As filed with the U.S. Securities and Exchange Commission on June 28, 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. 24
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 25
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 [date] pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on [date] pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on [date] pursuant to paragraph (a)(ii) of Rule 485.
<PAGE>
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JUNE 28, 2000 | PROSPECTUS
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J.P. MORGAN INSTITUTIONAL
ENHANCED INCOME FUND
----------------------------------------------
Seeking high current income consistent with
principal preservation by investing in taxable
fixed income securities.
This prospectus contains essential information for anyone investing in the fund.
Please read it carefully and keep it for reference.
As with all mutual funds, the fact that these shares are registered with the
Securities and Exchange Commission does not mean that the commission approves
them or guarantees that the information in this prospectus is correct or
adequate. It is a criminal offense to state or suggest otherwise.
Distributed by Funds Distributor, Inc.
JPMorgan
<PAGE>
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<PAGE>
CONTENTS
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1 | The fund's goal, principal strategies, principal risks, performance and
expenses
J.P. MORGAN INSTITUTIONAL ENHANCED INCOME FUND
Fund description.............................................................. 1
Investor expenses............................................................. 2
3 |
FIXED INCOME MANAGEMENT APPROACH
J.P. Morgan................................................................... 3
Who may want to invest........................................................ 3
Fixed income investment process............................................... 4
5 | Investing in the J.P. Morgan Institutional Enhanced Income Fund
YOUR INVESTMENT
Investing through a financial professional.................................... 5
Investing directly............................................................ 5
Opening your account.......................................................... 5
Adding to your account........................................................ 5
Selling shares................................................................ 6
Account and transaction policies.............................................. 6
Dividends and distributions................................................... 7
Tax considerations............................................................ 7
8 | More about risk and the fund's business operations
FUND DETAILS
Business structure............................................................ 8
Management and administration................................................. 8
Risk and reward elements...................................................... 9
Investments.................................................................. 11
FOR MORE INFORMATION................................................. back cover
<PAGE>
J.P. MORGAN INSTITUTIONAL ENHANCED INCOME FUND
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REGISTRANT: J.P. MORGAN SERIES TRUST
(J.P. MORGAN ENHANCED INCOME FUND: INSTITUTIONAL SHARES)
[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 9-12.
[GRAPHIC OMITTED]
GOAL
The fund's goal is to provide high current income consistent with principal
preservation. This goal can be changed without shareholder approval.
[GRAPHIC OMITTED]
INVESTMENT APPROACH
Principal Strategies
The fund invests in taxable fixed income securities, including U.S. government
and agency securities, domestic and foreign corporate bonds, asset-backed and
mortgage-related securities, and money market instruments, that J.P. Morgan
believes have the potential to provide high current income. These securities may
be of any maturity, but under normal market conditions the fund's duration will
range between three and eighteen months. Also, the fund may use interest rate
swaps, futures contracts and options to help manage duration, yield curve
exposure, and credit and spread volatility. The fund's investment strategies are
described on page 3. For a description of duration, please see fixed income
investment process on page 4.
Up to 25% of the fund's assets may be invested in foreign securities. All of the
securities purchased by the fund, at the time of purchase, must be rated
investment grade (BBB/Baa or better) by a nationally recognized statistical
rating organization or the unrated equivalent, including at least 75% in
securities rated A or better.
Principal Risks
The fund's share price and total return will vary in response to changes in
interest rates. How well the fund's performance compares to that of similar
fixed income funds will depend on the success of the investment process, which
is described on page 4.
Although any rise in interest rates is likely to cause a fall in the price of
fixed income securities, the fund's comparatively short duration is designed to
help keep its share price within a relatively narrow range. Because it seeks to
minimize risk, the fund will generally offer less income and, during periods of
declining interest rates, may offer lower total returns than funds with longer
durations. The fund's asset-backed and mortgage-backed investments involve risk
of losses due to prepayments that occur earlier or later than expected, and,
like any bond, due to default. Because of the sensitivity of the fund's mortgage
related securities to changes in interest rates, the performance and duration of
the fund may be more volatile than if it did not hold these securities. The
fund's investments in interest rate swaps, futures contracts and options
involve, among others, credit and leverage risk, as described on pages 9-12. To
the extent the fund invests in foreign securities, it could lose money because
of foreign government actions, political instability, currency fluctuations or
lack of adequate and accurate information.
An investment in the fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. You could lose money if you sell when the fund's share price is lower
than when you invested.
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages
approximately $376 billion, including more than $61 billion using similar
strategies as the fund.
The portfolio management team is led by Abigail J. Feder, vice president,
who joined J.P. Morgan from Morgan Stanley Dean Witter Investment Management in
2000 where she served as a fixed income portfolio manager, and John Donohue,
vice president, who joined J.P. Morgan in 1997. Prior to joining J.P. Morgan,
Mr. Donohue served as an institutional money market portfolio manager at Goldman
Sachs.
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Before you invest
Investors considering the fund should understand that:
o There is no assurance that the fund will meet its investment goal.
o The fund does not represent a complete investment program.
1 | J.P. MORGAN INSTITUTIONAL ENHANCED INCOME FUND
<PAGE>
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.
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Annual fund operating expenses(1) (%)
(expenses that are deducted from fund assets)
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Management fees(2) 0.25
Marketing (12b-1) fees none
Other expenses 0.23
================================================================================
Total operating expenses 0.48
Fee waiver and
expense reimbursement(2) 0.23
================================================================================
Net expenses(2) 0.25
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Expense example(2)
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The example below is intended to help you compare the cost of investing in the
fund with the cost of investing in other mutual funds. The example assumes:
$10,000 initial investment, 5% return each year, net expenses for the period
6/28/00 through 2/28/02 and total operating expenses thereafter, and all shares
sold at the end of each time period. The example is for comparison only; the
fund's actual return and your actual costs may be higher or lower.
--------------------------------------------------------------------------------
1 yr. 3 yrs.
Your cost($) 26 123
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(1) This table shows the fund's estimated expenses for the current fiscal
period ending 10/31/00, expressed as a percentage of the fund's estimated
average net assets.
(2) Reflects an agreement dated 6/28/00 by Morgan Guaranty Trust Company of
New York, an affiliate of J.P. Morgan, to reimburse the fund to the extent
fees and expenses (excluding extraordinary expenses) exceed 0.25% of the
fund's average daily net assets through 2/28/02.
J.P. MORGAN INSTITUTIONAL ENHANCED INCOME FUND | 2
<PAGE>
FIXED INCOME MANAGEMENT APPROACH
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J.P. MORGAN
Known for its commitment to proprietary research and its disciplined investment
strategies, J.P. Morgan is the asset management choice for many of the world's
most respected corporations, financial institutions, governments, and
individuals. Today, J.P. Morgan employs approximately 380 analysts and portfolio
managers around the world and has approximately $376 billion in assets under
management, including assets managed by the fund's advisor, J.P. Morgan
Investment Management Inc.
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Who may want to invest
The fund is designed for investors who:
o want an investment whose risk/return potential is higher than that of
money market funds but generally less than that of longer duration bond
funds
The fund is not designed for investors who:
o are investing for aggressive long-term growth
3 | FIXED INCOME MANAGEMENT APPROACH
<PAGE>
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FIXED INCOME INVESTMENT PROCESS
J.P. Morgan seeks to generate an information advantage through the depth of its
global fixed-income research and the sophistication of its analytical systems.
Using a team-oriented approach, J.P. Morgan seeks to gain insights in a broad
range of distinct areas and takes positions in many different areas, helping the
fund to limit exposure to concentrated sources of risk.
In managing the fund, J.P. Morgan employs a three-step process that combines
sector allocation, fundamental research for identifying portfolio securities,
and duration management.
[GRAPHIC OMITTED]
The fund invests across a range of
different types of securities
Sector allocation The sector allocation team meets monthly, analyzing the
fundamentals of a broad range of sectors in which the fund may invest. The team
seeks to enhance performance and manage risk by underweighting or overweighting
sectors.
[GRAPHIC OMITTED]
The fund makes its portfolio decisions as
described earlier in this prospectus
Security selection Relying on the insights of different specialists, including
credit analysts, quantitative researchers, and dedicated fixed income traders,
the portfolio managers make buy and sell decisions according to the fund's goal
and strategy.
[GRAPHIC OMITTED]
J.P. Morgan uses a disciplined process
to control the fund's sensitivity
to interest rates
Duration management Forecasting teams use fundamental economic factors to
develop strategic forecasts of the direction of interest rates. Based on these
forecasts, strategists establish the fund's target duration, a common
measurement of a security's sensitivity to interest rate movements. For
securities owned by the fund, duration measures the average time needed to
receive the present value of all principal and interest payments by analyzing
cash flows and interest rate movements. The fund's duration may be shorter than
the fund's average maturity because the maturity of a security only measures the
time until final payment is due. The fund's target duration typically remains
relatively short, between three and eighteen months. The strategists closely
monitor the fund and make tactical adjustments as necessary.
FIXED INCOME MANAGEMENT APPROACH | 4
<PAGE>
YOUR INVESTMENT
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For your convenience, the J.P. Morgan Institutional Funds offer several ways to
start and add to fund investments.
INVESTING THROUGH A FINANCIAL PROFESSIONAL
If you work with a financial professional, either at J.P. Morgan or elsewhere,
he or she is prepared to handle your planning and transaction needs. Your
financial professional will be able to assist you in establishing your fund
account, executing transactions, and monitoring your investment. If your fund
investment is not held in the name of your financial professional and you prefer
to place a transaction order yourself, please use the instructions for investing
directly.
INVESTING THROUGH AN EMPLOYER-SPONSORED RETIREMENT PLAN
Your fund investments are handled through your plan. Refer to your plan
materials or contact your benefits office for information on buying, selling, or
exchanging fund shares.
INVESTING THROUGH AN IRA OR ROLLOVER IRA
Please contact a J.P. Morgan Retirement 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
investments is $1,000,000 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 at
right.
For answers to any questions, please speak with a J.P. Morgan Funds Services
Representative at 1-800-766-7722.
OPENING YOUR ACCOUNT
By wire
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. Morgan Institutional Funds
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>
SELLING SHARES
By phone -- wire payment
O Call the Shareholder Services Agent to verify that the wire redemption
privilege is in place on your account. If it is not, a representative can
help you add it.
O Place your wire request. If you are transferring money to a non-Morgan
account, you will need to provide the representative with the personal
identification number (PIN) that was provided to you when you opened your
fund account.
By phone -- check payment
O Call the Shareholder Services Agent and place your request. Once your
request has been verified, a check for the net amount, payable to the
registered owner(s), will be mailed to the address of record. For checks
payable to any other party or mailed to any other address, please make
your request in writing (see below).
In writing
O Write a letter of instruction that includes the following information: The
name of the registered owner(s) of the account; the account number; the
fund name; the amount you want to sell; and the recipient's name and
address or wire information, if different from those of the account
registration.
O Indicate whether you want the proceeds sent by check or by wire.
O Make sure the letter is signed by an authorized party. The Shareholder
Services Agent may require additional information, such as a signature
guarantee.
O Mail the letter to the Shareholder Services Agent.
By exchange
O Call the Shareholder Services Agent to effect an exchange.
Redemption in kind
O The Fund reserves the right to make redemptions of over $250,000 in
securities rather than in cash.
ACCOUNT AND TRANSACTION POLICIES
Telephone orders The fund accepts telephone orders from all shareholders. To
guard against fraud, the fund requires shareholders to use a PIN, and may record
telephone orders or take other reasonable precautions. However, if the fund does
take such steps to ensure the authenticity of an order, you may bear any loss if
the order later proves fraudulent.
Exchanges You may exchange shares in this fund for shares in any other J.P.
Morgan 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 hours and NAV calculations The fund's regular business days and hours
are the same as those of the New York Stock Exchange (NYSE). The fund calculates
its net asset value per share (NAV) every business day as of the close of
trading on the NYSE (normally 4:00 p.m. eastern time). The fund's securities are
typically priced using pricing services or market quotes. When these methods are
not available or do not represent a security's value at the time of pricing
(e.g., when an event occurs after the close of trading that would materially
impact a security's value), the security is valued in accordance with the fund's
fair valuation procedures.
Timing of orders Orders to buy or sell shares are executed at the next NAV
calculated after the order has been accepted. Orders are accepted until the
close of trading on the NYSE every business day and are executed the same day,
at that day's NAV. The fund has the right to suspend redemption of shares 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 5:00 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 the fund receives your payment, generally the day following execution. When
you sell shares, proceeds are generally available the day following execution
and will be forwarded according to your instructions.
When you sell shares that you recently purchased by check, your order will be
executed at the next NAV but the proceeds will not be available until your check
clears. This may take up to 15 days.
Statements and reports The fund sends monthly account statements as well as
confirmations after each purchase or sale of shares (except reinvestments).
Every six months the fund sends out an annual or semi-annual report containing
information on the fund's holdings and a discussion of recent and anticipated
market conditions and fund performance.
Accounts with below-minimum balances If your account balance falls below the
minimum for 30 days as a result of selling shares (and not because of
performance), the fund reserves the right to request that you buy more shares or
close your account. If your account balance is still below the minimum 60 days
after notification, the fund may close out your account and send the proceeds to
the address of record.
DIVIDENDS AND DISTRIBUTIONS
The fund typically declares income dividends daily and pays them monthly. If an
investor's shares are redeemed during the month, accrued but unpaid dividends
are paid with the redemption proceeds. Shares of the fund earn dividends on the
business day the purchase is effective, but not on the business day the
redemption is effective. The fund distributes capital gains, if any, once a
year. However, the fund may make more or fewer payments in a given year,
depending on its investment results and its tax compliance situation. These
dividends and distributions consist of most or all of the fund's net investment
income and net realized capital gains.
Dividends and distributions are reinvested in additional fund shares.
Alternatively, you may instruct your financial professional or J.P. Morgan Funds
Services to have them sent to you by check, credited to a separate account, or
invested in another J.P. Morgan Institutional Fund.
TAX CONSIDERATIONS
In general, selling shares, exchanging shares, and receiving distributions
(whether reinvested or taken in cash) are all taxable events. These transactions
typically create the following tax liabilities:
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Transaction Tax status
Income dividends Ordinary income
Short-term capital gains Ordinary income
distributions
Long-term capital gains Capital gains
distributions
Sales or exchanges of Capital gains or
shares owned for more losses
than one year
Sales or exchanges of Gains are treated as ordinary
shares owned for one year income; losses are subject
or less to special rules
Because long-term capital gains distributions are taxable as capital gains
regardless of how long you have owned your shares, you may want to avoid making
a substantial investment when the fund is about to declare a long-term capital
gains distribution.
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 governed by the
same trustees. The trustees are responsible for overseeing all business
activities. The trustees are assisted by Pierpont Group, Inc., which they own
and operate on a cost basis; costs are shared by all funds governed by these
trustees. Funds Distributor, Inc., as co-administrator, along with J.P. Morgan,
provides fund officers. J.P. Morgan, as co-administrator, oversees the fund's
other service providers.
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Advisory services 0.25% 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 portfolios,
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 the 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 the fund manage risk.
<TABLE>
<CAPTION>
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Potential risks Potential rewards Policies to balance risk and reward
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<S> <C> <C>
Market conditions
o The fund's share price, o Bonds have generally o Under normal circumstances the fund plans to remain
yield, and total return outperformed money market fully invested in bonds and other fixed income
will fluctuate in investments over the long securities as noted in the table on pages 11-12
response to bond market term, with less risk than
movements stocks
o The fund seeks to limit risk and enhance yields through
careful management, sector allocation, individual
o The value of most bonds o Most bonds will rise in securities selection, and duration management
will fall when interest value when interest rates
rates rise; the longer a fall o J.P. Morgan monitors interest rate trends, as well as
bond's maturity and the geographic and demographic information related to
lower its credit quality, o Mortgage-backed and mortgage-backed securities and mortgage prepayments
the more its value asset-backed securities
typically falls can offer attractive
returns
o Adverse market conditions
may from time to time
cause the fund to take
temporary defensive
positions that are
inconsistent with its
principal investment
strategies and may hinder
the fund from achieving
its investment objective
o Mortgage-backed and
asset-backed securities
(securities representing
an interest in, or
secured by, a pool of
mortgages or other assets
such as receivables)
could generate capital
losses or periods of low
yields if they are paid
off substantially earlier
or later than anticipated
Management choices
o The fund could o The fund could outperform o J.P. Morgan focuses its active management on those areas
underperform its its benchmark due to where it believes its commitment to research can most
benchmark due to its these same choices enhance income and manage risks in a consistent way
sector, securities, or
duration choices
Credit quality
o The default of an issuer o Investment-grade bonds o The fund maintains its own policies for balancing credit
would leave the fund with have a lower risk of quality against potential yields and gains in light of
unpaid interest or default its investment goal
principal
o J.P. Morgan develops its own ratings of unrated
securities and makes a credit quality determination for
unrated securities
Short-term trading
o Increased trading would o The fund could realize o The fund uses short-term trading to take advantage of
raise the fund's gains in a short period attractive or unexpected opportunities or to meet
transaction costs of time demands generated by shareholder activity
o Increased short-term o The fund could protect
capital gains against losses if a bond
distributions would raise is overvalued and its
shareholders' income tax value later falls
liability
</TABLE>
9 | FUND DETAILS
<PAGE>
<TABLE>
<CAPTION>
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Potential risks Potential rewards Policies to balance risk and reward
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<S> <C> <C>
Foreign investments
o The fund could lose money o Foreign bonds, which o Foreign bonds may be a significant investment (25% of
because of foreign represent a major portion assets) for the fund
government actions, of the world's fixed
political instability, or income securities, offer o To the extent that the fund invests in foreign bonds, it
lack of adequate and attractive potential will hedge its currency exposure into the U.S. dollar
accurate information performance and (see also "Derivatives")
opportunities for
o Currency exchange rate diversification
movements could reduce
gains or create losses o Favorable exchange rate
movements could generate
gains or reduce losses
Derivatives
o Derivatives such as o Hedges that correlate o The fund uses derivatives such as futures, options,
futures, options, swaps well with underlying swaps and forward foreign currency contracts for hedging
and forward foreign positions can reduce or and for risk management (i.e., to adjust duration or to
currency contracts that eliminate losses at low establish or adjust exposure to particular securities,
are used for hedging the cost markets, or currencies)
portfolio or specific
securities may not fully o The fund could make money o The fund only establishes hedges that it expects will be
offset the underlying and protect against highly correlated with underlying positions
positions(1) and this could losses if management's
result in losses to the analysis proves correct o While the fund may use derivatives that incidentally
fund that would not have involve leverage, it does not use them for the specific
otherwise occurred o Derivatives that involve purpose of leveraging the portfolio
leverage could generate
o Derivatives used for risk substantial gains at low
management may not have cost
the intended effects and
may result in losses or
missed opportunities
o The counterparty to a
derivatives contract
could default
o Certain types of
derivatives involve costs
to the fund which can
reduce returns
o Derivatives that involve
leverage could magnify
losses
Securities lending
o When a fund lends a o The fund may enhance o J.P. Morgan maintains a list of approved borrowers
security, there is a risk income through the
that the loaned investment of the o The fund receives collateral equal to at least 100% of
securities may not be collateral received from the current value of securities loaned
returned if the borrower the borrower
defaults o The lending agents indemnify a fund against borrower
default
o The collateral will be
subject to the risks of o J.P. Morgan's collateral investment guidelines limit the
the securities in which quality and duration of collateral investment to
it is invested 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 assets in
difficulty valuing these more attractive yields or illiquid holdings
holdings precisely potential growth than
comparable widely traded o To maintain adequate liquidity to meet redemptions, the
o The fund could be unable securities fund may hold investment-grade short-term securities
to sell these holdings at (including repurchase agreements) and, for temporary or
the time or price desired extraordinary purposes, may borrow from banks up to
33 1/3% of the value of its total assets
When-issued and delayed
delivery securities
o When the fund buys o The fund can take o The fund uses segregated accounts to offset leverage
securities before issue advantage of attractive risk
or for delayed delivery, transaction opportunities
it could be exposed to
leverage risk if it does
not use segregated
accounts
</TABLE>
(1) A futures contract is an agreement to buy or sell a set quantity of an
underlying instrument at a future date, or to make or receive a cash
payment based on the value of a securities index. An option is the right
to buy or sell a set quantity of an underlying instrument at a
predetermined price. A swap is a privately negotiated agreement to
exchange one stream of payments for another. A forward foreign currency
contract is an obligation to buy or sell a given currency on a future date
and at a set price.
FUND DETAILS | 10
<PAGE>
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Investments
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This table discusses the customary types of investments which can be held by the
fund. In each case the related types of risk are listed on the following page
(see below for definitions).This table reads across two pages.
0 Permitted - bold
* Permitted, but not typically used
<TABLE>
<CAPTION>
Related Types of Risk
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<S> <C> <C>
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Asset-backed securities Interests in a stream of payments from specific assets,
such as auto or credit card receivables. credit, interest rate, market, prepayment O
------------------------------------------------------------------------------------------------------------------------------------
Bank obligations Negotiable certificates of deposit, time deposits and bankers'
acceptances of domestic and foreign issuers. credit, currency, liquidity, political O(1)
------------------------------------------------------------------------------------------------------------------------------------
Commercial paper Unsecured short term debt issued by domestic and foreign banks credit, currency, interest rate,
or corporations. These securities are usually discounted and are rated by S&P or liquidity, market, political O(1)
Moody's.
------------------------------------------------------------------------------------------------------------------------------------
Convertible securities Domestic and foreign debt securities that can be credit, currency, interest rate,
converted into equity securities at a future time and price. liquidity, market, political, valuation O(1)
------------------------------------------------------------------------------------------------------------------------------------
Corporate bonds Debt securities of domestic and foreign industrial, utility, credit, currency, interest rate,
banking, and other financial institutions. liquidity, market, political, valuation O(1)
------------------------------------------------------------------------------------------------------------------------------------
Mortgages (directly held) Domestic debt instrument which gives the lender a lien
credit, environmental, extension, on property as security for the loan payment.
interest rate, liquidity, market,
natural event, political, prepayment,
valuation O
------------------------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities Domestic and foreign securities (such as Ginnie Maes,
credit, currency, extension, interest
Freddie Macs, Fannie Maes) which represent interests in pools of mortgages, rate, leverage, market, political,
whereby the principal and interest paid every month is passed through to the prepayment O(1)
holder of the securities.
