As filed with the Securities and Exchange Commission on December 2, 1997.
Registration Nos. 033-54642 and 811-07342
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. 42
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 43
THE JPM INSTITUTIONAL FUNDS
(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
Christopher J. Kelly, c/o Funds Distributor, Inc.
60 State Street, Suite 1300, Boston, Massachusetts 02109
(Name and Address of Agent for Service)
Copy to: Stephen K. West, Esq.
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
It is proposed that this filing will become effective (check appropriate box):
[ ] Immediately upon filing pursuant to paragraph (b)
[X] on February 2, 1998 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.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
THE JPM INSTITUTIONAL FUNDS (PRIME MONEY MARKET, TREASURY MONEY MARKET,
FEDERAL MONEY MARKET, TAX EXEMPT MONEY MARKET, SERVICE PRIME MONEY MARKET,
SERVICE TREASURY MONEY MARKET, SERVICE FEDERAL MONEY MARKET, AND SERVICE TAX
EXEMPT MONEY MARKET FUNDS) CROSS-REFERENCE SHEET (As Required by Rule 495)
PART A ITEM NUMBER: Prospectus Headings.
1. COVER PAGE: Cover Page.
2. SYNOPSIS: Introduction; Investor Expenses.
3. CONDENSED FINANCIAL INFORMATION: Financial Highlights.
4. GENERAL DESCRIPTION OF REGISTRANT: Money Market Investment Process;
Goal; Investment Approach; Potential Risks and Rewards; Master/Feeder Structure.
5. MANAGEMENT OF THE FUND: Cover Page; J.P. Morgan; Portfolio Management;
Management and Administration.
5A. MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE: Performance.
6. CAPITAL STOCK AND OTHER SECURITIES: Investing Directly; Account and
Transaction Policies; Dividends and Distributions; Tax Considerations;
Master/Feeder Structure.
7. PURCHASE OF SECURITIES BEING OFFERED: Introduction; Investing Directly;
Opening an Account; Adding to an Account; Account and Transaction Policies.
8. REDEMPTION OR REPURCHASE: Selling Shares; Account and Transaction
Policies.
9. PENDING LEGAL PROCEEDINGS: Not Applicable.
PART B ITEM NUMBER: Statement of Additional Information Headings.
10. COVER PAGE: Cover Page.
11. TABLE OF CONTENTS: Table of Contents.
12. GENERAL INFORMATION AND HISTORY: General.
13. INVESTMENT OBJECTIVE AND POLICIES: Investment Objective and Policies;
Additional Investments; Investment Restrictions; Quality and Diversification
Requirements; Appendix A.
14. MANAGEMENT OF THE FUND: Trustees and Officers.
15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES: Description of
Shares.
16. INVESTMENT ADVISORY AND OTHER SERVICES: Investment Advisor;
Distributor; Co-Administrator; Services Agent; Custodian and Transfer Agent;
Shareholder Servicing; Financial Professionals/Service Organizations;
Independent Accountants; Expenses.
17. BROKERAGE ALLOCATION AND OTHER PRACTICES: Portfolio Transactions.
18. CAPITAL STOCK AND OTHER SECURITIES: Massachusetts Trust; Description of
Shares.
19. PURCHASE, REDEMPTION AND PRICING OF SECURITIES BEING OFFERED: Net Asset
Value; Purchase of Shares; Redemption of Shares; Exchange of Shares; Dividends
and Distributions.
20. TAX STATUS: Taxes.
21. UNDERWRITERS: Distributor.
22. CALCULATION OF PERFORMANCE DATA: Performance Data.
23. FINANCIAL STATEMENTS: Financial Statements.
PART C. Information required to be included in Part C is set forth under
the appropriate items, so numbered, in Part C of this Registration Statement.
EXPLANATORY NOTE
This post-effective amendment No. 42 to the Registrant's registration
statement on Form N-1A (File No. 033-54642) is being filed with respect to The
JPM Institutional Prime Money Market, Treasury Money Market, Federal Money
Market, Tax Exempt Money Market, Service Prime Money Market, Service Federal
Money Market, Service Treasury Money Market, and Service Tax Exempt Money Market
Funds, separate series of shares of the Registrant, for the purpose of
"simplifying" each Fund's prospectus.
<PAGE>
FEBRUARY 2, 1998 PROSPECTUS
J.P. MORGAN INSTITUTIONAL
FEDERAL MONEY MARKET FUND
-------------------------------------
Seeking to preserve capital and to
provide income and same-day liquidity
This prospectus contains essential information for anyone investing in this
fund. Please read it carefully and keep it for reference.
Shares in this funds are not bank deposits and are not guaranteed or insured by
any bank, government entity, or the FDIC. The fund seeks to maintain a stable $1
share price, without guaranteeing that it will always be able to do so.
As with all mutual funds, the fact that these shares are registered with the
Securities and Exchange Commission does not mean that the commission approves
them as an investment or guarantees that the information in this prospectus is
correct or adequate. It is a criminal offense to state or suggest otherwise.
Distributed by Funds Distributor, Inc.
[LOGO]JP MORGAN
<PAGE>
CONTENTS
2| MONEY MARKET MANAGEMENT APPROACH
Money market investment process ................... 2
4| J.P. MORGAN INSTITUTIONAL FEDERAL MONEY MARKET FUND
The fund's goal, Fund description .................................. 4
investment approach, Investor expenses ................................. 4
risks, expenses, Performance ....................................... 5
performance, and Financial highlights .............................. 5
financial highlights
6| YOUR INVESTMENT
Investing in the Investing through a financial professional ........ 6
J.P. Morgan Investing through an employer-sponsored retirement
Investing Institutional plan ............................................. 6
Federal Money Investing through an IRA or rollover IRA .......... 6
Market Fund Investing directly ................................ 6
Opening your account .............................. 6
Adding to your account ............................ 6
Selling shares .................................... 7
Account and transaction policies .................. 7
Dividends and distributions ....................... 8
Tax considerations ................................ 8
9| FUND DETAILS
More about risk and the Master/feeder structure ........................... 9
Fund's business Management and administration ..................... 9
operations
FOR MORE INFORMATION .................... back cover
<PAGE>
INTRODUCTION
J.P. MORGAN INSTITUTIONAL PRIME MONEY MARKET FUND
This fund invests in high-quality short-term debt securities by investing in a
master portfolio (another fund with the same goal). The fund accrues dividends
daily, pays them to shareholders monthly, and seeks to maintain a stable $1
share price.
WHO MAY WANT TO INVEST
The fund is designed for investors who:
. want an investment that strives to preserve capital
. want regular income from a high quality portfolio
. want a highly liquid investment
. are looking for an interim investment
. are pursuing a short-term goal
. are seeking income that is generally exempt from state and local income taxes
The fund is not designed for investors who:
. are investing for long-term growth
. are investing for high income
. require the added security of the FDIC insurance
J.P. MORGAN
Known for its commitment to proprietary research and its disciplined investment
strategies, J.P. Morgan is the asset manager of choice for many of the world's
most respected corporations, financial institutions, governments, and
individuals. Today, J.P. Morgan employs over 300 analysts and portfolio managers
around the world and has more than $240 billion in assets under management,
including assets managed by the funds' advisor, Morgan Guaranty Trust Company
of New York.
- -----------------------------------------------------------------------
Before you invest
Investors considering the fund should understand that:
. There is no assurance that the fund will meet its investment goals
. Future returns will not necessarily resemble past performance
- -----------------------------------------------------------------------
1
<PAGE>
MONEY MARKET MANAGEMENT APPROACH
The J.P. Morgan Institutional Federal Money Market Fund invests exclusively in
high-quality short-term debt obligations.
The investment philosophy, developed by the fund's advisor, emphasizes
investment quality through in-depth research on short-term securities and their
issuers. This allows the fund to focus on providing current income without
compromising share price stability.
MONEY MARKET INVESTMENT PROCESS
In researching short-term securities, J.P. Morgan's credit analysts enhance the
data furnished by rating agencies by drawing on the insights of J.P. Morgan's
fixed income trading specialists and equity analysts. Only highly rated
securities where J.P. Morgan concurs with the rating are considered for
investment.
In managing the fund, J.P. Morgan employs a three-step process:
[GRAPHIC]
J.P. Morgan uses a disciplined process to control the fund's sensitivity
to interest rates
Maturity determination Based on analysis of a range of factors, including
current yields, economic forecasts, and anticipated fiscal and monetary
policies, J.P. Morgan establishes the desired weighted average maturity for the
fund within the permissible 90-day range. Controlling weighted average maturity
allows the fund to manage risk, since securities with shorter maturities are
typically less sensitive to interest rate shifts than those with longer
maturities.
[GRAPHIC]
The fund invests across different sectors, for diversification and to
take advantage of yield spreads
Sector allocation After comparing the yields available in different sectors of
the short-term debt market, J.P. Morgan adjusts the fund's sector allocation,
with the goal of enhancing current income while also maintaining diversification
across permissible sectors.
[GRAPHIC]
The fund selects its securities as described later in this prospectus
Security selection Based on the results of the firm's credit research and the
fund's maturity determination and sector allocation, the portfolio managers and
dedicated fixed-income traders make buy and sell decisions according to the
fund's goal and strategy.
2 MONEY MARKET MANAGEMENT APPROACH
<PAGE>
(THIS PAGE IS INTENTIONALLY LEFT BLANK)
3
<PAGE>
J.P. MORGAN INSTITUTIONAL FEDERAL TICKER SYMBOL: JPTXX
MONEY MARKET FUND
REGISTRANT: THE J.P. MORGAN INSTITUTIONAL FUNDS
(THE J.P. MORGAN INSTITUTIONAL FEDERAL MONEY
MARKET FUND)
[GRAPHIC]
GOAL
The fund seeks to provide current income, maintain high liquidity, and preserve
capital.
[GRAPHIC]
INVESTMENT APPROACH
The fund purchases securities that offer very high credit quality and pay
regular income that is generally free from state and local income taxes. It
invests exclusively in U.S. government agency obligations such as the Federal
Farm Credit System, the Tennessee Valley Authority, the Federal Home Loan Banks,
the Student Loan Marketing Association, and in obligations of the U.S. Treasury.
Some of these investments may be purchased on a when-issued or delayed delivery
basis.
[GRAPHIC]
POTENTIAL RISKS AND REWARDS
The fund's yield will vary in response to changes in interest rates. How well
the fund's yield compares to the yields of similar money market funds will
depend on the success of the investment process, which is described on page 2.
While the fund's U.S. Treasury obligations are backed by the full faith and
credit of the Government, investors should bear in mind that any agency
obligations the fund may hold do not have this guarantee, and that in any case
government guarantees do not extend to shares of the fund itself.
Most of the fund's income is generally exempt from state and local personal
income taxes and from some corporate income taxes (although not federal income
taxes). Because of this beneficial tax status, the fund's yields are generally
lower than those of taxable money market funds when compared on a pre-tax basis.
As with all money market funds, the fund's investments are subject to various
risks, which, while generally considered to be minimal, could cause its share
price to fall below $1. For example, the issuer or guarantor of a portfolio
security could default on its obligation. An unexpected rise in interest rates
could also lead to a loss in share price if the fund is near the maximum
allowable average weighted maturity at the time. However, the fund's investment
process and management policies are designed to minimize the likelihood and
impact of these risks. To date, through this process, the fund's share price has
never deviated from $1.00.
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages over $240
billion, including more than $X.X billion using the same strategy as the fund.
The portfolio management team is led by Robert R. Johnson, vice president, who
has been on the team since the fund's inception and has been at J.P. Morgan
since 1988, and by Daniel B. Mulvey, vice president, who joined the team in
October of 1996 and has been at J.P. Morgan since 1991.
MONEY MARKET FUNDS AND STABILITY
Money market funds are subject to a range of federal regulations designed
to promote stability. For example, money market funds must maintain a weighted
average maturity of no more than 90 days, and generally may not invest in any
securities with a remaining maturity of more than 13 months. Keeping the
weighted average maturity this short helps funds in their pursuit of a stable $1
share price.
Additionally, money market funds take steps to protect investors against credit
risk. The J.P. Morgan Institutional Federal Money Market Fund maintains stricter
standards than federal law requires when it comes to securities selection.
- -------------------------------------------------------------------------------
INVESTOR EXPENSES
The current expenses you should expect to pay as an investor in the fund are
shown at right. The fund has no sales, redemption, exchange, or account fees,
although some institutions may charge you a fee for shares you buy through them.
The annual fund expenses shown are deducted from fund assets prior to
performance calculations.
ANNUAL FUND OPERATING EXPENSES/1/ (%)
Management fees 0.20
Marketing (12b-1) fees none
Other expenses/2/
(after reimbursement) none
- --------------------------------------
Total operating expenses/2/
(after reimbursement) 0.20
- --------------------------------------
EXPENSE EXAMPLE
The example below uses the same assumptions as other fund prospectuses: $1,000
initial investment, 5% annual total return, expenses unchanged, all shares sold
at the end of each time period. The example is for comparison only; the fund's
actual return and expenses will be different.
1 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($) 2 6 11 26
Footnotes for this section are shown on next page.
4 J.P. MORGAN INSTITUTIONAL FEDERAL MONEY MARKET FUND
<PAGE>
PERFORMANCE
Average annual total return Shows performance over time, for periods
ended December 31, 1997
1 yr. 3 yrs. Since inception/3/
J.P. Morgan Institutional
Federal Money Market Fund
(after expenses) xx.xx xx.xx xx.xx
- ------------------------------------------------------------------------------
IBC/Donoghue U.S. Government & Agency
Money Market Fund Average/4/
(after expenses) xx.xx xx.xx xx.xx
- ------------------------------------------------------------------------------
Year-by-year total return Shows changes in returns by calendar year
[BAR GRAPH]
. J.P. Morgan Institutional Federal Money Market Fund
. IBC/Donoghue U.S. Government & Agency Money Market Fund Average/4/
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Per-share Data For fiscal periods ended October 31
- --------------------------------------------------------------------------------------------------------------------------------
1993/3/ 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period ($) 1.00 1.00 1.00 1.00 x.xx
- --------------------------------------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.02 0.03 0.05 0.05 x.xx
Net realized and unrealized
gain (loss)
on investment 0.00/7/ (0.00)/7/ 0.00 0.00 x.xx
- --------------------------------------------------------------------------------------------------------------------------------
Total from investment
operations ($) 0.02 0.03 0.05 0.05 x.xx
- --------------------------------------------------------------------------------------------------------------------------------
Less distributions to
shareholders from:
Net investment income ($) (0.02) (0.03) (0.05) (0.05) x.xx
Net realized gain ($) -- (0.00) -- (0.00) x.xx
- --------------------------------------------------------------------------------------------------------------------------------
Total distributions ($) (0.02) (0.03) (0.05) (0.05) x.xx
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period ($) 1.00 1.00 1.00 1.00 x.xx
- --------------------------------------------------------------------------------------------------------------------------------
Total return (%) 2.23/5/ 3.61 5.69 5.23 x.xx
- --------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 25,477 80,146 146,108 109,050 xxxxx
- --------------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Expenses (%) 0.27/6/ 0.20 0.20 0.20 x.xx
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income (%) 2.81/6/ 3.81 5.56 5.09 x.xx
- --------------------------------------------------------------------------------------------------------------------------------
Decrease reflected in expense ratio due to expense reimbursement (%) 0.76/6/ 0.47 0.31 0.26 x.xx
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Financial Highlights above have been audited by Price Waterhouse LLP, the
fund's independent accountants.
1 The fund has a master/feeder structure as described on page 9. This table
shows the fund's expenses and its share of master portfolio expenses for the
past fiscal year, expressed as a percentage of the fundOs average net assets
after reimbursement for ordinary expenses over 0.20%.
2 Without reimbursement, other expenses and total operating expenses would have
been 0.26% and 0.46%, respectively. There is no guarantee that reimbursement
will continue beyond 2/28/98.
3 The fund commenced operations on 1/4/93.
4 Consists of the IBC/Donoghue U.S. Treasury & Repo Money Market Fund Average
through 12/31/95 and the IBC/Donoghue U.S. Government & Agency Money Market
Fund Average thereafter.
5 Not annualized.
6 Annualized.
7 Less than $0.0001.
J.P. MORGAN INSTITUTIONAL FEDERAL MONEY MARKET FUND 5
<PAGE>
YOUR INVESTMENT
For your convenience, the J.P. Morgan Institutional Funds offer several ways to
start and maintain fund investments.
INVESTING THROUGH A FINANCIAL PROFESSIONAL
If you work with a financial professional, either at J.P. Morgan or elsewhere,
he or she is prepared to handle your planning and transaction needs. Your
financial professional will be able to assist you in establishing your fund
account,executing transactions, and monitoring your investment. If your fund
investment is not held in the name of your financial professional and you prefer
to place a transaction order yourself, please use the instructions for investing
directly.
INVESTING THROUGH AN EMPLOYER-SPONSORED RETIREMENT PLAN
Your fund investments are handled through your plan. Refer to your plan
materials or contact your benefits office for information on buying, selling, or
exchanging fund shares.
INVESTING THROUGH AN IRA OR ROLLOVER IRA
Please contact a J.P. Morgan Retirement Services Specialist at 1-888-576-4472
for information on J.P. Morgan's comprehensive IRA services, including lower
minimum investments.
INVESTING DIRECTLY
Investors may establish accounts without the help of an intermediary by using
the instructions below and at right:
. Determine the amount you are investing. The minimum amount for initial
investments in the fund is $10,000,000 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.
. Complete the application, indicating how much of your investment you want to
allocate to which fund(s). Please apply now for any account privileges you
may want to use in the future, in order to avoid the delays associated with
adding them later on.
. Mail in your application, making your initial investment as shown below.
For answers to any questions, please speak with a J.P. Morgan Funds Services
Representative at 1-800-766-7722.
OPENING YOUR ACCOUNT
By Wire
. Mail your completed application to the Shareholder Services Agent.
. Call the Shareholder Services Agent to obtain an account number and to place
a purchase order. Funds that are wired without a purchase order will be
returned uninvested.
. After placing your purchase order, instruct your bank to wire the amount of
your investment to:
Morgan Guaranty Trust Company
Routing number: 021-000-238
Credit: J.P. Morgan Institutional Funds
Account number: 001-57-689
FFC: your account number, name of registered owner(s) and fund name
By Check
. Make out a check for the investment amount payable to J.P. Morgan
Institutional Funds.
. Mail the check with your completed application to
the Shareholder Services Agent.
By Exchange
. Call the Shareholder Services Agent for an exchange.
ADDING TO YOUR ACCOUNT
By Wire
. Call the Shareholder Services Agent to place a purchase order. Funds that are
wired without a purchase order will be returned uninvested.
. Once you have placed your purchase order, instruct
your bank to wire the amount of your investment as described above.
By Check
. Make out a check for the investment amount payable to J.P. Morgan
Institutional Funds.
. Mail the check with a completed investment slip to the Shareholder Services
Agent. If you do not have an investment slip, attach a note indicating your
account number and how much you wish to invest in which fund(s).
By Exchange
. Call the Shareholder Services Agent for an exchange.
6 YOUR INVESTMENT
<PAGE>
SELLING SHARES
By Wire
. Call the Shareholder Services Agent to verify that the wire redemption
privilege is in place on your account. If it is not, a representative can
help you add it.
. Place your wire request. If you are transferring money to a non-Morgan
account, you will need to provide the representative with the personal
identification number (PIN) that was provided to you when you opened your
fund account.
By Phone
. Call the Shareholder Services Agent and place your request. Once your request
has been verified, a check for the net amount, payable to the registered
owner(s), will be mailed to the address of record. For checks payable to any
other party or mailed to any other address, please make your request in
writing (see below).
In Writing
. Write a letter of instruction that includes the following information: The
name of the registered owner(s) of the account; the account number; the fund
name; the amount you want to sell; and the recipientOs name and address or
wire information, if different from those of the account registration.
. Indicate whether you want the proceeds sent by check or by wire.
. Make sure the letter is signed by an authorized party. The Shareholder
Services Agent may require additional information, such as a signature
guarantee.
. Mail the letter to the Shareholder Services Agent.
By Exchange
. Call the Shareholder Services Agent for an exchange.
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 are the
same as those of the New York Stock Exchange. The fund calculates its net asset
value per share (NAV) every business day at 4:00 p.m. eastern time.
Timing of orders Orders to buy or sell shares are executed at the next NAV
calculated after the order has been received. Purchase and redemption orders for
the fund must be received by 12:00 noon eastern time.
For the purchase to be effective and dividends to be earned on the same day,
purchase orders must be placed by 12:00 noon and immediately available funds
must be received by 4:00 p.m. eastern time on a fund business day. The fund has
the right to suspend redemption of shares and to postpone payment of proceeds
for up to seven days or as permitted by law.
Shareholder Services Agent
J.P. MORGAN FUNDS SERVICES
522 Fifth Avenue
New York, NY 10036
1-800-766-7722
Representatives are available 8:00 a.m. to 5:00 p.m. eastern time on
fund business days.
YOUR INVESTMENT 7
<PAGE>
Timing of settlements When you buy shares, you will become the owner of record
when the fund receives your payment. Redemption orders for the fund received by
12:00 noon eastern time will be paid in immediately available funds according to
instructions on file.
When you sell shares that you recently purchased by check, your order will be
executed at the next NAV but the proceeds will not be available until your check
clears. This may take up to 15 days.
Statements and reports The fund sends monthly account statements as well as
confirmations after each purchase or sale of shares (except reinvestments).
Every six months the fund sends out an annual or semi-annual report, containing
information on its holdings and a discussion of recent and anticipated market
conditions and fund performance.
Accounts with below-minimum balances If your account balance falls below the
minimum for 30 days as a result of selling shares (and not because of
performance), the fund may 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
Income dividends are declared daily and paid monthly. If an investorOs 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 their
purchase is effective, but not on the business day their redemption is
effective.
Dividends and distributions are automatically paid 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
Every January, the fund issues tax information on its distributions for the
previous year.
Any investor for whom the fund does not have a valid taxpayer identification
number will be subject to backup withholding for taxes.
The tax considerations described in this section do not apply to tax-deferred
accounts or other non-taxable entities.
Because each investor's tax circumstances are unique, please consult your tax
professional about your fund investment.
8 YOUR INVESTMENT
<PAGE>
FUND DETAILS
MASTER/FEEDER STRUCTURE
As noted earlier, the fund is a OfeederO fund that invests in a master
portfolio. (Except where indicated, this prospectus uses the term Othe fundO to
mean the feeder fund and its master portfolio taken together.)
The master portfolio accepts investments from other feeder funds, and all the
feeders of a given master portfolio bear the portfolioOs expenses in proportion
to their assets. However, each feeder can set its own transaction minimums,
fund-specific expenses, and other conditions. This means that one feeder could
offer access to the same master portfolio on more attractive terms, or could
experience better performance, than another feeder. Information about other
feeders is available by calling 1-800-766-7722. Generally, when a master
portfolio seeks a vote, its feeder fund will hold a shareholder meeting and cast
its vote proportionately, as instructed by its shareholders. Fund shareholders
are entitled to one vote per fund share.
The fund and its master portfolio expect to maintain consistent goals, but if
they do not, the fund will withdraw from the master portfolio, receiving its
assets either in cash or securities. The fundOs trustees would then consider
whether the fund should hire its own investment adviser, invest in a different
master portfolio, or take other action.
MANAGEMENT AND ADMINISTRATION
The fund and its master portfolio 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, as co-administrator, provides fund officers. J.P. Morgan, as co-
administrator, oversees the fundOs other service providers.
J.P. Morgan receives the following fees for investment advisory and other
services:
Advisory Services 0.20% of the first $1 billion of
the master portfolio's average
net assets plus 0.10% over
$1 billion
- ---------------------------------------------------------------------
Administrative Services Master portfolio's and fundOs pro-
(fee shared with Funds rata portions of 0.09% of the
Distributor, Inc.) first $7 billion in J.P. Morgan-
advised portfolios, plus 0.04%
over $7 billion
- ----------------------------------------------------------------------
Shareholder Services 0.15% of the first $2 billion of
the fund's average net assets
plus 0.10% over $2 billion
The Advisor has voluntarily agreed to reimburse the fund so that total operating
expenses will not exceed 0.20% of average net assets of the fund. There is no
guarantee that this arrangement will continue beyond 2/28/98.
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 9
<PAGE>
FOR MORE INFORMATION
For investors who want more information on this fund, the following documents
are available free upon request:
Annual/Semi-annual Reports Contain 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 may be obtained by contacting:
J.P. Morgan Institutional Funds
J.P. Morgan Funds Services
522 Fifth Avenue
New York, NY 10036
Telephone: 1-800-766-7722
Hearing impaired: 1-888-468-4015
Email: [email protected]
Text-only versions of these documents and this prospectus are available from
the Public Reference Room of the Securities and Exchange Commission in
Washington, D.C. (1-800-SEC-0330) and may be viewed on-screen or downloaded from
the SEC's Internet site at http://www.sec.gov. The fund's investment company and
1933 Act registration numbers are 811-07342 and 033-54642.
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.
[LOGO]JP MORGAN
- ----------------------------------------------------------------------------
J.P. Morgan Institutional Funds
Advisor Distributor
Morgan Guaranty Trust Company of New York Funds Distributor, Inc.
522 Fifth Avenue 60 State Street
New York, NY 10036 Boston, MA 02109
1-800-766-7722 1-800-221-7930
******************************************************************************
<PAGE>
FEBRUARY 2, 1998 PROSPECTUS
J.P. MORGAN INSTITUTIONAL
TREASURY MONEY MARKET FUND
This prospectus contains essential information for anyone investing in this
fund. Please read it carefully and keep it for reference.
Shares in this fund are not bank deposits and are not guaranteed or insured by
any bank, government entity, or the FDIC. The fund seeks to maintain a stable $1
share price, without guaranteeing that it will always be able to do so.
As with all mutual funds, the fact that these shares are registered with the
Securities and Exchange Commission does not mean that the commission approves
them as an investment or guarantees that the information in this prospectus is
correct or adequate. It is a criminal offense to state or suggest otherwise.
Distributed by Funds Distributor, Inc.
Seeking to preserve capital and to provide income and same-day liquidity
[LOGO]JP MORGAN
<PAGE>
CONTENTS
2
MONEY MARKET MANAGEMENT APPROACH
Money market investment process ....................................... 2
4
The fund's goal, investment approach, risks, expenses, performance, and
financial highlights
J.P. MORGAN INSTITUTIONAL TREASURY MONEY MARKET FUND
Fund description ...................................................... 4
Investor expenses ..................................................... 4
Performance ........................................................... 5
Financial highlights .................................................. 5
6
Investing in the J.P. Morgan Institutional Treasury Money Market Fund
YOUR INVESTMENT
Investing through a financial professional ............................ 6
Investing through an employer-sponsored retirement plan ............... 6
Investing through an IRA or rollover IRA .............................. 6
Investing directly .................................................... 6
Opening your account .................................................. 6
Adding to your account ................................................ 6
Selling shares ........................................................ 7
Account and transaction policies ...................................... 7
Dividends and distributions ........................................... 8
Tax considerations .................................................... 8
9
More about risk and the fund's business operations
FUND DETAILS
Master/feeder structure ............................................... 9
Management and administration ......................................... 9
FOR MORE INFORMATION ............................................. back cover
<PAGE>
INTRODUCTION
J.P. MORGAN INSTITUTIONAL TREASURY MONEY MARKET FUND
This fund invests in high-quality short-term debt securities by investing in a
master portfolio (another fund with the same goal). The fund accrues dividends
daily, pays them to shareholders monthly, and seeks to maintain a stable $1
share price.
WHO MAY WANT TO INVEST
The fund is designed for investors who:
. want an investment that strives to preserve capital
. want regular income from a high quality portfolio
. want a highly liquid investment
. are looking for an interim investment
. are pursuing a short-term goal
The fund is not designed for investors who:
. are investing for long-term growth
. are investing for high income
. require the added security of the FDIC insurance
J.P. MORGAN
Known for its commitment to proprietary research and its disciplined investment
strategies, J.P. Morgan is the asset manager of choice for many of the world's
most respected corporations, financial institutions, governments, and
individuals. Today, J.P. Morgan employs over 300 analysts and portfolio managers
around the world and has more than $240 billion in assets under management,
including assets managed by the funds' advisor, Morgan Guaranty Trust Company of
New York.
Before you invest
Investors considering the fund should understand that:
.There is no assurance that the fund will meet its investment goals
.Future returns will not necessarily resemble past performance
1
<PAGE>
MONEY MARKET MANAGEMENT APPROACH
The J.P. Morgan Institutional Treasury Money Market Fund invests exclusively in
high-quality short-term debt obligations.
The investment philosophy, developed by the fund's advisor, emphasizes
investment quality through in-depth research on short-term securities and their
issuers. This allows the fund to focus on providing current income without
compromising share price stability.
MONEY MARKET INVESTMENT PROCESS
In researching short-term securities, J.P. Morgan's credit analysts enhance the
data furnished by rating agencies by drawing on the insights of J.P. Morgan's
fixed income trading specialists and equity analysts. Only highly rated
securities where J.P. Morgan concurs with the rating are considered for
investment.
In managing the fund, J.P. Morgan employs a three-step process:
[GRAPHIC]
J.P. Morgan uses a disciplined process to control the fund's sensitivity
to interest rates
Maturity determination Based on analysis of a range of factors, including
current yields, economic forecasts, and anticipated fiscal and monetary
policies, J.P. Morgan establishes the desired weighted average maturity for the
fund within the permissible 90-day range. Controlling weighted average maturity
allows the fund to manage risk, since securities with shorter maturities are
typically less sensitive to interest rate shifts than those with longer
maturities.
[GRAPHIC]
The fund invests across different sectors, for diversification and to take
advantage of yield spreads
Sector allocation After comparing the yields available in different sectors of
the short-term debt market, J.P. Morgan adjusts the fund's sector allocation,
with the goal of enhancing current income while also maintaining diversification
across permissible sectors.
[GRAPHIC]
The fund selects its securities as described later in this prospectus
Security selection Based on the results of the firm's credit research and the
fund's maturity determination and sector allocation, the portfolio managers and
dedicated fixed-income traders make buy and sell decisions according to the
fund's goal and strategy.
2 MONEY MARKET MANAGEMENT APPROACH
<PAGE>
(THIS PAGE IS INTENTIONALLY LEFT BLANK)
3
<PAGE>
J.P. MORGAN INSTITUTIONAL TREASURY TICKER SYMBOL: JTMXX
MONEY MARKET FUND
REGISTRANT: THE J.P. MORGAN INSTITUTIONAL FUNDS
(THE J.P. MORGAN INSTITUTIONAL TREASURY MONEY
MARKET FUND)
[GRAPHIC]
GOAL
The fund seeks to provide current income, maintain high liquidity, and preserve
capital.
[GRAPHIC]
INVESTMENT APPROACH
The fund purchases securities that offer the highest credit quality and provide
regular income that is generally free from state and local income taxes. It
invests exclusively in U.S. Treasury obligations and repurchase agreements
collateralized by these obligations. Some of these investments may be purchased
on a when-issued or delayed delivery basis.
[GRAPHIC]
POTENTIAL RISKS AND REWARDS
The fund's yield will vary in response to changes in interest rates. How well
the fund's yield compares to the yields of similar money market funds will
depend on the success of the investment process, which is described on page 2.
While the fund's U.S. Treasury obligations are backed by the full faith and
credit of the federal government, investors should bear in mind that any
repurchase agreements the fund may hold do not have this guarantee (even though
they are fully collateralized by Treasuries), and that in any case government
guarantees do not extend to shares of the fund itself.
The portion of the fund's income derived from direct investments in U.S.
Treasury obligations may be exempt from state and local personal income taxes.
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages over $240
billion, including more than $X.X billion using the same strategy as the fund.
The portfolio management team is led by Robert R. Johnson, vice president, who
has been on the team since the fund's inception and has been at J.P. Morgan
since 1988, and by Daniel B. Mulvey, vice president, who joined the team in
October of 1996 and has been at J.P. Morgan since 1991.
MONEY MARKET FUNDS AND STABILITY
Money market funds are subject to a range of federal regulations designed
to promote stability. For example, money market funds must maintain a weighted
average maturity of no more than 90 days, and generally may not invest in any
securities with a remaining maturity of more than 13 months. Keeping the
weighted average maturity this short helps funds in their pursuit of a stable $1
share price.
Additionally, money market funds take steps to protect investors against credit
risk. The J.P. Morgan Institutional Treasury Money Market Fund maintains
stricter standards than federal law requires when it comes to securities
selection.
Investor Expenses
The current expenses you should expect to pay as an investor in the fund are
shown at right. The fund has no sales, redemption, exchange, or account fees,
although some institutions may charge you a fee for shares you buy through them.
The annual fund expenses shown are deducted from fund assets prior to
performance calculations.
Footnotes for this section are shown on next page.
Annual fund operating expenses/1/ (%)
Management fees
(after expense reimbursement) 0.13
Marketing (12b-1) fees none
Other expenses/2/
(after reimbursement) none
- --------------------------------------------
Total operating expenses/2/
(after reimbursement) 0.13
- --------------------------------------------
Expense example
The example below uses the same assumptions as other fund prospectuses: $1,000
initial investment, 5% annual total return, expenses unchanged, all shares sold
at the end of each time period. The example is for comparison only; the fund's
actual return and expenses will be different.
1 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($) 1 4 7 17
4 J.P. MORGAN INSTITUTIONAL TREASURY MONEY MARKET FUND
<PAGE>
PERFORMANCE
AVERAGE ANNUAL TOTAL RETURN Shows performance over time, for period ended
December 31, 1997
- --------------------------------------------------------------------------------
Since inception/3/
J.P. Morgan Institutional Treasury Money Market Fund
(after expenses) x.xx
- --------------------------------------------------------------------------------
YEAR-BY-YEAR TOTAL RETURN Shows changes in returns by calendar year
- --------------------------------------------------------------------------------
1997/3/
[BAR GRAPH]
J.P. Morgan Institutional Treasury Money Market Fund xx.xx
================================================================================
FINANCIAL HIGHLIGHTS
PER-SHARE DATA For fiscal period ended October 31
- --------------------------------------------------------------------------------
1997/3/
Net asset value, beginning of period ($) x.xx
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) x.xx
Net realized and unrealized gain (loss)
on investment ($) x.xx
- --------------------------------------------------------------------------------
Total from investment operations ($) x.xx
- --------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) x.xx
Net realized gain ($) x.xx
- --------------------------------------------------------------------------------
Total distributions ($) x.xx
- --------------------------------------------------------------------------------
Net asset value, end of period ($) x.xx
- --------------------------------------------------------------------------------
Total return (%) x.xx
- --------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Net assets, end of period ($ millions) xxxx
- --------------------------------------------------------------------------------
Ratio to average net assets:
Expenses (%) x.xx
- --------------------------------------------------------------------------------
Net investment income (%) x.xx
- --------------------------------------------------------------------------------
Decrease reflected in expense ratio due
to expense reimbursement (%) x.xx
- --------------------------------------------------------------------------------
The Financial Highlights above have been audited by Price Waterhouse LLP, the
fund's independent accountants.
1 The fund has a master/feeder structure as described on page 9. This table
shows the fund's estimated expenses and its share of master portfolio
expenses for the past fiscal period, expressed as a percentage of the fund's
estimated average net assets after reimbursement for ordinary expenses over
0.13%.
2 The total operating expenses for the fund is a blended ratio which represents
an estimate based on reimbursements in effect through 10/31/98. The actual
amount incurred by a shareholder at any particular time during the periods
indicated may be higher or lower, depending on the date of purchase and
length of holding period of fund shares. Without reimbursement advisory fee,
estimated other expenses and total operating expenses would have been 0.20%,
0.26%, and 0.46%, respectively. There is no guarantee that reimbursement will
continue beyond 10/31/98.
3 The fund commenced operations on 7/8/97; performance is calculated as of
7/31/97.
J.P. MORGAN INSTITUTIONAL TREASURY MONEY MARKET FUND 5
<PAGE>
YOUR INVESTMENT
For your convenience, the J.P. Morgan Institutional Funds offer several ways to
start and maintain fund investments.
INVESTING THROUGH A FINANCIAL PROFESSIONAL
If you work with a financial professional, either at J.P. Morgan or elsewhere,
he or she is prepared to handle your planning and transaction needs. Your
financial professional will be able to assist you in establishing your fund
account, executing transactions, and monitoring your investment. If your fund
investment is not held in the name of your financial professional and you prefer
to place a transaction order yourself, please use the instructions for investing
directly.
INVESTING THROUGH AN EMPLOYER-SPONSORED RETIREMENT PLAN
Your fund investments are handled through your plan. Refer to your plan
materials or contact your benefits office for information on buying, selling, or
exchanging fund shares.
INVESTING THROUGH AN IRA OR ROLLOVER IRA
Please contact a J.P. Morgan Retirement Services Specialist at 1-888-576-4472
for information on J.P. Morgan's comprehensive IRA services, including lower
minimum investments.
INVESTING DIRECTLY
Investors may establish accounts without the help of an intermediary by using
the instructions below and at right:
. Determine the amount you are investing. The minimum amount for initial
investments in the fund is $10,000,000 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.
. Complete the application, indicating how much of your investment you want to
allocate to which fund(s). Please apply now for any account privileges you may
want to use in the future, in order to avoid the delays associated with adding
them later on.
. Mail in your application, making your initial investment as shown below.
For answers to any questions, please speak with a J.P. Morgan Funds Services
Representative at 1-800-766-7722.
OPENING YOUR ACCOUNT
By wire
. Mail your completed application to the Shareholder Services Agent.
. Call the Shareholder Services Agent to obtain an account number and to place
a purchase order. Funds that are wired without a purchase order will be returned
uninvested.
. After placing your purchase order, instruct your bank to wire the amount of
your investment to:
Morgan Guaranty Trust Company
Routing number: 021-000-238
Credit: J.P. Morgan Institutional Funds
Account number: 001-57-689
FFC: your account number, name of registered owner(s) and fund name
By check
. Make out a check for the investment amount payable to J.P. Morgan
Institutional Funds.
. Mail the check with your completed application to the Shareholder Services
Agent.
By exchange
. Call the Shareholder Services Agent for an exchange.
ADDING TO YOUR ACCOUNT
By wire
. Call the Shareholder Services Agent to place a purchase order. Funds that are
wired without a purchase order will be returned uninvested.
. Once you have placed your purchase order, instruct your bank to wire the
amount of your investment as described above.
By check
. Make out a check for the investment amount payable to J.P. Morgan
Institutional Funds.
. Mail the check with a completed investment slip to the Shareholder Services
Agent. If you do not have an investment slip, attach a note indicating your
account number and how much you wish to invest in which fund(s).
By exchange
. Call the Shareholder Services Agent for an exchange.
6 YOUR INVESTMENT
<PAGE>
SELLING SHARES
By wire
. Call the Shareholder Services Agent to verify that the wire redemption
privilege is in place on your account. If it is not, a representative can help
you add it.
. Place your wire request. If you are transferring money to a non-Morgan
account, you will need to provide the representative with the personal
identification number (PIN) that was provided to you when you opened your fund
account.
By phone
. Call the Shareholder Services Agent and place your request. Once your request
has been verified, a check for the net amount, payable to the registered
owner(s), will be mailed to the address of record. For checks payable to any
other party or mailed to any other address, please make your request in writing
(see below).
In writing
. Write a letter of instruction that includes the following information: The
name of the registered owner(s) of the account; the account number; the fund
name; the amount you want to sell; and the recipient's name and address or wire
information, if different from those of the account registration.
. Indicate whether you want the proceeds sent by check or by wire.
. Make sure the letter is signed by an authorized party. The Shareholder
Services Agent may require additional information, such as a signature
guarantee.
. Mail the letter to the Shareholder Services Agent.
By exchange
. Call the Shareholder Services Agent for an exchange.
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 funds' regular business days are the
same as those of the New York Stock Exchange. The fund calculates its net asset
value per share (NAV) every business day at 4:00 p.m. eastern time.
Timing of orders Orders to buy or sell shares are executed at the next NAV
calculated after the order has been received. Purchase and redemption orders for
the fund must be received by 4:00 p.m. eastern time.
For the purchase to be effective and dividends to be earned on the same day,
purchase orders and immediately available funds must be received by 4:00 p.m.
eastern time on a fund business day. The fund has the right to suspend
redemption of shares and to postpone payment of proceeds for up to seven days or
as permitted by law.
Shareholder Services Agent
J.P. Morgan Funds Services
522 Fifth Avenue
New York, NY 10036
1-800-766-7722
Representatives are available 8:00 a.m. to 5:00 p.m. eastern time on fund
business days.
YOUR INVESTMENT 7
<PAGE>
Timing of settlements When you buy shares, you will become the owner of record
when the fund receives your payment. Redemption orders for the fund received by
4:00 p.m. eastern time will be paid in immediately available funds according to
instructions on file.
When you sell shares that you recently purchased by check, your order will be
executed at the next NAV but the proceeds will not be available until your check
clears. This may take up to 15 days.
Statements and reports The fund sends monthly account statements as well as
confirmations after each purchase or sale of shares (except reinvestments).
Every six months the fund sends out an annual or semi-annual report, containing
information on its holdings and a discussion of recent and anticipated market
conditions and fund performance.
Accounts with below-minimum balances If your account balance falls below the
minimum for 30 days as a result of selling shares (and not because of
performance), the fund may 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
Income dividends are declared daily and paid 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 their
purchase is effective, but not on the business day their redemption is
effective.
Dividends and distributions are automatically paid 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
- -----------------------------------------------
Every January, the fund issues tax information on its distributions for the
previous year.
Any investor for whom the fund does not have a valid taxpayer identification
number will be subject to backup withholding for taxes.
The tax considerations described in this section do not apply to tax-deferred
accounts or other non-taxable entities.
Because each investor's tax circumstances are unique, please consult your tax
professional about your fund investment.
8 YOUR INVESTMENT
<PAGE>
FUND DETAILS
MASTER/FEEDER STRUCTURE
As noted earlier, the fund is a "feeder" fund that invests in a master
portfolio. (Except where indicated, this prospectus uses the term "the fund" to
mean the feeder fund and its master portfolio taken together.)
The master portfolio accepts investments from other feeder funds, and all the
feeders of a given master portfolio bear the portfolio's expenses in proportion
to their assets. However, each feeder can set its own transaction minimums,
fund-specific expenses, and other conditions. This means that one feeder could
offer access to the same master portfolio on more attractive terms, or could
experience better performance, than another feeder. Information about other
feeders is available by calling 1-800-766-7722. Generally, when a master
portfolio seeks a vote, its feeder fund will hold a shareholder meeting and cast
its vote proportionately, as instructed by its shareholders. Fund shareholders
are entitled to one vote per fund share.
The fund and its master portfolio expect to maintain consistent goals, but if
they do not, the fund will withdraw from the master portfolio, receiving its
assets either in cash or securities. The fund's trustees would then consider
whether the fund should hire its own investment adviser, invest in a different
master portfolio, or take other action.
MANAGEMENT AND ADMINISTRATION
The fund and its master portfolio 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, as co-administrator, provides fund officers. J.P. Morgan, as co-
administrator, oversees the fund's other service providers.
J.P. Morgan receives the following fees for investment advisory and other
services:
Advisory services 0.20% of the first $1 billion of
the master portfolio's average
net assets plus 0.10% over
$1 billion
Administrative services Master portfolio's and fund's pro-
(fee shared with Funds rata portions of 0.09% of the
Distributor, Inc.) first $7 billion in J.P. Morgan-
advised portfolios, plus 0.04%
over $7 billion
Shareholder services 0.15% of the first $2 billion of
the fund's average net assets
plus 0.10% over $2 billion
The Advisor has voluntarily agreed to reimburse the fund so that total operating
expenses will not exceed the following respective percentages of average net
assets of the fund for the periods indicated below:
12/1/97 - 2/28/98 0.10%
3/1/98 - 5/31/98 0.15%
6/1/98 - 11/30/98 0.20%
There is no guarantee that this arrangement will continue beyond 11/30/98.
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 9
<PAGE>
FOR MORE INFORMATION
For investors who want more information on this fund, the following documents
are available free upon request:
Annual/Semi-annual Reports Contain 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 may be obtained by contacting:
J.P. Morgan Institutional Funds
J.P. Morgan Funds Services
522 Fifth Avenue
New York, NY 10036
Telephone: 1-800-766-7722
Hearing impaired: 1-888-468-4015
Email: [email protected]
Text-only versions of these documents and this prospectus are available from
the Public Reference Room of the Securities and Exchange Commission in
Washington, D.C. (1-800-SEC-0330) and may be viewed on-screen or downloaded from
the SEC's Internet site at http://www.sec.gov. The fund's investment company and
1933 Act registration numbers are 811-07342 and 033-54642.
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.
[LOGO]JP Morgan
J.P. Morgan Institutional Funds
Advisor Distributor
Morgan Guaranty Trust Company of New York Funds Distributor, Inc.
522 Fifth Avenue 60 State Street
New York, NY 10036 Boston, MA 02109
1-800-766-7722 1-800-221-7930
******************************************************************************
<PAGE>
February 2, 1998 PROSPECTUS
J.P. MORGAN INSTITUTIONAL
PRIME MONEY MARKET FUND
=====================================
Seeking to preserve capital and to
provide income and same-day liquidity
This prospectus contains essential information for anyone investing in this
fund. Please read it carefully and keep it for reference.
Shares in this fund are not bank deposits and are not guaranteed or insured by
any bank, government entity, or the FDIC. The fund seeks to maintain a stable $1
share price, without guaranteeing that it will always be able to do so.
As with all mutual funds, the fact that these shares are registered with the
Securities and Exchange Commission does not mean that the commission approves
them as an investment or guarantees that the information in this prospectus is
correct or adequate. It is a criminal offense to state or suggest otherwise.
Distributed by Funds Distributor, Inc.
[LOGO]JP MORGAN
<PAGE>
CONTENTS
- --------------------------------------------------------------------------------
2 MONEY MARKET MANAGEMENT APPROACH
Money market investment process............................2
4 J.P. MORGAN INSTITUTIONAL PRIME MONEY MARKET FUND
The fund's goal, investment approach, risks,
expenses, performance, and financial highlights
Fund description...........................................4
Investor expenses..........................................4
Performance................................................5
Financial highlights.......................................5
6 YOUR INVESTMENT
Investing in the J.P. Morgan Institutional
Prime Money Market Fund
Investing through a financial professional.................6
Investing through an employer-sponsored retirement plan....6
Investing through an IRA or rollover IRA...................6
Investing directly.........................................6
Opening your account.......................................6
Adding to your account.....................................6
Selling shares.............................................7
Account and transaction policies...........................7
Dividends and distributions................................8
Tax considerations.........................................8
9 FUND DETAILS
More about risk and the fund's business operations
Master/feeder structure....................................9
Management and administration..............................9
FOR MORE INFORMATION..............................back cover
<PAGE>
INTRODUCTION
- --------------------------------------------------------------------------------
J.P. MORGAN INSTITUTIONAL PRIME MONEY MARKET FUND
This fund invests in high-quality short-term debt securities by investing in a
master portfolio (another fund with the same goal). The fund accrues dividends
daily, pays them to shareholders monthly, and seeks to maintain a stable $1
share price.
WHO MAY WANT TO INVEST
The fund is designed for investors who:
. want an investment that strives to preserve capital
. want regular income from a high quality portfolio
. want a highly liquid investment
. are looking for an interim investment
. are pursuing a short-term goal
The fund is not designed for investors who:
. are investing for long-term growth
. are investing for high income
. require the added security of the FDIC insurance
J.P. MORGAN
Known for its commitment to proprietary research and its disciplined investment
strategies, J.P. Morgan is the asset manager of choice for many of the world's
most respected corporations, financial institutions, governments, and
individuals. Today, J.P. Morgan employs over 300 analysts and portfolio managers
around the world and has more than $240 billion in assets under management,
including assets managed by the funds' advisor, Morgan Guaranty Trust Company
of New York.
- --------------------------------------------------------------------------------
Before you invest
Investors considering the fund should understand that:
. There is no assurance that the fund will meet its investment goals
. Future returns will not necessarily resemble past performance
|1
<PAGE>
MONEY MARKET MANAGEMENT APPROACH
The J.P. Morgan Institutional Prime Money Market Fund invests exclusively in
high-quality short-term debt obligations.
The investment philosophy, developed by the fund's advisor, emphasizes
investment quality through in-depth research on short-term securities and their
issuers. This allows the fund to focus on providing high current income without
compromising share price stability.
MONEY MARKET INVESTMENT PROCESS
In researching short-term securities, J.P. Morgan's credit analysts enhance the
data furnished by rating agencies by drawing on the insights of J.P. Morgan's
fixed income trading specialists and equity analysts. Only highly rated
securities where J.P. Morgan concurs with the rating are considered for
investment.
In managing the fund, J.P. Morgan employs a three-step process:
[GRAPHIC]
J.P. Morgan uses a disciplined process to control the fund's sensitivity
to interest rates
Maturity determination Based on analysis of a range of factors, including
current yields, economic forecasts, and anticipated fiscal and monetary
policies, J.P. Morgan establishes the desired weighted average maturity for the
fund within the permissible 90-day range. Controlling weighted average maturity
allows the fund to manage risk, since securities with shorter maturities are
typically less sensitive to interest rate shifts than those with longer
maturities.
[GRAPHIC]
The fund invests across different sectors, for diversification and to take
advantage of yield spreads
Sector allocation After comparing the yields available in different sectors of
the short-term debt market, J.P. Morgan adjusts the fund's sector allocation,
with the goal of enhancing current income while maintaining diversification
across sectors.
[GRAPHIC]
The fund selects its securities as described later in this prospectus
Security selection Based on the results of the firm's credit research and the
fund's maturity determination and sector allocation, the portfolio managers and
dedicated fixed-income traders make buy and sell decisions according to the
fund's goal and strategy.
2| MONEY MARKET MANAGEMENT APPROACH
<PAGE>
(THIS PAGE IS INTENTIONALLY LEFT BLANK)
|3
<PAGE>
J.P. MORGAN INSTITUTIONAL PRIME
MONEY MARKET FUND TICKER SYMBOL: JPIXX
- --------------------------------------------------------------------------------
REGISTRANT: THE J.P. MORGAN INSTITUTIONAL FUNDS
(THE J.P. MORGAN INSTITUTIONAL PRIME MONEY MARKET
FUND)
[GRAPHIC APPEARS HERE]
GOAL
The fund seeks to maximize current income and maintain a high level of
liquidity.
[GRAPHIC APPEARS HERE]
INVESTMENT APPROACH
The fund looks for investments across a broad spectrum of U.S. dollar-
denominated money market securities, typically emphasizing different types of
securities at different times in order to take advantage of changing yield
differentials. The fund's investments may include obligations issued by the U.S.
Treasury, government agencies, domestic and foreign banks and corporations,
foreign governments, repurchase agreements, as well as asset-backed securities,
taxable municipal obligations, and other money market instruments. Some of these
investments may be purchased on a when-issued or delayed delivery basis.
[GRAPHIC APPEARS HERE]
POTENTIAL RISKS AND REWARDS
The fund's yield will vary in response to changes in interest rates. How well
the fund's yield compares to the yields of similar money market funds will
depend on the success of the investment process, which is described on page 2.
As with all money market funds, the fund's investments are subject to various
risks, which, while generally considered to be minimal, could cause its share
price to fall below $1. For example, the issuer or guarantor of a portfolio
security or the counterparty to a contract could default on its obligation. An
unexpected rise in interest rates could also lead to a loss in share price if
the fund is near the maximum allowable average weighted maturity at the time.
However, the fund's investment process and management policies are designed to
minimize the likelihood and impact of these risks. To date, through this
process, the fund's share price has never deviated from $1.00.
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages over $240
billion, including more than $X.X billion using the same strategy as the fund.
The portfolio management team is led by Robert R. Johnson, vice president, who
has been on the team since the fund's inception and has been at
J.P. Morgan since 1988, and by Daniel B. Mulvey, vice president, who joined the
team in January of 1995 and has been at J.P. Morgan since 1991.
MONEY MARKET FUNDS
AND STABILITY
Money market funds are subject to a range of federal regulations designed
to promote stability. For example, money market funds must maintain a weighted
average maturity of no more than 90 days, and generally may not invest in any
securities with a remaining maturity of more than 13 months. Keeping the
weighted average maturity this short helps funds in their pursuit of a stable $1
share price.
Additionally, money market funds take steps to protect investors against credit
risk. The J.P. Morgan Institutional Prime Money Market Fund maintains stricter
standards than federal law requires when it comes to securities selection.
INVESTOR EXPENSES
The current expenses you should expect to pay as an investor in the fund are
shown at right. The fund has no sales, redemption, exchange, or account fees,
although some institutions may charge you a fee for shares you buy through them.
The annual fund expenses shown are deducted from fund assets prior to
performance calculations.
Footnotes for this section are shown on next page.
Annual fund operating expenses/1/ (%)
- --------------------------------------
Management fees (actual) 0.12
Marketing (12b-1) fees none
Other expenses/2/
(after reimbursement) 0.08
- --------------------------------------
Total operating expenses/2/
(after reimbursement) 0.20
- --------------------------------------
- ------------------------------------------
Expense example
- ------------------------------------------
The example below uses the same assumptions as other fund prospectuses: $1,000
initial investment, 5% annual total return, expenses unchanged, all shares sold
at the end of each time period. The example is for comparison only; the fund's
actual return and expenses will be different.
- ------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($) $2 6 11 26
- ------------------------------------------
4| J.P MORGAN INSTITUTIONAL PRIME MONEY MARKET FUND
<PAGE>
- -------------------------------------------------------------------------------
PERFORMANCE
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN Shows performance over time, for periods ended December 31, 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 yr. 5 yrs. 10 yrs.
J.P. Morgan Prime Money Market Fund (after expenses) x.xx x.xx x.xx
- -------------------------------------------------------------------------------------------------------------------
IBC/Donoghue Money Market Fund Benchmark/4/ (after expenses) x.xx x.xx x.xx
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
YEAR-BY-YEAR TOTAL RETURN Shows changes in returns by calendar year
- -----------------------------------------------------------------------
[BAR GRAPH APPEARS HERE]
[.] J.P. Morgan Prime Money Market Fund
[.] IBC/Donoghue Money Fund Benchmark/4/
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
PER-SHARE DATA For fiscal periods ended November 30
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1993/3/ 1994 1995 1996 1997
Net asset value, beginning of period ($) 1.00 1.00 1.00 1.00 x.xx
- ------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.01 0.04 0.06 0.05 x.xx
Net realized and unrealized gain (loss)
on investment ($) 0.00/7/ 0.00/7/ 0.00 0.00 x.xx
- ------------------------------------------------------------------------------------------------------
Total from Investment operations ($) 0.01 0.04 0.06 0.05 x.xx
- ------------------------------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) (0.01) (0.04) (0.06) (0.05) x.xx
Net realized gain ($) 0.00/7/ -- -- (0.00) x.xx
- ------------------------------------------------------------------------------------------------------
Total distributions ($) (0.01) (0.04) (0.06) (0.05) x.xx
- ------------------------------------------------------------------------------------------------------
Net asset value, end of period ($) 1.00 1.00 1.00 1.00 x.xx
- ------------------------------------------------------------------------------------------------------
Total return (%) 1.21/5/ 3.93 5.93 5.46 x.xx
- ------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 27 584 999 1,220 xxxx
- ------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Expenses (%) 0.30/6/ 0.21 0.20 0.20 x.xx
- ------------------------------------------------------------------------------------------------------
Net investment income (%) 2.88/6/ 4.42 5.77 5.28 x.xx
- ------------------------------------------------------------------------------------------------------
Decrease reflected in expense ratio due
to expense reimbursement (%) 1.10/6/ 0.31 0.15 0.11 x.xx
- ------------------------------------------------------------------------------------------------------
The Financial Highlights above have been audited by Price Waterhouse LLP, the
fund's independent accountants.
</TABLE>
/1/ The fund has a master/feeder structure as described on page 9. This table
shows the fund's expenses and its share of master portfolio expenses for
the past fiscal year, expressed as a percentage of the fund's average net
assets after reimbursement for ordinary expenses over 0.20%.
/2/ Without reimbursement, other expenses and total operating expenses would
have been 0.19% and 0.31%, respectively. There is no guarantee that
reimbursement will continue beyond 3/31/98.
/3/ The fund commenced operations on 7/12/93. Except in the Financial
Highlights, returns reflect performance of the Pierpont Money Market Fund,
the fund's predecessor, prior to that date. The Pierpont Money Market Fund
commenced operations on 10/1/82.
/4/ Consists of the IBC/Donoghue Taxable Money Market Fund Average from
inception through November 30, 1995 and the IBC/Donoghue First Tier Money
Fund Average thereafter.
/5/ Not annualized.
/6/ Annualized.
/7/ Less than $0.0001.
J.P. MORGAN INSTITUTIONAL PRIME MONEY MARKET FUND |5
<PAGE>
YOUR INVESTMENT
- --------------------------------------------------------------------------------
For your convenience, the J.P. Morgan Institutional Funds offer several ways to
start and maintain fund investments.
INVESTING THROUGH A FINANCIAL PROFESSIONAL
If you work with a financial professional, either at J.P. Morgan or elsewhere,
he or she is prepared to handle your planning and transaction needs. Your
financial professional will be able to assist you in establishing your fund
account, executing transactions, and monitoring your investment. If your fund
investment is not held in the name of your financial professional and you prefer
to place a transaction order yourself, please use the instructions for investing
directly.
INVESTING THROUGH AN EMPLOYER-SPONSORED RETIREMENT PLAN
Your fund investments are handled through your plan. Refer to your plan
materials or contact your benefits office for information on buying, selling, or
exchanging fund shares.
INVESTING THROUGH AN IRA OR ROLLOVER IRA
Please contact a J.P. Morgan Retirement Services Specialist at 1-888-576-4472
for information on J.P. Morgan's comprehensive IRA services, including lower
minimum investments.
INVESTING DIRECTLY
Investors may establish accounts without the help of an intermediary by using
the instructions below and at right:
. Determine the amount you are investing. The minimum amount for initial
investments in the fund is $10,000,000 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.
. Complete the application, indicating how much of your investment you want to
allocate to which fund(s). Please apply now for any account privileges you
may want to use in the future, in order to avoid the delays associated with
adding them later on.
. Mail in your application, making your initial investment as shown below.
For answers to any questions, please speak with a J.P. Morgan Funds Services
Representative at 1-800-766-7722.
OPENING YOUR ACCOUNT
By wire
. Mail your completed application to the Shareholder Services Agent.
. Call the Shareholder Services Agent to obtain an account number and to place
a purchase order. Funds that are wired without a purchase order will be
returned uninvested.
. After placing your purchase order, instruct your bank to wire the amount of
your investment to:
Morgan Guaranty Trust Company
Routing number: 021-000-238
Credit: J.P. Morgan Institutional Funds
Account number: 001-57-689
FFC: your account number, name of registered owner(s) and fund name
By check
. Make out a check for the investment amount payable to J.P. Morgan
Institutional Funds.
. Mail the check with your completed application to the Shareholder Services
Agent.
By exchange
. Call the Shareholder Services Agent for an exchange.
ADDING TO YOUR ACCOUNT
By wire
. Call the Shareholder Services Agent to place a purchase order. Funds that are
wired without a purchase order will be returned uninvested.
. Once you have placed your purchase order, instruct your bank to wire the
amount of your investment as described above.
By check
. Make out a check for the investment amount payable to J.P. Morgan
Institutional Funds.
. Mail the check with a completed investment slip to the Shareholder Services
Agent. If you do not have an investment slip, attach a note indicating your
account number and how much you wish to invest in which fund(s).
By exchange
. Call the Shareholder Services Agent for an exchange.
6| YOUR INVESTMENT
<PAGE>
SELLING SHARES
By wire
. Call the Shareholder Services Agent to verify that the wire redemption
privilege is in place on your account. If it is not, a representative can
help you add it.
. Place your wire request. If you are transferring money to a non-Morgan
account, you will need to provide the representative with the personal
identification number (PIN) that was provided to you when you opened your
fund account.
By phone
. Call the Shareholder Services Agent and place your request. Once your request
has been verified, a check for the net amount, payable to the registered
owner(s), will be mailed to the address of record. For checks payable to any
other party or mailed to any other address, please make your request in
writing (see below).
In writing
. Write a letter of instruction that includes the following information: The
name of the registered owner(s) of the account; the account number; the fund
name; the amount you want to sell; and the recipient's name and address or
wire information, if different from those of the account registration.
. Indicate whether you want the proceeds sent by check or by wire.
. Make sure the letter is signed by an authorized party.
The Shareholder Services Agent may require additional information, such as a
signature guarantee.
. Mail the letter to the Shareholder Services Agent.
By exchange
. Call the Shareholder Services Agent for an exchange.
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 are the
same as those of the New York Stock Exchange. The fund calculates its net asset
value per share (NAV) every business day at 5:00 p.m. eastern time.
Timing of orders Orders to buy or sell shares are executed at the next NAV
calculated after the order has been received. Purchase and redemption orders for
the fund must be received by 5:00 p.m. eastern time.
For the purchase to be effective and dividends to be earned on the same day,
purchase orders and immediately available funds must be received by 5:00 p.m.
eastern time on a fund business day. The fund has the right to suspend
redemption of shares and to postpone payment of proceeds for up to seven days or
as permitted by law.
- --------------------------------------------------------------------------------
Shareholder Services Agent
J.P. Morgan Funds Services
522 Fifth Avenue
New York, NY 10036
1-800-766-7722
Representatives are available 8:00 a.m. to 5:00 p.m.
eastern time on fund business days.
YOUR INVESTMENT |7
<PAGE>
Timing of settlements When you buy shares, you will become the owner of record
when the fund receives your payment. Redemption orders for the fund received by
5:00 p.m. eastern time will be paid in immediately available funds according to
instructions on file.
When you sell shares that you recently purchased by check, your order will be
executed at the next NAV but the proceeds will not be available until your check
clears. This may take up to 15 days.
Statements and reports The fund sends monthly account statements as well as
confirmations after each purchase or sale of shares (except reinvestments).
Every six months the fund sends out an annual or semi-annual report, containing
information on its holdings and a discussion of recent and anticipated market
conditions and fund performance.
Accounts with below-minimum balances If your account balance falls below the
minimum for 30 days as a result of selling shares (and not because of
performance), the fund may 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
Income dividends are declared daily and paid 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 their
purchase is effective, but not on the business day their redemption is
effective.
Dividends and distributions are automatically paid 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
- ------------------------------------------------
Every January, the fund issues tax information on its distributions for the
previous year.
Any investor for whom the fund does not have a valid
taxpayer identification number will be subject to backup withholding for taxes.
The tax considerations described in this section do not apply to tax-deferred
accounts or other non-taxable entities.
Because each investor's tax circumstances are unique, please consult your tax
professional about your fund investment.
8| YOUR INVESTMENT
<PAGE>
FUND DETAILS
- --------------------------------------------------------------------------------
MASTER/FEEDER STRUCTURE
As noted earlier, the fund is a "feeder" fund that invests in a master
portfolio. (Except where indicated, this prospectus uses the term "the fund" to
mean the feeder fund and its master portfolio taken together.)
