be relied upon as having been authorized by any of the
Trust, the Funds or FDI. The Prospectus and this Statement of Additional
Information do not constitute an offer by any Fund or by FDI to sell or solicit
any offer to buy any of the securities offered hereby in any jurisdiction to any
person to whom it is unlawful for the Fund or FDI to make such offer in such
jurisdictions.
FINANCIAL STATEMENTS
The following financial statements of each Fund and the report thereon
of PricewaterhouseCoopers LLP are incorporated herein by reference from their
respective annual report filings made with the SEC pursuant to Section 30(b) of
the 1940 Act and Rule 30b2-1 thereunder. Additionally, the financial statements
of each Fund are incorporated herein by reference from their respective
semi-annual report filings made with the SEC pursuant to Section 30(b) of the
1940 Act and Rule 30b2-1 thereunder. Any of the following financial reports are
available without charge upon request by calling J.P. Morgan Fund Services at
(800) 766-7722 for Tax Aware Disciplined Equity Fund: Institutional Shares and
(800) 521-5411 for Tax Aware U.S. Equity Fund: Select Shares.
<TABLE>
<CAPTION>
<S> <C> <C>
------------------------------------- ---------------------------------------
---------------------------------------------
Date of Annual Report; Date Annual Date of Semi-Annual Report; Date
Name of Fund Report Filed; and Accession Number Semi-Annual Report Filed; and Accession
Number
------------------------------------- ---------------------------------------
---------------------------------------------
-------------------------------------
Tax Aware Disciplined Equity Fund 10/31/99; 1/05/00; 4/30/00; 7/7/00;
0000912057-00-000267 0000912057-00-031186
-------------------------------------
------------------------------------- ---------------------------------------
---------------------------------------------
Tax Aware U.S. Equity Fund: Select 10/31/99; 1/05/00; 4/30/00; 7/06/00;
Shares 0000912057-00-000266 0000912057-00-030911
------------------------------------- ---------------------------------------
---------------------------------------------
</TABLE>
<PAGE>
APPENDIX A
Description of Securities Ratings
STANDARD & POOR'S
Corporate and Municipal Bonds
AAA - Debt rated AAA has the highest ratings assigned by Standard & Poor's
to a debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only
in a small degree.
A - Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for debt in
higher rated categories.
BB-B - Debt rated BB and B is regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and
repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation. While such debt will likely
have some quality and protective characteristics, these are outweighed
by large uncertainties or major risk exposures to adverse conditions.
Commercial Paper, including Tax Exempt
A - Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are
further refined with the designations 1, 2, and 3 to indicate the
relative degree of safety.
A-1 - This designation indicates that the degree of safety regarding timely
payment is very strong.
Short-Term Tax-Exempt Notes
SP-1 - The short-term tax-exempt note rating of SP-1 is the highest rating
assigned by Standard & Poor's and has a very strong or strong capacity
to pay principal and interest. Those issues determined to possess
overwhelming safety characteristics are given a "plus" (+) designation.
SP-2 - The short-term tax-exempt note rating of SP-2 has a satisfactory
capacity to pay principal and interest.
MOODY'S
Corporate and Municipal Bonds
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long term risks
appear somewhat larger than in Aa securities.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
Ba - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection
of interest and principal payments may be very moderate, and thereby
not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Commercial Paper, including Tax Exempt
- Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics:
- Leading market positions in well established industries. - High rates of
return on funds employed. - Conservative capitalization structures with moderate
reliance on debt and ample asset protection. - Broad margins in earnings
coverage of fixed financial charges and high internal cash generation. - Well
established access to a range of financial markets and assured sources of
alternate liquidity.
Short-Term Tax Exempt Notes
MIG-1 - The short-term tax-exempt note rating MIG-1 is the highest rating
assigned by Moody's for notes judged to be the best quality. Notes with
this rating enjoy strong protection from established cash flows of
funds for their servicing or from established and broad-based access to
the market for refinancing, or both.
MIG-2 - MIG-2 rated notes are of high quality but with margins of
protection not as large as MIG-1.
--------
1Mr. Healey is an "interested person" (as defined in the 1940 Act) of
the Trust.