------------------------------------------------------------------------------------------------------------------------------------
Mortgage dollar rolls The sale of domestic and foreign mortgage-backed credit, currency, extension, interest
securities with the promise to purchase similar securities at a later date. rate, leverage, liquidity, market,
Segregated accounts are used to offset leverage risk. political, prepayment O(1,2)
------------------------------------------------------------------------------------------------------------------------------------
Participation interests Interests that represent a share of bank debt or similar credit, currency, extension, interest
securities or obligations. rate, liquidity, political, prepayment O(1)
------------------------------------------------------------------------------------------------------------------------------------
Private placements Bonds or other investments that are sold directly to an credit, interest rate, liquidity,
institutional investor. market, valuation O
------------------------------------------------------------------------------------------------------------------------------------
REITs and other real-estate related instruments Securities of issuers that credit, environmental, interest rate,
invest in real estate or are secured by real estate. liquidity, market, natural event,
prepayment, valuation O
------------------------------------------------------------------------------------------------------------------------------------
Repurchase agreements Contracts whereby the fund agrees to purchase a security
credit O and resell it to to the seller on a particular date and at a specific
price.
------------------------------------------------------------------------------------------------------------------------------------
Reverse repurchase agreements Contracts whereby the fund sells a security and credit O(2)
agrees to repurchase it from the buyer on a particular date and at a specific
price. Considered a form of borrowing.
------------------------------------------------------------------------------------------------------------------------------------
Sovereign debt, Brady bonds, and debt of supranational organizations Dollar- or credit, currency, interest rate,
non-dollar-denominated securities issued by foreign governments or supranational
market, political O(1) organizations. Brady bonds are issued in connection with
debt restructurings.
------------------------------------------------------------------------------------------------------------------------------------
Swaps Contractual agreement whereby a party agrees to exchange periodic payments credit, currency, interest rate,
with a counterparty. Segregated accounts are used to offset leverage risk. leverage, market, political O(1)
------------------------------------------------------------------------------------------------------------------------------------
Tax exempt municipal securities Securities, generally issued as general credit, interest rate, market, natural
obligation and revenue bonds, whose interest is exempt from federal taxation and
event, political * state and/or local taxes in the state where the securities
were issued.
------------------------------------------------------------------------------------------------------------------------------------
U.S. government securities Debt instruments (Treasury bills, notes, and bonds) interest rate O
guaranteed by the U.S. government for the timely payment of principal and
interest.
------------------------------------------------------------------------------------------------------------------------------------
Zero coupon, pay-in-kind, and deferred payment securities Domestic and foreign credit, currency, interest rate,
securities offering non-cash or delayed-cash payment. Their prices are typically liquidity, market, political, valuation O(1)
more volatile than those of some other debt instruments and involve certain
special tax considerations.
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Risk related to certain investments held by J.P. Morgan fixed income funds:
Credit risk The risk a financial obligation will not be met by the issuer of a
security or the counterparty to a contract, resulting in a loss to the
purchaser.
Currency risk The risk currency exchange rate fluctuations may reduce gains or
increase losses on foreign investments.
Environmental risk The risk that an owner or operator of real estate may be
liable for the costs associated with hazardous or toxic substances located on
the property.
Extension risk The risk a rise in interest rates will extend the life of a
mortgage-backed security to a date later than the anticipated prepayment date,
causing the value of the investment to fall.
Interest rate risk The risk a change in interest rates will adversely affect the
value of an investment. The value of fixed income securities generally moves in
the opposite direction of interest rates (decreases when interest rates rise and
increases when interest rates fall).
Leverage risk The risk of gains or losses disproportionately higher than the
amount invested.
Liquidity risk The risk the holder may not be able to sell the security at the
time or price it desires.
Market risk The risk that when the market as a whole declines, the value of a
specific investment will decline proportionately. This systematic risk is common
to all investments and the mutual funds that purchase them.
Natural event risk The risk a natural disaster, such as a hurricane or similar
event, will cause severe economic losses and default in payments by the issuer
of the security.
Political risk The risk governmental policies or other political actions will
negatively impact the value of the investment.
Prepayment risk The risk declining interest rates will result in unexpected
prepayments, causing the value of the investment to fall.
Valuation risk The risk the estimated value of a security does not match the
actual amount that can be realized if the security is sold.
(1) All foreign securities in the aggregate may not exceed 25% of the fund's
assets.
(2) All forms of borrowing (including securities lending, mortgage dollar
rolls and reverse repurchase agreements) are limited in the aggregate and
may not exceed 33 1/3% of the fund's total assets.
11 & 12 | FUND DETAILS
<PAGE>
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<PAGE>
--------------------------------------------------------------------------------
(THIS PAGE IS INTENTIONALLY LEFT BLANK)
<PAGE>
--------------------------------------------------------------------------------
FOR MORE INFORMATION
--------------------------------------------------------------------------------
For investors who want more information on the fund, the following documents are
available free upon request:
Annual/Semi-annual Reports Contain financial statements, performance data,
information on portfolio holdings, and a written analysis of market conditions
and fund performance for the fund's most recently completed fiscal year or
half-year.
Statement of Additional Information (SAI) Provides a fuller technical and legal
description of the fund's policies, investment restrictions, and business
structure. This prospectus incorporates the fund's SAI by reference.
Copies of the current versions of these documents, along with other information
about the fund, may be obtained by contacting:
J.P. Morgan Institutional Enhanced Income Fund
Morgan Christiana Center
J.P. Morgan Funds Services - 2/OPS3
500 Stanton Christiana Road
Newark, DE 19713
Telephone: 1-800-766-7722Hearing 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 INSTITUTIONAL FUNDS AND THE MORGAN TRADITION
The J.P. Morgan Institutional Funds combine a heritage of integrity and
financial leadership with comprehensive, sophisticated analysis and management
techniques. Drawing on J.P. Morgan's extensive experience and depth as an
investment manager, the J.P. Morgan Institutional Funds offer a broad array of
distinctive opportunities for mutual fund investors.
JPMorgan
--------------------------------------------------------------------------------
J.P. Morgan Institutional Funds
Advisor Distributor
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
IMPR27
<PAGE>
--------------------------------------------------------------------------------
JUNE 28, 2000 | PROSPECTUS
--------------------------------------------------------------------------------
J.P. MORGAN
ENHANCED INCOME FUND
----------------------------------------------
Seeking high current income consistent with
principal preservation by investing in taxable
fixed income securities.
This prospectus contains essential information for anyone investing in the fund.
Please read it carefully and keep it for reference.
As with all mutual funds, the fact that these shares are registered with the
Securities and Exchange Commission does not mean that the commission approves
them or guarantees that the information in this prospectus is correct or
adequate. It is a criminal offense to state or suggest otherwise.
Distributed by Funds Distributor, Inc.
JPMorgan
<PAGE>
--------------------------------------------------------------------------------
<PAGE>
CONTENTS
--------------------------------------------------------------------------------
1 | The fund's goal, principal strategies, principal risks, performance and
expenses
J.P. MORGAN ENHANCED INCOME FUND
Fund description.............................................................. 1
Investor expenses............................................................. 2
3 |
FIXED INCOME MANAGEMENT APPROACH
J.P. Morgan................................................................... 3
Who may want to invest........................................................ 3
Fixed income investment process............................................... 4
5 | Investing in the J.P. Morgan Enhanced Income Fund
YOUR INVESTMENT
Investing through a financial professional.................................... 5
Investing directly............................................................ 5
Opening your account.......................................................... 5
Adding to your account........................................................ 5
Selling shares................................................................ 6
Account and transaction policies.............................................. 6
Dividends and distributions................................................... 7
Tax considerations............................................................ 7
8 | More about risk and the fund's business operations
FUND DETAILS
Business structure............................................................ 8
Management and administration................................................. 8
Risk and reward elements...................................................... 9
Investments.................................................................. 11
FOR MORE INFORMATION................................................. back cover
<PAGE>
J.P. MORGAN ENHANCED INCOME FUND
--------------------------------------------------------------------------------
REGISTRANT: J.P. MORGAN SERIES TRUST
(J.P. MORGAN ENHANCED INCOME FUND: SELECT SHARES)
[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 9-12.
[GRAPHIC OMITTED]
GOAL
The fund's goal is to provide high current income consistent with principal
preservation. This goal can be changed without shareholder approval.
[GRAPHIC OMITTED]
INVESTMENT APPROACH
Principal Strategies
The fund invests in taxable fixed income securities, including U.S. government
and agency securities, domestic and foreign corporate bonds, asset-backed and
mortgage-related securities, and money market instruments, that J.P. Morgan
believes have the potential to provide high current income. These securities may
be of any maturity, but under normal market conditions the fund's duration will
range between three and eighteen months. Also, the fund may use interest rate
swaps, futures contracts and options to help manage duration, yield curve
exposure, and credit and spread volatility. The fund's investment strategies are
described on page 3. For a description of duration, please see fixed income
investment process on page 4.
Up to 25% of the fund's assets may be invested in foreign securities. All of the
securities purchased by the fund, at the time of purchase, must be rated
investment grade (BBB/Baa or better) by a nationally recognized statistical
rating organization or the unrated equivalent, including at least 75% in
securities rated A or better.
Principal Risks
The fund's share price and total return will vary in response to changes in
interest rates. How well the fund's performance compares to that of similar
fixed income funds will depend on the success of the investment process, which
is described on page 4.
Although any rise in interest rates is likely to cause a fall in the price of
fixed income securities, the fund's comparatively short duration is designed to
help keep its share price within a relatively narrow range. Because it seeks to
minimize risk, the fund will generally offer less income and, during periods of
declining interest rates, may offer lower total returns than funds with longer
durations. The fund's asset-backed and mortgage-backed investments involve risk
of losses due to prepayments that occur earlier or later than expected and, like
any bond, due to default. Because of the sensitivity of the fund's mortgage
related securities to changes in interest rates, the performance and duration of
the fund may be more volatile than if it did not hold these securities. The
fund's investments in interest rate swaps, futures contracts and options
involve, among others, credit and leverage risk, as described on pages 9-12. To
the extent the fund invests in foreign securities, it could lose money because
of foreign government actions, political instability, currency fluctuations or
lack of adequate and accurate information.
An investment in the fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. You could lose money if you sell when the fund's share price is lower
than when you invested.
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages
approximately $376 billion, including more than $61 billion using similar
strategies as the fund.
The portfolio management team is led by Abigail J. Feder, vice president,
who joined J.P. Morgan from Morgan Stanley Dean Witter Investment Management in
2000 where she served as a fixed income portfolio manager, and John Donohue,
vice president, who joined J.P. Morgan in 1997. Prior to joining J.P. Morgan,
Mr. Donohue served as an institutional money market portfolio manager at Goldman
Sachs.
--------------------------------------------------------------------------------
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 ENHANCED INCOME FUND
<PAGE>
--------------------------------------------------------------------------------
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(1) (%)
(expenses that are deducted from fund assets)
--------------------------------------------------------------------------------
Management fees(2) 0.25
Marketing (12b-1) fees none
Other expenses 0.41
================================================================================
Total operating expenses 0.66
Fee waiver and expense reimbursement(2) 0.26
================================================================================
Net expenses(2) 0.40
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Expense example(2)
--------------------------------------------------------------------------------
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:
$10,000 initial investment, 5% return each year, net expenses for the period
6/28/00 through 2/28/02 and total operating expenses thereafter, and all shares
sold at the end of each time period. The example is for comparison only; the
fund's actual return and your actual costs may be higher or lower.
--------------------------------------------------------------------------------
1 yr. 3 yrs.
Your cost($) 41 176
--------------------------------------------------------------------------------
(1) This table shows the fund's estimated expenses for the current fiscal
period ending 10/31/00, expressed as a percentage of the fund's estimated
average net assets.
(2) Reflects an agreement dated 6/28/00 by Morgan Guaranty Trust Company of
New York, an affiliate of J.P. Morgan, to reimburse the fund to the extent
fees and expenses (excluding extraordinary expenses) exceed 0.40% of the
fund's average daily net assets through 2/28/02.
J.P. MORGAN ENHANCED INCOME FUND | 2
<PAGE>
FIXED INCOME MANAGEMENT APPROACH
--------------------------------------------------------------------------------
J.P. MORGAN
Known for its commitment to proprietary research and its disciplined investment
strategies, J.P. Morgan is the asset management choice for many of the world's
most respected corporations, financial institutions, governments, and
individuals. Today, J.P. Morgan employs over 380 analysts and portfolio managers
around the world and has approximately $376 billion in assets under management,
including assets managed by the fund's advisor, J.P. Morgan Investment
Management Inc.
--------------------------------------------------------------------------------
Who may want to invest
The fund is designed for investors who:
o want an investment whose risk/return potential is higher than that of money
market funds but generally less than that of longer duration bond funds
The fund is not designed for investors who:
o are investing for aggressive long-term growth
3 | FIXED INCOME MANAGEMENT APPROACH
<PAGE>
FIXED INCOME INVESTMENT PROCESS
J.P. Morgan seeks to generate an information advantage through the depth of its
global fixed-income research and the sophistication of its analytical systems.
Using a team-oriented approach, J.P. Morgan seeks to gain insights in a broad
range of distinct areas and takes positions in many different areas, helping the
fund to limit exposure to concentrated sources of risk.
In managing the fund, J.P. Morgan employs a three-step process that combines
sector allocation, fundamental research for identifying portfolio securities,
and duration management.
[GRAPHIC OMITTED]
The fund invests across a range of
different types of securities
Sector allocation The sector allocation team meets monthly, analyzing the
fundamentals of a broad range of sectors in which the fund may invest. The team
seeks to enhance performance and manage risk by underweighting or overweighting
sectors.
[GRAPHIC OMITTED]
The fund makes its portfolio decisions as
described earlier in this prospectus
Security selection Relying on the insights of different specialists, including
credit analysts, quantitative researchers, and dedicated fixed income traders,
the portfolio managers make buy and sell decisions according to the fund's goal
and strategy.
[GRAPHIC OMITTED]
J.P. Morgan uses a disciplined process
to control the fund's sensitivity
to interest rates
Duration management Forecasting teams use fundamental economic factors to
develop strategic forecasts of the direction of interest rates. Based on these
forecasts, strategists establish the fund's target duration, a common
measurement of a security's sensitivity to interest rate movements. For
securities owned by the fund, duration measures the average time needed to
receive the present value of all principal and interest payments by analyzing
cash flows and interest rate movements. The fund's duration may be shorter than
the fund's average maturity because the maturity of a security only measures the
time until final payment is due. The fund's target duration typically remains
relatively short, between three and eighteen months. The strategists closely
monitor the fund and make tactical adjustments as necessary.
FIXED INCOME MANAGEMENT APPROACH | 4
<PAGE>
YOUR INVESTMENT
--------------------------------------------------------------------------------
For your convenience, the J.P. Morgan Funds offer several ways to start and add
to fund investments.
INVESTING THROUGH A FINANCIAL PROFESSIONAL
If you work with a financial professional, either at J.P. Morgan or elsewhere,
he or she is prepared to handle your planning and transaction needs. Your
financial professional will be able to assist you in establishing your fund
account, executing transactions, and monitoring your investment. If your fund
investment is not held in the name of your financial professional and you prefer
to place a transaction order yourself, please use the instructions for investing
directly.
INVESTING THROUGH AN EMPLOYER-SPONSORED RETIREMENT PLAN
Your fund investments are handled through your plan. Refer to your plan
materials or contact your benefits office for information on buying, selling, or
exchanging fund shares.
INVESTING THROUGH AN IRA OR ROLLOVER IRA
Please contact a J.P. Morgan Retirement 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
investments is $2,500 and for additional investments $500, although these
minimums may be less for some investors. For more information on minimum
investments, call 1-800-521-5411.
o Complete the application, indicating how much of your investment you want to
allocate to which fund(s). Please apply now for any account privileges you may
want to use in the future, in order to avoid the delays associated with adding
them later on.
o Mail in your application, making your initial investment as shown at right.
For answers to any questions, please speak with a J.P. Morgan Funds Services
Representative at 1-800-521-5411.
OPENING YOUR ACCOUNT
By wire
o Mail your completed application to the Shareholder Services Agent.
o Call the Shareholder Services Agent to obtain an account number and to place a
purchase order. Funds that are wired without a purchase order will be returned
uninvested.
o After placing your purchase order, instruct your bank to wire the amount of
your investment to:
State Street Bank & Trust Company
Routing number: 011-000-028
Credit: J.P. Morgan Funds
Account number: 9904-226-9
FFC: your account number, name of registered owner(s) and fund name
By check
o Make out a check for the investment amount payable to J.P. Morgan Funds.
o Mail the check with your completed application to the Shareholder Services
Agent.
By exchange
o Call the Shareholder Services Agent to effect an exchange.
ADDING TO YOUR ACCOUNT
By wire
o Call the Shareholder Services Agent to place a purchase order. Funds that are
wired without a purchase order will be returned uninvested.
o Once you have placed your purchase order, instruct your bank to wire the
amount of your investment as described above.
By check
o Make out a check for the investment amount payable to J.P. Morgan Funds.
o Mail the check with a completed investment slip to the Transfer Agent. If you
do not have an investment slip, attach a note indicating your account number
and how much you wish to invest in which fund(s).
By exchange
o Call the Shareholder Services Agent to effect an exchange.
5 | YOUR INVESTMENT
<PAGE>
--------------------------------------------------------------------------------
SELLING SHARES
By phone -- wire payment
o Call the Shareholder Services Agent to verify that the wire redemption
privilege is in place on your account. If it is not, a representative can help
you add it.
o Place your wire request. If you are transferring money to a non-Morgan
account, you will need to provide the representative with the personal
identification number (PIN) that was provided to you when you opened your fund
account.
By phone -- check payment
o Call the Shareholder Services Agent and place your request. Once your request
has been verified, a check for the net amount, payable to the registered
owner(s), will be mailed to the address of record. For checks payable to any
other party or mailed to any other address, please make your request in
writing (see below).
In writing
o Write a letter of instruction that includes the following information: The
name of the registered owner(s) of the account; the account number; the fund
name; the amount you want to sell; and the recipient's name and address or
wire information, if different from those of the account registration.
o Indicate whether you want the proceeds sent by check or by wire.
o Make sure the letter is signed by an authorized party. The Shareholder
Services Agent may require additional information, such as a signature
guarantee.
o Mail the letter to the Shareholder Services Agent.
By exchange
o Call the Shareholder Services Agent to effect an exchange.
Redemption in kind
o The Fund reserves the right to make redemptions of over $250,000 in securities
rather than in cash.
ACCOUNT AND TRANSACTION POLICIES
Telephone orders The fund accepts telephone orders from all shareholders. To
guard against fraud, the fund requires shareholders to use a PIN, and may record
telephone orders or take other reasonable precautions. However, if the fund does
take such steps to ensure the authenticity of an order, you may bear any loss if
the order later proves fraudulent.
Exchanges You may exchange shares in this fund for shares in any other J.P.
Morgan or J.P. Morgan Institutional mutual fund at no charge (subject to the
securities laws of your state). When making exchanges, it is important to
observe any applicable minimums. Keep in mind that for tax purposes an exchange
is considered a sale.
The fund may alter, limit, or suspend its exchange policy at any time.
Business hours and NAV calculations The fund's regular business days and hours
are the same as those of the New York Stock Exchange (NYSE). The fund calculates
its net asset value per share (NAV) every business day as of the close of
trading on the NYSE (normally 4:00 p.m. eastern time). The fund's securities are
typically priced using pricing services or market quotes. When these methods are
not available or do not represent a security's value at the time of pricing
(e.g., when an event occurs after the close of trading that would materially
impact a security's value), the security is valued in accordance with the fund's
fair valuation procedures.
Timing of orders Orders to buy or sell shares are executed at the next NAV
calculated after the order has been accepted. Orders are accepted until the
close of trading on the NYSE every business day and are executed the same day,
at that day's NAV. The fund has the right to suspend redemption of shares as
permitted by law and to postpone payment of proceeds for up to seven days.
--------------------------------------------------------------------------------
Transfer Agent Shareholder Services Agent
State Street Bank and Trust Company Morgan Christiana Center
P.O. Box 8411 J.P. Morgan Funds Services - 2/OPS3
Boston, MA 02266-8411 500 Stanton Christiana Road
Attention; J.P. Morgan Funds Services Newark, DE 19713
1-800-521-5411
Representatives are available 8:00 a.m. to 5:00 p.m. eastern time on fund
business days.
YOUR INVESTMENT | 6
<PAGE>
--------------------------------------------------------------------------------
Timing of settlements When you buy shares, you will become the owner of record
when the fund receives your payment, generally the day following execution. When
you sell shares, proceeds are generally available the day following execution
and will be forwarded according to your instructions. When you sell shares that
you recently purchased by check, your order will be executed at the next NAV but
the proceeds will not be available until your check clears. This may take up to
15 days.
Statements and reports The fund sends monthly account statements as well as
confirmations after each purchase or sale of shares (except reinvestments).
Every six months the fund sends out an annual or semi-annual report containing
information on the fund's holdings and a discussion of recent and anticipated
market conditions and fund performance.
Accounts with below-minimum balances If your account balance falls below the
minimum for 30 days as a result of selling shares (and not because of
performance), the fund reserves the right to request that you buy more shares or
close your account. If your account balance is still below the minimum 60 days
after notification, the fund may close out your account and send the proceeds to
the address of record.
DIVIDENDS AND DISTRIBUTIONS
The fund typically declares income dividends daily and pays them monthly. If an
investor's shares are redeemed during the month, accrued but unpaid dividends
are paid with the redemption proceeds. Shares of the fund earn dividends on the
business day the purchase is effective, but not on the business day the
redemption is effective. The fund distributes capital gains, if any, once a
year. However, the fund may make more or fewer payments in a given year,
depending on its investment results and its tax compliance situation. These
dividends and distributions consist of most or all of the fund's net investment
income and net realized capital gains.
Dividends and distributions are reinvested in additional fund shares.
Alternatively, you may instruct your financial professional or J.P. Morgan Funds
Services to have them sent to you by check, credited to a separate account, or
invested in another J.P. Morgan Fund.
TAX CONSIDERATIONS
In general, selling shares, exchanging shares, and receiving distributions
(whether reinvested or taken in cash) are all taxable events. These transactions
typically create the following tax liabilities:
--------------------------------------------------------------------------------
Transaction Tax status
--------------------------------------------------------------------------------
Income dividends Ordinary income
Short-term capital gains Ordinary income
distributions
Long-term capital gains Capital gains
distributions
Sales or exchanges of Capital gains or
shares owned for more losses
than one year
Sales or exchanges of Gains are treated as ordinary
shares owned for one year income; losses are subject
or less to special rules
Because long-term capital gains distributions are taxable as capital gains
regardless of how long you have owned your shares, you may want to avoid making
a substantial investment when the fund is about to declare a long-term capital
gains distribution.