The master portfolio accepts investments from other feeder funds, and all the
feeders of a given master portfolio bear the portfolio's expenses in proportion
to their assets. However, each feeder can set its own transaction minimums,
fund-specific expenses, and other conditions. This means that one feeder could
offer access to the same master portfolio on more attractive terms, or could
experience better performance, than another feeder. Information about other
feeders is available by calling 1-800-766-7722. Generally, when a master
portfolio seeks a vote, its feeder fund will hold a shareholder meeting and cast
its vote proportionately, as instructed by its shareholders. Fund shareholders
are entitled to one vote per fund share.
The fund and its master portfolio expect to maintain consistent goals, but if
they do not, the fund will withdraw from the master portfolio, receiving its
assets either in cash or securities. The fund's trustees would then consider
whether the fund should hire its own investment adviser, invest in a different
master portfolio, or take other action.
MANAGEMENT AND ADMINISTRATION
The fund and its master portfolio 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, as co-administrator, provides fund officers. J.P. Morgan, as co-
administrator, oversees the fund's other service providers.
J.P. Morgan receives the following fees for investment advisory and other
services:
- --------------------------------------------------------------------------------
Advisory services 0.20% of the first $1 billion of
the master portfolio's average
net assets plus 0.10% over
$1 billion
- --------------------------------------------------------------------------------
Administrative services Master portfolio's and fund's pro-
(fee shared with Funds rata portions of 0.09% of the first
Distributor, Inc.) $7 billion in J.P. Morgan-
advised portfolios, plus 0.04% over $7 billion
- --------------------------------------------------------------------------------
Shareholder services 0.15% of the first $2 billion of
the fund's average net assets
plus 0.10% over $2 billion
- --------------------------------------------------------------------------------
The Advisor has voluntarily agreed to reimburse the fund so that total operating
expenses will not exceed 0.20% of average net assets of the fund. There is no
guarantee that this arrangement will continue beyond 3/31/98.
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 |9
<PAGE>
FOR MORE INFORMATION
- --------------------------------------------------------------------------------
For investors who want more information on this fund, the following documents
are available free upon request:
Annual/Semi-annual Reports Contain 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 may be obtained by contacting:
J.P. Morgan Institutional Funds
J.P. Morgan Funds Services
522 Fifth Avenue
New York, NY 10036
Telephone: 1-800-766-7722
Hearing impaired: 1-888-468-4015
Email: [email protected]
Text-only versions of these documents and this prospectus are available from the
Public Reference Room of the Securities and Exchange Commission in Washington,
D.C. (1-800-SEC-0330) and may be viewed on-screen or downloaded from the SEC's
Internet site at http://www.sec.gov. The fund's investment company and 1933 Act
registration numbers are 811-07342 and 033-54642
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.
[LOGO]JP MORGAN
- --------------------------------------------------------------------------------
J.P. Morgan Institutional Funds
Advisor Distributor
Morgan Guaranty Trust Company of New York Funds Distributor, Inc.
522 Fifth Avenue 60 State Street
New York, NY 10036 Boston, MA 02109
1-800-766-7722 1-800-221-7930
*******************************************************************************
<PAGE>
- -------------------------------------------------------------------------------
February 2, 1998 / PROSPECTUS
- -------------------------------------------------------------------------------
J.P. MORGAN INSTITUTIONAL
TAX EXEMPT MONEY MARKET FUND
------------------------------------------------
Seeking to preserve capital and to provide
income and same-day liquidity
------------------------------------------------
This prospectus contains essential information for anyone investing in this
fund. Please read it carefully and keep it for reference.
Shares in this fund are not bank deposits and are not guaranteed or insured by
any bank, government entity, or the FDIC. The fund seeks to maintain a stable
$1 share price, without guaranteeing that it will always be able to do so.
As with all mutual funds, the fact that these shares are registered with the
Securities and Exchange Commission does not mean that the commission approves
them as an investment or guarantees that the information in this prospectus is
correct or adequate. It is a criminal offense to state or suggest otherwise.
Distributed by Funds Distributor, Inc.
[LOGO]JP MORGAN
<PAGE>
CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
2 MONEY MARKET MANAGEMENT APPROACH
Money market investment process................................................2
4 J.P. MORGAN INSTITUTIONAL TAX EXEMPT MONEY MARKET FUND
The fund's goal, investment approach, Fund description...............................................................4
risks, expenses, performance, and Investor expenses..............................................................4
financial highlights Performance....................................................................5
Financial highlights...........................................................5
6 YOUR INVESTMENT
Investing in the J.P. Morgan Institutional Investing through a financial professional.....................................6
Tax Exempt Money Market Fund Investing through an employer-sponsored retirement plan........................6
Investing through an IRA or rollover IRA.......................................6
Investing directly.............................................................6
Opening your account...........................................................6
Adding to your account.........................................................6
Selling shares.................................................................7
Account and transaction policies...............................................7
Dividends and distributions....................................................8
Tax considerations.............................................................8
9 FUND DETAILS
More about risk and the fund's Master/feeder structure........................................................9
business operations Management and administration..................................................9
FOR MORE INFORMATION...................................................back cover
</TABLE>
<PAGE>
INTRODUCTION
- --------------------------------------------------------------------------------
J.P. MORGAN INSTITUTIONAL TAX EXEMPT MONEY MARKET FUND
This fund invests in high-quality short-term debt securities by investing in a
master portfolio (another fund with the same goal). The fund accrues dividends
daily, pays them to shareholders monthly, and seeks to maintain a stable $1
share price.
WHO MAY WANT TO INVEST
The fund is designed for investors who:
. want an investment that strives to preserve capital
. want regular income from a high quality portfolio
. want a highly liquid investment
. are looking for an interim investment
. are pursuing a short-term goal
. are seeking income that is exempt from federal income tax
The fund is not designed for investors who:
. are investing for long-term growth
. are investing for high income
. require the added security of the FDIC insurance
. are investing through an IRA or other tax-advantaged retirement plans
J.P. MORGAN
Known for its commitment to proprietary research and its disciplined investment
strategies, J.P. Morgan is the asset manager of choice for many of the world's
most respected corporations, financial institutions, governments, and
individuals. Today, J.P. Morgan employs over 300 analysts and portfolio managers
around the world and has more than $240 billion in assets under management,
including assets managed by the funds' advisor, Morgan Guaranty Trust Company of
New York.
- -------------------------------------------------------------------------------
BEFORE YOU INVEST
Investors considering the fund should understand that:
. There is no assurance that the fund will meet its investment goals
. Future returns will not necessarily resemble past performance
/ 1
<PAGE>
MONEY MARKET MANAGEMENT APPROACH
- --------------------------------------------------------------------------------
The J.P. Morgan Institutional Tax Exempt Money Market Fund invests exclusively
in high-quality short-term debt obligations.
The investment philosophy, developed by the fund's advisor, emphasizes
investment quality through in-depth research on short-term securities and their
issuers. This allows the fund to focus on providing high current income without
compromising share price stability.
MONEY MARKET INVESTMENT PROCESS
In researching short-term securities, J.P. Morgan's credit analysts enhance the
data furnished by rating agencies by drawing on the insights of J.P. Morgan's
fixed income trading specialists and equity analysts. Only highly rated
securities where J.P. Morgan concurs with the rating are considered for
investment.
In managing the fund, J.P. Morgan employs a three-step process:
[GRAPHIC]
J.P. Morgan uses a disciplined process
to control the fund's sensitivity
to interest rates
Maturity determination Based on analysis of a range of factors, including
current yields, economic forecasts, and anticipated fiscal and monetary
policies, J.P. Morgan establishes the desired weighted average maturity for the
fund within the permissible 90-day range. Controlling weighted average maturity
allows the fund to manage risk, since securities with shorter maturities are
typically less sensitive to interest rate shifts than those with longer
maturities.
[GRAPHIC]
The fund invests across different
sectors, for diversification and to
take advantage of yield spreads
Sector allocation After comparing the yields available in different sectors of
the short-term debt market, J.P. Morgan adjusts the fund's sector allocation,
with the goal of enhancing current income while also maintaining diversification
across permissible sectors.
[GRAPHIC]
The fund selects its securities as
described later in this prospectus
Security selection Based on the results of the firm's credit research and
the fund's maturity determination and sector allocation, the portfolio managers
and dedicated fixed-income traders make buy and sell decisions according to the
fund's goal and strategy.
2 / MONEY MARKET MANAGEMENT APPROACH
<PAGE>
(THIS PAGE IS INTENTIONALLY LEFT BLANK)
/ 3
<PAGE>
J.P. Morgan Institutional Tax
Exempt Money Market Fund /TICKER SYMBOL: JPEXX
- --------------------------------------------------------------------------------
REGISTRANT: THE J.P. MORGAN INSTITUTIONAL FUNDS
(THE J.P. MORGAN INSTITUTIONAL TAX EXEMPT MONEY
MARKET FUND)
[GRAPHIC] GOAL
The fund seeks to provide high current income that is exempt from federal income
tax and to maintain high liquidity.
[GRAPHIC] INVESTMENT APPROACH
The fund invests primarily in high quality municipal obligations whose income is
exempt from federal income taxes. The fund's municipal obligations must fall
into the highest short-term rating category (top two highest categories for New
York State obligations) or be of equivalent quality. The fund may also invest in
certain structured municipal obligations, and in certain securities whose income
is subject to the alternative minimum tax (AMT). In order to maintain liquidity
while being fully invested, the fund may buy securities with puts that allow the
fund to liquidate the securities on short notice. Some of the fund's securities
may be purchased on a when-issued or delayed delivery basis.
[GRAPHIC] POTENTIAL RISKS AND REWARDS
The fund's yield will vary in response to changes in interest rates. How well
the fund's yield compares to the yields of similar money market funds will
depend on the success of the investment process, which is described on page 2.
Most of the fund's income is exempt from federal income taxes. A small portion
may be exempt from state or local income taxes.
As with all money market funds, the fund's investments are subject to various
risks, which, while generally considered to be minimal, could cause its share
price to fall below $1. For example, the issuer or guarantor of a portfolio
security or the counterparty to a contract could default on its obligation. An
unexpected rise in interest rates could also lead to a loss in share price if
the fund is near the maximum allowable average weighted maturity at the time.
However, the fund's investment process and management policies are designed to
minimize the likelihood and impact of these risks. To date, through this
process, the fund's share price has never deviated from $1.00.
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages over $240
billion, including more than $X.X billion using the same strategy as the fund.
The portfolio management team is led by Daniel B. Mulvey, vice president, who
has been on the team since August of 1995 and has been at J.P. Morgan since
1991, and by Richard W. Oswald, vice president, who has been on the team since
joining J.P. Morgan in October of 1996. Prior to managing this fund, Mr. Oswald
served as Treasurer of CBS and President of its finance unit.
MONEY MARKET FUNDS
AND STABILITY
Money market funds are subject to a range of federal regulations designed
to promote stability. For example, money market funds must maintain a weighted
average maturity of no more than 90 days, and generally may not invest in any
securities with a remaining maturity of more than 13 months. Keeping the
weighted average maturity this short helps funds in their pursuit of a stable $1
share price.
Additionally, money market funds take steps to protect investors against credit
risk. The J.P. Morgan Institutional Tax Exempt Money Market Fund maintains
stricter standards than federal law requires when it comes to securities
selection.
INVESTOR EXPENSES
The current expenses you should expect to pay as an investor in the fund are
shown at right. The fund has no sales, redemption, exchange, or account fees,
although some institutions may charge you a fee for shares you buy through them.
The annual fund expenses shown are deducted from fund assets prior to
performance calculations.
Footnotes for this section are shown on next page.
ANNUAL FUND OPERATING EXPENSES/1/ (%)
- ----------------------------------------------
Management fees (actual) 0.18
Marketing (12b-1) fees none
Other expenses /2/
(after waiver and reimbursement) 0.06
- ----------------------------------------------
Total Operating Expenses/2/
(after reimbursement) 0.24
- ----------------------------------------------
EXPENSE EXAMPLE
The example below uses the same assumptions as other fund prospectuses: $1,000
initial investment, 5% annual total return, expenses unchanged, all shares sold
at the end of each time period. The example is for comparison only; the fund's
actual return and expenses will be different.
- ------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($) 2 8 14 31
- -----------------------------------------------------------
4 / J.P. MORGAN INSTITUTIONAL TAX EXEMPT MONEY MARKET FUND
<PAGE>
PERFORMANCE
Average annual total return Shows performance over time for periods
ended December 31, 1997
- -------------------------------------------------------------------------------
1 yr. 3 yrs. Since inception/3/
J.P. Morgan Institutional
Tax Exempt Money Market
Fund/4/ (after expenses) xx.xx xx.xx xx.xx
- --------------------------------------------------------------------------------
IBC Tax Exempt Money
Market Fund Average (after
expenses) xx.xx xx.xx xx.xx
- --------------------------------------------------------------------------------
Year-by-year total return Shows changes in returns by calendar year
- --------------------------------------------------------------------------------
[GRAPHIC] PLOT POINTS TO COME
================================================================================
FINANCIAL HIGHLIGHTS
Per-share data For fiscal periods ended August 31
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1993/3/ 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ($) 1.00 1.00 1.00 1.00 1.00
- --------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.04 0.02 0.03 0.03 0.03
Net realized loss on investment (0.00)/7/ (0.00)/7/ (0.00) (0.00)/7/ (0.00)/7/
- --------------------------------------------------------------------------------------------------------------------
Total from investment operations ($) 0.00 0.02 0.03 0.03 0.03
- --------------------------------------------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) (0.00) (0.02) (0.03) (0.03) (0.03)
Net realized gain ($) -- (0.00)/7/ -- -- --
- --------------------------------------------------------------------------------------------------------------------
Total distributions ($) (0.00) (0.02) (0.03) (0.03) (0.03)
- --------------------------------------------------------------------------------------------------------------------
Net asset value, end of period ($) 1.00 1.00 1.00 1.00 1.00
- --------------------------------------------------------------------------------------------------------------------
Total return (%) 0.40/5/ 2.30 3.57 3.36 3.35
- --------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 35,004 46,083 100,142 163,569 290,943
- --------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Expenses (%) 0.35/6/ 0.35 0.35 0.35 0.29
- --------------------------------------------------------------------------------------------------------------------
Net investment income (%) 2.256 2.34 3.49 3.28 3.29
- --------------------------------------------------------------------------------------------------------------------
Decrease reflected in expense ratio due
to expense reimbursement/waiver (%) 1.086 0.65 0.15 0.07 0.10
- --------------------------------------------------------------------------------------------------------------------
The Financial Highlights above have been audited by Price Waterhouse LLP, the fund's independent accountants.
</TABLE>
/1/ The fund has a master/feeder structure as described on page 9. This table
shows the fund's expenses and its share of master portfolio expenses for
the past fiscal year. The expense table has been restated to reflect
current expenses/waivers/reimbursements. The fees and expenses in the table
are expressed as a percentage of the Fund's average net assets, and assume
that the current arrangements were in effect throughout the fiscal year
ended 8/31/97. Total operating expenses may vary but in any event will not
exceed 0.35% of the fund's average daily net assets through 12/31/98.
/2/ Morgan has agreed to waive and/or reimburse all fund expenses (except for
those allocated to the fund by the master portfolio and extraordinary
expenses) through 12/31/98. Without such waiver and reimbursement, other
expenses and total operating expenses would have been 0.21% and 0.39%,
respectively. There is no guarantee that this arrangement will continue
beyond 12/31/98.
/3/ The fund commenced operations on 7/12/93. Except in the Financial
Highlights, returns reflect performance of the fund from 7/31/93 through
12/31/93.
/4/ The IBC Tax Exempt Money Market Fund Average is an average of all major tax
free money market fund returns.
/5/ Not annualized.
/6/ Annualized.
/7/ Less than $0.0001.
J.P. MORGAN INSTITUTIONAL TAX EXEMPT MONEY MARKET FUND / 5
<PAGE>
YOUR INVESTMENT
- -------------------------------------------------------------------------------
For your convenience, the J.P. Morgan Institutional Funds offer several ways to
start and maintain fund investments.
INVESTING THROUGH A FINANCIAL PROFESSIONAL
If you work with a financial professional, either at J.P. Morgan or elsewhere,
he or she is prepared to handle your planning and transaction needs. Your
financial professional will be able to assist you in establishing your fund
account, executing transactions, and monitoring your investment. If your fund
investment is not held in the name of your financial professional and you prefer
to place a transaction order yourself, please use the instructions for investing
directly.
INVESTING THROUGH AN EMPLOYER-SPONSORED RETIREMENT PLAN
Your fund investments are handled through your plan. Refer to your plan
materials or contact your benefits office for information on buying, selling, or
exchanging fund shares.
INVESTING THROUGH AN IRA OR ROLLOVER IRA
Please contact a J.P. Morgan Retirement Services Specialist at 1-888-576-4472
for information on J.P. Morgan's comprehensive IRA services, including lower
minimum investments.
INVESTING DIRECTLY
Investors may establish accounts without the help of an intermediary by using
the instructions below and at right:
. Determine the amount you are investing. The minimum amount for initial
investments in the fund is $10,000,000 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.
. Complete the application, indicating how much of your investment you want to
allocate to which fund(s). Please apply now for any account privileges you may
want to use in the future, in order to avoid the delays associated with adding
them later on.
. Mail in your application, making your initial investment as shown below.
For answers to any questions, please speak with a J.P. Morgan Funds Services
Representative at 1-800-766-7722.
OPENING YOUR ACCOUNT
By wire
. Mail your completed application to the Shareholder Services Agent.
. Call the Shareholder Services Agent to obtain an account number and to place a
purchase order. Funds that are wired without a purchase order will be returned
uninvested.
. After placing your purchase order, instruct your bank to wire the amount of
your investment to:
Morgan Guaranty Trust Company
Routing number: 021-000-238
Credit: J.P. Morgan Institutional Funds
Account number: 001-57-689
FFC: your account number, name of registered owner(s) and fund name
By check
. Make out a check for the investment amount payable to J.P. Morgan
Institutional Funds.
. Mail the check with your completed application to the Shareholder Services
Agent.
By exchange
. Call the Shareholder Services Agent for an exchange.
ADDING TO YOUR ACCOUNT
By wire
. Call the Shareholder Services Agent to place a purchase order. Funds that are
wired without a purchase order will be returned uninvested.
. Once you have placed your purchase order, instruct your bank to wire the
amount of your investment as described above.
By check
. Make out a check for the investment amount payable to J.P. Morgan
Institutional Funds.
. Mail the check with a completed investment slip to the Shareholder Services
Agent. If you do not have an investment slip, attach a note indicating your
account number and how much you wish to invest in which fund(s).
By exchange
. Call the Shareholder Services Agent for an exchange.
6 / YOUR INVESTMENT
<PAGE>
SELLING SHARES
By wire
. Call the Shareholder Services Agent to verify that the wire redemption
privilege is in place on your account. If it is not, a representative can help
you add it.
. Place your wire request. If you are transferring money to a non-Morgan
account, you will need to provide the representative with the personal
identification number (PIN) that was provided to you when you opened your fund
account.
By phone
. Call the Shareholder Services Agent and place your request. Once your request
has been verified, a check for the net amount, payable to the registered
owner(s), will be mailed to the address of record. For checks payable to any
other party or mailed to any other address, please make your request in
writing (see below).
In writing
. Write a letter of instruction that includes the following information: The
name of the registered owner(s) of the account; the account number; the fund
name; the amount you want to sell; and the recipient's name and address or
wire information, if different from those of the account registration.
. Indicate whether you want the proceeds sent by check or by wire.
. Make sure the letter is signed by an authorized party.
The Shareholder Services Agent may require additional information, such as a
signature guarantee.
. Mail the letter to the Shareholder Services Agent.
By exchange
. Call the Shareholder Services Agent for an exchange.
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 are the
same as those of the New York Stock Exchange. The fund calculates its net asset
value per share (NAV) every business day at 4:00 p.m. eastern time.
Timing of orders Orders to buy or sell shares are executed at the next NAV
calculated after the order has been received. Purchase and redemption orders for
the fund must be received by 1:00 p.m. eastern time.
For the purchase to be effective and dividends to be earned on the same day,
purchase orders must be placed by 1:00 p.m. and immediately available funds must
be received by 4:00 p.m. eastern time on a fund business day. The fund has the
right to suspend redemption of shares and to postpone payment of proceeds for up
to seven days or as permitted by law.
- -------------------------------------------------------------------------------
Shareholder Services Agent
J.P. Morgan Funds Services
522 Fifth Avenue
New York, NY 10036
1-800-766-7722
Representatives are available 8:00 a.m. to
5:00 p.m. eastern time on fund business
days.
YOUR INVESTMENT / 7
<PAGE>
Timing of settlements When you buy shares, you will become the owner of record
when the fund receives your payment. Redemption orders for the fund received by
1:00 p.m. eastern time will be paid in immediately available funds according to
instructions on file.
When you sell shares that you recently purchased by check, your order will be
executed at the next NAV but the proceeds will not be available until your check
clears. This may take up to 15 days.
Statements and reports The fund sends monthly account statements as well as
confirmations after each purchase or sale of shares (except reinvestments).
Every six months the fund sends out an annual or semi-annual report, containing
information on its holdings and a discussion of recent and anticipated market
conditions and fund performance.
Accounts with below-minimum balances If your account balance falls below the
minimum for 30 days as a result of selling shares (and not because of
performance), the fund may 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
Income dividends are declared daily and paid 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 their
purchase is effective, but not on the business day their redemption is
effective.
Dividends and distributions are automatically paid 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 Exempt from federal
income taxes
- --------------------------------------------------------------------------------
Short-term capital gains Ordinary income
distributions
- --------------------------------------------------------------------------------
Every January, the fund issues tax information on its distributions for the
previous year.
Any investor for whom the fund does not have a valid taxpayer identification
number will be subject to backup withholding for taxes.
The tax considerations described in this section do not apply to tax-deferred
accounts or other non-taxable entities.
Because each investor's tax circumstances are unique, please consult your tax
professional about your fund investment.
8 / YOUR INVESTMENT
<PAGE>
FUND DETAILS
- --------------------------------------------------------------------------------
MASTER/FEEDER STRUCTURE
As noted earlier, the fund is a "feeder" fund that invests in a master
portfolio. (Except where indicated, this prospectus uses the term "the fund" to
mean the feeder fund and its master portfolio taken together.)
The master portfolio accepts investments from other feeder funds, and all the
feeders of a given master portfolio bear the portfolio's expenses in proportion
to their assets. However, each feeder can set its own transaction minimums,
fund-specific expenses, and other conditions. This means that one feeder could
offer access to the same master portfolio on more attractive terms, or could
experience better performance, than another feeder. Information about other
feeders is available by calling 1-800-766-7722. Generally, when a master
portfolio seeks a vote, its feeder fund will hold a shareholder meeting and cast
its vote proportionately, as instructed by its shareholders. Fund shareholders
are entitled to one vote per fund share.
The fund and its master portfolio expect to maintain consistent goals, but if
they do not, the fund will withdraw from the master portfolio, receiving its
assets either in cash or securities. The fund's trustees would then consider
whether the fund should hire its own investment adviser, invest in a different
master portfolio, or take other action.
MANAGEMENT AND ADMINISTRATION
The fund and its master portfolio 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, as co-administrator, provides fund officers. J.P. Morgan, as co-
administrator, oversees the fund's other service providers.
J.P. Morgan receives the following fees for investment advisory and other
services:
- -------------------------------------------------------------------------------
ADVISORY SERVICES 0.20% of the first $1 billion of the master
portfolio's average net assets plus 0.10%
over $1 billion
- -------------------------------------------------------------------------------
ADMINISTRATIVE SERVICES Master portfolio's and funds pro-rata
(fee shared with Funds portions of 0.09% of the first $7 billion
Distributor, Inc.) in J.P. Morgan-advised portfolios, plus
0.04% over $7 billion
- -------------------------------------------------------------------------------
SHAREHOLDER SERVICES 0.15% of the first $2 billion of the fund's
average net assets plus 0.10% over
$2 billion
- -------------------------------------------------------------------------------
The Advisor has voluntarily agreed to reimburse the fund so that total operating
expenses will not exceed 0.35% of average net assets of the fund. There is no
guarantee that this arrangement will continue beyond 12/31/98.
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 /9
<PAGE>
For investors who want more information on this fund, the following documents
are available free upon request:
Annual/semi-annual reports Contain 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 may be obtained by contacting:
J.P. Morgan Institutional Funds
J.P. Morgan Funds Services
522 Fifth Avenue
New York, NY 10036
Telephone: 1-800-766-7722
Hearing impaired: 1-888-468-4015
Email: [email protected]
Text-only versions of these documents and this prospectus are available from
the Public Reference Room of the Securities and Exchange Commission in
Washington, D.C. (1-800-SEC-0330) and may be viewed on-screen or downloaded from
the SEC's Internet site at http://www.sec.gov. The fund's investment company and
1933 Act registration numbers are 811-07342 and 033-54642.
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.
[LOGO] JP Morgan
- -------------------------------------------------------------------------------
J.P. Morgan Institutional Funds
Advisor Distributor
Morgan Guaranty Trust Company of New York Funds Distributor, Inc.
522 Fifth Avenue 60 State Street
New York, NY 10036 Boston, MA 02109
1-800-766-7722 1-800-221-7930
*******************************************************************************
<PAGE>
FEBRUARY 2, 1998 PROSPECTUS
- --------------------------------------------------------------------------------
J.P. MORGAN INSTITUTIONAL SERVICE
FEDERAL MONEY MARKET FUND
------------------------------------------
Seeking to preserve capital and to provide
income and same-day liquidity
This prospectus contains essential information for anyone investing in this
fund. Please read it carefully and keep it for reference.
Shares in this fund are not bank deposits and are not guaranteed or insured by
any bank, government entity, or the FDIC. The fund seeks to maintain a stable $1
share price, without guaranteeing that it will always be able to do so.
As with all mutual funds, the fact that these shares are registered with the
Securities and Exchange Commission does not mean that the commission approves
them as an investment or guarantees that the information in this prospectus is
correct or adequate. It is a criminal offense to state or suggest otherwise.
Distributed by Funds Distributor, Inc.
[LOGO]JP MORGAN
<PAGE>
CONTENTS
- --------------------------------------------------------------------------------
2 MONEY MARKET MANAGEMENT APPROACH
Money market investment process...................................2
4 J.P. MORGAN INSTITUTIONAL SERVICE FEDERAL MONEY MARKET FUND
The fund's goal, investment approach, risks, expenses,
performance, and financial highlights
Fund description..................................................4
Investor expenses.................................................4
Performance.......................................................5
Financial highlights..............................................5
6 YOUR INVESTMENT
Investing in the J.P. Morgan Institutional Service Federal
Money Market Fund
Investing through a financial professional........................6
Investing through an employer-sponsored retirement plan...........6
Investing through an IRA or rollover IRA..........................6
Investing directly................................................6
Opening your account..............................................6
Adding to your account............................................6
Selling shares....................................................7
Account and transaction policies..................................7
Dividends and distributions.......................................8
Tax considerations................................................8
9 FUND DETAILS
More about risk and the fund's business operations
Master/feeder structure...........................................9
Management and administration.....................................9
FOR MORE INFORMATION.....................................back cover
<PAGE>
INTRODUCTION
- --------------------------------------------------------------------------------
J.P. MORGAN INSTITUTIONAL SERVICE FEDERAL MONEY MARKET FUND
This fund invests in high-quality short-term debt securities by investing in a
master portfolio (another fund with the same goal). The fund accrues dividends
daily, pays them to shareholders monthly, and seeks to maintain a stable $1
share price.
WHO MAY WANT TO INVEST
The fund is designed for investors who:
. want an investment that strives to preserve capital
. want regular income from a high quality portfolio
. want a highly liquid investment
. are looking for an interim investment
. are pursuing a short-term goal
. are seeking income that is generally exempt from state and local income taxes
The fund is not designed for investors who:
. are investing for long-term growth
. are investing for high income
. require the added security of the FDIC insurance
J.P. MORGAN
Known for its commitment to proprietary research and its disciplined investment
strategies, J.P. Morgan is the asset manager of choice for many of the world's
most respected corporations, financial institutions, governments, and
individuals. Today, J.P. Morgan employs over 300 analysts and portfolio managers
around the world and has more than $240 billion in assets under management,
including assets managed by the funds' advisor, Morgan Guaranty Trust Company
of New York.
- -------------------------------------
Before you invest
Investors considering the fund should
understand that:
. There is no assurance that the
fund will meet its investment goals
. Future returns will not necessarily
resemble past performance
1
<PAGE>
MONEY MARKET MANAGEMENT APPROACH
- --------------------------------------------------------------------------------
The J.P. Morgan Institutional Service Federal Money Market Fund invests
exclusively in high-quality short-term debt obligations.
The investment philosophy, developed by the fund's advisor, emphasizes
investment quality through in-depth research on short-term securities and their
issuers. This allows the fund to focus on providing high current income without
compromising share price stability.
MONEY MARKET INVESTMENT PROCESS
In researching short-term securities, J.P. Morgan's credit analysts enhance the
data furnished by rating agencies by drawing on the insights of J.P. Morgan's
fixed income trading specialists and equity analysts. Only highly rated
securities where J.P. Morgan concurs with the rating are considered for
investment.
In managing the fund, J.P. Morgan employs a three-step process:
[GRAPHIC]
J.P. Morgan uses a disciplined process to control the fund's sensitivity
to interest rates
Maturity determination Based on analysis of a range of factors, including
current yields, economic forecasts, and anticipated fiscal and monetary
policies, J.P. Morgan establishes the desired weighted average maturity for the
fund within the permissible 90-day range. Controlling weighted average maturity
allows the fund to manage risk, since securities with shorter maturities are
typically less sensitive to interest rate shifts than those with longer
maturities.
[GRAPHIC]
The fund invests across different sectors, for diversification and to take
advantage of yield spreads
Sector allocation After comparing the yields available in different sectors of
the short-term debt market, J.P. Morgan adjusts the fund's sector allocation,
with the goal of enhancing current income while also maintaining diversification
across permissible sectors.
[GRAPHIC]
The fund selects its securities as described later in this prospectus
Security selection Based on the results of the firm's credit research and the
fund's maturity determination and sector allocation, the portfolio managers and
dedicated fixed-income traders make buy and sell decisions according to the
fund's goal and strategy.
2 MONEY MARKET MANAGEMENT APPROACH
<PAGE>
(THIS PAGE IS INTENTIONALLY LEFT BLANK)
3
<PAGE>
J.P. MORGAN INSTITUTIONAL SERVICE
FEDERAL MONEY MARKET FUND
- --------------------------------------------------------------------------------
REGISTRANT: THE J.P. MORGAN INSTITUTIONAL
FUNDS (THE J.P. MORGAN INSTITUTIONAL SERVICE
FEDERAL MONEY MARKET FUND)
[GRAPHIC] GOAL
The fund seeks to provide current income, maintain high liquidity, and preserve
capital.
[GRAPHIC] INVESTMENT APPROACH
The fund purchases securities that offer very high credit quality and pay
regular income that is generally free from state and local income taxes. It
invests exclusively in U.S. government agency obligations such as the Federal
Farm Credit System, the Tennessee Valley Authority, the Federal Home Loan Banks,
the Student Loan Marketing Association, and in obligations of the U.S. Treasury.
Some of these investments may be purchased on a when-issued or delayed delivery
basis.
[GRAPHIC] POTENTIAL RISKS AND REWARDS
The fund's yield will vary in response to changes in interest rates. How well
the fund's yield compares to the yields of similar money market funds will
depend on the success of the investment process, which is described on page 2.
While the fund's U.S. Treasury obligations are backed by the full faith and
credit of the Government, investors should bear in mind that any agency
obligations the fund may hold do not have this guarantee, and that in any case
government guarantees do not extend to shares of the fund itself.
Most of the fund's income is generally exempt from state and local personal
income taxes and from some corporate income taxes (although not federal income
taxes). Because of this beneficial tax status, the fund's yields are generally
lower than those of taxable money market funds when compared on a pre-tax basis.
As with all money market funds, the fund's investments are subject to various
risks, which, while generally considered to be minimal, could cause its share
price to fall below $1. For example, the issuer or guarantor of a portfolio
security could default on its obligation. An unexpected rise in interest rates
could also lead to a loss in share price if the fund is near the maximum
allowable average weighted maturity at the time. However, the fund's investment
process and management policies are designed to minimize the likelihood and
impact of these risks. To date, through this process, the fund's share price has
never deviated from $1.00.
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages over $240
billion, including more than $X.X billion using the same strategy as the fund.
The portfolio management team is led by Robert R. Johnson, vice president, who
has been on the team since the fund's inception and has been at
J.P. Morgan since 1988, and by Daniel B. Mulvey, vice president, who joined the
team in October of 1996 and has been at J.P. Morgan since 1991.
MONEY MARKET FUNDS AND STABILITY
Money market funds are subject to a range of federal regulations designed
to promote stability. For example, money market funds must maintain a weighted
average maturity of no more than 90 days, and generally may not invest in any
securities with a remaining maturity of more than 13 months. Keeping the
weighted average maturity this short helps funds in their pursuit of a stable $1
share price.
Additionally, money market funds take steps to protect investors against credit
risk. The J.P. Morgan Institutional Service Federal Money Market Fund maintains
stricter standards than federal law requires when it comes to securities
selection.
INVESTOR EXPENSES
The current expenses you should expect to pay as an investor in the fund are
shown at right. The fund has no sales, redemption, exchange, or account fees,
although some institutions may charge you a fee for shares you buy through them.
The annual fund expenses shown are deducted from fund assets prior to
performance calculations.
Footnotes for this section are shown on next page.
- ---------------------------------------
Annual fund operating expenses/1/ (%)
- ---------------------------------------
Management fees 0.20
Marketing (12b-1) fees none
Other expenses/2/
(after reimbursement) none
Service fees/3/ 0.25
- ---------------------------------------
Total operating expenses/2/
(after reimbursement) 0.45
- ---------------------------------------
- --------------------------------------------------------------------------------
Expense example
- --------------------------------------------------------------------------------
The example below uses the same assumptions as other fund prospectuses: $1,000
initial investment, 5% annual total return, expenses unchanged, all shares sold
at the end of each time period. The example is for comparison only; the fund's
actual return and expenses will be different.
- ---------------------------------------
1 yr. 3 yrs.
Your cost($) 5 14
- ---------------------------------------
4 J.P. MORGAN INSTITUTIONAL SERVICE FEDERAL MONEY MARKET FUND
<PAGE>
PERFORMANCE
Average annual total return Shows performance over time, for periods
ended December 31, 1997
1 yr. 3 yrs. Since inception/4/
J.P. Morgan Institutional
Federal Money Market Fund/5/
(after expenses) xx.xx xx.xx xx.xx
- ------------------------------------------------------------------------------
IBC/Donoghue U.S. Government & Agency
Money Market Fund Average/6/
(after expenses) xx.xx xx.xx xx.xx
- ------------------------------------------------------------------------------
Year-by-year total return Shows changes in returns by calendar year
[BAR GRAPH]
. J.P. Morgan Institutional Federal Money Market Fund
. IBC/Donoghue U.S. Government & Agency Money Market Fund Average/6/
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
PER-SHARE DATA For fiscal periods ended October 31
- -------------------------------------------------------------------------------
1997/7/
-----
Net asset value, beginning of period ($) x.xx
- -------------------------------------------------------------------------------
Income from investment operations:
Net investment income x.xx
Net realized and unrealized gain (loss)
on investment x.xx
- -------------------------------------------------------------------------------
Total from investment operations ($) x.xx
- -------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) x.xx
Net realized gain ($) x.xx
- -------------------------------------------------------------------------------
Total distributions ($) x.xx
- -------------------------------------------------------------------------------
Net asset value, end of period ($) x.xx
- -------------------------------------------------------------------------------
Total return (%) x.xx
- -------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------
Net assets, end of period ($ thousands) xxxxx
- -------------------------------------------------------------------------------
Ratio to average net assets:
Expenses (%) x.xx
- -------------------------------------------------------------------------------
Net investment income (%) x.xx
- -------------------------------------------------------------------------------
Decrease reflected in expense ratio due
to expense reimbursement (%) x.xx
- -------------------------------------------------------------------------------
The Financial Highlights above have been audited by Price Waterhouse LLP, the
fund's independent accountants.
/1/ The fund has a master/feeder structure as described on page 9. This table
shows the fund's estimated expenses and its share of master portfolio expenses
for the past fiscal period, expressed as a percentage of the fund's estimated
average net assets after reimbursement for ordinary expenses over 0.45%.
/2/ Without reimbursement, other expenses and total operating expenses would
have been 0.26% and 0.71%, respectively. There is no guarantee that
reimbursement will continue beyond 2/28/99.
/3/ Service Organizations may charge other fees to their customers who are the
beneficial owners of shares in connection with their customers' accounts. Such
fees, if any, may affect the return such customers realize with respect to their
investments.
/4/ The inception date of J.P. Morgan Institutional Federal Money Market Fund
is 1/4/93.
/5/ Returns reflect the performance of J.P. Morgan Institutional Federal
Money Market Fund (a separate feeder fund investing in the same master
portfolio) from 1/31/93 through 12/31/93. Historical performance information
reflects operating expenses which are lower by up to 0.05% of net assets (after
reimbursement), than those of the fund. Accordingly, performance returns may
have been higher than would have occurred if an investment had been made in the
fund during the same time periods.
/6/ Consists of the IBC/Donoghue U.S. Treasury & Repo Money Market Fund Average
through 12/31/95 and the IBC/Donoghue U.S. Government & Agency Money Market Fund
Average thereafter.
/7/ The fund commenced operations on 11/6/97.
J.P. MORGAN INSTITUTIONAL SERVICE FEDERAL MONEY MARKET FUND 5
<PAGE>
YOUR INVESTMENT
- --------------------------------------------------------------------------------
For your convenience, the J.P. Morgan Institutional Funds offer several ways to
start and maintain fund investments.
INVESTING THROUGH A FINANCIAL PROFESSIONAL
Prospective investors may purchase shares of the fund with the assistance of a
service organization. Your service organization 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 service
organization and you prefer to place a transaction order yourself, please use
the instructions for investing directly.
INVESTING THROUGH AN EMPLOYER-SPONSORED RETIREMENT PLAN
Your fund investments are handled through your plan. Refer to your plan
materials or contact your benefits office for information on buying, selling, or
exchanging fund shares.
INVESTING THROUGH AN IRA OR ROLLOVER IRA
Please contact a J.P. Morgan Retirement Services Specialist at 1-888-576-4472
for information on J.P. Morgan's comprehensive IRA services, including lower
minimum investments.
INVESTING DIRECTLY
Investors may establish accounts without the help of an intermediary by using
the instructions below and at right:
. Choose a fund (or funds) and determine the amount you are investing. The
minimum amount for initial investments in the fund is $10,000,000 and for
additional investments $25,000, although these minimums may be less for some
investors. A service organization may impose a minimum amount for initial and
subsequent investments in the fund and may establish other requirements such as
a minimum account balance. Customers should contact their service organization
for further information concerning such requirements and charges. For more
information on minimum investments, call 1-800-766-7722.
. Complete the application, indicating how much of your investment you want to
allocate to which fund(s). Please apply now for any account privileges you
may want to use in the future, in order to avoid the delays associated with
adding them later on.
. Mail in your application, making your initial investment as shown below.
For answers to any questions, please speak with a J.P. Morgan Funds Services
Representative at 1-800-766-7722.
OPENING YOUR ACCOUNT
By wire
. Mail your completed application to the Shareholder Services Agent.
. Call the Shareholder Services Agent to obtain an account number and to place
a purchase order. Funds that are wired without a purchase order will be
returned uninvested.
. After placing your purchase order, instruct your bank to wire the amount of
your investment to:
Morgan Guaranty Trust Company
Routing number: 021-000-238
Credit: J.P. Morgan Institutional Funds
Account number: 001-57-689
FFC: your account number, name of registered owner(s) and fund name
By check
. Make out a check for the investment amount payable to J.P. Morgan
Institutional Funds.
. Mail the check with your completed application to the Shareholder Services
Agent.
By exchange
. Call the Shareholder Services Agent for an exchange.
ADDING TO YOUR ACCOUNT
By wire
. Call the Shareholder Services Agent to place a purchase order. Funds that are
wired without a purchase order will be returned uninvested.
. Once you have placed your purchase order, instruct your bank to wire the
amount of your investment as described above.
By check
. Make out a check for the investment amount payable to J.P. Morgan
Institutional Funds.
. Mail the check with a completed investment slip to the
6 YOUR INVESTMENT
<PAGE>
Shareholder Services Agent. If you do not have an investment slip, attach a note
indicating your account number and how much you wish to invest in which fund(s).
By exchange
. Call the Shareholder Services Agent for an exchange.
SELLING SHARES
By wire
. Call the Shareholder Services Agent to verify that the wire redemption
privilege is in place on your account. If it is not, a representative can
help you add it.
. Place your wire request. If you are transferring money to a non-Morgan
account, you will need to provide the representative with the personal
identification number (PIN) that was provided to you when you opened your
fund account.
By phone
. Call the Shareholder Services Agent and place your request. Once your request
has been verified, a check for the net amount, payable to the registered
owner(s), will be mailed to the address of record. For checks payable to any
other party or mailed to any other address, please make your request in
writing (see below).
In writing
. Write a letter of instruction that includes the following information: The
name of the registered owner(s) of the account; the account number; the fund
name; the amount you want to sell; and the recipient's name and address or
wire information, if different from those of the account registration.
. Indicate whether you want the proceeds sent by check or by wire.
. Make sure the letter is signed by an authorized party. The Shareholder
Services Agent may require additional information, such as a signature
guarantee.
. Mail the letter to the Shareholder Services Agent.
By exchange
. Call the Shareholder Services Agent for an exchange.
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, J.P. Morgan mutual fund or shares of J.P. Morgan Series
Trust 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 are the
same as those of the New York Stock Exchange. The fund calculates its net asset
value per share (NAV) every business day at 4:00 p.m. eastern time.
Timing of orders Orders to buy or sell shares are executed at the next NAV
calculated after the order has been received. Purchase and redemption orders for
the fund must be received by 12:00 noon eastern time.
For the purchase to be effective and dividends to be earned on the same day,
purchase orders must be placed by 12:00 noon and immediately available funds
must be received by 4:00 p.m. eastern time on a fund business day. The fund has
the right to suspend redemption of shares and to postpone payment of proceeds
for up to seven days or as permitted by law.
- --------------------------------------------------------------------------------
Shareholder Services Agent
J.P. Morgan Funds Services
522 Fifth Avenue
New York, NY 10036
1-800-766-7722
Representatives are available 8:00 a.m. to 5:00 p.m. eastern
time on fund business days.
YOUR INVESTMENT 7
<PAGE>
Timing of settlements When you buy shares, you will become the owner of record
when the fund receives your payment. Redemption orders for the fund received by
12:00 noon eastern time will be paid in immediately available funds according to
instructions on file.
When you sell shares that you recently purchased by check, your order will be
executed at the next NAV but the proceeds will not be available until your check
clears. This may take up to 15 days.
Statements and reports The fund sends monthly account statements as well as
confirmations after each purchase or sale of shares (except reinvestments).
Every six months the fund sends out an annual or semi-annual report, containing
information on its holdings and a discussion of recent and anticipated market
conditions and fund performance.
Accounts with below-minimum balances If your account balance falls below the
minimum for 30 days as a result of selling shares (and not because of
performance), the fund may 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
Income dividends are declared daily and paid 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 their
purchase is effective, but not on the business day their redemption is
effective.
Dividends and distributions are automatically paid 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
- -----------------------------------------------------------
Every January, the fund issues tax information on its distributions for the
previous year.
Any investor for whom the fund does not have a valid taxpayer identification
number will be subject to backup withholding for taxes.
The tax considerations described in this section do not apply to tax-deferred
accounts or other non-taxable entities.
Because each investor's tax circumstances are unique, please consult your tax
professional about your fund investment.
8 YOUR INVESTMENT
<PAGE>
FUND DETAILS
- --------------------------------------------------------------------------------
MASTER/FEEDER STRUCTURE
As noted earlier, the fund is a "feeder" fund that invests in a master
portfolio. (Except where indicated, this prospectus uses the term "the fund" to
mean the feeder fund and its master portfolio taken together.)
The master portfolio accepts investments from other feeder funds, and all the
feeders of a given master portfolio bear the portfolio's expenses in proportion
to their assets. However, each feeder can set its own transaction minimums,
fund-specific expenses, and other conditions. This means that one feeder could
offer access to the same master portfolio on more attractive terms, or could
experience better performance, than another feeder. Information about other
feeders is available by calling 1-800-766-7722. Generally, when a master
portfolio seeks a vote, its feeder fund will hold a shareholder meeting and cast
its vote proportionately, as instructed by its shareholders. Fund shareholders
are entitled to one vote per fund share.
The fund and its master portfolio expect to maintain consistent goals, but if
they do not, the fund will withdraw from the master portfolio, receiving its
assets either in cash or securities. The fund's trustees would then consider
whether the fund should hire its own investment adviser, invest in a different
master portfolio, or take other action.
MANAGEMENT AND ADMINISTRATION
The fund and its master portfolio 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, as co-administrator, provides fund officers. J.P. Morgan, as co-
administrator, oversees the fund's other service providers.
J.P. Morgan receives the following fees for investment advisory and other
services:
- -------------------------------------------------------------------
Advisory services 0.20% of the first $1 billion of
the master portfolio's average
net assets plus 0.10% over
$1 billion
- -------------------------------------------------------------------
Administrative services Master portfolio's and fund's pro-
(fee shared with Funds rata portions of 0.09% of the first
Distributor, Inc.) $7 billion in J.P. Morgan-
advised portfolios, plus 0.04%
over $7 billion
- -------------------------------------------------------------------
Shareholder services 0.05% of the fund's average
net assets
- -------------------------------------------------------------------
The Advisor has voluntarily agreed to reimburse the fund so that total operating
expenses will not exceed 0.45% of average net assets of the fund. There is no
guarantee that this arrangement will continue beyond 2/28/99.
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 9
<PAGE>
FOR MORE INFORMATION
- --------------------------------------------------------------------------------
For investors who want more information on this fund, the following documents
are available free upon request:
Annual/Semi-annual Reports Contain 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 may be obtained by contacting:
J.P. Morgan Institutional Funds
J.P. Morgan Funds Services
522 Fifth Avenue
New York, NY 10036
Telephone: 1-800-766-7722
Hearing impaired: 1-888-468-4015
Email: [email protected]
Text-only versions of these documents and this prospectus are available from
the Public Reference Room of the Securities and Exchange Commission in
Washington, D.C. (1-800-SEC-0330) and may be viewed on-screen or downloaded from
the SEC's Internet site at http://www.sec.gov. The fund's investment company and
1933 Act registration numbers are 811-07342 and 033-54642.
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.
[LOGO]JP MORGAN
- --------------------------------------------------------------------------------
J.P. Morgan Institutional Funds
Advisor Distributor
Morgan Guaranty Trust Company of New York Funds Distributor, Inc.
522 Fifth Avenue 60 State Street
New York, NY 10036 Boston, MA 02109
1-800-766-7722 1-800-221-7930
*******************************************************************************
<PAGE>
FEBRUARY 2, 1998 PROSPECTUS
- --------------------------------------------------------------------------------
J.P. MORGAN INSTITUTIONAL SERVICE
TREASURY MONEY MARKET FUND
---------------------------------
Seeking to preserve capital and to
provide income and same-day liquidity
This prospectus contains essential information for anyone investing in this
fund. Please read it carefully and keep it for reference.
Shares in this fund are not bank deposits and are not guaranteed or insured by
any bank, government entity, or the FDIC. The fund seeks to maintain a stable $1
share price, without guaranteeing that it will always be able to do so.
As with all mutual funds, the fact that these shares are registered with the
Securities and Exchange Commission does not mean that the commission approves
them as an investment or guarantees that the information in this prospectus is
correct or adequate. It is a criminal offense to state or suggest otherwise.
Distributed by Funds Distributor, Inc.
[LOGO]JP MORGAN
<PAGE>
CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
2| MONEY MARKET MANAGEMENT APPROACH
Money market investment process..................................................2
4| J.P. MORGAN INSTITUTIONAL SERVICE TREASURY MONEY MARKET
FUND
The fund's goal, investment Fund description.................................................................4
approach, risks, expenses, Investor expenses................................................................4
performance, and Performance......................................................................5
financial highlights Financial highlights.............................................................5
6| YOUR INVESTMENT
Investing in the J.P. Morgan Investing through a financial professional.......................................6
Institutional Service Treasury Investing through an employer-sponsored retirement plan..........................6
Money Market Fund Investing through an IRA or rollover IRA.........................................6
Investing directly...............................................................6
Opening your account.............................................................6
Adding to your account...........................................................6
Selling shares...................................................................7
Account and transaction policies.................................................7
Dividends and distributions......................................................8
Tax considerations...............................................................8
9| FUND DETAILS
More about risk and the Master/feeder structure..........................................................9
fund's business operations Management and administration....................................................9
FOR MORE INFORMATION...................................................back cover
</TABLE>
<PAGE>
INTRODUCTION
- --------------------------------------------------------------------------------
J.P. MORGAN INSTITUTIONAL SERVICE TREASURY MONEY MARKET FUND
This fund invests in high-quality short-term debt securities by investing in a
master portfolio (another fund with the same goal). The fund accrues dividends
daily, pays them to shareholders monthly, and seeks to maintain a stable $1
share price.
WHO MAY WANT TO INVEST
The fund is designed for investors who:
. want an investment that strives to preserve capital
. want regular income from a high quality portfolio
. want a highly liquid investment
. are looking for an interim investment
. are pursuing a short-term goal
The fund is not designed for investors who:
. are investing for long-term growth
. are investing for high income
. require the added security of the FDIC insurance
J.P. MORGAN
Known for its commitment to proprietary research and its disciplined investment
strategies, J.P. Morgan is the asset manager of choice for many of the world's
most respected corporations, financial institutions, governments, and
individuals. Today, J.P. Morgan employs over 300 analysts and portfolio managers
around the world and has more than $240 billion in assets under management,
including assets managed by the funds' advisor, Morgan Guaranty Trust Company of
New York.
- --------------------------------------------------------------------------------
Before you invest
- --------------------------------------------------------------------------------
Investors considering the fund should understand that:
. There is no assurance that the fund will meet its investment goals
. Future returns will not necessarily resemble past performance
1
<PAGE>
MONEY MARKET MANAGEMENT APPROACH
- --------------------------------------------------------------------------------
The J.P. Morgan Institutional Service Treasury Money Market Fund invests
exclusively in high-quality short-term debt obligations.
The investment philosophy, developed by the fund's advisor, emphasizes
investment quality through in-depth research on short-term securities and their
issuers. This allows the fund to focus on providing high current income without
compromising share price stability.
MONEY MARKET INVESTMENT PROCESS
In researching short-term securities, J.P. MorganOs credit analysts enhance the
data furnished by rating agencies by drawing on the insights of J.P. Morgan's
fixed income trading specialists and equity analysts. Only highly rated
securities where J.P. Morgan concurs with the rating are considered for
investment.
In managing the fund, J.P. Morgan employs a three-step process:
[GRAPHIC]
J.P. Morgan uses a disciplined process to control the fund's sensitivity
to interest rates
Maturity determination Based on analysis of a range of factors, including
current yields, economic forecasts, and anticipated fiscal and monetary
policies, J.P. Morgan establishes the desired weighted average maturity for the
fund within the permissible 90-day range. Controlling weighted average maturity
allows the fund to manage risk, since securities with shorter maturities are
typically less sensitive to interest rate shifts than those with longer
maturities.
[GRAPHIC]
The fund invests across different sectors, for diversification and to take
advantage of yield spreads
Sector allocation After comparing the yields available in different sectors of
the short-term debt market, J.P. Morgan adjusts the fund's sector allocation,
with the goal of enhancing current income while also maintaining diversification
across permissible sectors.
[GRAPHIC]
The fund selects its securities as described later in this prospectus
Security selection Based on the results of the firm's credit research and the
fund's maturity determination and sector allocation, the portfolio managers and
dedicated fixed-income traders make buy and sell decisions according to the
fund's goal and strategy.
2| MONEY MARKET MANAGEMENT APPROACH
<PAGE>
(THIS PAGE IS INTENTIONALLY LEFT BLANK)
|3
<PAGE>
J.P. MORGAN INSTITUTIONAL SERVICE TICKER SYMBOL: JPMXX
TREASURY MONEY MARKET FUND
- --------------------------------------------------------------------------------
REGISTRANT: THE J.P. MORGAN INSTITUTIONAL
FUNDS (THE J.P. MORGAN INSTITUTIONAL SERVICE
TREASURY MONEY MARKET FUND)
[GRAPHIC] GOAL
The fund seeks to provide current income, maintain high liquidity, and preserve
capital.
[GRAPHIC] INVESTMENT APPROACH
The fund purchases securities that offer the highest credit quality and provide
regular income that is generally free from state and local income taxes. It
invests exclusively in U.S. Treasury obligations and repurchase agreements
collateralized by these obligations. Some of these investments may be purchased
on a when-issued or delayed delivery basis.
[GRAPHIC] POTENTIAL RISKS AND REWARDS
The fund's yield will vary in response to changes in interest rates. How well
the fund's yield compares to the yields of similar money market funds will
depend on the success of the investment process, which is described on page 2.
While the fund's U.S. Treasury obligations are backed by the full faith and
credit of the federal government, investors should bear in mind that any
repurchase agreements the fund may hold do not have this guarantee (even though
they are fully collateralized by Treasuries), and that in any case government
guarantees do not extend to shares of the fund itself.
The portion of the fund's income derived from direct investments in U.S.
Treasury obligations may be exempt from state and local personal income taxes.
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages over $240
billion, including more than $X.X billion using the same strategy as the fund.
The portfolio management team is led by Robert R. Johnson, vice president, who
has been on the team since the fund's inception and has been at J.P. Morgan
since 1988, and by Daniel B. Mulvey, vice president, who joined the team in
October of 1996 and has been at J.P. Morgan since 1991.
MONEY MARKET FUNDS AND STABILITY
Money market funds are subject to a range of federal regulations designed to
promote stability. For example, money market funds must maintain a weighted
average maturity of no more than 90 days, and generally may not invest in any
securities with a remaining maturity of more than 13 months. Keeping the
weighted average maturity this short helps funds in their pursuit of a stable $1
share price.
Additionally, money market funds take steps to protect investors against credit
risk. The J.P. Morgan Institutional Service Treasury Money Market Fund maintains
stricter standards than federal law requires when it comes to securities
selection.
INVESTOR EXPENSES
The current expenses you should expect to pay as an investor in the fund are
shown at right. The fund has no sales, redemption, exchange, or account fees,
although some institutions may charge you a fee for shares you buy through them.
The annual fund expenses shown are deducted from fund assets prior to
performance calculations.
Footnotes for this section are shown on next page.
Annual fund operating expenses/1/ (%)
Management fees
(after expense reimbursement) 0.11
Marketing (12b-1) fees none
Other expenses/2/
(after reimbursement) none
Service fees /3/ 0.25
- ----------------------------------------------------
Total operating expenses /2/
(after reimbursement) 0.36
- ----------------------------------------------------
Expense example
- ----------------------------------------------------
The example below uses the same assumptions as other fund prospectuses: $1,000
initial investment, 5% annual total return, expenses unchanged, all shares sold
at the end of each time period. The example is for comparison only; the fund's
actual return and expenses will be different.
- -----------------------------------------------------
1 yr. 3 yrs.
Your cost($) 4 12
- -----------------------------------------------------
4| J.P. MORGAN INSTITUTIONAL SERVICE TREASURY MONEY MARKET FUND
<PAGE>
PERFORMANCE
Average annual total return Shows performance over time, for period ended
- --------------------------------------------------------------------------------
December 31, 1997
- -----------------
Since inception/4/
J.P. Morgan Institutional Service Treasury Money Market Fund
(after expenses) x.xx
- --------------------------------------------------------------------------------
Year-by-year total return (%) Shows changes in returns by calendar year
- --------------------------------------------------------------------------------
1997
[BAR GRAPH]
. J.P. Morgan Institutional Service Treasury Money Market Fund
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Per-share data For fiscal period ended October 31
- -------------------------------------------------------------------
1997/4/
Net asset value, beginning of period ($) x.xx
- -------------------------------------------------------------------
Income from investment operations:
Net investment income ($) x.xx
Net realized and unrealized gain (loss)
on investment ($) x.xx
- -------------------------------------------------------------------
Total from investment operations ($) x.xx
- -------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) x.xx
Net realized gain ($) x.xx
- -------------------------------------------------------------------
Total distributions ($) x.xx
- -------------------------------------------------------------------
Net asset value, end of period ($) x.xx
- -------------------------------------------------------------------
Total return (%) x.xx
- -------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------
Net assets, end of period ($ millions) xxxx
- -------------------------------------------------------------------
Ratio to average net assets:
Expenses (%) x.xx
- -------------------------------------------------------------------
Net investment income (%) x.xx
- -------------------------------------------------------------------
Decrease reflected in expense ratio due
to expense reimbursement (%) x.xx
- -------------------------------------------------------------------
The Financial Highlights above have been audited by Price Waterhouse LLP, the
fund's independent accountants.
1 The fund has a master/feeder structure as described on page 15. This table
shows the fund's estimated expenses and its share of master portfolio
expenses for the past fiscal period, expressed as a percentage of the fund's
estimated average net assets after reimbursement for ordinary expenses over
0.36%.
2 The total operating expenses for the fund is a blended ratio which represents
an estimate based on reimbursements in effect through 10/31/98. The actual
amount incurred by a shareholder at any particular time during the periods
indicated may be higher or lower, depending on the date of purchase and
length of holding period of fund shares. Without reimbursement advisory fee,
estimated other expenses and total operating expenses would have been 0.20%,
0.26%, and 0.71%, respectively. There is no guarantee that reimbursement will
continue beyond 10/31/98.
3 Service Organizations may charge other fees to their customers who are the
beneficial owners of shares in connection with their customers' accounts.
Such fees, if any, may affect the return such customers realize with respect
to their investments.
4 The fund commenced operations on 7/7/97; performance is calculated as of
7/31/97.
J.P. MORGAN INSTITUTIONAL SERVICE TREASURY MONEY MARKET FUND 5
<PAGE>
YOUR INVESTMENT
- --------------------------------------------------------------------------------
For your convenience, the J.P. Morgan Institutional Funds offer several ways to
start and maintain fund investments.
INVESTING THROUGH A FINANCIAL PROFESSIONAL
Prospective investors may purchase shares of the fund with the assistance of a
service organization. Your service organization 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 service
organization and you prefer to place a transaction order yourself, please use
the instructions for investing directly.
INVESTING THROUGH AN EMPLOYER-SPONSORED RETIREMENT PLAN
Your fund investments are handled through your plan.
Refer to your plan materials or contact your benefits office for
information on buying, selling, or exchanging fund shares.
INVESTING THROUGH AN IRA OR ROLLOVER IRA
Please contact a J.P. Morgan Retirement Services Specialist at 1-888-576-4472
for information on J.P. Morgan's comprehensive IRA services, including lower
minimum investments.
INVESTING DIRECTLY
Investors may establish accounts without the help of an intermediary by using
the instructions below and at right:
. Choose a fund (or funds) and determine the amount you are investing. The
minimum amount for initial investments in the fund is $10,000,000 and for
additional investments $25,000, although these minimums may be less for some
investors. A service organization may impose a minimum amount for initial and
subsequent investments in the fund and may establish other requirements such as
a minimum account balance. Customers should contact their service organization
for further information concerning such requirements and charges. For more
information on minimum investments, call 1-800-766-7722.
. Complete the application, indicating how much of your investment you want to
allocate to which fund(s). Please apply now for any account privileges you
may want to use in the future, in order to avoid the delays associated with
adding them later on.
. Mail in your application, making your initial investment as shown below.
For answers to any questions, please speak with a J.P. Morgan Funds Services
Representative at 1-800-766-7722.
OPENING YOUR ACCOUNT
By wire
. Mail your completed application to the Shareholder Services Agent.
. Call the Shareholder Services Agent to obtain an account number and to place
a purchase order. Funds that are wired without a purchase order will be
returned uninvested.
. After placing your purchase order, instruct your bank to wire the amount of
your investment to:
Morgan Guaranty Trust Company
Routing number: 021-000-238
Credit: J.P. Morgan Institutional Funds
Account number: 001-57-689
FFC: your account number, name of registered owner(s)
and fund name
By check
. Make out a check for the investment amount payable
to J.P. Morgan Institutional Funds.
. Mail the check with your completed application to
the Shareholder Services Agent.
By exchange
. Call the Shareholder Services Agent for an exchange.
ADDING TO YOUR ACCOUNT
By wire
. Call the Shareholder Services Agent to place a purchase order. Funds that are
wired without a purchase order will be returned uninvested.
. Once you have placed your purchase order, instruct your bank to wire the
amount of your investment as described above.
By check
. Make out a check for the investment amount payable to J.P. Morgan
Institutional Funds.
. Mail the check with a completed investment slip to the
6| YOUR INVESTMENT
<PAGE>
Shareholder Services Agent. If you do not have an investment slip, attach a
note indicating your account number and how much you wish to invest in which
fund(s).
By exchange
. Call the Shareholder Services Agent for an exchange.
SELLING SHARES
By wire
. Call the Shareholder Services Agent to verify that the wire redemption
privilege is in place on your account. If it is not, a representative can
help you add it.
. Place your wire request. If you are transferring money to a non-Morgan
account, you will need to provide the representative with the personal
identification number (PIN) that was provided to you when you opened your
fund account.
By phone
. Call the Shareholder Services Agent and place your request. Once your request
has been verified, a check for the net amount, payable to the registered
owner(s), will be mailed to the address of record. For checks payable to any
other party or mailed to any other address, please make your request in
writing (see below).
In writing
. Write a letter of instruction that includes the following information: The
name of the registered owner(s) of the account; the account number; the fund
name; the amount you want to sell; and the recipient's name and address or
wire information, if different from those of the account registration.
. Indicate whether you want the proceeds sent by check
or by wire.
. Make sure the letter is signed by an authorized party. The Shareholder
Services Agent may require additional information, such as a signature
guarantee.
. Mail the letter to the Shareholder Services Agent.
By exchange
. Call the Shareholder Services Agent for an exchange.
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, J.P. Morgan mutual fund or shares of J.P. Morgan Series
Trust 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 are the
same as those of the New York Stock Exchange. The fund calculates its net asset
value per share (NAV) every business day at 4:00 p.m. eastern time.
Timing of orders Orders to buy or sell shares are executed at the next NAV
calculated after the order has been received. Purchase and redemption orders for
the fund must be received by 4:00 p.m. eastern time.
For the purchase to be effective and dividends to be earned on the same day,
purchase orders and immediately available funds must be received by 4:00 p.m.
eastern time on a fund business day. The fund has the right to suspend
redemption of shares and to postpone payment of proceeds for up to seven days or
as permitted by law.