Part C
ITEM 23. EXHIBITS.
(a) Declaration of Trust.(1)
(a)1 Amendment No. 1 to Declaration of Trust, Amended and Restated
Establishment and Designation of Series and Classes of Shares of Beneficial
Interest.(2)
(a)2 Amendment No. 2 to Declaration of Trust, Second Amended and Restated
Establishment and Designation of Series and Classes of Shares of Beneficial
Interest.(4)
(a)3 Amendment No. 3 to Declaration of Trust, Third Amended and Restated
Establishment and Designation of Series and Classes of Shares of Beneficial
Interest.(6)
(a)4 Amendment No. 4 to Declaration of Trust, Fourth Amended and Restated
Establishment and Designation of Series and Classes of Shares of Beneficial
Interest.(8)
(a)5 Amendment No. 5 to Declaration of Trust, Fifth Amended and Restated
Establishment and Designation of Series and Classes of Shares of Beneficial
Interest.(10)
(a)6 Amendment No. 6 to Declaration of Trust.
(a)7 Amendment No. 7 to Declaration of Trust.
(a)8 Amendment No. 8 to Declaration of Trust.
(b) Restated By-Laws.(2)
(b)(1) Amendment to Restated By-Laws of Registrant. (12)
(d) Amended Investment Advisory Agreement between Registrant and J.P.
Morgan Investment Management Inc. ("JPMIM").(9)
(d)1 Amended Investment Advisory Agreement between Registrant and J.P.
Morgan Investment Management Inc.
(e) Form of Distribution Agreement between Registrant and Funds
Distributor, Inc. ("FDI").(2)
(g) Form of Custodian Contract between Registrant and State Street Bank and
Trust Company ("State Street").(2)
(g)2 Custodian Contract between Registrant and Bank of New York.(12)
(h)1 Form of Co-Administration Agreement between Registrant and FDI.(2)
(h)2 Form of Administrative Services Agreement between Registrant and
Morgan Guaranty Trust Company of New York ("Morgan").(2)
(h)3 Form of Transfer Agency and Service Agreement between Registrant and
State Street.(2)
(h)4 Form of Restated Shareholder Servicing Agreement between Registrant
and Morgan.(9)
(h)5 Form of Shareholder Servicing Agreement between Registrant
and Morgan.
(j) Consent of independent accountants.
(l) Purchase agreement with respect to Registrant's initial shares.(2)
(n) Financial Data Schedules (not applicable)
(o)1 18f-3 Plan for J.P. Morgan California Bond Fund.(3)
(o)2 18f-3 Plan for J.P. Morgan Global 50 Fund. (7)
(o)3 18f-3 Plan for J.P. Morgan Tax Aware Enhanced Income Fund (11)
(p)(1) Code of Ethics for J.P. Morgan Series Trust. (13)
(p)(2) Code of Ethics for J.P. Morgan Investment Management Inc. (13)
(p)(3) Code of Ethics for Funds Distributor Inc. (13)
-------------------
(1) Incorporated herein from Registrant's registration statement on
Form N-1A as filed on August 29, 1996 (Accession No.
0000912057-96-019242).
(2) Incorporated herein from Registrant's registration statement on
Form N-1A as filed on November 8, 1996 (Accession No.
0001016964-96-000034).
(3) Incorporated herein from Registrant's registration statement on
Form N-1A as filed on February 10, 1997 (Accession No.
0001016964-97-000014).
(4) Incorporated herein from Registrant's registration statement on
Form N-1A as filed on June 19, 1997 (Accession No.
0001016964-97-000117).
(5) Incorporated herein from Registrant's registration statement on
Form N-1A as filed on October 21, 1997 (Accession No.
0001042058-97-000005).
(6) Incorporated herein from Registrant's registration statement on
Form N-1A as filed on January 2, 1998 (Accession
No.0001041455-98-000012).
(7) Incorporated herein from Registrant's registration statement on
Form N-1A as filed on March 2, 1998 (Accession No.
0001042058-98-000030).
(8) Incorporated herein from Registrant's registration statement on
Form N-1A as filed on July 28, 1998 (Accession No.
0001041455-98-000039).
(9) Incorporated herein from Registrant's registration statement on
Form N-1A as filed on August 25, 1998 (Accession No.