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
--------------------------------------------------------------------------------
BUSINESS STRUCTURE
The fund is a series of J.P. Morgan Series Trust, a Massachusetts business
trust. Information about other series or classes is available by calling
1-800-521-5411. In the future, the trustees could create other series or share
classes, which would have different expenses.
MANAGEMENT AND ADMINISTRATION
The fund and the other series of J.P. Morgan Series Trust are governed by the
same trustees. The trustees are responsible for overseeing all business
activities. The trustees are assisted by Pierpont Group, Inc., which they own
and operate on a cost basis; costs are shared by all funds governed by these
trustees. Funds Distributor, Inc., as co-administrator, along with J.P. Morgan,
provides fund officers. J.P. Morgan, as co-administrator, oversees the fund's
other service providers.
--------------------------------------------------------------------------------
Advisory services 0.25% 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 portfolios,
plus 0.04% of average net assets
over $7 billion
Shareholder services 0.25% of the fund's average
net assets
J.P. Morgan may pay fees to certain firms and professionals for providing
recordkeeping or other services in connection with investments in the fund.
FUND DETAILS | 8
<PAGE>
RISK AND REWARD ELEMENTS
This table discusses the main elements that make up the fund's overall risk and
reward characteristics. It also outlines the fund's policies toward various
investments, including those that are designed to help the fund manage risk.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
Potential risks Potential rewards Policies to balance risk and reward
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Market conditions
o The fund's share price, o Bonds have generally o Under normal circumstances the fund plans to remain fully
yield, and total return will outperformed money market invested in bonds and other fixed income securities as noted
fluctuate in response to investments over the long in the table on pages 11-12
bond market movements term, with less risk than
stocks o The fund seeks to limit risk and enhance yields through
o The value of most bonds will careful management, sector allocation, individual securities
fall when interest rates o Most bonds will rise in selection, and duration management
rise; the longer a bond's value when interest rates
maturity and the lower its fall o J.P. Morgan monitors interest rate trends, as well as
credit quality, the more its geographic and demographic information related to
value typically falls o Mortgage-backed and mortgage-backed securities and mortgage prepayments
asset-backed securities can
o Adverse market conditions offer attractive returns
may from time to time cause
the fund to take temporary
defensive positions that are
inconsistent with its
principal investment
strategies and may hinder
the fund from achieving its
investment objective
o Mortgage-backed and asset-backed securities (securities representing an
interest in, or secured by, a pool of mortgages or other assets such as
receivables) could generate capital losses or periods of low yields if they
are paid off substantially earlier or later than anticipated
Management choices
o The fund could underperform o The fund could outperform o J.P. Morgan focuses its active management on those areas where
its benchmark due to its its benchmark due to these it believes its commitment to research can most enhance income
sector, securities, or same choices and manage risks in a consistent way
duration choices
Credit quality
o The default of an issuer o Investment-grade bonds have o The fund maintains its own policies for balancing credit quality
would leave the fund with a lower risk of default against potential yields and gains in light of its investment
unpaid interest or principal goals
o J.P. Morgan develops its own ratings of unrated securities and
makes a credit quality determination for unrated securities
Short-term trading
o Increased trading would o The fund could realize gains o The fund uses short-term trading to take advantage of attractive
raise the fund's transaction in a short period of time or unexpected opportunities or to meet demands generated by
costs shareholder activity
o Increased short-term capital o The fund could protect gains distributions
would against losses if a bond is raise shareholders' income overvalued and
its value tax liability later falls
</TABLE>
9 | FUND DETAILS
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
Potential risks Potential rewards Policies to balance risk and reward
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Foreign investments
o The fund could lose money o Foreign bonds, which o Foreign bonds may be a significant investment (25% of assets)
because of foreign represent a major portion of for the fund
government actions, the world's fixed income
political instability, or securities, offer attractive o To the extent that the fund invests in foreign bonds, it will
lack of adequate and potential performance and hedge its currency exposure into the U.S. dollar (see also
accurate information opportunities for "Derivatives")
diversification
o Currency exchange rate
movements could reduce gains o Favorable exchange rate
or create losses movements could generate
gains or reduce losses
Derivatives
o Derivatives such as futures, o Hedges that correlate well o The fund uses derivatives such as futures, options, swaps and
options, swaps and forward with underlying positions forward foreign currency contracts for hedging and for risk
foreign currency contracts can reduce or eliminate management (i.e., to adjust duration or to establish or adjust
that are used for hedging losses at low cost exposure to particular securities, markets, or currencies)
the portfolio or specific
securities may not fully o The fund could make money o The fund only establishes hedges that it expects will be highly
offset the underlying and protect against losses correlated with underlying positions
positions(1) and this could if management's analysis
result in losses to the fund proves correct o While the fund may use derivatives that incidentally involve
that would not have leverage, it does not use them for the specific purpose of
otherwise occurred o Derivatives that involve leveraging the portfolio
leverage could generate
o Derivatives used for risk substantial gains at low
management may not have the cost
intended effects and may
result in losses or missed
opportunities
o The counterparty to a
derivatives contract could
default
o Certain types of derivatives
involve costs to the fund
which can reduce returns
o Derivatives that involve
leverage could magnify
losses
Securities lending
o When a fund lends a o The fund may enhance income o J.P. Morgan maintains a list of approved borrowers
security, there is a risk through the investment of
that the loaned securities the collateral received from o The fund receives collateral equal to at least 100% of the
may not be returned if the the borrower current value of securities loaned
borrower defaults
o The lending agents indemnify a fund against borrower default
o The collateral will be
subject to the risks of the o J.P. Morgan's collateral investment guidelines limit the quality
securities in which it is and duration of collateral investment to minimize losses
invested
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 assets in illiquid
difficulty valuing these more attractive yields or holdings
holdings precisely potential growth than
comparable widely traded o To maintain adequate liquidity to meet redemptions, the fund may
o The fund could be unable to securities hold investment-grade short-term securities (including
sell these holdings at the repurchase agreements) and, for temporary or extraordinary
time or price desired purposes, may borrow from banks up to 33 1/3% of the value of
its total assets
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 leverage risk
securities before issue or of attractive transaction
for delayed delivery, it opportunities
could be exposed to leverage
risk if it does not use
segregated accounts
</TABLE>
(1) A futures contract is an agreement to buy or sell a set quantity of an
underlying instrument at a future date, or to make or receive a cash
payment based on the value of a securities index. An option is the right
to buy or sell a set quantity of an underlying instrument at a
predetermined price. A swap is a privately negotiated agreement to
exchange one stream of payments for another. A forward foreign currency
contract is an obligation to buy or sell a given currency on a future date
and at a set price.
FUND DETAILS | 10
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Investments
--------------------------------------------------------------------------------
This table discusses the customary types of investments which can be held by the
fund. In each case the related types of risk are listed on the following page
(see below for definitions).This table reads across two pages.
0 Permitted - bold
* Permitted, but not typically used
<TABLE>
<CAPTION>
Related Types of Risk
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Asset-backed securities Interests in a stream of payments credit, interest rate, market, prepayment 0
from specific assets, such as auto or credit card
receivables.
------------------------------------------------------------------------------------------------------------------------------------
Bank obligations Negotiable certificates of deposit, time credit, currency, liquidity, political 0(1)
deposits and bankers' acceptances of domestic and foreign
issuers.
------------------------------------------------------------------------------------------------------------------------------------
Commercial paper Unsecured short term debt issued by credit, currency, interest rate, liquidity, market, 0(1)
domestic and foreign banks or corporations. These political
securities are usually discounted and are rated by S&P or
Moody's.
------------------------------------------------------------------------------------------------------------------------------------
Convertible securities Domestic and foreign debt securities credit, currency, interest rate, liquidity, market, 0(1)
that can be converted into equity securities at a future political, valuation
time and price.
------------------------------------------------------------------------------------------------------------------------------------
Corporate bonds Debt securities of domestic and foreign credit, currency, interest rate, liquidity, market, 0(1)
industrial, utility, banking, and other financial political, valuation
institutions.
------------------------------------------------------------------------------------------------------------------------------------
Mortgages (directly held) Domestic debt instrument which credit, environmental,extension, interest rate, liquidity, 0
gives the lender a lien on property as security for the market, natural event, political, prepayment, valuation
loan payment.
------------------------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities Domestic and foreign securities credit, currency, extension, interest rate, leverage, 0(1)
(such as Ginnie Maes, Freddie Macs, Fannie Maes) which market, political, prepayment
represent interests in pools of mortgages, whereby the
principal and interest paid every month is passed through
to the holder of the securities.
------------------------------------------------------------------------------------------------------------------------------------
Mortgage dollar rolls The sale of domestic and foreign credit, currency, extension, interest rate, leverage, 0(1,2)
mortgage-backed securities with the promise to purchase liquidity, market, political, prepayment
similar securities at a later date. Segregated accounts are
used to offset leverage risk.
------------------------------------------------------------------------------------------------------------------------------------
Participation interests Interests that represent a share of credit, currency, extension, interest rate, liquidity, 0(1)
bank debt or similar securities or obligations. political, prepayment
------------------------------------------------------------------------------------------------------------------------------------
Private placements Bonds or other investments that are sold credit, interest rate, liquidity, market, valuation 0
directly to an institutional investor.
------------------------------------------------------------------------------------------------------------------------------------
REITs and other real-estate related instruments Securities credit, environmental, interest rate, liquidity, market, 0
of issuers that invest in real estate or are secured by natural event, prepayment, valuation
real estate.
------------------------------------------------------------------------------------------------------------------------------------
Repurchase agreements Contracts whereby the fund agrees to credit 0
purchase a security and resell it to to the seller on a
particular date and at a specific price.
------------------------------------------------------------------------------------------------------------------------------------
Reverse repurchase agreements Contracts whereby the fund credit 0(2)
sells a security and agrees to repurchase it from the buyer
on a particular date and at a specific price. Considered a
form of borrowing.
------------------------------------------------------------------------------------------------------------------------------------
Sovereign debt, Brady bonds, and debt of supranational credit, currency, interest rate, market, political 0(1)
organizations Dollar- or non-dollar-denominated securities
issued by foreign governments or supranational
organizations. Brady bonds are issued in connection with
debt restructurings.
------------------------------------------------------------------------------------------------------------------------------------
Swaps Contractual agreement whereby a party agrees to credit, currency, interest rate, leverage, market, 0(1)
exchange periodic payments with a counterparty. Segregated political
accounts are used to offset leverage risk.
------------------------------------------------------------------------------------------------------------------------------------
Tax exempt municipal securities Securities, generally credit, interest rate, market, natural event, political *
issued as general obligation and revenue bonds, whose
interest is exempt from federal taxation and state
and/or local taxes in the state where the securities
were issued.
------------------------------------------------------------------------------------------------------------------------------------
U.S. government securities Debt instruments (Treasury interest rate 0
bills, notes, and bonds) guaranteed by the U.S. government
for the timely payment of principal and interest.
------------------------------------------------------------------------------------------------------------------------------------
Zero coupon, pay-in-kind, and deferred payment securities credit, currency, interest rate, liquidity, market, 0(1)
Domestic and foreign securities offering non-cash or political, valuation
delayed-cash payment. Their prices are typically
more volatile than those of some other debt instruments
and involve certain special tax considerations.
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Risk related to certain investments held by J.P. Morgan fixed income funds:
Credit risk The risk a financial obligation will not be met by the issuer of a
security or the counterparty to a contract, resulting in a loss to the
purchaser.
Currency risk The risk currency exchange rate fluctuations may reduce gains or
increase losses on foreign investments.
Environmental risk The risk that an owner or operator of real estate may be
liable for the costs associated with hazardous or toxic substances located on
the property.
Extension risk The risk a rise in interest rates will extend the life of a
mortgage-backed security to a date later than the anticipated prepayment date,
causing the value of the investment to fall.
Interest rate risk The risk a change in interest rates will adversely affect the
value of an investment. The value of fixed income securities generally moves in
the opposite direction of interest rates (decreases when interest rates rise and
increases when interest rates fall).
Leverage risk The risk of gains or losses disproportionately higher than the
amount invested.
Liquidity risk The risk the holder may not be able to sell the security at the
time or price it desires.
Market risk The risk that when the market as a whole declines, the value of a
specific investment will decline proportionately. This systematic risk is common
to all investments and the mutual funds that purchase them.
Natural event risk The risk a natural disaster, such as a hurricane or similar
event, will cause severe economic losses and default in payments by the issuer
of the security.
Political risk The risk governmental policies or other political actions will
negatively impact the value of the investment.
Prepayment risk The risk declining interest rates will result in unexpected
prepayments, causing the value of the investment to fall.
Valuation risk The risk the estimated value of a security does not match the
actual amount that can be realized if the security is sold.
(1) All foreign securities in the aggregate may not exceed 25% of the fund's
assets.
(2) All forms of borrowing (including securities lending, mortgage dollar
rolls and reverse repurchase agreements) are limited in the aggregate and
may not exceed 33 1/3% of the fund's total assets.
11 & 12 | FUND DETAILS
<PAGE>
--------------------------------------------------------------------------------
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<PAGE>
--------------------------------------------------------------------------------
(THIS PAGE IS INTENTIONALLY LEFT BLANK)
<PAGE>
--------------------------------------------------------------------------------
FOR MORE INFORMATION
--------------------------------------------------------------------------------
For investors who want more information on the fund, the following documents are
available free upon request:
Annual/Semi-annual Reports Contain financial statements, performance data,
information on portfolio holdings, and a written analysis of market conditions
and fund performance for the fund's most recently completed fiscal year or
half-year.
Statement of Additional Information (SAI) Provides a fuller technical and legal
description of the fund's policies, investment restrictions, and business
structure. This prospectus incorporates the fund's SAI by reference.
Copies of the current versions of these documents, along with other information
about the fund, may be obtained by contacting:
J.P. Morgan Enhanced Income Fund
Morgan Christiana Center
J.P. Morgan Funds Services - 2/OPS3
500 Stanton Christiana Road
Newark, DE 19713
Telephone: 1-800-521-5411
Hearing impaired: 1-888-468-4015
Email: [email protected]
Text-only versions of these documents and this prospectus are available, upon
payment of a duplicating fee, from the Public Reference Room of the Securities
and Exchange Commission in Washington, D.C. (1-202-942-8090) 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 FUNDS AND THE MORGAN TRADITION
The J.P. Morgan Funds combine a heritage of integrity and financial leadership
with comprehensive, sophisticated analysis and management techniques. Drawing on
J.P. Morgan's extensive experience and depth as an investment manager, the J.P.
Morgan Funds offer a broad array of distinctive opportunities for mutual fund
investors.
JPMorgan
--------------------------------------------------------------------------------
J.P. Morgan Funds
Advisor Distributor
J.P. Morgan Investment Management Inc. Funds Distributor, Inc.
522 Fifth Avenue 60 State Street
New York, NY 10036 Boston, MA 02109
1-800-521-5411 1-800-221-7930
IMPR27
<PAGE>
--------------------------------------------------------------------------------
JUNE 28, 2000 | PROSPECTUS
--------------------------------------------------------------------------------
J.P. MORGAN INSTITUTIONAL
ENHANCED INCOME FUND - ULTRA
----------------------------------------------
Seeking high current income consistent with
principal preservation by investing in taxable
fixed income securities.
This prospectus contains essential information for anyone investing in the fund.
Please read it carefully and keep it for reference.
As with all mutual funds, the fact that these shares are registered with the
Securities and Exchange Commission does not mean that the commission approves
them or guarantees that the information in this prospectus is correct or
adequate. It is a criminal offense to state or suggest otherwise.
Distributed by Funds Distributor, Inc.
JPMorgan
<PAGE>
--------------------------------------------------------------------------------
<PAGE>
CONTENTS
--------------------------------------------------------------------------------
1 | The fund's goal, principal strategies, principal risks, performance and
expenses
J.P. MORGAN INSTITUTIONAL ENHANCED INCOME FUND - ULTRA
Fund description.............................................................. 1
Investor expenses............................................................. 2
3 |
FIXED INCOME MANAGEMENT APPROACH
J.P. Morgan................................................................... 3
Who may want to invest........................................................ 3
Fixed income investment process............................................... 4
5 | Investing in the J.P. Morgan Enhanced Income Fund - Ultra
YOUR INVESTMENT
Investing through a financial professional.................................... 5
Investing directly............................................................ 5
Opening your account.......................................................... 5
Adding to your account........................................................ 5
Selling shares................................................................ 6
Account and transaction policies.............................................. 6
Dividends and distributions................................................... 7
Tax considerations............................................................ 7
8 | More about risk and the fund's business operations
FUND DETAILS
Business structure............................................................ 8
Management and administration................................................. 8
Risk and reward elements...................................................... 9
Investments.................................................................. 11
FOR MORE INFORMATION................................................. back cover
<PAGE>
J.P. MORGAN INSTITUTIONAL ENHANCED INCOME FUND - ULTRA
--------------------------------------------------------------------------------
REGISTRANT: J.P. MORGAN SERIES TRUST
(J.P. MORGAN ENHANCED INCOME FUND: ULTRA SHARES)
[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 9-12.
[GRAPHIC OMITTED]
GOAL
The fund's goal is to provide high current income consistent with principal
preservation. This goal can be changed without shareholder approval.
[GRAPHIC OMITTED]
INVESTMENT APPROACH
Principal Strategies
The fund invests in taxable fixed income securities, including U.S. government
and agency securities, domestic and foreign corporate bonds, asset-backed and
mortgage-related securities, and money market instruments, that J.P. Morgan
believes have the potential to provide high current income. These securities may
be of any maturity, but under normal market conditions the fund's duration will
range between three and eighteen months. Also, the fund may use interest rate
swaps, futures contracts and options to help manage duration, yield curve
exposure, and credit and spread volatility. The fund's investment strategies are
described on page 3. For a description of duration, please see fixed income
investment process on page 4.
Up to 25% of the fund's assets may be invested in foreign securities. All of the
securities purchased by the fund, at the time of purchase, must be rated
investment grade (BBB/Baa or better) by a nationally recognized statistical
rating organization or the unrated equivalent, including at least 75% in
securities rated A or better.
Principal Risks
The fund's share price and total return will vary in response to changes in
interest rates. How well the fund's performance compares to that of similar
fixed income funds will depend on the success of the investment process, which
is described on page 4.
Although any rise in interest rates is likely to cause a fall in the price of
fixed income securities, the fund's comparatively short duration is designed to
help keep its share price within a relatively narrow range. Because it seeks to
minimize risk, the fund will generally offer less income and, during periods of
declining interest rates, may offer lower total returns than funds with longer
durations. The fund's asset-backed and mortgage-backed investments involve risk
of losses due to prepayments that occur earlier or later than expected and, like
any bond, due to default. Because of the sensitivity of the fund's mortgage
related securities to changes in interest rates, the performance and duration of
the fund may be more volatile than if it did not hold these securities. The
fund's investments in interest rate swaps, futures, contracts and options
involve, among others, credit and leverage risk, as described on pages 9-12. To
the extent the fund invests in foreign securities, it could lose money because
of foreign government actions, political instability, currency fluctuations or
lack of adequate and accurate information.
An investment in the fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. You could lose money if you sell when the fund's share price is lower
than when you invested.
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages
approximately $376 billion, including more than $61 billion using similar
strategies as the fund.
The portfolio management team is led by Abigail J. Feder, vice president,
who joined J.P. Morgan from Morgan Stanley Dean Witter Investment Management in
2000 where she served as a fixed income portfolio manager, and John Donohue,
vice president, who joined J.P. Morgan in 1997. Prior to joining J.P. Morgan,
Mr. Donohue served as an institutional money market portfolio manager at Goldman
Sachs.
--------------------------------------------------------------------------------
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 ENHANCED INCOME FUND - ULTRA
<PAGE>
--------------------------------------------------------------------------------
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(1) (%)
(expenses that are deducted from fund assets)
--------------------------------------------------------------------------------
Management fees(2) 0.25
Marketing (12b-1) fees none
Other expenses(2) 0.21
================================================================================
Total operating expenses 0.46
Fee waiver and
expense reimbursement(2) 0.31
================================================================================
Net expenses(2) 0.15
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Expense example(2)
--------------------------------------------------------------------------------
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:
$10,000 initial investment, 5% return each year, net expenses for the period
6/28/00 through 2/28/02 and total operating expenses thereafter, and all shares
sold at the end of each time period. The example is for comparison only; the
fund's actual return and your actual costs may be higher or lower.
--------------------------------------------------------------------------------
1 yr. 3 yrs.
Your cost($) 15 105
--------------------------------------------------------------------------------
(1) This table shows the fund's estimated expenses for the current fiscal
period ending 10/31/00, expressed as a percentage of the fund's estimated
average net assets.
(2) Reflects an agreement dated 6/28/00 by Morgan Guaranty Trust Company of
New York, an affiliate of J.P. Morgan, to reimburse the fund to the extent
fees and expenses (excluding extraordinary expenses) exceed 0.15% of the
fund's average daily net assets through 2/28/02.
J.P. MORGAN INSTITUTIONAL ENHANCED INCOME FUND - ULTRA | 2
<PAGE>
FIXED INCOME MANAGEMENT APPROACH
--------------------------------------------------------------------------------
J.P. MORGAN
Known for its commitment to proprietary research and its disciplined investment
strategies, J.P. Morgan is the asset management choice for many of the world's
most respected corporations, financial institutions, governments, and
individuals. Today, J.P. Morgan employs approximately 380 analysts and portfolio
managers around the world and has approximately $376 billion in assets under
management, including assets managed by the fund's advisor, J.P. Morgan
Investment Management Inc.
--------------------------------------------------------------------------------
Who may want to invest
The fund is designed for investors who:
o want an investment whose risk/return potential is higher than that of
money market funds but generally less than that of longer duration bond
funds
The fund is not designed for investors who:
o are investing for aggressive long-term growth
3 | FIXED INCOME MANAGEMENT APPROACH
<PAGE>
--------------------------------------------------------------------------------
FIXED INCOME INVESTMENT PROCESS
J.P. Morgan seeks to generate an information advantage through the depth of its
global fixed-income research and the sophistication of its analytical systems.
Using a team-oriented approach, J.P. Morgan seeks to gain insights in a broad
range of distinct areas and takes positions in many different areas, helping the
fund to limit exposure to concentrated sources of risk.