Shareholder Services Agent
J.P. Morgan Funds Services
522 Fifth Avenue
New York, NY 10036
1-800-766-7722
Representatives are available 8:00 a.m. to 5:00 p.m. eastern
time on fund business days.
YOUR INVESTMENT |7
<PAGE>
Timing of settlements When you buy shares, you will become the owner of record
when the fund receives your payment. Redemption orders for the fund received by
4:00 p.m. eastern time will be paid in immediately available funds according to
instructions on file.
When you sell shares that you recently purchased by check, your order will be
executed at the next NAV but the proceeds will not be available until your check
clears. This may take up to 15 days.
Statements and reports The fund sends monthly account statements as well as
confirmations after each purchase or sale of shares (except reinvestments).
Every six months the fund sends out an annual or semi-annual report, containing
information on its holdings and a discussion of recent and anticipated market
conditions and fund performance.
Accounts with below-minimum balances If your account balance falls below the
minimum for 30 days as a result of selling shares (and not because of
performance), the fund may 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
Income dividends are declared daily and paid 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 their
purchase is effective, but not on the business day their redemption is
effective.
Dividends and distributions are automatically paid 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
Every January, the fund issues tax information on its
distributions for the previous year.
Any investor for whom the fund does not have a valid taxpayer identification
number will be subject to backup withholding for taxes.
The tax considerations described in this section do not apply to tax-deferred
accounts or other non-taxable entities.
Because each investor's tax circumstances are unique, please consult your tax
professional about your fund investment.
8| YOUR INVESTMENT
<PAGE>
FUND DETAILS
- --------------------------------------------------------------------------------
MASTER/FEEDER STRUCTURE
As noted earlier, the fund is a "feeder" fund that invests in a master
portfolio. (Except where indicated, this prospectus uses the term "the fund" to
mean the feeder fund and its master portfolio taken together.)
The master portfolio accepts investments from other feeder funds, and all the
feeders of a given master portfolio bear the portfolio's expenses in proportion
to their assets. However, each feeder can set its own transaction minimums,
fund-specific expenses, and other conditions. This means that one feeder could
offer access to the same master portfolio on more attractive terms, or could
experience better performance, than another feeder. Information about other
feeders is available by calling 1-800-766-7722. Generally, when a master
portfolio seeks a vote, its feeder fund will hold a shareholder meeting and cast
its vote proportionately, as instructed by its shareholders. Fund shareholders
are entitled to one vote per fund share.
The fund and its master portfolio expect to maintain consistent goals, but if
they do not, the fund will withdraw from the master portfolio, receiving its
assets either in cash or securities. The fund's trustees would then consider
whether the fund should hire its own investment adviser, invest in a different
master portfolio, or take other action.
MANAGEMENT AND ADMINISTRATION
The fund and its master portfolio 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, as co-administrator, provides fund officers. J.P. Morgan, as co-
administrator, oversees the fund's other service providers.
J.P. Morgan receives the following fees for investment advisory and other
services:
Advisory services 0.20% of the first $1 billion of
the master portfolio's average
net assets plus 0.10% over
$1 billion
Administrative services Master portfolio's and fund's pro-
(fee shared with Funds rata portions of 0.09% of the
Distributor, Inc.) first $7 billion in J.P. Morgan-
advised portfolios, plus 0.04%
over $7 billion
Shareholder services 0.05% of the fund's average
net assets
The Advisor has voluntarily agreed to reimburse the fund so that total operating
expenses will not exceed 0.36% of average net assets of the fund. There is no
guarantee that this arrangement will continue beyond 10/31/98.
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 |9
<PAGE>
FOR MORE INFORMATION
- --------------------------------------------------------------------------------
For investors who want more information on this fund, the following documents
are available free upon request:
Annual/Semi-annual Reports Contain 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 may be obtained by contacting:
J.P. Morgan Institutional Funds
J.P. Morgan Funds Services
522 Fifth Avenue
New York, NY 10036
Telephone: 1-800-766-7722
Hearing impaired: 1-888-468-4015
Email: [email protected]
Text-only versions of these documents and this prospectus are available from
the Public Reference Room of the Securities and Exchange Commission in
Washington, D.C. (1-800-SEC-0330) and may be viewed on-screen or downloaded from
the SEC's Internet site at http://www.sec.gov. The fund's investment company and
1933 Act registration numbers are 811-07342 and 033-54642.
[LOGO]JP MORGAN
- --------------------------------------------------------------------------------
J.P. Morgan Institutional Funds
Advisor Distributor
Morgan Guaranty Trust Company of New York Funds Distributor, Inc.
522 Fifth Avenue 60 State Street
New York, NY 10036 Boston, MA 02109
1-800-766-7722 1-800-221-7930
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.
*******************************************************************************
<PAGE>
- --------------------------------------------------------------------------------
FEBRUARY 2, 1998 /PROSPECTUS
- --------------------------------------------------------------------------------
J.P. MORGAN INSTITUTIONAL SERVICE
PRIME MONEY MARKET FUND
-----------------------------------------------
Seeking to preserve capital and to provide
income and same-day liquidity
This prospectus contains essential information for anyone investing in this
fund. Please read it carefully and keep it for reference.
Shares in this fund are not bank deposits and are not guaranteed or insured by
any bank, government entity, or the FDIC. The fund seeks to maintain a stable $1
share price, without guaranteeing that it will always be able to do so.
As with all mutual funds, the fact that these shares are registered with the
Securities and Exchange Commission does not mean that the commission approves
them as an investment or guarantees that the information in this prospectus is
correct or adequate. It is a criminal offense to state or suggest otherwise.
Distributed by Funds Distributor, Inc. [LOGO]JP Morgan
<PAGE>
CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
2 MONEY MARKET MANAGEMENT APPROACH
Money market investment process................................................2
4 J.P. MORGAN INSTITUTIONAL SERVICE PRIME MONEY MARKET FUND
The fund's goal, investment approach, Fund description...............................................................4
risks, expenses, performance, and Investor expenses..............................................................4
financial highlights Performance....................................................................5
Financial highlights...........................................................5
6
Investing in the J.P. Morgan Institutional Investing through a financial professional.....................................6
Service Prime Money Market Fund Investing through an employer-sponsored retirement plan........................6
Investing through an IRA or rollover IRA.......................................6
Investing directly.............................................................6
Opening your account...........................................................6
Adding to your account.........................................................6
Selling shares.................................................................7
Account and transaction policies...............................................7
Dividends and distributions....................................................8
Tax considerations.............................................................8
9 Fund Details
More about risk and the fund's Master/feeder structure........................................................9
business operations Management and administration..................................................9
FOR MORE INFORMATION...................................................back cover
</TABLE>
<PAGE>
INTRODUCTION
- --------------------------------------------------------------------------------
J.P. MORGAN INSTITUTIONAL SERVICE PRIME MONEY MARKET FUND
This fund invests in high-quality short-term debt securities by investing in a
master portfolio (another fund with the same goal). The fund accrues dividends
daily, pays them to shareholders monthly, and seeks to maintain a stable $1
share price.
WHO MAY WANT TO INVEST
The fund is designed for investors who:
. want an investment that strives to preserve capital
. want regular income from a high quality portfolio
. want a highly liquid investment
. are looking for an interim investment
. are pursuing a short-term goal
The fund is not designed for investors who:
. are investing for long-term growth
. are investing for high income
. require the added security of the FDIC insurance
J.P. MORGAN
Known for its commitment to proprietary research and its disciplined investment
strategies, J.P. Morgan is the asset manager of choice for many of the world's
most respected corporations, financial institutions, governments, and
individuals. Today, J.P. Morgan employs over 300 analysts and portfolio managers
around the world and has more than $240 billion in assets under management,
including assets managed by the funds' advisor, Morgan Guaranty Trust Company of
New York.
- -------------------------------------------------------------------------------
Before you invest
Investors considering the fund should understand that:
. There is no assurance that the fund will meet its investment goals
. Future returns will not necessarily resemble past performance
1
<PAGE>
MONEY MARKET MANAGEMENT APPROACH
- --------------------------------------------------------------------------------
The J.P. Morgan Institutional Service Prime Money Market Fund
invests exclusively in high-quality short-term debt obligations.
The investment philosophy, developed by the fund's advisor, emphasizes
investment quality through in-depth research on short-term securities and their
issuers. This allows the fund to focus on providing high current income without
compromising share price stability.
MONEY MARKET INVESTMENT PROCESS
In researching short-term securities, J.P. Morgan's credit analysts enhance the
data furnished by rating agencies by drawing on the insights of J.P. Morgan's
fixed income trading specialists and equity analysts. Only highly rated
securities where J.P. Morgan concurs with the rating are considered for
investment.
In managing the fund, J.P. Morgan employs a three-step process:
[GRAPHIC]
J.P. Morgan uses a disciplined process to control the fund's sensitivity to
interest rates
Maturity Determination Based on analysis of a range of factors, including
current yields, economic forecasts, and anticipated fiscal and monetary
policies, J.P. Morgan establishes the desired weighted average maturity for the
fund within the permissible 90-day range. Controlling weighted average maturity
allows the fund to manage risk, since securities with shorter maturities are
typically less sensitive to interest rate shifts than those with longer
maturities.
[GRAPHIC]
The fund invests across different sectors, for diversification and to take
advantage of yield spreads
Sector Allocation After comparing the yields available in different sectors of
the short-term debt market, J.P. Morgan adjusts the fund's sector allocation,
with the goal of enhancing current income while maintaining diversification
across sectors.
[GRAPHIC]
The fund selects its securities as described later in this prospectus
Security Selection Based on the results of the firm's credit research and
the fund's maturity determination and sector allocation, the portfolio managers
and dedicated fixed-income traders make buy and sell decisions according to the
fund's goal and strategy.
2 / MONEY MARKET MANAGEMENT APPROACH
<PAGE>
(THIS PAGE IS INTENTIONALLY LEFT BLANK)
3
<PAGE>
J.P. MORGAN INSTITUTIONAL SERVICE
PRIME MONEY MARKET FUND
- --------------------------------------------------------------------------------
REGISTRANT: THE J.P. MORGAN INSTITUTIONAL FUNDS
(THE J.P. MORGAN INSTITUTIONAL SERVICE PRIME
MONEY MARKET FUND)
[GRAPHIC] GOAL
The fund seeks to maximize current income and maintain a high level of
liquidity.
[GRAPHIC] INVESTMENT APPROACH
The fund looks for investments across a broad spectrum of U.S. dollar-
denominated money market securities, typically emphasizing different types of
securities at different times in order to take advantage of changing yield
differentials. The fund's investments may include obligations issued by the U.S.
Treasury, government agencies, domestic and foreign banks and corporations,
foreign governments, repurchase agreements, as well as asset-backed securities,
taxable municipal obligations, and other money market instruments. Some of these
investments may be purchased on a when-issued or delayed delivery basis.
[GRAPHIC] POTENTIAL RISKS AND REWARDS
The fund's yield will vary in response to changes in interest rates. How well
the fund's yield compares to the yields of similar money market funds will
depend on the success of the investment process, which is described on page 2.
As with all money market funds, the fund's investments are subject to various
risks, which, while generally considered to be minimal, could cause its share
price to fall below $1. For example, the issuer or guarantor of a portfolio
security or the counterparty to a contract could default on its obligation. An
unexpected rise in interest rates could also lead to a loss in share price if
the fund is near the maximum allowable average weighted maturity at the time.
However, the fund's investment process and management policies are designed to
minimize the likelihood and impact of these risks. To date, through this
process, the fund's share price has never deviated from $1.00.
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages over $240
billion, including more than $X.X billion using the same strategy as the fund.
The portfolio management team is led by Robert R. Johnson, vice president, who
has been on the team since the fund's inception and has been at J.P. Morgan
since 1988, and by Daniel B. Mulvey, vice president, who joined the team in
January of 1995 and has been at J.P. Morgan since 1991.
MONEY MARKET FUNDS AND STABILITY
Money market funds are subject to a range of federal regulations designed
to promote stability. For example, money market funds must maintain a weighted
average maturity of no more than 90 days, and generally may not invest in any
securities with a remaining maturity of more than 13 months. Keeping the
weighted average maturity this short helps funds in their pursuit of a stable $1
share price.
Additionally, money market funds take steps to protect investors against credit
risk. The J.P. Morgan Institutional Service Prime Money Market Fund maintains
stricter standards than federal law requires when it comes to securities
selection.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
The current expenses you should expect to pay as an investor in the fund are
shown at right. The fund has no sales, redemption, exchange, or account fees,
although some institutions may charge you a fee for shares you buy through them.
The annual fund expenses shown are deducted from fund assets prior to
performance calculations.
Footnotes for this section are shown on next page.
Annual fund operating expenses/1/(%)
Management fees (actual) 0.12
Marketing (12b-1) fees none
Other expenses/2/
(after reimbursement) 0.08
Service fees/3/ 0.25
- ----------------------------------------------------
Total operating expenses/2/
(after reimbursement) 0.45
- ----------------------------------------------------
Expense example
The example below uses the same assumptions as other fund prospectuses: $1,000
initial investment, 5% annual total return, expenses unchanged, all shares sold
at the end of each time period. The example is for comparison only; the fund's
actual return and expenses will be different.
- -----------------------------------------------------------------------------
1 yr. 3 yrs.
Your cost($) 5 14
- -----------------------------------------------------------------------------
4 / J.P. MORGAN INSTITUTIONAL SERVICE PRIME MONEY MARKET FUND
<PAGE>
PERFORMANCE
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN Shows performance over time, for periods ended December 31, 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 yr. 5 yrs. 10 yrs./4/
J.P. Morgan Prime Money Market Fund (after expenses) x.xx x.xx x.xx
- -------------------------------------------------------------------------------------------------------------------
IBC/Donoghue Money Market Fund Benchmark/5/ (after expenses) x.xx x.xx x.xx
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
YEAR-BY-YEAR TOTAL RETURN Shows changes in returns by calendar year
- -----------------------------------------------------------------------
[BAR GRAPH APPEARS HERE]
[.] J.P. Morgan Prime Money Market Fund
[.] IBC/Donoghue Money Fund Benchmark/5/
- -----------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Per-share data For fiscal periods ended November 30
1997/6/
Net asset value, beginning of period ($) x.xx
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) x.xx
Net realized and unrealized gain (loss)
on investment ($) x.xx
- --------------------------------------------------------------------------------
Total from investment operations ($) x.xx
- --------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) x.xx
Net realized gain ($) x.xx
- --------------------------------------------------------------------------------
Total distributions ($) x.xx
- --------------------------------------------------------------------------------
Net asset value, end of period ($) x.xx
- --------------------------------------------------------------------------------
Total return (%) x.xx
- --------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------
Net assets, end of period ($ millions) xxxx
- --------------------------------------------------------------------------------
Ratio to average net assets:
Expenses (%) x.xx
- --------------------------------------------------------------------------------
Net investment income (%) x.xx
- --------------------------------------------------------------------------------
Decrease reflected in expense ratio due
to expense reimbursement (%) x.xx
- --------------------------------------------------------------------------------
The Financial Highlights above have been audited by Price Waterhouse LLP, the
fund's independent accountants.
1 The fund has a master/feeder structure as described on page 9. This table
shows the fund's estimated expenses and its share of master portfolio
expenses for the past fiscal period, expressed as a percentage of the fund's
estimated average net assets after reimbursement for ordinary expenses over
0.45%.
2 Without reimbursement, other expenses and total operating expenses would have
been 0.19% and 0.56%, respectively. There is no guarantee that reimbursement
will continue beyond 3/31/99.
3 Service Organizations may charge other fees to their customers who are the
beneficial owners of shares in connections with their customers' accounts.
Such fees, if any, may affect the return such customers realize with respect
to their investments.
4 Returns reflect the performance of J.P. Morgan Prime Money Market Fund (a
separate feeder fund investing in the same master portfolio) from 1/1/88
through 12/31/97. Historical performance information reflects operating
expenses which are lower by up to 0.05% of net assets (after reimbursement),
than those of the fund. Accordingly, performance returns may have been
higher than would have occurred if an investment had been made in the fund
during the same time periods.
5 Consists of the IBC/Donoghue Taxable Money Market Fund Average from inception
through November 30, 1995 and the IBC/Donoghue First Tier Money Fund Average
thereafter.
6 The fund commenced operations on 10/27/97.
J.P. MORGAN INSTITUTIONAL SERVICE PRIME MONEY MARKET FUND / 5
<PAGE>
YOUR INVESTMENT
- --------------------------------------------------------------------------------
For your convenience, the J.P. Morgan Institutional Funds offer several ways to
start and maintain fund investments.
INVESTING THROUGH A FINANCIAL PROFESSIONAL
Prospective investors may purchase shares of the fund with the assistance of a
service organization. Your service organization 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 service
organization and you prefer to place a transaction order yourself, please use
the instructions for investing directly.
INVESTING THROUGH AN EMPLOYER-SPONSORED RETIREMENT PLAN
Your fund investments are handled through your plan. Refer to your plan
materials or contact your benefits office for information on buying, selling, or
exchanging fund shares.
INVESTING THROUGH AN IRA OR ROLLOVER IRA
Please contact a J.P. Morgan Retirement Services Specialist at 1-888-576-4472
for information on J.P. Morgan's comprehensive IRA services, including lower
minimum investments.
INVESTING DIRECTLY
Investors may establish accounts without the help of an intermediary by using
the instructions below and at right:
. Choose a fund (or funds) and determine the amount you are investing. The
minimum amount for initial investments in the fund is $10,000,000 and for
additional investments $25,000, although these minimums may be less for some
investors. A service organization may impose a minimum amount for initial and
subsequent investments in the fund and may establish other requirements such as
a minimum account balance. Customers should contact their service organization
for further information concerning such requirements and charges. For more
information on minimum investments, call 1-800-766-7722.
. Complete the application, indicating how much of your investment you want to
allocate to which fund(s). Please apply now for any account privileges you
may want to use in the future, in order to avoid the delays associated with
adding them later on.
. Mail in your application, making your initial investment as shown below.
For answers to any questions, please speak with a J.P. Morgan Funds
Services Representative at 1-800-766-7722.
OPENING YOUR ACCOUNT
By wire
. Mail your completed application to the Shareholder Services Agent.
. Call the Shareholder Services Agent to obtain an account number and to place a
purchase order. Funds that are wired without a purchase order will be returned
uninvested.
. After placing your purchase order, instruct your bank to wire the amount of
your investment to:
Morgan Guaranty Trust Company
Routing number: 021-000-238
Credit: J.P. Morgan Institutional Funds
Account number: 001-57-689
FFC: your account number, name of registered owner(s) and fund name
By check
. Make out a check for the investment amount payable to J.P. Morgan
Institutional Funds.
. Mail the check with your completed application to the Shareholder Services
Agent.
By exchange
. Call the Shareholder Services Agent for an exchange.
ADDING TO YOUR ACCOUNT
By wire
. Call the Shareholder Services Agent to place a purchase order. Funds that are
wired without a purchase order will be returned uninvested.
. Once you have placed your purchase order, instruct your bank to wire the
amount of your investment as described above.
By check
. Make out a check for the investment amount payable to J.P. Morgan
Institutional Funds.
. Mail the check with a completed investment slip to the
6 / YOUR INVESTMENT
<PAGE>
Shareholder Services Agent. If you do not have an investment slip, attach a
note indicating your account number and how much you wish to invest in which
fund(s).
By exchange
. Call the Shareholder Services Agent for an exchange.
SELLING SHARES
By wire
. Call the Shareholder Services Agent to verify that the wire redemption
privilege is in place on your account. If it is not, a representative can help
you add it.
. Place your wire request. If you are transferring money to a non-Morgan
account, you will need to provide the representative with the personal
identification number (PIN) that was provided to you when you opened your fund
account.
By phone
. Call the Shareholder Services Agent and place your request. Once your request
has been verified, a check for the net amount, payable to the registered
owner(s), will be mailed to the address of record. For checks payable to any
other party or mailed to any other address, please make your request in
writing (see below).
In writing
. Write a letter of instruction that includes the following information: The
name of the registered owner(s) of the account; the account number; the fund
name; the amount you want to sell; and the recipient's name and address or
wire information, if different from those of the account registration.
. Indicate whether you want the proceeds sent by check or by wire.
. Make sure the letter is signed by an authorized party. The Shareholder
Services Agent may require additional information, such as a signature
guarantee.
. Mail the letter to the Shareholder Services Agent.
By exchange
. Call the Shareholder Services Agent for an exchange.
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, J.P. Morgan mutual fund or shares of J.P. Morgan
Series Trust 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 are the
same as those of the New York Stock Exchange. The fund calculates its net asset
value per share (NAV) every business day at 5:00 p.m. eastern time.
Timing Of Orders Orders to buy or sell shares are executed at the next NAV
calculated after the order has been received. Purchase and redemption orders for
the fund must be received by 5:00 p.m. eastern time.
For the purchase to be effective and dividends to be earned on the same day,
purchase orders and immediately available funds must be received by 5:00 p.m.
eastern time on a fund business day. The fund has the right to suspend
redemption of shares and to postpone payment of proceeds for up to seven days or
as permitted by law.
Shareholder Services Agent
J.P. Morgan Funds Services
522 Fifth Avenue
New York, NY 10036
1-800-766-7722
Representatives are available 8:00 a.m.
to 5:00 p.m. eastern time on fund business
days.
YOUR INVESTMENT / 7
<PAGE>
Timing Of Settlements When you buy shares, you will become the owner of record
when the fund receives your payment. Redemption orders for the fund received by
5:00 p.m. eastern time will be paid in immediately available funds according to
instructions on file.
When you sell shares that you recently purchased by check, your order will be
executed at the next NAV but the proceeds will not be available until your check
clears. This may take up to 15 days.
Statements And Reports The fund sends monthly account statements as well as
confirmations after each purchase or sale of shares (except reinvestments).
Every six months the fund sends out an annual or semi-annual report, containing
information on its holdings and a discussion of recent and anticipated market
conditions and fund performance.
Accounts With Below-minimum Balances If your account balance falls below the
minimum for 30 days as a result of selling shares (and not because of
performance), the fund may 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
Income dividends are declared daily and paid 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 their
purchase is effective, but not on the business day their redemption is
effective.
Dividends and distributions are automatically paid 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
- --------------------------------------------------------------------------------
Every January, the fund issues tax information on its distributions for the
previous year.
Any investor for whom the fund does not have a valid taxpayer identification
number will be subject to backup withholding for taxes.
The tax considerations described in this section do not apply to tax-deferred
accounts or other non-taxable entities.
Because each investor's tax circumstances are unique, please consult your tax
professional about your fund investment.
8 / YOUR INVESTMENT
<PAGE>
FUND DETAILS
MASTER/FEEDER STRUCTURE
As noted earlier, the fund is a "feeder" fund that invests in a master
portfolio. (Except where indicated, this prospectus uses the term "the fund" to
mean the feeder fund and its master portfolio taken together.)
The master portfolio accepts investments from other feeder funds, and all the
feeders of a given master portfolio bear the portfolio's expenses in proportion
to their assets. However, each feeder can set its own transaction minimums,
fund-specific expenses, and other conditions. This means that one feeder could
offer access to the same master portfolio on more attractive terms, or could
experience better performance, than another feeder. Information about other
feeders is available by calling 1-800-766-7722. Generally, when a master
portfolio seeks a vote, its feeder fund will hold a shareholder meeting and cast
its vote proportionately, as instructed by its shareholders. Fund shareholders
are entitled to one vote per fund share.
The fund and its master portfolio expect to maintain consistent goals, but if
they do not, the fund will withdraw from the master portfolio, receiving its
assets either in cash or securities. The fund's trustees would then consider
whether the fund should hire its own investment adviser, invest in a different
master portfolio, or take other action.
MANAGEMENT AND ADMINISTRATION
The fund and its master portfolio 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, as co-administrator, provides fund officers. J.P. Morgan, as co-
administrator, oversees the fund's other service providers.
J.P. Morgan receives the following fees for investment advisory and other
services:
Advisory services 0.20% of the first $1 billion of
the master portfolio's average
net assets plus 0.10% over
$1 billion
- --------------------------------------------------------------------------------
Administrative services Master portfolio's and fund's pro-
(fee shared with Funds rata portions of 0.09% of the
Distributor, Inc.) first $7 billion in J.P. Morgan-
advised portfolios, plus 0.04%
over $7 billion
- --------------------------------------------------------------------------------
Shareholder services 0.05% of the fund's average
net assets
- --------------------------------------------------------------------------------
The Advisor has voluntarily agreed to reimburse the fund so that total operating
expenses will not exceed 0.45% of average net assets of the fund. There is no
guarantee that this arrangement will continue beyond 3/31/99.
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 / 9
<PAGE>
FOR MORE INFORMATION
- -------------------------------------------------------------------------------
For investors who want more information on this fund, the following documents
are available free upon request:
Annual/Semi-Annual Reports Contain 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 may be obtained by contacting:
J.P. Morgan Institutional Funds
J.P. Morgan Funds Services
522 Fifth Avenue
New York, NY 10036
Telephone: 1-800-766-7722
Hearing impaired: 1-888-468-4015
Email: [email protected]
Text-only versions of these documents and this prospectus are available from the
Public Reference Room of the Securities and Exchange Commission in Washington,
D.C. (1-800-SEC-0330) and may be viewed on-screen or downloaded from the SEC's
Internet site at http://www.sec.gov. The fund's investment company and 1933 Act
registration numbers are 811-07342 and 033-54642.
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.
[LOGO]JP Morgan
- --------------------------------------------------------------------------------
J.P. MORGAN INSTITUTIONAL FUNDS
Advisor Distributor
Morgan Guaranty Trust Company of New York Funds Distributor, Inc.
522 Fifth Avenue 60 State Street
New York, NY 10036 Boston, MA 02109
1-800-766-7722 1-800-221-7930
*******************************************************************************
<PAGE>
FEBRUARY 2, 1998 PROSPECTUS
- --------------------------------------------------------------------------------
J.P. MORGAN INSTITUTIONAL SERVICE
TAX EXEMPT MONEY MARKET FUND
----------------------------------------------
Seeking to preserve capital and to provide
income and same-day liquidity
This prospectus contains essential information for anyone investing in this
fund. Please read it carefully and keep it for reference.
Shares in this fund are not bank deposits and are not guaranteed or insured by
any bank, government entity, or the FDIC. The fund seeks to maintain a stable $1
share price, without guaranteeing that it will always be able to do so.
As with all mutual funds, the fact that these shares are registered with the
Securities and Exchange Commission does not mean that the commission approves
them as an investment or guarantees that the information in this prospectus is
correct or adequate. It is a criminal offense to state or suggest otherwise.
Distributed by Funds Distributor, Inc.
[LOGO]JP MORGAN
<PAGE>
CONTENTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
2| MONEY MARKET MANAGEMENT APPROACH
Money market investment process..........................................2
4| J.P. MORGAN INSTITUTIONAL SERVICE TAX EXEMPT MONEY
MARKET FUND
The fund's goal,
investment approach, Fund description.........................................................4
risks, expenses, Investor expenses........................................................4
performance, and Performance..............................................................5
financial highlights Financial highlights.....................................................5
6| YOUR INVESTMENT
Investing in the J.P. Investing through a financial professional...............................6
Morgan Institutional Investing through an employer-sponsored retirement plan..................6
Service Tax Exempt Investing through an IRA or rollover IRA.................................6
Money Market Fund Investing directly.......................................................6
Opening your account.....................................................6
Adding to your account...................................................6
Selling shares...........................................................7
Account and transaction policies.........................................7
Dividends and distributions..............................................8
Tax considerations.......................................................8
9| FUND DETAILS
More about risk Master/feeder structure..................................................9
and the fund's Management and administration............................................9
business operations
FOR MORE INFORMATION............................................back cover
</TABLE>
<PAGE>
INTRODUCTION
- --------------------------------------------------------------------------------
J.P. MORGAN INSTITUTIONAL SERVICE TAX EXEMPT MONEY MARKET FUND
This fund invests in high-quality short-term debt securities by investing in a
master portfolio (another fund with the same goal). The fund accrues dividends
daily, pays them to shareholders monthly, and seeks to maintain a stable $1
share price.
WHO MAY WANT TO INVEST
The fund is designed for investors who:
. want an investment that strives to preserve capital
. want regular income from a high quality portfolio
. want a highly liquid investment
. are looking for an interim investment
. are pursuing a short-term goal
. are seeking income that is exempt from federal income tax
The fund is not designed for investors who:
. are investing for long-term growth
. are investing for high income
. require the added security of the FDIC insurance
. are investing through an IRA or other tax-advantaged retirement plans
J.P. MORGAN
Known for its commitment to proprietary research and its disciplined investment
strategies, J.P. Morgan is the asset manager of choice for many of the world's
most respected corporations, financial institutions, governments, and
individuals. Today, J.P. Morgan employs over 300 analysts and portfolio managers
around the world and has more than $240 billion in assets under management,
including assets managed by the funds' advisor, Morgan Guaranty Trust Company of
New York.
- --------------------------------------------------------------------
Before you invest
Investors considering the fund should understand that:
. There is no assurance that the fund will meet its investment goals
. Future returns will not necessarily resemble past performance
- --------------------------------------------------------------------
|1
<PAGE>
MONEY MARKET MANAGEMENT APPROACH
- --------------------------------------------------------------------------------
The J.P. Morgan Institutional Service Tax Exempt Money Market Fund invests
exclusively in high-quality short-term debt obligations.
The investment philosophy, developed by the fund's advisor, emphasizes
investment quality through in-depth research on short-term securities and their
issuers. This allows the fund to focus on providing high current income without
compromising share price stability.
MONEY MARKET INVESTMENT PROCESS
In researching short-term securities, J.P. Morgan's credit analysts enhance the
data furnished by rating agencies by drawing on the insights of J.P. Morgan's
fixed income trading specialists and equity analysts. Only highly rated
securities where J.P. Morgan concurs with the rating are considered for
investment.
In managing the fund, J.P. Morgan employs a three-step process:
[graphic appears here]
J.P. Morgan uses a disciplined process to control the fund's sensitivity
to interest rates
Maturity determination Based on analysis of a range of factors, including
current yields, economic forecasts, and anticipated fiscal and monetary
policies, J.P. Morgan establishes the desired weighted average maturity for the
fund within the permissible 90-day range. Controlling weighted average maturity
allows the fund to manage risk, since securities with shorter maturities are
typically less sensitive to interest rate shifts than those with longer
maturities.
[graphic appears here]
The fund invests across different sectors, for diversification and to take
advantage of yield spreads
Sector allocation After comparing the yields available in different sectors of
the short-term debt market, J.P. Morgan adjusts the fund's sector allocation,
with the goal of enhancing current income while also maintaining diversification
across permissible sectors.
[graphic appears here]
The fund selects its securities as described later in this prospectus
Security selection Based on the results of the firm's credit research and the
fund's maturity determination and sector allocation, the portfolio managers and
dedicated fixed-income traders make buy and sell decisions according to the
fund's goal and strategy.
2| MONEY MARKET MANAGEMENT APPROACH
<PAGE>
(THIS PAGE IS INTENTIONALLY LEFT BLANK)
|3
<PAGE>
J.P. MORGAN INSTITUTIONAL SERVICE
TAX EXEMPT MONEY MARKET FUND
- --------------------------------------------------------------------------------
REGISTRANT: THE J.P. MORGAN INSTITUTIONAL
FUNDS (THE J.P. MORGAN INSTITUTIONAL
SERVICE TAX EXEMPT MONEY MARKET FUND)
[graphic appears here]
GOAL
The fund seeks to provide high current income that is exempt from federal income
tax and to maintain high liquidity.
[graphic appears here]
INVESTMENT APPROACH
The fund invests primarily in high quality municipal obligations whose income is
exempt from federal income taxes. The fund's municipal obligations must fall
into the highest short-term rating category (top two highest categories for New
York State obligations) or be of equivalent quality. The fund may also invest in
certain structured municipal obligations, and in certain securities whose income
is subject to the alternative minimum tax (AMT). In order to maintain liquidity
while being fully invested, the fund may buy securities with puts that allow the
fund to liquidate the securities on short notice. Some of the fund's securities
may be purchased on a when-issued or delayed delivery basis.
[graphic appears here]
POTENTIAL RISKS AND REWARDS
The fund's yield will vary in response to changes in interest rates. How well
the fund's yield compares to the yields of similar money market funds will
depend on the success of the investment process, which is described on page 2.
As with all money market funds, the fund's investments are subject to various
risks, which, while generally considered to be minimal, could cause its share
price to fall below $1. For example, the issuer or guarantor of a portfolio
security or the counterparty to a contract could default on its obligation. An
unexpected rise in interest rates could also lead to a loss in share price if
the fund is near the maximum allowable average weighted maturity at the time.
However, the fund's investment process and management policies are designed to
minimize the likelihood and impact of these risks. To date, through this
process, the fund's share price has never deviated from $1.00.
Most of the fund's income is exempt from federal income taxes. A small portion
may be exempt from state or local income taxes.
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages over $240
billion, including more than $X.X billion using the same strategy as the fund.
The portfolio management team is led by Daniel B. Mulvey, vice president, who
has been on the team since August of 1995 and has been at J.P. Morgan since
1991, and by Richard W. Oswald, vice president, who has been on the team since
joining J.P. Morgan in October of 1996. Prior to managing this fund, Mr. Oswald
served as Treasurer of CBS and President of its finance unit.
MONEY MARKET FUNDS AND STABILITY
Money market funds are subject to a range of federal regulations designed
to promote stability. For example, money market funds must maintain a weighted
average maturity of no more than 90 days, and generally may not invest in any
securities with a remaining maturity of more than 13 months. Keeping the
weighted average maturity this short helps funds in their pursuit of a stable $1
share price.
Additionally, money market funds take steps to protect investors against credit
risk. The J.P. Morgan Institutional Service Tax Exempt Money Market Fund
maintains stricter standards than federal law requires when it comes to
securities selection.
INVESTOR EXPENSES
The current expenses you should expect to pay as an investor in the fund are
shown at right. The fund has no sales, redemption, exchange, or account fees,
although some institutions may charge you a fee for shares you buy through them.
The annual fund expenses shown are deducted from fund assets prior to
performance calculations.
Footnotes for this section are shown on next page.
Annual fund operating expenses/1/ (%)
Management fees (actual) 0.18
Marketing (12b-1) fees none
Other expenses/2/
(after waiver and reimbursement) 0.25
Service fees/3/ 0.25
- ----------------------------------------------------
Total operating expenses/2/
(after reimbursement) 0.50
- ----------------------------------------------------
Expense example
The example below uses the same assumptions as other fund prospectuses: $1,000
initial investment, 5% annual total return, expenses unchanged, all shares sold
at the end of each time period. The example is for comparison only; the fund's
actual return and expenses will be different.
- --------------------------------------------------------------------------------
1 yr. 3 yrs.
Your cost($) 5 16
- --------------------------------------------------------------------------------
4| J.P. MORGAN INSTITUTIONAL SERVICE TAX EXEMPT MONEY MARKET FUND
<PAGE>
PERFORMANCE
Average annual total return Shows performance over time for periods
ended December 31, 1997
- -------------------------------------------------------------------------------
1 yr. 3 yrs. Since inception/4/
J.P. Morgan Institutional
Tax Exempt Money Market
Fund/5/ (after expenses) xx.xx xx.xx xx.xx
- --------------------------------------------------------------------------------
IBC Tax Exempt Money
Market Fund Average/6/ (after
expenses) xx.xx xx.xx xx.xx
- --------------------------------------------------------------------------------
Year-by-year total return Shows changes in returns by calendar year
- --------------------------------------------------------------------------------
[BAR GRAPH]
[.] J.P. Morgan Institutional Service Tax Exempt Money Market Fund
[.] IBC Tax Exempt Money Market Fund Average/6/
================================================================================
FINANCIAL HIGHLIGHTS
PER-SHARE DATA For fiscal periods ended August 31
- --------------------------------------------------------------------------------
1997/7/
Net asset value, beginning of period ($) x.xx
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income x.xx
Net realized loss on investment x.xx
- --------------------------------------------------------------------------------
Total from investment operations ($) x.xx
- --------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) x.xx
Net realized gain ($) x.xx
- --------------------------------------------------------------------------------
Total distributions ($) x.xx
- --------------------------------------------------------------------------------
Net asset value, end of period ($) x.xx
- --------------------------------------------------------------------------------
Total return (%) x.xx
- --------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Net assets, end of period ($ thousands) xxxxx
- --------------------------------------------------------------------------------
Ratio to average net assets:
Expenses (%) x.xx
- --------------------------------------------------------------------------------
Net investment income (%) x.xx
- --------------------------------------------------------------------------------
Decrease reflected in expense ratio due
to expense reimbursement/waiver (%) x.xx
- --------------------------------------------------------------------------------
The Financial Highlights above have been audited by Price Waterhouse LLP, the
fund's independent accountants.
1 The fund has a master/feeder structure as described on page 9. This table
shows the fund's estimated expenses and its share of master portfolio
expenses for the past fiscal year. Total operating expenses may vary but in
any event will not exceed 0.60% of the fund's average net assets through
12/31/98.
2 Without such waiver and reimbursement, other expenses and total operating
expenses would have been 0.22% and 0.65%, respectively. There is no guarantee
that this arrangement will continue beyond 12/31/98.
3 Service Organizations may charge other fees to their customers who are the
beneficial owners of shares in connection with their customers' accounts.
Such fees, if any, may affect the return such customers realize with respect
to their investments.
4 The inception date of J.P. Morgan Institutional Tax Exempt Money Market Fund
is 7/12/93.
5 Returns reflect the performance of J.P. Morgan Institutional Tax Exempt
Money Market Fund (a separate feeder fund investing in the same master
portfolio) from 7/31/93 through 12/31/93. Historical performance reflects
operating expenses which are lower than those of the fund. Accordingly,
performance returns may have been higher than would have occurred if an
investment had been made in the fund during the same time periods.
6 The IBC Tax Exempt Money Market Fund Average is an average of all major tax
free money market fund returns.
7 The fund commenced operations on 11/4/97.
J.P. MORGAN INSTITUTIONAL SERVICE TAX EXEMPT MONEY MARKET FUND |5
<PAGE>
YOUR INVESTMENT
- --------------------------------------------------------------------------------
For your convenience, the J.P. Morgan Institutional Funds offer several ways to
start and maintain fund investments.
INVESTING THROUGH A FINANCIAL PROFESSIONAL
Prospective investors may purchase shares of the fund with the assistance of a
service organization. Your service organization 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 service
organization and you prefer to place a transaction order yourself, please use
the instructions for investing directly.
INVESTING THROUGH AN EMPLOYER-SPONSORED RETIREMENT PLAN
Your fund investments are handled through your plan.
Refer to your plan materials or contact your benefits office for
information on buying, selling, or exchanging fund shares.
INVESTING THROUGH AN IRA OR ROLLOVER IRA
Please contact a J.P. Morgan Retirement Services Specialist at 1-888-576-4472
for information on J.P. Morgan's comprehensive IRA services, including lower
minimum investments.
INVESTING DIRECTLY
Investors may establish accounts without the help of an intermediary by using
the instructions below and at right:
. Choose a fund (or funds) and determine the amount you are investing. The
minimum amount for initial investments in the fund is $10,000,000 and for
additional investments $25,000, although these minimums may be less for some
investors. A service organization may impose a minimum amount for initial and
subsequent investments in the fund and may establish other requirements such as
a minimum account balance. Customers should contact their service organization
for further information concerning such requirements and charges. For more
information on minimum investments, call 1-800-766-7722.
. Complete the application, indicating how much of your investment you want to
allocate to which fund(s). Please apply now for any account privileges you
may want to use in the future, in order to avoid the delays associated with
adding them later on.
. Mail in your application, making your initial investment as shown below.
For answers to any questions, please speak with a J.P. Morgan Funds Services
Representative at 1-800-766-7722.
OPENING YOUR ACCOUNT
By wire
. Mail your completed application to the Shareholder Services Agent.
. Call the Shareholder Services Agent to obtain an account number and to place
a purchase order. Funds that are wired without a purchase order will be
returned uninvested.
. After placing your purchase order, instruct your bank to wire the amount of
your investment to:
Morgan Guaranty Trust Company
Routing number: 021-000-238
Credit: J.P. Morgan Institutional Funds
Account number: 001-57-689
FFC: your account number, name of registered owner(s) and fund name
By check
. Make out a check for the investment amount payable
to J.P. Morgan Institutional Funds.
. Mail the check with your completed application to
the Shareholder Services Agent.
By exchange
. Call the Shareholder Services Agent for an exchange.
ADDING TO YOUR ACCOUNT
By wire
. Call the Shareholder Services Agent to place a purchase order. Funds that are
wired without a purchase order will be returned uninvested.
. Once you have placed your purchase order, instruct
your bank to wire the amount of your investment as described above.
By check
. Make out a check for the investment amount payable to J.P. Morgan
Institutional Funds.
. Mail the check with a completed investment slip to the
6| YOUR INVESTMENT
<PAGE>
Shareholder Services Agent. If you do not have an investment slip, attach a
note indicating your account number and how much you wish to invest in which
fund(s).
By exchange
. Call the Shareholder Services Agent for an exchange.
SELLING SHARES
By wire
. Call the Shareholder Services Agent to verify that the wire redemption
privilege is in place on your account. If it is not, a representative can
help you add it.
. Place your wire request. If you are transferring money to a non-Morgan
account, you will need to provide the representative with the personal
identification number (PIN) that was provided to you when you opened your
fund account.
By phone
. Call the Shareholder Services Agent and place your request. Once your request
has been verified, a check for the net amount, payable to the registered
owner(s), will be mailed to the address of record. For checks payable to any
other party or mailed to any other address, please make your request in
writing (see below).
In writing
. Write a letter of instruction that includes the following information: The
name of the registered owner(s) of the account; the account number; the fund
name; the amount you want to sell; and the recipient's name and address or
wire information, if different from those of the account registration.
. Indicate whether you want the proceeds sent by check
or by wire.
. Make sure the letter is signed by an authorized party. The Shareholder
Services Agent may require additional information, such as a signature
guarantee.
. Mail the letter to the Shareholder Services Agent.
By exchange
. Call the Shareholder Services Agent for an exchange.
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, J.P. Morgan mutual fund or shares of J.P. Morgan Series
Trust 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 are the
same as those of the New York Stock Exchange. The fund calculates its net asset
value per share (NAV) every business day at 1:00 p.m. eastern time.
Timing of orders Orders to buy or sell shares are executed at the next NAV
calculated after the order has been received. Purchase and redemption orders for
the fund must be received by 1:00 p.m. eastern time.
For the purchase to be effective and dividends to be earned on the same day,
purchase orders must be placed by 1:00 p.m. eastern time and immediately
available funds must be received by 4:00 p.m. eastern time on a fund business
day. The fund has the right to suspend redemption of shares and to postpone
payment of proceeds for up to seven days or as permitted by law.
- --------------------------------------------------------------------------------
Shareholder Services Agent
J.P. Morgan Funds Services
522 Fifth Avenue
New York, NY 10036
1-800-766-7722
Representatives are available 8:00 a.m. to 5:00 p.m. eastern
time on fund business days.
YOUR INVESTMENT |7
<PAGE>
Timing of settlements When you buy shares, you will become the owner of record
when the fund receives your payment. Redemption orders for the fund received by
1:00 p.m. eastern time will be paid in immediately available funds according to
instructions on file.
When you sell shares that you recently purchased by check, your order will be
executed at the next NAV but the proceeds will not be available until your check
clears. This may take up to 15 days.
Statements and reports The fund sends monthly account statements as well as
confirmations after each purchase or sale of shares (except reinvestments).
Every six months the fund sends out an annual or semi-annual report, containing
information on its holdings and a discussion of recent and anticipated market
conditions and fund performance.
Accounts with below-minimum balances If your account balance falls below the
minimum for 30 days as a result of selling shares (and not because of
performance), the fund may 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
Income dividends are declared daily and paid 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 their
purchase is effective, but not on the business day their redemption is
effective.
Dividends and distributions are automatically paid 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 Exempt from federal
income taxes
- ---------------------------------------------------
Short-term capital gains Ordinary income
distributions
- ---------------------------------------------------
Every January, the fund issues tax information on its distributions for the
previous year.
Any investor for whom the fund does not have a valid taxpayer identification
number will be subject to backup withholding for taxes.
The tax considerations described in this section do not apply to tax-deferred
accounts or other non-taxable entities.
Because each investor's tax circumstances are unique, please consult your tax
professional about your fund investment.
8| YOUR INVESTMENT
<PAGE>
FUND DETAILS
- --------------------------------------------------------------------------------
MASTER/FEEDER STRUCTURE
As noted earlier, the fund is a "feeder" fund that invests in a master
portfolio. (Except where indicated, this prospectus uses the term "the fund" to
mean the feeder fund and its master portfolio taken together.)
The master portfolio accepts investments from other feeder funds, and all the
feeders of a given master portfolio bear the portfolio's expenses in proportion
to their assets. However, each feeder can set its own transaction minimums,
fund-specific expenses, and other conditions. This means that one feeder could
offer access to the same master portfolio on more attractive terms, or could
experience better performance, than another feeder. Information about other
feeders is available by calling 1-800-766-7722. Generally, when a master
portfolio seeks a vote, its feeder fund will hold a shareholder meeting and cast
its vote proportionately, as instructed by its shareholders. Fund shareholders
are entitled to one vote per fund share.
The fund and its master portfolio expect to maintain consistent goals, but if
they do not, the fund will withdraw from the master portfolio, receiving its
assets either in cash or securities. The fund's trustees would then consider
whether the fund should hire its own investment adviser, invest in a different
master portfolio, or take other action.
MANAGEMENT AND ADMINISTRATION
The fund and its master portfolio 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, as co-administrator, provides fund officers. J.P. Morgan, as co-
administrator, oversees the fund's other service providers.
J.P. Morgan receives the following fees for investment advisory and other
services:
- ----------------------------------------------------------------
Advisory services 0.20% of the first $1 billion of
the master porttfolio's average
net assets plus 0.10% over
$1 billion
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Administrative services Master portfolio's and fund's pro-
(fee shared with Funds rata portions of 0.09% of the
Distributor, Inc.) first $7 billion in J.P. Morgan-
advised portfolios, plus 0.04%
over $7 billion
- ----------------------------------------------------------------
Shareholder services 0.05% of the fund's average
net assets
- ----------------------------------------------------------------
The Advisor has voluntarily agreed to reimburse the fund so that total operating
expenses will not exceed 0.60% of average net assets of the fund. There is no
guarantee that this arrangement will continue beyond 12/31/98.
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 |9
<PAGE>
FOR MORE INFORMATION
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For investors who want more information on this fund, the following documents
are available free upon request:
Annual/Semi-annual Reports Contain 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 may be obtained by contacting:
J.P. Morgan Institutional Funds
J.P. Morgan Funds Services
522 Fifth Avenue
New York, NY 10036
Telephone: 1-800-766-7722
Hearing impaired: 1-888-468-4015
Email: [email protected]
Text-only versions of these documents and this prospectus are available from the
Public Reference Room of the Securities and Exchange Commission in Washington,
D.C. (1-800-SEC-0330) and may be viewed on-screen or downloaded from the SEC'S
Internet site at http://www.sec.gov. The fund's investment company and 1933 Act
registration numbers are 811-07342 and 033-54642.
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.
[LOGO]JP MORGAN
- --------------------------------------------------------------------------------
J.P. Morgan Institutional Funds
Advisor Distributor
Morgan Guaranty Trust Company of New York Funds Distributor, Inc.
522 Fifth Avenue 60 State Street
New York, NY 10036 Boston, MA 02109
1-800-766-7722 1-800-221-7930
******************************************************************************
<PAGE>
J.P. MORGAN INSTITUTIONAL FUNDS
J.P. MORGAN INSTITUTIONAL PRIME MONEY MARKET FUND
J.P. MORGAN INSTITUTIONAL TREASURY MONEY MARKET FUND
J.P. MORGAN INSTITUTIONAL FEDERAL MONEY MARKET FUND
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 2, 1998
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT CONTAINS
ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS
DATED FEBRUARY 2, 1998 FOR THE FUND OR FUNDS LISTED ABOVE, AS SUPPLEMENTED FROM
TIME TO TIME, WHICH MAY BE OBTAINED UPON REQUEST FROM FUNDS DISTRIBUTOR, INC.,
ATTENTION: J.P. MORGAN INSTITUTIONAL FUNDS (800) 221-7930.
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Table of Contents
PAGE
General.......................................................................1
Investment Objectives and Policies............................................1
Investment Restrictions......................................................10
Trustees and Officers........................................................15
Investment Advisor...........................................................19
Distributor..................................................................21
Co-Administrator.............................................................22
Services Agent...............................................................23
Custodian and Transfer Agent.................................................23
Shareholder Servicing........................................................24
Independent Accountants......................................................25
Expenses.....................................................................25
Purchase of Shares...........................................................26
Redemption of Shares.........................................................26
Exchange of Shares...........................................................27
Dividends and Distributions..................................................27
Net Asset Value..............................................................27
Performance Data.............................................................28
Portfolio Transactions.......................................................30
Massachusetts Trust..........................................................31
Description of Shares........................................................32
Taxes........................................................................33
Additional Information.......................................................35
Appendix A - Description of Security Ratings................................A-1
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GENERAL
This Statement of Additional Information relates only to the J.P.
Morgan Institutional Prime Money Market Fund, the J.P. Morgan Institutional
Treasury Money Market Fund and the J.P. Morgan Institutional Federal Money
Market Fund (each, a "Fund" and collectively, the "Funds"). Each Fund is a
series of shares of beneficial interest of the J.P. Morgan Institutional Funds,
an open-end management investment company formed as a Massachusetts business
trust (the "Trust"). In addition to the Funds, the Trust consists of other
series representing separate investment funds (each a "J.P. Morgan Institutional
Fund"). The other J.P. Morgan Institutional Funds are covered by separate
Statements of Additional Information.
This Statement of Additional Information describes the financial
history, investment objective and policies, management and operation of each of
the Funds. The Funds operate through a two-tier master-feeder investment fund
structure.
This Statement of Additional Information provides additional
information with respect to the Funds and should be read in conjunction with the
relevant Fund's current Prospectus (the "Prospectus"). Capitalized terms not
otherwise defined herein have the meanings accorded to them in the Prospectus.
The Trust's executive offices are located at 60 State Street, Suite 1300,
Boston, Massachusetts 02109.
Unlike other mutual funds which directly acquire and manage their own
portfolio of securities, each Fund seeks to achieve its investment objective by
investing all of its investable assets in a corresponding Master Portfolio (the
"Portfolio"), a corresponding open-end management investment company having the
same investment objective as the Fund. Each Fund invests in a Portfolio through
a two-tier master-feeder investment fund structure. See "Special Information
Concerning Investment Structure."
Each Portfolio is advised by Morgan Guaranty Trust Company of New York
("Morgan" or the "Advisor").
Investments in a Fund are not deposits or obligations of, or guaranteed
or endorsed by, Morgan or any other bank. Shares of a Fund are not federally
insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board,
or any other governmental agency. An investment in a Fund is subject to risk
that may cause the value of the investment to fluctuate, and when the investment
is redeemed, the value may be higher or lower than the amount originally
invested by the investor.
INVESTMENT OBJECTIVES AND POLICIES
The following discussion supplements the information regarding the
investment objective of each Fund and the policies to be employed to achieve the
objective by each Portfolio as set forth herein and in the applicable
Prospectus. Since the investment characteristics and experiences of each Fund
correspond directly with those of its corresponding Portfolio, the discussion in
this Statement of Additional Information focuses on the investments and
investment policies of each Portfolio. Accordingly, references below to a
Portfolio also
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include the corresponding Fund; similarly, references to a Fund also include the
corresponding Portfolio unless the context requires otherwise.
J.P. MORGAN INSTITUTIONAL PRIME MONEY MARKET FUND (the "Prime Money
Market Fund") is designed to be an economical and convenient means of making
substantial investments in money market instruments. The Prime Money Market
Fund's investment objective is to maximize current income and maintain a high
level of liquidity. The Prime Money Market Fund attempts to achieve this
objective by investing all of its investable assets in The Prime Money Market
Portfolio (the "Portfolio"), a diversified open-end management investment
company having the same investment objective as the Prime Money Market Fund.
The Portfolio seeks to achieve its investment objective by maintaining
a dollar-weighted average portfolio maturity of not more than 90 days and by
investing in U.S. dollar denominated securities described in the Prospectus and
this Statement of Additional Information that meet certain rating criteria,
present minimal credit risk and have effective maturities of not more than 397
days. The Portfolio's ability to achieve maximum current income is affected by
its high quality standards. See "Quality and Diversification Requirements."
J.P. MORGAN INSTITUTIONAL TREASURY MONEY MARKET FUND (the "Treasury
Money Market Fund") is designed to be an economical and convenient means of
making substantial investments in U.S. Treasury obligations and repurchase
agreement transactions with respect to those obligations. The Treasury Money
Market Fund's investment objective is to provide current income, maintain a high
level of liquidity and preserve capital. The Treasury Money Market Fund attempts
to accomplish this objective by investing all of its investable assets in The
Treasury Money Market Portfolio (the "Portfolio"), a diversified open-end
management investment company having the same investment objective as the
Treasury Money Market Fund.
The Portfolio attempts to achieve its investment objective by
maintaining a dollar-weighted average portfolio maturity of not more than 90
days and by investing in U.S. Treasury securities and related repurchase
agreement transactions as described in the Prospectus and this Statement of
Additional Information that have effective maturities of not more than 397 days.
See "Quality and Diversification Requirements."
J.P. MORGAN INSTITUTIONAL FEDERAL MONEY MARKET FUND (the "Federal Money
Market Fund") is designed to be an economical and convenient means of making
substantial investments primarily in short term direct obligations of the U.S.
Government. The Federal Money Market Fund's investment objective is to provide
current income, maintain a high level of liquidity and preserve capital. The
Federal Money Market Fund attempts to accomplish this objective by investing all
of its investable assets in The Federal Money Market Portfolio (the
"Portfolio"), a diversified open-end management investment company having the
same investment objective as the Federal Money Market Fund.
The Portfolio attempts to achieve its investment objective by
maintaining a dollar-weighted average portfolio maturity of not more than 90
days and by investing in U.S. Treasury securities and in obligations of certain
U.S.
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Government agencies, as described in the Prospectus and this Statement of
Additional Information that have effective maturities of not more than 397 days.
See "Quality and Diversification Requirements."
MONEY MARKET INSTRUMENTS
A description of the various types of money market instruments that may be
purchased by the Funds appears below. Also see "Quality and Diversification
Requirements."
U.S. TREASURY SECURITIES. Each of the Funds may invest in direct
obligations of the U.S. Treasury, including Treasury bills, notes and bonds, all
of which are backed as to principal and interest payments by the full faith and
credit of the United States.
ADDITIONAL U.S. GOVERNMENT OBLIGATIONS. Each of the Funds (other than
the Treasury Money Market 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, each Fund must look
principally to the federal agency issuing or guaranteeing the obligation for
ultimate repayment and may not be able to assert a claim against the United
States itself in the event the agency or instrumentality does not meet its
commitments. Securities in which each Fund may invest that are not backed by the
full faith and credit of the United States include, but are not limited to: (i)
obligations of the Tennessee Valley Authority, the Federal Home Loan Mortgage
Corporation, the Federal Home Loan Banks and the U.S. Postal Service, each of
which has the right to borrow from the U.S. Treasury to meet its obligations;
(ii) securities issued by the Federal National Mortgage Association, which are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; and (iii) obligations of the Federal Farm Credit System
and the Student Loan Marketing Association, each of whose obligations may be
satisfied only by the individual credits of the issuing agency.
FOREIGN GOVERNMENT OBLIGATIONS. The Prime Money Market Fund, subject to its
applicable investment policies, may also invest in short-term obligations of
foreign sovereign governments or of their agencies, instrumentalities,
authorities or political subdivisions. See "Foreign Investments." These
securities must be denominated in the U.S. dollar.
BANK OBLIGATIONS. The Prime Money Market Fund, unless otherwise noted
in the Prospectus or below, 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 Prime Money
Market Fund will not invest in obligations for which the Advisor, or any of its
affiliated persons, is the ultimate obligor or accepting bank. Each of the
Funds, other than the
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Treasury Money Market 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 Prime Money Market 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 acting as agent, for no additional fee, in its capacity as investment
advisor to the Portfolio and as fiduciary for other clients for whom it
exercises investment discretion. The monies loaned to the borrower come from
accounts managed by the Advisor or its affiliates, pursuant to arrangements with
such accounts. Interest and principal payments are credited to such accounts.
The Advisor, acting as a fiduciary on behalf of its clients, 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 the Advisor. Since master demand obligations typically
are not rated by credit rating agencies, the Prime Money Market Fund may invest
in such unrated obligations only if at the time of an investment the obligation
is determined by the Advisor to have a credit quality which satisfies the Prime
Money Market 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 Prime Money Market Fund to
be liquid because they are payable upon demand. The Prime Money Market Fund does
not have any specific percentage limitation on investments in master demand
obligations.
REPURCHASE AGREEMENTS. Each of the Funds may enter into repurchase
agreements with brokers, dealers or banks that meet the credit guidelines
approved by the Funds' Trustees. In a repurchase agreement, a Fund buys a
security from a seller that has agreed to repurchase the same security at a
mutually agreed upon date and price. The resale price normally is in excess of
the purchase price, reflecting an agreed upon interest rate. This interest rate
is effective for the period of time the Fund is invested in the agreement and is
not related to the coupon rate on the underlying security. A repurchase
agreement may also be viewed as a fully collateralized loan of money by a Fund
to the seller. The period of these repurchase agreements will usually be short,
from overnight to one week, and at no time will any Fund invest in repurchase
agreements for more than 397 days. The securities which are subject to
repurchase agreements, however, may have maturity dates in excess of 397 days
from the effective date of the repurchase agreement. The Treasury Money Market
Fund will only enter into repurchase agreements involving U.S. Treasury
securities. The Federal Money Market Fund may only enter into repurchase
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agreements involving U.S. Treasury securities and Permitted Agency Securities.
The Funds will always receive securities as collateral whose market value is,
and during the entire term of the agreement remains, at least equal to 100% of
the dollar amount invested by the Funds in each agreement plus accrued interest,
and the Funds will make payment for such securities only upon physical delivery
or upon evidence of book entry transfer to the account of the Custodian. Each
Fund will be fully collateralized within the meaning of paragraph (a)(4) of Rule
2a-7 under the Investment Company Act of 1940, as amended (the "1940 Act"). If
the seller defaults, a Fund might incur a loss if the value of the collateral
securing the repurchase agreement declines and might incur disposition costs in
connection with liquidating the collateral. In addition, if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization upon disposal of the collateral by a Fund may be delayed or limited.
The Prime Money Market Fund may make investments in other debt
securities with remaining effective maturities of not more than 397 days,
including, without limitation, corporate and foreign bonds, asset-backed
securities and other obligations described in the Prospectus or this Statement
of Additional Information.
ADDITIONAL INVESTMENTS
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. Each of the Funds may
purchase securities on a when-issued or delayed delivery basis. For example,
delivery of and payment for these securities can take place a month or more
after the date of the purchase commitment. The purchase price and the interest
rate payable, if any, on the securities are fixed on the purchase commitment
date or at the time the settlement date is fixed. The value of such securities
is subject to market fluctuation and for money market instruments and other
fixed income securities no interest accrues to a Fund until settlement takes
place. At the time a Fund makes the commitment to purchase securities on a
when-issued or delayed delivery basis, it will record the transaction, reflect
the value each day of such securities in determining its net asset value and, if
applicable, calculate the maturity for the purposes of average maturity from
that date. At the time of settlement a when-issued security may be valued at
less than the purchase price. To facilitate such acquisitions, each Fund will
maintain with the Custodian a segregated account with liquid assets, consisting
of cash, U.S. Government securities or other appropriate securities, in an
amount at least equal to such commitments. On delivery dates for such
transactions, each Fund will meet its obligations from maturities or sales of
the securities held in the segregated account and/or from cash flow. If a Fund
chooses to dispose of the right to acquire a when-issued security prior to its
acquisition, it could, as with the disposition of any other portfolio
obligation, incur a gain or loss due to market fluctuation. It is the current
policy of each Fund (except the Treasury Money Market Fund) not to enter into
when-issued commitments exceeding in the aggregate 15% of the market value of
the Fund's total assets, less liabilities other than the obligations created by
when-issued commitments.
INVESTMENT COMPANY SECURITIES. Securities of other investment companies
may be acquired by each of the Funds and their corresponding Portfolios to the
extent permitted under the 1940 Act. These limits require that, as determined
immediately after a purchase is made, (i) not more than 5% of the value of a
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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 a Fund, provided however, that a Fund may invest all of
its investable assets in an open-end investment company that has the same
investment objective as the Fund (its corresponding Portfolio). As a shareholder
of another investment company, a Fund or Portfolio would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund or Portfolio bears directly in connection with its
own operations.
REVERSE REPURCHASE AGREEMENTS. Each of the Funds may enter into reverse
repurchase agreements. In a reverse repurchase agreement, a Fund sells a
security and agrees to repurchase the same security at a mutually agreed upon
date and price. The Treasury Money Market Fund will only enter into reverse
repurchase agreements involving Treasury securities. 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. The Funds will invest the
proceeds of borrowings under reverse repurchase agreements. In addition, a Fund
will enter into a reverse repurchase agreement only when the interest income to
be earned from the investment of the proceeds is greater than the interest
expense of the transaction. A Fund will not invest the proceeds of a reverse
repurchase agreement for a period which exceeds the duration of the reverse
repurchase agreement. Each Fund will establish and maintain with the Custodian a
separate account with a segregated portfolio of securities in an amount at least
equal to its purchase obligations under its reverse repurchase agreements. If
interest rates rise during the term of a reverse repurchase agreement, entering
into the reverse repurchase agreement may have a negative impact on a Fund's
ability to maintain a net asset value of $1.00 per share. See "Investment
Restrictions" for each Fund's limitations on reverse repurchase agreements and
bank borrowings.
LOANS OF PORTFOLIO SECURITIES. Each of the Funds may lend its
securities if such loans are secured continuously by cash or equivalent
collateral or by a letter of credit in favor of the Fund at least equal at all
times to 100% of the market value of the securities loaned, plus accrued
interest. While such securities are on loan, the borrower will pay the Fund any
income accruing thereon. Loans will be subject to termination by the Funds in
the normal settlement time, generally three business days after notice, or by
the borrower on one day's notice. Borrowed securities must be returned when the
loan is terminated. Any gain or loss in the market price of the borrowed
securities which occurs during the term of the loan inures to a Fund and its
respective investors. The Funds may pay reasonable finders' and custodial fees
in connection with a loan. In addition, a Fund will consider all facts and
circumstances including the creditworthiness of the borrowing financial
institution, and no Fund will make any loans in excess of one year. The Funds
will not lend their securities to any officer, Trustee, Director, employee or
other affiliate of the Funds, the Advisor or the Distributor, unless otherwise
permitted by applicable law.