0001041455-98-000054).
(10) Incorporated herein from Registrant's registration statement on Form
N-1A as filed on December 30, 1998(Accession No. 0001041455-98-000054).
(11) Incorporated herein from Registrant's registration statement on
Form N-1A as filed on February 1, 1999 (Accession No.
0000899681-99-000024).
(12) Incorporated herein from Registrant's registration statement on
Form N-1A as filed on February 28, 2000 (Accession
No. 0001041455-00-000052).
(13) Incorporated herein from Registrant's registration statement on
Form N-1A as filed on April 17, 2000 (Accession No.
0001041455-00-000096).
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND.
Not applicable.
ITEM 25. INDEMNIFICATION.
Reference is made to Section 5.3 of Registrant's Declaration of Trust and
Section 5 of Registrant's Distribution Agreement.
Registrant, its Trustees and officers are insured against certain expenses in
connection with the defense of claims, demands, actions, suits, or proceedings,
and certain liabilities that might be imposed as a result of such actions, suits
or proceedings.
Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended (the "1933 Act"), may be permitted to directors, trustees,
officers and controlling persons of the Registrant and the principal underwriter
pursuant to the foregoing provisions or otherwise, the Registrant has been
advised that in the opinion of the SEC such indemnification is against public
policy as expressed in the 1933 Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, trustee,
officer, or controlling person of the Registrant and the principal underwriter
in connection with the successful defense of any action, suite or proceeding) is
asserted against the Registrant by such director, trustee, officer or
controlling person or principal underwriter in connection with the shares being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the 1933 Act and will be governed by the final
adjudication of such issue.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER.
JPMIM is a registered investment adviser under the Investment Advisers
Act of 1940, as amended, and is a wholly owned subsidiary of J.P. Morgan & Co.
Incorporated. JPMIM manages employee benefit funds of corporations, labor unions
and state and local governments and the accounts of other institutional
investors, including investment companies.
To the knowledge of the Registrant, none of the directors, except those
set forth below, or executive officers of JPMIM, is or has been during the past
two fiscal years engaged in any other business, profession, vocation or
employment of a substantial nature, except that certain officers and directors
of JPMIM also hold various positions with, and engage in business for, J.P.
Morgan & Co. Incorporated, which owns all the outstanding stock of JPMIM.
ITEM 27. PRINCIPAL UNDERWRITERS.
(a) Funds Distributor, Inc. (the "Distributor") is the principal
underwriter of the Registrant's shares.
Funds Distributor, Inc. acts as principal underwriter for the following
investment companies other than the Registrant:
American Century California Tax-Free and Municipal Funds
American Century Capital Portfolios, Inc.
American Century Government Income Trust
American Century International Bond Funds
American Century Investment Trust
American Century Municipal Trust
American Century Mutual Funds, Inc.
American Century Premium Reserves, Inc.
American Century Quantitative Equity Funds
American Century Strategic Asset Allocations, Inc.
American Century Target Maturities Trust
American Century Variable Portfolios, Inc.
American Century World Mutual Funds, Inc.
BJB Investment Funds
The Brinson Funds
Dresdner RCM Capital Funds, Inc.
Dresdner RCM Equity Funds, Inc.
Founders Funds, Inc.
Harris Insight Funds Trust
HT Insight Funds, Inc. d/b/a Harris Insight Funds
J.P. Morgan Funds
J.P. Morgan Institutional Funds
J.P. Morgan Series Trust II
LaSalle Partners Funds, Inc.
Monetta Fund, Inc.
Monetta Trust
The Montgomery Funds
The Montgomery Funds II
The Munder Framlington Funds Trust
The Munder Funds Trust
The Munder Funds, Inc.
Orbitex Group of Funds
St. Clair Funds, Inc.
The Skyline Funds
Waterhouse Investors Family of Funds, Inc.
WEBS Index Fund, Inc.
Funds Distributor, Inc. does not act as depositor or investment adviser to
any of the investment companies.