In managing the fund, J.P. Morgan employs a three-step process that combines
sector allocation, fundamental research for identifying portfolio securities,
and duration management.
[GRAPHIC OMITTED]
The fund invests across a range of
different types of securities
Sector allocation The sector allocation team meets monthly, analyzing the
fundamentals of a broad range of sectors in which the fund may invest. The team
seeks to enhance performance and manage risk by underweighting or overweighting
sectors.
[GRAPHIC OMITTED]
The fund makes its portfolio decisions as
described earlier in this prospectus
Security selection Relying on the insights of different specialists, including
credit analysts, quantitative researchers, and dedicated fixed income traders,
the portfolio managers make buy and sell decisions according to the fund's goal
and strategy.
[GRAPHIC OMITTED]
J.P. Morgan uses a disciplined process
to control the fund's sensitivity
to interest rates
Duration management Forecasting teams use fundamental economic factors to
develop strategic forecasts of the direction of interest rates. Based on these
forecasts, strategists establish the fund's target duration, a common
measurement of a security's sensitivity to interest rate movements. For
securities owned by the fund, duration measures the average time needed to
receive the present value of all principal and interest payments by analyzing
cash flows and interest rate movements. The fund's duration may be shorter than
the fund's average maturity because the maturity of a security only measures the
time until final payment is due. The fund's target duration typically remains
relatively short, between three and eighteen months. The strategists closely
monitor the fund and make tactical adjustments as necessary.
FIXED INCOME MANAGEMENT APPROACH | 4
<PAGE>
YOUR INVESTMENT
--------------------------------------------------------------------------------
For your convenience, the J.P. Morgan Institutional Funds offer several ways to
start and add to fund investments.
INVESTING THROUGH A FINANCIAL PROFESSIONAL
If you work with a financial professional, either at J.P. Morgan or elsewhere,
he or she is prepared to handle your planning and transaction needs. Your
financial professional will be able to assist you in establishing your fund
account, executing transactions, and monitoring your investment. If your fund
investment is not held in the name of your financial professional and you prefer
to place a transaction order yourself, please use the instructions for investing
directly.
INVESTING THROUGH AN EMPLOYER-SPONSORED RETIREMENT PLAN
Your fund investments are handled through your plan. Refer to your plan
materials or contact your benefits office for information on buying, selling, or
exchanging fund shares.
INVESTING THROUGH AN IRA OR ROLLOVER IRA
Please contact a J.P. Morgan Retirement Services Specialist at 1-888-576-4472
for information on J.P. Morgan's compre-hensive 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
investments is $50,000,000 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 at
right.
For answers to any questions, please speak with a J.P. Morgan Funds Services
Representative at 1-800-766-7722.
OPENING YOUR ACCOUNT
By wire
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. Morgan Institutional Funds
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>
--------------------------------------------------------------------------------
SELLING SHARES
By phone -- wire payment
o privilege is in place on your account. If it is not, a representative can
help you add it.
o Place your wire request. If you are transferring money to a non-Morgan
account, you will need to provide the representative with the personal
identification number (PIN) that was provided to you when you opened your
fund account.
By phone -- check payment
o Call the Shareholder Services Agent and place your request. Once your
request has been verified, a check for the net amount, payable to the
registered owner(s), will be mailed to the address of record. For checks
payable to any other party or mailed to any other address, please make
your request in writing (see below).
In writing
o Write a letter of instruction that includes the following information: The
name of the registered owner(s) of the account; the account number; the
fund name; the amount you want to sell; and the recipient's name and
address or wire information, if different from those of the account
registration.
o Indicate whether you want the proceeds sent by check or by wire.
o Make sure the letter is signed by an authorized party. The Shareholder
Services Agent may require additional information, such as a signature
guarantee.
o Mail the letter to the Shareholder Services Agent.
By exchange
o Call the Shareholder Services Agent to effect an exchange.
Redemption in kind
o The Fund reserves the right to make redemptions of over $250,000 in
securities rather than in cash.
ACCOUNT AND TRANSACTION POLICIES
Telephone orders The fund accepts telephone orders from all shareholders. To
guard against fraud, the fund requires shareholders to use a PIN, and may record
telephone orders or take other reasonable precautions. However, if the fund does
take such steps to ensure the authenticity of an order, you may bear any loss if
the order later proves fraudulent.
Exchanges You may exchange shares in this fund for shares in any other J.P.
Morgan 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 hours and NAV calculations The fund's regular business days and hours
are the same as those of the New York Stock Exchange (NYSE). The fund calculates
its net asset value per share (NAV) every business day as of the close of
trading on the NYSE (normally 4:00 p.m. eastern time). The fund's securities are
typically priced using pricing services or market quotes. When these methods are
not available or do not represent a security's value at the time of pricing
(e.g., when an event occurs after the close of trading that would materially
impact a security's value), the security is valued in accordance with the fund's
fair valuation procedures.
Timing of orders Orders to buy or sell shares are executed at the next NAV
calculated after the order has been accepted. Orders are accepted until the
close of trading on the NYSE every business day and are executed the same day,
at that day's NAV. The fund has the right to suspend redemption of shares 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 5:00 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 the fund receives your payment, generally the day following execution. When
you sell shares, proceeds are generally available the day following execution
and will be forwarded according to your instructions.
When you sell shares that you recently purchased by check, your order will be
executed at the next NAV but the proceeds will not be available until your check
clears. This may take up to 15 days.
Statements and reports The fund sends monthly account statements as well as
confirmations after each purchase or sale of shares (except reinvestments).
Every six months the fund sends out an annual or semi-annual report containing
information on the fund's holdings and a discussion of recent and anticipated
market conditions and fund performance.
Accounts with below-minimum balances If your account balance falls below the
minimum for 30 days as a result of selling shares (and not because of
performance), the fund reserves the right to request that you buy more shares or
close your account. If your account balance is still below the minimum 60 days
after notification, the fund may close out your account and send the proceeds to
the address of record.
DIVIDENDS AND DISTRIBUTIONS
The fund typically declares income dividends daily and pays them monthly. If an
investor's shares are redeemed during the month, accrued but unpaid dividends
are paid with the redemption proceeds. Shares of the fund earn dividends on the
business day the purchase is effective, but not on the business day the
redemption is effective. The fund distributes capital gains, if any, once a
year. However, the fund may make more or fewer payments in a given year,
depending on its investment results and its tax compliance situation. These
dividends and distributions consist of most or all of the fund's net investment
income and net realized capital gains.
Dividends and distributions are reinvested in additional fund shares.
Alternatively, you may instruct your financial professional or J.P. Morgan Funds
Services to have them sent to you by check, credited to a separate account, or
invested in another J.P. Morgan Institutional Fund.
TAX CONSIDERATIONS
In general, selling shares, exchanging shares, and receiving distributions
(whether reinvested or taken in cash) are all taxable events. These transactions
typically create the following tax liabilities:
--------------------------------------------------------------------------------
Transaction Tax status
Income dividends Ordinary income
Short-term capital gains Ordinary income
distributions
Long-term capital gains Capital gains
distributions
Sales or exchanges of Capital gains or
shares owned for more losses
than one year
Sales or exchanges of Gains are treated as ordinary
shares owned for one year income; losses are subject
or less to special rules
Because long-term capital gains distributions are taxable as capital gains
regardless of how long you have owned your shares, you may want to avoid making
a substantial investment when the fund is about to declare a long-term capital
gains distribution.
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
--------------------------------------------------------------------------------
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 governed by the
same trustees. The trustees are responsible for overseeing all business
activities. The trustees are assisted by Pierpont Group, Inc., which they own
and operate on a cost basis; costs are shared by all funds governed by these
trustees. Funds Distributor, Inc., as co-administrator, along with J.P. Morgan,
provides fund officers. J.P. Morgan, as co-administrator, oversees the fund's
other service providers.
--------------------------------------------------------------------------------
Advisory services 0.25% 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 portfolios,
plus 0.04% of average net assets
over $7 billion
Shareholder services 0.05% of the fund's average
net assets
J.P. Morgan may pay fees to certain firms and professionals for providing
recordkeeping or other services in connection with investments in the fund.
FUND DETAILS | 8
<PAGE>
--------------------------------------------------------------------------------
RISK AND REWARD ELEMENTS
This table discusses the main elements that make up the fund's overall risk and
reward characteristics. It also outlines the fund's policies toward various
investments, including those that are designed to help the fund manage risk.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
Potential risks Potential rewards Policies to balance risk and reward
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Market conditions
o The fund's share price, o Bonds have generally o Under normal circumstances the fund plans to remain
yield, and total return outperformed money market fully invested in bonds and other fixed income
will fluctuate in investments over the long securities as noted in the table on pages 11-12
response to bond market term, with less risk than
movements stocks o The fund seeks to limit risk and enhance yields through
careful management, sector allocation, individual
o The value of most bonds o Most bonds will rise in securities selection, and duration management
will fall when interest value when interest rates
rates rise; the longer a fall o J.P. Morgan monitors interest rate trends, as well as
bond's maturity and the geographic and demographic information related to
lower its credit quality, o Mortgage-backed and mortgage-backed securities and mortgage prepayments
the more its value asset-backed securities
typically falls can offer attractive
returns
o Adverse market conditions
may from time to time
cause the fund to take
temporary defensive
positions that are
inconsistent with its
principal investment
strategies and may hinder
the fund from achieving
its investment objective
o Mortgage-backed and
asset-backed securities
(securities representing
an interest in, or
secured by, a pool of
mortgages or other assets
such as receivables)
could generate capital
losses or periods of low
yields if they are paid
off substantially earlier
or later than anticipated
Management choices
o The fund could o The fund could outperform o J.P. Morgan focuses its active management on those
underperform its its benchmark due to areas where it believes its commitment to research can
benchmark due to its these same choices most enhance income and manage risks in a consistent
sector, securities, or way
duration choices
Credit quality
o The default of an issuer o Investment-grade bonds o The fund maintains its own policies for balancing
would leave the fund with have a lower risk of credit quality against potential yields and gains in
unpaid interest or default light of its investment goals
principal
o J.P. Morgan develops its own ratings of unrated
securities and makes a credit quality determination for
unrated securities
Short-term trading
o Increased trading would o The fund could realize o The fund uses short-term trading to take advantage of
raise the fund's gains in a short period attractive or unexpected opportunities or to meet
transaction costs of time demands generated by shareholder activity
o Increased short-term o The fund could protect
capital gains against losses if a bond
distributions would raise is overvalued and its
shareholders' income tax value later falls
liability
</TABLE>
9 | FUND DETAILS
<PAGE>
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
Potential risks Potential rewards Policies to balance risk and reward
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Foreign investments
o The fund could lose money o Foreign bonds, which o Foreign bonds may be a significant investment (25% of
because of foreign represent a major portion assets) for the fund
government actions, of the world's fixed
political instability, or income securities, offer o To the extent that the fund invests in foreign bonds, it
lack of adequate and attractive potential will hedge its currency exposure into the U.S. dollar
accurate information performance and (see also "Derivatives")
opportunities for
o Currency exchange rate diversification
movements could reduce
gains or create losses o Favorable exchange rate
movements could generate
gains or reduce losses
Derivatives
o Derivatives such as o Hedges that correlate o The fund uses derivatives such as futures, options,
futures, options, swaps well with underlying swaps and forward foreign currency contracts for hedging
and forward foreign positions can reduce or and for risk management (i.e., to adjust duration or to
currency contracts that eliminate losses at low establish or adjust exposure to particular securities,
are used for hedging the cost markets, or currencies)
portfolio or specific
securities may not fully o The fund could make money o The fund only establishes hedges that it expects will be
offset the underlying and protect against highly correlated with underlying positions
positions(1) and this could losses if management's
result in losses to the analysis proves correct o While the fund may use derivatives that incidentally
fund that would not have involve leverage, it does not use them for the specific
otherwise occurred o Derivatives that involve purpose of leveraging the portfolio
leverage could generate
o Derivatives used for risk substantial gains at low
management may not have cost
the intended effects and
may result in losses or
missed opportunities
o The counterparty to a
derivatives contract
could default
o Certain types of
derivatives involve costs
to the fund which can
reduce returns
o Derivatives that involve
leverage could magnify
losses
Securities lending
o When a fund lends a o The fund may enhance o J.P. Morgan maintains a list of approved borrowers
security, there is a risk income through the
that the loaned investment of the o The fund receives collateral equal to at least 100% of
securities may not be collateral received from the current value of securities loaned
returned if the borrower the borrower
defaults o The lending agents indemnify a fund against borrower
default
o The collateral will be
subject to the risks of o J.P. Morgan's collateral investment guidelines limit the
the securities in which quality and duration of collateral investment to
it is invested 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 assets in
difficulty valuing these more attractive yields or illiquid holdings
holdings precisely potential growth than
comparable widely traded o To maintain adequate liquidity to meet redemptions, the
o The fund could be unable securities fund may hold investment-grade short-term securities
to sell these holdings at (including repurchase agreements) and, for temporary or
the time or price desired extraordinary purposes, may borrow from banks up to
33 1/3% of the value of its total assets
When-issued and delayed
delivery securities
o When the fund buys o The fund can take o The fund uses segregated accounts to offset leverage
securities before issue advantage of attractive risk
or for delayed delivery, transaction opportunities
it could be exposed to
leverage risk if it does
not use segregated
accounts
</TABLE>
(1) A futures contract is an agreement to buy or sell a set quantity of an
underlying instrument at a future date, or to make or receive a cash
payment based on the value of a securities index. An option is the right
to buy or sell a set quantity of an underlying instrument at a
predetermined price. A swap is a privately negotiated agreement to
exchange one stream of payments for another. A forward foreign currency
contract is an obligation to buy or sell a given currency on a future date
and at a set price.
FUND DETAILS | 10
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Investments
--------------------------------------------------------------------------------
This table discusses the customary types of investments which can be held by the
fund. In each case the related types of risk are listed on the following page
(see below for definitions).This table reads across two pages.
0 Permitted - bold
* Permitted, but not typically used
<TABLE>
<CAPTION>
Related Types of Risk
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
------------------------------------------------------------------------------------------------------------------------------------
Asset-backed securities Interests in a stream of
payments from specific assets, credit, interest rate, market, prepayment O
such as auto or credit card receivables.
------------------------------------------------------------------------------------------------------------------------------------
Bank obligations Negotiable certificates of
deposit, time deposits and bankers' credit, currency, liquidity, political O(1)
acceptances of domestic and foreign issuers.
------------------------------------------------------------------------------------------------------------------------------------
Commercial paper Unsecured short term debt
issued by domestic and foreign banks credit, currency, interest rate,
or corporations. These securities are usually liquidity, market, liquidity, market,
discounted and are rated by S&P or political O(1)
Moody's.
------------------------------------------------------------------------------------------------------------------------------------
Convertible securities Domestic and foreign
debt securities that can be credit, currency, interest rate,
converted into equity securities at a future liquidity, market, political,
time and price. valuation O(1)
------------------------------------------------------------------------------------------------------------------------------------
Corporate bonds Debt securities of domestic
and foreign industrial, utility, credit, currency, interest rate,
banking, and other financial institutions. liquidity, market, political, valuation O(1)
------------------------------------------------------------------------------------------------------------------------------------
Mortgages (directly held) Domestic debt
instrument which gives the lender a lien rate, liquidity, market, natural event,
credit, environmental, extension, interest political, prepayment, valuation O
on property as security for the loan
payment.
------------------------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities Domestic and
foreign securities (such as Ginnie Maes,
Freddie Macs, Fannie Maes) which represent credit, currency, extension, interest
interests in pools of mortgages, rate, leverage, market, political,
whereby the principal and interest paid prepayment
every month is passed through to the O(1)
holder of the securities.
------------------------------------------------------------------------------------------------------------------------------------
Mortgage dollar rolls The sale of domestic
and foreign mortgage-backed credit, currency, extension, interest
securities with the promise to purchase rate, leverage, liquidity,
similar securities at a later date. market, political, prepayment O(1,2)
Segregated accounts are used to offset leverage risk.
------------------------------------------------------------------------------------------------------------------------------------
Participation interests Interests that
represent a share of bank debt or similar credit, currency, extension, interest
securities or obligations. rate, liquidity, political, prepayment O(1)
------------------------------------------------------------------------------------------------------------------------------------
Private placements Bonds or other investments
that are sold directly to an credit, interest rate, liquidity, market,
institutional investor. valuation O
------------------------------------------------------------------------------------------------------------------------------------
REITs and other real-estate related instruments
Securities of issuers that credit, environmental, interest rate,
invest in real estate or are secured by real estate. liquidity, market, natural event, valuation O
------------------------------------------------------------------------------------------------------------------------------------
Repurchase agreements Contracts whereby the
fund agrees to purchase a security credit O
and resell it to to the seller on a particular
date and at a specific price.
------------------------------------------------------------------------------------------------------------------------------------
Reverse repurchase agreements Contracts whereby
the fund sells a security and credit O(2)
agrees to repurchase it from the buyer on a
particular date and at a specific price.
Considered a form of borrowing.
------------------------------------------------------------------------------------------------------------------------------------
Sovereign debt, Brady bonds, and debt of
supranational organizations Dollar- or credit, currency, interest rate, market,
non-dollar-denominated securities issued political O(1)
by foreign governments or supranational
organizations. Brady bonds are issued in
connection with debt restructurings.
------------------------------------------------------------------------------------------------------------------------------------
Swaps Contractual agreement whereby a party
agrees to exchange periodic payments credit, currency, interest rate,
with a counterparty. Segregated accounts are leverage, market, political O(1)
used to offset leverage risk.
------------------------------------------------------------------------------------------------------------------------------------
Tax exempt municipal securities Securities,
generally issued as general credit, interest rate, market, natural
obligation and revenue bonds, whose interest is event, political *
exempt from federal taxation and state and/or
local taxes in the state where the securities were issued.
------------------------------------------------------------------------------------------------------------------------------------
U.S. government securities Debt instruments
(Treasury bills, notes, and bonds) interest rate O
guaranteed by the U.S. government for the
timely payment of principal and interest.
------------------------------------------------------------------------------------------------------------------------------------
Zero coupon, pay-in-kind, and deferred
payment securities Domestic and foreign credit, currency, interest rate,
securities offering non-cash or delayed-cash liquidity, market, political, valuation O(1)
payment. Their prices are typically
more volatile than those of some other debt
instruments and involve certain
special tax considerations.
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Risk related to certain investments held by J.P. Morgan fixed income funds:
Credit risk The risk a financial obligation will not be met by the issuer of a
security or the counterparty to a contract, resulting in a loss to the
purchaser.
Currency risk The risk currency exchange rate fluctuations may reduce gains or
increase losses on foreign investments.
Environmental risk The risk that an owner or operator of real estate may be
liable for the costs associated with hazardous or toxic substances located on
the property.
Extension risk The risk a rise in interest rates will extend the life of a
mortgage-backed security to a date later than the anticipated prepayment date,
causing the value of the investment to fall.
Interest rate risk The risk a change in interest rates will adversely affect the
value of an investment. The value of fixed income securities generally moves in
the opposite direction of interest rates (decreases when interest rates rise and
increases when interest rates fall).
Leverage risk The risk of gains or losses disproportionately higher than the
amount invested.
Liquidity risk The risk the holder may not be able to sell the security at the
time or price it desires.
Market risk The risk that when the market as a whole declines, the value of a
specific investment will decline proportionately. This systematic risk is common
to all investments and the mutual funds that purchase them.
Natural event risk The risk a natural disaster, such as a hurricane or similar
event, will cause severe economic losses and default in payments by the issuer
of the security.
Political risk The risk governmental policies or other political actions will
negatively impact the value of the investment.
Prepayment risk The risk declining interest rates will result in unexpected
prepayments, causing the value of the investment to fall.
Valuation risk The risk the estimated value of a security does not match the
actual amount that can be realized if the security is sold.
(1) All foreign securities in the aggregate may not exceed 25% of the fund's
assets.
(2) All forms of borrowing (including securities lending, mortgage dollar
rolls and reverse repurchase agreements) are limited in the aggregate and
may not exceed 33 1/3% of the fund's total assets.
11 & 12 | FUND DETAILS
<PAGE>
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<PAGE>
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<PAGE>
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For More Information
--------------------------------------------------------------------------------
For investors who want more information on the fund, the following documents are
available free upon request:
Annual/Semi-annual Reports Contain financial statements, performance data,
information on portfolio holdings, and a written analysis of market conditions
and fund performance for the fund's most recently completed fiscal year or
half-year.
Statement of Additional Information (SAI) Provides a fuller technical and legal
description of the fund's policies, investment restrictions, and business
structure. This prospectus incorporates the fund's SAI by reference.
Copies of the current versions of these documents, along with other information
about the fund, may be obtained by contacting:
J.P. Morgan Institutional Enhanced Income Fund - Ultra
Morgan Christiana C enter
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 INSTITUTIONAL FUNDS AND THE MORGAN TRADITION
The J.P. Morgan Institutional Funds combine a heritage of integrity and
financial leadership with comprehensive, sophisticated analysis and management
techniques. Drawing on J.P. Morgan's extensive experience and depth as an
investment manager, the J.P. Morgan Institutional Funds offer a broad array of
distinctive opportunities for mutual fund investors.
JPMorgan
--------------------------------------------------------------------------------
J.P. Morgan Institutional Funds
Advisor Distributor
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
IMPR29
<PAGE>
J.P. MORGAN SERIES TRUST
J.P. MORGAN ENHANCED INCOME FUND
STATEMENT OF ADDITIONAL INFORMATION
JUNE 28, 2000
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS BUT CONTAINS
ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE FUND'S
PROSPECTUSES DATED JUNE 28, 2000, AS SUPPLEMENTED FROM TIME TO TIME. THE FUND'S
PROSPECTUSES 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.