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PRIVATELY PLACED AND CERTAIN UNREGISTERED SECURITIES. The Funds, except
the Treasury Money Market Fund, may invest in privately placed, restricted, Rule
144A or other unregistered securities as described in the Prospectus.
As to illiquid investments, a Fund is subject to a risk that should the
Fund decide to sell them when a ready buyer is not available at a price the Fund
deems representative of their value, the value of the Fund's net assets could be
adversely affected. Where an illiquid security must be registered under the
Securities Act of 1933, as amended (the "1933 Act"), before it may be sold, a
Fund may be obligated to pay all or part of the registration expenses, and a
considerable period may elapse between the time of the decision to sell and the
time the Fund may be permitted to sell a security under an effective
registration statement. If, during such a period, adverse market conditions were
to develop, a Fund might obtain a less favorable price than prevailed when it
decided to sell.
SYNTHETIC INSTRUMENTS. The Prime Money Market Fund may invest in
certain synthetic instruments. Such instruments generally involve the deposit of
asset- backed securities in a trust arrangement and the issuance of certificates
evidencing interests in the trust. The certificates are generally sold in
private placements in reliance on Rule 144A.
QUALITY AND DIVERSIFICATION REQUIREMENTS
Each of the Funds intends to meet the diversification requirements of
the 1940 Act. To meet these requirements, 75% of the assets of each Fund are
subject to the following fundamental limitations: (1) the Fund may not invest
more than 5% of its total assets in the securities of any one issuer, except
obligations of the U.S. Government, its agencies and instrumentalities, and (2)
the Fund may not own more than 10% of the outstanding voting securities of any
one issuer. As for the other 25% of the Fund's assets not subject to the
limitation described above, there is no limitation on investment of these assets
under the 1940 Act, so that all of such assets may be invested in securities of
any one issuer, subject to the limitation of any applicable state securities
laws or as described below. Investments not subject to the limitations described
above could involve an increased risk to a Fund should an issuer, or a state or
its related entities, be unable to make interest or principal payments or should
the market value of such securities decline.
At the time any of the Funds invests in any taxable commercial paper,
master demand obligation, bank obligation or repurchase agreement, the issuer
must have outstanding debt rated A or higher by Moody's or Standard & Poor's,
the issuer's parent corporation, if any, must have outstanding commercial paper
rated Prime-1 by Moody's or A-1 by Standard & Poor's, or if no such ratings are
available, the investment must be of comparable quality in Morgan's opinion.
PRIME MONEY MARKET FUND. In order to attain its objective of
maintaining a stable net asset value, the Prime Money Market Fund will (i) limit
its investment in the securities (other than U.S. Government securities) of any
one issuer to no more than 5% of its assets, measured at the time of purchase,
except for investments held for not more than three business days (subject,
however, to
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the investment restriction No. 4 set forth under "Investment Restrictions"
below); and (ii) limit investments to securities that present minimal credit
risks and securities (other than U.S. Government securities) that are rated
within the highest short-term rating category by at least two nationally
recognized statistical rating organizations ("NRSROs") or by the only NRSRO that
has rated the security. Securities which originally had a maturity of over one
year are subject to more complicated, but generally similar rating requirements.
A description of illustrative credit ratings is set forth in "Appendix A." The
Fund may also purchase unrated securities that are of comparable quality to the
rated securities described above. Additionally, if the issuer of a particular
security has issued other securities of comparable priority and security and
which have been rated in accordance with (ii) above, that security will be
deemed to have the same rating as such other rated securities.
In addition, the Board of Trustees has adopted procedures which (i)
require the Board of Trustees to approve or ratify purchases by the Fund of
securities (other than U.S. Government securities) that are rated by only one
NRSRO or that are unrated; (ii) require the Fund to maintain a dollar-weighted
average portfolio maturity of not more than 90 days and to invest only in
securities with a remaining maturity of not more than 397 days; and (iii)
require the Fund, in the event of certain downgradings of or defaults on
portfolio holdings, to dispose of the holding, subject in certain circumstances
to a finding by the Trustees that disposing of the holding would not be in the
Fund's best interest.
TREASURY MONEY MARKET FUND. In order to attain its objective of
maintaining a stable net asset value, the Treasury Money Market Fund will limit
its investments to direct obligations of the U.S. Treasury, including Treasury
bills, notes and bonds, and related repurchase agreement transactions, each
having a remaining maturity of 397 days or less at the time of purchase and will
maintain a dollar-weighted average portfolio maturity of not more than 90 days.
FEDERAL MONEY MARKET FUND. In order to attain its objective of
maintaining a stable net asset value, the Federal Money Market Fund will limit
its investments to direct obligations of the U.S. Treasury, including Treasury
bills, notes and bonds, and certain U.S. Government agency securities with
remaining maturities of 397 days or less at the time of purchase and will
maintain a dollar-weighted average portfolio maturity of not more than 90 days.
INVESTMENT RESTRICTIONS
The investment restrictions of each Fund and its corresponding
Portfolio are identical, unless otherwise specified. Accordingly, references
below to a Fund also include the Fund's corresponding Portfolio unless the
context requires otherwise; similarly, references to a Portfolio also include
its corresponding Fund unless the context requires otherwise.
The investment restrictions below have been adopted by the Trust with
respect to each Fund and by each corresponding Portfolio. Except where 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 or Portfolio, as the case may be. A "majority of
the outstanding voting securities" is defined in the 1940 Act as the lesser of
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(a) 67% or more of the voting securities present at a meeting if the holders of
more than 50% of the outstanding voting securities are present or represented by
proxy, or (b) more than 50% of the outstanding voting securities. The percentage
limitations contained in the restrictions below apply at the time of the
purchase of securities. Whenever a Fund is requested to vote on a change in the
fundamental investment restrictions of its corresponding Portfolio, the Trust
will hold a meeting of Fund shareholders and will cast its votes as instructed
by the Fund's shareholders.
The PRIME MONEY MARKET FUND and its corresponding PORTFOLIO may not:
1. 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 10% of
the Fund's net assets would be in investments which are illiquid;
2. Enter into reverse repurchase agreements exceeding in the aggregate
one-third of the market value of the Fund's total assets, less liabilities
other than obligations created by reverse repurchase agreements;
3. Borrow money, except from banks for extraordinary or emergency purposes and
then only in amounts not to exceed 10% of the value of the Fund's total
assets, taken at cost, at the time of such borrowing. Mortgage, pledge, or
hypothecate any assets except in connection with any such borrowing and in
amounts not to exceed 10% of the value of the Fund's net assets at the time
of such borrowing. The Fund will not purchase securities while borrowings
exceed 5% of the Fund's total assets; provided, however, that the Fund may
increase its interest in an open-end management investment company with the
same investment objective and restrictions as the Fund while such
borrowings are outstanding. This borrowing provision is included to
facilitate the orderly sale of portfolio securities, for example, in the
event of abnormally heavy redemption requests, and is not for investment
purposes and shall not apply to reverse repurchase agreements;
4. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the Fund's
total assets would be invested in securities or other obligations of any
one such issuer; provided, however, that the Fund may invest all or part of
its investable assets in an open-end management investment company with the
same investment objective and restrictions as the Fund. This limitation
shall not apply to issues of the U.S. Government, its agencies or
instrumentalities and to permitted investments of up to 25% of the Fund's
total assets;
5. Purchase the securities or other obligations of issuers conducting
their principal business activity in the same industry if, immediately
after such purchase, the value of its investment in such industry would
exceed 25% of the value of the Fund's total assets; provided, however,
that the Fund may invest all or part of its investable assets in an
open-end management investment company with the same investment
objective and
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restrictions as the Fund. For purposes of industry concentration, there is no
percentage limitation with respect to investments in U.S. Government
securities, negotiable certificates of deposit, time deposits, and bankers'
acceptances of U.S. branches of U.S. banks;
6. Make loans, except through purchasing or holding debt obligations, or
entering into repurchase agreements, or loans of portfolio securities
in accordance with the Fund's investment objective and policies (see
"Investment Objectives and Policies");
7. Purchase or sell puts, calls, straddles, spreads, or any combination
thereof, real estate, commodities, or commodity contracts or interests
in oil, gas, or mineral exploration or development programs. However,
the Fund may purchase bonds or commercial paper issued by companies
which invest in real estate or interests therein including real estate
investment trusts;
8. 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
securities or of securities for delivery at a future date;
9. Acquire securities of other investment companies, except as permitted by
the 1940 Act;
10. Act as an underwriter of securities; or
11. Issue senior securities, except as may otherwise be permitted by the
foregoing investment restrictions or under the 1940 Act or any rule,
order or interpretation thereunder.
The TREASURY MONEY MARKET FUND and its corresponding PORTFOLIO may not:
1. Enter into reverse repurchase agreements which together with any other
borrowing exceed in the aggregate one-third of the market value of the
Fund's or the Portfolio's total assets, less liabilities other than the
obligations created by reverse repurchase agreements;
2. Borrow money, except in amounts not to exceed one third of the Fund's total
assets (including the amount borrowed) less liabilities (other than
borrowings) (i) from banks for temporary or short-term purposes or for the
clearance of transactions, (ii) in connection with the redemption of Fund
shares or to finance failed settlements of portfolio trades without
immediately liquidating portfolio securities or other assets, (iii) in
order to fulfill commitments or plans to purchase additional securities
pending the anticipated sale of other portfolio securities or assets and
(iv) pursuant to reverse repurchase agreements entered into by the Fund.1
- --------
1 Although the Fund is permitted to fulfill plans to purchase
additional securities pending the anticipated sale of other portfolio
securities or assets, the Fund has no current intention of engaging in this
form of leverage.
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3. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the Fund's or
the Portfolio's total assets would be invested in securities or other
obligations of any one such issuer; provided, however, that the Fund may
invest all or part of its investable assets in an open-end management
investment company with the same investment objective and restrictions as
the Fund. This limitation also shall not apply to issues of the U.S.
Government and repurchase agreements related thereto;
4. Purchase the securities or other obligations of issuers conducting their
principal business activity in the same industry if, immediately after such
purchase, the value of its investment in such industry would exceed 25% of
the value of the Fund's or the Portfolio's total assets; provided, however,
that the Fund may invest all or part of its assets in an open-end
management investment company with the same investment objective and
restrictions as the Fund. For purposes of industry concentration, there is
no percentage limitation with respect to investments in U.S. Government
securities and repurchase agreements related thereto;
5. Make loans, except through purchasing or holding debt obligations,
repurchase agreements, or loans of portfolio securities in accordance
with the Fund's or the Portfolio's investment objective and policies
(see "Investment Objectives and Policies");
6. Purchase or sell puts, calls, straddles, spreads, or any combination
thereof, real estate, commodities, or commodity contracts or interests in
oil, gas, or mineral exploration or development programs;
7. 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
securities or of securities for delivery at a future date;
8. Acquire securities of other investment companies, except as permitted
by the 1940 Act or in connection with a merger, consolidation,
reorganization, acquisition of assets or an offer of exchange;
provided, however, that nothing in this investment restriction shall
prevent the Trust from investing all or part of the Fund's assets in an
open-end management investment company with the same investment
objective and restrictions as the Fund;
9. Act as an underwriter of securities; or
10. Issue senior securities, except as may otherwise be permitted by the
foregoing investment restrictions or under the 1940 Act or any rule,
order or interpretation thereunder.
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The FEDERAL MONEY MARKET FUND and its corresponding PORTFOLIO may not:
1. Enter into reverse repurchase agreements which together with any other
borrowing exceeds in the aggregate one-third of the market value of the
Fund's or the Portfolio's total assets, less liabilities other than the
obligations created by reverse repurchase agreements;
2. Borrow money (not including reverse repurchase agreements), except from
banks for temporary or extraordinary or emergency purposes and then only in
amounts up to 10% of the value of the Fund's or the Portfolio's total
assets, taken at cost at the time of such borrowing (and provided that such
borrowings and reverse repurchase agreements do not exceed in the aggregate
one-third of the market value of the Fund's and the Portfolio's total
assets less liabilities other than the obligations represented by the bank
borrowings and reverse repurchase agreements). Mortgage, pledge, or
hypothecate any assets except in connection with any such borrowing and in
amounts up to 10% of the value of the Fund's or the Portfolio's net assets
at the time of such borrowing. The Fund or the Portfolio will not purchase
securities while borrowings exceed 5% of the Fund's or the Portfolio's
total assets, respectively; provided, however, that the Fund may increase
its interest in an open-end management investment company with the same
investment objective and restrictions as the Fund while such borrowings are
outstanding. This borrowing provision is included to facilitate the orderly
sale of portfolio securities, for example, in the event of abnormally heavy
redemption requests, and is not for investment purposes;
3. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the Fund's or
the Portfolio's total assets would be invested in securities or other
obligations of any one such issuer; provided, however, that the Fund may
invest all or part of its investable assets in an open-end management
investment company with the same investment objective and restrictions as
the Fund. This limitation also shall not apply to issues of the U.S.
Government and repurchase agreements related thereto;
4. Purchase the securities or other obligations of issuers conducting their
principal business activity in the same industry if, immediately after such
purchase, the value of its investment in such industry would exceed 25% of
the value of the Fund's or the Portfolio's total assets; provided, however,
that the Fund may invest all or part of its assets in an open-end
management investment company with the same investment objective and
restrictions as the Fund. For purposes of industry concentration, there is
no percentage limitation with respect to investments in U.S. Government
securities and repurchase agreements related thereto;
5. Make loans, except through purchasing or holding debt obligations,
repurchase agreements, or loans of portfolio securities in accordance
with the Fund's or the Portfolio's investment objective and policies
(see "Investment Objectives and Policies");
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<PAGE>
6. Purchase or sell puts, calls, straddles, spreads, or any combination
thereof, real estate, commodities, or commodity contracts or interests in
oil, gas, or mineral exploration or development programs;
7. 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
securities or of securities for delivery at a future date;
8. Acquire securities of other investment companies, except as permitted
by the 1940 Act or in connection with a merger, consolidation,
reorganization, acquisition of assets or an offer of exchange;
provided, however, that nothing in this investment restriction shall
prevent the Trust from investing all or part of the Fund's assets in an
open-end management investment company with the same investment
objective and restrictions as the Fund;
9. Act as an underwriter of securities; or
10. Issue senior securities, except as may otherwise be permitted by the
foregoing investment restrictions or under the 1940 Act or any rule,
order or interpretation thereunder.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS - PRIME MONEY MARKET FUND. The
investment restriction described below is not a fundamental policy of the Prime
Money Market Fund or its corresponding Portfolio and may be changed by their
respective Trustees. This non-fundamental investment policy requires that the
Prime Money Market Fund and its corresponding Portfolio may not:
(i) enter into reverse repurchase agreements or borrow money, except from
banks for extraordinary or emergency purposes, if such obligations
exceed in the aggregate one-third of the market value of the Fund's
total assets, less liabilities other than obligations created by
reverse repurchase agreements and borrowings.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS - TREASURY MONEY MARKET FUND
AND FEDERAL MONEY MARKET FUND. The investment restriction described below is not
a fundamental policy of these Funds or their corresponding Portfolios and may be
changed by their respective Trustees. This non-fundamental investment policy
requires that each such Fund may not:
(i) 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 10% of
the Fund's total assets would be in investments that are illiquid.
Notwithstanding any other fundamental or non-fundamental investment
restriction or policy, each Fund reserves the right, without the approval of
shareholders, to invest all of its assets in the securities of a single open-end
registered investment company with substantially the same investment objective,
restrictions and policies as the Fund.
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There will be no violation of any investment restriction if that
restriction is complied with at the time the relevant action is taken
notwithstanding a later change in market value of an investment, in net or total
assets, in the securities rating of the investment, or any other later change.
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 accordingly. For instance, personal credit finance
companies and business credit finance companies are deemed to be separate
industries and wholly owned finance companies are considered to be in the
industry of their parents if their activities are primarily related to financing
the activities of their parents.
TRUSTEES AND OFFICERS
TRUSTEES
The Trustees of the Trust, who are also the Trustees of each of the
Portfolios, their business addresses, principal occupations during the past five
years and dates of birth are set forth below.
FREDERICK S. ADDY--Trustee; Retired; Executive Vice President and Chief
Financial Officer since prior to April 1994, Amoco Corporation. His address is
5300 Arbutus Cove, Austin, TX 78746, and his date of birth is January 1, 1932.
WILLIAM G. BURNS--Trustee; Retired, Former Vice Chairman and Chief
Financial Officer, NYNEX. His address is 2200 Alaqua Drive, Longwood, FL 32779,
and his date of birth is November 2, 1932.
ARTHUR C. ESCHENLAUER--Trustee; Retired; Former Senior Vice President,
Morgan Guaranty Trust Company of New York. His address is 14 Alta Vista Drive,
RD #2, Princeton, NJ 08540, and his date of birth is May 23, 1934.
MATTHEW HEALEY 2--Trustee, Chairman and Chief Executive Officer;
Chairman, Pierpont Group, Inc., since prior to 1992. His address is Pine Tree
Club Estates, 10286 Saint Andrews Road, Boynton Beach, FL 33436, and his date of
birth is August 23, 1937.
MICHAEL P. MALLARDI--Trustee; Retired; Senior Vice President, Capital
Cities/ABC, Inc. and President, Broadcast Group since prior to April 1996. His
- --------
2Mr. Healey is an "interested person" of the Trust, the Advisor and each
Portfolio as that term is defined in the 1940 Act.
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<PAGE>
address is 10 Charnwood Drive, Suffern, NY 10910, and his date of birth is March
17, 1934.
The Trustees of the Trust are the same as the Trustees of each of the
Portfolios. In accordance with applicable state requirements, a majority of the
disinterested Trustees have adopted written procedures reasonably appropriate to
deal with potential conflicts of interest arising from the fact that the same
individuals are Trustees of the Trust, each of the Portfolios and the J.P.
Morgan Funds up to and including creating a separate board of trustees.
Each Trustee is currently paid an annual fee of $75,000 (adjusted as of
April 1, 1997) for serving as Trustee of the Trust, each of the Master
Portfolios (as defined below), the J.P. Morgan Funds and J.P. Morgan Series
Trust and is reimbursed for expenses incurred in connection with service as a
Trustee. The Trustees may hold various other directorships unrelated to these
funds.
Trustee compensation expenses accrued by the Trust for the calendar
year ended December 31, 1997 are set forth below.
<TABLE>
<CAPTION>
TOTAL TRUSTEE COMPENSATION
ACCRUED BY THE MASTER
AGGREGATE TRUSTEE PORTFOLIOS (*), THE J.P.
COMPENSATION MORGAN FUNDS, J.P. MORGAN
NAME OF TRUSTEE ACCRUED BY THE SERIES TRUST AND THE TRUST
TRUST DURING 1997 DURING 1997 (***)
----------------- -----------------
<S> <C> <C>
Frederick S. Addy, Trustee $
$
William G. Burns, Trustee $ $
Arthur C. Eschenlauer, Trustee $ $
Matthew Healey, Trustee(**), $ $
Chairman and Chief Executive
Officer
Michael P. Mallardi, Trustee $ $
</TABLE>
(*) Includes the Portfolios and 20 other portfolios (collectively, the
"Master Portfolios") for which Morgan acts as investment advisor.
(**) During 1997, Pierpont Group, Inc. paid Mr. Healey, in his role as Chairman
of Pierpont Group, Inc., compensation in the amount of $ , contributed $ to
a defined contribution plan on his behalf and paid $ in insurance premiums
for his benefit.
(***) No investment company within the fund complex has a pension or
retirement plan. Currently there are 18 investment companies (15
investment companies comprising the Master Portfolios, the J.P. Morgan
Funds, the Trust and J.P. Morgan Series Trust) in the fund complex.
The Trustees, in addition to reviewing actions of the Trust's and the
Portfolios' various service providers, decide upon matters of general policy.
Each of the Portfolios and the Trust has entered into a Fund Services Agreement
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with Pierpont Group, Inc. to assist the Trustees in exercising their overall
supervisory responsibilities over the affairs of the Portfolios and the Trust.
Pierpont Group, Inc. was organized in July 1989 to provide services for The
Pierpont Family of Funds, and the Trustees are the equal and sole shareholders
of Pierpont Group, Inc. The Trust and the Portfolios have agreed to pay Pierpont
Group, Inc. a fee in an amount representing its reasonable costs in performing
these services to the Trust, the Portfolios and certain other registered
investment companies subject to similar agreements with Pierpont Group, Inc.
These costs are periodically reviewed by the Trustees. The principal offices of
Pierpont Group, Inc. are located at 461 Fifth Avenue, New York, New York 10017.
The aggregate fees paid to Pierpont Group, Inc. by each Fund and its
corresponding Portfolio during the indicated fiscal periods are set forth below:
PRIME MONEY MARKET FUND -- For the fiscal years ended November 30, 1995, 1996
and 1997: $54,502, $48,339 and $ .
THE PRIME MONEY MARKET PORTFOLIO -- For the fiscal years ended November 30,
1995, 1996 and 1997: $261,045, $157,428 and $ .
TREASURY MONEY MARKET FUND -- For the period July 8, 1997 (commencement of
operations) through October 31, 1997: $ .
THE TREASURY MONEY MARKET PORTFOLIO -- For the period July 7, 1997 (
commencement of operations) through October 31, 1997: $ .
FEDERAL MONEY MARKET FUND -- For the fiscal years ended October 31, 1995, 1996
and 1997: $8,445, $6,320 and $ .
THE FEDERAL MONEY MARKET PORTFOLIO -- For the fiscal years ended October 31,
1995, 1996 and 1997: $22,791, $16,144 and $ .
OFFICERS
The Trust's and Portfolios' executive officers (listed below), other
than the Chief Executive Officer, are provided and compensated by Funds
Distributor, Inc. ("FDI"), a wholly owned indirect subsidiary of Boston
Institutional Group, Inc. The officers conduct and supervise the business
operations of the Trust and the Portfolios. The Trust and the Portfolios have no
employees.
The officers of the Trust and the Portfolios, their principal
occupations during the past five years and dates of birth are set forth below.
Unless otherwise specified, each officer holds the same position with the Trust
and each Portfolio. The business address of each of the officers unless
otherwise noted is Funds Distributor, Inc., 60 State Street, Suite 1300, Boston,
Massachusetts
02109.
MATTHEW HEALEY; Chief Executive Officer; Chairman, Pierpont Group,
since prior to 1993. His address is Pine Tree Club Estates, 10286 Saint Andrews
Road, Boynton Beach, FL 33436. His date of birth is August 23, 1937.
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 advised or administered by the Dreyfus
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Corporation ("Dreyfus") or its affiliates. From December 1991 to July 1994, she
was President and Chief Compliance Officer of FDI. Her date of birth is August
1, 1957.
DOUGLAS C. CONROY; Vice President and Assistant Treasurer. Assistant Vice
President and Manager of Treasury Services and Administration of FDI and an
officer of certain investment companies advised or administered by Dreyfus or
its affiliates. 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. Prior to March
1993, Mr. Conroy was employed as a fund accountant at The Boston Company, Inc.
His date of birth is March 31, 1969.
JACQUELINE HENNING; Assistant Secretary and Assistant Treasurer of the
Prime Money Market Portfolio only. Managing Director, State Street Cayman Trust
Company, Ltd. since October 1994. Prior to October 1994, Mrs. Henning was head
of mutual funds at Morgan Grenfell in Cayman and for five years was Managing
Director of Bank of Nova Scotia Trust Company (Cayman) Limited from September
1988 to September 1993. Address: P.O. Box 2508 GT, Elizabethan Square, 2nd
Floor, Shedden Road, George Town, Grand Cayman, Cayman Islands. Her date of
birth is March 24, 1942.
RICHARD W. INGRAM; President and Treasurer. Executive Vice President
and Director of Client Services and Treasury Administration of FDI, Senior Vice
President of Premier Mutual and an officer of RCM Capital Funds, Inc., RCM
Equity Funds, Inc., Waterhouse Investors Cash Management Fund, Inc. and certain
investment companies advised or administered by Dreyfus or Harris Trust and
Savings Bank ("Harris") or their respective affiliates. Prior to April 1997, Mr.
Ingram was Senior Vice President and Director of Client Service and Treasury
Administration of FDI. From March 1994 to November 1995, Mr. Ingram was Vice
President and Division Manager of First Data Investor Services Group, Inc. From
1989 to 1994, Mr. Ingram was Vice President, Assistant Treasurer and Tax
Director - Mutual Funds of The Boston Company, Inc. His date of birth is
September 15, 1955.
KAREN JACOPPO-WOOD; Vice President and Assistant Secretary. Assistant Vice
President of FDI and an officer of RCM Capital Funds, Inc. and RCM Equity Funds,
Inc., Waterhouse Investors Cash Management Fund, Inc. and Harris or their
respective affiliates. From June 1994 to January 1996, Ms. Jacoppo-Wood was a
Manager, SEC Registration, Scudder, Stevens & Clark, Inc. From 1988 to May 1994,
Ms. Jacoppo-Wood was a senior paralegal at The Boston Company Advisors, Inc.
("TBCA"). Her date of birth is December 29, 1966.
ELIZABETH A. KEELEY; Vice President and Assistant Secretary. Vice President
and Senior Counsel of FDI and Premier Mutual and an officer of RCM Capital
Funds, Inc., RCM Equity Funds, Inc., Waterhouse Investors Cash Management Fund,
Inc. and certain investment companies advised or administered by Dreyfus or
Harris or their respective affiliates. Prior to August 1996, Ms. Keeley was
Assistant Vice President and Counsel of FDI and Premier Mutual. Prior to
September 1995, Ms. Keeley was enrolled at Fordham University School of Law and
received her JD in May 1995. Address: 200 Park Avenue, New York, New York 10166.
Her date of birth is September 14, 1969.
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<PAGE>
CHRISTOPHER J. KELLEY; Vice President and Assistant Secretary. Vice
President and Associate General Counsel of FDI and Premier Mutual and an officer
of Waterhouse Investors Cash Management Fund, Inc. and certain investment
companies advised or administered by Harris or its affiliates. From April 1994
to July 1996, Mr. Kelley was Assistant Counsel at Forum Financial Group. From
1992 to 1994, Mr. Kelley was employed by Putnam Investments in legal and
compliance capacities. His date of birth is December 24, 1964.
LENORE J. MCCABE; Assistant Secretary and Assistant Treasurer of the Prime
Money Market Portfolio only. Assistant Vice President, State Street Bank and
Trust Company since November 1994. Assigned as Operations Manager, State Street
Cayman Trust Company, Ltd. since February 1995. Prior to November, 1994,
employed by Boston Financial Data Services, Inc. as Control Group Manager.
Address: P.O. Box 2508 GT, Elizabethan Square, 2nd Floor, Shedden Road, George
Town, Grand Cayman, Cayman Islands. Her date of birth is May 31, 1961.
MARY A. NELSON; Vice President and Assistant Treasurer. Vice President and
Manager of Treasury Services and Administration of FDI and Premier Mutual, an
officer of RCM Capital Funds, Inc., RCM Equity Funds, Inc., Waterhouse Investors
Cash Management Fund, Inc. and certain investment companies advised or
administered by Dreyfus or Harris or their respective affiliates. From 1989 to
1994, Ms. Nelson was an Assistant Vice President and Client Manager for The
Boston Company, Inc. Her date of birth is April 22, 1964.
MICHAEL S. PETRUCELLI; Vice President and Assistant Secretary. Senior Vice
President and Director of Strategic Client Initiatives for FDI since December
1996. From December 1989 through November 1996, Mr. Petrucelli was employed with
GE Investments where he held various financial, business development and
compliance positions. He also served as Treasurer of the GE Funds and as
Director of GE Investment Services. Address: 200 Park Avenue, New York, New
York, 10166. His date of birth is May 18, 1961.
JOSEPH F. TOWER III; Vice President and Assistant Treasurer. Executive Vice
President, Treasurer and Chief Financial Officer, Chief Administrative Officer
and Director Of FDI. Senior Vice President, Treasurer and Chief Financial
Officer, Chief Administrative Officer and Director of Premier Mutual and an
officer of Waterhouse Investors Cash Management Fund, Inc. and certain
investment companies advised or administered by Dreyfus or its affiliates. Prior
to April 1997, Mr. Tower was Senior Vice President, Treasurer and Chief
Financial Officer, Chief Administrative Officer and Director of FDI. From July
1988 to November 1993, Mr. Tower was Financial Manager of The Boston Company,
Inc. His date of birth is June 13, 1962.
INVESTMENT ADVISOR
The investment advisor to the Portfolios is Morgan Guaranty Trust
Company of New York, a wholly owned subsidiary of J.P. Morgan & Co. Incorporated
("J.P. Morgan"), a bank holding company organized under the laws of the State of
Delaware. The Advisor, 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. The Advisor is subject to regulation by the New York State
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<PAGE>
Banking Department and is a member bank of the Federal Reserve System. Through
offices in New York City and abroad, the Advisor 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.
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 $240 billion.
J.P. Morgan has a long history of service as adviser, 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 100 full time
research analysts, among the largest research staffs in the money management
industry, in its investment management divisions located in New York, London,
Tokyo, Frankfurt, Melbourne and Singapore to cover companies, industries and
countries on site. In addition, the investment management divisions employ
approximately 300 capital market researchers, portfolio managers and traders.
The 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 Portfolios
are not exclusive under the terms of the Advisory Agreements. 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 Portfolios. Such accounts are supervised by officers and employees of the
Advisor who may also be acting in similar capacities for the Portfolios. See
"Portfolio Transactions."
Sector weightings are generally similar to a benchmark with the
emphasis on security selection as the method to achieve investment performance
superior to the benchmark. The benchmarks for the Portfolios in which the Funds
invest are currently: The Prime Money Market Portfolio--IBC/Donoghue's Tier-One
Money Fund Average; The Treasury Money Market Portfolio--IBC/Donoghue's Treasury
and Repo Money Fund Average; and The Federal Money Market
Portfolio--IBC/Donoghue's U.S. Government and Agency Money Fund Average.
J.P. Morgan Investment Management Inc., also a wholly owned subsidiary
of J.P. Morgan, is a registered investment adviser under the Investment Advisers
Act of 1940, as amended, which manages employee benefit funds of corporations,
labor unions and state and local governments and the accounts of other
institutional
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<PAGE>
investors, including investment companies. Certain of the assets of employee
benefit accounts under its management are invested in commingled pension trust
funds for which the Advisor serves as trustee. J.P. Morgan Investment Management
Inc. advises the Advisor on investment of the commingled pension trust funds.
The Portfolios are managed by officers of the Advisor who, in acting for
their customers, including the Portfolios, do not discuss their investment
decisions with any personnel of J.P. Morgan or any personnel of other divisions
of the Advisor or with any of its affiliated persons, with the exception of J.P.
Morgan Investment Management Inc. and certain other 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 Investment
Advisory Agreements, the Portfolio corresponding to each Fund has agreed to pay
the Advisor a fee, which is computed daily and may be paid monthly, equal to the
annual rates of 0.20% of each Portfolio's net assets up to $1 billion and 0.10%
of each Portfolio's net assets in excess of $1 billion.
The table below sets forth for each Portfolio listed the advisory fees
paid to the Advisor for the fiscal periods indicated. See the Prospectus and
below for applicable expense limitations.
THE PRIME MONEY MARKET PORTFOLIO -- For the fiscal years ended November 30,
1995, 1996 and 1997: $3,913,479, $4,503,793 and $ .
THE TREASURY MONEY MARKET PORTFOLIO -- For the period July 7, 1997 (commencement
of operations) through October 31, 1997: $ .
THE FEDERAL MONEY MARKET PORTFOLIO -- For the fiscal years ended October 31,
1995, 1996 and 1997: $492,941, $653,326 and $ .
The Investment Advisory Agreements provide that they 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. Each of the Investment Advisory Agreements will terminate
automatically if assigned and is terminable at any time without penalty by a
vote of a majority of the Portfolio's Trustees, or by a vote of the holders of a
majority of the Portfolio's outstanding voting securities, on 60 days' written
notice to the Advisor and by the Advisor on 90 days' written notice to the
Portfolio. See "Additional Information."
The Glass-Steagall Act and other applicable laws generally prohibit
banks such as the Advisor from engaging in the business of underwriting or
distributing securities, and the Board of Governors of the Federal Reserve
System has issued an interpretation to the effect that under these laws a bank
holding company registered under the federal Bank Holding Company Act or certain
subsidiaries thereof may not sponsor, organize, or control a registered open-end
investment company continuously engaged in the issuance of its shares, such as
the Trust. The interpretation does not prohibit a holding company or a
subsidiary thereof from acting as investment advisor and custodian to such an
investment company.
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The Advisor believes that it may perform the services for the Portfolios
contemplated by the Advisory Agreements without violation of the Glass-Steagall
Act or other applicable banking laws or regulations. State laws on this issue
may differ from the interpretation of relevant federal law, and banks and
financial institutions may be required to register as dealers pursuant to state
securities laws. However, it is possible that future changes in either federal
or state statutes and regulations concerning the permissible activities of banks
or trust companies, as well as further judicial or administrative decisions and
interpretations of present and future statutes and regulations, might prevent
the Advisor from continuing to perform such services for the Portfolios.
If the Advisor were prohibited from acting as investment advisor to any
Portfolio, it is expected that the Trustees of the Portfolio would recommend to
investors that they approve the Portfolio's entering into a new investment
advisory agreement with another qualified investment advisor selected by the
Trustees.
Under separate agreements, Morgan also provides certain financial, fund
accounting and administrative services to the Trust and the Portfolios and
shareholder services for the Trust. See "Services Agent" and "Shareholder
Servicing" below.
DISTRIBUTOR
FDI serves as the Trust's exclusive Distributor and holds itself
available to receive purchase orders for each of 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 each 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 Trust's distributor.
The Distribution Agreement shall continue in effect with respect to
each of the Funds for a period of two years after execution only if it is
approved at least annually thereafter (i) by a vote of the holders of a majority
of the Fund's outstanding shares or by its Trustees and (ii) by a vote of a
majority of the Trustees of the Trust who are not "interested persons" (as
defined by the 1940 Act) of the parties to the Distribution Agreement, cast in
person at a meeting called for the purpose of voting on such approval (see
"Trustees and Officers"). The Distribution Agreement will terminate
automatically if assigned by either party thereto and is terminable 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 the holders of a majority of the Fund's outstanding shares as defined
under "Additional Information," in any case without payment of any penalty on 60
days' written notice to the other party. The principal offices of FDI are
located at 60 State Street, Suite 1300, Boston, Massachusetts 02109.
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CO-ADMINISTRATOR
Under Co-Administration Agreements with the Trust and the Portfolios
dated August 1, 1996, FDI also serves as the Trust's and the Portfolios'
Co-Administrator. The Co-Administration Agreements may be renewed or amended by
the respective Trustees without a shareholder vote. The Co-Administration
Agreements are terminable at any time without penalty by a vote of a majority of
the Trustees of the Trust or the Portfolios, as applicable, 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 or the Portfolios, as applicable,
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.
For its services under the Co-Administration Agreements, each Fund and
Portfolio has agreed to pay FDI fees equal to its allocable share of an annual
complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The amount
allocable to each Fund or Portfolio is based on the ratio of its net assets to
the aggregate net assets of the Trust, the Master Portfolios and certain other
investment companies subject to similar agreements with FDI.
The table below sets forth for each Fund listed and its corresponding
Portfolio the administrative fees paid to FDI for the fiscal periods indicated.
See the Prospectus and below for applicable expense limitations.
PRIME MONEY MARKET FUND --For the period August 1, 1996 through November 30,
1996 and the fiscal year ended November 30, 1997: $15,195 and $ .
THE PRIME MONEY MARKET PORTFOLIO -- For the period August 1, 1996 through
November 30, 1996 and the fiscal year ended November 30, 1997: $33,012 and $.
TREASURY MONEY MARKET FUND -- For the period July 8, 1997 (commencement of
operations) through October 31, 1997: $ .
THE TREASURY MONEY MARKET PORTFOLIO -- For the period July 7, 1997
(commencement of operations) through October 31, 1997: $ .
FEDERAL MONEY MARKET FUND -- For the period August 1, 1996 through October 31,
1996 and the fiscal year ended October 31, 1997: $945 and $ .
THE FEDERAL MONEY MARKET PORTFOLIO -- For the period August 1, 1996 through
October 31, 1996 and the fiscal year ended October 31, 1997: $1,663 and $ .
The table below sets forth for each Fund listed (except the Treasury
Money Market Fund) and its corresponding Portfolio the administrative fees paid
to Signature Broker-Dealer Services, Inc. (which provided distribution and
administrative services to the Trust and placement agent and administrative
services to the Portfolios prior to August 1, 1996) for the fiscal periods
indicated. See the Prospectus and below for applicable expense limitations.
PRIME MONEY MARKET FUND -- For the fiscal year ended November 30, 1995 and the
period December 1, 1995 through July 31, 1996: $161,341 and $97,980.
THE PRIME MONEY MARKET PORTFOLIO -- For the fiscal year ended November 30,
1995 and the period December 1, 1995 through July 31, 1996: $176,717 and
$272,989.
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FEDERAL MONEY MARKET FUND -- For the fiscal year ended October 31, 1995 and the
period November 1, 1995 through July 31, 1996: $23,920 and $15,525.
THE FEDERAL MONEY MARKET PORTFOLIO -- For the fiscal year ended October 31,
1995 and the period November 1, 1995 through July 31, 1996: $17,480 and $28,623.
SERVICES AGENT
The Trust, on behalf of each Fund, and the Portfolios have entered into
Administrative Services Agreements (the "Services Agreements") with Morgan
pursuant to which Morgan is responsible for certain administrative and related
services provided to each Fund and its corresponding Portfolio. The Services
Agreements 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 Agreements, each of the Funds and the Portfolios 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
Master Portfolios and J.P. Morgan Series Trust in accordance with the following
annual schedule: 0.09% on the first $7 billion of their aggregate average daily
net assets and 0.04% of their aggregate average daily net assets in excess of $7
billion, less the complex-wide fees payable to FDI. The portion of this charge
payable by each Fund and Portfolio is determined by the proportionate share that
its net assets bear to the total net assets of the Trust, the Master Portfolios,
the other investors in the Master Portfolios for which Morgan provides similar
services and J.P. Morgan Series Trust.
Under prior administrative services agreements in effect from December
29, 1995 through July 31, 1996, with Morgan, each Fund's corresponding Portfolio
(except the Treasury Money Market Portfolio) paid Morgan a fee equal to its
proportionate share of an annual complex-wide charge. This charge was calculated
daily based on the aggregate net assets of the Master Portfolios in accordance
with the following schedule: 0.06% of the first $7 billion of the Master
Portfolios' aggregate average daily net assets, and 0.03% of the Master
Portfolios' aggregate average daily net assets in excess of $7 billion.
Prior to December 29, 1995, the Trust and each Portfolio (except The
Treasury Money Market Portfolio) had entered into Financial and Fund Accounting
Services Agreements with Morgan, the provisions of which included certain of the
activities described above and, prior to September 1, 1995, also included
reimbursement of usual and customary expenses. The table below sets forth for
each Fund listed (except the Federal Money Market Fund) and its corresponding
Portfolio the fees paid to Morgan, net of fee waivers and reimbursements, as
Services Agent. See the Prospectus and below for applicable expense limitations.
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PRIME MONEY MARKET FUND --For the fiscal years ended November 30, 1995, 1996 and
1997: $(967,889)*, $(945,013)* and $ .
THE PRIME MONEY MARKET PORTFOLIO -- For the fiscal years ended November 30,
1995, 1996 and 1997: $373,077, $891,730 and $ .
TREASURY MONEY MARKET FUND -- For the period July 8, 1997 (commencement of
operations) through October 31, 1997: $ .
THE TREASURY MONEY MARKET PORTFOLIO -- For the period July 7, 1997
(commencement of operations) through October 31, 1997: $ .
FEDERAL MONEY MARKET FUND -- For the fiscal years ended October 31, 1995, 1996
and 1997: $(236,058)*, $(198,465)* and $
THE FEDERAL MONEY MARKET PORTFOLIO -- For the fiscal years ended October 31,
1995, 1996 and 1997: $(146,180)*, $(165,137)* and $ .
- -----------------------------------
* Indicates a reimbursement by Morgan for expenses in excess of its fees
under the prior administrative services agreements. No fees were paid
for the fiscal period.
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02110, serves as the Trust's and each Portfolio's
custodian and fund accounting agent and each Fund's transfer and dividend
disbursing agent. Pursuant to the Custodian Contracts, State Street is
responsible for maintaining the books of account and records of portfolio
transactions and holding portfolio securities and cash. The Custodian maintains
portfolio transaction records. As transfer agent and dividend disbursing agent,
State Street is responsible for maintaining account records detailing the
ownership of Fund shares and for crediting income, capital gains and other
changes in share ownership to shareholder accounts.
SHAREHOLDER SERVICING
The Trust on behalf of each of the Funds has entered into a Shareholder
Servicing Agreement with Morgan pursuant to which Morgan acts as shareholder
servicing agent for its customers and for other Fund investors who are customers
of a Financial Professional. Under this agreement, Morgan is responsible for
performing shareholder account, administrative and servicing functions, which
include but are not limited to, answering inquiries regarding account status and
history, the manner in which purchases and redemptions of Fund shares may be
effected, and certain other matters pertaining to a Fund; assisting customers in
designating and changing dividend options, account designations and addresses;
providing necessary personnel and facilities to coordinate the establishment and
maintenance of shareholder accounts and records with the Funds' transfer agent;
transmitting purchase and redemption orders to the Funds' transfer agent and
arranging for the wiring or other transfer of funds to and from customer
accounts in connection with orders to purchase or redeem Fund shares; verifying
purchase and redemption orders, transfers among and changes in accounts;
informing the Distributor of the gross amount of purchase orders for Fund
shares; monitoring
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the activities of the Funds' transfer agent; and providing other related
services.
Under the Shareholder Servicing Agreement, each Fund has agreed to pay
Morgan for these services a fee at the annual rate (expressed as a percentage of
the average daily net asset values of Fund shares owned by or for shareholders
for whom Morgan is acting as shareholder servicing agent) of 0.05%. Morgan acts
as shareholder servicing agent for all shareholders.
The table below sets forth for each Fund listed the shareholder
servicing fees paid by each Fund to Morgan, net of fee waivers and
reimbursements, for the fiscal periods indicated. See the Prospectus and below
for applicable expense limitations.
PRIME MONEY MARKET FUND -- For the fiscal years ended November 30, 1995, 1996
and 1997: $697,914, $600,276 and $ .
TREASURY MONEY MARKET FUND -- For the period July 8, 1997 (commencement of
operations) through October 31, 1997: $ .
FEDERAL MONEY MARKET FUND -- For the fiscal years ended October 31, 1995, 1996
and 1997: $101,100, $75,343 and $ .
As discussed under "Investment Advisor," the Glass-Steagall Act and
other applicable laws and regulations limit the activities of bank holding
companies and certain of their subsidiaries in connection with registered
open-end investment companies. The activities of Morgan in acting as shareholder
servicing agent for Fund shareholders under the Shareholder Servicing Agreement
and providing administrative services to the Funds and the Portfolios under the
Services Agreements and in acting as Advisor to the Portfolios under the
Investment Advisory Agreements, may raise issues under these laws. However,
Morgan believes that it may properly perform these services and the other
activities described in the Prospectus without violation of the Glass-Steagall
Act or other applicable banking laws or regulations.
If Morgan were prohibited from providing any of the services under the
Shareholder Servicing Agreement and the Services Agreements, the Trustees would
seek an alternative provider of such services. In such event, changes in the
operation of the Funds or the Portfolios might occur and a shareholder might no
longer be able to avail himself or herself of any services then being provided
to shareholders by Morgan.
INDEPENDENT ACCOUNTANTS
The independent accountants of the Trust and the Portfolios are Price
Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036. Price
Waterhouse LLP conducts an annual audit of the financial statements of each of
the Funds and the Portfolios, assists in the preparation and/or review of each
of the Fund's and the Portfolio's federal and state income tax returns and
consults with the Funds and the Portfolios as to matters of accounting and
federal and state income taxation.
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EXPENSES
In addition to the fees payable to Pierpont Group, Inc., Morgan and FDI
under various agreements discussed under "Trustees and Officers," "Investment
Advisor," "Co-Administrator and Distributor," "Services Agent" and "Shareholder
Servicing" above, the Funds and the Portfolios are responsible for usual and
customary expenses associated with their respective operations. Such expenses
include organization expenses, legal fees, accounting expenses, insurance costs,
the compensation and expenses of the Trustees, costs associated with their
registration under federal securities laws, and extraordinary expenses
applicable to the Funds or the Portfolios. For the Funds, such expenses also
include transfer, registrar and dividend disbursing costs, the expenses of
printing and mailing reports, notices and proxy statements to Fund shareholders,
and filing fees under state securities laws. For the Portfolios, such expenses
also include custodian fees and brokerage expenses. Under fee arrangements prior
to September 1, 1995, Morgan as Services Agent was responsible for
reimbursements to the Trust and certain Portfolios and the usual and customary
expenses described above (excluding organization and extraordinary expenses,
custodian fees and brokerage expenses). For additional information regarding
waivers or expense subsidies, see the Prospectus.
PURCHASE OF SHARES
Investors may open Fund accounts and purchase shares as described in
the Prospectus. References in the Prospectus and this Statement of Additional
Information to customers of Morgan or a Financial Professional include customers
of their affiliates and references to transactions by customers with Morgan or a
Financial Professional include transactions with their affiliates. Only Fund
investors who are using the services of a financial institution acting as
shareholder servicing agent pursuant to an agreement with the Trust on behalf of
a Fund may make transactions in shares of a Fund.
Each Fund may, at its own option, accept securities in payment for
shares. The securities delivered in such a transaction are valued by the method
described in "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 Morgan, appropriate
investments for the Fund's corresponding Portfolio. In addition, securities
accepted in payment for shares must: (i) meet the investment objective and
policies of the acquiring Fund's corresponding Portfolio; (ii) be acquired by
the applicable Fund for investment and not for resale (other than for resale to
the Fund's corresponding Portfolio); and (iii) be liquid securities which are
not restricted as to transfer either by law or liquidity of market. Each Fund
reserves the right to accept or reject at its own option any and all securities
offered in payment for its shares.
Prospective investors may purchase shares with the assistance of a
Financial Professional, and the Financial Professional may charge the investor a
fee for this service and other services it provides to its customers.
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REDEMPTION OF SHARES
Investors may redeem shares as described in the Prospectus.
Shareholders redeeming shares of the Funds should be aware that the Funds
attempt to maintain a stable net asset value of $1.00 per share; however, there
can be no assurance that they will be able to continue to do so, and in that
case the net asset value of the Fund's shares might deviate from $1.00 per
share. Accordingly, a redemption request might result in payment of a dollar
amount which differs from the number of shares redeemed. See "Net Asset Value"
below.
If the Trust on behalf of a Fund and its corresponding Portfolio
determine that it would be detrimental to the best interest of the remaining
shareholders of a 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 Portfolio, in lieu of cash, in conformity with the
applicable rule of the SEC. If shares are redeemed in kind, the redeeming
shareholder might incur transaction costs in converting the assets into cash.
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. The Trust on behalf of the Treasury Money Market and Federal Money
Market Funds and their corresponding Portfolios have elected to be governed by
Rule 18f-1 under the 1940 Act pursuant to which such Funds and their
corresponding Portfolios are obligated to redeem shares solely in cash up to the
lesser of $250,000 or one percent of the net asset value of such Fund during any
90-day period for any one shareholder. The Trust will redeem Fund shares in kind
only if it has received a redemption in kind from the corresponding Portfolio
and therefore shareholders of the Fund that receive redemptions in kind will
receive securities of the Portfolio. The Portfolios have advised the Trust that
the Portfolios will not redeem in kind except in circumstances in which a Fund
is permitted to redeem in kind.
FURTHER REDEMPTION INFORMATION. The Trust, on behalf of a Fund, and the
Portfolios reserve 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 on such Exchange 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
Portfolio 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.
EXCHANGE OF SHARES
An investor may exchange shares from any Fund into any other J.P. Morgan
Institutional Fund, J.P. Morgan Fund, or shares of J.P. Morgan Series Trust, as
described in the Prospectus. For complete information, the Prospectus as it
relates to the Fund into which a transfer is being made should be read prior to
the transfer. Requests for exchange are made in the same manner as requests for
redemptions. See "Redemption of Shares." Shares of the Fund to be acquired are
purchased for settlement when the proceeds from redemption become available. The
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Trust reserves the right to discontinue, alter or limit the exchange privilege
at any time.
DIVIDENDS AND DISTRIBUTIONS
Each Fund declares and pays dividends and distributions as described in
the Prospectus.
Net investment income of each Fund consists of accrued interest or discount
and amortized premium, less the accrued expenses of the Fund applicable to that
dividend period including the fees payable to Morgan. See "Net Asset Value."
Determination of the net income for each Fund is made at the times
described in the Prospectus; in addition, net investment income for days other
than business days is determined at the time net asset value is determined on
the prior business day.
If a shareholder has elected to receive dividends and/or capital gain
distributions in cash and the postal or other delivery service is unable to
deliver checks to the shareholder's address of record, such shareholder's
distribution option will automatically be converted to having all dividend and
other distributions reinvested in additional shares. No interest will accrue on
amounts represented by uncashed distribution or redemption checks.
NET ASSET VALUE
Each of the Funds computes its net asset value once daily on Monday
through Friday 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, Columbus Day, Veteran's Day, Thanksgiving Day, and
Christmas Day. In the event that trading in the money markets is scheduled to
end earlier than the close of the New York Stock Exchange in observance of these
holidays, the Funds and their corresponding Portfolios would expect to close for
purchases and redemptions an hour in advance of the end of trading in the money
markets. The Funds and the Portfolios 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. On any business day when the Public
Securities Association ("PSA") recommends that the securities market close
early, the Funds reserve the right to cease accepting purchase and redemption
orders for same business day credit at the time PSA recommends that the
securities market close. On days the Funds close early, purchase and redemption
orders received after the PSA- recommended closing time will be credited the
next business day. The days on which net asset value is determined are the
Funds' business days.
The net asset value of each Fund is equal to the value of the Fund's
investment in its corresponding Portfolio (which is equal to the Fund's pro rata
share of the total investment of the Fund and of any other investors in the
Portfolio less the Fund's pro rata share of the Portfolio's liabilities) less
the Fund's liabilities. The following is a discussion of the procedures used by
the Portfolios corresponding to each Fund in valuing their assets.
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The Portfolios' portfolio securities are valued by the amortized cost
method. The purpose of this method of calculation is to attempt to maintain a
constant net asset value per share of the Fund of $1.00. No assurances can be
given that this goal can be attained. The amortized cost method of valuation
values a security at its cost at the time of purchase and thereafter assumes a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the instrument. If a
difference of more than 1/2 of 1% occurs between valuation based on the
amortized cost method and valuation based on market value, the Trustees will
take steps necessary to reduce such deviation, such as changing a Fund's
dividend policy, shortening the average portfolio maturity, realizing gains or
losses, or reducing the number of outstanding Fund shares. Any reduction of
outstanding shares will be effected by having each shareholder contribute to a
Fund's capital the necessary shares on a pro rata basis. Each shareholder will
be deemed to have agreed to such contribution in these circumstances by his
investment in the Funds. See "Taxes."
PERFORMANCE DATA
From time to time, the Funds may quote performance in terms of yield,
actual distributions, total return or capital appreciation in reports, sales
literature and advertisements published by the Trust. Current performance
information for the Funds may be obtained by calling the number provided on the
cover page of this Statement of Additional Information. See
the Prospectus.
YIELD QUOTATIONS. As required by regulations of the SEC, current yield
for the Funds is computed by determining the net change exclusive of capital
changes in the value of a hypothetical pre-existing account having a balance of
one share at the beginning of a seven-day calendar period, dividing the net
change in account value of the account at the beginning of the period, and
multiplying the return over the seven-day period by 365/7. For purposes of the
calculation, net change in account value reflects the value of additional shares
purchased with dividends from the original share and dividends declared on both
the original share and any such additional shares, but does not reflect realized
gains or losses or unrealized appreciation or depreciation. Effective yield for
each Fund is computed by annualizing the seven-day return with all dividends
reinvested in additional Fund shares.
Below is set forth historical yield information for the periods
indicated:
PRIME MONEY MARKET FUND (12/31/97): 7-day current yield: %; 7-day effective
yield: %.
TREASURY MONEY MARKET FUND (12/31/97): 7-day current yield: %; 7-day effective
yield: %.
FEDERAL MONEY MARKET FUND (12/31/97): 7-day current yield: %; 7-day effective
yield: %.
TOTAL RETURN QUOTATIONS. Historical performance information for periods
prior to the establishment of the Prime Money Market and Federal Money Market
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Funds will be that of the respective related series of the J.P. Morgan Funds and
will be presented in accordance with applicable SEC staff interpretations. The
applicable financial information in the registration statement for the J.P.
Morgan Funds (Registration Nos. 033-54632 and 811-07340) is incorporated herein
by reference.
Below is set forth historical return information for the periods
indicated:
PRIME MONEY MARKET FUND (12/31/97): Average annual total return, 1 year: %;
average annual total return, 5 years: %; average annual total return, 10
years: %; aggregate total return, 1 year: %; aggregate total return, 5
years: %; aggregate total return, 10 years: %.
TREASURY MONEY MARKET FUND (12/31/97): Average annual total return, 1 year:
N/A; average annual total return, 5 years: N/A; average annual total return,
commencement of operations3 to period end: %; aggregate total return, 1 year:
N/A; aggregate total return, 5 years: N/A; aggregate total return, commencement
of operations3 to period end: %.
FEDERAL MONEY MARKET FUND (12/31/97): Average annual total return, 1 year:
%; average annual total return, 5 years: N/A; average annual total return,
commencement of operations4 to period end: %; aggregate total return, 1 year: %;
aggregate total return, 5 years: N/A; aggregate total return, commencement of
operations4 to period end: %.
Aggregate total returns, reflecting the cumulative percentage change
over a measuring period, may also be calculated.
GENERAL. A Fund's performance will vary from time to time depending
upon market conditions, the composition of its corresponding Portfolio, and its
operating expenses. Consequently, any given performance quotation should not be
considered representative of a Fund's performance for any specified period in
the future. In addition, because performance will fluctuate, it may not provide
a basis for comparing an investment in a Fund with certain bank deposits or
other investments that pay a fixed yield or return for a stated period of time.
Comparative performance information may be used from time to time in
advertising the Funds' shares, including appropriate market indices including
the benchmarks indicated under "Investment Advisor" above or data from Lipper
Analytical Services, Inc., Micropal, Inc., Ibbotson Associates, Morningstar
Inc., the Dow Jones Industrial Average and other industry publications.
- --------
3J.P. Morgan Institutional Treasury Money Market Fund commenced
operations on July 8, 1997.
4J.P. Morgan Federal Money Market Fund commenced operations on January 4,
1993.
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PORTFOLIO TRANSACTIONS
The Advisor places orders for all Portfolios for all purchases and sales of
portfolio securities, enters into repurchase agreements, and may enter into
reverse repurchase agreements and execute loans of portfolio securities on
behalf of all the Portfolios. See "Investment Objectives and Policies."
Fixed income and debt securities and municipal bonds and notes 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.
Portfolio transactions for the Portfolios will be undertaken principally to
accomplish a Portfolio's objective in relation to expected movements in the
general level of interest rates. The Portfolios may engage in short-term trading
consistent with their objectives. See "Investment Objectives and Policies."
In connection with portfolio transactions for the Portfolios, the
Advisor intends to seek best price and execution on a competitive basis for both
purchases and sales of securities.
The Portfolios have a policy of investing only in securities with
maturities of less than 397 days, which policy will result in high portfolio
turnovers. Since brokerage commissions are not normally paid on investments
which the Portfolios make, turnover resulting from such investments should not
adversely affect the net asset value or net income of the Portfolios.
Subject to the overriding objective of obtaining the best possible
execution of orders, the Advisor may allocate a portion of a Portfolio's
brokerage transactions to affiliates of the Advisor. In order for affiliates of
the Advisor to effect any portfolio transactions for a Portfolio, the
commissions, fees or other remuneration received by such affiliates must be
reasonable and fair compared to the commissions, fees, or other remuneration
paid to other brokers in connection with comparable transactions involving
similar securities being purchased or sold on a securities exchange during a
comparable period of time. Furthermore, the Trustees of each Portfolio,
including a majority of the Trustees who are not "interested persons," have
adopted procedures which are reasonably designed to provide that any
commissions, fees, or other remuneration paid to such affiliates are consistent
with the foregoing standard.
Portfolio securities will not be purchased from or through or sold to
or through the Co-Administrator, the Distributor or the Advisor or any other
"affiliated person" (as defined in the 1940 Act) of the Co-Administrator,
Distributor or Advisor when such entities are acting as principals, except to
the extent permitted by law. In addition, the Portfolios will not purchase
securities during the existence of any underwriting group relating thereto of
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which the Advisor or an affiliate of the Advisor is a member, except to the
extent permitted by law.
On those occasions when the Advisor deems the purchase or sale of a
security to be in the best interests of a Portfolio as well as other customers
including other Portfolios, the Advisor to the extent permitted by applicable
laws and regulations, may, but is not obligated to, aggregate the securities to
be sold or purchased for a Portfolio with those to be sold or purchased for
other customers 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 its fiduciary obligations to a Portfolio. In some instances,
this procedure might adversely affect a Portfolio.
MASSACHUSETTS TRUST
The Trust is a trust fund of the type commonly known as a
"Massachusetts business trust" of which each Fund is a separate and distinct
series. A copy of the Declaration of Trust for the Trust is on file in the
office of the Secretary of The Commonwealth of Massachusetts. The Declaration of
Trust and the By-Laws of the Trust are designed to make the Trust similar in
most respects to a Massachusetts business corporation. The principal distinction
between the two forms concerns shareholder liability described below.
Effective January 9, 1997, the name of The Treasury Money Market
Portfolio was changed to The Federal Money Market Portfolio. Effective May 12,
1997, the name of The Money Market Portfolio was changed to The Prime Money
Market Portfolio. Effective January 1, 1997, the name of the Trust was changed
from "The JPM Institutional Funds" to "J.P. Morgan Institutional Funds," and
each Fund's name changed accordingly.
Under Massachusetts law, shareholders of such a trust may, under
certain circumstances, be held personally liable as partners for the obligations
of the trust which is not the case for a corporation. However, the Trust's
Declaration of Trust provides that the shareholders shall not be subject to any
personal liability for the acts or obligations of any Fund and that every
written agreement, obligation, instrument or undertaking made on behalf of any
Fund shall contain a provision to the effect that the shareholders are not
personally liable thereunder.
No personal liability will attach to the shareholders under any
undertaking containing such provision when adequate notice of such provision is
given, except possibly in a few jurisdictions. With respect to all types of
claims in the latter jurisdictions, (i) tort claims, (ii) contract claims where
the provision referred to is omitted from the undertaking, (iii) claims for
taxes, and (iv) certain statutory liabilities in other jurisdictions, a
shareholder may be held personally liable to the extent that claims are not
satisfied by a Fund. However, upon payment of such liability, the shareholder
will be entitled to reimbursement from the general assets of a Fund. The
Trustees intend to conduct the operations of the Trust in such a way so as to
avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the Funds.
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The Trust's Declaration of Trust further provides that the name of the
Trust refers to the Trustees collectively as Trustees, not as individuals or
personally, that no Trustee, officer, employee or agent of a Fund is liable to a
Fund or to a shareholder, and that no Trustee, officer, employee, or agent is
liable to any third persons in connection with the affairs of a Fund, except as
such liability may arise from his or its own bad faith, willful misfeasance,
gross negligence or reckless disregard of his or its duties to such third
persons. It also provides that all third persons shall look solely to Fund
property for satisfaction of claims arising in connection with the affairs of a
Fund. With the exceptions stated, the Trust's Declaration of Trust provides that
a Trustee, officer, employee, or agent is entitled to be indemnified against all
liability in connection with the affairs of a Fund.
The Trust shall continue without limitation of time subject to the
provisions in the Declaration of Trust concerning termination by action of the
shareholders or by action of the Trustees upon notice to the shareholders.
DESCRIPTION OF SHARES
The Trust is an open-end management investment company organized as a
Massachusetts business trust in which each Fund represents a separate series of
shares of beneficial interest. 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, if applicable) without changing the proportionate beneficial interest of
each shareholder in a Fund (or in the assets of other series, if applicable).
Each share represents an equal proportional interest in a Fund with each other
share. Upon liquidation of a Fund, holders are entitled to share pro rata in the
net assets of a Fund available for distribution to such shareholders. See
"Massachusetts Trust." Shares of a Fund have no preemptive or conversion rights
and are fully paid and nonassessable. The rights of redemption and exchange are
described in the Prospectus and elsewhere in this Statement of Additional
Information.
The shareholders of the Trust are entitled to a full vote for each full
share held and to a fractional vote for each fractional share. Subject to the
1940 Act, the Trustees themselves 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 appoint
their own successors, PROVIDED, HOWEVER, that immediately after such appointment
the requisite majority of the Trustees have been elected by the shareholders of
the Trust. The voting rights of shareholders are not cumulative so that holders
of more than 50% of the shares voting can, if they choose, elect all Trustees
being selected while the shareholders of the remaining shares would be unable to
elect any Trustees. It is the intention of the Trust not to hold meetings of
shareholders annually. The Trustees may call meetings of shareholders for action
by shareholder vote as may be required by either the 1940 Act or the Trust's
Declaration of Trust.
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Shareholders of the Trust have the right, upon the declaration in
writing or vote of more than two-thirds of its outstanding shares, 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 record holders of 10% of the Trust's
shares. In addition, whenever ten or more shareholders of record who have been
such for at least six months preceding the date of application, and who hold in
the aggregate either shares having a net asset value of at least $25,000 or at
least 1% of the Trust's outstanding shares, whichever is less, shall apply to
the Trustees in writing, stating that they wish to communicate with other
shareholders with a view to obtaining signatures to request a meeting for the
purpose of voting upon the question of removal of any Trustee or Trustees and
accompanied by a form of communication and request which they wish to transmit,
the Trustees shall within five business days after receipt of such application
either: (1) afford to such applicants access to a list of the names and
addresses of all shareholders as recorded on the books of the Trust; or (2)
inform such applicants as to the approximate number of shareholders of record,
and the approximate cost of mailing to them the proposed communication and form
of request. If the Trustees elect to follow the latter course, the Trustees,
upon the written request of such applicants, accompanied by a tender of the
material to be mailed and of the reasonable expenses of mailing, shall, with
reasonable promptness, mail such material to all shareholders of record at their
addresses as recorded on the books, unless within five business days after such
tender the Trustees shall mail to such applicants and file with the SEC,
together with a copy of the material to be mailed, a written statement signed by
at least a majority of the Trustees to the effect that in their opinion either
such material contains untrue statements of fact or omits to state facts
necessary to make the statements contained therein not misleading, or would be
in violation of applicable law, and specifying the basis of such opinion. After
opportunity for hearing upon the objections specified in the written statements
filed, the SEC may, and if demanded by the Trustees or by such applicants shall,
enter an order either sustaining one or more of such objections or refusing to
sustain any of them. If the SEC shall enter an order refusing to sustain any of
such objections, or if, after the entry of an order sustaining one or more of
such objections, the SEC shall find, after notice and opportunity for hearing,
that all objections so sustained have been met, and shall enter an order so
declaring, the Trustees shall mail copies of such material to all shareholders
with reasonable promptness after the entry of such order and the renewal of such
tender.