Funds Distributor, Inc. is registered with the Securities and Exchange
Commission as a broker-dealer and is a member of the National Association of
Securities Dealers. Funds Distributor, Inc. is located at 60 State Street, Suite
1300, Boston, Massachusetts 02109. Funds Distributor, Inc. is an indirect
wholly-owned subsidiary of Boston Institutional Group, Inc., a holding company
all of whose outstanding shares are owned by key employees.
(b)
The following is a list of the executive officers, directors and partners of
Funds Distributor, Inc.:
Director, President and Chief Executive Officer: Marie E. Connolly
Executive Vice President: George Rio
Executive Vice President: Donald R. Roberson
Executive Vice President: William S. Nichols
Director, Senior Vice President, Treasurer and
Chief Financial Officer: Joseph F. Tower, III
Senior Vice President, General Counsel, Chief
Compliance Officer, Secretary and Clerk Margaret M. Chambers
Senior Vice President: Paula R. David
Senior Vice President: Judith K. Benson
Senior Vice President: Gary S. MacDonald
Director, Chairman of the Board, Executive
Vice President William J. Nutt
(c) Not applicable
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940, as amended (the "1940
Act"), and the Rules thereunder will be maintained at the offices of:
Morgan Guaranty Trust Company of New York and J.P. Morgan Investment
Management Inc.: 60 Wall Street, New York, New York 10260-0060, 9 West 57th
Street, New York, New York 10019 or 522 Fifth Avenue, New York, New York 10036
(records relating to its functions as investment advisor, shareholder servicing
agent and administrative services agent).
The Bank of New York, 1 Wall Street, New York, New York 10086 (records
relating to its functions as custodian and fund accounting agent).
State Street Bank and Trust Company: 1776 Heritage Drive, North Quincy,
Massachusetts 02171 (records relating to its functions as custodian, transfer
agent and dividend disbursing agent).
Funds Distributor, Inc.: 60 State Street, Suite 1300, Boston, Massachusetts
02109 (records relating to its functions as distributor and co-administrator).
Pierpont Group, Inc.: 461 Fifth Avenue, New York, New York 10017 (records
relating to its assisting the Trustees in carrying out their duties in
supervising the Registrant's affairs).
ITEM 29. MANAGEMENT SERVICES.
Not applicable.
ITEM 30. UNDERTAKINGS.
(a) If the information called for by Item 5A of Form N-1A is
contained in the latest annual report to shareholders, the
Registrant shall furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to
shareholders upon request and without charge.
(b) The Registrant undertakes to comply with Section 16(c) of the
1940 Act as though such provisions of the 1940 Act were
applicable to the Registrant, except that the request referred to
in the second full paragraph thereof may only be made by
shareholders who hold in the aggregate at least 10% of the
outstanding shares of the Registrant, regardless of the net asset
value of shares held by such requesting shareholders.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this registration statement under rule
485(b) under the Securities Act and has duly caused this Amendment to the
Registration Statement to be signed on its behalf caused this registration
statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of New York and State of New York on the 31st day of
July, 2000.
J.P. MORGAN SERIES TRUST
By /s/ Elba Vasquez
---------------------------------------
Elba Vasquez
Vice President and Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed below by the following persons in the capacities
indicated on July 31, 2000.
/s/ George A. Rio
------------------------------
George A. Rio
President and Treasurer
Officer of the Portfolios
Matthew Healey*
-----------------------------
Matthew Healey
Trustee, Chairman and Chief Executive Officer (Principal Executive Officer)
Frederick S. Addy*
------------------------------
Frederick S. Addy
Trustee
William G. Burns*
------------------------------
William G. Burns
Trustee
Arthur C. Eschenlauer*
------------------------------
Arthur C. Eschenlauer
Trustee
Michael P. Mallardi*
------------------------------
Michael P. Mallardi
Trustee
*By /s/ Elba Vasquez
----------------------------
Elba Vasquez
as attorney-in-fact pursuant to a power of attorney.
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
------------- ------------------------
Ex-99.(a) 6 Amendment No. 6 to the Declaration of Trust
Ex-99 (a) 8 Amendment No. 8 to the Declaration of Trust
Ex-99 (d) 1Amendment Investment Advisory Agreement
Ex-99 (h) 5 Form of Shareholder Servicing Agreement
Ex-99 (j) Independent Auditors Consent