<PAGE>
Table of Contents
Page
GENERAL------------------------------------------------------------------------1
INVESTMENT OBJECTIVE AND
POLICIES-----------------------------------------------------------------------1
INVESTMENT
RESTRICTIONS------------------------------------------------------------------29
TRUSTEES AND MEMBERS OF THE ADVISORY
BOARD-------------------------------------------------------------------------29
OFFICERS----------------------------------------------------------------------29
INVESTMENT
ADVISOR-----------------------------------------------------------------------33
DISTRIBUTOR-------------------------------------------------------------------37
CO-ADMINISTRATOR--------------------------------------------------------------38
SERVICES
AGENT-------------------------------------------------------------------------38
CUSTODIAN AND TRANSFER
AGENT-------------------------------------------------------------------------39
SHAREHOLDER
SERVICING---------------------------------------------------------------------39
FINANCIAL
PROFESSIONALS-----------------------------------------------------------------40
INDEPENDENT
ACCOUNTANTS-------------------------------------------------------------------41
EXPENSES----------------------------------------------------------------------41
PURCHASE OF
SHARES------------------------------------------------------------------------41
REDEMPTION OF
SHARES------------------------------------------------------------------------42
EXCHANGE OF
SHARES------------------------------------------------------------------------43
DIVIDENDS AND
DISTRIBUTIONS-----------------------------------------------------------------44
NET ASSET
VALUE-------------------------------------------------------------------------44
PERFORMANCE
DATA--------------------------------------------------------------------------45
PORTFOLIO
TRANSACTIONS------------------------------------------------------------------46
MASSACHUSETTS
TRUST-------------------------------------------------------------------------48
DESCRIPTION OF
SHARES------------------------------------------------------------------------48
TAXES-------------------------------------------------------------------------49
ADDITIONAL
INFORMATION-------------------------------------------------------------------53
APPENDIX A - DESCRIPTION OF SECURITY
RATINGS-----------------------------------------------------------------------54
<PAGE>
GENERAL
J.P. Morgan Enhanced Income Fund (the "Fund") is a series of J.P.
Morgan Series Trust, an open-end management investment company organized as a
Massachusetts business trust (the "Trust"). To date, the Trustees of the Trust
have authorized the issuance of three classes of shares--Institutional Shares,
Select Shares and Ultra Shares.
This Statement of Additional Information provides additional
information with respect to the Fund and should be read in conjunction with the
Fund's 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 Fund is advised by J.P. Morgan Investment Management Inc. ("JPMIM" or
the "Advisor").
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by any bank. Shares of the Fund are not federally insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other
governmental agency. An investment in the Fund 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 OBJECTIVE AND POLICIES
The following discussion supplements the information in the Prospectus
regarding the investment objective and policies of the Fund.
The Fund is designed for investors seeking high current income,
consistent with principal preservation. The Fund primarily invests in taxable
fixed income, including U.S. government and agency securities, domestic and
foreign corporate bonds, asset-backed and mortgage-related securities, and money
market instruments, that the Advisor believes have the potential to provide high
current income.
Investment Process for the Fund
Duration Management. Duration will be actively managed based on
internal economic research, forecasts of interest rates and their volatility,
and the shape of the yield curve. The portfolio's duration will generally range
between 90 days to 18 months.
Sector Allocation. The Advisor's Fixed Income Group recommends sector
allocation strategies. Within each sector, the Advisor utilizes option adjusted
spread analysis as one measure of sector attractiveness. Current spreads also
are judged against their historical norm. The Advisor utilizes market and credit
research to assess fair value and the likelihood of sector spreads widening or
narrowing.
Security Selection. The Advisor utilizes its extensive credit and
quantitative research, portfolio management and trading capabilities across all
fixed income markets to select securities. Securities will be selected based
upon the issuer's ability to return principal at a rate offering an attractive
return when compared to similar securities available in the marketplace.
The various types of securities in which the Fund may invest are
described below.
Corporate Bonds and Other Debt Securities
The Fund may invest in bonds and other debt securities of domestic and
foreign issuers to the extent consistent with its investment objective and
policies. A description of these investments appears below. See "Quality and
Diversification Requirements." For information on short-term investments in
these securities, see "Money Market Instruments."
Mortgage-Backed Securities. The Fund may invest in mortgage-backed
securities. Each mortgage pool underlying mortgage-backed securities consists of
mortgage loans evidenced by promissory notes secured by first mortgages or first
deeds of trust or other similar security instruments creating a first lien on
owner occupied and non-owner occupied one-unit to four-unit residential
properties, multifamily (i.e., five or more) properties, agriculture properties,
commercial properties and mixed use properties. The investment characteristics
of adjustable and fixed rate mortgage-backed securities differ from those of
traditional fixed income securities. The major differences include the payment
of interest and principal on mortgage-backed securities on a more frequent
(usually monthly) schedule and the possibility that principal may be prepaid at
any time due to prepayments on the underlying mortgage loans or other assets.
These differences can result in significantly greater price and yield volatility
than is the case with traditional fixed income securities. As a result, a faster
than expected prepayment rate will reduce both the market value and the yield to
maturity from those which were anticipated. A prepayment rate that is slower
than expected will have the opposite effect of increasing yield to maturity and
market value.
Government Guaranteed Mortgage-Backed Securities. Government National
Mortgage Association mortgage-backed certificates ("Ginnie Maes") are supported
by the full faith and credit of the United States. Certain other U.S. Government
securities, issued or guaranteed by federal agencies or government sponsored
enterprises, are not supported by the full faith and credit of the United
States, but may be supported by the right of the issuer to borrow from the U.S.
Treasury. These securities include obligations of instrumentalities such as the
Federal Home Loan Mortgage Corporation ("Freddie Macs") and the Federal National
Mortgage Association ("Fannie Maes"). No assurance can be given that the U.S.
Government will provide financial support to these federal agencies,
authorities, instrumentalities and government sponsored enterprises in the
future.
There are several types of guaranteed mortgage-backed securities
currently available, including guaranteed mortgage pass-through certificates and
multiple class securities, which include guaranteed real estate mortgage
investment conduit certificates ("REMIC Certificates"), other collateralized
mortgage obligations ("CMOs") and stripped mortgage-backed securities.
Mortgage pass-through securities are fixed or adjustable rate
mortgage-backed securities which provide for monthly payments that are a
"pass-through" of the monthly interest and principal payments (including any
prepayments) made by the individual borrowers on the pooled mortgage loans, net
of any fees or other amounts paid to any guarantor, administrator and/or
servicer of the underlying mortgage loans.
Multiple class securities include CMOs and REMIC Certificates issued by
U.S. Government agencies, instrumentalities (such as Fannie Mae) and sponsored
enterprises (such as Freddie Mac) or by trusts formed by private originators of,
or investors in, mortgage loans, including savings and loan associations,
mortgage bankers, commercial banks, insurance companies, investment banks and
special purpose subsidiaries of the foregoing. In general, CMOs are debt
obligations of a legal entity that are collateralized by, and multiple class
mortgage-backed securities represent direct ownership interests in, a pool of
mortgage loans or mortgaged-backed securities and payments on which are used to
make payments on the CMOs or multiple class mortgage-backed securities.
CMOs and guaranteed REMIC Certificates issued by Fannie Mae and Freddie
Mac are types of multiple class mortgage-backed securities. Investors may
purchase beneficial interests in REMICs, which are known as "regular" interests
or "residual" interests. The Fund does not intend to purchase residual interests
in REMICs. The REMIC Certificates represent beneficial ownership interests in a
REMIC trust, generally consisting of mortgage loans or Fannie Mae, Freddie Mac
or Ginnie Mae guaranteed mortgage-backed securities (the "Mortgage Assets"). The
obligations of Fannie Mae and Freddie Mac under their respective guaranty of the
REMIC Certificates are obligations solely of Fannie Mae and Freddie Mac,
respectively.
CMOs and REMIC Certificates are issued in multiple classes. Each class
of CMOs or REMIC Certificates, often referred to as a "tranche," is issued at a
specific adjustable or fixed interest rate and must be fully retired no later
than its final distribution date. Principal prepayments on the assets underlying
the CMOs or REMIC Certificates may cause some or all of the classes of CMOs or
REMIC Certificates to be retired substantially earlier than their final
scheduled distribution dates. Generally, interest is paid or accrues on all
classes of CMOs or REMIC Certificates on a monthly basis.
Stripped Mortgage-Backed Securities. Stripped mortgage-backed
securities ("SMBS") are derivative multiclass mortgage securities, issued or
guaranteed by the U.S. Government, its agencies or instrumentalities or by
private issuers. Although the market for such securities is increasingly liquid,
privately issued SMBS may not be readily marketable and will be considered
illiquid for purposes of the Fund's limitation on investments in illiquid
securities. The Advisor may determine that SMBS which are U.S. Government
securities are liquid for purposes of the Fund's limitation on investments in
illiquid securities in accordance with procedures adopted by the Board of
Trustees. The market value of the class consisting entirely of principal
payments generally is unusually volatile in response to changes in interest
rates. The yields on a class of SMBS that receives all or most of the interest
from mortgage assets are generally higher than prevailing market yields on other
mortgage-backed securities because their cash flow patterns are more volatile
and there is a greater risk that the initial investment will not be fully
recouped.
Mortgages (directly held). The Fund may invest directly in mortgages.
Mortgages are debt instruments secured by real property. Unlike mortgage-backed
securities, which generally represent an interest in a pool of mortgages, direct
investments in mortgages involve prepayment and credit risks of an individual
issuer and real property. Consequently, these investments require different
investment and credit analysis by the Advisor.
The directly placed mortgages in which the Fund invests may include
residential mortgages, multifamily mortgages, mortgages on cooperative apartment
buildings, commercial mortgages, and sale-leasebacks. These investments are
backed by assets such as office buildings, shopping centers, retail stores,
warehouses, apartment buildings and single-family dwellings. In the event that
the Fund forecloses on any non-performing mortgage, and acquires a direct
interest in the real property, the Fund will be subject to the risks generally
associated with the ownership of real property. There may be fluctuations in the
market value of the foreclosed property and its occupancy rates, rent schedules
and operating expenses. There may also be adverse changes in local, regional or
general economic conditions, deterioration of the real estate market and the
financial circumstances of tenants and sellers, unfavorable changes in zoning,
building environmental and other laws, increased real property taxes, rising
interest rates, reduced availability and increased cost of mortgage borrowings,
the need for unanticipated renovations, unexpected increases in the cost of
energy, environmental factors, acts of God and other factors which are beyond
the control of the Fund or the Advisor. Hazardous or toxic substances may be
present on, at or under the mortgaged property and adversely affect the value of
the property. In addition, the owners of property containing such substances may
be held responsible, under various laws, for containing, monitoring, removing or
cleaning up such substances. The presence of such substances may also provide a
basis for other claims by third parties. Costs of clean-up or of liabilities to
third parties may exceed the value of the property. In addition, these risks may
be uninsurable. In light of these and similar risks, it may be impossible to
dispose profitably of properties in foreclosure.
Auction Rate Securities. Auction rate securities consist of auction
rate municipal securities and auction rate preferred securities issued by
closed-end investment companies that invest primarily in municipal securities.
Provided that the auction mechanism is successful, auction rate securities
usually permit the holder to sell the securities in an auction at par value at
specified intervals. The dividend is reset by "Dutch" auction in which bids are
made by broker-dealers and other institutions for a certain amount of securities
at a specified minimum yield. The dividend rate set by the auction is the lowest
interest or dividend rate that covers all securities offered for sale. While
this process is designed to permit auction rate securities to be traded at par
value, there is the risk that an auction will fail due to insufficient demand
for the securities.
The fund's investments in auction rate preferred securities of
closed-end funds are subject to limitations on investments in other U.S.
registered investment companies, which limitations are prescribed under the 1940
Act. These limitations include prohibitions against acquiring more than 3% of
the voting securities of any other such investment company, and investing more
than 5% of the fund's assets in securities of any one such investment company or
more than 10% of its assets in securities of all such investment companies. The
fund will indirectly bear its proportionate share of any management fees paid by
such closed-end funds in addition to the advisory fee payable directly by the
fund.
Zero Coupon, Pay-in-Kind and Deferred Payment Securities. Zero coupon
securities are securities that are sold at a discount to par value and on which
interest payments are not made during the life of the security. Upon maturity,
the holder is entitled to receive the par value of the security. Pay-in-kind
securities are securities that have interest payable by delivery of additional
securities. Upon maturity, the holder is entitled to receive the aggregate par
value of the securities. The Fund accrues income with respect to zero coupon and
pay-in-kind securities prior to the receipt of cash payments. Deferred payment
securities are securities that remain zero coupon securities until a
predetermined date, at which time the stated coupon rate becomes effective and
interest becomes payable at regular intervals. While interest payments are not
made on such securities, holders of such securities are deemed to have received
"phantom income." Because the Fund will distribute "phantom income" to
shareholders, to the extent that shareholders elect to receive dividends in cash
rather than reinvesting such dividends in additional shares, the Fund will have
fewer assets with which to purchase income producing securities. Zero coupon,
pay-in-kind and deferred payment securities may be subject to greater
fluctuation in value and lesser liquidity in the event of adverse market
conditions than comparably rated securities paying cash interest at regular
interest payment periods.
Asset-Backed Securities. Asset-backed securities directly or indirectly
represent a participation interest in, or are secured by and payable from, a
stream of payments generated by particular assets such as motor vehicle or
credit card receivables or other asset-backed securities collateralized by such
assets. Payments of principal and interest may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution unaffiliated with the entities issuing the securities. The
asset-backed securities in which the Fund may invest are subject to the Fund's
overall credit requirements. However, asset-backed securities, in general, are
subject to certain risks. Most of these risks are related to limited interests
in applicable collateral. For example, credit card debt receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts on credit card debt thereby reducing the
balance due. Additionally, if the letter of credit is exhausted, holders of
asset-backed securities may also experience delays in payments or losses if the
full amounts due on underlying sales contracts are not realized. Because
asset-backed securities are relatively new, the market experience in these
securities is limited and the market's ability to sustain liquidity through all
phases of the market cycle has not been tested.
Corporate Fixed Income Securities. The Fund may invest in publicly and
privately issued debt obligations of U.S. and non-U.S. corporations, including
obligations of industrial, utility, banking and other financial issuers. These
securities are subject to the risk of an issuer's inability to meet principal
and interest payments on the obligation and may also be subject to price
volatility due to such factors as market interest rates, market perception of
the creditworthiness of the issuer and general market liquidity.
Money Market Instruments
The Fund may invest in money market instruments to the extent
consistent with its investment objective and policies. Under normal
circumstances, the Fund will purchase 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 Fund appears below. See "Quality and Diversification
Requirements."
U.S. Treasury Securities. The Fund may invest in direct obligations of the
U.S. Treasury, including Treasury bills, notes and bonds, all of which are
backed as to principal and interest payments by the full faith and credit of the
United States.
Additional U.S. Government Obligations. The Fund may invest in
obligations issued or guaranteed by U.S. Government agencies or
instrumentalities. These obligations may or may not be backed by the "full faith
and credit" of the United States. Securities which are backed by the full faith
and credit of the United States include obligations of the Government National
Mortgage Association, the Farmers Home Administration and the Export-Import
Bank. In the case of securities not backed by the full faith and credit of the
United States, the 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 the Fund may
invest that are not backed by the full faith and credit of the United States
include, but are not limited to: (i) obligations of the Tennessee Valley
Authority, the Federal Home Loan Mortgage Corporation, the Federal Home Loan
Banks and the U.S. Postal Service, each of which has the right to borrow from
the U.S. Treasury to meet its obligations; (ii) securities issued by the Federal
National Mortgage Association, which are supported by the discretionary
authority of the U.S. Government to purchase the agency's obligations; and (iii)
obligations of the Federal Farm Credit System and the Student Loan Marketing
Association, each of whose obligations may be satisfied only by the individual
credit of the issuing agency.
Foreign Government Obligations. The Fund, subject to its investment
policies, may also invest in short-term obligations of foreign sovereign
governments or of their agencies, instrumentalities, authorities or political
subdivisions. These securities may be denominated in the U.S. dollar or in
another currency. See "Foreign Investments."
Bank Obligations. Unless otherwise noted below, the Fund 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 Fund will not invest in obligations for which the Advisor,
or any of its affiliated persons, is the ultimate obligor or accepting bank. The
Fund may also invest in obligations of international banking institutions
designated or supported by national governments to promote economic
reconstruction, development or trade between nations (e.g., the European
Investment Bank, the Inter-American Development Bank, or the World Bank).
Commercial Paper. The Fund 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 Fund 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 Fund to be liquid because they are payable upon demand. The
Fund does 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. The Fund may enter into repurchase agreements
with brokers, dealers or banks that meet the credit guidelines approved by the
Advisor. In a repurchase agreement, the 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 the 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 Fund 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 Fund 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 Fund in each agreement
plus accrued interest, and the Fund 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, the 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 the Fund may be delayed or
limited.
Municipal Obligations
In certain circumstances, the Fund may invest in tax exempt and taxable
municipal obligations to the extent consistent with the Fund's investment
objective and policies. A description of the various types of tax exempt
obligations which may be purchased by the Fund appears below. See "Quality and
Diversification Requirements."
Municipal Bonds. Municipal bonds are debt obligations issued by the
states, territories and possessions of the United States and the District of
Columbia, by their political subdivisions and by duly constituted authorities
and corporations. For example, states, territories, possessions and
municipalities may issue municipal bonds to raise funds for various public
purposes such as airports, housing, hospitals, mass transportation, schools,
water and sewer works. They may also issue municipal bonds to refund outstanding
obligations and to meet general operating expenses. Public authorities issue
municipal bonds to obtain funding for privately operated facilities, such as
housing and pollution control facilities, for industrial facilities or for water
supply, gas, electricity or waste disposal facilities.
Municipal bonds may be general obligation or revenue bonds. General
obligation bonds are secured by the issuer's pledge of its full faith, credit
and taxing power for the payment of principal and interest. Revenue bonds are
payable from revenues derived from particular facilities, from the proceeds of a
special excise tax or from other specific revenue sources. They are not
generally payable from the general taxing power of a municipality.
Municipal Notes. The Fund also may invest in municipal notes of various
types, including notes issued in anticipation of receipt of taxes, the proceeds
of the sale of bonds, other revenues or grant proceeds, as well as municipal
commercial paper and municipal demand obligations such as variable rate demand
notes and master demand obligations.
Municipal notes are short-term obligations with a maturity at the time
of issuance typically ranging from six months to two years. The principal types
of municipal notes include tax anticipation notes, bond anticipation notes,
revenue anticipation notes, grant anticipation notes and project notes. Notes
sold in anticipation of collection of taxes, a bond sale, or receipt of other
revenues are usually general obligations of the issuing municipality or agency.
Municipal commercial paper typically consists of very short-term
unsecured negotiable promissory notes that are sold to meet seasonal working
capital or interim construction financing needs of a municipality or agency.
While these obligations are intended to be paid from general revenues or
refinanced with long-term debt, they frequently are backed by letters of credit,
lending agreements, note repurchase agreements or other credit facility
agreements offered by banks or institutions.
Municipal demand obligations are subdivided into two types: variable rate
demand notes and master demand obligations.
Variable rate demand notes are tax exempt municipal obligations or
participation interests that provide for a periodic adjustment in the interest
rate paid on the notes. They permit the holder to demand payment of the notes,
or to demand purchase of the notes at a purchase price equal to the unpaid
principal balance, plus accrued interest either directly by the issuer or by
drawing on a bank letter of credit or guaranty issued with respect to such note.
The issuer of the municipal obligation may have a corresponding right to prepay
at its discretion the outstanding principal of the note plus accrued interest
upon notice comparable to that required for the holder to demand payment. The
variable rate demand notes in which the Fund may invest are payable, or are
subject to purchase, on demand usually on notice of seven calendar days or less.
The terms of the notes provide that interest rates are adjustable at intervals
ranging from daily to six months, and the adjustments are based upon the prime
rate of a bank or other appropriate interest rate index specified in the
respective notes. Variable rate demand notes, with maturities of sixty days or
less, are valued at amortized cost; no value is assigned to the right of the
Fund to receive the par value of the obligation upon demand or notice.
Master demand obligations are tax exempt municipal obligations that
provide for a periodic adjustment in the interest rate paid and permit daily
changes in the amount borrowed. The interest on such obligations is, in the
opinion of counsel for the borrower, excluded from gross income for federal
income tax purposes. For a description of the attributes of master demand
obligations, see "Money Market Instruments-Commerical Paper" below. Although
there is no secondary market for master demand obligations, such obligations are
considered by the Fund to be liquid because they are payable upon demand. The
Fund has no specific percentage limitations on investments in master demand
obligations.
Premium Securities. During a period of declining interest rates, many
municipal securities in which the Fund invests likely will bear coupon rates
higher than current market rates, regardless of whether the securities were
initially purchased at a premium. In general, such securities have market values
greater than the principal amounts payable on maturity, which would be reflected
in the net asset value of the Fund's shares. The values of such "premium"
securities tend to approach the principal amount as they near maturity.
Puts. The Fund may purchase without limit, municipal bonds or notes
together with the right to resell the bonds or notes to the seller at an agreed
price or yield within a specified period prior to the maturity date of the bonds
or notes. Such a right to resell is commonly known as a "put." The aggregate
price for bonds or notes with puts may be higher than the price for bonds or
notes without puts. Consistent with the Fund's investment objective and subject
to the supervision of the Trustees, the purpose of this practice is to permit
the Fund to be fully invested in tax exempt securities while preserving the
necessary liquidity to purchase securities on a when-issued basis, to meet
unusually large redemptions, and to purchase at a later date securities other
than those subject to the put. The principal risk of puts is that the writer of
the put may default on its obligation to repurchase. The Advisor will monitor
each writer's ability to meet its obligations under puts.
Puts may be exercised prior to the expiration date in order to fund
obligations to purchase other securities or to meet redemption requests. These
obligations may arise during periods in which proceeds from sales of Fund shares
and from recent sales of portfolio securities are insufficient to meet
obligations or when the funds available are otherwise allocated for investment.
In addition, puts may be exercised prior to the expiration date in order to take
advantage of alternative investment opportunities or in the event the Advisor
revises its evaluation of the creditworthiness of the issuer of the underlying
security. In determining whether to exercise puts prior to their expiration date
and in selecting which puts to exercise, the Advisor considers the amount of
cash available to the Fund, the expiration dates of the available puts, any
future commitments for securities purchases, alternative investment
opportunities, the desirability of retaining the underlying securities in the
Fund's portfolio and the yield, quality and maturity dates of the underlying
securities.
The Fund values any municipal bonds and notes subject to puts with
remaining maturities of less than 60 days by the amortized cost method. If the
Fund were to invest in municipal bonds and notes with maturities of 60 days or
more that are subject to puts separate from the underlying securities, the puts
and the underlying securities would be valued at fair value as determined in
accordance with procedures established by the Board of Trustees. The Board of
Trustees would, in connection with the determination of the value of a put,
consider, among other factors, the creditworthiness of the writer of the put,
the duration of the put, the dates on which or the periods during which the put
may be exercised and the applicable rules and regulations of the SEC. Prior to
investing in such securities, the Fund, if deemed necessary based upon the
advice of counsel, will apply to the SEC for an exemptive order, which may not
be granted, relating to the amortized valuation of such securities.