The Trustees have authorized the issuance and sale to the public of
shares of 24 series of the Trust. The Trustees have no current
intention to create any classes within the initial series or any subsequent
series. The Trustees may, however, authorize the issuance of shares of
additional series and the creation of classes of shares within any series with
such preferences, privileges, limitations and voting and dividend rights as the
Trustees may determine. The proceeds from the issuance of any additional series
would be invested in separate, independently managed portfolios with distinct
investment objectives, policies and restrictions, and share purchase, redemption
and net asset valuation procedures. Any additional classes would be used to
distinguish among the rights of different categories of shareholders, as might
be required by future regulations or other unforeseen circumstances. All
consideration received by the Trust for shares of any additional series or
class, and all assets in which such consideration is invested, would belong to
that series or
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<PAGE>
class, subject only to the rights of creditors of the Trust and would be subject
to the liabilities related thereto. Shareholders of any additional series or
class will approve the adoption of any management contract or distribution plan
relating to such series or class and of any changes in the investment policies
related thereto, to the extent required by the 1940 Act.
For information relating to mandatory redemption of Fund shares or
their redemption at the option of the Trust under certain circumstances, see the
Prospectus.
As of December 2, 1997, the following owned of record, or to the
knowledge of management, beneficially owned more than 5% of the outstanding
shares of:
Prime Money Market Fund:
Treasury Money Market Fund:
Federal Money Market Fund:
TAXES
Each Fund intends to qualify as a regulated investment company under
Subchapter M of the Code. As a regulated investment company, a Fund must, among
other things, (a) derive at least 90% of its gross income from dividends,
interest, payments with respect to loans of stock and securities, gains from the
sale or other disposition of stock, securities or foreign currency 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 foreign currency; (b) derive less than 30% of its gross income
from the sale or other disposition of stock, securities, options, futures or
forward contracts (other than options, futures or forward contracts on foreign
currencies) held less than three months, or foreign currencies (or options,
futures or forward contracts on foreign currencies) held less than three months,
but only if such currencies (or options, futures or forward contracts on foreign
currencies) are not directly related to a Fund's principal business of investing
in stocks or securities (or options and futures with respect to stocks or
securities); and (c) diversify its holdings so that, at the end of each quarter
of its taxable year, (i) at least 50% of the value of the Fund's total assets is
represented by cash, cash items, U.S. Government securities, securities of 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 securities of other regulated
investment companies). As a regulated investment company, a Fund (as opposed to
its shareholders) will not be subject to federal income taxes on the net
investment income and capital gain that it distributes to its shareholders,
provided that at least 90% of its net investment income and realized net
short-term capital gain in excess of net long-term capital loss for the taxable
year is distributed in accordance with the Code's timing requirements.
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Under the Code, a Fund will be subject to a 4% excise tax on a portion
of its undistributed taxable income and capital gains if it fails to meet
certain distribution requirements by the end of the calendar year. Each Fund
intends to make distributions in a timely manner and accordingly does not expect
to be subject to the excise tax.
For federal income tax purposes, dividends that are declared by a Fund
in October, November or December as of a record date in such month and actually
paid in January of the following year will be treated as if they were paid on
December 31 of the year declared. Therefore, such dividends will be taxable to a
shareholder in the year declared rather than the year paid.
Distributions of net investment income and realized net short-term
capital gain in excess of net long-term capital loss (other than exempt interest
dividends) are generally taxable to shareholders of the Funds as ordinary income
whether such distributions are taken in cash or reinvested in additional shares.
Distributions to corporate shareholders of the Funds are not eligible for the
dividends received deduction. Distributions of net long-term capital gain (i.e.,
net long-term capital gain in excess of net short-term capital loss) are taxable
to shareholders of a Fund as long-term capital gain, regardless of whether such
distributions are taken in cash or reinvested in additional shares and
regardless of how long a shareholder has held shares in the Fund. Additionally,
any loss realized on a redemption or exchange of shares of a Fund will be
disallowed to the extent the shares disposed of are replaced within a period of
61 days beginning 30 days before such disposition, such as pursuant to
reinvestment of a dividend in shares of the Fund.
To maintain a constant $1.00 per share net asset value, the Trustees of
the Trust may direct that the number of outstanding shares be reduced pro rata.
If this adjustment is made, it will reflect the lower market value of portfolio
securities and not realized losses. The adjustment may result in a shareholder
having more dividend income than net income in his account for a period. When
the number of outstanding shares of a Fund is reduced, the shareholder's basis
in the shares of the Fund may be adjusted to reflect the difference between
taxable income and net dividends actually distributed. This difference may be
realized as a capital loss when the shares are liquidated. Subject to certain
limited exceptions, capital losses cannot be used to offset ordinary income. See
"Net Asset Value."
Gains or losses on sales of portfolio securities will be treated as
long-term capital gains or losses if the securities have been held for more than
one year except in certain cases where a put is acquired or a call option is
written thereon or straddle rules are otherwise applicable. Other gains or
losses on the sale of securities will be short-term capital gains or losses.
Gains and losses on the sale, lapse or other termination of options on
securities will be treated as gains and losses from the sale of securities.
Except as described below, if an option written by a Portfolio lapses or is
terminated through a closing transaction, such as a repurchase by the Portfolio
of the option from its holder, the Portfolio 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 Portfolio in the closing transaction. If securities are
purchased by a Portfolio pursuant to the exercise of a put option written by it,
the
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<PAGE>
Portfolio will subtract the premium received from its cost basis in the
securities purchased.
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 a Portfolio accrues income or receivables or
expenses or other liabilities denominated in a foreign currency and the time a
Portfolio actually collects such income or pays such liabilities, are generally
treated as ordinary income or ordinary loss. Similarly, gains or losses on the
disposition of debt securities held by a Portfolio, 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.
FOREIGN SHAREHOLDERS. Dividends of net investment income and
distributions of realized net short-term gain in excess of net long-term loss to
a shareholder who, as to the United States, is a nonresident alien individual,
fiduciary of a foreign trust or estate, foreign corporation or foreign
partnership (a "foreign shareholder") will be subject to U.S. withholding tax at
the rate of 30% (or lower treaty rate) unless the dividends are effectively
connected with a U.S. trade or business of the shareholder, in which case the
dividends will be subject to tax on a net income basis at the graduated rates
applicable to U.S. individuals or domestic corporations. Distributions treated
as long term capital gains to foreign shareholders will not be subject to U.S.
tax unless the distributions are effectively connected with the shareholder's
trade or business in the United States or, in the case of a shareholder who is a
nonresident alien individual, the shareholder was present in the United States
for more than 182 days during the taxable year and certain other conditions are
met.
In the case of a foreign shareholder who is a nonresident alien
individual or foreign entity, a Fund may be required to withhold U.S. federal
income tax as "backup withholding" at the rate of 31% from distributions treated
as long-term capital gains and from the proceeds of redemptions, exchanges or
other dispositions of Fund shares unless IRS Form W-8 is provided. Transfers by
gift of shares of a Fund by a foreign shareholder who is a nonresident alien
individual will not be subject to U.S. federal gift tax, but the value of shares
of 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. Each 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 a Fund and its shareholders in those states which have income
tax laws might differ from treatment under the federal income tax laws.
Shareholders should consult their own tax advisors with respect to any state or
local taxes.
OTHER TAXATION. The Trust is organized as a Massachusetts business
trust and, under current law, neither the Trust nor any Fund is liable for any
income or franchise tax in The Commonwealth of Massachusetts, provided that each
Fund continues to qualify as a regulated investment company under Subchapter M
of the Code. The Portfolios are organized as New York trusts. The Portfolios are
not
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<PAGE>
subject to any federal income taxation or income or franchise tax in the State
of New York or The Commonwealth of Massachusetts. The investment by a Fund in
its corresponding Portfolio does not cause the Fund to be liable for any income
or franchise tax in the State of New York.
ADDITIONAL INFORMATION
As used in this Statement of Additional Information and the Prospectus,
the term "majority of the outstanding voting securities" means the vote of (i)
67% or more of the Fund's shares or the Portfolio's outstanding voting
securities present at a meeting, if the holders of more than 50% of the Fund's
outstanding shares or the Portfolio's outstanding voting securities are present
or represented by proxy, or (ii) more than 50% of the Fund's outstanding shares
or the Portfolio's outstanding voting securities, whichever is less.
Telephone calls to the Funds, Morgan or Financial Professionals as
shareholder servicing agent may be tape recorded. With respect to the securities
offered hereby, this Statement of Additional Information and the Prospectus do
not contain all the information included in the Trust's Registration Statement
filed with the SEC under the 1933 Act and the Trust's and the Portfolios'
Registration Statements filed under the 1940 Act. Pursuant to the rules and
regulations of the SEC, certain portions have been omitted. The Registration
Statements including the exhibits filed therewith may be examined at the office
of the SEC in Washington D.C.
Statements contained in this Statement of Additional Information and
the Prospectus concerning the contents of any contract or other document are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the applicable
Registration Statements. Each such statement is qualified in all respects by
such reference.
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in the
Prospectus and this Statement of Additional Information, in connection with the
offer contained therein and, if given or made, such other information or
representations must not be relied upon as having been authorized by any of the
Trust, the Funds or the Distributor. The Prospectus and this Statement of
Additional Information do not constitute an offer by any Fund or by the
Distributor 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
the Distributor to make such offer in such jurisdictions.
FINANCIAL STATEMENTS
The following financial statements and the report thereon of Price
Waterhouse LLP of each Fund (except the Federal Money Market Fund) are
incorporated herein by reference from their respective annual report filings
made with the SEC pursuant to Section 30(b) of the 1940 Act and Rule 30b2-1
thereunder. Any of the following financial reports are available without charge
upon request by calling JP Morgan Funds Services at (800) 766-7722. Each Fund's
financial statements include the financial statements of the Fund's
corresponding Portfolio.
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<TABLE>
<CAPTION>
Date of Semi-Annual Date of Annual
Report; Date Semi- Report; Date Annual
Annual Report Filed; Report Filed; and
Name of Fund/Portfolio and Accession Number Accession Number
- ------------------------------------------------ --------------------------------- --------------------------------
<S> <C> <C>
J.P. Morgan Institutional N/A 11/30/97
Prime Money Market Fund 01/ /98
0000912057-98-
J.P. Morgan Institutional N/A 10/31/97
Treasury Money Market Fund 12/ /97
0000912057-97-
J.P. Morgan Institutional N/A 10/31/97
Federal Money Market Fund 12/ /97
0000912057-97-
- ------------------------------------------------ --------------------------------- --------------------------------
</TABLE>
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APPENDIX A
DESCRIPTION OF SECURITY RATINGS
STANDARD & POOR'S
CORPORATE AND MUNICIPAL BONDS
AAA - Debt rated AAA has the highest ratings assigned by Standard & Poor's
to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in a small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated
categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for debt in
higher rated categories.
COMMERCIAL PAPER, INCLUDING TAX EXEMPT
A - Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined
with the designations 1, 2, and 3 to indicate the relative degree of
safety.
A-1 - This designation indicates that the degree of safety regarding timely
payment is very strong.
SHORT-TERM TAX-EXEMPT NOTES
SP-1 - The short-term tax-exempt note rating of SP-1 is the highest
rating assigned by Standard & Poor's and has a very strong or
strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics are
given a "plus" (+) designation.
SP-2 - The short-term tax-exempt note rating of SP-2 has a
satisfactory capacity to pay principal and interest.
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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.
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.
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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.
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A-3
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<PAGE>
J.P. MORGAN INSTITUTIONAL FUNDS
J.P. MORGAN INSTITUTIONAL TAX EXEMPT MONEY MARKET FUND
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 2, 1998
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT CONTAINS
ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS
DATED FEBRUARY 2, 1998 FOR THE FUND LISTED ABOVE, AS SUPPLEMENTED FROM TIME TO
TIME, WHICH MAY BE OBTAINED UPON REQUEST FROM FUNDS DISTRIBUTOR, INC.,
ATTENTION: J.P. MORGAN INSTITUTIONAL FUNDS (800) 221-7930.
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Table of Contents
PAGE
General.......................................................................1
Investment Objective and Policies.............................................1
Investment Restrictions......................................................10
Trustees and Officers........................................................15
Investment Advisor...........................................................19
Distributor..................................................................21
Co-Administrator.............................................................22
Services Agent...............................................................23
Custodian and Transfer Agent.................................................23
Shareholder Servicing........................................................24
Independent Accountants......................................................25
Expenses.....................................................................25
Purchase of Shares...........................................................26
Redemption of Shares.........................................................26
Exchange of Shares...........................................................27
Dividends and Distributions..................................................27
Net Asset Value..............................................................27
Performance Data.............................................................28
Portfolio Transactions.......................................................30
Massachusetts Trust..........................................................31
Description of Shares........................................................32
Taxes........................................................................33
Additional Information.......................................................35
Appendix A - Description of Security Ratings................................A-1
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GENERAL
This Statement of Additional Information relates only to the J.P.
Morgan Institutional Tax Exempt Money Market Fund (the "Fund"). The Fund is a
series of shares of beneficial interest of the J.P. Morgan Institutional Funds,
an open-end management investment company formed as a Massachusetts business
trust (the "Trust"). In addition to the Fund, the Trust consists of other series
representing separate investment funds (each a "J.P. Morgan Institutional
Fund"). The other J.P. Morgan Institutional Funds are covered by separate
Statements of Additional Information.
This Statement of Additional Information describes the financial
history, investment objective and policies, management and operation of the
Fund. The Fund operates through a two-tier master-feeder investment fund
structure.
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 accorded to them in the Prospectus. The Trust's
executive offices are located at 60 State Street, Suite 1300, Boston,
Massachusetts 02109.
Unlike other mutual funds which directly acquire and manage their own
portfolio of securities, the Fund seeks to achieve its investment objective by
investing all of its investable assets in a corresponding Master Portfolio (the
"Portfolio"), an open-end management investment company having the same
investment objective as the Fund. The Fund invests in the Portfolio through a
two-tier master-feeder investment fund structure. See "Special Information
Concerning Investment Structure."
The Portfolio is advised by Morgan Guaranty Trust Company of New York
("Morgan" or the "Advisor").
Investments in the Fund are not deposits or obligations of, or
guaranteed or endorsed by, Morgan or any other 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
when the investment is redeemed, the value may be higher or lower than the
amount originally invested by the investor.
INVESTMENT OBJECTIVE AND POLICIES
The following discussion supplements the information regarding the
investment objective of the Fund and the policies to be employed to achieve the
objective by the Portfolio as set forth herein and in the Prospectus. Since the
investment characteristics and experiences of the Fund correspond directly with
those of the Portfolio, the discussion in this Statement of Additional
Information focuses on the investments and investment policies of the Portfolio.
Accordingly, references below to the Portfolio also include the Fund; similarly,
references to the Fund also include the Portfolio unless the context requires
otherwise.
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The Fund is designed to be an economical and convenient means of making
substantial investments in instruments that are exempt from federal income tax.
The Fund's investment objective is to provide a high level of current income
that is exempt from federal income tax and maintain a high level of liquidity.
See "Taxes." The Fund attempts to achieve this objective by investing all of its
investable assets in The Tax Exempt Money Market Portfolio (the "Portfolio"), a
diversified open-end management investment company having the same investment
objective as the Fund.
The Portfolio attempts to achieve its investment objective by
maintaining a dollar-weighted average portfolio maturity of not more than 90
days and by investing in U.S. dollar-denominated securities described in the
Prospectus and this Statement of Additional Information that meet certain rating
criteria, present minimal credit risks, have effective maturities of not more
than 397 days and earn interest wholly exempt from federal income tax in the
opinion of bond counsel for the issuer. The Portfolio generally will not invest
in taxable securities, although it may temporarily invest up to 20% of total
assets in such securities in abnormal market conditions, for defensive purposes
only, if, in the judgment of the Advisor, tax exempt securities satisfying the
Fund's investment objective may not be purchased. For purposes of this
calculation, obligations that generate income that may be treated as a
preference item for purposes of the alternative minimum tax shall not be
considered taxable securities. See "Quality and Diversification Requirements."
Interest on these securities may be subject to state and local taxes. For more
detailed information regarding tax matters, including the applicability of the
alternative minimum tax, see "Taxes."
MONEY MARKET INSTRUMENTS
A description of the various types of money market instruments that may be
purchased by the Fund appears below. Also 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;
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(ii) securities issued by the Federal National Mortgage Association, which are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; and (iii) obligations of the Federal Farm Credit System
and the Student Loan Marketing Association, each of whose obligations may be
satisfied only by the individual credits of the issuing agency.
BANK OBLIGATIONS. The Fund, unless otherwise noted in the Prospectus or
below, 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 may not invest in
obligations of foreign branches of foreign banks. The Fund will not invest in
obligations for which the Advisor, or any of its affiliated persons, is the
ultimate obligor or accepting 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
acting as agent, for no additional fee, in its capacity as investment advisor to
the Portfolio and as fiduciary for other clients for whom it exercises
investment discretion. The monies loaned to the borrower come from accounts
managed by the Advisor or its affiliates, pursuant to arrangements with such
accounts. Interest and principal payments are credited to such accounts. The
Advisor, acting as a fiduciary on behalf of its clients, 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 the Advisor. 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 an 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, in its capacity as a commercial
bank, has made a loan.
REPURCHASE AGREEMENTS. The Fund, unless otherwise noted in the
Prospectus or below, may enter into repurchase agreements with brokers, dealers
or banks that meet the credit guidelines approved by the Fund's Trustees. In a
repurchase agreement, the Fund buys a security from a seller that has agreed to
repurchase
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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 Fund is
invested in the agreement 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 397 days.
The securities which are subject to repurchase agreements, however, may have
maturity dates in excess of 397 days 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 the 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. The Fund will be fully collateralized within the meaning of paragraph
(a)(4) of Rule 2a-7 under the Investment Company Act of 1940, as amended (the
"1940 Act"). 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.
The Fund may make investments in other debt securities with remaining
effective maturities of not more than 397 days, including without limitation
corporate bonds, and other obligations described in the Prospectus or this
Statement of Additional Information.
TAX EXEMPT OBLIGATIONS
A description of the various types of tax exempt obligations which may be
purchased by the Fund appears in the Prospectus and 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.
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MUNICIPAL NOTES. Municipal notes are subdivided into three categories of
short-term obligations: municipal notes, municipal commercial paper and
municipal demand obligations.
Municipal notes are short-term obligations with a maturity at the time
of issuance ranging from six months to five 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 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" above. 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.
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The Fund may purchase securities of the type described above if they
have effective maturities within 397 days. As required by regulation of the
Securities and Exchange Commission (the "SEC"), this means that on the date of
acquisition the final stated maturity (or if called for redemption, the
redemption date) must be within 397 days or the maturity must be deemed to be no
more than 397 days because of a maturity shortening mechanism, such as a
variable interest rate, coupled with a conditional or unconditional right to
resell the investment to the issuer or a third party. See "Variable Rate Demand
Notes" and "Puts." A substantial portion of the Fund's portfolio is subject to
maturity shortening mechanisms consisting of variable interest rates coupled
with unconditional rights to resell the securities to the issuers either
directly or by drawing on a domestic or foreign bank letter of credit or other
credit support arrangement. See "Foreign Investments."
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 which are subject to puts
at amortized cost. No value is assigned to the put. The cost of any such put is
carried as an unrealized loss from the time of purchase until it is exercised or
expires. 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.
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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 Trustees will review regularly the Advisor's 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. The Trustees have directed the Advisor not to enter into
put transactions with any dealer which in the judgment of the Advisor becomes
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.
The Trust has been advised by counsel that the Fund will be considered
the owner of the securities subject to the puts so that the interest on the
securities is tax exempt income to the Fund. Such advice of counsel is based on
certain assumptions concerning the terms of the puts and the attendant
circumstances.
ADDITIONAL INVESTMENTS
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 for money market instruments and other fixed income securities
no interest accrues 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, reflect the value each day of
such securities in determining its net asset value and, if applicable, calculate
the maturity for the purposes of average maturity from that date. 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, U.S. Government
securities or other appropriate securities, in an amount at least equal to such
commitments. On delivery dates for such transactions, the Fund will meet its
obligations from maturities or sales of the securities held in the segregated
account and/or from cash flow. 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 portfolio obligation, incur a gain or loss due to
market fluctuation. It is the current policy of the Fund not to enter into
when-issued commitments exceeding in the aggregate 15% of the market value of
the
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Fund's total assets, less liabilities other than the obligations created by
when-issued commitments.
INVESTMENT COMPANY SECURITIES. Securities of other investment companies
may be acquired by the Fund and Portfolio to the extent permitted under the 1940
Act. These limits 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 (its corresponding Portfolio). As a shareholder of another investment
company, the Fund or Portfolio would bear, along with other shareholders, its
pro rata portion of the other investment company's expenses, including advisory
fees. These expenses would be in addition to the advisory and other expenses
that the Fund or Portfolio bears directly in connection with its own operations.
REVERSE REPURCHASE AGREEMENTS. The Fund, unless otherwise noted in the
Prospectus or below, 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. 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. The Fund will invest the
proceeds of borrowings under reverse repurchase agreements. In addition, the
Fund will enter into a reverse repurchase agreement only when the interest
income to be earned from the investment of the proceeds is greater than the
interest 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. If interest rates rise during the term of a reverse repurchase
agreement, entering into the reverse repurchase agreement may have a negative
impact on the Fund's ability to maintain a net asset value of $1.00 per share.
See "Investment Restrictions" for the Fund's limitations on reverse repurchase
agreements and bank borrowings.
LOANS OF PORTFOLIO SECURITIES. The Fund may lend its securities if such
loans are secured continuously by cash or equivalent collateral or by a letter
of credit in favor of the Fund at least equal at all times to 100% of the market
value of the securities loaned, plus accrued interest. While such securities are
on loan, the borrower will pay the Fund any income accruing thereon. Loans will
be subject to termination by the 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 which occurs during the term
of the loan inures to the Fund and its respective investors. The Fund may pay
reasonable finders' and custodial fees in connection with a loan. In addition,
the Fund will consider all facts and circumstances including the
creditworthiness
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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, Director, employee or other affiliate of the Fund, the Advisor or the
Distributor, unless otherwise permitted by applicable law.
PRIVATELY PLACED AND CERTAIN UNREGISTERED SECURITIES. The Fund may
invest in privately placed, restricted, Rule 144A or other unregistered
securities as described in the Prospectus.
As to illiquid investments, the Fund is subject to a risk that should
the Fund decide to sell them when a ready buyer is not available at a price the
Fund deems representative of their value, the value of the Fund's net assets
could be adversely affected. Where an illiquid security must be registered under
the Securities Act of 1933, as amended (the "1933 Act"), before it may be sold,
the Fund may be obligated to pay all or part of the registration expenses, and a
considerable period may elapse between the time of the decision to sell and the
time the Fund may be permitted to sell a security 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.
SYNTHETIC INSTRUMENTS. The Fund may invest in certain synthetic
variable rate instruments as described in the Prospectus. In the case of some
types of instruments credit enhancement is not provided, and if certain events,
which may include (a) default in the payment of principal or interest on the
underlying bond, (b) downgrading of the bond below investment grade or (c) a
loss of the bond's tax exempt status, occur, then (i) the put will terminate,
(ii) the risk to the Fund will be that of holding a long-term bond, and (iii)
the disposition of the bond may be required which could be at a loss.
QUALITY AND DIVERSIFICATION REQUIREMENTS
The Fund intends to meet the diversification requirements of the 1940
Act. To meet these requirements, 75% of the assets of the Fund are subject to
the following fundamental limitations: (1) the Fund may not invest more than 5%
of its total assets in the securities of any one issuer, except obligations of
the U.S. Government, its agencies and instrumentalities, and (2) the Fund may
not own more than 10% of the outstanding voting securities of any one issuer. As
for the other 25% of the Fund's assets not subject to the limitation described
above, there is no limitation on investment of these assets under the 1940 Act,
so that all of such assets may be invested in securities of any one issuer,
subject to the limitation of any applicable state securities laws or as
described below. 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.
At the time the Fund invests in any taxable commercial paper, master
demand obligation, bank obligation or repurchase agreement, the issuer must have
outstanding debt rated A or higher by Moody's or Standard & Poor's, the issuer's
parent corporation, if any, must have outstanding commercial paper rated Prime-1
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by Moody's or A-1 by Standard & Poor's, or if no such ratings are available, the
investment must be of comparable quality in Morgan's opinion.
For purposes of diversification and concentration under the 1940 Act,
identification of the issuer of municipal bonds or notes depends on the terms
and conditions of the obligation. 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 nongovernmental user, the nongovernmental 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."
In order to attain its objective of maintaining a stable net asset
value, the Fund will limit its investments to securities that present minimal
credit risks and securities (other than New York State municipal notes) that are
rated within the highest rating assigned to short-term debt securities (or, in
the case of New York State municipal notes, within one of the two highest
ratings assigned to short-term debt securities) by at least two NRSROs or by the
only NRSRO that has rated the security. Securities which originally had a
maturity of over one year are subject to more complicated, but generally similar
rating requirements. The Fund may also purchase unrated securities that are of
comparable quality to the rated securities described above. Additionally, if the
issuer of a particular security has issued other securities of comparable
priority and security and which have been rated in accordance with the criteria
described above that security will be deemed to have the same rating as such
other rated securities.
In addition, the Board of Trustees has adopted procedures which (i)
require the Fund to maintain a dollar-weighted average portfolio maturity of not
more than 90 days and to invest only in securities with a remaining maturity of
not more than 397 days and (ii) require the Fund, in the event of certain
downgrading of or defaults on portfolio holdings, to dispose of the holding,
subject in certain circumstances to a finding by the Trustees that disposing of
the holding would not be in the Fund's best interest.
The credit quality of variable rate demand notes and other municipal
obligations is frequently enhanced by various credit support arrangements with
domestic or foreign financial institutions, such as letters of credit,
guarantees and insurance, and these arrangements are considered when investment
quality is
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evaluated. The rating of credit-enhanced municipal obligations by a NRSRO may
be based primarily or exclusively on the credit support arrangement.
INVESTMENT RESTRICTIONS
The investment restrictions of the Fund and Portfolio are identical,
unless otherwise specified. Accordingly, references below to the Fund also
include the Portfolio unless the context requires otherwise; similarly,
references to the Portfolio also include the Fund unless the context requires
otherwise.
The investment restrictions below have been adopted by the Trust, with
respect to the Fund, and by the Portfolio. Except where 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 or Portfolio, as the case may be. A "majority of the
outstanding voting securities" is defined in the 1940 Act as the lesser of (a)
67% or more of the voting securities present at a meeting if the holders of more
than 50% of the outstanding voting securities are present or represented by
proxy, or (b) more than 50% of the outstanding voting securities. The percentage
limitations contained in the restrictions below apply at the time of the
purchase of securities. Whenever the Fund is requested to vote on a change in
the fundamental investment restrictions of the Portfolio, the Trust will hold a
meeting of Fund shareholders and will cast its votes as instructed by the Fund's
shareholders.
The Fund and Portfolio may not:
1. Borrow money, except from banks for temporary, extraordinary or emergency
purposes and then only in amounts up to 10% of the value of the Fund's
total assets, taken at cost at the time of such borrowing; or mortgage,
pledge or hypothecate any assets except in connection with any such
borrowing in amounts up to 10% of the value of the Fund's net assets at the
time of such borrowing. The Fund will not purchase securities while
borrowings exceed 5% of the Fund's total assets, provided, however, that
the Fund may increase its interest in an open-end management investment
company with the same investment objective and restrictions as the Fund's
while such borrowings are outstanding. This borrowing provision, for
example, facilitates the orderly sale of portfolio securities in the event
of abnormally heavy redemption requests or in the event of redemption
requests during periods of tight market supply. This provision is not for
leveraging purposes;
2. Invest more than 25% of its total assets in securities of governmental
units located in any one state, territory, or possession of the United
States. The Fund may invest more then 25% of its total assets in
industrial development and pollution control obligations whether or not
the users of facilities financed by such obligations are in the same
industry;1
- --------
1 Pursuant to an interpretation of the staff of the SEC, the Fund
may not invest more than 25% of its assets in industrial development
bonds in projects of similar type or in the same state. The Fund shall
comply with this interpretation until such time as it may be modified
by the staff of the SEC.
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<PAGE>
3. Purchase industrial revenue bonds if, as a result of such purchase,
more than 5% of total Fund assets would be invested in industrial
revenue bonds where payment of principal and interest are the
responsibility of companies with fewer than three years of operating
history;
4. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the Fund's
total assets would be invested in securities or other obligations of any
one such issuer, provided, however, that the Fund may invest all or part of
its investable assets in an open-end management investment company with the
same investment objective and restrictions as the Fund's. Each state and
each political subdivision, agency or instrumentality of such state and
each multi-state agency of which such state is a member will be a separate
issuer if the security is backed only by the assets and revenues of that
issuer. If the security is guaranteed by another entity, the guarantor will
be deemed to be the issuer. This limitation shall not apply to securities
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or to permitted investments of up to 25% of the Fund's
total assets;2
5. Make loans, except through the purchase or holding of debt obligations,
repurchase agreements, or loans of portfolio securities in accordance with
the Fund's investment objective and policies (see "Investment Objectives
and Policies");
6. Purchase or sell puts, calls, straddles, spreads, or any combination
thereof except to the extent that securities subject to a demand
obligation, stand-by commitments and puts may be purchased (see
"Investment Objectives and Policies"); real estate; commodities;
commodity contracts; or interests in oil, gas, or mineral exploration
or development programs. However, the Fund may purchase municipal
bonds, notes or commercial paper secured by interests in real estate;
7. 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
securities or of securities for delayed delivery;
8. Acquire securities of other investment companies, except as permitted by
the 1940 Act;
9. Act as an underwriter of securities; or
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2For purposes of interpretation of Investment Restriction No. 4
"guaranteed by another entity" includes credit substitutions, such as
letters of credit or insurance, unless the Advisor determines that the
security meets the Fund's credit standards without regard to the credit
substitution.
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10. Issue senior securities, except as may otherwise be permitted by the
foregoing investment restrictions or under the 1940 Act or any rule,
order or interpretation thereunder.
NON-FUNDAMENTAL INVESTMENT RESTRICTION. The investment restriction
described below is not a fundamental policy of the Fund or Portfolio and may be
changed by their respective Trustees. This non-fundamental investment policy
requires that the Fund may not:
(i) 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 10% of
the Fund's total assets would be in investments that are illiquid.
Notwithstanding any other fundamental or non-fundamental investment
restriction or policy, the Fund reserves the right, without the approval of
shareholders, to invest all of its assets in the securities of a single open-end
registered investment company with substantially the same investment objective,
restrictions and policies as the Fund.
There will be no violation of any investment restriction if that
restriction is complied with at the time the relevant action is taken
notwithstanding a later change in market value of an investment, in net or total
assets, in the securities rating of the investment, or any other later change.
For purposes of fundamental investment restrictions regarding industry
concentration, the Advisor may classify issuers by industry in accordance with
classifications set forth in the DIRECTORY OF COMPANIES FILING ANNUAL REPORTS
WITH THE SECURITIES AND EXCHANGE COMMISSION or other sources. In the absence of
such classification or if the Advisor determines in good faith based on its own
information that the economic characteristics affecting a particular issuer make
it more appropriately considered to be engaged in a different industry, the
Advisor may classify an issuer accordingly. For instance, personal credit
finance companies and business credit finance companies are deemed to be
separate industries and wholly owned finance companies are considered to be in
the industry of their parents if their activities are primarily related to
financing the activities of their parents.
TRUSTEES AND OFFICERS
TRUSTEES
The Trustees of the Trust, who are also the Trustees of the Portfolio,
their business addresses, principal occupations during the past five years and
dates of birth are set forth below.
FREDERICK S. ADDY--Trustee; Retired; Executive Vice President and Chief
Financial Officer since prior to April 1994, Amoco Corporation. His address is
5300 Arbutus Cove, Austin, TX 78746, and his date of birth is January 1, 1932.
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WILLIAM G. BURNS--Trustee; Retired, Former Vice Chairman and Chief
Financial Officer, NYNEX. His address is 2200 Alaqua Drive, Longwood, FL 32779,
and his date of birth is November 2, 1932.
ARTHUR C. ESCHENLAUER--Trustee; Retired; Former Senior Vice President,
Morgan Guaranty Trust Company of New York. His address is 14 Alta Vista Drive,
RD #2, Princeton, NJ 08540, and his date of birth is May 23, 1934.
MATTHEW HEALEY (*)--Trustee, Chairman and Chief Executive Officer;
Chairman, Pierpont Group, Inc., since prior to 1992. His address is Pine Tree
Club Estates, 10286 Saint Andrews Road, Boynton Beach, FL 33436, and his date of
birth is August 23, 1937.
MICHAEL P. MALLARDI--Trustee; Retired; Senior Vice President, Capital
Cities/ABC, Inc. and President, Broadcast Group since prior to April 1996. His
address is 10 Charnwood Drive, Suffern, NY 10910, and his date of birth is
March 17, 1934.
- ----------------------
(*) Mr. Healey is an "interested person" of the Trust, the Advisor and each
Portfolio as that term is defined in the 1940 Act.
The Trustees of the Trust are the same as the Trustees of the
Portfolio. In accordance with applicable state requirements, a majority of the
disinterested Trustees have adopted written procedures reasonably appropriate to
deal with potential conflicts of interest arising from the fact that the same
individuals are Trustees of the Trust, the Portfolio and the J.P. Morgan Funds
up to and including creating a separate board of trustees.
Each Trustee is currently paid an annual fee of $75,000 (adjusted as of
April 1, 1997) for serving as Trustee of the Trust, each of the Master
Portfolios (as defined below), the J.P. Morgan Funds and J.P. Morgan Series
Trust and is reimbursed for expenses incurred in connection with service as a
Trustee. The Trustees may hold various other directorships unrelated to the
Fund.
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<PAGE>
Trustee compensation expenses accrued by the Trust for the calendar
year ended December 31, 1997 are set forth below.
<TABLE>
<CAPTION>
TOTAL TRUSTEE COMPENSATION
ACCRUED BY THE MASTER
AGGREGATE TRUSTEE PORTFOLIOS (*), THE J.P.
COMPENSATION MORGAN FUNDS, J.P. MORGAN
NAME OF TRUSTEE ACCRUED BY THE SERIES TRUST AND THE TRUST
TRUST DURING 1997 DURING 1997 (***)
----------------- -----------------
<S> <C> <C>
Frederick S. Addy, Trustee $
$
William G. Burns, Trustee $ $
Arthur C. Eschenlauer, Trustee $ $
Matthew Healey, Trustee(**), $ $
Chairman and Chief Executive
Officer
Michael P. Mallardi, Trustee $ $
</TABLE>
(*) Includes the Portfolio and 23 other portfolios (collectively, the
"Master Portfolios") for which Morgan acts as investment advisor.
(**) During 1997, Pierpont Group, Inc. paid Mr. Healey, in his role as Chairman
of Pierpont Group, Inc., compensation in the amount of $ , contributed $ to
a defined contribution plan on his behalf and paid $ in insurance premiums
for his benefit.
(***) No investment company within the fund complex has a pension or
retirement plan. Currently there are 18 investment companies (15
investment companies comprising the Master Portfolios, the J.P. Morgan
Funds, the Trust and J.P. Morgan Series Trust) in the fund complex.
The Trustees, in addition to reviewing actions of the Trust's and the
Portfolio's various service providers, decide upon matters of general policy.
The Portfolio and the Trust have 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 Portfolio and the Trust.
Pierpont Group, Inc. was organized in July 1989 to provide services for The
Pierpont Family of Funds, and the Trustees are the equal and sole shareholders
of Pierpont Group, Inc. The Trust and the Portfolio have agreed to pay Pierpont
Group, Inc. a fee in an amount representing its reasonable costs in performing
these services to the Trust, the Portfolio and certain other registered
investment companies subject to similar agreements with Pierpont Group, Inc.
These costs are periodically reviewed by the Trustees. The principal offices of
Pierpont Group, Inc. are located at 461 Fifth Avenue, New York, New York 10017.
The aggregate fees paid to Pierpont Group, Inc. by the Fund and the
Portfolio during the indicated fiscal years are set forth below:
FUND -- For the fiscal years ended August 31, 1995, 1996 and 1997: $8,400,
$8,391 and $6,074.
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<PAGE>
PORTFOLIO -- For the fiscal years ended August 31, 1995, 1996 and 1997:
$110,325, $62,310 and $43,285.
OFFICERS
The Trust's and Portfolio's executive officers (listed below), other
than the Chief Executive Officer, are provided and compensated by Funds
Distributor, Inc. ("FDI"), a wholly owned indirect subsidiary of Boston
Institutional Group, Inc. The officers conduct and supervise the business
operations of the Trust and the Portfolio. The Trust and the Portfolio have no
employees.
The officers of the Trust and the Portfolio, their principal
occupations during the past five years and dates of birth are set forth below.
Unless otherwise specified, each officer holds the same position with the Trust
and the Portfolio. The business address of each of the officers unless otherwise
noted is Funds Distributor, Inc., 60 State Street, Suite 1300, Boston,
Massachusetts
02109.
MATTHEW HEALEY; Chief Executive Officer; Chairman, Pierpont Group,
since prior to 1993. His address is Pine Tree Club Estates, 10286 Saint Andrews
Road, Boynton Beach, FL 33436. His date of birth is August 23, 1937.
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 advised or administered by the Dreyfus
Corporation ("Dreyfus") or its affiliates. From December 1991 to July 1994, she
was President and Chief Compliance Officer of FDI. Her date of birth is August
1, 1957.
DOUGLAS C. CONROY; Vice President and Assistant Treasurer. Assistant Vice
President and Manager of Treasury Services and Administration of FDI and an
officer of certain investment companies advised or administered by Dreyfus or
its affiliates. 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. Prior to March
1993, Mr. Conroy was employed as a fund accountant at The Boston Company, Inc.
His date of birth is March 31, 1969.
RICHARD W. INGRAM; President and Treasurer. Executive Vice President
and Director of Client Services and Treasury Administration of FDI, Senior Vice
President of Premier Mutual and an officer of RCM Capital Funds, Inc., RCM
Equity Funds, Inc., Waterhouse Investors Cash Management Fund, Inc. and certain
investment companies advised or administered by Dreyfus or Harris Trust and
Savings Bank ("Harris") or their respective affiliates. Prior to April 1997, Mr.
Ingram was Senior Vice President and Director of Client Service and Treasury
Administration of FDI. From March 1994 to November 1995, Mr. Ingram was Vice
President and Division Manager of First Data Investor Services Group, Inc. From
1989 to 1994, Mr. Ingram was Vice President, Assistant Treasurer and Tax
Director - Mutual Funds of The Boston Company, Inc. His date of birth is
September 15, 1955.
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<PAGE>
KAREN JACOPPO-WOOD; Vice President and Assistant Secretary. Assistant Vice
President of FDI and an officer of RCM Capital Funds, Inc. and RCM Equity Funds,
Inc., Waterhouse Investors Cash Management Fund, Inc. and Harris or their
respective affiliates. From June 1994 to January 1996, Ms. Jacoppo-Wood was a
Manager, SEC Registration, Scudder, Stevens & Clark, Inc. From 1988 to May 1994,
Ms. Jacoppo-Wood was a senior paralegal at The Boston Company Advisors, Inc.
("TBCA"). Her date of birth is December 29, 1966.
ELIZABETH A. KEELEY; Vice President and Assistant Secretary. Vice President
and Senior Counsel of FDI and Premier Mutual and an officer of RCM Capital
Funds, Inc., RCM Equity Funds, Inc., Waterhouse Investors Cash Management Fund,
Inc. and certain investment companies advised or administered by Dreyfus or
Harris or their respective affiliates. Prior to August 1996, Ms. Keeley was
Assistant Vice President and Counsel of FDI and Premier Mutual. Prior to
September 1995, Ms. Keeley was enrolled at Fordham University School of Law and
received her JD in May 1995. Address: 200 Park Avenue, New York, New York 10166.
Her date of birth is September 14, 1969.
CHRISTOPHER J. KELLEY; Vice President and Assistant Secretary. Vice
President and Associate General Counsel of FDI and Premier Mutual and an officer
of Waterhouse Investors Cash Management Fund, Inc. and certain investment
companies advised or administered by Harris or its affiliates. From April 1994
to July 1996, Mr. Kelley was Assistant Counsel at Forum Financial Group. From
1992 to 1994, Mr. Kelley was employed by Putnam Investments in legal and
compliance capacities. His date of birth is December 24, 1964.
MARY A. NELSON; Vice President and Assistant Treasurer. Vice President and
Manager of Treasury Services and Administration of FDI and Premier Mutual, an
officer of RCM Capital Funds, Inc., RCM Equity Funds, Inc., Waterhouse Investors
Cash Management Fund, Inc. and certain investment companies advised or
administered by Dreyfus or Harris or their respective affiliates. From 1989 to
1994, Ms. Nelson was an Assistant Vice President and Client Manager for The
Boston Company, Inc. Her date of birth is April 22, 1964.
MICHAEL S. PETRUCELLI; Vice President and Assistant Secretary. Senior Vice
President and Director of Strategic Client Initiatives for FDI since December
1996. From December 1989 through November 1996, Mr. Petrucelli was employed with
GE Investments where he held various financial, business development and
compliance positions. He also served as Treasurer of the GE Funds and as
Director of GE Investment Services. Address: 200 Park Avenue, New York, New
York, 10166. His date of birth is May 18, 1961.
JOSEPH F. TOWER III; Vice President and Assistant Treasurer. Executive Vice
President, Treasurer and Chief Financial Officer, Chief Administrative Officer
and Director Of FDI. Senior Vice President, Treasurer and Chief Financial
Officer, Chief Administrative Officer and Director of Premier Mutual and an
officer of Waterhouse Investors Cash Management Fund, Inc. and certain
investment companies advised or administered by Dreyfus or its affiliates. Prior
to April 1997, Mr. Tower was Senior Vice President, Treasurer and Chief
Financial Officer, Chief Administrative Officer and Director of FDI. From July
1988 to November 1993, Mr. Tower was Financial Manager of The Boston Company,
Inc. His date of birth is June 13, 1962.
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<PAGE>
INVESTMENT ADVISOR
The investment advisor to the Portfolio is Morgan Guaranty Trust
Company of New York, a wholly owned subsidiary of J.P. Morgan & Co. Incorporated
("J.P. Morgan"), a bank holding company organized under the laws of the State of
Delaware. The Advisor, 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. The Advisor 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, the Advisor 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.
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 $240 billion.
J.P. Morgan has a long history of service as adviser, 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 100 full time
research analysts, among the largest research staffs in the money management
industry, in its investment management divisions located in New York, London,
Tokyo, Frankfurt, Melbourne and Singapore to cover companies, industries and
countries on site. In addition, the investment management divisions employ
approximately 300 capital market researchers, portfolio managers and traders.
The 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 Portfolio
are not exclusive under the terms of the 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 Portfolio. Such accounts are supervised by officers and employees of the
Advisor who may also be acting in similar capacities for the Portfolio. See
"Portfolio Transactions."
Sector weightings are generally similar to a benchmark with the
emphasis on security selection as the method to achieve investment performance
superior
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<PAGE>
to the benchmark. The benchmark for the Portfolio in which the Fund invests is
currently IBC/Donoghue's Tax Exempt Money Fund Average.
J.P. Morgan Investment Management Inc., also a wholly owned subsidiary
of J.P. Morgan, is a registered investment adviser under the Investment Advisers
Act of 1940, as amended, which 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 the Advisor serves as trustee. J.P. Morgan
Investment Management Inc. advises the Advisor on investment of the commingled
pension trust funds.
The Portfolio is managed by officers of the Advisor who, in acting for
their customers, including the Portfolio, do not discuss their investment
decisions with any personnel of J.P. Morgan or any personnel of other divisions
of the Advisor or with any of its affiliated persons, with the exception of J.P.
Morgan Investment Management Inc. and certain other 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 Investment
Advisory Agreement, the Portfolio has agreed to pay the Advisor a fee, which is
computed daily and may be paid monthly, equal to the annual rate of 0.20% of the
Portfolio's average daily net assets up to $1 billion and 0.10% of the
Portfolio's average daily net assets in excess of $1 billion.
The Portfolio paid the following advisory fees to the Advisor for the
fiscal years ended August 31, 1995, 1996 and 1997: $2,150,291, $2,154,248 and
$2,267,159. See the Prospectus and below for applicable expense limitations.
The Investment Advisory Agreement 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 without penalty by a
vote of a majority of the Portfolio's Trustees, or by a vote of the holders of a
majority of the Portfolio's outstanding voting securities, on 60 days' written
notice to the Advisor and by the Advisor on 90 days' written notice to the
Portfolio. See "Additional Information."
The Glass-Steagall Act and other applicable laws generally prohibit
banks such as the Advisor from engaging in the business of underwriting or
distributing securities, and the Board of Governors of the Federal Reserve
System has issued an interpretation to the effect that under these laws a bank
holding company registered under the federal Bank Holding Company Act or certain
subsidiaries thereof may not sponsor, organize, or control a registered open-end
investment company continuously engaged in the issuance of its shares, such as
the Trust. The interpretation does not prohibit a holding company or a
subsidiary thereof from acting as investment advisor and custodian to such an
investment company. The Advisor believes that it may perform the services for
the Portfolio contemplated by the Advisory Agreement without violation of the
Glass-Steagall Act or other applicable banking laws or regulations. State laws
on this issue
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<PAGE>
may differ from the interpretation of relevant federal law, and banks and
financial institutions may be required to register as dealers pursuant to state
securities laws. However, it is possible that future changes in either federal
or state statutes and regulations concerning the permissible activities of banks
or trust companies, as well as further judicial or administrative decisions and
interpretations of present and future statutes and regulations, might prevent
the Advisor from continuing to perform such services for the Portfolio.
If the Advisor were prohibited from acting as investment advisor to the
Portfolio, it is expected that the Trustees of the Portfolio would recommend to
investors that they approve the Portfolio's entering into a new investment
advisory agreement with another qualified investment advisor selected by the
Trustees.
Under separate agreements, Morgan also provides certain financial, fund
accounting and administrative services to the Trust and the Portfolio and
shareholder services for 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 Trust's distributor.
The Distribution Agreement shall continue in effect with respect to the
Fund for a period of two years after execution only if it is approved at least
annually thereafter (i) by a vote of the holders of a majority of the Fund's
outstanding shares or by its Trustees and (ii) by a vote of a majority of the
Trustees of the Trust who are not "interested persons" (as defined by the 1940
Act) of the parties to the Distribution Agreement, cast in person at a meeting
called for the purpose of voting on such approval (see "Trustees and Officers").
The Distribution Agreement will terminate automatically if assigned by either
party thereto and is terminable 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 the holders of a
majority of the Fund's outstanding shares as defined under "Additional
Information," in any case without payment of any penalty on 60 days' written
notice to the other party. The principal offices of FDI are located at 60 State
Street, Suite 1300, Boston, Massachusetts 02109.
CO-ADMINISTRATOR
Under Co-Administration Agreements with the Trust and the Portfolio
dated August 1, 1996, FDI also serves as the Trust's and the Portfolio's
Co-Administrator. The Co-Administration Agreements may be renewed or amended by
the respective Trustees without a shareholder vote. The Co-Administration
Agreements are terminable at any time without penalty by a vote of a majority of
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<PAGE>
the Trustees of the Trust or the Portfolio, as applicable, 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 or the Portfolio, as applicable,
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.
For its services under the Co-Administration Agreements, the Fund and
Portfolio have 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 or Portfolio is based on the ratio of its net assets to
the aggregate net assets of the Trust, the Master Portfolios and certain other
investment companies subject to similar agreements with FDI.
The table below sets forth for the Fund and the Portfolio the
administrative fees paid to FDI for the fiscal periods indicated. See the
Prospectus and below for applicable expense limitations.
FUND -- For the period August 1, 1996 through August 31, 1996 and the fiscal
year ended August 31, 1997: $525 and $6,410.
PORTFOLIO -- For the period August 1, 1996 through August 31, 1996 and the
fiscal year ended August 31, 1997: $2,284 and $25,082.
The table below sets forth for the Fund and the Portfolio the
administrative fees paid to Signature Broker-Dealer Services, Inc. (which
provided distribution and administrative services to the Trust and placement
agent and administrative services to the Portfolio prior to August 1, 1996) for
the fiscal periods indicated. See the Prospectus and below for applicable
expense limitations.
FUND -- For the fiscal year ended August 31, 1995 and the period September 1,
1995 through July 31, 1996: $22,290 and $23,755.
PORTFOLIO -- For the fiscal year ended August 31, 1995 and the period September
1, 1995 through July 31, 1996: $72,729 and $110,848.
SERVICES AGENT
The Trust, on behalf of the Fund, and the Portfolio have entered into
Administrative Services Agreements (the "Services Agreements") with Morgan
pursuant to which Morgan is responsible for certain administrative and related
services provided to the Fund and Portfolio. The Services Agreements 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 Agreements, the Fund and the Portfolio have 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
Master Portfolios and J.P. Morgan Series Trust in accordance with the following
annual
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<PAGE>
schedule: 0.09% on 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 and Portfolio is determined by the proportionate share that
its net assets bear to the total net assets of the Trust, the Master Portfolios,
the other investors in the Master Portfolios for which Morgan provides similar
services and J.P. Morgan Series Trust.
Under prior administrative services agreements in effect from December
29, 1995 through July 31, 1996 with Morgan, the Portfolio paid Morgan a fee
equal to its proportionate share of an annual complex-wide charge. This charge
was calculated daily based on the aggregate net assets of the Master Portfolios
in accordance with the following schedule: 0.06% of the first $7 billion of the
Master Portfolios' aggregate average daily net assets, and 0.03% of the Master
Portfolios' aggregate average daily net assets in excess of $7 billion. Prior to
December 29, 1995, the Trust and the Portfolio had entered into Financial and
Fund Accounting Services Agreements with Morgan, the provisions of which
included certain of the activities described above and, prior to September 1,
1995, also included reimbursement of usual and customary expenses.
The table below sets forth for the Fund and the Portfolio the fees paid
to Morgan, net of fee waivers and reimbursements, as Services Agent. See the
Prospectus and below for applicable expense limitations.
FUND -- For the fiscal years ended August 31, 1995, 1996 and 1997: $(56,396)*,
$30,085 and $60,316.
PORTFOLIO -- For the fiscal years ended August 31, 1995, 1996 and 1997:
$169,754, $205,419 and $397,340.
- ------------------------------------
(*) Indicates a reimbursement by Morgan for expenses in excess of its fees
under the Services Agreements. No fees were paid for the fiscal period.
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02110, serves as the Trust's and the Portfolio's
custodian and fund accounting agent and the Fund's transfer and dividend
disbursing agent. Pursuant to the Custodian Contracts, State Street is
responsible for maintaining the books of account and records of portfolio
transactions and holding portfolio securities and cash. In addition, the
Custodian has entered into subcustodian agreements on behalf of the Portfolio
with Bankers Trust Company for the purpose of holding TENR Notes and with Bank
of New York and Chemical Bank, N.A. for the purpose of holding certain variable
rate demand notes. The Custodian maintains portfolio transaction records. As
transfer agent and dividend disbursing agent, State Street is responsible for
maintaining account records detailing the ownership of Fund shares and for
crediting income, capital gains and other changes in share ownership to
shareholder accounts.
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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 its customers and for other Fund investors who are customers
of a Financial Professional. Under this agreement, Morgan is responsible for
performing 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 the Distributor of the gross amount of purchase orders for
Fund shares; monitoring the activities of the Fund's transfer agent; and
providing other related services.
Under the Shareholder Servicing Agreement, the Fund has agreed to pay
Morgan for these services a fee at the annual rate (expressed as a percentage of
the average daily net asset value of Fund shares owned by or for shareholders
for whom Morgan is acting as shareholder servicing agent) of 0.05%. Morgan acts
as shareholder servicing agent for all shareholders. See the Prospectus and
below for applicable expense limitations.
The table below sets forth for the Fund listed the shareholder
servicing fees paid by the Fund to Morgan, net of fee waivers and
reimbursements, for the fiscal periods indicated. See "Expenses" in the
Prospectus and below for applicable expense limitations.
The shareholder servicing fees paid by the Fund to Morgan, net of fee
waivers and reimbursements, for the fiscal years ended August 31, 1995, 1996,
and 1997 were as follows: $96,667, $103,262 and $97,098, of which $50,458 was
waived for the period February 10, 1997 through August 31, 1997.
As discussed under "Investment Advisor," the Glass-Steagall Act and
other applicable laws and regulations limit the activities of bank holding
companies and certain of their subsidiaries in connection with registered
open-end investment companies. The activities of Morgan in acting as shareholder
servicing agent for Fund shareholders under the Shareholder Servicing Agreement
and providing administrative services to the Fund and the Portfolio under the
Services Agreements and in acting as Advisor to the Portfolio under the
Investment Advisory Agreement may raise issues under these laws. However, Morgan
believes that it may properly perform these services and the other activities
described in the Prospectus without violation of the Glass-Steagall Act or other
applicable banking laws or regulations.
If Morgan were prohibited from providing any of the services under the
Shareholder Servicing Agreement and the Services Agreements, the Trustees would
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seek an alternative provider of such services. In such event, changes in the
operation of the Fund or the Portfolio might occur and a shareholder might no
longer be able to avail himself or herself of any services then being provided
to shareholders by Morgan.
INDEPENDENT ACCOUNTANTS
The independent accountants of the Trust and the Portfolio are Price
Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036. Price
Waterhouse LLP conducts an annual audit of the financial statements of the Fund
and the Portfolio, assists in the preparation and/or review of the Fund's and
the Portfolio's federal and state income tax returns and consults with the Fund
and the Portfolio as to matters of accounting and federal and state income
taxation.
EXPENSES
In addition to the fees payable to Pierpont Group, Inc., Morgan and FDI
under various agreements discussed under "Trustees and Officers," "Investment
Advisor," "Co-Administrator and Distributor," "Services Agent" and "Shareholder
Servicing" above, the Fund and the Portfolio are responsible for usual and
customary expenses associated with their respective operations. Such expenses
include organization expenses, legal fees, accounting expenses, insurance costs,
the compensation and expenses of the Trustees, costs associated with their
registration under federal securities laws, and extraordinary expenses
applicable to the Fund or the Portfolio. For the Fund, such expenses also
include transfer, registrar and dividend disbursing costs, the expenses of
printing and mailing reports, notices and proxy statements to Fund shareholders,
and filing fees under state securities laws. For the Portfolio, such expenses
also include custodian fees and brokerage expenses. Under fee arrangements prior
to September 1, 1995, Morgan as Services Agent was responsible for
reimbursements to the Trust and the Portfolio and the usual and customary
expenses described above (excluding organization and extraordinary expenses,
custodian fees and brokerage expenses). For additional information regarding
waivers or expense subsidies, see the Prospectus.
PURCHASE OF SHARES
Investors may open Fund accounts and purchase shares as described in
the Prospectus. References in the Prospectus and this Statement of Additional
Information to customers of Morgan or a Financial Professional include customers
of their affiliates and references to transactions by customers with 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 delivered in such a transaction are valued by the method
described in "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 Morgan, appropriate
investments for the Portfolio. In addition, securities accepted in payment for
shares must:
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(i) meet the investment objective and policies of the Portfolio; (ii) be
acquired by the Fund for investment and not for resale (other than for resale to
the Portfolio); and (iii) be liquid securities which are not restricted as to
transfer either by law or liquidity of market. 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 a
Financial Professional, and the Financial Professional may charge the investor a
fee for this service and other services it provides to its customers.
REDEMPTION OF SHARES
Investors may redeem shares as described in the Prospectus.
Shareholders redeeming shares of the Fund should be aware that the Fund attempts
to maintain a stable net asset value of $1.00 per share; however, there can be
no assurance that it will be able to continue to do so, and in that case the net
asset value of the Fund's shares might deviate from $1.00 per share.
Accordingly, a redemption request might result in payment of a dollar amount
which differs from the number of shares redeemed. See "Net Asset Value" below.
If the Trust, on behalf of the Fund, and the Portfolio determine that
it would be detrimental to the best interest 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 Portfolio, in lieu of cash, in conformity with the applicable rule of
the SEC. If shares are redeemed in kind, the redeeming shareholder might incur
transaction costs in converting the assets into cash. 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. The Trust,
on behalf of the Fund, has elected to be governed by Rule 18f-1 under the 1940
Act pursuant to which the Portfolio is obligated to redeem shares solely in cash
up to the lesser of $250,000 or one percent of the net asset value of the Fund
during any 90-day period for any one shareholder. The Trust will redeem Fund
shares in kind only if it has received a redemption in kind from the Portfolio
and therefore shareholders of the Fund that receive redemptions in kind will
receive securities of the Portfolio. The Portfolio has advised the Trust that
the Portfolio will not redeem in kind except in circumstances in which the Fund
is permitted to redeem in kind.
FURTHER REDEMPTION INFORMATION. The Trust, on behalf of the Fund, and
the Portfolio reserve 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 on such Exchange 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
Portfolio 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.
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EXCHANGE OF SHARES
An investor may exchange shares from the Fund into any other J.P.
Morgan Institutional Fund, J.P. Morgan Fund, or shares of J.P. Morgan Series
Trust, as described in the Prospectus. For complete information, the Prospectus
as it relates to the Fund into which a transfer is being made should be read
prior to the transfer. Requests for exchange are made in the same manner as
requests for redemptions. See "Redemption of Shares." Shares of the 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 in
the Prospectus.
Net investment income of the Fund consists of accrued interest or discount
and amortized premium, less the accrued expenses of the Fund applicable to that
dividend period including the fees payable to Morgan. See "Net Asset Value."
Determination of the net income for the Fund is made at the times
described in the Prospectus; in addition, net investment income for days other
than business days is determined at the time net asset value is determined on
the prior business day.
If a shareholder has elected to receive dividends and/or capital gain
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 once daily on Monday through
Friday 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, Columbus Day, Veterans Day, Thanksgiving Day, and Christmas Day.
In the event that trading in the money markets is scheduled to end earlier than
the close of the New York Stock Exchange in observance of these holidays, the
Fund and Portfolio would expect to close for purchases and redemptions an hour
in advance of the end of trading in the money markets. The Fund and the
Portfolio 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. On any business day when the Public Securities Association ("PSA")
recommends that the securities market close early, the Fund reserves the right
to cease accepting purchase and redemption orders for same business day credit
at the time PSA recommends that the securities market close. On days the Fund
closes early, purchase and redemption orders received after the PSA-recommended
closing time
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will be credited the next business day. The days on which net asset value is
determined are the Fund's business days.
The net asset value of the Fund is equal to the value of the Fund's
investment in the Portfolio (which is equal to the Fund's pro rata share of the
total investment of the Fund and of any other investors in the Portfolio less
the Fund's pro rata share of the Portfolio's liabilities) less the Fund's
liabilities. The following is a discussion of the procedures used by the
Portfolio in valuing its assets.
The Portfolio's portfolio securities are valued by the amortized cost
method. The purpose of this method of calculation is to attempt to maintain a
constant net asset value per share of the Fund of $1.00. No assurances can be
given that this goal can be attained. The amortized cost method of valuation
values a security at its cost at the time of purchase and thereafter assumes a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the instrument. If a
difference of more than 1/2 of 1% occurs between valuation based on the
amortized cost method and valuation based on market value, the Trustees will
take steps necessary to reduce such deviation, such as changing the Fund's
dividend policy, shortening the average portfolio maturity, realizing gains or
losses, or reducing the number of outstanding Fund shares. Any reduction of
outstanding shares will be effected by having each shareholder contribute to the
Fund's capital the necessary shares on a pro rata basis. Each shareholder will
be deemed to have agreed to such contribution in these circumstances by his
investment in the Fund. See "Taxes."
PERFORMANCE DATA
From time to time, the Fund may quote performance in terms of yield,
actual distributions, total return or capital appreciation in reports, sales
literature and advertisements published by the Trust. Current performance
information for the Fund may be obtained by calling the number provided on the
cover page of this Statement of Additional Information.
YIELD QUOTATIONS. As required by regulations of the SEC, current yield
for the Fund is computed by determining the net change exclusive of capital
changes in the value of a hypothetical pre-existing account having a balance of
one share at the beginning of a seven-day calendar period, dividing the net
change in account value of the account at the beginning of the period, and
multiplying the return over the seven-day period by 365/7. For purposes of the
calculation, net change in account value reflects the value of additional shares
purchased with dividends from the original share and dividends declared on both
the original share and any such additional shares, but does not reflect realized
gains or losses or unrealized appreciation or depreciation. Effective yield for
the Fund is computed by annualizing the seven-day return with all dividends
reinvested in additional Fund shares. The tax equivalent yield is computed by
first computing the yield as discussed above. Then the portion of the yield
attributable to securities the income of which was exempt for federal income tax
purposes is determined. This portion of the yield is then divided by one minus
the stated assumed federal income tax rate for individuals and then added to the
portion of
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the yield that is not attributable to securities, the income of which was tax
exempt.
Historical yield information for the period ended December 31, 1996 is as
follows: 7-day current yield: %; 7-day tax equivalent yield at 39.6% tax rate:
%; 7-day effective yield: %.
Historical performance information for any period or portion thereof
prior to the establishment of the Fund will be that of its predecessor J.P.
Morgan Fund, as permitted by applicable SEC staff interpretations. The
applicable financial information in the registration statement for the J.P.
Morgan Funds (Registration Nos. 033-54632 and 811-07340) is incorporated herein
by reference.
Historical return information for the Fund for the period ended December
31, 1996 is as follows: Average annual total return, 1 year: %; Average annual
total return, 5 years: %; average annual total return, 10 years: %; aggregate
total return, 1 year: %; aggregate total return, 5 years: %; aggregate total
return, 10 years: %.
Aggregate total returns, reflecting the cumulative percentage change
over a measuring period, may also be calculated.
GENERAL. The Fund's performance will vary from time to time depending
upon market conditions, the composition of the Portfolio, and its 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.
PORTFOLIO TRANSACTIONS
The Advisor places orders for the Portfolio 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 Portfolio. See "Investment Objectives and Policies."
Fixed income and debt securities and municipal bonds and notes 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.
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Portfolio transactions for the Portfolio will be undertaken principally
to accomplish the Portfolio's objective in relation to expected movements in the
general level of interest rates. The Portfolio may engage in short-term trading
consistent with its objective. See "Investment Objective and Policies --
Portfolio Turnover." The Portfolio will not seek profits through short-term
trading, but the Portfolio may dispose of any portfolio security prior to its
maturity if it believes such disposition is appropriate even if this action
realizes profits or losses.