Since the value of the put is partly dependent on the ability of the
put writer to meet its obligation to repurchase, the Fund's policy is to enter
into put transactions only with municipal securities dealers who are approved by
the Advisor. Each dealer will be approved on its own merits, and it is the
Fund's general policy to enter into put transactions only with those dealers
which are determined to present minimal credit risks. In connection with such
determination, the Advisor reviews regularly the list of approved dealers,
taking into consideration, among other things, the ratings, if available, of
their equity and debt securities, their reputation in the municipal securities
markets, their net worth, their efficiency in consummating transactions and any
collateral arrangements, such as letters of credit, securing the puts written by
them. Commercial bank dealers normally will be members of the Federal Reserve
System, and other dealers will be members of the National Association of
Securities Dealers, Inc. or members of a national securities exchange. Other put
writers will have outstanding debt rated Aa or better by Moody's Investors
Service, Inc. ("Moody's") or AA or better by Standard & Poor's Ratings Group
("Standard & Poor's"), or will be of comparable quality in the Advisor's opinion
or such put writers' obligations will be collateralized and of comparable
quality in the Advisor's opinion. The Trustees have directed the Advisor not to
enter into put transactions with any dealer which in the judgment of the Advisor
become more than a minimal credit risk. In the event that a dealer should
default on its obligation to repurchase an underlying security, the Fund is
unable to predict whether all or any portion of any loss sustained could
subsequently be recovered from such dealer.
Entering into a put with respect to a tax exempt security may be
treated, depending upon the terms of the put, as a taxable sale of the tax
exempt security by the Fund with the result that, while the put is outstanding,
the Fund will no longer be treated as the owner of the security and the interest
income derived with respect to the security will be treated as taxable income to
the Fund.
Foreign Investments
The Fund may invest up to 25% of its total assets at the time of
purchase, in fixed income securities of foreign issuers. Any foreign commercial
paper the Fund invests in must not be subject to foreign withholding tax at the
time of purchase
Foreign investments may be made directly in securities of foreign
issuers or in the form of American Depository Receipts ("ADRs"), European
Depository Receipts ("EDRs") and Global Depository Receipts ("GDRs") or other
similar securities of foreign issuers. ADRs are securities typically issued by a
U.S. financial institution (a "depository") that evidence ownership interests in
a security or a pool of securities issued by a foreign issuer and deposited with
the depository. ADRs include American Depository Shares and New York Shares.
EDRs are receipts issued by a European financial institution. GDRs (sometimes
referred to as Continental Depository Receipts ("CDRs")) are securities
typically issued by a non-U.S. financial institution that evidence ownership
interests in a security or a pool of securities issued by either a U.S. or
foreign issuer. ADRs, EDRs, GDRs and CDRs may be available for investment
through "sponsored" or "unsponsored" facilities. A sponsored facility is
established jointly by the issuer of the security underlying the receipt and a
depository, whereas an unsponsored facility may be established by a depository
without participation by the issuer of the receipt's underlying security.
Holders of an unsponsored depository receipt generally bear all costs
of the unsponsored facility. The depository of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited security or to pass through voting
rights to the holders of the receipts with respect to the deposited securities.
Investment in securities of foreign issuers and in obligations of
foreign branches of domestic banks involves somewhat different investment risks
from those affecting securities of U.S. domestic issuers. There may be limited
publicly available information with respect to foreign issuers, and foreign
issuers are not generally subject to uniform accounting, auditing and financial
standards and requirements comparable to those applicable to domestic companies.
Dividends and interest paid by foreign issuers may be subject to withholding and
other foreign taxes which may decrease the net return on foreign investments as
compared to dividends and interest paid to a Fund by domestic companies.
Investors should realize that the value of the Fund's 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 Fund's 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 Fund must be made in compliance with
U.S. and foreign currency restrictions and tax laws restricting the amounts and
types of foreign investments.
In addition, while the volume of transactions effected on foreign
exchanges has increased in recent years, in most cases it remains appreciably
below that of domestic security exchanges. Accordingly, the Fund's foreign
investments may be less liquid and their prices may be more volatile than
comparable investments in securities of U.S. companies. Moreover, the settlement
periods for foreign securities, which are often longer than those for securities
of U.S. issuers, may affect portfolio liquidity. In addition, there is generally
less government supervision and regulation of securities exchanges, brokers and
issuers located in foreign countries than in the United States.
Since investments in foreign securities may involve foreign currencies,
the value of the 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.
Foreign Currency Exchange Transactions. Because the Fund may buy and
sell securities and receive interest in currencies other than the U.S. dollar,
the Fund may enter from time to time into foreign currency exchange
transactions. The Fund either enters into these transactions on a spot (i.e.,
cash) basis at the spot rate prevailing in the foreign currency exchange market
or uses forward contracts to purchase or sell foreign currencies. The cost of
the Fund's spot currency exchange transactions is generally the difference
between the bid and offer spot rate of the currency being purchased or sold.
A forward foreign currency exchange contract is an obligation by the
Fund to purchase or sell a specific currency at a future date, which may be any
fixed number of days from the date of the contract. Forward foreign currency
exchange contracts establish an exchange rate at a future date. These contracts
are derivative instruments, as their value derives from the spot exchange rates
of the currencies underlying the contract. These contracts are entered into in
the interbank market directly between currency traders (usually large commercial
banks) and their customers. A forward foreign currency exchange contract
generally has no deposit requirement and is traded at a net price without
commission. Neither spot transactions nor forward foreign currency exchange
contracts eliminate fluctuations in the prices of the Fund's securities or in
foreign exchange rates, or prevent loss if the prices of these securities should
decline.
The Fund may enter into foreign currency exchange transactions in an
attempt to protect against changes in foreign currency exchange rates between
the trade and settlement dates of specific securities transactions or
anticipated securities transactions. The Fund may also enter into forward
contracts to hedge against a change in foreign currency exchange rates that
would cause a decline in the value of existing investments denominated or
principally traded in a foreign currency. To do this, the Fund would enter into
a forward contract to sell the foreign currency in which the investment is
denominated or principally traded in exchange for U.S. dollars or in exchange
for another foreign currency. The Fund will only enter into forward contracts to
sell a foreign currency for another foreign currency if the Advisor expects the
foreign currency purchased to appreciate against the U.S. dollar.
Although these transactions are intended to minimize the risk of loss
due to a decline in the value of the hedged currency, at the same time they
limit any potential gain that might be realized should the value of the hedged
currency increase. In addition, forward contracts that convert a foreign
currency into another foreign currency will cause the Fund to assume the risk of
fluctuations in the value of the currency purchased against the hedged currency
and the U.S. dollar. The precise matching of the forward contract amounts and
the value of the securities involved will not generally be possible because the
future value of such securities in foreign currencies will change as a
consequence of market movements in the value of such securities between the date
the forward contract is entered into and the date it matures. The projection of
currency market movements is extremely difficult, and the successful execution
of a hedging strategy is highly uncertain.
Sovereign Fixed Income Securities. The Fund may invest in fixed income
securities issued or guaranteed by a foreign sovereign government or its
agencies, authorities or political subdivisions. Investment in sovereign fixed
income securities involves special risks not present in corporate fixed income
securities. The issuer of the sovereign debt or the governmental authorities
that control the repayment of the debt may be unable or unwilling to repay
principal or interest when due, and the Fund may have limited recourse in the
event of a default. During periods of economic uncertainty, the market prices of
sovereign debt, and the Fund's net asset value, may be more volatile than prices
of U.S. debt obligations. In the past, certain foreign countries have
encountered difficulties in servicing their debt obligations, withheld payments
of principal and interest and declared moratoria on the payment of principal and
interest on their sovereign debts.
A sovereign debtor's willingness or ability to repay principal and pay
interest in a timely manner may be affected by, among other factors, its cash
flow situation, the extent of its foreign currency reserves, the availability of
sufficient foreign exchange, the relative size of the debt service burden, the
sovereign debtor's policy toward international lenders and local political
constraints. Sovereign debtors may also be dependent on expected disbursements
from foreign governments, multilateral agencies and other entities to reduce
principal and interest arrearages on their debt. The failure of a sovereign
debtor to implement economic reforms, achieve specified levels of economic
performance or repay principal or interest when due may result in the
cancellation of third-party commitments to lend funds to the sovereign debtor,
which may further impair such debtor's ability or willingness to service its
debts.
Brady Bonds. The Fund may invest in Brady bonds, which are securities
created through the exchange of existing commercial bank loans to public and
private entities in certain emerging markets for new bonds in connection with
debt restructurings. Brady bonds have been issued since 1989 and do not have a
long payment history. In light of the history of defaults of countries issuing
Brady bonds on their commercial bank loans, investments in Brady bonds may be
viewed as speculative. Brady bonds may be fully or partially collateralized or
uncollateralized, are issued in various currencies (but primarily the dollar)
and are actively traded in over-the-counter secondary markets. Incomplete
collateralization of interest or principal payment obligations results in
increased credit risk. Dollar-denominated collateralized Brady bonds, which may
be fixed-rate bonds or floating-rate bonds, are generally collateralized by U.S.
Treasury zero coupon bonds having the same maturity as the Brady bonds.
Obligations of Supranational Entities. The Fund may invest in
obligations of supranational entities designated or supported by governmental
entities to promote economic reconstruction or development and of international
banking institutions and related government agencies. Examples include the
International Bank for Reconstruction and Development (the "World Bank"), the
European Coal and Steel Community, the Asian Development Bank and the
Inter-American Development Bank. Each supranational entity's lending activities
are limited to a percentage of its total capital (including "callable capital"
contributed by its governmental members at the entity's call), reserves and net
income. There is no assurance that participating governments will be able or
willing to honor their commitments to make capital contributions to a
supranational entity.
Investing in Emerging Markets
The Fund also may invest in countries with emerging economies or
securities markets. Political and economic structures in many of such countries
may be undergoing significant evolution and rapid development, and such
countries may lack the social, political and economic stability characteristic
of more developed countries. Certain of such countries may have in the past
failed to recognize private property rights and have at times nationalized or
expropriated the assets of private companies. As a result, the risks described
above, including the risks of nationalization or expropriation of assets, may be
heightened. In addition, unanticipated political or social developments may
affect the values of the Fund's investments in those countries and the
availability to the Fund of additional investments in those countries. The small
size and inexperience of the securities markets in certain of such countries and
the limited volume of trading in securities in those countries may make the
Fund's investments in such countries illiquid and more volatile than investments
in more developed countries, and the Fund may be required to establish special
custodial or other arrangements before making certain investments in those
countries. There may be little financial or accounting information available
with respect to issuers located in certain of such countries, and it may be
difficult as a result to assess the value or prospects of an investment in such
issuers.
Transaction costs in emerging markets may be higher than in the United
States and other developed securities markets. As legal systems in emerging
markets develop, foreign investors may be adversely affected by new or amended
laws and regulations or may not be able to obtain swift and equitable
enforcement of existing law.
Additional Investments
Convertible Securities. The Fund may invest in convertible securities
of domestic and foreign issuers. The convertible securities in which the Fund
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.
When-Issued and Delayed Delivery Securities. The Fund may purchase
securities on a when-issued or delayed delivery basis. For example, delivery of
and payment for these securities can take place a month or more after the date
of the purchase commitment. The purchase price and the interest rate payable, if
any, on the securities are fixed on the purchase commitment date or at the time
the settlement date is fixed. The value of such securities is subject to market
fluctuation and no interest will accrue to the Fund until settlement takes
place. At the time the 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, the 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 the
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, the Fund may be
disadvantaged if the other party to the transaction defaults.
Investment Company Securities. Securities of other investment companies
may be acquired by the Fund 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 the
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 Fund, provided however, that the 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, the Fund would bear, along with other shareholders, its pro rata
portion of the other investment company's expenses, including advisory fees.
These expenses would be in addition to the advisory and other expenses that the
Fund bears directly in connection with its own operations. The Fund has applied
for exemptive relief from the SEC to permit the Fund to invest in affiliated
investment companies. If the requested relief is granted, the Fund would then be
permitted to invest in affiliated funds, subject to certain conditions specified
in the applicable order.
The Securities and Exchange Commission ("SEC") has granted the Fund 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. The Fund may enter into reverse
repurchase agreements. In a reverse repurchase agreement, the 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 the Fund to be magnified.
The Fund will invest the proceeds of borrowings under reverse repurchase
agreements. In addition, except for liquidity purposes, the 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. The Fund will
not invest the proceeds of a reverse repurchase agreement for a period which
exceeds the duration of the reverse repurchase agreement. The 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 agreements, securities lending and mortgage dollar rolls) are
limited in the aggregate and may not exceed 33-1/3% of the Fund's total assets.
See "Investment Restrictions".
Mortgage Dollar Roll Transactions. The Fund may engage in mortgage
dollar roll transactions with respect to mortgage securities issued by the
Government National Mortgage Association, the Federal National Mortgage
Association and the Federal Home Loan Mortgage Corporation. In a mortgage dollar
roll transaction, the Fund sells a mortgage backed security and simultaneously
agrees to repurchase a similar security on a specified future date at an agreed
upon price. During the roll period, the Fund will not be entitled to receive any
interest or principal paid on the securities sold. The Fund is compensated for
the lost interest on the securities sold by the difference between the sales
price and the lower price for the future repurchase as well as by the interest
earned on the reinvestment of the sales proceeds. The Fund may also be
compensated by receipt of a commitment fee. When the Fund enters into a mortgage
dollar roll transaction, liquid assets in an amount sufficient to pay for the
future repurchase are segregated with the custodian. Mortgage dollar roll
transactions are considered reverse repurchase agreements for purposes of the
Fund's investment restrictions. All forms of borrowing (including reverse
repurchase agreements, securities lending and mortgage dollar rolls) are limited
in the aggregate and may not exceed 33-1/3% of the Fund's total assets.
Loans of Portfolio Securities. The 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 Fund in the
normal settlement time, (generally three business days after notice) or by the
borrower on one day's notice. Borrowed securities must be returned when the loan
is terminated. Any gain or loss in the market price of the borrowed securities
that occurs during the term of the loan inures to the Fund and its respective
shareholders. The Fund may pay reasonable finders' and custodial fees in
connection with a loan. In addition, the Fund will consider all facts and
circumstances before entering into such an agreement, including the
creditworthiness of the borrowing financial institution, and the Fund will not
make any loans in excess of one year. The Fund will not lend its securities to
any officer, Trustee, Member of Advisory Board, Director, employee or other
affiliate of the Fund, the Advisor or the Fund's distributor, unless otherwise
permitted by applicable law. All forms of borrowing (including reverse
repurchase agreements, securities lending and mortgage dollar rolls) are limited
in the aggregate and may not exceed 33-1/3% of the Fund's total assets.
Illiquid Investments; Privately Placed and Other Unregistered
Securities. The Fund may not acquire any illiquid securities if, as a result
thereof, more than 15% of its net assets would be in illiquid investments.
Subject to this non-fundamental policy limitation, the 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
the Fund. The price the Fund pays for illiquid securities or receives upon
resale may be lower than the price paid or received for similar securities with
a more liquid market. Accordingly, the valuation of these securities will
reflect any limitations on their liquidity.
As to illiquid investments, these restricted holdings are subject to
the risk that the Fund will not be able to sell them at a price the Fund deems
representative of their value. If a restricted holding must be registered under
the 1933 Act, before it may be sold, the 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, the Fund might obtain a less
favorable price than prevailed when it decided to sell.
Quality and Diversification Requirements
The Fund intends to meet the diversification requirements of the 1940
Act. Current 1940 Act diversification requirements require that with respect to
75% of the assets of the Fund: (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 the 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 Fund also will 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."
If the assets and revenues of an agency, authority, instrumentality or
other political subdivision are separate from those of the government creating
the subdivision and the obligation is backed only by the assets and revenues of
the subdivision, such subdivision is regarded as the sole issuer. Similarly, in
the case of an industrial development revenue bond or pollution control revenue
bond, if the bond is backed only by the assets and revenues of the
non-governmental user, the non-governmental user is regarded as the sole issuer.
If in either case the creating government or another entity guarantees an
obligation, the guaranty is regarded as a separate security and treated as an
issue of such guarantor. Since securities issued or guaranteed by states or
municipalities are not voting securities, there is no limitation on the
percentage of a single issuer's securities which the Fund may own so long as it
does not invest more than 5% of its total assets that are subject to the
diversification limitation in the securities of such issuer, except obligations
issued or guaranteed by the U.S. Government. Consequently, the Fund may invest
in a greater percentage of the outstanding securities of a single issuer than
would an investment company which invests in voting securities. See "Investment
Restrictions.
The Fund invests in a diversified portfolio of securities that are
considered "high grade," and "investment grade" as described in Appendix A. In
addition, at the time the Fund invests in any commercial paper, bank obligation,
repurchase agreement, or any other money market instruments, the investment must
have received a short term rating of investment grade or better (currently
Prime-3 or better by Moody's or A-3 or better by Standard & Poor's) or the
investment must have been issued by an issuer that received a short term
investment grade rating or better with respect to a class of investments or any
investment within that class that is comparable in priority and security with
the investment being purchased by the Fund. If no such ratings exist, the
investment must be of comparable investment quality in the Advisor's opinion,
but will not be eligible for purchase if the issuer or its parent has long term
outstanding debt rated below BBB.
In determining suitability of investment in a particular unrated
security, the Advisor takes into consideration asset and debt service coverage,
the purpose of the financing, history of the issuer, existence of other rated
securities of the issuer, and other relevant conditions, such as comparability
to other issuers.
Options and Futures Transactions
The Fund may purchase and sell (a) exchange traded and over-the-counter
(OTC) put and call options on fixed income securities, indexes of fixed income
securities and futures contracts on fixed income securities and indexes of fixed
income securities and (b) futures contracts on fixed income securities and
indexes of fixed income securities. Each of these instruments is a derivative
instrument as its value derives from the underlying asset or index.
The Fund may use futures contracts and options for hedging and risk
management purposes. The Fund may not use futures contracts and options for
speculation.
The 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 and buying calls, tend to increase market
exposure. Options and futures contracts may be combined with each other or with
forward contracts in order to adjust the risk and return characteristics of the
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 the Fund's return. While the use of these instruments by
the 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 the Fund's
return. Certain strategies limit the Fund's possibilities to realize gains as
well as its exposure to losses. The 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, the 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.
The Fund may purchase put and call options on securities, indexes of
securities and futures contracts, or purchase and sell futures contracts, only
if such options are written by other persons and if (i) the aggregate premiums
paid on all such options which are held at any time do not exceed 20% of the
Fund's net assets, and (ii) the aggregate margin deposits required on all such
futures or options thereon held at any time do not exceed 5% of the Fund's total
assets. In addition, the Fund will not purchase or sell (write) futures
contracts, options on futures contracts or commodity options for risk management
purposes if, as a result, the aggregate initial margin and options premiums
required to establish these positions exceed 5% of the net asset value of the
Fund.
Options
Purchasing Put and Call Options. By purchasing a put option, the 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. The Fund may
terminate its position in a put option it has purchased by allowing it to expire
or by exercising the option. The Fund may also close out a put option position
by entering into an offsetting transaction, if a liquid market exits. If the
option is allowed to expire, the Fund will lose the entire premium it paid. If
the Fund exercises a put option on a security, it will sell the instrument
underlying the option at the strike price. If the 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
underlying instrument falls substantially. However, if the price of the
instrument underlying the option does not fall enough to offset the cost of
purchasing the option, a put buyer can expect to suffer a loss (limited to the
amount of the premium paid, plus related transaction costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the instrument underlying the option at the option's
strike price. A call buyer typically attempts to participate in potential price
increases of the instrument underlying the option with risk limited to the cost
of the option if security prices fall. At the same time, the buyer can expect to
suffer a loss if security prices do not rise sufficiently to offset the cost of
the option.
Selling (Writing) Put and Call Options. When the Fund writes a put
option, it takes the opposite side of the transaction from the option's
purchaser. In return for the receipt of the premium, the Fund assumes the
obligation to pay the strike price for the instrument underlying the option if
the party to the option chooses to exercise it. The 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, it must continue to be
prepared to pay the strike price while the option is outstanding, regardless of
price changes, and must continue to post margin as discussed below.
If the price of the underlying instrument rises, a put writer would
generally expect to profit, although its gain would be limited to the amount of
the premium it received. If security prices remain the same over time, it is
likely that the writer will also profit, because it should be able to close out
the option at a lower price. If security prices fall, the put writer would
expect to suffer a loss. This loss should be less than the loss from purchasing
and holding the underlying instrument directly, however, because the premium
received for writing the option should offset a portion of the decline.
Writing a call option obligates the 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. The Fund may purchase and sell put and call options
on any securities index based on securities in which the Fund may invest.
Options on securities indexes are similar to options on securities, except that
the exercise of securities index options is settled by cash payment and does not
involve the actual purchase or sale of securities. In addition, these options
are designed to reflect price fluctuations in a group of securities or segment
of the securities market rather than price fluctuations in a single security.
The 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 the
Fund may not be able to close out an option position that it has previously
entered into. When the 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 OTC Options. All options purchased or sold by the
Fund 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 Fund's Board of Trustees. While exchange-traded options are obligations
of the Options Clearing Corporation, in the case of OTC options, the Fund relies
on the dealer from which it purchased the option to perform if the option is
exercised. Thus, when the 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 the Fund as well as loss of the expected benefit of the
transaction.
Provided that the 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, the 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
The Fund may purchase and sell futures contracts. When the Fund
purchases a futures contract, it agrees to purchase a specified quantity of an
underlying instrument at a specified future date or to make a cash payment based
on the value of a securities index. When the Fund sells a futures contract, it
agrees to sell a specified quantity of the underlying instrument at a specified
future date or to receive a cash payment based on the value of a securities
index. The price at which the purchase and sale will take place is fixed when
the Fund enters into the contract. Futures can be held until their delivery
dates or the position can be (and normally is) closed out before then. There is
no assurance, however, that a liquid market will exist when the Fund wishes to
close out a particular position.
When the Fund purchases a futures contract, the value of the futures
contract tends to increase and decrease in tandem with the value of its
underlying instrument. Therefore, purchasing futures contracts will tend to
increase the Fund's exposure to positive and negative price fluctuations in the
underlying instrument, much as if it had purchased the underlying instrument
directly. When the Fund sells a futures contract, by contrast, the value of its
futures position will tend to move in a direction contrary to the value of the
underlying instrument. Selling futures contracts, therefore, will tend to offset
both positive and negative market price changes, much as if the underlying
instrument had been sold.