In connection with portfolio transactions for the Portfolio, the
Advisor intends to seek the best price and execution on a competitive basis for
both purchases and sales of securities.
The Portfolio has a policy of investing only in securities with
maturities of less than 397 days, which policy will result in high portfolio
turnover. Since brokerage commissions are not normally paid on investments which
the Portfolio makes, turnover resulting from such investments should not
adversely affect the net asset value or net income of the Portfolio.
Subject to the overriding objective of obtaining the best possible
execution of orders, the Advisor may allocate a portion of the Portfolio's
brokerage transactions to affiliates of the Advisor. In order for affiliates of
the Advisor to effect any portfolio transactions for the Portfolio, the
commissions, fees or other remuneration received by such affiliates must be
reasonable and fair compared to the commissions, fees, or other remuneration
paid to other brokers in connection with comparable transactions involving
similar securities being purchased or sold on a securities exchange during a
comparable period of time. Furthermore, the Trustees of the Portfolio, including
a majority of the Trustees who are not "interested persons," have adopted
procedures which are reasonably designed to provide that any commissions, fees,
or other remuneration paid to such affiliates are consistent with the foregoing
standard.
Portfolio securities will not be purchased from or through or sold to
or through the Co-Administrator, the Distributor or the Advisor or any other
"affiliated person" (as defined in the 1940 Act) of the Co-Administrator,
Distributor or Advisor when such entities are acting as principals, except to
the extent permitted by law. In addition, the Portfolio will not purchase
securities during the existence of any underwriting group relating thereto of
which the Advisor or an affiliate of the Advisor is a member, except to the
extent permitted by law.
On those occasions when the Advisor deems the purchase or sale of a
security to be in the best interests of the Portfolio as well as other customers
including other Portfolios, 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 Portfolio with those to be sold or purchased for
other customers 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 its fiduciary obligations to the Portfolio. In some instances,
this procedure might adversely affect the Portfolio.
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MASSACHUSETTS TRUST
The Trust is a trust fund of the type commonly known as a
"Massachusetts business trust" of which the Fund is a separate and distinct
series. A copy of the Declaration of Trust for the Trust is on file in the
office of the Secretary of The Commonwealth of Massachusetts. The Declaration of
Trust and the By-Laws of the Trust are designed to make the Trust similar in
most respects to a Massachusetts business corporation. The principal distinction
between the two forms concerns shareholder liability described below.
Effective January 1, 1997, the name of the Trust was changed from "The
JPM Institutional Funds" to "J.P. Morgan Institutional Funds," and each Fund's
name changed accordingly.
Under Massachusetts law, shareholders of such a trust may, under
certain circumstances, be held personally liable as partners for the obligations
of the trust which is not the case for a corporation. However, the Trust's
Declaration of Trust provides that the shareholders shall 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 shall contain a provision to the effect that the shareholders are not
personally liable thereunder.
No personal liability will attach to the shareholders under any
undertaking containing such provision when adequate notice of such provision is
given, except possibly in a few jurisdictions. With respect to all types of
claims in the latter jurisdictions, (i) tort claims, (ii) contract claims where
the provision referred to is omitted from the undertaking, (iii) claims for
taxes, and (iv) certain statutory liabilities in other jurisdictions, a
shareholder may be held personally liable to the extent that claims are not
satisfied by the Fund. However, upon payment of such liability, the shareholder
will be entitled to reimbursement from the general assets of the Fund. The
Trustees intend to conduct the operations of the Trust in such a way so as to
avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the Fund.
The Trust's Declaration of Trust further provides that the name of the
Trust refers to the Trustees collectively as Trustees, not as individuals or
personally, that no Trustee, officer, employee or agent of the Fund is liable to
the Fund or to a shareholder, and that no Trustee, officer, employee, or agent
is liable to any third persons in connection with the affairs of 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. It also provides that all third persons shall look solely to Fund
property for satisfaction of claims arising in connection with the affairs of
the Fund. With the exceptions stated, 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.
The Trust shall continue without limitation of time subject to the
provisions in the Declaration of Trust concerning termination by action of the
shareholders or by action of the Trustees upon notice to the shareholders.
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DESCRIPTION OF SHARES
The Trust is an open-end management investment company organized as a
Massachusetts business trust in which the Fund represents a separate series of
shares of beneficial interest. 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, if applicable) without changing the proportionate beneficial interest of
each shareholder in the Fund (or in the assets of other series, if applicable).
Each share represents an equal proportional interest in the Fund with each other
share. 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. See
"Massachusetts Trust." Shares of the Fund have no preemptive or conversion
rights and are fully paid and nonassessable. The rights of redemption and
exchange are described in the Prospectus and elsewhere in this Statement of
Additional Information.
The shareholders of the Trust are entitled to a full vote for each full
share held and to a fractional vote for each fractional share. Subject to the
1940 Act, the Trustees themselves 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 appoint
their own successors, PROVIDED, HOWEVER, that immediately after such appointment
the requisite majority of the Trustees have been elected by the shareholders of
the Trust. The voting rights of shareholders are not cumulative so that holders
of more than 50% of the shares voting can, if they choose, elect all Trustees
being selected while the shareholders of the remaining shares would be unable to
elect any Trustees. It is the intention of the Trust not to hold meetings of
shareholders annually. The Trustees may call meetings of shareholders for action
by shareholder vote as may be 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 more than two-thirds of its outstanding shares, 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 record holders of 10% of the Trust's
shares. In addition, whenever ten or more shareholders of record who have been
such for at least six months preceding the date of application, and who hold in
the aggregate either shares having a net asset value of at least $25,000 or at
least 1% of the Trust's outstanding shares, whichever is less, shall apply to
the Trustees in writing, stating that they wish to communicate with other
shareholders with a view to obtaining signatures to request a meeting for the
purpose of voting upon the question of removal of any Trustee or Trustees and
accompanied by a form of communication and request which they wish to transmit,
the Trustees shall within five business days after receipt of such application
either: (1) afford to such applicants access to a list of the names and
addresses of all shareholders as recorded on the books of the Trust; or (2)
inform such applicants as to the approximate number of shareholders of record,
and the approximate cost of mailing to them the proposed communication and form
of request. If the Trustees elect
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to follow the latter course, the Trustees, upon the written request of such
applicants, accompanied by a tender of the material to be mailed and of the
reasonable expenses of mailing, shall, with reasonable promptness, mail such
material to all shareholders of record at their addresses as recorded on the
books, unless within five business days after such tender the Trustees shall
mail to such applicants and file with the SEC, together with a copy of the
material to be mailed, a written statement signed by at least a majority of the
Trustees to the effect that in their opinion either such material contains
untrue statements of fact or omits to state facts necessary to make the
statements contained therein not misleading, or would be in violation of
applicable law, and specifying the basis of such opinion. After opportunity for
hearing upon the objections specified in the written statements filed, the SEC
may, and if demanded by the Trustees or by such applicants shall, enter an order
either sustaining one or more of such objections or refusing to sustain any of
them. If the SEC shall enter an order refusing to sustain any of such
objections, or if, after the entry of an order sustaining one or more of such
objections, the SEC shall find, after notice and opportunity for hearing, that
all objections so sustained have been met, and shall enter an order so
declaring, the Trustees shall mail copies of such material to all shareholders
with reasonable promptness after the entry of such order and the renewal of such
tender.
The Trustees have authorized the issuance and sale to the public of
shares of 24 series of the Trust. The Trustees have no current intention to
create any classes within the initial series or any subsequent series. The
Trustees may, however, authorize the issuance of shares of additional series and
the creation of classes of shares within any series with such preferences,
privileges, limitations and voting and dividend rights as the Trustees may
determine. The proceeds from the issuance of any additional series would be
invested in separate, independently managed portfolios with distinct investment
objectives, policies and restrictions, and share purchase, redemption and net
asset valuation procedures. Any additional classes would be used to distinguish
among the rights of different categories of shareholders, as might be required
by future regulations or other unforeseen circumstances. All consideration
received by the Trust for shares of any additional series or class, and all
assets in which such consideration is invested, would belong to that series or
class, subject only to the rights of creditors of the Trust and would be subject
to the liabilities related thereto. Shareholders of any additional series or
class will approve the adoption of any management contract or distribution plan
relating to such series or class and of any changes in the investment policies
related thereto, to the extent required by the 1940 Act.
For information relating to mandatory redemption of Fund shares or
their redemption at the option of the Trust under certain circumstances, see the
Prospectus.
As of December 2, 1997, the following owned of record, or to the
knowledge of management, beneficially owned more than 5% of the outstanding
shares of the Fund:
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TAXES
The Fund intends to continue to qualify 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 or foreign
currency 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 foreign currency; (b) derive less than
30% of its gross income from the sale or other disposition of stock, securities,
options, futures or forward contracts (other than options, futures or forward
contracts on foreign currencies) held less than three months, or foreign
currencies (or options, futures or forward contracts on foreign currencies) held
less than three months, but only if such currencies (or options, futures or
forward contracts on foreign currencies) are not directly related to the Fund's
principal business of investing in stocks or securities (or options and futures
with respect to stocks or securities); and (c) diversify its holdings so that,
at the end of each quarter of its taxable year, (i) at least 50% of the value of
the Fund's total assets is represented by cash, cash items, U.S. Government
securities, securities of 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 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 gain
that it distributes to its shareholders, provided that at least 90% of its net
investment income and realized net short-term capital gain in excess of net
long-term capital loss 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 be
taxable to a shareholder in the year declared rather than the year paid.
The Fund intends to qualify to pay exempt-interest dividends to its
shareholders by having, at the close of each quarter of its taxable year, at
least 50% of the value of its total assets consist of tax exempt securities. An
exempt-interest dividend is that part of dividend distributions made by the Fund
which is properly designated as consisting of interest received by the Fund on
tax exempt securities. Shareholders will not incur any federal income tax on the
amount of exempt-interest dividends received by them from the Fund, other than
the alternative minimum tax under certain circumstances. In view of the Fund's
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<PAGE>
investment policies, it is expected that a substantial portion of all dividends
will be exempt-interest dividends, although the Fund may from time to time
realize and distribute net short-term capital gains and may invest limited
amounts in taxable securities under certain circumstances.
Distributions of net investment income and realized net short-term
capital gain in excess of net long-term capital loss (other than exempt interest
dividends) 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 deduction. Distributions of net long-term capital gain (i.e.,
net long-term capital gain in excess of net short-term capital loss) are taxable
to shareholders of 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. Additionally,
any loss realized on a redemption or exchange of shares of the Fund will be
disallowed to the extent the shares disposed of are replaced within a period of
61 days beginning 30 days before such disposition, such as pursuant to
reinvestment of a dividend in shares of the Fund.
To maintain a constant $1.00 per share net asset value, the Trustees of
the Trust may direct that the number of outstanding shares be reduced pro rata.
If this adjustment is made, it will reflect the lower market value of portfolio
securities and not realized losses. The adjustment may result in a shareholder
having more dividend income than net income in his account for a period. When
the number of outstanding shares of the Fund is reduced, the shareholder's basis
in the shares of the Fund may be adjusted to reflect the difference between
taxable income and net dividends actually distributed. This difference may be
realized as a capital loss when the shares are liquidated. Subject to certain
limited exceptions, capital losses cannot be used to offset ordinary income. See
"Net Asset Value."
Gains or losses on sales of portfolio securities will be treated as
long-term capital gains or losses if the securities have been held for more than
one year except in certain cases where a put is acquired or a call option is
written thereon or straddle rules are otherwise applicable. Other gains or
losses on the sale of securities will be short-term capital gains or losses.
Gains and losses on the sale, lapse or other termination of options on
securities will be treated as gains and losses from the sale of securities.
Except as described below, if an option written by the Portfolio lapses or is
terminated through a closing transaction, such as a repurchase by the Portfolio
of the option from its holder, the Portfolio 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 Portfolio in the closing transaction. If securities are
purchased by the Portfolio pursuant to the exercise of a put option written by
it, the Portfolio will subtract the premium received from its cost basis in the
securities purchased.
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 Portfolio accrues income or receivables or
expenses or other liabilities denominated in a foreign currency and the time the
Portfolio
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<PAGE>
actually collects such income or pays such liabilities, are generally treated as
ordinary income or ordinary loss. Similarly, gains or losses on the disposition
of debt securities held by the Portfolio, 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.
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-8 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 which have income
tax laws might differ from treatment under the federal income tax laws.
Shareholders should consult their own tax advisors with respect to any state or
local taxes.
OTHER TAXATION. The Trust is organized as a Massachusetts business
trust and, under current law, neither the Trust nor 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. The Portfolio is organized as a New York trust. The Portfolio is
not subject to any federal income taxation or income or franchise tax in the
State of New York or The Commonwealth of Massachusetts. The investment by the
Fund in the Portfolio does not cause the Fund to be liable for any income or
franchise tax in the State of New York.
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<PAGE>
ADDITIONAL INFORMATION
As used in this Statement of Additional Information and the Prospectus,
the term "majority of the outstanding voting securities" means the vote of (i)
67% or more of the Fund's shares or the Portfolio's outstanding voting
securities present at a meeting, if the holders of more than 50% of the Fund's
outstanding shares or the Portfolio's outstanding voting securities are present
or represented by proxy, or (ii) more than 50% of the Fund's outstanding shares
or the Portfolio's outstanding voting securities, whichever is less.
Telephone calls to the Fund, Morgan or Financial Professionals as
shareholder servicing agent may be tape recorded. With respect to the securities
offered hereby, this Statement of Additional Information and the Prospectus do
not contain all the information included in the Trust's Registration Statement
filed with the SEC under the 1933 Act and the Trust's and the Portfolio's
Registration Statements filed under the 1940 Act. Pursuant to the rules and
regulations of the SEC, certain portions have been omitted. The Registration
Statements including the exhibits filed therewith may be examined at the office
of the SEC in Washington D.C.
Statements contained in this Statement of Additional Information and
the Prospectus concerning the contents of any contract or other document are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the applicable
Registration Statements. Each such statement is qualified in all respects by
such reference.
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in the
Prospectus and this Statement of Additional Information, in connection with the
offer contained therein and, if given or made, such other information or
representations must not be relied upon as having been authorized by any of the
Trust, the Fund or the Distributor. The Prospectus and this Statement of
Additional Information do not constitute an offer by the Fund or by the
Distributor 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
the Distributor to make such offer in such jurisdictions.
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FINANCIAL STATEMENTS
The following financial statements and the report thereon of Price
Waterhouse LLP of the Fund are incorporated herein by reference from its annual
report filing made with the SEC pursuant to Section 30(b) of the 1940 Act and
Rule 30b2-1 thereunder. The following financial report is available without
charge upon request by calling JP Morgan Funds Services at (800) 766-7722. The
Fund's financial statements include the financial statements of the Portfolio.
<TABLE>
<CAPTION>
Date of Semi-Annual Date of Annual
Report; Date Semi- Report; Date Annual
Annual Report Filed; Report Filed; and
Name of Fund and Accession Number Accession Number
- ------------------------------------------------ --------------------------------- --------------------------------
<S> <C> <C>
J.P. Morgan Institutional Tax N/A 08/31/97
Exempt Money Market Fund 10/ /97
0000912057-97-
- ------------------------------------------------ --------------------------------- --------------------------------
</TABLE>
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<PAGE>
APPENDIX A
DESCRIPTION OF SECURITY RATINGS
STANDARD & POOR'S
CORPORATE AND MUNICIPAL BONDS
AAA - Debt rated AAA has the highest ratings assigned by Standard & Poor's
to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in a small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated
categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for debt in
higher rated categories.
COMMERCIAL PAPER, INCLUDING TAX EXEMPT
A - Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined
with the designations 1, 2, and 3 to indicate the relative degree of
safety.
A-1 - This designation indicates that the degree of safety regarding timely
payment is very strong.
SHORT-TERM TAX-EXEMPT NOTES
SP-1 - The short-term tax-exempt note rating of SP-1 is the highest rating
assigned by Standard & Poor's and has a very strong or strong capacity to
pay principal and interest. Those issues determined to possess overwhelming
safety characteristics are given a "plus" (+) designation.
SP-2 - The short-term tax-exempt note rating of SP-2 has a satisfactory capacity
to pay principal and interest.
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<PAGE>
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.
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.
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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.
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A-3
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<PAGE>
J.P. MORGAN INSTITUTIONAL FUNDS
J.P. MORGAN INSTITUTIONAL SERVICE PRIME MONEY MARKET FUND
J.P. MORGAN INSTITUTIONAL SERVICE TREASURY MONEY MARKET FUND
J.P. MORGAN INSTITUTIONAL SERVICE FEDERAL MONEY MARKET FUND
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 2, 1998
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT CONTAINS
ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS
DATED FEBRUARY 2, 1998 FOR THE FUND OR FUNDS LISTED ABOVE, AS SUPPLEMENTED FROM
TIME TO TIME, WHICH MAY BE OBTAINED UPON REQUEST FROM FUNDS DISTRIBUTOR, INC.,
ATTENTION: J.P. MORGAN INSTITUTIONAL SERVICE FUNDS (800) 221-7930.
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Table of Contents
PAGE
General.......................................................................1
Investment Objectives and Policies............................................1
Investment Restrictions......................................................10
Trustees and Officers........................................................15
Investment Advisor...........................................................19
Distributor..................................................................21
Co-Administrator.............................................................22
Services Agent...............................................................23
Custodian and Transfer Agent.................................................23
Shareholder Servicing........................................................24
Independent Accountants......................................................25
Expenses.....................................................................25
Purchase of Shares...........................................................26
Redemption of Shares.........................................................26
Exchange of Shares...........................................................27
Dividends and Distributions..................................................27
Net Asset Value..............................................................27
Performance Data.............................................................28
Portfolio Transactions.......................................................30
Massachusetts Trust..........................................................31
Description of Shares........................................................32
Taxes........................................................................33
Additional Information.......................................................35
Appendix A - Description of Security Ratings................................A-1
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GENERAL
This Statement of Additional Information relates only to the J.P.
Morgan Institutional Service Prime Money Market Fund, the J.P. Morgan
Institutional Service Treasury Money Market Fund and the J.P. Morgan
Institutional Service Federal Money Market Fund (each, a "Fund" and
collectively, the "Funds"). Each Fund is a series of shares of beneficial
interest of the J.P. Morgan Institutional Funds, an open-end management
investment company formed as a Massachusetts business trust (the "Trust"). In
addition to the Funds, the Trust consists of other series representing separate
investment funds (each a "J.P. Morgan Institutional Fund"). The other J.P.
Morgan Institutional Funds are covered by separate Statements of Additional
Information.
This Statement of Additional Information describes the financial
history, investment objective and policies, management and operation of each of
the Funds. The Funds operate through a two-tier master-feeder investment fund
structure.
This Statement of Additional Information provides additional
information with respect to the Funds and should be read in conjunction with the
relevant Fund's current Prospectus (the "Prospectus"). Capitalized terms not
otherwise defined herein have the meanings accorded to them in the Prospectus.
The Trust's executive offices are located at 60 State Street, Suite 1300,
Boston, Massachusetts 02109.
Unlike other mutual funds which directly acquire and manage their own
portfolio of securities, each Fund seeks to achieve its investment objective by
investing all of its investable assets in a corresponding Master Portfolio (the
"Portfolio"), a corresponding open-end management investment company having the
same investment objective as the Fund. Each Fund invests in a Portfolio through
a two-tier master-feeder investment fund structure. See "Special Information
Concerning Investment Structure."
Each Portfolio is advised by Morgan Guaranty Trust Company of New York
("Morgan" or the "Advisor").
Investments in a Fund are not deposits or obligations of, or guaranteed
or endorsed by, Morgan or any other bank. Shares of a Fund are not federally
insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board,
or any other governmental agency. An investment in a Fund is subject to risk
that may cause the value of the investment to fluctuate, and when the investment
is redeemed, the value may be higher or lower than the amount originally
invested by the investor.
INVESTMENT OBJECTIVES AND POLICIES
The following discussion supplements the information regarding the
investment objective of each Fund and the policies to be employed to achieve the
objective by each Portfolio as set forth herein and in the applicable
Prospectus. Since the investment characteristics and experiences of each Fund
correspond directly with those of its corresponding Portfolio, the discussion in
this Statement of Additional Information focuses on the investments and
investment policies of each Portfolio. Accordingly, references below to a
Portfolio also
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<PAGE>
include the corresponding Fund; similarly, references to a Fund also include the
corresponding Portfolio unless the context requires otherwise.
J.P. MORGAN INSTITUTIONAL SERVICE PRIME MONEY MARKET FUND (the "Prime
Money Market Fund") is designed to be an economical and convenient means of
making substantial investments in money market instruments. The Prime Money
Market Fund's investment objective is to maximize current income and maintain a
high level of liquidity. The Prime Money Market Fund attempts to achieve this
objective by investing all of its investable assets in The Prime Money Market
Portfolio (the "Portfolio"), a diversified open-end management investment
company having the same investment objective as the Prime Money Market Fund.
The Portfolio seeks to achieve its investment objective by maintaining
a dollar-weighted average portfolio maturity of not more than 90 days and by
investing in U.S. dollar denominated securities described in the Prospectus and
this Statement of Additional Information that meet certain rating criteria,
present minimal credit risk and have effective maturities of not more than 397
days. The Portfolio's ability to achieve maximum current income is affected by
its high quality standards. See "Quality and Diversification Requirements."
J.P. MORGAN INSTITUTIONAL SERVICE TREASURY MONEY MARKET FUND (the
"Treasury Money Market Fund") is designed to be an economical and convenient
means of making substantial investments in U.S. Treasury obligations and
repurchase agreement transactions with respect to those obligations. The
Treasury Money Market Fund's investment objective is to provide current income,
maintain a high level of liquidity and preserve capital. The Treasury Money
Market Fund attempts to accomplish this objective by investing all of its
investable assets in The Treasury Money Market Portfolio (the "Portfolio"), a
diversified open-end management investment company having the same investment
objective as the Treasury Money Market Fund.
The Portfolio attempts to achieve its investment objective by
maintaining a dollar-weighted average portfolio maturity of not more than 90
days and by investing in U.S. Treasury securities and related repurchase
agreement transactions as described in the Prospectus and this Statement of
Additional Information that have effective maturities of not more than 397 days.
See "Quality and Diversification Requirements."
J.P. MORGAN INSTITUTIONAL SERVICE FEDERAL MONEY MARKET FUND (the
"Federal Money Market Fund") is designed to be an economical and convenient
means of making substantial investments primarily in short term direct
obligations of the U.S. Government. The Federal Money Market Fund's investment
objective is to provide current income, maintain a high level of liquidity and
preserve capital. The Federal Money Market Fund attempts to accomplish this
objective by investing all of its investable assets in The Federal Money Market
Portfolio (the "Portfolio"), a diversified open-end management investment
company having the same investment objective as the Federal Money Market Fund.
The Portfolio attempts to achieve its investment objective by
maintaining a dollar-weighted average portfolio maturity of not more than 90
days and by investing in U.S. Treasury securities and in obligations of certain
U.S.
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Government agencies, as described in the Prospectus and this Statement of
Additional Information that have effective maturities of not more than 397 days.
See "Quality and Diversification Requirements."
MONEY MARKET INSTRUMENTS
A description of the various types of money market instruments that may be
purchased by the Funds appears below. Also see "Quality and Diversification
Requirements."
U.S. TREASURY SECURITIES. Each of the Funds may invest in direct
obligations of the U.S. Treasury, including Treasury bills, notes and bonds, all
of which are backed as to principal and interest payments by the full faith and
credit of the United States.
ADDITIONAL U.S. GOVERNMENT OBLIGATIONS. Each of the Funds (other than
the Treasury Money Market 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, each Fund must look
principally to the federal agency issuing or guaranteeing the obligation for
ultimate repayment and may not be able to assert a claim against the United
States itself in the event the agency or instrumentality does not meet its
commitments. Securities in which each Fund may invest that are not backed by the
full faith and credit of the United States include, but are not limited to: (i)
obligations of the Tennessee Valley Authority, the Federal Home Loan Mortgage
Corporation, the Federal Home Loan Banks and the U.S. Postal Service, each of
which has the right to borrow from the U.S. Treasury to meet its obligations;
(ii) securities issued by the Federal National Mortgage Association, which are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; and (iii) obligations of the Federal Farm Credit System
and the Student Loan Marketing Association, each of whose obligations may be
satisfied only by the individual credits of the issuing agency.
FOREIGN GOVERNMENT OBLIGATIONS. The Prime Money Market Fund, subject to its
applicable investment policies, may also invest in short-term obligations of
foreign sovereign governments or of their agencies, instrumentalities,
authorities or political subdivisions. These securities must be denominated in
the U.S. dollar.
BANK OBLIGATIONS. The Prime Money Market Fund, unless otherwise noted in
the Prospectus or below, 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). See "Foreign
Investments." The Prime Money Market Fund will not invest in obligations for
which the Advisor, or any of its affiliated persons, is the ultimate obligor or
accepting bank. Each
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<PAGE>
of the Funds, other than the Treasury Money Market 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 Prime Money Market 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 acting as agent, for no additional fee, in its capacity as investment
advisor to the Portfolio and as fiduciary for other clients for whom it
exercises investment discretion. The monies loaned to the borrower come from
accounts managed by the Advisor or its affiliates, pursuant to arrangements with
such accounts. Interest and principal payments are credited to such accounts.
The Advisor, acting as a fiduciary on behalf of its clients, 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 the Advisor. Since master demand obligations typically
are not rated by credit rating agencies, the Prime Money Market Fund may invest
in such unrated obligations only if at the time of an investment the obligation
is determined by the Advisor to have a credit quality which satisfies the Prime
Money Market 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 Prime Money Market Fund to
be liquid because they are payable upon demand. The Prime Money Market Fund does
not have any specific percentage limitation on investments in master demand
obligations.
REPURCHASE AGREEMENTS. Each of the Funds may enter into repurchase
agreements with brokers, dealers or banks that meet the credit guidelines
approved by the Funds' Trustees. In a repurchase agreement, a Fund buys a
security from a seller that has agreed to repurchase the same security at a
mutually agreed upon date and price. The resale price normally is in excess of
the purchase price, reflecting an agreed upon interest rate. This interest rate
is effective for the period of time the Fund is invested in the agreement and is
not related to the coupon rate on the underlying security. A repurchase
agreement may also be viewed as a fully collateralized loan of money by a Fund
to the seller. The period of these repurchase agreements will usually be short,
from overnight to one week, and at no time will any Fund invest in repurchase
agreements for more than 397 days. The securities which are subject to
repurchase agreements, however, may have maturity dates in excess of 397 days
from the effective date of the repurchase agreement. The Treasury Money Market
Fund will only enter into repurchase agreements involving U.S. Treasury
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securities. The Federal Money Market Fund may only enter into repurchase
agreements involving U.S. Treasury securities and Permitted Agency Securities.
The Funds will always receive securities as collateral whose market value is,
and during the entire term of the agreement remains, at least equal to 100% of
the dollar amount invested by the Funds in each agreement plus accrued interest,
and the Funds will make payment for such securities only upon physical delivery
or upon evidence of book entry transfer to the account of the Custodian. Each
Fund will be fully collateralized within the meaning of paragraph (a)(4) of Rule
2a-7 under the Investment Company Act of 1940, as amended (the "1940 Act"). If
the seller defaults, a Fund might incur a loss if the value of the collateral
securing the repurchase agreement declines and might incur disposition costs in
connection with liquidating the collateral. In addition, if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization upon disposal of the collateral by a Fund may be delayed or limited.
The Prime Money Market Fund may make investments in other debt
securities with remaining effective maturities of not more than 397 days,
including, without limitation, corporate and foreign bonds, asset-backed
securities and other obligations described in the Prospectus or this Statement
of Additional Information.
ADDITIONAL INVESTMENTS
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. Each of the Funds may
purchase securities on a when-issued or delayed delivery basis. For example,
delivery of and payment for these securities can take place a month or more
after the date of the purchase commitment. The purchase price and the interest
rate payable, if any, on the securities are fixed on the purchase commitment
date or at the time the settlement date is fixed. The value of such securities
is subject to market fluctuation and for money market instruments and other
fixed income securities no interest accrues to a Fund until settlement takes
place. At the time a Fund makes the commitment to purchase securities on a
when-issued or delayed delivery basis, it will record the transaction, reflect
the value each day of such securities in determining its net asset value and, if
applicable, calculate the maturity for the purposes of average maturity from
that date. At the time of settlement a when-issued security may be valued at
less than the purchase price. To facilitate such acquisitions, each Fund will
maintain with the Custodian a segregated account with liquid assets, consisting
of cash, U.S. Government securities or other appropriate securities, in an
amount at least equal to such commitments. On delivery dates for such
transactions, each Fund will meet its obligations from maturities or sales of
the securities held in the segregated account and/or from cash flow. If a Fund
chooses to dispose of the right to acquire a when-issued security prior to its
acquisition, it could, as with the disposition of any other portfolio
obligation, incur a gain or loss due to market fluctuation. It is the current
policy of each Fund (except the Treasury Money Market Fund) not to enter into
when-issued commitments exceeding in the aggregate 15% of the market value of
the Fund's total assets, less liabilities other than the obligations created by
when-issued commitments.
INVESTMENT COMPANY SECURITIES. Securities of other investment companies may
be acquired by each of the Funds and their corresponding Portfolios to the
extent permitted under the 1940 Act. These limits require that, as determined
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immediately after a purchase is made, (i) not more than 5% of the value of a
Fund's total assets will be invested in the securities of any one investment
company, (ii) not more than 10% of the value of its total assets will be
invested in the aggregate in securities of investment companies as a group, and
(iii) not more than 3% of the outstanding voting stock of any one investment
company will be owned by a Fund, provided however, that a Fund may invest all of
its investable assets in an open-end investment company that has the same
investment objective as the Fund (its corresponding Portfolio). As a shareholder
of another investment company, a Fund or Portfolio would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund or Portfolio bears directly in connection with its
own operations.
REVERSE REPURCHASE AGREEMENTS. Each of the Funds may enter into reverse
repurchase agreements. In a reverse repurchase agreement, a Fund sells a
security and agrees to repurchase the same security at a mutually agreed upon
date and price. The Treasury Money Market Fund will only enter into reverse
repurchase agreements involving Treasury securities. 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. The Funds will invest the
proceeds of borrowings under reverse repurchase agreements. In addition, a Fund
will enter into a reverse repurchase agreement only when the interest income to
be earned from the investment of the proceeds is greater than the interest
expense of the transaction. A Fund will not invest the proceeds of a reverse
repurchase agreement for a period which exceeds the duration of the reverse
repurchase agreement. Each Fund will establish and maintain with the Custodian a
separate account with a segregated portfolio of securities in an amount at least
equal to its purchase obligations under its reverse repurchase agreements. If
interest rates rise during the term of a reverse repurchase agreement, entering
into the reverse repurchase agreement may have a negative impact on a Fund's
ability to maintain a net asset value of $1.00 per share. See "Investment
Restrictions" for each Fund's limitations on reverse repurchase agreements and
bank borrowings.
LOANS OF PORTFOLIO SECURITIES. Each of the Funds may lend its
securities if such loans are secured continuously by cash or equivalent
collateral or by a letter of credit in favor of the Fund at least equal at all
times to 100% of the market value of the securities loaned, plus accrued
interest. While such securities are on loan, the borrower will pay the Fund any
income accruing thereon. Loans will be subject to termination by the Funds in
the normal settlement time, generally three business days after notice, or by
the borrower on one day's notice. Borrowed securities must be returned when the
loan is terminated. Any gain or loss in the market price of the borrowed
securities which occurs during the term of the loan inures to a Fund and its
respective investors. The Funds may pay reasonable finders' and custodial fees
in connection with a loan. In addition, a Fund will consider all facts and
circumstances including the creditworthiness of the borrowing financial
institution, and no Fund will make any loans in excess of one year. The Funds
will not lend their securities to any officer, Trustee, Director, employee or
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other affiliate of the Funds, the Advisor or the Distributor, unless otherwise
permitted by applicable law.
PRIVATELY PLACED AND CERTAIN UNREGISTERED SECURITIES. The Funds, except
the Treasury Money Market Fund, may invest in privately placed, restricted, Rule
144A or other unregistered securities as described in the Prospectus.
As to illiquid investments, a Fund is subject to a risk that should the
Fund decide to sell them when a ready buyer is not available at a price the Fund
deems representative of their value, the value of the Fund's net assets could be
adversely affected. Where an illiquid security must be registered under the
Securities Act of 1933, as amended (the "1933 Act"), before it may be sold, a
Fund may be obligated to pay all or part of the registration expenses, and a
considerable period may elapse between the time of the decision to sell and the
time the Fund may be permitted to sell a security under an effective
registration statement. If, during such a period, adverse market conditions were
to develop, a Fund might obtain a less favorable price than prevailed when it
decided to sell.
SYNTHETIC INSTRUMENTS. The Prime Money Market Fund may invest in
certain synthetic instruments. Such instruments generally involve the deposit of
asset- backed securities in a trust arrangement and the issuance of certificates
evidencing interests in the trust. The certificates are generally sold in
private placements in reliance on Rule 144A.
QUALITY AND DIVERSIFICATION REQUIREMENTS
Each of the Funds intends to meet the diversification requirements of
the 1940 Act. To meet these requirements, 75% of the assets of each Fund are
subject to the following fundamental limitations: (1) the Fund may not invest
more than 5% of its total assets in the securities of any one issuer, except
obligations of the U.S. Government, its agencies and instrumentalities, and (2)
the Fund may not own more than 10% of the outstanding voting securities of any
one issuer. As for the other 25% of the Fund's assets not subject to the
limitation described above, there is no limitation on investment of these assets
under the 1940 Act, so that all of such assets may be invested in securities of
any one issuer, subject to the limitation of any applicable state securities
laws or as described below. Investments not subject to the limitations described
above could involve an increased risk to a Fund should an issuer, or a state or
its related entities, be unable to make interest or principal payments or should
the market value of such securities decline.
At the time any of the Funds invests in any taxable commercial paper,
master demand obligation, bank obligation or repurchase agreement, the issuer
must have outstanding debt rated A or higher by Moody's or Standard & Poor's,
the issuer's parent corporation, if any, must have outstanding commercial paper
rated Prime-1 by Moody's or A-1 by Standard & Poor's, or if no such ratings are
available, the investment must be of comparable quality in Morgan's opinion.
PRIME MONEY MARKET FUND. In order to attain its objective of maintaining a
stable net asset value, the Prime Money Market Fund will (i) limit its
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investment in the securities (other than U.S. Government securities) of any one
issuer to no more than 5% of its assets, measured at the time of purchase,
except for investments held for not more than three business days (subject,
however, to the investment restriction No. 4 set forth under "Investment
Restrictions" below); and (ii) limit investments to securities that present
minimal credit risks and securities (other than U.S. Government securities) that
are rated within the highest short-term rating category by at least two
nationally recognized statistical rating organizations ("NRSROs") or by the only
NRSRO that has rated the security. Securities which originally had a maturity of
over one year are subject to more complicated, but generally similar rating
requirements. A description of illustrative credit ratings is set forth in
"Appendix A." The Fund may also purchase unrated securities that are of
comparable quality to the rated securities described above. Additionally, if the
issuer of a particular security has issued other securities of comparable
priority and security and which have been rated in accordance with (ii) above,
that security will be deemed to have the same rating as such other rated
securities.
In addition, the Board of Trustees has adopted procedures which (i)
require the Board of Trustees to approve or ratify purchases by the Fund of
securities (other than U.S. Government securities) that are rated by only one
NRSRO or that are unrated; (ii) require the Fund to maintain a dollar-weighted
average portfolio maturity of not more than 90 days and to invest only in
securities with a remaining maturity of not more than 397 days; and (iii)
require the Fund, in the event of certain downgradings of or defaults on
portfolio holdings, to dispose of the holding, subject in certain circumstances
to a finding by the Trustees that disposing of the holding would not be in the
Fund's best interest.
TREASURY MONEY MARKET FUND. In order to attain its objective of
maintaining a stable net asset value, the Treasury Money Market Fund will limit
its investments to direct obligations of the U.S. Treasury, including Treasury
bills, notes and bonds, and related repurchase agreement transactions, each
having a remaining maturity of 397 days or less at the time of purchase and will
maintain a dollar-weighted average portfolio maturity of not more than 90 days.
FEDERAL MONEY MARKET FUND. In order to attain its objective of
maintaining a stable net asset value, the Federal Money Market Fund will limit
its investments to direct obligations of the U.S. Treasury, including Treasury
bills, notes and bonds, and certain U.S. Government agency securities with
remaining maturities of 397 days or less at the time of purchase and will
maintain a dollar-weighted average portfolio maturity of not more than 90 days.
INVESTMENT RESTRICTIONS
The investment restrictions of each Fund and its corresponding
Portfolio are identical, unless otherwise specified. Accordingly, references
below to a Fund also include the Fund's corresponding Portfolio unless the
context requires otherwise; similarly, references to a Portfolio also include
its corresponding Fund unless the context requires otherwise.
The investment restrictions below have been adopted by the Trust with
respect to each Fund and by each corresponding Portfolio. Except where otherwise
noted, these investment restrictions are "fundamental" policies which, under the
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1940 Act, may not be changed without the vote of a majority of the outstanding
voting securities of the Fund or Portfolio, as the case may be. A "majority of
the outstanding voting securities" is defined in the 1940 Act as the lesser of
(a) 67% or more of the voting securities present at a meeting if the holders of
more than 50% of the outstanding voting securities are present or represented by
proxy, or (b) more than 50% of the outstanding voting securities. The percentage
limitations contained in the restrictions below apply at the time of the
purchase of securities. Whenever a Fund is requested to vote on a change in the
fundamental investment restrictions of its corresponding Portfolio, the Trust
will hold a meeting of Fund shareholders and will cast its votes as instructed
by the Fund's shareholders.
The PRIME MONEY MARKET FUND and its corresponding PORTFOLIO may not:
1. 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 10% of
the Fund's net assets would be in investments which are illiquid;
2. Enter into reverse repurchase agreements exceeding in the aggregate
one-third of the market value of the Fund's total assets, less liabilities
other than obligations created by reverse repurchase agreements;
3. Borrow money, except from banks for extraordinary or emergency purposes and
then only in amounts not to exceed 10% of the value of the Fund's total
assets, taken at cost, at the time of such borrowing. Mortgage, pledge, or
hypothecate any assets except in connection with any such borrowing and in
amounts not to exceed 10% of the value of the Fund's net assets at the time
of such borrowing. The Fund will not purchase securities while borrowings
exceed 5% of the Fund's total assets; provided, however, that the Fund may
increase its interest in an open-end management investment company with the
same investment objective and restrictions as the Fund while such
borrowings are outstanding. This borrowing provision is included to
facilitate the orderly sale of portfolio securities, for example, in the
event of abnormally heavy redemption requests, and is not for investment
purposes and shall not apply to reverse repurchase agreements;
4. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the Fund's
total assets would be invested in securities or other obligations of any
one such issuer; provided, however, that the Fund may invest all or part of
its investable assets in an open-end management investment company with the
same investment objective and restrictions as the Fund. This limitation
shall not apply to issues of the U.S. Government, its agencies or
instrumentalities and to permitted investments of up to 25% of the Fund's
total assets;
5. Purchase the securities or other obligations of issuers conducting their
principal business activity in the same industry if, immediately after such
purchase, the value of its investment in such industry would exceed
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25% of the value of the Fund's total assets; provided, however, that
the Fund may invest all or part of its investable assets in an open-end
management investment company with the same investment objective and
restrictions as the Fund. For purposes of industry concentration, there
is no percentage limitation with respect to investments in U.S.
Government securities, negotiable certificates of deposit, time
deposits, and bankers' acceptances of U.S. branches of U.S. banks;
6. Make loans, except through purchasing or holding debt obligations, or
entering into repurchase agreements, or loans of portfolio securities
in accordance with the Fund's investment objective and policies (see
"Investment Objectives and Policies");
7. Purchase or sell puts, calls, straddles, spreads, or any combination
thereof, real estate, commodities, or commodity contracts or interests
in oil, gas, or mineral exploration or development programs. However,
the Fund may purchase bonds or commercial paper issued by companies
which invest in real estate or interests therein including real estate
investment trusts;
8. 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
securities or of securities for delivery at a future date;
9. Acquire securities of other investment companies, except as permitted by
the 1940 Act;
10. Act as an underwriter of securities; or
11. Issue senior securities, except as may otherwise be permitted by the
foregoing investment restrictions or under the 1940 Act or any rule,
order or interpretation thereunder.
The TREASURY MONEY MARKET FUND and its corresponding PORTFOLIO may not:
1. Enter into reverse repurchase agreements which together with any other
borrowing exceed in the aggregate one-third of the market value of the
Fund's or the Portfolio's total assets, less liabilities other than the
obligations created by reverse repurchase agreements;
2. Borrow money, except in amounts not to exceed one third of the Fund's
total assets (including the amount borrowed) less liabilities (other
than borrowings) (i) from banks for temporary or short-term purposes or
for the clearance of transactions, (ii) in connection with the
redemption of Fund shares or to finance failed settlements of portfolio
trades without immediately liquidating portfolio securities or other
assets, (iii) in order to fulfill commitments or plans to purchase
additional securities
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pending the anticipated sale of other portfolio securities or assets
and (iv) pursuant to reverse repurchase agreements entered into by the
Fund.1
3. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the Fund's or
the Portfolio's total assets would be invested in securities or other
obligations of any one such issuer; provided, however, that the Fund may
invest all or part of its investable assets in an open-end management
investment company with the same investment objective and restrictions as
the Fund. This limitation also shall not apply to issues of the U.S.
Government and repurchase agreements related thereto;
4. Purchase the securities or other obligations of issuers conducting their
principal business activity in the same industry if, immediately after such
purchase, the value of its investment in such industry would exceed 25% of
the value of the Fund's or the Portfolio's total assets; provided, however,
that the Fund may invest all or part of its assets in an open-end
management investment company with the same investment objective and
restrictions as the Fund. For purposes of industry concentration, there is
no percentage limitation with respect to investments in U.S. Government
securities and repurchase agreements related thereto;
5. Make loans, except through purchasing or holding debt obligations,
repurchase agreements, or loans of portfolio securities in accordance
with the Fund's or the Portfolio's investment objective and policies
(see "Investment Objectives and Policies");
6. Purchase or sell puts, calls, straddles, spreads, or any combination
thereof, real estate, commodities, or commodity contracts or interests in
oil, gas, or mineral exploration or development programs;
7. 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
securities or of securities for delivery at a future date;
8. Acquire securities of other investment companies, except as permitted
by the 1940 Act or in connection with a merger, consolidation,
reorganization, acquisition of assets or an offer of exchange;
provided, however, that nothing in this investment restriction shall
prevent the Trust from investing all or part of the Fund's assets in an
open-end management investment company with the same investment
objective and restrictions as the Fund;
9. Act as an underwriter of securities; or
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1Although the Fund is permitted to fulfill plans to purchase
additional securities pending the anticipated sale of other portfolio
securities or assets, the Fund has no current intention of engaging in
this form of leverage.
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10. Issue senior securities, except as may otherwise be permitted by the
foregoing investment restrictions or under the 1940 Act or any rule,
order or interpretation thereunder.
The FEDERAL MONEY MARKET FUND and its corresponding PORTFOLIO may not:
1. Enter into reverse repurchase agreements which together with any other
borrowing exceeds in the aggregate one-third of the market value of the
Fund's or the Portfolio's total assets, less liabilities other than the
obligations created by reverse repurchase agreements;
2. Borrow money (not including reverse repurchase agreements), except from
banks for temporary or extraordinary or emergency purposes and then only in
amounts up to 10% of the value of the Fund's or the Portfolio's total
assets, taken at cost at the time of such borrowing (and provided that such
borrowings and reverse repurchase agreements do not exceed in the aggregate
one-third of the market value of the Fund's and the Portfolio's total
assets less liabilities other than the obligations represented by the bank
borrowings and reverse repurchase agreements). Mortgage, pledge, or
hypothecate any assets except in connection with any such borrowing and in
amounts up to 10% of the value of the Fund's or the Portfolio's net assets
at the time of such borrowing. The Fund or the Portfolio will not purchase
securities while borrowings exceed 5% of the Fund's or the Portfolio's
total assets, respectively; provided, however, that the Fund may increase
its interest in an open-end management investment company with the same
investment objective and restrictions as the Fund while such borrowings are
outstanding. This borrowing provision is included to facilitate the orderly
sale of portfolio securities, for example, in the event of abnormally heavy
redemption requests, and is not for investment purposes;
3. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the Fund's or
the Portfolio's total assets would be invested in securities or other
obligations of any one such issuer; provided, however, that the Fund may
invest all or part of its investable assets in an open-end management
investment company with the same investment objective and restrictions as
the Fund. This limitation also shall not apply to issues of the U.S.
Government and repurchase agreements related thereto;
4. Purchase the securities or other obligations of issuers conducting their
principal business activity in the same industry if, immediately after such
purchase, the value of its investment in such industry would exceed 25% of
the value of the Fund's or the Portfolio's total assets; provided, however,
that the Fund may invest all or part of its assets in an open-end
management investment company with the same investment objective and
restrictions as the Fund. For purposes of industry concentration, there is
no percentage limitation with respect to investments in U.S. Government
securities and repurchase agreements related thereto;
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5. Make loans, except through purchasing or holding debt obligations,
repurchase agreements, or loans of portfolio securities in accordance
with the Fund's or the Portfolio's investment objective and policies
(see "Investment Objectives and Policies");
6. Purchase or sell puts, calls, straddles, spreads, or any combination
thereof, real estate, commodities, or commodity contracts or interests in
oil, gas, or mineral exploration or development programs;
7. 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
securities or of securities for delivery at a future date;
8. Acquire securities of other investment companies, except as permitted
by the 1940 Act or in connection with a merger, consolidation,
reorganization, acquisition of assets or an offer of exchange;
provided, however, that nothing in this investment restriction shall
prevent the Trust from investing all or part of the Fund's assets in an
open-end management investment company with the same investment
objective and restrictions as the Fund;
9. Act as an underwriter of securities; or
10. Issue senior securities, except as may otherwise be permitted by the
foregoing investment restrictions or under the 1940 Act or any rule,
order or interpretation thereunder.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS - PRIME MONEY MARKET FUND. The
investment restriction described below is not a fundamental policy of the Prime
Money Market Fund or its corresponding Portfolio and may be changed by their
respective Trustees. This non-fundamental investment policy requires that the
Prime Money Market Fund and its corresponding Portfolio may not:
(i) enter into reverse repurchase agreements or borrow money, except from
banks for extraordinary or emergency purposes, if such obligations
exceed in the aggregate one-third of the market value of the Fund's
total assets, less liabilities other than obligations created by
reverse repurchase agreements and borrowings.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS - TREASURY MONEY MARKET FUND
AND FEDERAL MONEY MARKET FUND. The investment restriction described below is not
a fundamental policy of these Funds or their corresponding Portfolios and may be
changed by their respective Trustees. This non-fundamental investment policy
requires that each such Fund may not:
(i) 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 10% of
the Fund's total assets would be in investments that are illiquid.
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Notwithstanding any other fundamental or non-fundamental investment
restriction or policy, each Fund reserves the right, without the approval of
shareholders, to invest all of its assets in the securities of a single open-end
registered investment company with substantially the same investment objective,
restrictions and policies as the Fund.
There will be no violation of any investment restriction if that
restriction is complied with at the time the relevant action is taken
notwithstanding a later change in market value of an investment, in net or total
assets, in the securities rating of the investment, or any other later change.
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 accordingly. For instance, personal credit finance
companies and business credit finance companies are deemed to be separate
industries and wholly owned finance companies are considered to be in the
industry of their parents if their activities are primarily related to financing
the activities of their parents.
TRUSTEES AND OFFICERS
TRUSTEES
The Trustees of the Trust, who are also the Trustees of each of the
Portfolios, their business addresses, principal occupations during the past five
years and dates of birth are set forth below.
FREDERICK S. ADDY--Trustee; Retired; Executive Vice President and Chief
Financial Officer since prior to April 1994, Amoco Corporation. His address is
5300 Arbutus Cove, Austin, TX 78746, and his date of birth is January 1, 1932.
WILLIAM G. BURNS--Trustee; Retired, Former Vice Chairman and Chief
Financial Officer, NYNEX. His address is 2200 Alaqua Drive, Longwood, FL 32779,
and his date of birth is November 2, 1932.
ARTHUR C. ESCHENLAUER--Trustee; Retired; Former Senior Vice President,
Morgan Guaranty Trust Company of New York. His address is 14 Alta Vista Drive,
RD #2, Princeton, NJ 08540, and his date of birth is May 23, 1934.
MATTHEW HEALEY 2--Trustee, Chairman and Chief Executive Officer; Chairman,
Pierpont Group, Inc., since prior to 1992. His address is Pine Tree Club
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2 Mr. Healey is an "interested person" of the Trust, the Advisor and
each Portfolio as that term is defined in the 1940 Act.
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Estates, 10286 Saint Andrews Road, Boynton Beach, FL 33436, and his date of
birth is August 23, 1937.
MICHAEL P. MALLARDI--Trustee; Retired; Senior Vice President, Capital
Cities/ABC, Inc. and President, Broadcast Group since prior to April 1996. His
address is 10 Charnwood Drive, Suffern, NY 10910, and his date of birth is
March 17, 1934.
The Trustees of the Trust are the same as the Trustees of each of the
Portfolios. In accordance with applicable state requirements, a majority of the
disinterested Trustees have adopted written procedures reasonably appropriate to
deal with potential conflicts of interest arising from the fact that the same
individuals are Trustees of the Trust, each of the Portfolios and the J.P.
Morgan Funds up to and including creating a separate board of trustees.
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 Funds and J.P. Morgan Series Trust and is reimbursed for expenses
incurred in connection with service as a Trustee. The Trustees may hold various
other directorships unrelated to these funds.
Trustee compensation expenses accrued by the Trust for the calendar
year ended December 31, 1997 are set forth below.
<TABLE>
<CAPTION>
TOTAL TRUSTEE COMPENSATION
ACCRUED BY THE MASTER
AGGREGATE TRUSTEE PORTFOLIOS (*), THE J.P.
COMPENSATION MORGAN FUNDS, J.P. MORGAN
NAME OF TRUSTEE ACCRUED BY THE SERIES TRUST AND THE TRUST
TRUST DURING 1997 DURING 1997 (***)
----------------- -----------------
<S> <C> <C>
Frederick S. Addy, Trustee $
$
William G. Burns, Trustee $ $
Arthur C. Eschenlauer, Trustee $ $
Matthew Healey, Trustee(**), $ $
Chairman and Chief Executive
Officer
Michael P. Mallardi, Trustee $ $
</TABLE>
(*) Includes the Portfolios and 20 other portfolios (collectively, the
"Master Portfolios") for which Morgan acts as investment advisor.
(**) During 1997, Pierpont Group, Inc. paid Mr. Healey, in his role as Chairman
of Pierpont Group, Inc., compensation in the amount of $ , contributed $ to
a defined contribution plan on his behalf and paid $ in insurance premiums
for his benefit.
(***)No investment company within the fund complex has a pension or retirement
plan. Currently there are 18 investment companies (15 investment companies
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comprising the Master Portfolios, the J.P. Morgan Funds, the Trust and
J.P. Morgan Series Trust) in the fund complex.
The Trustees, in addition to reviewing actions of the Trust's and the
Portfolios' various service providers, decide upon matters of general policy.
Each of the Portfolios and 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 Portfolios and the Trust.
Pierpont Group, Inc. was organized in July 1989 to provide services for The
Pierpont Family of Funds, and the Trustees are the equal and sole shareholders
of Pierpont Group, Inc. The Trust and the Portfolios have agreed to pay Pierpont
Group, Inc. a fee in an amount representing its reasonable costs in performing
these services to the Trust, the Portfolios and certain other registered
investment companies subject to similar agreements with Pierpont Group, Inc.
These costs are periodically reviewed by the Trustees. The principal offices of
Pierpont Group, Inc. are located at 461 Fifth Avenue, New York, New York 10017.
The aggregate fees paid to Pierpont Group, Inc. by each Fund (except
the Federal Money Market Fund) and its corresponding Portfolio during the
indicated fiscal periods are set forth below:
PRIME MONEY MARKET FUND -- For the period October 27, 1997 (commencement of
operations) through November 30, 1997: $ .
THE PRIME MONEY MARKET PORTFOLIO -- For the fiscal years ended November 30,
1995, 1996 and 1997: $261,045, $157,428 and $ .
TREASURY MONEY MARKET FUND -- For the period July 7, 1997 (commencement of
operations) through October 31, 1997: $ .
THE TREASURY MONEY MARKET PORTFOLIO -- For the period July 7, 1997
(commencement of operations) through October 31, 1997: $ .
THE FEDERAL MONEY MARKET PORTFOLIO -- For the fiscal years ended October 31,
1995, 1996 and 1997: $22,791, $16,144 and $ .
OFFICERS
The Trust's and Portfolios' executive officers (listed below), other
than the Chief Executive Officer, are provided and compensated by Funds
Distributor, Inc. ("FDI"), a wholly owned indirect subsidiary of Boston
Institutional Group, Inc. The officers conduct and supervise the business
operations of the Trust and the Portfolios. The Trust and the Portfolios have no
employees.
The officers of the Trust and the Portfolios, their principal
occupations during the past five years and dates of birth are set forth below.
Unless otherwise specified, each officer holds the same position with the Trust
and each Portfolio. The business address of each of the officers unless
otherwise noted is Funds Distributor, Inc., 60 State Street, Suite 1300, Boston,
Massachusetts
02109.
MATTHEW HEALEY; Chief Executive Officer; Chairman, Pierpont Group,
since prior to 1993. His address is Pine Tree Club Estates, 10286 Saint Andrews
Road, Boynton Beach, FL 33436. His date of birth is August 23, 1937.
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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 advised or administered by the Dreyfus
Corporation ("Dreyfus") or its affiliates. From December 1991 to July 1994, she
was President and Chief Compliance Officer of FDI. Her date of birth is August
1, 1957.
DOUGLAS C. CONROY; Vice President and Assistant Treasurer. Assistant Vice
President and Manager of Treasury Services and Administration of FDI and an
officer of certain investment companies advised or administered by Dreyfus or
its affiliates. 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. Prior to March
1993, Mr. Conroy was employed as a fund accountant at The Boston Company, Inc.
His date of birth is March 31, 1969.
JACQUELINE HENNING; Assistant Secretary and Assistant Treasurer of the
Prime Money Market Portfolio only. Managing Director, State Street Cayman Trust
Company, Ltd. since October 1994. Prior to October 1994, Mrs. Henning was head
of mutual funds at Morgan Grenfell in Cayman and for five years was Managing
Director of Bank of Nova Scotia Trust Company (Cayman) Limited from September
1988 to September 1993. Address: P.O. Box 2508 GT, Elizabethan Square, 2nd
Floor, Shedden Road, George Town, Grand Cayman, Cayman Islands. Her date of
birth is March 24, 1942.
RICHARD W. INGRAM; President and Treasurer. Executive Vice President
and Director of Client Services and Treasury Administration of FDI, Senior Vice
President of Premier Mutual and an officer of RCM Capital Funds, Inc., RCM
Equity Funds, Inc., Waterhouse Investors Cash Management Fund, Inc. and certain
investment companies advised or administered by Dreyfus or Harris Trust and
Savings Bank ("Harris") or their respective affiliates. Prior to April 1997, Mr.
Ingram was Senior Vice President and Director of Client Service and Treasury
Administration of FDI. From March 1994 to November 1995, Mr. Ingram was Vice
President and Division Manager of First Data Investor Services Group, Inc. From
1989 to 1994, Mr. Ingram was Vice President, Assistant Treasurer and Tax
Director - Mutual Funds of The Boston Company, Inc. His date of birth is
September 15, 1955.
KAREN JACOPPO-WOOD; Vice President and Assistant Secretary. Assistant Vice
President of FDI and an officer of RCM Capital Funds, Inc. and RCM Equity Funds,
Inc., Waterhouse Investors Cash Management Fund, Inc. and Harris or their
respective affiliates. From June 1994 to January 1996, Ms. Jacoppo-Wood was a
Manager, SEC Registration, Scudder, Stevens & Clark, Inc. From 1988 to May 1994,
Ms. Jacoppo-Wood was a senior paralegal at The Boston Company Advisors, Inc.
("TBCA"). Her date of birth is December 29, 1966.
ELIZABETH A. KEELEY; Vice President and Assistant Secretary. Vice President
and Senior Counsel of FDI and Premier Mutual and an officer of RCM Capital
Funds, Inc., RCM Equity Funds, Inc., Waterhouse Investors Cash Management Fund,
Inc. and certain investment companies advised or administered by Dreyfus or
Harris or their respective affiliates. Prior to August 1996, Ms. Keeley was
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Assistant Vice President and Counsel of FDI and Premier Mutual. Prior to
September 1995, Ms. Keeley was enrolled at Fordham University School of Law and
received her JD in May 1995. Address: 200 Park Avenue, New York, New York 10166.
Her date of birth is September 14, 1969.
CHRISTOPHER J. KELLEY; Vice President and Assistant Secretary. Vice
President and Associate General Counsel of FDI and Premier Mutual and an officer
of Waterhouse Investors Cash Management Fund, Inc. and certain investment
companies advised or administered by Harris or its affiliates. From April 1994
to July 1996, Mr. Kelley was Assistant Counsel at Forum Financial Group. From
1992 to 1994, Mr. Kelley was employed by Putnam Investments in legal and
compliance capacities. His date of birth is December 24, 1964.
LENORE J. MCCABE; Assistant Secretary and Assistant Treasurer of the Prime
Money Market Portfolio only. Assistant Vice President, State Street Bank and
Trust Company since November 1994. Assigned as Operations Manager, State Street
Cayman Trust Company, Ltd. since February 1995. Prior to November, 1994,
employed by Boston Financial Data Services, Inc. as Control Group Manager.
Address: P.O. Box 2508 GT, Elizabethan Square, 2nd Floor, Shedden Road, George
Town, Grand Cayman, Cayman Islands. Her date of birth is May 31, 1961.
MARY A. NELSON; Vice President and Assistant Treasurer. Vice President and
Manager of Treasury Services and Administration of FDI and Premier Mutual, an
officer of RCM Capital Funds, Inc., RCM Equity Funds, Inc., Waterhouse Investors
Cash Management Fund, Inc. and certain investment companies advised or
administered by Dreyfus or Harris or their respective affiliates. From 1989 to
1994, Ms. Nelson was an Assistant Vice President and Client Manager for The
Boston Company, Inc. Her date of birth is April 22, 1964.
MICHAEL S. PETRUCELLI; Vice President and Assistant Secretary. Senior Vice
President and Director of Strategic Client Initiatives for FDI since December
1996. From December 1989 through November 1996, Mr. Petrucelli was employed with
GE Investments where he held various financial, business development and
compliance positions. He also served as Treasurer of the GE Funds and as
Director of GE Investment Services. Address: 200 Park Avenue, New York, New
York, 10166. His date of birth is May 18, 1961.
JOSEPH F. TOWER III; Vice President and Assistant Treasurer. Executive Vice
President, Treasurer and Chief Financial Officer, Chief Administrative Officer
and Director Of FDI. Senior Vice President, Treasurer and Chief Financial
Officer, Chief Administrative Officer and Director of Premier Mutual and an
officer of Waterhouse Investors Cash Management Fund, Inc. and certain
investment companies advised or administered by Dreyfus or its affiliates. Prior
to April 1997, Mr. Tower was Senior Vice President, Treasurer and Chief
Financial Officer, Chief Administrative Officer and Director of FDI. From July
1988 to November 1993, Mr. Tower was Financial Manager of The Boston Company,
Inc. His date of birth is June 13, 1962.
INVESTMENT ADVISOR
The investment advisor to the Portfolios is Morgan Guaranty Trust
Company of New York, a wholly owned subsidiary of J.P. Morgan & Co. Incorporated
("J.P.
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Morgan"), a bank holding company organized under the laws of the State of
Delaware. The Advisor, 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. The Advisor 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, the Advisor 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.
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 $240 billion.
J.P. Morgan has a long history of service as adviser, 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 100 full time
research analysts, among the largest research staffs in the money management
industry, in its investment management divisions located in New York, London,
Tokyo, Frankfurt, Melbourne and Singapore to cover companies, industries and
countries on site. In addition, the investment management divisions employ
approximately 300 capital market researchers, portfolio managers and traders.
The 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 Portfolios
are not exclusive under the terms of the Advisory Agreements. 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 Portfolios. Such accounts are supervised by officers and employees of the
Advisor who may also be acting in similar capacities for the Portfolios. See
"Portfolio Transactions."
Sector weightings are generally similar to a benchmark with the
emphasis on security selection as the method to achieve investment performance
superior to the benchmark. The benchmarks for the Portfolios in which the Funds
invest are currently: The Prime Money Market Portfolio--IBC/Donoghue's Tier-One
Money Fund Average; The Treasury Money Market Portfolio--IBC/Donoghue's Treasury
and Repo Money Fund Average; and The Federal Money Market
Portfolio--IBC/Donoghue's U.S. Government and Agency Money Fund Average.
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J.P. Morgan Investment Management Inc., also a wholly owned subsidiary
of J.P. Morgan, is a registered investment adviser under the Investment Advisers
Act of 1940, as amended, which 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 the Advisor serves as trustee. J.P. Morgan
Investment Management Inc. advises the Advisor on investment of the commingled
pension trust funds.
The Portfolios are managed by officers of the Advisor who, in acting for
their customers, including the Portfolios, do not discuss their investment
decisions with any personnel of J.P. Morgan or any personnel of other divisions
of the Advisor or with any of its affiliated persons, with the exception of J.P.
Morgan Investment Management Inc. and certain other 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 Investment
Advisory Agreements, the Portfolio corresponding to each Fund has agreed to pay
the Advisor a fee, which is computed daily and may be paid monthly, equal to the
annual rates of 0.20% of each Portfolio's net assets up to $1 billion and 0.10%
of each Portfolio's net assets in excess of $1 billion.
The table below sets forth for each Portfolio listed the advisory fees
paid to the Advisor for the fiscal periods indicated. See the Prospectus and
below for applicable expense limitations.
THE PRIME MONEY MARKET PORTFOLIO -- For the fiscal years ended November 30,
1995, 1996 and 1997: $3,913,479, $4,503,793 and $ .
THE TREASURY MONEY MARKET PORTFOLIO -- For the period July 7, 1997 (commencement
of operations) through October 31, 1997: $ .
THE FEDERAL MONEY MARKET PORTFOLIO -- For the fiscal years ended October 31,
1995, 1996 and 1997: $492,941, $653,326 and $ .
The Investment Advisory Agreements provide that they 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. Each of the Investment Advisory Agreements will terminate
automatically if assigned and is terminable at any time without penalty by a
vote of a majority of the Portfolio's Trustees, or by a vote of the holders of a
majority of the Portfolio's outstanding voting securities, on 60 days' written
notice to the Advisor and by the Advisor on 90 days' written notice to the
Portfolio. See "Additional Information."
The Glass-Steagall Act and other applicable laws generally prohibit
banks such as the Advisor from engaging in the business of underwriting or
distributing securities, and the Board of Governors of the Federal Reserve
System has issued an interpretation to the effect that under these laws a bank
holding company registered under the federal Bank Holding Company Act or certain
subsidiaries
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thereof may not sponsor, organize, or control a registered open-end investment
company continuously engaged in the issuance of its shares, such as the Trust.
The interpretation does not prohibit a holding company or a subsidiary thereof
from acting as investment advisor and custodian to such an investment company.
The Advisor believes that it may perform the services for the Portfolios
contemplated by the Advisory Agreements without violation of the Glass-Steagall
Act or other applicable banking laws or regulations. State laws on this issue
may differ from the interpretation of relevant federal law, and banks and
financial institutions may be required to register as dealers pursuant to state
securities laws. However, it is possible that future changes in either federal
or state statutes and regulations concerning the permissible activities of banks
or trust companies, as well as further judicial or administrative decisions and
interpretations of present and future statutes and regulations, might prevent
the Advisor from continuing to perform such services for the Portfolios.
If the Advisor were prohibited from acting as investment advisor to any
Portfolio, it is expected that the Trustees of the Portfolio would recommend to
investors that they approve the Portfolio's entering into a new investment
advisory agreement with another qualified investment advisor selected by the
Trustees.
Under separate agreements, Morgan also provides certain financial, fund
accounting and administrative services to the Trust and the Portfolios and
shareholder services for the Trust. See "Services Agent" and "Shareholder
Servicing" below.
DISTRIBUTOR
FDI serves as the Trust's exclusive Distributor and holds itself
available to receive purchase orders for each of 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 each 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 Trust's distributor.
The Distribution Agreement shall continue in effect with respect to
each of the Funds for a period of two years after execution only if it is
approved at least annually thereafter (i) by a vote of the holders of a majority
of the Fund's outstanding shares or by its Trustees and (ii) by a vote of a
majority of the Trustees of the Trust who are not "interested persons" (as
defined by the 1940 Act) of the parties to the Distribution Agreement, cast in
person at a meeting called for the purpose of voting on such approval (see
"Trustees and Officers"). The Distribution Agreement will terminate
automatically if assigned by either party thereto and is terminable 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 the holders of a majority of the Fund's outstanding shares as defined
under "Additional Information," in any case without payment of any penalty on 60
days' written notice to the other party. The principal offices of FDI are
located at 60 State Street, Suite 1300, Boston, Massachusetts 02109.
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CO-ADMINISTRATOR
Under Co-Administration Agreements with the Trust and the Portfolios
dated August 1, 1996, FDI also serves as the Trust's and the Portfolios'
Co-Administrator. The Co-Administration Agreements may be renewed or amended by
the respective Trustees without a shareholder vote. The Co-Administration
Agreements are terminable at any time without penalty by a vote of a majority of
the Trustees of the Trust or the Portfolios, as applicable, 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 or the Portfolios, as applicable,
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.
For its services under the Co-Administration Agreements, each Fund and
Portfolio has agreed to pay FDI fees equal to its allocable share of an annual
complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The amount
allocable to each Fund or Portfolio is based on the ratio of its net assets to
the aggregate net assets of the Trust, the Master Portfolios and certain other
investment companies subject to similar agreements with FDI.
The table below sets forth for each Fund listed (except the Federal
Money Market Fund) and its corresponding Portfolio the administrative fees paid
to FDI for the fiscal periods indicated. See the Prospectus and below for
applicable expense limitations.
PRIME MONEY MARKET FUND -- For the period October 27, 1997 (commencement of
operations) through November 30, 1997: $ .
THE PRIME MONEY MARKET PORTFOLIO -- For the period August 1, 1996 through
November 30, 1996 and the fiscal year ended November 30, 1997: $33,012 and $.
TREASURY MONEY MARKET FUND -- For the period July 7, 1997 (commencement of
operations) through October 31, 1997: $ .
THE TREASURY MONEY MARKET PORTFOLIO -- For the period July 7, 1997
(commencement of operations) through October 31, 1997: $ .
THE FEDERAL MONEY MARKET PORTFOLIO -- For the period August 1, 1996 through
October 31, 1996 and the fiscal year ended October 31, 1997: $1,663 and $ .
The table below sets forth for each Portfolio listed (except the
Treasury Money Market Portfolio) the administrative fees paid to Signature
Broker-Dealer Services, Inc. (which provided distribution and administrative
services to the Trust and placement agent and administrative services to the
Portfolios prior to August 1, 1996) for the fiscal periods indicated. See the
Prospectus and below for applicable expense limitations.
THE PRIME MONEY MARKET PORTFOLIO -- For the fiscal year ended November 30, 1995
and the period December 1, 1995 through July 31, 1996: $176,717 and $272,989.
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THE FEDERAL MONEY MARKET PORTFOLIO -- For the fiscal year ended October 31, 1995
and the period November 1, 1995 through July 31, 1996: $17,480 and $28,623.
SERVICES AGENT
The Trust, on behalf of each Fund, and the Portfolios have entered into
Administrative Services Agreements (the "Services Agreements") with Morgan
pursuant to which Morgan is responsible for certain administrative and related
services provided to each Fund and its corresponding Portfolio. The Services
Agreements 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 Agreements, each of the Funds and the Portfolios 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
Master Portfolios and J.P. Morgan Series Trust in accordance with the following
annual schedule: 0.09% on the first $7 billion of their aggregate average daily
net assets and 0.04% of their aggregate average daily net assets in excess of $7
billion, less the complex-wide fees payable to FDI. The portion of this charge
payable by each Fund and Portfolio is determined by the proportionate share that
its net assets bear to the total net assets of the Trust, the Master Portfolios,
the other investors in the Master Portfolios for which Morgan provides similar
services and J.P. Morgan Series Trust.
Under prior administrative services agreements in effect from December
29, 1995 through July 31, 1996, with Morgan, each Fund's corresponding Portfolio
(except the Treasury Money Market Portfolio) paid Morgan a fee equal to its
proportionate share of an annual complex-wide charge. This charge was calculated
daily based on the aggregate net assets of the Master Portfolios in accordance
with the following schedule: 0.06% of the first $7 billion of the Master
Portfolios' aggregate average daily net assets, and 0.03% of the Master
Portfolios' aggregate average daily net assets in excess of $7 billion.
Prior to December 29, 1995, the Trust and each Portfolio (except The
Treasury Money Market Portfolio) had entered into Financial and Fund Accounting
Services Agreements with Morgan, the provisions of which included certain of the
activities described above and, prior to September 1, 1995, also included
reimbursement of usual and customary expenses. The table below sets forth for
each Fund listed (except the Federal Money Market Fund) and its corresponding
Portfolio the fees paid to Morgan, net of fee waivers and reimbursements, as
Services Agent. See the Prospectus and below for applicable expense limitations.
PRIME MONEY MARKET FUND -- For the period October 27, 1997 (commencement of
operations) through November 30, 1997: $ .
THE PRIME MONEY MARKET PORTFOLIO -- For the fiscal years ended November
30, 1995, 1996 and 1997: $373,077, $881,737 and $ .
TREASURY MONEY MARKET FUND -- For the period July 7, 1997 (commencement of
operations) through October 31, 1997: $ .
THE TREASURY MONEY MARKET PORTFOLIO -- For the period July 7, 1997
(commencement of operations) through October 31, 1997: $ .
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THE FEDERAL MONEY MARKET PORTFOLIO -- For the fiscal years ended October 31,
1995, 1996 and 1997: $(146,180)*, $(165,137)* and $ .
- ------------------------------------
(*) Indicates a reimbursement by Morgan for expenses in excess of its fees under
the prior administrative services agreements. No fees were paid for the fiscal
period.
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02110, serves as the Trust's and each Portfolio's
custodian and fund accounting agent and each Fund's transfer and dividend
disbursing agent. Pursuant to the Custodian Contracts, State Street is
responsible for maintaining the books of account and records of portfolio
transactions and holding portfolio securities and cash. The Custodian maintains
portfolio transaction records. As transfer agent and dividend disbursing agent,
State Street is responsible for maintaining account records detailing the
ownership of Fund shares and for crediting income, capital gains and other
changes in share ownership to shareholder accounts.
SHAREHOLDER SERVICING
The Trust on behalf of each of the Funds has entered into a Shareholder
Servicing Agreement with Morgan pursuant to which Morgan acts as shareholder
servicing agent for its customers and for other Fund investors who are customers
of a Service Organization. Under this agreement, Morgan is responsible for
performing shareholder account, administrative and servicing functions, which
include but are not limited to, answering inquiries regarding account status and
history, the manner in which purchases and redemptions of Fund shares may be
effected, and certain other matters pertaining to a Fund; assisting customers in
designating and changing dividend options, account designations and addresses;
providing necessary personnel and facilities to coordinate the establishment and
maintenance of shareholder accounts and records with the Funds' transfer agent;
transmitting purchase and redemption orders to the Funds' transfer agent and
arranging for the wiring or other transfer of funds to and from customer
accounts in connection with orders to purchase or redeem Fund shares; verifying
purchase and redemption orders, transfers among and changes in accounts;
informing the Distributor of the gross amount of purchase orders for Fund
shares; monitoring the activities of the Funds' transfer agent; and providing
other related services.
Under the Shareholder Servicing Agreement, each Fund has agreed to pay
Morgan for these services a fee at the annual rate (expressed as a percentage of
the average daily net asset values of Fund shares owned by or for shareholders
for whom Morgan is acting as shareholder servicing agent) of 0.05%. Morgan acts
as shareholder servicing agent for all shareholders.
The table below sets forth for each Fund listed (except the Federal
Money Market Fund) the shareholder servicing fees paid by each Fund to Morgan,
net of
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fee waivers and reimbursements, for the fiscal periods indicated. See the
Prospectus and below for applicable expense limitations.
PRIME MONEY MARKET FUND -- For the period October 27, 1997 (commencement of
operations) through November 30, 1997: $ .
TREASURY MONEY MARKET FUND -- For the period July 7, 1997 (commencement of
operations) through October 31, 1997: $ .
As discussed under "Investment Advisor," the Glass-Steagall Act and
other applicable laws and regulations limit the activities of bank holding
companies and certain of their subsidiaries in connection with registered
open-end investment companies. The activities of Morgan in acting as shareholder
servicing agent for Fund shareholders under the Shareholder Servicing Agreement
and providing administrative services to the Funds and the Portfolios under the
Services Agreements and in acting as Advisor to the Portfolios under the
Investment Advisory Agreements, may raise issues under these laws. However,
Morgan believes that it may properly perform these services and the other
activities described in the Prospectus without violation of the Glass-Steagall
Act or other applicable banking laws or regulations.
If Morgan were prohibited from providing any of the services under the
Shareholder Servicing Agreement and the Services Agreements, the Trustees would
seek an alternative provider of such services. In such event, changes in the
operation of the Funds or the Portfolios might occur and a shareholder might no
longer be able to avail himself or herself of any services then being provided
to shareholders by Morgan.
SERVICE PLAN
The Trust, on behalf of each Fund, has adopted a service plan (the
"Plan") with respect to the shares which authorizes the Funds to compensate
Service Organizations for providing certain account administration and other
services to their customers who are beneficial owners of such shares. Pursuant
to the Plan, the Trust, on behalf of each Fund, enters into agreements with
Service Organizations which purchase shares on behalf of their customers
("Service Agreements"). Under such Service Agreements, the Service Organizations
may: (a) act, directly or through an agent, as the sole shareholder of record
and nominee for all customers, (b) maintain or assist in maintaining account
records for each customer who beneficially owns shares, and (c) process or
assist in processing customer orders to purchase, redeem and exchange shares,
and handle or assist in handling the transmission of funds representing the
customers' purchase price or redemption proceeds. As compensation for such
services, the Trust on behalf of each Fund pays each Service Organization a
service fee in an amount up to 0.25% (on an annualized basis) of the average
daily net assets of the shares of each Fund attributable to or held in the name
of such Service Organization for its customers.
Conflicts of interest restrictions (including the Employee Retirement
Income Security Act of 1974) may apply to a Service Organization's receipt of
compensation paid by the Trust in connection with the investment of fiduciary
funds in shares. Service Organizations, including banks regulated by the
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Comptroller of the Currency, the Federal Reserve Board or the Federal Deposit
Insurance Corporation, and investment advisers and other money managers subject
to the jurisdiction of the Securities and Exchange Commission, the Department of
Labor or state securities commissions, are urged to consult legal advisers
before investing fiduciary assets in shares. In addition, under some state
securities laws, banks and other financial institutions purchasing shares on
behalf of their customers may be required to register as dealers.
The Trustees of the Trust, including a majority of Trustees who are not
interested persons of the Trust and who have no direct or indirect financial
interest in the operation of such Plan or the related Service Agreements,
initially voted to approve the Plan and Service Agreements at a meeting called
for the purpose of voting on such Plan and Service Agreements on April 9, 1997.
The Plan must be approved by the shareholders of each Fund, and upon such
approval will remain in effect until July 10, 1998 and continue in effect
thereafter only if such continuance is specifically approved annually by a vote
of the Trustees in the manner described above. The Plan may not be amended to
increase materially the amount to be spent for the services described therein
without approval of the shareholders of the affected Fund, and all material
amendments of the Plan must also be approved by the Trustees in the manner
described above. The Plan may be terminated at any time by a majority of the
Trustees as described above or by vote of a majority of the outstanding shares
of the affected Fund. The Service Agreements may be terminated at any time,
without payment of any penalty, by vote of a majority of the disinterested
Trustees as described above or by a vote of a majority of the outstanding shares
of the affected Fund on not more than 60 days' written notice to any other party
to the Service Agreements. The Service Agreements shall terminate automatically
if assigned. So long as the Plans are in effect, the selection and nomination of
those Trustees who are not interested persons shall be determined by the non-
interested members of the Board of Trustees. The Trustees have determined that,
in their judgment, there is a reasonable likelihood that the Plan will benefit
the Funds and Fund shareholders. In the Trustees' quarterly review of the Plan
and Service Agreements, they will consider their continued appropriateness and
the level of compensation provided therein.
INDEPENDENT ACCOUNTANTS
The independent accountants of the Trust and the Portfolios are Price
Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036. Price
Waterhouse LLP conducts an annual audit of the financial statements of each of
the Funds and the Portfolios, assists in the preparation and/or review of each
of the Fund's and the Portfolio's federal and state income tax returns and
consults with the Funds and the Portfolios as to matters of accounting and
federal and state income taxation.
EXPENSES
In addition to the fees payable to Pierpont Group, Inc., Morgan, FDI
and Service Organizations under various agreements discussed under "Trustees and
Officers," "Investment Advisor," "Co-Administrator and Distributor," "Services
Agent" and "Shareholder Servicing" above, the Funds and the Portfolios are
responsible for usual and customary expenses associated with their respective
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operations. Such expenses include organization expenses, legal fees, accounting
expenses, insurance costs, the compensation and expenses of the Trustees, costs
associated with their registration under federal securities laws, and
extraordinary expenses applicable to the Funds or the Portfolios. For the Funds,
such expenses also include transfer, registrar and dividend disbursing costs,
the expenses of printing and mailing reports, notices and proxy statements to
Fund shareholders, and filing fees under state securities laws. For the
Portfolios, such expenses also include custodian fees and brokerage expenses.
Under fee arrangements prior to September 1, 1995, Morgan as Services Agent was
responsible for reimbursements to the Trust and certain Portfolios and the usual
and customary expenses described above (excluding organization and extraordinary
expenses, custodian fees and brokerage expenses). For additional information
regarding waivers or expense subsidies, see the Prospectus.
PURCHASE OF SHARES
Investors may open Fund accounts and purchase shares as described in
the Prospectus. References in the Prospectus and this Statement of Additional
Information to customers of Morgan or a Service Organization include customers
of their affiliates and references to transactions by customers with Morgan or a
Service Organization include transactions with their affiliates. Only Fund
investors who are using the services of a financial institution acting as
shareholder servicing agent pursuant to an agreement with the Trust on behalf of
a Fund may make transactions in shares of a Fund.
Shares may be purchased for accounts held in the name of a Service
Organization that provides certain account administration and other services to
its customers, including acting directly or through an agent as the sole
shareholder of record, maintenance or assistance in maintaining account records
and processing orders to purchase, redeem and exchange shares. Shares of each
Fund bear the cost of service fees at the annual rate of up to 0.25% of 1% of
the average daily net assets of such shares.
It is possible that an institution or its affiliate may offer shares of
different funds which invest in the same Portfolio to its customers and thus
receive different compensation with respect to different funds. Certain aspects
of the shares may be altered, after advance notice to shareholders, if it is
deemed necessary in order to satisfy certain tax regulatory requirements.
Each Fund may, at its own option, accept securities in payment for
shares. The securities delivered in such a transaction are valued by the method
described in "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 Morgan, appropriate
investments for the Fund's corresponding Portfolio. In addition, securities
accepted in payment for shares must: (i) meet the investment objective and
policies of the acquiring Fund's corresponding Portfolio; (ii) be acquired by
the applicable Fund for investment and not for resale (other than for resale to
the Fund's corresponding Portfolio); and (iii) be liquid securities which are
not restricted as to transfer either by law or liquidity of market. Each Fund
reserves the right to accept or reject at its own option any and all securities
offered in payment for its shares.
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Prospective investors may purchase shares with the assistance of a
Service Organization, and the Service Organization may charge the investor a fee
for this service and other services it provides to its customers.
REDEMPTION OF SHARES
Investors may redeem shares as described in the Prospectus.
Shareholders redeeming shares of the Funds should be aware that the Funds
attempt to maintain a stable net asset value of $1.00 per share; however, there
can be no assurance that they will be able to continue to do so, and in that
case the net asset value of the Fund's shares might deviate from $1.00 per
share. Accordingly, a redemption request might result in payment of a dollar
amount which differs from the number of shares redeemed. See "Net Asset Value"
below.
If the Trust on behalf of a Fund and its corresponding Portfolio
determine that it would be detrimental to the best interest of the remaining
shareholders of a 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 Portfolio, in lieu of cash, in conformity with the
applicable rule of the SEC. If shares are redeemed in kind, the redeeming
shareholder might incur transaction costs in converting the assets into cash.
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. The Trust on behalf of the Treasury Money Market and Federal Money
Market Funds and their corresponding Portfolios have elected to be governed by
Rule 18f-1 under the 1940 Act pursuant to which such Funds and their
corresponding Portfolios are obligated to redeem shares solely in cash up to the
lesser of $250,000 or one percent of the net asset value of such Fund during any
90-day period for any one shareholder. The Trust will redeem Fund shares in kind
only if it has received a redemption in kind from the corresponding Portfolio
and therefore shareholders of the Fund that receive redemptions in kind will
receive securities of the Portfolio. The Portfolios have advised the Trust that
the Portfolios will not redeem in kind except in circumstances in which a Fund
is permitted to redeem in kind.
FURTHER REDEMPTION INFORMATION. The Trust, on behalf of a Fund, and the
Portfolios reserve 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 on such Exchange 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
Portfolio 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.
EXCHANGE OF SHARES
An investor may exchange shares from any Fund into any other J.P.
Morgan Institutional Fund, J.P. Morgan Fund, or shares of J.P. Morgan Series
Trust, as described in the Prospectus. For complete information, the Prospectus
as it relates to the Fund into which a transfer is being made should be read
prior to
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the transfer. Requests for exchange are made in the same manner as requests for
redemptions. See "Redemption of Shares." Shares of the 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
Each Fund declares and pays dividends and distributions as described in
the Prospectus.
Net investment income of each Fund consists of accrued interest or discount
and amortized premium, less the accrued expenses of the Fund applicable to that
dividend period including the fees payable to Morgan. See "Net Asset Value."
Determination of the net income for each Fund is made at the times
described in the Prospectus; in addition, net investment income for days other
than business days is determined at the time net asset value is determined on
the prior business day.
If a shareholder has elected to receive dividends and/or capital gain
distributions in cash and the postal or other delivery service is unable to
deliver checks to the shareholder's address of record, such shareholder's
distribution option will automatically be converted to having all dividend and
other distributions reinvested in additional shares. No interest will accrue on
amounts represented by uncashed distribution or redemption checks.
NET ASSET VALUE
Each of the Funds computes its net asset value once daily on Monday
through Friday 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, Columbus Day, Veteran's Day, Thanksgiving Day, and
Christmas Day. In the event that trading in the money markets is scheduled to
end earlier than the close of the New York Stock Exchange in observance of these
holidays, the Funds and their corresponding Portfolios would expect to close for
purchases and redemptions an hour in advance of the end of trading in the money
markets. The Funds and the Portfolios 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. On any business day when the Public
Securities Association ("PSA") recommends that the securities market close
early, the Funds reserve the right to cease accepting purchase and redemption
orders for same business day credit at the time PSA recommends that the
securities market close. On days the Funds close early, purchase and redemption
orders received after the PSA- recommended closing time will be credited the
next business day. The days on which net asset value is determined are the
Funds' business days.
The net asset value of each Fund is equal to the value of the Fund's
investment in its corresponding Portfolio (which is equal to the Fund's pro rata
share of the total investment of the Fund and of any other investors in the
Portfolio less the Fund's pro rata share of the Portfolio's liabilities) less
the
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Fund's liabilities. The following is a discussion of the procedures used by the
Portfolios corresponding to each Fund in valuing their assets.
The Portfolios' portfolio securities are valued by the amortized cost
method. The purpose of this method of calculation is to attempt to maintain a
constant net asset value per share of the Fund of $1.00. No assurances can be
given that this goal can be attained. The amortized cost method of valuation
values a security at its cost at the time of purchase and thereafter assumes a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the instrument. If a
difference of more than 1/2 of 1% occurs between valuation based on the
amortized cost method and valuation based on market value, the Trustees will
take steps necessary to reduce such deviation, such as changing a Fund's
dividend policy, shortening the average portfolio maturity, realizing gains or
losses, or reducing the number of outstanding Fund shares. Any reduction of
outstanding shares will be effected by having each shareholder contribute to a
Fund's capital the necessary shares on a pro rata basis. Each shareholder will
be deemed to have agreed to such contribution in these circumstances by his
investment in the Funds. See "Taxes."
PERFORMANCE DATA
From time to time, the Funds may quote performance in terms of yield,
actual distributions, total return or capital appreciation in reports, sales
literature and advertisements published by the Trust. Current performance
information for the Funds may be obtained by calling the number provided on the
cover page of this Statement of Additional Information. See "Additional
Information" in the Prospectus.
YIELD QUOTATIONS. As required by regulations of the SEC, current yield
for the Funds is computed by determining the net change exclusive of capital
changes in the value of a hypothetical pre-existing account having a balance of
one share at the beginning of a seven-day calendar period, dividing the net
change in account value of the account at the beginning of the period, and
multiplying the return over the seven-day period by 365/7. For purposes of the
calculation, net change in account value reflects the value of additional shares
purchased with dividends from the original share and dividends declared on both
the original share and any such additional shares, but does not reflect realized
gains or losses or unrealized appreciation or depreciation. Effective yield for
each Fund is computed by annualizing the seven-day return with all dividends
reinvested in additional Fund shares.
Below is set forth historical yield information for the periods
indicated:
PRIME MONEY MARKET FUND (12/31/97): 7-day current yield: %; 7-day effective
yield: %.
TREASURY MONEY MARKET FUND (12/31/97): 7-day current yield: %; 7-day effective
yield: %.
FEDERAL MONEY MARKET FUND (12/31/97): 7-day current yield: %; 7-day effective
yield: %.
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TOTAL RETURN QUOTATIONS. Historical performance information for periods
prior to the establishment of the Prime Money Market and Federal Money Market
Funds will be that of the respective related series of the J.P. Morgan Funds and
will be presented in accordance with applicable SEC staff interpretations. The
applicable financial information in the registration statement for the J.P.
Morgan Funds (Registration Nos. 033-54632 and 811-07340) is incorporated herein
by reference.
Below is set forth historical return information for the periods
indicated:
PRIME MONEY MARKET FUND (12/31/97): Average annual total return, 1 year: %;
average annual total return, 5 years: %; average annual total return, 10
years: %; aggregate total return, 1 year: %; aggregate total return, 5
years: %; aggregate total return, 10 years: %.
TREASURY MONEY MARKET FUND (12/31/97): Average annual total return, 1 year:
N/A; average annual total return, 5 years: N/A; average annual total return,
commencement of operations3 to period end: %; aggregate total return, 1 year:
N/A; aggregate total return, 5 years: N/A; aggregate total return, commencement
of operations3 to period end: %.
FEDERAL MONEY MARKET FUND (12/31/97): Average annual total return, 1 year:
%; average annual total return, 5 years: N/A; average annual total return,
commencement of operations4 to period end: %; aggregate total return, 1 year: %;
aggregate total return, 5 years: N/A; aggregate total return, commencement of
operations4 to period end: %.
Aggregate total returns, reflecting the cumulative percentage change
over a measuring period, may also be calculated.
GENERAL. A Fund's performance will vary from time to time depending
upon market conditions, the composition of its corresponding Portfolio, and its
operating expenses. Consequently, any given performance quotation should not be
considered representative of a Fund's performance for any specified period in
the future. In addition, because performance will fluctuate, it may not provide
a basis for comparing an investment in a Fund with certain bank deposits or
other investments that pay a fixed yield or return for a stated period of time.
Comparative performance information may be used from time to time in
advertising the Funds' shares, including appropriate market indices including
the benchmarks indicated under "Investment Advisor" above or data from Lipper
Analytical Services, Inc., Micropal, Inc., Ibbotson Associates, Morningstar
Inc., the Dow Jones Industrial Average and other industry publications.
- --------
3J.P. Morgan Institutional Service Treasury Money Market Fund commenced
operations on July 7, 1997.
4J.P. Morgan Federal Money Market Fund commenced operations on January 4,
1993.
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PORTFOLIO TRANSACTIONS
The Advisor places orders for all Portfolios for all purchases and sales of
portfolio securities, enters into repurchase agreements, and may enter into
reverse repurchase agreements and execute loans of portfolio securities on
behalf of all the Portfolios. See "Investment Objectives and Policies."
Fixed income and debt securities and municipal bonds and notes 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.
Portfolio transactions for the Portfolios will be undertaken principally to
accomplish a Portfolio's objective in relation to expected movements in the
general level of interest rates. The Portfolios may engage in short-term trading
consistent with their objectives. See "Investment Objectives and Policies --
Portfolio Turnover."
In connection with portfolio transactions for the Portfolios, the
Advisor intends to seek best price and execution on a competitive basis for both
purchases and sales of securities.
The Portfolios have a policy of investing only in securities with
maturities of less than 397 days, which policy will result in high portfolio
turnovers. Since brokerage commissions are not normally paid on investments
which the Portfolios make, turnover resulting from such investments should not
adversely affect the net asset value or net income of the Portfolios.
Subject to the overriding objective of obtaining the best possible
execution of orders, the Advisor may allocate a portion of a Portfolio's
brokerage transactions to affiliates of the Advisor. In order for affiliates of
the Advisor to effect any portfolio transactions for a Portfolio, the
commissions, fees or other remuneration received by such affiliates must be
reasonable and fair compared to the commissions, fees, or other remuneration
paid to other brokers in connection with comparable transactions involving
similar securities being purchased or sold on a securities exchange during a
comparable period of time. Furthermore, the Trustees of each Portfolio,
including a majority of the Trustees who are not "interested persons," have
adopted procedures which are reasonably designed to provide that any
commissions, fees, or other remuneration paid to such affiliates are consistent
with the foregoing standard.
Portfolio securities will not be purchased from or through or sold to
or through the Co-Administrator, the Distributor or the Advisor or any other
"affiliated person" (as defined in the 1940 Act) of the Co-Administrator,
Distributor or Advisor when such entities are acting as principals, except to
the extent permitted by law. In addition, the Portfolios will not purchase
securities during the existence of any underwriting group relating thereto of
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which the Advisor or an affiliate of the Advisor is a member, except to the
extent permitted by law.
On those occasions when the Advisor deems the purchase or sale of a
security to be in the best interests of a Portfolio as well as other customers
including other Portfolios, the Advisor to the extent permitted by applicable
laws and regulations, may, but is not obligated to, aggregate the securities to
be sold or purchased for a Portfolio with those to be sold or purchased for
other customers 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 its fiduciary obligations to a Portfolio. In some instances,
this procedure might adversely affect a Portfolio.
MASSACHUSETTS TRUST
The Trust is a trust fund of the type commonly known as a
"Massachusetts business trust" of which each Fund is a separate and distinct
series. A copy of the Declaration of Trust for the Trust is on file in the
office of the Secretary of The Commonwealth of Massachusetts. The Declaration of
Trust and the By-Laws of the Trust are designed to make the Trust similar in
most respects to a Massachusetts business corporation. The principal distinction
between the two forms concerns shareholder liability described below.
Effective January 9, 1997, the name of The Treasury Money Market
Portfolio was changed to The Federal Money Market Portfolio. Effective May 12,
1997, the name of The Money Market Portfolio was changed to The Prime Money
Market Portfolio. Effective January 1, 1997, the name of the Trust was changed
from "The JPM Institutional Funds" to "J.P. Morgan Institutional Funds," and
each Fund's name changed accordingly.
Under Massachusetts law, shareholders of such a trust may, under
certain circumstances, be held personally liable as partners for the obligations
of the trust which is not the case for a corporation. However, the Trust's
Declaration of Trust provides that the shareholders shall not be subject to any
personal liability for the acts or obligations of any Fund and that every
written agreement, obligation, instrument or undertaking made on behalf of any
Fund shall contain a provision to the effect that the shareholders are not
personally liable thereunder.
No personal liability will attach to the shareholders under any
undertaking containing such provision when adequate notice of such provision is
given, except possibly in a few jurisdictions. With respect to all types of
claims in the latter jurisdictions, (i) tort claims, (ii) contract claims where
the provision referred to is omitted from the undertaking, (iii) claims for
taxes, and (iv) certain statutory liabilities in other jurisdictions, a
shareholder may be held personally liable to the extent that claims are not
satisfied by a Fund. However, upon payment of such liability, the shareholder
will be entitled to reimbursement from the general assets of a Fund. The
Trustees intend to conduct the operations of the Trust in such a way so as to
avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the Funds.
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The Trust's Declaration of Trust further provides that the name of the
Trust refers to the Trustees collectively as Trustees, not as individuals or
personally, that no Trustee, officer, employee or agent of a Fund is liable to a
Fund or to a shareholder, and that no Trustee, officer, employee, or agent is
liable to any third persons in connection with the affairs of a Fund, except as
such liability may arise from his or its own bad faith, willful misfeasance,
gross negligence or reckless disregard of his or its duties to such third
persons. It also provides that all third persons shall look solely to Fund
property for satisfaction of claims arising in connection with the affairs of a
Fund. With the exceptions stated, the Trust's Declaration of Trust provides that
a Trustee, officer, employee, or agent is entitled to be indemnified against all
liability in connection with the affairs of a Fund.
The Trust shall continue without limitation of time subject to the
provisions in the Declaration of Trust concerning termination by action of the
shareholders or by action of the Trustees upon notice to the shareholders.
DESCRIPTION OF SHARES
The Trust is an open-end management investment company organized as a
Massachusetts business trust in which each Fund represents a separate series of
shares of beneficial interest. 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, if applicable) without changing the proportionate beneficial interest of
each shareholder in a Fund (or in the assets of other series, if applicable).
Each share represents an equal proportional interest in a Fund with each other
share. Upon liquidation of a Fund, holders are entitled to share pro rata in the
net assets of a Fund available for distribution to such shareholders. See
"Massachusetts Trust." Shares of a Fund have no preemptive or conversion rights
and are fully paid and nonassessable. The rights of redemption and exchange are
described in the Prospectus and elsewhere in this Statement of Additional
Information.
The shareholders of the Trust are entitled to a full vote for each full
share held and to a fractional vote for each fractional share. Subject to the
1940 Act, the Trustees themselves 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 appoint
their own successors, PROVIDED, HOWEVER, that immediately after such appointment
the requisite majority of the Trustees have been elected by the shareholders of
the Trust. The voting rights of shareholders are not cumulative so that holders
of more than 50% of the shares voting can, if they choose, elect all Trustees
being selected while the shareholders of the remaining shares would be unable to
elect any Trustees. It is the intention of the Trust not to hold meetings of
shareholders annually. The Trustees may call meetings of shareholders for action
by shareholder vote as may be required by either the 1940 Act or the Trust's
Declaration of Trust.
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Shareholders of the Trust have the right, upon the declaration in
writing or vote of more than two-thirds of its outstanding shares, 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 record holders of 10% of the Trust's
shares. In addition, whenever ten or more shareholders of record who have been
such for at least six months preceding the date of application, and who hold in
the aggregate either shares having a net asset value of at least $25,000 or at
least 1% of the Trust's outstanding shares, whichever is less, shall apply to
the Trustees in writing, stating that they wish to communicate with other
shareholders with a view to obtaining signatures to request a meeting for the
purpose of voting upon the question of removal of any Trustee or Trustees and
accompanied by a form of communication and request which they wish to transmit,
the Trustees shall within five business days after receipt of such application
either: (1) afford to such applicants access to a list of the names and
addresses of all shareholders as recorded on the books of the Trust; or (2)
inform such applicants as to the approximate number of shareholders of record,
and the approximate cost of mailing to them the proposed communication and form
of request. If the Trustees elect to follow the latter course, the Trustees,
upon the written request of such applicants, accompanied by a tender of the
material to be mailed and of the reasonable expenses of mailing, shall, with
reasonable promptness, mail such material to all shareholders of record at their
addresses as recorded on the books, unless within five business days after such
tender the Trustees shall mail to such applicants and file with the SEC,
together with a copy of the material to be mailed, a written statement signed by
at least a majority of the Trustees to the effect that in their opinion either
such material contains untrue statements of fact or omits to state facts
necessary to make the statements contained therein not misleading, or would be
in violation of applicable law, and specifying the basis of such opinion. After
opportunity for hearing upon the objections specified in the written statements
filed, the SEC may, and if demanded by the Trustees or by such applicants shall,
enter an order either sustaining one or more of such objections or refusing to
sustain any of them. If the SEC shall enter an order refusing to sustain any of
such objections, or if, after the entry of an order sustaining one or more of
such objections, the SEC shall find, after notice and opportunity for hearing,
that all objections so sustained have been met, and shall enter an order so
declaring, the Trustees shall mail copies of such material to all shareholders
with reasonable promptness after the entry of such order and the renewal of such
tender.
The Trustees have authorized the issuance and sale to the public of
shares of twenty-four series of the Trust. The Trustees have no current
intention to create any classes within the initial series or any subsequent
series. The Trustees may, however, authorize the issuance of shares of
additional series and the creation of classes of shares within any series with
such preferences, privileges, limitations and voting and dividend rights as the
Trustees may determine. The proceeds from the issuance of any additional series
would be invested in separate, independently managed portfolios with distinct
investment objectives, policies and restrictions, and share purchase, redemption
and net asset valuation procedures. Any additional classes would be used to
distinguish among the rights of different categories of shareholders, as might
be required by future regulations or other unforeseen circumstances. All
consideration received by the Trust for shares of any additional series or
class, and all assets in which such consideration is invested, would belong to
that series or
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class, subject only to the rights of creditors of the Trust and would be subject
to the liabilities related thereto. Shareholders of any additional series or
class will approve the adoption of any management contract or distribution plan
relating to such series or class and of any changes in the investment policies
related thereto, to the extent required by the 1940 Act.
For information relating to mandatory redemption of Fund shares or
their redemption at the option of the Trust under certain circumstances, see
the Prospectus.
As of December 2, 1997, the following owned of record, or to the
knowledge of management, beneficially owned more than 5% of the outstanding
shares of:
Prime Money Market Fund:
Treasury Money Market Fund:
Federal Money Market Fund:
TAXES
Each Fund intends to qualify as a regulated investment company under
Subchapter M of the Code. As a regulated investment company, a Fund must, among
other things, (a) derive at least 90% of its gross income from dividends,
interest, payments with respect to loans of stock and securities, gains from the
sale or other disposition of stock, securities or foreign currency 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 foreign currency; (b) derive less than 30% of its gross income
from the sale or other disposition of stock, securities, options, futures or
forward contracts (other than options, futures or forward contracts on foreign
currencies) held less than three months, or foreign currencies (or options,
futures or forward contracts on foreign currencies) held less than three months,
but only if such currencies (or options, futures or forward contracts on foreign
currencies) are not directly related to a Fund's principal business of investing
in stocks or securities (or options and futures with respect to stocks or
securities); and (c) diversify its holdings so that, at the end of each quarter
of its taxable year, (i) at least 50% of the value of the Fund's total assets is
represented by cash, cash items, U.S. Government securities, securities of 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 securities of other regulated
investment companies). As a regulated investment company, a Fund (as opposed to
its shareholders) will not be subject to federal income taxes on the net
investment income and capital gain that it distributes to its shareholders,
provided that at least 90% of its net investment income and realized net
short-term capital gain in excess of net long-term capital loss for the taxable
year is distributed in accordance with the Code's timing requirements.
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Under the Code, a Fund will be subject to a 4% excise tax on a portion
of its undistributed taxable income and capital gains if it fails to meet
certain distribution requirements by the end of the calendar year. Each Fund
intends to make distributions in a timely manner and accordingly does not expect
to be subject to the excise tax.
For federal income tax purposes, dividends that are declared by a Fund
in October, November or December as of a record date in such month and actually
paid in January of the following year will be treated as if they were paid on
December 31 of the year declared. Therefore, such dividends will be taxable to a
shareholder in the year declared rather than the year paid.
Distributions of net investment income and realized net short-term
capital gain in excess of net long-term capital loss (other than exempt interest
dividends) are generally taxable to shareholders of the Funds as ordinary income
whether such distributions are taken in cash or reinvested in additional shares.
Distributions to corporate shareholders of the Funds are not eligible for the
dividends received deduction. Distributions of net long-term capital gain (i.e.,
net long-term capital gain in excess of net short-term capital loss) are taxable
to shareholders of a Fund as long-term capital gain, regardless of whether such
distributions are taken in cash or reinvested in additional shares and
regardless of how long a shareholder has held shares in the Fund. Additionally,
any loss realized on a redemption or exchange of shares of a Fund will be
disallowed to the extent the shares disposed of are replaced within a period of
61 days beginning 30 days before such disposition, such as pursuant to
reinvestment of a dividend in shares of the Fund.
To maintain a constant $1.00 per share net asset value, the Trustees of
the Trust may direct that the number of outstanding shares be reduced pro rata.
If this adjustment is made, it will reflect the lower market value of portfolio
securities and not realized losses. The adjustment may result in a shareholder
having more dividend income than net income in his account for a period. When
the number of outstanding shares of a Fund is reduced, the shareholder's basis
in the shares of the Fund may be adjusted to reflect the difference between
taxable income and net dividends actually distributed. This difference may be
realized as a capital loss when the shares are liquidated. Subject to certain
limited exceptions, capital losses cannot be used to offset ordinary income. See
"Net Asset Value."
Gains or losses on sales of portfolio securities will be treated as
long-term capital gains or losses if the securities have been held for more than
one year except in certain cases where a put is acquired or a call option is
written thereon or straddle rules are otherwise applicable. Other gains or
losses on the sale of securities will be short-term capital gains or losses.
Gains and losses on the sale, lapse or other termination of options on
securities will be treated as gains and losses from the sale of securities.
Except as described below, if an option written by a Portfolio lapses or is
terminated through a closing transaction, such as a repurchase by the Portfolio
of the option from its holder, the Portfolio will realize a short-term capital
gain or loss, depending on whether the premium income is greater or less than
the amount
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paid by the Portfolio in the closing transaction. If securities are purchased by
a Portfolio pursuant to the exercise of a put option written by it, the
Portfolio will subtract the premium received from its cost basis in the
securities purchased.
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 a Portfolio accrues income or receivables or
expenses or other liabilities denominated in a foreign currency and the time a
Portfolio actually collects such income or pays such liabilities, are generally
treated as ordinary income or ordinary loss. Similarly, gains or losses on the
disposition of debt securities held by a Portfolio, 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.
FOREIGN SHAREHOLDERS. Dividends of net investment income and
distributions of realized net short-term gain in excess of net long-term loss to
a shareholder who, as to the United States, is a nonresident alien individual,
fiduciary of a foreign trust or estate, foreign corporation or foreign
partnership (a "foreign shareholder") will be subject to U.S. withholding tax at
the rate of 30% (or lower treaty rate) unless the dividends are effectively
connected with a U.S. trade or business of the shareholder, in which case the
dividends will be subject to tax on a net income basis at the graduated rates
applicable to U.S. individuals or domestic corporations. Distributions treated
as long term capital gains to foreign shareholders will not be subject to U.S.
tax unless the distributions are effectively connected with the shareholder's
trade or business in the United States or, in the case of a shareholder who is a
nonresident alien individual, the shareholder was present in the United States
for more than 182 days during the taxable year and certain other conditions are
met.
In the case of a foreign shareholder who is a nonresident alien
individual or foreign entity, a Fund may be required to withhold U.S. federal
income tax as "backup withholding" at the rate of 31% from distributions treated
as long-term capital gains and from the proceeds of redemptions, exchanges or
other dispositions of Fund shares unless IRS Form W-8 is provided. Transfers by
gift of shares of a Fund by a foreign shareholder who is a nonresident alien
individual will not be subject to U.S. federal gift tax, but the value of shares
of 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. Each 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 a Fund and its shareholders in those states which have income
tax laws might differ from treatment under the federal income tax laws.
Shareholders should consult their own tax advisors with respect to any state or
local taxes.
OTHER TAXATION. The Trust is organized as a Massachusetts business trust
and, under current law, neither the Trust nor any Fund is liable for any income
or franchise tax in The Commonwealth of Massachusetts, provided that each Fund
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continues to qualify as a regulated investment company under Subchapter M of the
Code. The Portfolios are organized as New York trusts. The Portfolios are not
subject to any federal income taxation or income or franchise tax in the State
of New York or The Commonwealth of Massachusetts. The investment by a Fund in
its corresponding Portfolio does not cause the Fund to be liable for any income
or franchise tax in the State of New York.
ADDITIONAL INFORMATION
As used in this Statement of Additional Information and the Prospectus,
the term "majority of the outstanding voting securities" means the vote of (i)
67% or more of the Fund's shares or the Portfolio's outstanding voting
securities present at a meeting, if the holders of more than 50% of the Fund's
outstanding shares or the Portfolio's outstanding voting securities are present
or represented by proxy, or (ii) more than 50% of the Fund's outstanding shares
or the Portfolio's outstanding voting securities, whichever is less.
Telephone calls to the Funds, Morgan or Service Organizations as
shareholder servicing agent may be tape recorded. With respect to the securities
offered hereby, this Statement of Additional Information and the Prospectus do
not contain all the information included in the Trust's Registration Statement
filed with the SEC under the 1933 Act and the Trust's and the Portfolios'
Registration Statements filed under the 1940 Act. Pursuant to the rules and
regulations of the SEC, certain portions have been omitted. The Registration
Statements including the exhibits filed therewith may be examined at the office
of the SEC in Washington D.C.
Statements contained in this Statement of Additional Information and
the Prospectus concerning the contents of any contract or other document are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the applicable
Registration Statements. Each such statement is qualified in all respects by
such reference.
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in the
Prospectus and this Statement of Additional Information, in connection with the
offer contained therein and, if given or made, such other information or
representations must not be relied upon as having been authorized by any of the
Trust, the Funds or the Distributor. The Prospectus and this Statement of
Additional Information do not constitute an offer by any Fund or by the
Distributor 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
the Distributor to make such offer in such jurisdictions.
FINANCIAL STATEMENTS
The following financial statements and the report thereon of Price
Waterhouse LLP of each Fund (except the Federal Money Market Fund) are
incorporated herein by reference from their respective annual report filings
made with the SEC pursuant to Section 30(b) of the 1940 Act and Rule 30b2-1
thereunder. Any of the following financial reports are available without charge
upon request by calling JP Morgan Funds Services at (800) 766-7722. Each Fund's
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financial statements include the financial statements of the Fund's
corresponding Portfolio.
<TABLE>
<CAPTION>
Date of Semi-Annual Date of Annual
Report; Date Semi- Report; Date Annual
Annual Report Filed; Report Filed; and
Name of Fund/Portfolio and Accession Number Accession Number
- ------------------------------------------------ --------------------------------- --------------------------------
<S> <C> <C>
J.P. Morgan Institutional N/A 11/30/97
Service Prime Money Market 01/ /98
Fund 0000912057-98-
J.P. Morgan Institutional N/A 10/31/97
Service Treasury Money Market 12/ /97
Fund 0000912057-97-
The Federal Money Market N/A 10/31/97
Portfolio 12/ /97
0000912057-97-
- ------------------------------------------------ --------------------------------- --------------------------------
</TABLE>
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APPENDIX A
DESCRIPTION OF SECURITY RATINGS
STANDARD & POOR'S
CORPORATE AND MUNICIPAL BONDS
AAA - Debt rated AAA has the highest ratings assigned by Standard & Poor's
to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in a small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated
categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for debt in
higher rated categories.
COMMERCIAL PAPER, INCLUDING TAX EXEMPT
A - Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined
with the designations 1, 2, and 3 to indicate the relative degree of
safety.
A-1 - This designation indicates that the degree of safety regarding timely
payment is very strong.
SHORT-TERM TAX-EXEMPT NOTES
SP-1 - The short-term tax-exempt note rating of SP-1 is the highest
rating assigned by Standard & Poor's and has a very strong or
strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics are
given a "plus" (+) designation.
SP-2 - The short-term tax-exempt note rating of SP-2 has a
satisfactory capacity to pay principal and interest.
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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.
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.
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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.
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J.P. MORGAN INSTITUTIONAL FUNDS
J.P. MORGAN INSTITUTIONAL SERVICE TAX EXEMPT MONEY MARKET FUND
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 2, 1998
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT CONTAINS
ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS
DATED FEBRUARY 2, 1998 FOR THE FUND LISTED ABOVE, AS SUPPLEMENTED FROM TIME TO
TIME, WHICH MAY BE OBTAINED UPON REQUEST FROM FUNDS DISTRIBUTOR, INC.,
ATTENTION: J.P. MORGAN INSTITUTIONAL SERVICE FUNDS (800) 221-7930.
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Table of Contents
PAGE
General.......................................................................1
Investment Objective and Policies.............................................1
Investment Restrictions......................................................10
Trustees and Officers........................................................15
Investment Advisor...........................................................19
Distributor..................................................................21
Co-Administrator.............................................................22
Services Agent...............................................................23
Custodian and Transfer Agent.................................................23
Shareholder Servicing........................................................24
Independent Accountants......................................................25
Expenses.....................................................................25
Purchase of Shares...........................................................26
Redemption of Shares.........................................................26
Exchange of Shares...........................................................27
Dividends and Distributions..................................................27
Net Asset Value..............................................................27
Performance Data.............................................................28
Portfolio Transactions.......................................................30
Massachusetts Trust..........................................................31
Description of Shares........................................................32
Taxes........................................................................33
Additional Information.......................................................35
Appendix A - Description of Security Ratings................................A-1
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GENERAL
This Statement of Additional Information relates only to the J.P.
Morgan Institutional Service Tax Exempt Money Market Fund (the "Fund"). The Fund
is a series of shares of beneficial interest of the J.P. Morgan Institutional
Funds, an open-end management investment company formed as a Massachusetts
business trust (the "Trust"). In addition to the Fund, the Trust consists of
other series representing separate investment funds (each a "J.P. Morgan
Institutional Fund"). The other J.P. Morgan Institutional Funds are covered by
separate Statements of Additional Information.
This Statement of Additional Information describes the financial
history, investment objective and policies, management and operation of the
Fund. The Fund operates through a two-tier master-feeder investment fund
structure.
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 accorded to them in the Prospectus. The Trust's
executive offices are located at 60 State Street, Suite 1300, Boston,
Massachusetts 02109.
Unlike other mutual funds which directly acquire and manage their own
portfolio of securities, the Fund seeks to achieve its investment objective by
investing all of its investable assets in a corresponding Master Portfolio (the
"Portfolio"), an open-end management investment company having the same
investment objective as the Fund. The Fund invests in the Portfolio through a
two-tier master-feeder investment fund structure. See "Special Information
Concerning Investment Structure."
The Portfolio is advised by Morgan Guaranty Trust Company of New York
("Morgan" or the "Advisor").
Investments in the Fund are not deposits or obligations of, or
guaranteed or endorsed by, Morgan or any other 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
when the investment is redeemed, the value may be higher or lower than the
amount originally invested by the investor.
INVESTMENT OBJECTIVE AND POLICIES
The following discussion supplements the information regarding the
investment objective of the Fund and the policies to be employed to achieve the
objective by the Portfolio as set forth herein and in the Prospectus. Since the
investment characteristics and experiences of the Fund correspond directly with
those of the Portfolio, the discussion in this Statement of Additional
Information focuses on the investments and investment policies of the Portfolio.
Accordingly, references below to the Portfolio also include the Fund; similarly,
references to the Fund also include the Portfolio unless the context requires
otherwise.
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The Fund is designed to be an economical and convenient means of making
substantial investments in instruments that are exempt from federal income tax.
The Fund's investment objective is to provide a high level of current income
that is exempt from federal income tax and maintain a high level of liquidity.
See "Taxes." The Fund attempts to achieve this objective by investing all of its
investable assets in The Tax Exempt Money Market Portfolio (the "Portfolio"), a
diversified open-end management investment company having the same investment
objective as the Fund.
The Portfolio attempts to achieve its investment objective by
maintaining a dollar-weighted average portfolio maturity of not more than 90
days and by investing in U.S. dollar-denominated securities described in the
Prospectus and this Statement of Additional Information that meet certain rating
criteria, present minimal credit risks, have effective maturities of not more
than 397 days and earn interest wholly exempt from federal income tax in the
opinion of bond counsel for the issuer. The Portfolio generally will not invest
in taxable securities, although it may temporarily invest up to 20% of total
assets in such securities in abnormal market conditions, for defensive purposes
only, if, in the judgment of the Advisor, tax exempt securities satisfying the
Fund's investment objective may not be purchased. For purposes of this
calculation, obligations that generate income that may be treated as a
preference item for purposes of the alternative minimum tax shall not be
considered taxable securities. See "Quality and Diversification Requirements."
Interest on these securities may be subject to state and local taxes. For more
detailed information regarding tax matters, including the applicability of the
alternative minimum tax, see "Taxes."
MONEY MARKET INSTRUMENTS
A description of the various types of money market instruments that may be
purchased by the Fund appears below. Also 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;
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(ii) securities issued by the Federal National Mortgage Association, which are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; and (iii) obligations of the Federal Farm Credit System
and the Student Loan Marketing Association, each of whose obligations may be
satisfied only by the individual credits of the issuing agency.
BANK OBLIGATIONS. The Fund, unless otherwise noted in the Prospectus or
below, 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 may not invest in
obligations of foreign branches of foreign banks. The Fund will not invest in
obligations for which the Advisor, or any of its affiliated persons, is the
ultimate obligor or accepting 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
acting as agent, for no additional fee, in its capacity as investment advisor to
the Portfolio and as fiduciary for other clients for whom it exercises
investment discretion. The monies loaned to the borrower come from accounts
managed by the Advisor or its affiliates, pursuant to arrangements with such
accounts. Interest and principal payments are credited to such accounts. The
Advisor, acting as a fiduciary on behalf of its clients, 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 the Advisor. 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 an 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, in its capacity as a commercial
bank, has made a loan.
REPURCHASE AGREEMENTS. The Fund, unless otherwise noted in the
Prospectus or below, may enter into repurchase agreements with brokers, dealers
or banks that meet the credit guidelines approved by the Fund's Trustees. 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
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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 Fund is
invested in the agreement 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 397 days.
The securities which are subject to repurchase agreements, however, may have
maturity dates in excess of 397 days 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 the 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. The Fund will be fully collateralized within the meaning of paragraph
(a)(4) of Rule 2a-7 under the Investment Company Act of 1940, as amended (the
"1940 Act"). 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.
The Fund may make investments in other debt securities with remaining
effective maturities of not more than 397 days, including without limitation
corporate bonds, and other obligations described in the Prospectus or this
Statement of Additional Information.
TAX EXEMPT OBLIGATIONS
A description of the various types of tax exempt obligations which may be
purchased by the Fund appears in the Prospectus and 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.
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MUNICIPAL NOTES. Municipal notes are subdivided into three categories of
short-term obligations: municipal notes, municipal commercial paper and
municipal demand obligations.
Municipal notes are short-term obligations with a maturity at the time
of issuance ranging from six months to five 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 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" above. 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.
The Fund may purchase securities of the type described above if they
have effective maturities within 397 days. As required by regulation of the
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Securities and Exchange Commission (the "SEC"), this means that on the date of
acquisition the final stated maturity (or if called for redemption, the
redemption date) must be within 397 days or the maturity must be deemed to be no
more than 397 days because of a maturity shortening mechanism, such as a
variable interest rate, coupled with a conditional or unconditional right to
resell the investment to the issuer or a third party. See "Variable Rate Demand
Notes" and "Puts." A substantial portion of the Fund's portfolio is subject to
maturity shortening mechanisms consisting of variable interest rates coupled
with unconditional rights to resell the securities to the issuers either
directly or by drawing on a domestic or foreign bank letter of credit or other
credit support arrangement. See "Foreign Investments."
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 which are subject to puts
at amortized cost. No value is assigned to the put. The cost of any such put is
carried as an unrealized loss from the time of purchase until it is exercised or
expires. 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.
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
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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 Trustees will review regularly the Advisor's 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. The Trustees have directed the Advisor not to enter into
put transactions with any dealer which in the judgment of the Advisor becomes
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.
The Trust has been advised by counsel that the Fund will be considered
the owner of the securities subject to the puts so that the interest on the
securities is tax exempt income to the Fund. Such advice of counsel is based on
certain assumptions concerning the terms of the puts and the attendant
circumstances.
ADDITIONAL INVESTMENTS
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 for money market instruments and other fixed income securities
no interest accrues 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, reflect the value each day of
such securities in determining its net asset value and, if applicable, calculate
the maturity for the purposes of average maturity from that date. 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, U.S. Government
securities or other appropriate securities, in an amount at least equal to such
commitments. On delivery dates for such transactions, the Fund will meet its
obligations from maturities or sales of the securities held in the segregated
account and/or from cash flow. 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 portfolio obligation, incur a gain or loss due to
market fluctuation. It is the current policy of the Fund not to enter into
when-issued commitments exceeding in the aggregate 15% of the market value of
the Fund's total assets, less liabilities other than the obligations created by
when-issued commitments.
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INVESTMENT COMPANY SECURITIES. Securities of other investment companies
may be acquired by the Fund and Portfolio to the extent permitted under the 1940
Act. These limits 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 (its corresponding Portfolio). As a shareholder of another investment
company, the Fund or Portfolio would bear, along with other shareholders, its
pro rata portion of the other investment company's expenses, including advisory
fees. These expenses would be in addition to the advisory and other expenses
that the Fund or Portfolio bears directly in connection with its own operations.
REVERSE REPURCHASE AGREEMENTS. The Fund, unless otherwise noted in the
Prospectus or below, 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. 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. The Fund will invest the
proceeds of borrowings under reverse repurchase agreements. In addition, the
Fund will enter into a reverse repurchase agreement only when the interest
income to be earned from the investment of the proceeds is greater than the
interest 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. If interest rates rise during the term of a reverse repurchase
agreement, entering into the reverse repurchase agreement may have a negative
impact on the Fund's ability to maintain a net asset value of $1.00 per share.
See "Investment Restrictions" for the Fund's limitations on reverse repurchase
agreements and bank borrowings.
LOANS OF PORTFOLIO SECURITIES. The Fund may lend its securities if such
loans are secured continuously by cash or equivalent collateral or by a letter
of credit in favor of the Fund at least equal at all times to 100% of the market
value of the securities loaned, plus accrued interest. While such securities are
on loan, the borrower will pay the Fund any income accruing thereon. Loans will
be subject to termination by the 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 which occurs during the term
of the loan inures to the Fund and its respective investors. The Fund may pay
reasonable finders' and custodial fees in connection with a loan. In addition,
the Fund will consider all facts and circumstances 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, Director, employee or other affiliate of the Fund, the
Advisor or the Distributor, unless otherwise permitted by applicable law.
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PRIVATELY PLACED AND CERTAIN UNREGISTERED SECURITIES. The Fund may
invest in privately placed, restricted, Rule 144A or other unregistered
securities as described in the Prospectus.
As to illiquid investments, the Fund is subject to a risk that should
the Fund decide to sell them when a ready buyer is not available at a price the
Fund deems representative of their value, the value of the Fund's net assets
could be adversely affected. Where an illiquid security must be registered under
the Securities Act of 1933, as amended (the "1933 Act"), before it may be sold,
the Fund may be obligated to pay all or part of the registration expenses, and a
considerable period may elapse between the time of the decision to sell and the
time the Fund may be permitted to sell a security 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.
SYNTHETIC INSTRUMENTS. The Fund may invest in certain synthetic
variable rate instruments as described in the Prospectus. In the case of some
types of instruments credit enhancement is not provided, and if certain events,
which may include (a) default in the payment of principal or interest on the
underlying bond, (b) downgrading of the bond below investment grade or (c) a
loss of the bond's tax exempt status, occur, then (i) the put will terminate,
(ii) the risk to the Fund will be that of holding a long-term bond, and (iii)
the disposition of the bond may be required which could be at a loss.
QUALITY AND DIVERSIFICATION REQUIREMENTS
The Fund intends to meet the diversification requirements of the 1940
Act. To meet these requirements, 75% of the assets of the Fund are subject to
the following fundamental limitations: (1) the Fund may not invest more than 5%
of its total assets in the securities of any one issuer, except obligations of
the U.S. Government, its agencies and instrumentalities, and (2) the Fund may
not own more than 10% of the outstanding voting securities of any one issuer. As
for the other 25% of the Fund's assets not subject to the limitation described
above, there is no limitation on investment of these assets under the 1940 Act,
so that all of such assets may be invested in securities of any one issuer,
subject to the limitation of any applicable state securities laws or as
described below. 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.
At the time the Fund invests in any taxable commercial paper, master
demand obligation, bank obligation or repurchase agreement, the issuer must have
outstanding debt rated A or higher by Moody's or Standard & Poor's, the issuer's
parent corporation, if any, must have outstanding commercial paper rated Prime-1
by Moody's or A-1 by Standard & Poor's, or if no such ratings are available, the
investment must be of comparable quality in Morgan's opinion.
For purposes of diversification and concentration under the 1940 Act,
identification of the issuer of municipal bonds or notes depends on the terms
and conditions of the obligation. If the assets and revenues of an agency,
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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 nongovernmental user, the nongovernmental 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."
In order to attain its objective of maintaining a stable net asset
value, the Fund will limit its investments to securities that present minimal
credit risks and securities (other than New York State municipal notes) that are
rated within the highest rating assigned to short-term debt securities (or, in
the case of New York State municipal notes, within one of the two highest
ratings assigned to short-term debt securities) by at least two NRSROs or by the
only NRSRO that has rated the security. Securities which originally had a
maturity of over one year are subject to more complicated, but generally similar
rating requirements. The Fund may also purchase unrated securities that are of
comparable quality to the rated securities described above. Additionally, if the
issuer of a particular security has issued other securities of comparable
priority and security and which have been rated in accordance with the criteria
described above that security will be deemed to have the same rating as such
other rated securities.
In addition, the Board of Trustees has adopted procedures which (i)
require the Fund to maintain a dollar-weighted average portfolio maturity of not
more than 90 days and to invest only in securities with a remaining maturity of
not more than 397 days and (ii) require the Fund, in the event of certain
downgrading of or defaults on portfolio holdings, to dispose of the holding,
subject in certain circumstances to a finding by the Trustees that disposing of
the holding would not be in the Fund's best interest.
The credit quality of variable rate demand notes and other municipal
obligations is frequently enhanced by various credit support arrangements with
domestic or foreign financial institutions, such as letters of credit,
guarantees and insurance, and these arrangements are considered when investment
quality is evaluated. The rating of credit-enhanced municipal obligations by a
NRSRO may be based primarily or exclusively on the credit support arrangement.
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INVESTMENT RESTRICTIONS
The investment restrictions of the Fund and Portfolio are identical,
unless otherwise specified. Accordingly, references below to the Fund also
include the Portfolio unless the context requires otherwise; similarly,
references to the Portfolio also include the Fund unless the context requires
otherwise.
The investment restrictions below have been adopted by the Trust, with
respect to the Fund, and by the Portfolio. Except where 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 or Portfolio, as the case may be. A "majority of the
outstanding voting securities" is defined in the 1940 Act as the lesser of (a)
67% or more of the voting securities present at a meeting if the holders of more
than 50% of the outstanding voting securities are present or represented by
proxy, or (b) more than 50% of the outstanding voting securities. The percentage
limitations contained in the restrictions below apply at the time of the
purchase of securities. Whenever the Fund is requested to vote on a change in
the fundamental investment restrictions of the Portfolio, the Trust will hold a
meeting of Fund shareholders and will cast its votes as instructed by the Fund's
shareholders.
The Fund and Portfolio may not:
1. Borrow money, except from banks for temporary, extraordinary or emergency
purposes and then only in amounts up to 10% of the value of the Fund's
total assets, taken at cost at the time of such borrowing; or mortgage,
pledge or hypothecate any assets except in connection with any such
borrowing in amounts up to 10% of the value of the Fund's net assets at the
time of such borrowing. The Fund will not purchase securities while
borrowings exceed 5% of the Fund's total assets, provided, however, that
the Fund may increase its interest in an open-end management investment
company with the same investment objective and restrictions as the Fund's
while such borrowings are outstanding. This borrowing provision, for
example, facilitates the orderly sale of portfolio securities in the event
of abnormally heavy redemption requests or in the event of redemption
requests during periods of tight market supply. This provision is not for
leveraging purposes;
2. Invest more than 25% of its total assets in securities of governmental
units located in any one state, territory, or possession of the United
States. The Fund may invest more then 25% of its total assets in
industrial development and pollution control obligations whether or not
the users of facilities financed by such obligations are in the same
industry;1
- --------
1 Pursuant to an interpretation of the staff of the SEC, the Fund
may not invest more than 25% of its assets in industrial development
bonds in projects of similar type or in the same state. The Fund shall
comply with this interpretation until such time as it may be modified
by the staff of the SEC.