The purchaser or seller of a futures contract is not required to
deliver or pay for the underlying instrument unless the contract is held until
the delivery date. However, when the Fund buys or sells a futures contract it
will be required to deposit "initial margin" with its custodian in a segregated
account in the name of its futures broker, known as a futures commission
merchant (FCM). Initial margin deposits are typically equal to a small
percentage of the contract's value. If the value of either party's position
declines, that party will be required to make additional "variation margin"
payments equal to the change in value on a daily basis. The party that has a
gain may be entitled to receive all or a portion of this amount. The Fund may be
obligated to make payments of variation margin at a time when it is
disadvantageous to do so. Furthermore, it may not always be possible for the
Fund to close out its futures positions. Until it closes out a futures position,
the Fund will be obligated to continue to pay variation margin. Initial and
variation margin payments do not constitute purchasing on margin for purposes of
the Fund's investment restrictions. In the event of the bankruptcy of an FCM
that holds margin on behalf of the Fund, the Fund may be entitled to return of
margin owed to it only in proportion to the amount received by the FCM's other
customers, potentially resulting in losses to the Fund.
The Fund will segregate liquid assets in connection with its use of
options and futures contracts to the extent required by the staff of the
Securities and Exchange Commission. Securities held in a segregated account
cannot be sold while the futures contract or option is outstanding, unless they
are replaced with other suitable assets. As a result, there is a possibility
that segregation of a large percentage of the Fund's assets could impede
portfolio management or the Fund's ability to meet redemption requests or other
current obligations.
Options on Futures Contracts. The Fund may purchase and sell put and
call options, including put and call options on futures contracts. Futures
contracts obligate the buyer to take and the seller to make delivery at a future
date of a specified quantity of a financial instrument or an amount of cash
based on the value of a securities index. Currently, futures contracts are
available on various types of fixed income securities, including but not limited
to U.S. Treasury bonds, notes and bills, Eurodollar certificates of deposit and
on indexes of fixed income securities.
Unlike a futures contract, which requires the parties to buy and sell a
security or make a cash settlement payment based on changes in a financial
instrument or securities index on an agreed date, an option on a futures
contract entitles its holder to decide on or before a future date whether to
enter into such a contract. If the holder decides not to exercise its option,
the holder may close out the option position by entering into an offsetting
transaction or may decide to let the option expire and forfeit the premium
thereon. The purchaser of an option on a futures contract pays a premium for the
option but makes no initial margin payments or daily payments of cash in the
nature of "variation" margin payments to reflect the change in the value of the
underlying contract as does a purchaser or seller of a futures contract.
The seller of an option on a futures contract receives the premium paid
by the purchaser and may be required to pay initial margin. Amounts equal to the
initial margin and any additional collateral required on any options on futures
contracts sold by a Fund are paid by a Fund into a segregated account, in the
name of the FCM, as required by the 1940 Act and the SEC's interpretations
thereunder.
Combined Positions. The Fund may purchase and write options in
combination with each other, or in combination with futures or forward
contracts, to adjust the risk and return characteristics of the overall
position. For example, the 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 the Fund's
current or anticipated investments exactly. The 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 the
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. The Fund may purchase or sell futures
contracts or purchase put and call options, including put and call options on
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 the 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 the 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, the 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, the 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 Fund will not be a commodity pool, certain derivatives subject the Fund to
the rules of the Commodity Futures Trading Commission which limit the extent to
which the Fund can invest in such derivatives. The Fund may invest in futures
contracts and options with respect thereto for hedging purposes without limit.
However, the 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 the 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, the Fund will comply with guidelines established by the
SEC with respect to coverage of options and futures contracts by mutual funds,
and if the guidelines so require, will set aside appropriate liquid assets in a
segregated custodial account in the amount prescribed. Securities held in a
segregated account cannot be sold while the futures contract or option is
outstanding, unless they are replaced with other suitable assets. As a result,
there is a possibility that segregation of a large percentage of the Fund's
assets could impede portfolio management or the Fund's ability to meet
redemption requests or other current obligations.
Swaps and Related Swap Products. The Fund may engage in swap
transactions, including, but not limited to, interest rate, currency, securities
index, basket, specific security and commodity swaps, interest rate caps, floors
and collars and options on interest rate swaps (collectively defined as "swap
transactions").
The Fund may enter into swap transactions for any legal purpose
consistent with its investment objective and policies, such as for the purpose
of attempting to obtain or preserve a particular return or spread at a lower
cost than obtaining that return or spread through purchases and/or sales of
instruments in cash markets, to protect against currency fluctuations, as a
duration management technique, to protect against any increase in the price of
securities the Fund anticipates purchasing at a later date, or to gain exposure
to certain markets in the most economical way possible. The Fund will not sell
interest rate caps, floors or collars if it does not own securities with coupons
which provide the interest that the Fund may be required to pay.
Swap agreements are two-party contracts entered into primarily by
institutional counterparties for periods ranging from a few weeks to several
years. In a standard swap transaction, two parties agree to exchange the returns
(or differentials in rates of return) that would be earned or realized on
specified notional investments or instruments. The gross returns to be exchanged
or "swapped" between the parties are calculated by reference to a "notional
amount," i.e., the return on or increase in value of a particular dollar amount
invested at a particular interest rate, in a particular foreign currency or
commodity, or in a "basket" of securities representing a particular index. The
purchaser of an interest rate cap or floor, upon payment of a fee, has the right
to receive payments (and the seller of the cap is obligated to make payments) to
the extent a specified interest rate exceeds (in the case of a cap) or is less
than (in the case of a floor) a specified level over a specified period of time
or at specified dates. The purchaser of an interest rate collar, upon payment of
a fee, has the right to receive payments (and the seller of the collar is
obligated to make payments) to the extent that a specified interest rate falls
outside an agreed upon range over a specified period of time or at specified
dates. The purchaser of an option on an interest rate swap, upon payment of a
fee (either at the time of purchase or in the form of higher payments or lower
receipts within an interest rate swap transaction) has the right, but not the
obligation, to initiate a new swap transaction of a pre-specified notional
amount with pre-specified terms with the seller of the option as the
counterparty.
The "notional amount" of a swap transaction is the agreed upon basis
for calculating the payments that the parties have agreed to exchange. For
example, one swap counterparty may agree to pay a floating rate of interest
(e.g., 3 month LIBOR) calculated based on a $10 million notional amount on a
quarterly basis in exchange for receipt of payments calculated based on the same
notional amount and a fixed rate of interest on a semi-annual basis. In the
event the Fund is obligated to make payments more frequently than it receives
payments from the other party, it will incur incremental credit exposure to that
swap counterparty. This risk may be mitigated somewhat by the use of swap
agreements which call for a net payment to be made by the party with the larger
payment obligation when the obligations of the parties fall due on the same
date. Under most swap agreements entered into by the Fund, payments by the
parties will be exchanged on a "net basis", and the Fund will receive or pay, as
the case may be, only the net amount of the two payments.
The amount of the Fund's potential gain or loss on any swap transaction
is not subject to any fixed limit. Nor is there any fixed limit on the Fund's
potential loss if it sells a cap or collar. If the Fund buys a cap, floor or
collar, however, the Fund's potential loss is limited to the amount of the fee
that it has paid. When measured against the initial amount of cash required to
initiate the transaction, which is typically zero in the case of most
conventional swap transactions, swaps, caps, floors and collars tend to be more
volatile than many other types of instruments.
The use of swap transactions, caps, floors and collars involves
investment techniques and risks which are different from those associated with
portfolio security transactions. If the Advisor is incorrect in its forecasts of
market values, interest rates, and other applicable factors, the investment
performance of the Fund will be less favorable than if these techniques had not
been used. These instruments are typically not traded on exchanges. Accordingly,
there is a risk that the other party to certain of these instruments will not
perform its obligations to the Fund or that the Fund may be unable to enter into
offsetting positions to terminate its exposure or liquidate its position under
certain of these instruments when it wishes to do so. Such occurrences could
result in losses to the Fund.
The Advisor will, however, consider such risks and will enter into swap
and other derivatives transactions only when it believes that the risks are not
unreasonable.
The Fund will maintain cash or liquid assets in a segregated account
with its custodian in an amount sufficient at all times to cover its current
obligations under its swap transactions, caps, floors and collars. If the Fund
enters into a swap agreement on a net basis, it will segregate assets with a
daily value at least equal to the excess, if any, of the Fund's accrued
obligations under the swap agreement over the accrued amount the Fund is
entitled to receive under the agreement. If the Fund enters into a swap
agreement on other than a net basis, or sells a cap, floor or collar, it will
segregate assets with a daily value at least equal to the full amount of the
Fund's accrued obligations under the agreement.
The Fund will not enter into any swap transaction, cap, floor, or
collar, unless the counterparty to the transaction is deemed creditworthy by the
Advisor. If a counterparty defaults, the Fund may have contractual remedies
pursuant to the agreements related to the transaction. The swap markets in which
many types of swap transactions are traded have grown substantially in recent
years, with a large number of banks and investment banking firms acting both as
principals and as agents utilizing standardized swap documentation. As a result,
the markets for certain types of swaps (e.g., interest rate swaps) have become
relatively liquid. The markets for some types of caps, floors and collars are
less liquid.
The liquidity of swap transactions, caps, floors and collars will be as
set forth in guidelines established by the Advisor and approved by the Trustees
which are based on various factors, including (1) the availability of dealer
quotations and the estimated transaction volume for the instrument, (2) the
number of dealers and end users for the instrument in the marketplace, (3) the
level of market making by dealers in the type of instrument, (4) the nature of
the instrument (including any right of a party to terminate it on demand) and
(5) the nature of the marketplace for trades (including the ability to assign or
offset the Fund's rights and obligations relating to the instrument). Such
determination will govern whether the instrument will be deemed within the 15%
restriction on investments in securities that are not readily marketable.
During the term of a swap, cap, floor or collar, changes in the value
of the instrument are recognized as unrealized gains or losses by marking to
market to reflect the market value of the instrument. When the instrument is
terminated, the Fund will record a realized gain or loss equal to the
difference, if any, between the proceeds from (or cost of) the closing
transaction and the Fund's basis in the contract.
The federal income tax treatment with respect to swap transactions,
caps, floors, and collars may impose limitations on the extent to which the Fund
may engage in such transactions.
Risk Management
The Fund may employ non-hedging risk management techniques. Examples of
risk management strategies include synthetically altering the duration of a
portfolio or the mix of securities in a portfolio. For example, if the Advisor
wishes to extend maturities in a fixed income portfolio in order to take
advantage of an anticipated decline in interest rates, but does not wish to
purchase the underlying long term securities, it might cause the Fund to
purchase futures contracts on long term debt securities. 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.
Risks Associated with Derivative Securities and Contracts. The risks
associated with the Fund's transactions in derivative securities and contracts
may include some or all of the following: market risk, leverage and volatility
risk, correlation risk, credit risk, and liquidity and valuation risk.
Market Risk. Investments in structured securities are subject to market
risk. The interest rate or, in some cases, the principal payable at the maturity
of a structured security may change positively or inversely in relation to one
or more interest rates, financial indices, currency rates or other financial
indicators (reference prices). A structured security may be leveraged to the
extent that the magnitude of any change in the interest rate or principal
payable on a structured security is a multiple of the change in the reference
price. Thus, structured securities may decline in value due to adverse market
changes in currency exchange rates and other reference prices. Entering into a
derivative contract involves a risk that the applicable market will move against
the Fund's position and that the Fund will incur a loss. For derivative
contracts other than purchased options, this loss may substantially exceed the
amount of the initial investment made or the premium received by the Fund.
Leverage and Volatility Risk. Derivative instruments may sometimes
increase or leverage the Fund's exposure to a particular market risk. Leverage
enhances the price volatility of derivative instruments held by the Fund. If the
Fund enters into futures contracts, writes options or engages in certain foreign
currency exchange transactions, it is required to maintain a segregated account
consisting of cash or liquid assets, hold offsetting portfolio securities or
cover written options which may partially offset the leverage inherent in these
transactions. Segregation of a large percentage of assets could impede portfolio
management or an investor's ability to meet redemption requests.
Correlation Risk. The Fund's success in using derivative contracts to
hedge portfolio assets depends on the degree of price correlation between the
derivative contract and the hedged asset. Imperfect correlation may be caused by
several factors, including temporary price disparities among the trading markets
for the derivative contract, the assets underlying the derivative contract and
the Fund's assets.
Credit Risk. Derivative securities and over-the-counter derivative
contracts involve a risk that the issuer or counterparty will fail to perform
its contractual obligations.
Liquidity and Valuation Risk. Some derivative securities are not
readily marketable or may become illiquid under adverse market conditions. In
addition, during periods of extreme market volatility, a commodity exchange may
suspend or limit trading in an exchange-traded derivative contract, which may
make the contract temporarily illiquid and difficult to price. The Fund's
ability to terminate over-the-counter derivative contracts may depend on the
cooperation of the counterparties to such contracts. For thinly traded
derivative securities and contracts, the only source of price quotations may be
the selling dealer or counterparty.
INVESTMENT RESTRICTIONS
The investment restrictions set forth below have been adopted by the
Trust with respect to the 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 Fund. 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
to the market value of the Fund's assets at the time of purchase.
The Fund:
1. May not make any investments inconsistent with the Fund's
classification as a diversified investment company under the 1940 Act;
2. May not purchase any security which would cause the Fund to
concentrate its investments in the securities of issuers primarily engaged in
any particular industry, except as permitted by the SEC;
3. May not issue senior securities, except as permitted under the
1940 Act or any rule, order or interpretation thereunder;
4. May not borrow money, except to the extent permitted by applicable
law;
5. May not underwrite securities of other issuers, except to the
extent that the 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, the Fund may (a) invest in securities or other
instruments directly or indirectly secured by real estate, (b) invest in
securities or other instruments issued by issuers that invest in real estate,
and (c) make direct investments in mortgages;
7. May not purchase or sell commodities or commodity contracts unless
acquired as a result of ownership of securities or other instruments issued by
persons that purchase or sell commodities or commodities contracts; but this
shall not prevent the 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 the Fund's
investment objective and policies and to the extent permitted by applicable law.
Non-Fundamental Investment Restrictions. The investment restrictions
described below are not fundamental policies of the Fund and may be changed by
the Trustees. These non-fundamental investment policies require that the Fund:
(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 the Fund's net assets would be in investments which are
illiquid;
(ii) May not acquire securities of other investment companies, except as
permitted by the 1940 Act or any order pursuant thereto; and
(iii) May not purchase securities on margin, make short sales of
securities, or maintain a short position, provided that this restriction shall
not be deemed to be applicable to the purchase or sale of when-issued or delayed
delivery securities, or to short sales that are covered in accordance with SEC
rules.
If any percentage restriction described above is adhered to at the time
of investment, a subsequent increase or decrease in the percentage resulting
from a change in the value of the Fund's assets will not constitute a violation
of the restriction.
For purposes of fundamental investment restrictions regarding industry
concentration, the Advisor may classify issuers by industry in accordance with
classifications set forth in the Directory of Companies Filing Annual Reports
With The Securities and Exchange Commission or other sources. In the absence of
such classification or if the Advisor determines in good faith based on its own
information that the economic characteristics affecting a particular issuer make
it more appropriately considered to be engaged in a different industry, the
Advisor may classify an issuer accordingly. For instance, personal credit
finance companies and business credit finance companies are deemed to be
separate industries and wholly owned finance companies are considered to be in
the industry of their parents if their activities are primarily related to
financing the activities of their parents.
TRUSTEES AND MEMBERS OF THE ADVISORY BOARD
Trustees
The Trustees of the Trust, their names, principal occupations during
the past five years and dates of birth are set forth below.
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 1993. 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. The mailing address of the
Trustees 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:
<PAGE>
Trustee compensation paid by the Trust for the calendar year ended
December 31, 1999 is set forth below.
<TABLE>
<CAPTION>
<S> <C> <C>
AGGREGATE TRUSTEE
Compensation Paid by the TOTAL TRUSTEE COMPENSATION ACCRUED BY
Trust During 1999 THE MASTER PORTFOLIOS(*), J.P. MORGAN
INSTITUTIONAL FUNDS, J.P. MORGAN FUNDS
AND THE 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 (***) $1,018 $75,000
Chairman and Chief Executive Officer
Michael P. Mallardi, Trustee $1,018 $75,000
</TABLE>
(*) The J.P. Morgan Funds and J.P. Morgan Institutional Funds are each
multi-series registered investment companies that are part of a
two-tier (master-feeder) investment fund structure. Each series of the
J.P. Morgan Funds and J.P. Morgan Institutional Funds is a feeder fund
that invests all of its investable assets in one of 14 registered
investment companies comprised of 22 separate master portfolios
(collectively, the "Master Portfolios").
(**) No investment company within the fund complex has a pension or
retirement plan.
(***) During 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 J.P. Morgan Family of Funds (formerly, The Pierpont Family of Funds), and
the Trustees are the equal and sole shareholders of Pierpont Group, Inc. The
Trust has agreed to pay Pierpont Group, Inc. a fee in an amount representing its
reasonable costs in performing these services to the Trust and certain other
registered investment companies subject to similar agreements with Pierpont
Group, Inc. These costs are periodically reviewed by the Trustees. The principal
offices of Pierpont Group, Inc. are located at 461 Fifth Avenue, New York, New
York 10017.
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 Chief Executive
Officer receives no compensation in his capacity as an officer of the Trust. The
officers conduct and supervise the business operations of the Trust. The Trust
has no employees.
The officers of the Trust, their principal occupations during the past
five years and dates of birth are set forth below. The business address of each
of the officers unless otherwise noted is Funds Distributor, Inc., 60 State
Street, Suite 1300, Boston, Massachusetts 02109.
Matthew Healey-Chief Executive Officer; Chairman, Pierpont Group, since
prior to 1993. His address is 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.
John P. Covino - Vice President and Assistant Treasurer. Vice President and
Treasury Group Manger of Treasury Servicing and Administration of FDI. Prior to
November 1998, Mr. Covino was employed by Fidelity Investments where he held
multiple positions in their Institutional Brokerage Group. Prior to joining
Fidelity, Mr. Covino was employed by SunGard Brokerage systems where he was
responsible for the technology and development of the accounting product group.
His date of birth is October 8, 1963.
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 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 Assistant Treasurer. Executive Vice President
and Client Service Director of FDI since April 1998. From June 1995 to March
1998, Mr. Rio was Senior Vice President and Senior Key Account Manager for
Putnam Mutual Funds. From May 1994 to June 1995, Mr. Rio was Director of
Business Development for First Data Corporation. His date of birth is January 2,
1955.
Christine Rotundo-Assistant Treasurer. Vice President, Morgan Guaranty
Trust Company of New York. Ms. Rotundo serves in the Funds Administration group
as a Manager of the Tax Group and is responsible for U.S. mutual fund tax
matters. Prior to September 1995, Ms. Rotundo served as a Senior Tax Manager in
the Investment Company Services Group of Deloitte & Touche LLP. Her address is
60 Wall Street, New York, New York 10260. Her date of birth is September 26,
1965.
CODE OF ETHICS
The Trust and the Advisor 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 Fund. Such purchases, however, are subject to procedures reasonably
necessary to prevent a fraud or deceit on the Trust.
INVESTMENT ADVISOR
The Trust has retained JPMIM as investment advisor to provide
investment advice and portfolio management services to the Fund. Subject to the
supervision of the Fund's Trustees, the Advisor makes the Fund's day-to-day
investment decisions, arranges for the execution of portfolio transactions and
generally manages the Fund's investments.
JPMIM, a wholly owned subsidiary of J.P. Morgan & Co. Incorporated
("J.P. Morgan"), is a registered investment adviser under the Investment
Advisers Act of 1940, as amended, and manages employee benefit funds of
corporations, labor unions and state and local governments and the accounts of
other institutional investors, including investment companies. Certain of the
assets of employee benefit accounts under its management are invested in
commingled pension trust funds for which Morgan serves as trustee.
J.P. Morgan, through the Advisor and other subsidiaries, acts as
investment advisor to individuals, governments, corporations, employee benefit
plans, mutual funds and other institutional investors with combined assets under
management of approximately $376 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 as the firm believes that fundamentals should determine an asset's
value over the long term. J.P. Morgan currently employs over 375 full time
research analysts capital market researchers, portfolio managers, and traders
and has 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 Advisor's fixed income investment process is based on analysis of real
rates, sector diversification, and quantitative and credit analysis.
The investment advisory services the Advisor provides to the Fund 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 Fund. Such accounts are supervised by officers and employees of the
Advisor who may also be acting in similar capacities for the Fund. See
"Portfolio Transactions."
The benchmark for the Fund is the 90 day treasury bill. In many respects,
the volatility of the Fund's returns are similar to the 90 day treasury bill.
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 Fund is managed by officers of the Advisor who, in acting for their
clients, including the Fund, do not discuss their investment decisions with any
personnel of J.P. Morgan or any personnel of other divisions of J.P. Morgan or
with any of its affiliated persons, with the exception of certain investment
management affiliates of J.P. Morgan.
As compensation for the services rendered and related expenses such as
salaries of advisory personnel borne by the Advisor under the Advisory
Agreements, the Fund has agreed to pay the Advisor a fee, which is computed
daily and may be paid monthly, equal to 0.25% of the Fund's average daily net
assets.
The Investment Advisory Agreement between the Advisor and the Trust, on
behalf of the 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 the 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 the 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 the 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 Fund's distributor.
The Distribution Agreement will continue in effect with respect to the
Fund for a period of two years after execution and will continue thereafter only
if it is approved at least annually (i) by a "vote of a majority of the
outstanding voting securities" of the Fund (as defined in the 1940 Act and
below) 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 the 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 a majority of the
outstanding voting securities of the Fund', that is (i) 67% or more of the
Fund's outstanding voting securities present at a meeting if the holders of more
than 50% of the Fund's outstanding voting securities are present or represented
by proxy, or (ii) more than 50% of the Fund's outstanding voting securities,
whichever is less. FDI is a wholly owned indirect subsidiary of Boston
Institutional Group, Inc. The principal offices of FDI are located at 60 State
Street, Suite 1300, Boston, Massachusetts 02109.
CO-ADMINISTRATOR
Under a Co-Administration Agreement with the Trust, FDI also serves as
the Trust's Co-Administrator. The Co-Administration Agreement may be renewed or
amended by the Trustees without a shareholder vote. The Co-Administration
Agreement is terminable at any time without penalty by a vote of a majority of
the Trustees of the Trust on not more than 60 days' written notice nor less than
30 days' written notice to the other party. The Co-Administrator may subcontract
for the performance of its obligations, provided, however, that unless the Trust
expressly agrees in writing, the Co-Administrator shall be fully responsible for
the acts and omissions of any subcontractor as it would for its own acts or
omissions. See "Services Agent" below.
FDI (i) provides office space, equipment and clerical personnel for
maintaining the organization and books and records of the Fund; (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, the 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
the Fund is based on the ratio of the Fund's net assets to the aggregate net
assets of the Trust and certain other registered investment companies subject to
similar arrangements with FDI.
SERVICES AGENT
The Trust, on behalf of the 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 the 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 the 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, the 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 Fund, the Trust's
other series and the Master Portfolios in accordance with the following annual
schedule: 0.09% of the first $7 billion of their aggregate average daily net
assets, and 0.04% of their aggregate average daily net assets in excess of $7
billion, less the complex-wide fees payable to FDI. The portion of this charge
payable by the Fund is determined by the proportionate share that its net assets
bear to the total net assets of the Trust and the other investment companies
provided administrative services by Morgan.
CUSTODIAN AND TRANSFER AGENT
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, BONY is responsible for holding portfolio securities and
cash and maintaining the books of account and records of portfolio transactions.
State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02110, serves as each Fund's transfer and dividend
disbursing agent. As transfer agent and dividend disbursing agent, State Street
is responsible for maintaining account records detailing the ownership of Fund
shares and for crediting income, capital gains and other changes in share
ownership to shareholder accounts.
SHAREHOLDER SERVICING
The Trust, on behalf of the Fund, 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 the 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 Fund's transfer agent; transmitting
purchase and redemption orders to the Fund's 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 Fund has agreed to pay
Morgan for these services a fee of 0.10% with respect to Institutional Shares,
0.25% with respect to Select Shares and 0.05% with respect to Ultra Shares (in
each case, expressed as a percentage of the average daily net asset value of the
relevant class 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 Fund 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 Fund. See
"Financial Professionals" below. Organizations that provide recordkeeping or
other services to certain employee benefit or retirement plans that include the
Fund as an investment alternative may also be paid a fee.
FINANCIAL PROFESSIONALS
The services provided by financial professionals may include
establishing and maintaining shareholder accounts, processing purchase and
redemption transactions, arranging for bank wires, performing shareholder
subaccounting, answering client inquiries regarding the Trust, assisting clients
in changing dividend options, account designations and addresses, providing
periodic statements showing the client's account balance and integrating these
statements with those of other transactions and balances in the client's other
accounts serviced by the financial professional, transmitting proxy statements,
periodic reports, updated prospectuses and other communications to shareholders
and, with respect to meetings of shareholders, collecting, tabulating and
forwarding executed proxies and obtaining such other information and performing
such other services as J.P. Morgan or the financial professional's clients may
reasonably request and agree upon with the financial professional.
Although there is no sales charge levied directly by the Fund,
financial professionals may establish their own terms and conditions for
providing their services and may charge investors a transaction-based or other
fee for their services. Such charges may vary among financial professionals but
in all cases will be retained by the financial professional and not be remitted
to the Fund or J.P. Morgan.
The Fund has authorized one or more brokers to accept purchase and
redemption orders on its behalf. Such brokers are authorized to designate other
intermediaries to accept purchase and redemption orders on the Fund's behalf.
The Fund will be deemed to have received a purchase or redemption order when an
authorized broker or, if applicable, a broker's authorized designee, accepts the
order. These orders will be priced at the Fund's net asset value next calculated
after they are so accepted.
INDEPENDENT ACCOUNTANTS
The independent accountants of the Trust are PricewaterhouseCoopers
LLP, 1177 Avenue of the Americas, New York, New York 10036.
PricewaterhouseCoopers LLP conducts an annual audit of the financial statements
of the Fund, assists in the preparation and/or review of the Fund's federal and
state income tax returns and consults with the Fund as to matters of accounting
and federal and state income taxation.
EXPENSES
In addition to the fees payable to Pierpont Group, Inc., JPMIM, Morgan
and FDI under various agreements discussed under "Trustees and Members of the
Advisory Board," "Officers," "Investment Advisor," "Co-Administrator",
"Distributor", "Services Agent" and "Shareholder Servicing" above, the Fund is
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 the Fund until February
28, 2001, as described in the prospectus, to the extent necessary to maintain
the Fund's total operating expenses at the following annual rates of the Fund's
average daily net assets. These limits do not cover extraordinary expenses.
Institutional Shares: 0.25%
Select Shares: 0.40%
Ultra Shares: 0.15%
PURCHASE OF SHARES
Additional Minimum Balance Information. If your account balance falls
below the minimum for 30 days as a result of selling shares (and not because of
performance), the Fund reserves the right to request that you buy more shares or
close your account. If your account balance is still below the minimum 60 days
after notification, the Fund reserves the right to close out your account and
send the proceeds to the address of record.
Method of Purchase. Investors may open accounts with the Fund only
through the Distributor. All purchase transactions in Fund accounts are
processed by Morgan as shareholder servicing agent and the 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 Fund reserves 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 the Fund may make transactions in shares of the Fund.
The Fund may, at its own option, accept securities in payment for
shares. The securities so delivered are valued by the method described under
"Net Asset Value" as of the day the Fund receives the securities. This is a
taxable transaction to the shareholder. Securities may be accepted in payment
for shares only if they are, in the judgment of the Advisor, appropriate
investments for the Fund. In addition, securities accepted in payment for shares
must: (i) meet the investment objective and policies of the Fund; (ii) be
acquired by the 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. The 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 Fund as described in the Prospectus.
The 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. See below and
"Exchange of Shares."
The Trust, on behalf of the 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 the Fund of, or evaluation of the net asset value of, its portfolio
securities to be unreasonable or impracticable, or (iv) for such other periods
as the SEC may permit.
If the Trust determines that it would be detrimental to the best
interests of the remaining shareholders of the Fund to make payment wholly or
partly in cash, payment of the redemption price may be made in whole or in part
by a distribution in kind of securities from the Fund, in lieu of cash. If
shares are redeemed in-kind, the redeeming shareholder might incur costs in
converting the assets into cash. The Trust is in the process of seeking
exemptive relief from the SEC with respect to redemptions in-kind by the Fund.
If the requested relief is granted, the Fund would then be permitted to pay
redemptions to greater than 5% shareholders in securities, rather than in cash,
to the extent permitted by the SEC and applicable law. The method of valuing
portfolio securities is described under "Net Asset Value," and such valuation
will be made as of the same time the redemption price is determined.
In general, the Fund will attempt to select securities for in-kind
redemptions that approximate the overall characteristics of the Fund's
portfolio. The 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 the Fund's portfolio securities.
The 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.
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 the 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. The 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
the 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 Fund generally intends to pay
redemption proceeds in cash, however, since the Fund reserves the right at its
sole discretion to pay redemptions over $250,000 in-kind as a portfolio of
representative stocks rather than in cash, the Fund reserves the right to deny
an exchange request in excess of that amount. 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.
DIVIDENDS AND DISTRIBUTIONS
The Fund declares and pays dividends and distributions as described
under "Dividends and Distributions" in the Prospectus.
Dividends and capital gains distributions paid by the Fund are
automatically reinvested in additional shares of the Fund unless the shareholder
has elected to have them paid in cash. The tax effects, if any, of dividends and
distributions are the same whether they are paid in shares or cash. Dividends
and distributions to be paid in cash are credited to the shareholder's account
at Morgan or at his financial professional or, in the case of certain Morgan
customers, are mailed by check in accordance with the customer's instructions.
The Fund reserves the right to discontinue, alter or limit the automatic
reinvestment privilege at any time.
If a shareholder has elected to receive dividends and/or capital gains
distributions in cash and the postal or other delivery service is unable to
deliver checks to the shareholder's address of record, such shareholder's
distribution option will automatically be converted to having all dividend and
other distributions reinvested in additional shares. No interest will accrue on
amounts represented by uncashed distribution or redemption checks.
NET ASSET VALUE
The Fund computes its net asset value separately for each class of
shares outstanding once daily as of the close of trading on the New York Stock
Exchange (normally 4:00 p.m. eastern time) on each business day as described in
the prospectus. The net asset value will not be computed on the day the
following legal holidays are observed: New Year's Day, Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day. On days when U.S. trading markets close
early in observance of these holidays, the Fund will close for purchases and
redemptions at the same time. The Fund may also 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 Fund's business days.
Portfolio securities with a maturity of 60 days or more, are generally
valued using bid quotations supplied daily by third party pricing services or
brokers that in other cases, take into account various factors affecting market
value, including yields and prices of comparable securities, and indications as
to value from dealers and general market conditions. If such prices are not
supplied by the Fund's independent pricing service, such securities are priced
in accordance with fair value procedures adopted by the Trustees. All portfolio
securities with a remaining maturity of less than 60 days are valued by the
amortized cost method.
PERFORMANCE DATA
From time to time, the Fund 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.
The classes of shares of the 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 the Fund's shares. Any fees charged by an
institution directly to its customers' accounts in connection with investments
in the Fund will not be included in calculations of yield and total return.
Yield Quotations. As required by regulations of the SEC, the annualized
yield for each class of shares of the Fund is computed by dividing the Fund's
net investment income per share attributable to the class earned during a 30-day
period by the net asset value of the class on the last day of the period. The
average daily number of shares of the class outstanding during the period that
are eligible to receive dividends is used in determining the net investment
income per share. Income is computed by totaling the interest earned on all debt
obligations during the period and subtracting from that amount the total of all
recurring expenses incurred during the period. The 30-day yield is then
annualized on a bond-equivalent basis assuming semi-annual reinvestment and
compounding of net investment income.
Total Return Quotations. As required by regulations of the SEC, average
annual total return of each class of shares of the Fund 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, also may be calculated.
General. Performance will vary from time to time depending upon market
conditions, the composition of the portfolio and operating expenses.
Consequently, any given performance quotation should not be considered
representative of the 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 the 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 Fund's 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 Fund 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 the Fund; (5)
descriptions of investment strategies for the Fund; (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 Fund; (7) comparisons of investment products
(including the Fund) 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 the Fund's volatility relative to its benchmark or to past
performance, including risk adjusted measures. The Fund 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 the Fund.
PORTFOLIO TRANSACTIONS
The Advisor places orders for the Fund for all purchases and sales of
portfolio securities, enters into repurchase agreements and may enter into
reverse repurchase agreements and execute loans of portfolio securities on
behalf of the Fund. 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 Fund
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 the Fund. The Advisor believes that the value of research services
received is not determinable and does not significantly reduce its expenses. The
Fund does not reduce its fee to the Advisor by any amount that might be
attributable to the value of such services.
Subject to the overriding objective of obtaining the best execution of
orders, the Advisor may allocate a portion of the 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 no
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 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 Fund only may sell
a security to another series of the Trust 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 the Fund, as
well as other clients, the Advisor to the extent permitted by applicable laws
and regulations, may, but is not obligated to, aggregate the securities to be
sold or purchased for the 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 the Fund. In some instances, this procedure
might adversely affect the Fund.
MASSACHUSETTS TRUST
The Trust is a "Massachusetts business trust" of which the Fund is a
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 the
Fund and that every written agreement, obligation, instrument or undertaking
made on behalf of the Fund will contain a provision to the effect that the
shareholders are not personally liable thereunder.
The Trust's Declaration of Trust further provides that no Trustee,
Member of the Advisory Board, officer, employee or agent of the Trust is liable
to the 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 the 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 the Fund. The Trust's
Declaration of Trust provides that a Trustee, officer, employee or agent is
entitled to be indemnified against all liability in connection with the affairs
of the Fund, except liabilities arising from disabling conduct.
DESCRIPTION OF SHARES
The 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
the Fund. To date, the Fund is authorized to issue Institutional Shares, Select
Shares and Ultra Shares.
Each share represents an equal proportional interest in the Fund with
each other share of the same class. Upon liquidation of the Fund, holders are
entitled to share pro rata in the net assets of the Fund available for
distribution to such shareholders.
Shares of the Fund have no preemptive or conversion rights.
The shareholders of the Trust are entitled to one full or fractional
vote for each dollar or fraction of a dollar invested in shares. Subject to the
1940 Act, the Trustees have the power to alter the number and the terms of
office of the Trustees, to lengthen their own terms, or to make their terms of
unlimited duration, subject to certain removal procedures, and to appoint their
own successors. However, immediately after such appointment, the requisite
majority of the Trustees must have been elected by the shareholders of the
Trust. The voting rights of shareholders are not cumulative. The Trust does not
intend to hold annual meetings of shareholders. The Trustees may call meetings
of shareholders for action by shareholder vote if required by either the 1940
Act or the Trust's Declaration of Trust.
Shareholders of the Trust have the right, upon the declaration in
writing or vote of shareholders whose shares represent two-thirds of the net
asset value of the Trust, to remove a Trustee. The Trustees will call a meeting
of shareholders to vote on removal of a Trustee upon the written request of the
shareholders whose shares represent 10% of the net asset value of the Trust. The
Trustees also are required, under certain circumstances, to assist shareholders
in communicating with other shareholders.
TAXES
The following discussion of tax consequences is based on U.S. federal
tax laws in effect on the date of this Statement of Additional Information.
These laws and regulations are subject to change by legislative or
administrative action, possibly on a retroactive basis.
The Fund intends to qualify and remain qualified as a regulated investment
company under Subchapter M of the Code. As a regulated investment company, the
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, securities, foreign
currencies and other income (including but not limited to gains from options,
futures and forward contracts) derived with respect to its business of investing
in such stock, securities or currencies; and (b) diversify its holdings so that,
at the end of each fiscal quarter of the taxable year, (i) at least 50% of the
value of the Fund's total assets is represented by cash and cash items, 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 the 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, the 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 timing requirements.
Under the Code, the 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. The 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 the
Fund in October, November or December as of a record date in such month and
actually paid in January of the following year will be treated as if they were
paid on December 31 of the year declared. Therefore, such dividends will
generally be taxable to a shareholder in the year declared rather than the year
paid.
Distributions of net investment income, certain foreign currency gains, and
realized net short-term capital gain in excess of net long-term capital loss are
generally taxable to shareholders of the Fund as ordinary income whether such
distributions are taken in cash or reinvested in additional shares.
Distributions to corporate shareholders of the Fund are not eligible for the
dividends received deuction. The Fund generally pays a monthly dividend. If
dividend payments exceed income earned by the Fund, the overdistribution would
be considered a return of capital rather than a dividend payment. The Fund
intends 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 gains in excess of net short-term capital losses) are taxable
to shareholders of the 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 the 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 by the Fund will be
treated as long-term capital gains or losses if the securities have been held
for more than one year except in certain cases where, if applicable, a put is
acquired or a call option is written thereon 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. If an option written by the 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 the 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 a maximum tax rate of 20%. However, any loss
realized by a shareholder upon the redemption or exchange of shares in the Fund
held for six months or less will be treated as a long-term capital loss to the
extent of any long-term capital gain distributions received by the shareholder
with respect to such shares. In addition, no loss will be allowed on the
redemption or exchange of shares of the 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 disposition of foreign
currency or to certain foreign currency contracts, or to fluctuations in
exchange rates between the time the Fund accrues income or receivables or
expenses or other liabilities denominated in a foreign currency and the time the
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 securitiesheld by the 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.
Forward currency contracts, options and futures contracts entered into by
the 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
forward currency contracts, options and futures contracts or on the underlying
securities.
Certain options, futures and foreign currency contracts held by the Fund at
the end of each fiscal year will be required to be "marked to market" for
federal income tax purposes - i.e., treated as having been sold at market value.
For options and futures contracts, 60% of any gain or loss recognized on these
deemed sales and on actual dispositions will be treated as long-term capital
gain or loss, and the remainder will be treated as short-term capital gain or
loss regardless of how long the Fund has held such options or futures. However,
gain or loss recognized on certain foreign currency contracts will be treated as
ordinary income or loss.
The Fund may invest in equity of foreign issuers. If the
Fund purchases shares in certain foreign corporations (referred to as passive
foreign investment companies ("PFICs") under the Code), it may be subject to
federal income tax on a portion of an "excess distribution" from such foreign
corporation, including any gain from the disposition of such shares, even though
a portion of such income may have to be distributed as a taxable dividend by the
Fund to its shareholders. In addition, certain interest charges may be imposed
on the Fund as a result of such distributions. Alternatively, the Fund may in
some cases be permitted to include each year in its income and distribute to
shareholders a pro rata portion of the foreign investment fund's income, whether
or not distributed to the Fund.
The Fund will be permitted to "mark to market" any marketable stock
held by it in a PFIC. The Fund will include in income each year an amount equal
to its share of the excess, if any, of the fair market value of the PFIC stock
as of the close of the taxable year over the adjusted basis of such stock. The
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 the Fund for prior taxable years.
If a correct and certified taxpayer identification number is not on
file, the 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, the 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 and from the proceeds of redemptions, exchanges or other
dispositions of Fund shares unless IRS Form W-8BEN is provided. Transfers by
gift of shares of the 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 the Fund held by such a shareholder at his or her death will be includible in
his or her gross estate for U.S. federal estate tax purposes.
State and Local Taxes. The Fund may be subject to state or local taxes
in jurisdictions in which the Fund is deemed to be doing business. In addition,
the treatment of the Fund and its shareholders in those states that have income
tax laws might differ from treatment under the federal income tax laws.
Shareholders should consult their own tax advisors with respect to any state or
local taxes.
Other Taxation. The Trust is organized as a Massachusetts business
trust and, under current law, neither the Trust nor the Fund is liable for any
income or franchise tax in The Commonwealth of Massachusetts, provided that the
Fund continues to qualify as a regulated investment company under Subchapter M
of the Code.
ADDITIONAL INFORMATION
Telephone calls to the Fund, J.P. Morgan or State Street may be tape
recorded. With respect to the securities offered hereby, this Statement of
Additional Information and the Prospectus do not contain all the information
included in the Trust's registration statement filed with the SEC. Pursuant to
the rules and regulations of the SEC, certain portions have been omitted. The
registration statement, including the exhibits filed therewith, may be examined
at the office of the SEC in Washington, D.C.
Statements contained in this Statement of Additional Information and
the Prospectuses 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 Trust's
Registration Statement. 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
Prospectuses 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 Fund or FDI. The Prospectuses and this Statement of Additional
Information do not constitute an offer by the 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.
<PAGE>
APPENDIX A
Description of Security Ratings
STANDARD & POOR'S
Corporate and Municipal Bonds
AAA - Debt rated AAA have 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 have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in a small degree.
A - Debt rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
BBB - Debt rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for debt in
higher rated categories.
BB - Debt rated BB are regarded as having less near-term vulnerability to
default than other speculative issues. However, they face major ongoing
uncertainties or exposure to adverse business, financial or economic
conditions which could lead to inadequate capacity to meet timely
interest and principal payments.
B - An obligation rated B is more vulnerable to nonpayment than
obligations rated BB, but the obligor currently has the capacity to
meet its financial commitment on the obligation. Adverse business,
financial, or economic conditions will likely impair the obligor's
capacity or willingness to meet its financial commitment on the
obligation.
CCC - An obligation rated CCC is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial, and economic conditions
for the obligor to meet its financial commitment on the obligation. In
the event of adverse business, financial, or economic conditions, the
obligor is not likely to have the capacity to meet its financial
commitment on the obligation.
CC - An obligation rated CC is currently highly vulnerable to nonpayment.
C - The C rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action has been taken, but payments on this
obligation are being continued.
Commercial Paper, including Tax Exempt
A - Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are
further refined with the designations 1, 2, and 3 to indicate the
relative degree of safety.
A-1 - This designation indicates that the degree of safety regarding timely
payment is very strong.
A-2 - This designation indicates that the degree of safety regarding timely
payment is satisfactory.
A-3 - This designation indicates that the degree of safety regarding timely
payment is adequate.
Short-Term Tax-Exempt Notes
SP-1 - The short-term tax-exempt note rating of SP-1 is the highest rating
assigned by Standard & Poor's and has a very strong or strong capacity
to pay principal and interest. Those issues determined to possess
overwhelming safety characteristics are given a "plus" (+)
designation.
SP-2 - The short-term tax-exempt note rating of SP-2 has a satisfactory
capacity to pay principal and interest.
MOODY'S
Corporate and Municipal Bonds
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long term risks
appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
Ba - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection
of interest and principal payments may be very moderate, and thereby
not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or
of maintenance of other terms of the contract over any long period of
time may be small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
Commercial Paper, Including Tax Exempt
Prime-1 - Issuers rated Prime-1 (or related supporting institutions)
have a superior capacity for repayment of short-term
promissory obligations. Prime-1 repayment capacity will
normally be evidenced by the following characteristics:
- Leading market positions in well established industries.
- High rates of return on funds employed.
- Conservative capitalization structures with moderate reliance on debt and
ample asset protection.
- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- Well established access to a range of financial markets and assured
sources of alternate liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions) have a strong ability
for repayment of senior short-term debt obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, may be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Prime-3 Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
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.
--------
1 Mr. Healey is an "interested person" (as defined in the 1940 Act) of the
Trust. Mr. Healey is also an "interested person" (as defined in the 1940 Act) of
the Advisor due to his son's affiliation with JPMIM.
<PAGE>
PART C OTHER INFORMATION
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. Filed Herewith.
(a)7 Amendment No. 7 to Declaration of Trust. Filed Herewith.
(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 Investment Advisory Agreement between Registrant and J.P.
Morgan Investment Management Inc. Filed Herewith.
(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)2(a) Administrative Services Agreement between Registrant and Morgan.
(Filed Herewith).
(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 Shareholder Servicing Agreement between Registrant and Morgan.
Filed Herewith.
(j) Consent of independent accountants. Filed Herewith.
(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 has duly caused this registration statement
to be signed on its behalf by the undersigned, thereto duly authorized, in the
city of Boston and the Commonwealth of Massachusetts on the 28th day of
June, 2000.
J.P. MORGAN SERIES TRUST
By /s/ Christopher Kelley
---------------------------------------
Christopher Kelley
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 June 28, 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/ Christopher Kelley
----------------------------
Christopher Kelley
as attorney-in-fact pursuant to a power of attorney.
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
------------- ------------------------
EX-99.(a)(6) Declaration of Trust
EX-99.(a)(7) Declaration of Trust
EX-99.(d)(1) Investment Advisory Agreement
EX-99.(h)(2)(a) Administrative Services Agreement
EX-99.(h)(5) Shareholder Service Agreement
EX-99.(j) Consent of independent accountants