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3. Purchase industrial revenue bonds if, as a result of such purchase,
more than 5% of total Fund assets would be invested in industrial
revenue bonds where payment of principal and interest are the
responsibility of companies with fewer than three years of operating
history;
4. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the Fund's
total assets would be invested in securities or other obligations of any
one such issuer, provided, however, that the Fund may invest all or part of
its investable assets in an open-end management investment company with the
same investment objective and restrictions as the Fund's. Each state and
each political subdivision, agency or instrumentality of such state and
each multi-state agency of which such state is a member will be a separate
issuer if the security is backed only by the assets and revenues of that
issuer. If the security is guaranteed by another entity, the guarantor will
be deemed to be the issuer. This limitation shall not apply to securities
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or to permitted investments of up to 25% of the Fund's
total assets;2
5. Make loans, except through the purchase or holding of debt obligations,
repurchase agreements, or loans of portfolio securities in accordance with
the Fund's investment objective and policies (see "Investment Objectives
and Policies");
6. Purchase or sell puts, calls, straddles, spreads, or any combination
thereof except to the extent that securities subject to a demand
obligation, stand-by commitments and puts may be purchased (see
"Investment Objectives and Policies"); real estate; commodities;
commodity contracts; or interests in oil, gas, or mineral exploration
or development programs. However, the Fund may purchase municipal
bonds, notes or commercial paper secured by interests in real estate;
7. 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
securities or of securities for delayed delivery;
8. Acquire securities of other investment companies, except as permitted by
the 1940 Act;
9. Act as an underwriter of securities; or
10. Issue senior securities, except as may otherwise be permitted by the
foregoing investment restrictions or under the 1940 Act or any rule,
order or interpretation thereunder.
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2For purposes of interpretation of Investment Restriction No. 4
"guaranteed by another entity" includes credit substitutions, such as
letters of credit or insurance, unless the Advisor determines that the
security meets the Fund's credit standards without regard to the credit
substitution.
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<PAGE>
NON-FUNDAMENTAL INVESTMENT RESTRICTION. The investment restriction
described below is not a fundamental policy of the Fund or Portfolio and may be
changed by their respective Trustees. This non-fundamental investment policy
requires that the Fund may not:
(i) 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 10% of
the Fund's total assets would be in investments that are illiquid.
Notwithstanding any other fundamental or non-fundamental investment
restriction or policy, the Fund reserves the right, without the approval of
shareholders, to invest all of its assets in the securities of a single open-end
registered investment company with substantially the same investment objective,
restrictions and policies as the Fund.
There will be no violation of any investment restriction if that
restriction is complied with at the time the relevant action is taken
notwithstanding a later change in market value of an investment, in net or total
assets, in the securities rating of the investment, or any other later change.
For purposes of fundamental investment restrictions regarding industry
concentration, the Advisor may classify issuers by industry in accordance with
classifications set forth in the DIRECTORY OF COMPANIES FILING ANNUAL REPORTS
WITH THE SECURITIES AND EXCHANGE COMMISSION or other sources. In the absence of
such classification or if the Advisor determines in good faith based on its own
information that the economic characteristics affecting a particular issuer make
it more appropriately considered to be engaged in a different industry, the
Advisor may classify an issuer accordingly. For instance, personal credit
finance companies and business credit finance companies are deemed to be
separate industries and wholly owned finance companies are considered to be in
the industry of their parents if their activities are primarily related to
financing the activities of their parents.
TRUSTEES AND OFFICERS
TRUSTEES
The Trustees of the Trust, who are also the Trustees of the Portfolio,
their business addresses, principal occupations during the past five years and
dates of birth are set forth below.
FREDERICK S. ADDY--Trustee; Retired; Executive Vice President and Chief
Financial Officer since prior to April 1994, Amoco Corporation. His address is
5300 Arbutus Cove, Austin, TX 78746, and his date of birth is January 1, 1932.
WILLIAM G. BURNS--Trustee; Retired, Former Vice Chairman and Chief
Financial Officer, NYNEX. His address is 2200 Alaqua Drive, Longwood, FL 32779,
and his date of birth is November 2, 1932.
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ARTHUR C. ESCHENLAUER--Trustee; Retired; Former Senior Vice President,
Morgan Guaranty Trust Company of New York. His address is 14 Alta Vista Drive,
RD #2, Princeton, NJ 08540, and his date of birth is May 23, 1934.
MATTHEW HEALEY (*)--Trustee, Chairman and Chief Executive Officer;
Chairman, Pierpont Group, Inc., since prior to 1992. His address is Pine Tree
Club Estates, 10286 Saint Andrews Road, Boynton Beach, FL 33436, and his date of
birth is August 23, 1937.
MICHAEL P. MALLARDI--Trustee; Retired; Senior Vice President, Capital
Cities/ABC, Inc. and President, Broadcast Group since prior to April 1996. His
address is 10 Charnwood Drive, Suffern, NY 10910, and his date of birth is
March 17, 1934.
- ----------------------
(*) Mr. Healey is an "interested person" of the Trust, the Advisor and each
Portfolio as that term is defined in the 1940 Act.
The Trustees of the Trust are the same as the Trustees of the
Portfolio. In accordance with applicable state requirements, a majority of the
disinterested Trustees have adopted written procedures reasonably appropriate to
deal with potential conflicts of interest arising from the fact that the same
individuals are Trustees of the Trust, the Portfolio and the J.P. Morgan Funds
up to and including creating a separate board of trustees.
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 Funds and J.P. Morgan Series Trust and is reimbursed for expenses
incurred in connection with service as a Trustee. The Trustees may hold various
other directorships unrelated to the Fund.
Trustee compensation expenses accrued by the Trust for the calendar
year ended December 31, 1997 are set forth below.
<TABLE>
<CAPTION>
TOTAL TRUSTEE COMPENSATION
ACCRUED BY THE MASTER
AGGREGATE TRUSTEE PORTFOLIOS (*), J.P. MORGAN
COMPENSATION FUNDS, J.P. MORGAN SERIES
NAME OF TRUSTEE ACCRUED BY THE TRUST AND THE TRUST DURING
TRUST DURING 1997 1997 (***)
----------------- ----------
<S> <C> <C>
Frederick S. Addy, Trustee $
$
William G. Burns, Trustee $ $
Arthur C. Eschenlauer, Trustee $ $
Matthew Healey, Trustee(**), $ $
Chairman and Chief Executive
Officer
Michael P. Mallardi, Trustee $ $
</TABLE>
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(*) Includes the Portfolio and 23 other portfolios (collectively, the
"Master Portfolios") for which Morgan acts as investment advisor.
(**) During 1997, Pierpont Group, Inc. paid Mr. Healey, in his role as Chairman
of Pierpont Group, Inc., compensation in the amount of $ , contributed $ to
a defined contribution plan on his behalf and paid $ in insurance premiums
for his benefit.
(***) No investment company within the fund complex has a pension or
retirement plan. Currently there are 18 investment companies (15
investment companies comprising the Master Portfolios, the J.P. Morgan
Funds, the Trust and J.P. Morgan Series Trust) in the fund complex.
The Trustees, in addition to reviewing actions of the Trust's and the
Portfolio's various service providers, decide upon matters of general policy.
The Portfolio and the Trust have 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 Portfolio and the Trust.
Pierpont Group, Inc. was organized in July 1989 to provide services for The
Pierpont Family of Funds, and the Trustees are the equal and sole shareholders
of Pierpont Group, Inc. The Trust and the Portfolio have agreed to pay Pierpont
Group, Inc. a fee in an amount representing its reasonable costs in performing
these services to the Trust, the Portfolio and certain other registered
investment companies subject to similar agreements with Pierpont Group, Inc.
These costs are periodically reviewed by the Trustees. The principal offices of
Pierpont Group, Inc. are located at 461 Fifth Avenue, New York, New York 10017.
The Portfolio paid the following aggregate fees to Pierpont Group, Inc. for
the fiscal years ended August 31, 1995, 1996 and 1997: $110,325, $62,310 and
$43,285.
OFFICERS
The Trust's and Portfolio's executive officers (listed below), other
than the Chief Executive Officer, are provided and compensated by Funds
Distributor, Inc. ("FDI"), a wholly owned indirect subsidiary of Boston
Institutional Group, Inc. The officers conduct and supervise the business
operations of the Trust and the Portfolio. The Trust and the Portfolio have no
employees.
The officers of the Trust and the Portfolio, their principal
occupations during the past five years and dates of birth are set forth below.
Unless otherwise specified, each officer holds the same position with the Trust
and the Portfolio. The business address of each of the officers unless otherwise
noted is Funds Distributor, Inc., 60 State Street, Suite 1300, Boston,
Massachusetts
02109.
MATTHEW HEALEY; Chief Executive Officer; Chairman, Pierpont Group,
since prior to 1993. His address is Pine Tree Club Estates, 10286 Saint Andrews
Road, Boynton Beach, FL 33436. His date of birth is August 23, 1937.
MARIE E. CONNOLLY; Vice President and Assistant Treasurer. President,
Chief Executive Officer, Chief Compliance Officer and Director of FDI, Premier
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Mutual Fund Services, Inc., an affiliate of FDI ("Premier Mutual") and an
officer of certain investment companies advised or administered by the Dreyfus
Corporation ("Dreyfus") or its affiliates. From December 1991 to July 1994, she
was President and Chief Compliance Officer of FDI. Her date of birth is August
1, 1957.
DOUGLAS C. CONROY; Vice President and Assistant Treasurer. Assistant Vice
President and Manager of Treasury Services and Administration of FDI and an
officer of certain investment companies advised or administered by Dreyfus or
its affiliates. 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. Prior to March
1993, Mr. Conroy was employed as a fund accountant at The Boston Company, Inc.
His date of birth is March 31, 1969.
RICHARD W. INGRAM; President and Treasurer. Executive Vice President
and Director of Client Services and Treasury Administration of FDI, Senior Vice
President of Premier Mutual and an officer of RCM Capital Funds, Inc., RCM
Equity Funds, Inc., Waterhouse Investors Cash Management Fund, Inc. and certain
investment companies advised or administered by Dreyfus or Harris Trust and
Savings Bank ("Harris") or their respective affiliates. Prior to April 1997, Mr.
Ingram was Senior Vice President and Director of Client Service and Treasury
Administration of FDI. From March 1994 to November 1995, Mr. Ingram was Vice
President and Division Manager of First Data Investor Services Group, Inc. From
1989 to 1994, Mr. Ingram was Vice President, Assistant Treasurer and Tax
Director - Mutual Funds of The Boston Company, Inc. His date of birth is
September 15, 1955.
KAREN JACOPPO-WOOD; Vice President and Assistant Secretary. Assistant Vice
President of FDI and an officer of RCM Capital Funds, Inc. and RCM Equity Funds,
Inc., Waterhouse Investors Cash Management Fund, Inc. and Harris or their
respective affiliates. From June 1994 to January 1996, Ms. Jacoppo-Wood was a
Manager, SEC Registration, Scudder, Stevens & Clark, Inc. From 1988 to May 1994,
Ms. Jacoppo-Wood was a senior paralegal at The Boston Company Advisors, Inc.
("TBCA"). Her date of birth is December 29, 1966.
ELIZABETH A. KEELEY; Vice President and Assistant Secretary. Vice President
and Senior Counsel of FDI and Premier Mutual and an officer of RCM Capital
Funds, Inc., RCM Equity Funds, Inc., Waterhouse Investors Cash Management Fund,
Inc. and certain investment companies advised or administered by Dreyfus or
Harris or their respective affiliates. Prior to August 1996, Ms. Keeley was
Assistant Vice President and Counsel of FDI and Premier Mutual. Prior to
September 1995, Ms. Keeley was enrolled at Fordham University School of Law and
received her JD in May 1995. Address: 200 Park Avenue, New York, New York 10166.
Her date of birth is September 14, 1969.
CHRISTOPHER J. KELLEY; Vice President and Assistant Secretary. Vice
President and Associate General Counsel of FDI and Premier Mutual and an officer
of Waterhouse Investors Cash Management Fund, Inc. and certain investment
companies advised or administered by Harris or its affiliates. From April 1994
to July 1996, Mr. Kelley was Assistant Counsel at Forum Financial Group. From
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1992 to 1994, Mr. Kelley was employed by Putnam Investments in legal and
compliance capacities. His date of birth is December 24, 1964.
MARY A. NELSON; Vice President and Assistant Treasurer. Vice President and
Manager of Treasury Services and Administration of FDI and Premier Mutual, an
officer of RCM Capital Funds, Inc., RCM Equity Funds, Inc., Waterhouse Investors
Cash Management Fund, Inc. and certain investment companies advised or
administered by Dreyfus or Harris or their respective affiliates. From 1989 to
1994, Ms. Nelson was an Assistant Vice President and Client Manager for The
Boston Company, Inc. Her date of birth is April 22, 1964.
MICHAEL S. PETRUCELLI; Vice President and Assistant Secretary. Senior Vice
President and Director of Strategic Client Initiatives for FDI since December
1996. From December 1989 through November 1996, Mr. Petrucelli was employed with
GE Investments where he held various financial, business development and
compliance positions. He also served as Treasurer of the GE Funds and as
Director of GE Investment Services. Address: 200 Park Avenue, New York, New
York, 10166. His date of birth is May 18, 1961.
JOSEPH F. TOWER III; Vice President and Assistant Treasurer. Executive Vice
President, Treasurer and Chief Financial Officer, Chief Administrative Officer
and Director Of FDI. Senior Vice President, Treasurer and Chief Financial
Officer, Chief Administrative Officer and Director of Premier Mutual and an
officer of Waterhouse Investors Cash Management Fund, Inc. and certain
investment companies advised or administered by Dreyfus or its affiliates. Prior
to April 1997, Mr. Tower was Senior Vice President, Treasurer and Chief
Financial Officer, Chief Administrative Officer and Director of FDI. From July
1988 to November 1993, Mr. Tower was Financial Manager of The Boston Company,
Inc. His date of birth is June 13, 1962.
INVESTMENT ADVISOR
The investment advisor to the Portfolio is Morgan Guaranty Trust
Company of New York, a wholly owned subsidiary of J.P. Morgan & Co. Incorporated
("J.P. Morgan"), a bank holding company organized under the laws of the State of
Delaware. The Advisor, 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. The Advisor 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, the Advisor 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.
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 $240 billion.
J.P. Morgan has a long history of service as adviser, 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.
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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 100 full time
research analysts, among the largest research staffs in the money management
industry, in its investment management divisions located in New York, London,
Tokyo, Frankfurt, Melbourne and Singapore to cover companies, industries and
countries on site. In addition, the investment management divisions employ
approximately 300 capital market researchers, portfolio managers and traders.
The 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 Portfolio
are not exclusive under the terms of the 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 Portfolio. Such accounts are supervised by officers and employees of the
Advisor who may also be acting in similar capacities for the Portfolio. See
"Portfolio Transactions."
Sector weightings are generally similar to a benchmark with the
emphasis on security selection as the method to achieve investment performance
superior to the benchmark. The benchmark for the Portfolio in which the Fund
invests is currently IBC/Donoghue's Tax Exempt Money Fund Average.
J.P. Morgan Investment Management Inc., also a wholly owned subsidiary
of J.P. Morgan, is a registered investment adviser under the Investment Advisers
Act of 1940, as amended, which 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 the Advisor serves as trustee. J.P. Morgan
Investment Management Inc. advises the Advisor on investment of the commingled
pension trust funds.
The Portfolio is managed by officers of the Advisor who, in acting for
their customers, including the Portfolio, do not discuss their investment
decisions with any personnel of J.P. Morgan or any personnel of other divisions
of the Advisor or with any of its affiliated persons, with the exception of J.P.
Morgan Investment Management Inc. and certain other 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 Investment
Advisory Agreement, the Portfolio has agreed to pay the Advisor a fee, which is
computed daily and may be paid monthly, equal to the annual rate of 0.20% of the
Portfolio's average daily net assets up to $1 billion and 0.10% of the
Portfolio's average daily net assets in excess of $1 billion.
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The Portfolio paid the following advisory fees to the Advisor for the
fiscal years ended August 31, 1995, 1996 and 1997: $2,150,291, $2,154,248 and
$2,267,159. See the Prospectus and below for applicable expense limitations.
The Investment Advisory Agreement 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 without penalty by a
vote of a majority of the Portfolio's Trustees, or by a vote of the holders of a
majority of the Portfolio's outstanding voting securities, on 60 days' written
notice to the Advisor and by the Advisor on 90 days' written notice to the
Portfolio. See "Additional Information."
The Glass-Steagall Act and other applicable laws generally prohibit
banks such as the Advisor from engaging in the business of underwriting or
distributing securities, and the Board of Governors of the Federal Reserve
System has issued an interpretation to the effect that under these laws a bank
holding company registered under the federal Bank Holding Company Act or certain
subsidiaries thereof may not sponsor, organize, or control a registered open-end
investment company continuously engaged in the issuance of its shares, such as
the Trust. The interpretation does not prohibit a holding company or a
subsidiary thereof from acting as investment advisor and custodian to such an
investment company. The Advisor believes that it may perform the services for
the Portfolio contemplated by the Advisory Agreement without violation of the
Glass-Steagall Act or other applicable banking laws or regulations. State laws
on this issue may differ from the interpretation of relevant federal law, and
banks and financial institutions may be required to register as dealers pursuant
to state securities laws. However, it is possible that future changes in either
federal or state statutes and regulations concerning the permissible activities
of banks or trust companies, as well as further judicial or administrative
decisions and interpretations of present and future statutes and regulations,
might prevent the Advisor from continuing to perform such services for the
Portfolio.
If the Advisor were prohibited from acting as investment advisor to the
Portfolio, it is expected that the Trustees of the Portfolio would recommend to
investors that they approve the Portfolio's entering into a new investment
advisory agreement with another qualified investment advisor selected by the
Trustees.
Under separate agreements, Morgan also provides certain financial, fund
accounting and administrative services to the Trust and the Portfolio and
shareholder services for 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
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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 Trust's distributor.
The Distribution Agreement shall continue in effect with respect to the
Fund for a period of two years after execution only if it is approved at least
annually thereafter (i) by a vote of the holders of a majority of the Fund's
outstanding shares or by its Trustees and (ii) by a vote of a majority of the
Trustees of the Trust who are not "interested persons" (as defined by the 1940
Act) of the parties to the Distribution Agreement, cast in person at a meeting
called for the purpose of voting on such approval (see "Trustees and Officers").
The Distribution Agreement will terminate automatically if assigned by either
party thereto and is terminable 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 the holders of a
majority of the Fund's outstanding shares as defined under "Additional
Information," in any case without payment of any penalty on 60 days' written
notice to the other party. The principal offices of FDI are located at 60 State
Street, Suite 1300, Boston, Massachusetts 02109.
CO-ADMINISTRATOR
Under Co-Administration Agreements with the Trust and the Portfolio
dated August 1, 1996, FDI also serves as the Trust's and the Portfolio's
Co-Administrator. The Co-Administration Agreements may be renewed or amended by
the respective Trustees without a shareholder vote. The Co-Administration
Agreements are terminable at any time without penalty by a vote of a majority of
the Trustees of the Trust or the Portfolio, as applicable, 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 or the Portfolio, as applicable,
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.
For its services under the Co-Administration Agreements, the Fund and
Portfolio have 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 or Portfolio is based on the ratio of its net assets to
the aggregate net assets of the Trust, the Master Portfolios and certain other
investment companies subject to similar agreements with FDI.
The Portfolio paid the following administrative fees to FDI for the
period August 1, 1996 through August 31, 1996 and the fiscal year ended August
31, 1997: $2,284 and $25,082. See the Prospectus and below for applicable
expense limitations.
The Portfolio paid the following administrative fees to Signature
Broker- Dealer Services, Inc. (which provided distribution and administrative
services to the Trust and placement agent and administrative services to the
Portfolio prior to August 1, 1996) for the fiscal years ended August 31, 1995
and the
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period September 1, 1995 through July 31, 1996: $72,729 and $110,848. See the
Prospectus and below for applicable expense limitations.
SERVICES AGENT
The Trust, on behalf of the Fund, and the Portfolio have entered into
Administrative Services Agreements (the "Services Agreements") with Morgan
pursuant to which Morgan is responsible for certain administrative and related
services provided to the Fund and Portfolio. The Services Agreements 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 Agreements, the Fund and the Portfolio have 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
Master Portfolios and J.P. Morgan Series Trust in accordance with the following
annual schedule: 0.09% on 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 and Portfolio is determined by the proportionate share that
its net assets bear to the total net assets of the Trust, the Master Portfolios,
the other investors in the Master Portfolios for which Morgan provides similar
services and J.P. Morgan Series Trust.
Under administrative services agreements in effect from December 29,
1995 through July 31, 1996 with Morgan, the Portfolio paid Morgan a fee equal to
its proportionate share of an annual complex-wide charge. This charge was
calculated daily based on the aggregate net assets of the Master Portfolios in
accordance with the following schedule: 0.06% of the first $7 billion of the
Master Portfolios' aggregate average daily net assets, and 0.03% of the Master
Portfolios' aggregate average daily net assets in excess of $7 billion. Prior to
December 29, 1995, the Trust and the Portfolio had entered into Financial and
Fund Accounting Services Agreements with Morgan, the provisions of which
included certain of the activities described above and, prior to September 1,
1995, also included reimbursement of usual and customary expenses.
The Portfolio paid the following fees to Morgan, net of fee waivers and
reimbursements, as Services Agent for the fiscal years ended August 31, 1995,
1996 and 1997: $169,754, $205,419 and $397,340. See the Prospectus and below for
applicable expense limitations.
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02110, serves as the Trust's and the Portfolio's
custodian and fund accounting agent and the Fund's transfer and dividend
disbursing agent. Pursuant to the Custodian Contracts, State Street is
responsible for maintaining the books of account and records of portfolio
transactions and holding portfolio securities and cash. In addition, the
Custodian has entered into subcustodian agreements on behalf of the Portfolio
with Bankers Trust Company for the purpose of holding TENR Notes and with Bank
of New York and Chemical Bank, N.A. for the
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purpose of holding certain variable rate demand notes. The Custodian maintains
portfolio transaction records. As transfer agent and dividend disbursing agent,
State Street is responsible for maintaining account records detailing the
ownership of Fund shares and for crediting income, capital gains and other
changes in share ownership to shareholder accounts.
SHAREHOLDER SERVICING
The Trust on behalf of the Fund has entered into a Shareholder
Servicing Agreement with Morgan pursuant to which Morgan acts as shareholder
servicing agent for its customers and for other Fund investors who are customers
of a Service Organization. Under this agreement, Morgan is responsible for
performing 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 the Distributor of the gross amount of purchase orders for
Fund shares; monitoring the activities of the Fund's transfer agent; and
providing other related services.
Under the Shareholder Servicing Agreement, the Fund has agreed to pay
Morgan for these services a fee at the annual rate (expressed as a percentage of
the average daily net asset value of Fund shares owned by or for shareholders
for whom Morgan is acting as shareholder servicing agent) of 0.05%. Morgan acts
as shareholder servicing agent for all shareholders. See the Prospectus and
below for applicable expense limitations.
As discussed under "Investment Advisor," the Glass-Steagall Act and
other applicable laws and regulations limit the activities of bank holding
companies and certain of their subsidiaries in connection with registered
open-end investment companies. The activities of Morgan in acting as shareholder
servicing agent for Fund shareholders under the Shareholder Servicing Agreement
and providing administrative services to the Fund and the Portfolio under the
Services Agreements and in acting as Advisor to the Portfolio under the
Investment Advisory Agreement may raise issues under these laws. However, Morgan
believes that it may properly perform these services and the other activities
described in the Prospectus without violation of the Glass-Steagall Act or other
applicable banking laws or regulations.
If Morgan were prohibited from providing any of the services under the
Shareholder Servicing Agreement and the Services Agreements, the Trustees would
seek an alternative provider of such services. In such event, changes in the
operation of the Fund or the Portfolio might occur and a shareholder might no
longer be able to avail himself or herself of any services then being provided
to shareholders by Morgan.
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SERVICE PLAN
The Trust, on behalf of the Fund, has adopted a service plan (the
"Plan") with respect to the shares which authorizes the Fund to compensate
Service Organizations for providing certain account administration and other
services to their customers who are beneficial owners of such shares. Pursuant
to the Plan, the Trust, on behalf of the Fund, enters into agreements with
Service Organizations which purchase shares on behalf of their customers
("Service Agreements"). Under such Service Agreements, the Service Organizations
may: (a) act, directly or through an agent, as the sole shareholder of record
and nominee for all customers, (b) maintain or assist in maintaining account
records for each customer who beneficially owns shares, and (c) process or
assist in processing customer orders to purchase, redeem and exchange shares,
and handle or assist in handling the transmission of funds representing the
customers' purchase price or redemption proceeds. As compensation for such
services, the Trust on behalf of the Fund pays each Service Organization a
service fee in an amount up to 0.25% (on an annualized basis) of the average
daily net assets of the shares of the Fund attributable to or held in the name
of such Service Organization for its customers.
Conflicts of interest restrictions (including the Employee Retirement
Income Security Act of 1974) may apply to a Service Organization's receipt of
compensation paid by the Trust in connection with the investment of fiduciary
funds in shares. Service Organizations, including banks regulated by the
Comptroller of the Currency, the Federal Reserve Board or the Federal Deposit
Insurance Corporation, and investment advisers and other money managers subject
to the jurisdiction of the Securities and Exchange Commission, the Department of
Labor or state securities commissions, are urged to consult legal advisers
before investing fiduciary assets in shares. In addition, under some state
securities laws, banks and other financial institutions purchasing shares on
behalf of their customers may be required to register as dealers.
The Trustees of the Trust, including a majority of Trustees who are not
interested persons of the Trust and who have no direct or indirect financial
interest in the operation of such Plan or the related Service Agreements,
initially voted to approve the Plan and Service Agreements at a meeting called
for the purpose of voting on such Plan and Service Agreements on April 9, 1997.
The Plan must be approved by the shareholders of the Fund, and upon such
approval will remain in effect until July 10, 1998 and continue in effect
thereafter only if such continuance is specifically approved annually by a vote
of the Trustees in the manner described above. The Plan may not be amended to
increase materially the amount to be spent for the services described therein
without approval of the shareholders of the Fund, and all material amendments of
the Plan must also be approved by the Trustees in the manner described above.
The Plan may be terminated at any time by a majority of the Trustees as
described above or by vote of a majority of the outstanding shares of the Fund.
The Service Agreements may be terminated at any time, without payment of any
penalty, by vote of a majority of the disinterested Trustees as described above
or by a vote of a majority of the outstanding shares of the Fund on not more
than 60 days' written notice to any other party to the Service Agreements. The
Service Agreements shall terminate automatically if assigned. So long as the
Plans are in effect, the selection and nomination of those Trustees who are not
interested
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persons shall be determined by the non-interested members of the Board of
Trustees. The Trustees have determined that, in their judgment, there is a
reasonable likelihood that the Plan will benefit the Fund and Fund shareholders.
In the Trustees' quarterly review of the Plan and Service Agreements, they will
consider their continued appropriateness and the level of compensation provided
therein.
INDEPENDENT ACCOUNTANTS
The independent accountants of the Trust and the Portfolio are Price
Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036. Price
Waterhouse LLP conducts an annual audit of the financial statements of the Fund
and the Portfolio, assists in the preparation and/or review of the Fund's and
the Portfolio's federal and state income tax returns and consults with the Fund
and the Portfolio as to matters of accounting and federal and state income
taxation.
EXPENSES
In addition to the fees payable to Pierpont Group, Inc., Morgan, FDI
and Service Organizations under various agreements discussed under "Trustees and
Officers," "Investment Advisor," "Co-Administrator and Distributor," "Services
Agent" and "Shareholder Servicing" above, the Fund and the Portfolio are
responsible for usual and customary expenses associated with their respective
operations. Such expenses include organization expenses, legal fees, accounting
expenses, insurance costs, the compensation and expenses of the Trustees, costs
associated with their registration under federal securities laws, and
extraordinary expenses applicable to the Fund or the Portfolio. For the Fund,
such expenses also include transfer, registrar and dividend disbursing costs,
the expenses of printing and mailing reports, notices and proxy statements to
Fund shareholders, and filing fees under state securities laws. For the
Portfolio, such expenses also include custodian fees and brokerage expenses.
Under fee arrangements prior to September 1, 1995, Morgan as Services Agent was
responsible for reimbursements to the Trust and the Portfolio and the usual and
customary expenses described above (excluding organization and extraordinary
expenses, custodian fees and brokerage expenses). For additional information
regarding waivers or expense subsidies, see the Prospectus.
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PURCHASE OF SHARES
Investors may open Fund accounts and purchase shares as described in
the Prospectus. References in the Prospectus and this Statement of Additional
Information to customers of Morgan or a Service Organization include customers
of their affiliates and references to transactions by customers with Morgan or a
Service Organization 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.
Shares may be purchased for accounts held in the name of a Service
Organization that provides certain account administration and other services to
its customers, including acting directly or through an agent as the sole
shareholder of record, maintenance or assistance in maintaining account records
and processing orders to purchase, redeem and exchange shares. Shares of the
Fund bear the cost of service fees at the annual rate of up to 0.25% of 1% of
the average daily net assets of such shares.
It is possible that an institution or its affiliate may offer shares of
different funds which invest in the same Portfolio to its customers and thus
receive different compensation with respect to different funds. Certain aspects
of the shares may be altered, after advance notice to shareholders, if it is
deemed necessary in order to satisfy certain tax regulatory requirements.
The Fund may, at its own option, accept securities in payment for
shares. The securities delivered in such a transaction are valued by the method
described in "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 Morgan, appropriate
investments for the Portfolio. In addition, securities accepted in payment for
shares must: (i) meet the investment objective and policies of the Portfolio;
(ii) be acquired by the Fund for investment and not for resale (other than for
resale to the Portfolio); and (iii) be liquid securities which are not
restricted as to transfer either by law or liquidity of market. 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
Service Organization, and the Service Organization may charge the investor a fee
for this service and other services it provides to its customers.
REDEMPTION OF SHARES
Investors may redeem shares as described in the Prospectus.
Shareholders redeeming shares of the Fund should be aware that the Fund attempts
to maintain a stable net asset value of $1.00 per share; however, there can be
no assurance that it will be able to continue to do so, and in that case the net
asset value of the Fund's shares might deviate from $1.00 per share.
Accordingly, a redemption request might result in payment of a dollar amount
which differs from the number of shares redeemed. See "Net Asset Value" below.
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If the Trust, on behalf of the Fund, and the Portfolio determine that
it would be detrimental to the best interest 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 Portfolio, in lieu of cash, in conformity with the applicable rule of
the SEC. If shares are redeemed in kind, the redeeming shareholder might incur
transaction costs in converting the assets into cash. 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. The Trust,
on behalf of the Fund, has elected to be governed by Rule 18f-1 under the 1940
Act pursuant to which the Portfolio is obligated to redeem shares solely in cash
up to the lesser of $250,000 or one percent of the net asset value of the Fund
during any 90-day period for any one shareholder. The Trust will redeem Fund
shares in kind only if it has received a redemption in kind from the Portfolio
and therefore shareholders of the Fund that receive redemptions in kind will
receive securities of the Portfolio. The Portfolio has advised the Trust that
the Portfolio will not redeem in kind except in circumstances in which the Fund
is permitted to redeem in kind.
FURTHER REDEMPTION INFORMATION. The Trust, on behalf of the Fund, and
the Portfolio reserve 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 on such Exchange 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
Portfolio 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.
EXCHANGE OF SHARES
An investor may exchange shares from the Fund into any other J.P. Morgan
Institutional Fund, J.P. Morgan Fund, or shares of J.P. Morgan Series Trust, as
described in the Prospectus. For complete information, the Prospectus as it
relates to the Fund into which a transfer is being made should be read prior to
the transfer. Requests for exchange are made in the same manner as requests for
redemptions. See "Redemption of Shares." Shares of the 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 in
the Prospectus.
Net investment income of the Fund consists of accrued interest or discount
and amortized premium, less the accrued expenses of the Fund applicable to that
dividend period including the fees payable to Morgan. See "Net Asset Value."
Determination of the net income for the Fund is made at the times
described in the Prospectus; in addition, net investment income for days other
than
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business days is determined at the time net asset value is determined on the
prior business day.
If a shareholder has elected to receive dividends and/or capital gain
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 once daily on Monday through
Friday 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, Columbus Day, Veteran's Day, Thanksgiving Day, and Christmas
Day. In the event that trading in the money markets is scheduled to end earlier
than the close of the New York Stock Exchange in observance of these holidays,
the Fund and Portfolio would expect to close for purchases and redemptions an
hour in advance of the end of trading in the money markets. The Fund and the
Portfolio 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. On any business day when the Public Securities Association ("PSA")
recommends that the securities market close early, the Fund reserves the right
to cease accepting purchase and redemption orders for same business day credit
at the time PSA recommends that the securities market close. On days the Fund
closes early, purchase and redemption orders received after the PSA-recommended
closing time will be credited the next business day. The days on which net asset
value is determined are the Fund's business days.
The net asset value of the Fund is equal to the value of the Fund's
investment in the Portfolio (which is equal to the Fund's pro rata share of the
total investment of the Fund and of any other investors in the Portfolio less
the Fund's pro rata share of the Portfolio's liabilities) less the Fund's
liabilities. The following is a discussion of the procedures used by the
Portfolio in valuing its assets.
The Portfolio's portfolio securities are valued by the amortized cost
method. The purpose of this method of calculation is to attempt to maintain a
constant net asset value per share of the Fund of $1.00. No assurances can be
given that this goal can be attained. The amortized cost method of valuation
values a security at its cost at the time of purchase and thereafter assumes a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the instrument. If a
difference of more than 1/2 of 1% occurs between valuation based on the
amortized cost method and valuation based on market value, the Trustees will
take steps necessary to reduce such deviation, such as changing the Fund's
dividend policy, shortening the average portfolio maturity, realizing gains or
losses, or reducing the number of outstanding Fund shares. Any reduction of
outstanding shares will be effected by having each shareholder contribute to the
Fund's capital the necessary shares on a pro rata basis. Each shareholder will
be deemed to have
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agreed to such contribution in these circumstances by his investment in the
Fund. See "Taxes."
PERFORMANCE DATA
From time to time, the Fund may quote performance in terms of yield,
actual distributions, total return or capital appreciation in reports, sales
literature and advertisements published by the Trust. Current performance
information for the Fund may be obtained by calling the number provided on the
cover page of this Statement of Additional Information.
YIELD QUOTATIONS. As required by regulations of the SEC, current yield
for the Fund is computed by determining the net change exclusive of capital
changes in the value of a hypothetical pre-existing account having a balance of
one share at the beginning of a seven-day calendar period, dividing the net
change in account value of the account at the beginning of the period, and
multiplying the return over the seven-day period by 365/7. For purposes of the
calculation, net change in account value reflects the value of additional shares
purchased with dividends from the original share and dividends declared on both
the original share and any such additional shares, but does not reflect realized
gains or losses or unrealized appreciation or depreciation. Effective yield for
the Fund is computed by annualizing the seven-day return with all dividends
reinvested in additional Fund shares. The tax equivalent yield is computed by
first computing the yield as discussed above. Then the portion of the yield
attributable to securities the income of which was exempt for federal income tax
purposes is determined. This portion of the yield is then divided by one minus
the stated assumed federal income tax rate for individuals and then added to the
portion of the yield that is not attributable to securities, the income of which
was tax exempt.
Historical performance for periods prior to the establishment of the
Fund will be that of the J.P. Morgan Tax Exempt Money Market Fund, the Fund's
related series of the J.P. Morgan Funds, and will be presented in accordance
with applicable SEC staff interpretations. The applicable financial information
in the registration statement for the J.P. Morgan Tax Exempt Money Market Fund
(Registration Nos. 033-54632 and 811-07340) is incorporated herein by reference.
The historical performance information shown below may reflect
operating expenses which were lower, by up to 0.05% of net assets (after
reimbursements), than those of the Fund. Accordingly, the historical yield and
historical returns for the J.P. Morgan Tax Exempt Money Market Fund may be
higher than would have occurred if an investment had been made during the
periods indicated in the J.P. Morgan Institutional Service Tax Exempt Money
Market Fund.
The historical yield information of the Fund for the period ended December
31, 1996 is as follows: 7-day current yield: %; 7-day tax equivalent yield at
39.6% tax rate: %; 7-day effective yield: %.
TOTAL RETURN QUOTATIONS. Historical performance information for periods
prior to the establishment of the Fund will be that of the J.P. Morgan Tax
Exempt Money Market Fund, the Fund's related series of the J.P. Morgan Funds,
and will be presented in accordance with applicable SEC staff interpretations.
The
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applicable financial information in the registration statement for the J.P.
Morgan Tax Exempt Money Market Fund (Registration Nos. 033-54632 and 811-07340)
is incorporated herein by reference.
The historical performance information shown below may reflect
operating expenses which were lower, by up to 0.05% of net assets (after
reimbursements), than those of the Fund. Accordingly, the historical yield and
historical returns for the J.P. Morgan Tax Exempt Money Market Fund may be
higher than would have occurred if an investment had been made during the
periods indicated in the J.P. Morgan Institutional Service Tax Exempt Money
Market Fund.
The historical return information of the Fund for the period ended December
31, 1996 is as follows: Average annual total return, 1 year: %; Average annual
total return, 5 years: %; average annual total return, 10 years: %; aggregate
total return, 1 year: %; aggregate total return, 5 years: %; aggregate total
return, 10 years: %.
Aggregate total returns, reflecting the cumulative percentage change
over a measuring period, may also be calculated.
GENERAL. The Fund's performance will vary from time to time depending
upon market conditions, the composition of the Portfolio, and its 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.
PORTFOLIO TRANSACTIONS
The Advisor places orders for the Portfolio 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 Portfolio. See "Investment Objectives and Policies."
Fixed income and debt securities and municipal bonds and notes 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.
Portfolio transactions for the Portfolio will be undertaken principally
to accomplish the Portfolio's objective in relation to expected movements in the
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general level of interest rates. The Portfolio may engage in short-term trading
consistent with its objective. See "Investment Objective and Policies --
Portfolio Turnover." The Portfolio will not seek profits through short-term
trading, but the Portfolio may dispose of any portfolio security prior to its
maturity if it believes such disposition is appropriate even if this action
realizes profits or losses.
In connection with portfolio transactions for the Portfolio, the
Advisor intends to seek best price and execution on a competitive basis for both
purchases and sales of securities.
The Portfolio has a policy of investing only in securities with
maturities of less than 397 days, which policy will result in high portfolio
turnover. Since brokerage commissions are not normally paid on investments which
the Portfolio makes, turnover resulting from such investments should not
adversely affect the net asset value or net income of the Portfolio.
Subject to the overriding objective of obtaining the best possible
execution of orders, the Advisor may allocate a portion of the Portfolio's
brokerage transactions to affiliates of the Advisor. In order for affiliates of
the Advisor to effect any portfolio transactions for the Portfolio, the
commissions, fees or other remuneration received by such affiliates must be
reasonable and fair compared to the commissions, fees, or other remuneration
paid to other brokers in connection with comparable transactions involving
similar securities being purchased or sold on a securities exchange during a
comparable period of time. Furthermore, the Trustees of the Portfolio, including
a majority of the Trustees who are not "interested persons," have adopted
procedures which are reasonably designed to provide that any commissions, fees,
or other remuneration paid to such affiliates are consistent with the foregoing
standard.
Portfolio securities will not be purchased from or through or sold to
or through the Co-Administrator, the Distributor or the Advisor or any other
"affiliated person" (as defined in the 1940 Act) of the Co-Administrator,
Distributor or Advisor when such entities are acting as principals, except to
the extent permitted by law. In addition, the Portfolio will not purchase
securities during the existence of any underwriting group relating thereto of
which the Advisor or an affiliate of the Advisor is a member, except to the
extent permitted by law.
On those occasions when the Advisor deems the purchase or sale of a
security to be in the best interests of the Portfolio as well as other customers
including other Portfolios, 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 Portfolio with those to be sold or purchased for
other customers 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 its fiduciary obligations to the Portfolio. In some instances,
this procedure might adversely affect the Portfolio.
MASSACHUSETTS TRUST
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The Trust is a trust fund of the type commonly known as a
"Massachusetts business trust" of which the Fund is a separate and distinct
series. A copy of the Declaration of Trust for the Trust is on file in the
office of the Secretary of The Commonwealth of Massachusetts. The Declaration of
Trust and the By-Laws of the Trust are designed to make the Trust similar in
most respects to a Massachusetts business corporation. The principal distinction
between the two forms concerns shareholder liability described below.
Effective January 1, 1997, the name of the Trust was changed from "The
JPM Institutional Funds" to "J.P. Morgan Institutional Funds," and each Fund's
name changed accordingly.
Under Massachusetts law, shareholders of such a trust may, under
certain circumstances, be held personally liable as partners for the obligations
of the trust which is not the case for a corporation. However, the Trust's
Declaration of Trust provides that the shareholders shall 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 shall contain a provision to the effect that the shareholders are not
personally liable thereunder.
No personal liability will attach to the shareholders under any
undertaking containing such provision when adequate notice of such provision is
given, except possibly in a few jurisdictions. With respect to all types of
claims in the latter jurisdictions, (i) tort claims, (ii) contract claims where
the provision referred to is omitted from the undertaking, (iii) claims for
taxes, and (iv) certain statutory liabilities in other jurisdictions, a
shareholder may be held personally liable to the extent that claims are not
satisfied by the Fund. However, upon payment of such liability, the shareholder
will be entitled to reimbursement from the general assets of the Fund. The
Trustees intend to conduct the operations of the Trust in such a way so as to
avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the Fund.
The Trust's Declaration of Trust further provides that the name of the
Trust refers to the Trustees collectively as Trustees, not as individuals or
personally, that no Trustee, officer, employee or agent of the Fund is liable to
the Fund or to a shareholder, and that no Trustee, officer, employee, or agent
is liable to any third persons in connection with the affairs of 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. It also provides that all third persons shall look solely to Fund
property for satisfaction of claims arising in connection with the affairs of
the Fund. With the exceptions stated, 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.
The Trust shall continue without limitation of time subject to the
provisions in the Declaration of Trust concerning termination by action of the
shareholders or by action of the Trustees upon notice to the shareholders.
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DESCRIPTION OF SHARES
The Trust is an open-end management investment company organized as a
Massachusetts business trust in which the Fund represents a separate series of
shares of beneficial interest. 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, if applicable) without changing the proportionate beneficial interest of
each shareholder in the Fund (or in the assets of other series, if applicable).
Each share represents an equal proportional interest in the Fund with each other
share. 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. See
"Massachusetts Trust." Shares of the Fund have no preemptive or conversion
rights and are fully paid and nonassessable. The rights of redemption and
exchange are described in the Prospectus and elsewhere in this Statement of
Additional Information.
The shareholders of the Trust are entitled to a full vote for each full
share held and to a fractional vote for each fractional share. Subject to the
1940 Act, the Trustees themselves 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 appoint
their own successors, PROVIDED, HOWEVER, that immediately after such appointment
the requisite majority of the Trustees have been elected by the shareholders of
the Trust. The voting rights of shareholders are not cumulative so that holders
of more than 50% of the shares voting can, if they choose, elect all Trustees
being selected while the shareholders of the remaining shares would be unable to
elect any Trustees. It is the intention of the Trust not to hold meetings of
shareholders annually. The Trustees may call meetings of shareholders for action
by shareholder vote as may be 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 more than two-thirds of its outstanding shares, 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 record holders of 10% of the Trust's
shares. In addition, whenever ten or more shareholders of record who have been
such for at least six months preceding the date of application, and who hold in
the aggregate either shares having a net asset value of at least $25,000 or at
least 1% of the Trust's outstanding shares, whichever is less, shall apply to
the Trustees in writing, stating that they wish to communicate with other
shareholders with a view to obtaining signatures to request a meeting for the
purpose of voting upon the question of removal of any Trustee or Trustees and
accompanied by a form of communication and request which they wish to transmit,
the Trustees shall within five business days after receipt of such application
either: (1) afford to such applicants access to a list of the names and
addresses of all shareholders as recorded on the books of the Trust; or (2)
inform such applicants as to the approximate number of shareholders of record,
and the approximate cost of mailing to them the proposed communication and form
of request. If the Trustees elect
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to follow the latter course, the Trustees, upon the written request of such
applicants, accompanied by a tender of the material to be mailed and of the
reasonable expenses of mailing, shall, with reasonable promptness, mail such
material to all shareholders of record at their addresses as recorded on the
books, unless within five business days after such tender the Trustees shall
mail to such applicants and file with the SEC, together with a copy of the
material to be mailed, a written statement signed by at least a majority of the
Trustees to the effect that in their opinion either such material contains
untrue statements of fact or omits to state facts necessary to make the
statements contained therein not misleading, or would be in violation of
applicable law, and specifying the basis of such opinion. After opportunity for
hearing upon the objections specified in the written statements filed, the SEC
may, and if demanded by the Trustees or by such applicants shall, enter an order
either sustaining one or more of such objections or refusing to sustain any of
them. If the SEC shall enter an order refusing to sustain any of such
objections, or if, after the entry of an order sustaining one or more of such
objections, the SEC shall find, after notice and opportunity for hearing, that
all objections so sustained have been met, and shall enter an order so
declaring, the Trustees shall mail copies of such material to all shareholders
with reasonable promptness after the entry of such order and the renewal of such
tender.
The Trustees have authorized the issuance and sale to the public of
shares of 24 series of the Trust. The Trustees have no current intention to
create any classes within the initial series or any subsequent series. The
Trustees may, however, authorize the issuance of shares of additional series and
the creation of classes of shares within any series with such preferences,
privileges, limitations and voting and dividend rights as the Trustees may
determine. The proceeds from the issuance of any additional series would be
invested in separate, independently managed portfolios with distinct investment
objectives, policies and restrictions, and share purchase, redemption and net
asset valuation procedures. Any additional classes would be used to distinguish
among the rights of different categories of shareholders, as might be required
by future regulations or other unforeseen circumstances. All consideration
received by the Trust for shares of any additional series or class, and all
assets in which such consideration is invested, would belong to that series or
class, subject only to the rights of creditors of the Trust and would be subject
to the liabilities related thereto. Shareholders of any additional series or
class will approve the adoption of any management contract or distribution plan
relating to such series or class and of any changes in the investment policies
related thereto, to the extent required by the 1940 Act.
For information relating to mandatory redemption of Fund shares or
their redemption at the option of the Trust under certain circumstances, see the
Prospectus.
As of December 2, 1997, the following owned of record, or to the
knowledge of management, beneficially owned more than 5% of the outstanding
shares of the Fund:
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TAXES
The Fund intends to continue to qualify 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 or foreign
currency 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 foreign currency; (b) derive less than
30% of its gross income from the sale or other disposition of stock, securities,
options, futures or forward contracts (other than options, futures or forward
contracts on foreign currencies) held less than three months, or foreign
currencies (or options, futures or forward contracts on foreign currencies) held
less than three months, but only if such currencies (or options, futures or
forward contracts on foreign currencies) are not directly related to the Fund's
principal business of investing in stocks or securities (or options and futures
with respect to stocks or securities); and (c) diversify its holdings so that,
at the end of each quarter of its taxable year, (i) at least 50% of the value of
the Fund's total assets is represented by cash, cash items, U.S. Government
securities, securities of 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 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 gain
that it distributes to its shareholders, provided that at least 90% of its net
investment income and realized net short-term capital gain in excess of net
long-term capital loss 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 be
taxable to a shareholder in the year declared rather than the year paid.
The Fund intends to qualify to pay exempt-interest dividends to its
shareholders by having, at the close of each quarter of its taxable year, at
least 50% of the value of its total assets consist of tax exempt securities. An
exempt-interest dividend is that part of dividend distributions made by the Fund
which is properly designated as consisting of interest received by the Fund on
tax exempt securities. Shareholders will not incur any federal income tax on the
amount of exempt-interest dividends received by them from the Fund, other than
the alternative minimum tax under certain circumstances. In view of the Fund's
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investment policies, it is expected that a substantial portion of all dividends
will be exempt-interest dividends, although the Fund may from time to time
realize and distribute net short-term capital gains and may invest limited
amounts in taxable securities under certain circumstances.
Distributions of net investment income and realized net short-term
capital gain in excess of net long-term capital loss (other than exempt interest
dividends) 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 deduction. Distributions of net long-term capital gain (i.e.,
net long-term capital gain in excess of net short-term capital loss) are taxable
to shareholders of 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. Additionally,
any loss realized on a redemption or exchange of shares of the Fund will be
disallowed to the extent the shares disposed of are replaced within a period of
61 days beginning 30 days before such disposition, such as pursuant to
reinvestment of a dividend in shares of the Fund.
To maintain a constant $1.00 per share net asset value, the Trustees of
the Trust may direct that the number of outstanding shares be reduced pro rata.
If this adjustment is made, it will reflect the lower market value of portfolio
securities and not realized losses. The adjustment may result in a shareholder
having more dividend income than net income in his account for a period. When
the number of outstanding shares of the Fund is reduced, the shareholder's basis
in the shares of the Fund may be adjusted to reflect the difference between
taxable income and net dividends actually distributed. This difference may be
realized as a capital loss when the shares are liquidated. Subject to certain
limited exceptions, capital losses cannot be used to offset ordinary income. See
"Net Asset Value."
Gains or losses on sales of portfolio securities will be treated as
long-term capital gains or losses if the securities have been held for more than
one year except in certain cases where a put is acquired or a call option is
written thereon or straddle rules are otherwise applicable. Other gains or
losses on the sale of securities will be short-term capital gains or losses.
Gains and losses on the sale, lapse or other termination of options on
securities will be treated as gains and losses from the sale of securities.
Except as described below, if an option written by the Portfolio lapses or is
terminated through a closing transaction, such as a repurchase by the Portfolio
of the option from its holder, the Portfolio 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 Portfolio in the closing transaction. If securities are
purchased by the Portfolio pursuant to the exercise of a put option written by
it, the Portfolio will subtract the premium received from its cost basis in the
securities purchased.
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 Portfolio accrues income or receivables or
expenses or other liabilities denominated in a foreign currency and the time the
Portfolio
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actually collects such income or pays such liabilities, are generally treated as
ordinary income or ordinary loss. Similarly, gains or losses on the disposition
of debt securities held by the Portfolio, 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.
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-8 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 which have income
tax laws might differ from treatment under the federal income tax laws.
Shareholders should consult their own tax advisors with respect to any state or
local taxes.
OTHER TAXATION. The Trust is organized as a Massachusetts business
trust and, under current law, neither the Trust nor 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. The Portfolio is organized as a New York trust. The Portfolio is
not subject to any federal income taxation or income or franchise tax in the
State of New York or The Commonwealth of Massachusetts. The investment by the
Fund in the Portfolio does not cause the Fund to be liable for any income or
franchise tax in the State of New York.
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-36-
<PAGE>
ADDITIONAL INFORMATION
As used in this Statement of Additional Information and the Prospectus,
the term "majority of the outstanding voting securities" means the vote of (i)
67% or more of the Fund's shares or the Portfolio's outstanding voting
securities present at a meeting, if the holders of more than 50% of the Fund's
outstanding shares or the Portfolio's outstanding voting securities are present
or represented by proxy, or (ii) more than 50% of the Fund's outstanding shares
or the Portfolio's outstanding voting securities, whichever is less.
Telephone calls to the Fund, Morgan or Service Organizations as
shareholder servicing agent may be tape recorded. With respect to the securities
offered hereby, this Statement of Additional Information and the Prospectus do
not contain all the information included in the Trust's Registration Statement
filed with the SEC under the 1933 Act and the Trust's and the Portfolio's
Registration Statements filed under the 1940 Act. Pursuant to the rules and
regulations of the SEC, certain portions have been omitted. The Registration
Statements including the exhibits filed therewith may be examined at the office
of the SEC in Washington D.C.
Statements contained in this Statement of Additional Information and
the Prospectus concerning the contents of any contract or other document are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the applicable
Registration Statements. Each such statement is qualified in all respects by
such reference.
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in the
Prospectus and this Statement of Additional Information, in connection with the
offer contained therein and, if given or made, such other information or
representations must not be relied upon as having been authorized by any of the
Trust, the Fund or the Distributor. The Prospectus and this Statement of
Additional Information do not constitute an offer by the Fund or by the
Distributor 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
the Distributor to make such offer in such jurisdictions.
i:\dsfndlgl\institut\0298.pea\sertesai.wpf
-37-
<PAGE>
FINANCIAL STATEMENTS
The following financial statements and the report thereon of Price
Waterhouse LLP of the Portfolio are incorporated herein by reference from the
annual report filing made with the SEC pursuant to Section 30(b) of the 1940 Act
and Rule 30b2-1 thereunder. The following financial reports are available
without charge upon request by calling JP Morgan Funds Services at (800) 766-
7722.
<TABLE>
<CAPTION>
Date of Semi-Annual Date of Annual
Report; Date Semi- Report; Date Annual
Annual Report Filed; Report Filed; and
Name of Portfolio and Accession Number Accession Number
- ------------------------------------------------ --------------------------------- --------------------------------
<S> <C> <C>
The Tax Exempt Money Market N/A 08/31/97
Portfolio 10/ /97
0000912057-97-
- ------------------------------------------------ --------------------------------- --------------------------------
</TABLE>
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-38-
<PAGE>
APPENDIX A
DESCRIPTION OF SECURITY RATINGS
STANDARD & POOR'S
CORPORATE AND MUNICIPAL BONDS
AAA - Debt rated AAA has the highest ratings assigned by Standard & Poor's
to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in a small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated
categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for debt in
higher rated categories.
COMMERCIAL PAPER, INCLUDING TAX EXEMPT
A - Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined
with the designations 1, 2, and 3 to indicate the relative degree of
safety.
A-1 - This designation indicates that the degree of safety regarding timely
payment is very strong.
SHORT-TERM TAX-EXEMPT NOTES
SP-1 - The short-term tax-exempt note rating of SP-1 is the highest rating
assigned by Standard & Poor's and has a very strong or strong capacity to
pay principal and interest. Those issues determined to possess overwhelming
safety characteristics are given a "plus" (+) designation.
SP-2 - The short-term tax-exempt note rating of SP-2 has a satisfactory capacity
to pay principal and interest.
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A-1
<PAGE>
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.
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.
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A-2
<PAGE>
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.
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A-3
*******************************************************************************
PART C
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements
The following financial statements are included in Part A:
Financial Highlights: The JPM Institutional Prime Money Market Fund
The JPM Institutional Treasury Money Market Fund
The JPM Institutional Federal Money Market Fund
The JPM Institutional Tax Exempt Money Market Fund
The JPM Service Prime Money Market Fund
The JPM Service Treasury Money Market Fund
The following financial statements are incorporated by reference into Part B:
THE JPM INSTITUTIONAL PRIME MONEY MARKET FUND Statement of Assets and
Liabilities at May 31, 1997 Statement of Operations for the six months ended to
May 31, 1997 Statement of Changes in Net Assets at May 31, 1997 Financial
Highlights for the at May 31, 1997 Notes to Financial Statements May 31, 1997
THE PRIME MONEY MARKET PORTFOLIO
Schedule of Investments at May 31, 1997
Statement of Assets and Liabilities at May 31, 1997 Statement of Operations for
the for the six months ended May 31, 1997 Statement of Changes in Net Assets for
the six months ended to May 31, 1997 Supplementary Data
Notes to Financial Statements May 31, 1997
The following financial statements are incorporated by reference into Part B:
[THE JPM INSTITUTIONAL TREASURY MONEY MARKET FUND Statement of Assets and
Liabilities at October 31, 1997 Statement of Operations for the Fiscal Year
Ended October 31, 1997 Statement of Changes in Net Assets Financial Highlights
Notes to Financial Statements October 31, 1997
THE TREASURY MONEY MARKET PORTFOLIO Schedule of Investments at October 31, 1997
Statement of Assets and Liabilities at October 31, 1997
Statement of Operations for the Fiscal Year Ended October 31, 1997
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements October 31, 1997]
THE JPM INSTITUTIONAL FEDERAL MONEY MARKET FUND Statement of Assets and
Liabilities at April 30, 1997 Statement of Operations for the Fiscal Year Ended
April 30, 1997 Statement of Changes in Net Assets Financial Highlights Notes to
Financial Statements April 30, 1997
C-1
<PAGE>
THE FEDERAL MONEY MARKET PORTFOLIO Schedule of Investments at April 30, 1997
Statement of Assets and Liabilities at April 30, 1997
Statement of Operations for the Fiscal Year Ended April 30, 1997
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements April 30, 1997
THE JPM INSTITUTIONAL TAX EXEMPT MONEY MARKET FUND Statement of Assets and
Liabilities at August 31, 1997 Statement of Operations for the Fiscal Year Ended
August 31, 1997 Statement of Changes in Net Assets Financial Highlights Notes to
Financial Statements August 31, 1997
THE TAX EXEMPT MONEY MARKET PORTFOLIO Schedule of Investments at August 31, 1997
Statement of Assets and Liabilities at August 31, 1997
Statement of Operations for the Fiscal Year Ended August 31, 1997
Statement of Changes in Net Assets
Supplementary Data
Notes to Financial Statements August 31, 1997
[The following financial statements are included in Part B:]
[THE JPM SERVICE PRIME MONEY MARKET FUND
Statement of Assets and Liabilities at October 31, 1997 (unaudited) Statement of
Operations for the six months ended to October 31, 1997 (unaudited) Statement of
Changes in Net Assets at October 31, 1997 (unaudited) Financial Highlights for
the at October 31, 1997 (unaudited) Notes to Financial Statements October 31,
1997 (unaudited)]
[THE JPM SERVICE TREASURY MONEY MARKET FUND
Statement of Assets and Liabilities at October 31, 1997 (unaudited) Statement of
Operations for the Fiscal Year Ended October 31, 1997 (unaudited) Statement of
Changes in Net Assets Financial Highlights Notes to Financial Statements October
31, 1997 (unaudited)]
(b) Exhibits
Exhibit Number
1. Declaration of Trust, as amended, was filed as Exhibit No. 1 to
Post-Effective Amendment No. 25 to the Registration Statement filed on September
26, 1996 (Accession Number 0000912057-96-021281).
1(a). Amendment No. 5 to Declaration of Trust; Fifth Amended and Restated
Establishment and Designation of Series of Shares of Beneficial Interest.*
1(b). Amendment No. 6 to Declaration of Trust; Sixth Amended and Restated
Establishment and Designation of Series of Shares of Beneficial Interest filed
as Exhibit No. 1(b) to Post-Effective Amendment No. 31 to the Registration
Statement on February 28, 1997 (Accession Number 0001016964-97-000041).
C-2
<PAGE>
1(c). Amendment No. 7 to Declaration of Trust; Seventh Amended and Restated
Establishment and Designation of Series of Shares of Beneficial Interest filed
as Exhibit No. 1(c) to Post-Effective Amendment No. 32 to the Registration
Statement on April 15, 1997 (Accession Number 0001016964-97-000053).
1(d). Amendment No. 8 to Declaration of Trust; Eighth Amended and Restated
Establishment and Designation of Series of Shares of Beneficial Interest filed
as Exhibit No. 1(d) to Post-Effective Amendment No. 40 to the Registration
Statement on October 9, 1997 (Accession Number 0001016964-97-000158).
2. Restated By-Laws of Registrant.*
4. Form of Share Certificate.*
6. Distribution Agreement between Registrant and Funds Distributor, Inc.
("FDI").*
8. Custodian Contract between Registrant and State Street Bank and Trust
Company ("State Street").*
9(a). Co-Administration Agreement between Registrant and FDI.*
9(b). Restated Shareholder Servicing Agreement between Registrant and
Morgan Guaranty Trust Company of New York ("Morgan Guaranty").**
9(c). Transfer Agency and Service Agreement between Registrant and State
Street.*
9(d). Restated Administrative Services Agreement between Registrant and
Morgan Guaranty.*
9(e). Fund Services Agreement, as amended, between Registrant and Pierpont
Group, Inc.*
9(f). Service Plan with respect to Registrant's Service Money Market
Funds.** 10. Opinion and consent of Sullivan & Cromwell.*
11. Consents of independent accountants. (to be filed by amendment)
13. Purchase agreements with respect to Registrant's initial shares.*
16. Schedule for computation of performance quotations.*
18. Powers of Attorney were filed as Exhibit No. 18 to Post-Effective
Amendment No. 40 to the Registration Statement on October 9, 1997 (Accession
Number 0001016964-97-000158).
C-3
<PAGE>
27. Financial Data Schedules. (to be filed by amendment)
- -------------------------
* Incorporated herein by reference to Post-Effective Amendment No. 29 to
the Registration Statement filed on December 26, 1996 (Accession Number
0001016964-96-000061).
** Incorporated herein by reference to Post-Effective Amendment No. 33 to
the Registration Statement filed on April 30, 1997 (Accession Number
00001016964-97-000059).
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Not applicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
Shares of Beneficial Interest ($0.001 par value). Title of Class: Number of
Record Holders as of November 3, 1997.
The JPM Institutional Prime Money Market Fund: 195
The JPM Institutional Federal Money Market Fund: 21
The JPM Institutional Bond Fund: 164
The JPM Institutional Diversified Fund: 48
The JPM Institutional U.S. Small Company Fund: 461
The JPM Institutional International Equity Fund: 369
The JPM Institutional Emerging Markets Equity Fund: 456
The JPM Institutional International Bond Fund: 2
The JPM Institutional Short Term Bond Fund: 29
The JPM Institutional U.S. Equity Fund: 144
The JPM Institutional Tax Exempt Money Market Fund: 104
The JPM Institutional Tax Exempt Bond Fund: 197
The JPM Institutional New York Total Return Bond Fund: 73
The JPM Institutional European Equity Fund: 7
The JPM Institutional Japan Equity Fund: 8
The JPM Institutional Asia Growth Fund: 4
The JPM Institutional Disciplined Equity Fund: 123
The JPM Institutional International Opportunities Fund: 177
The JPM Institutional Global Strategic Income Fund: 105
The JPM Institutional Treasury Money Market Fund: 7
The JPM Institutional Service Prime Money Market Fund: 2
The JPM Institutional Service Federal Money Market Fund: 1
The JPM Institutional Service Tax Exempt Money Market Fund: 1
The JPM Institutional Service Treasury Money Market Fund: 7
C-4
<PAGE>
ITEM 27. 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 Securities and Exchange Commission 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 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Not Applicable.
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) FDI, located at 60 State Street, Suite 1300, Boston, Massachusetts
02109, is the principal underwriter of the Registrant's shares.
FDI acts as principal underwriter of the following investment companies
other than the Registrant:
BJB Investment Funds
Burridge Funds
Foreign Fund, Inc.
Fremont Mutual Funds, Inc.
Harris Insight Funds Trust
H.T. Insight Funds, Inc. d/b/a
Harris Insight Funds
LKCM Fund
Monetta Fund, Inc.
Monetta Trust
The Munder Framlington Funds Trust
The Munder Funds, Inc.
The Munder Funds Trust
The PanAgora Institutional Funds
RCM Capital Funds, Inc.
RCM Equity Funds, Inc.
The Skyline Funds
St. Clair Money Market Fund
Waterhouse Investors Cash Management Funds, Inc.
The JPM Pierpont Funds
JPM Series Trust
JPM Series Trust II
C-5
<PAGE>
FDI is registered with the Securities and Exchange Commission as a
broker-dealer and is a member of the National Association of Securities Dealers.
FDI 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 information required by this Item 29(b) with respect to each
director, officer and partner of FDI is incorporated herein by reference to
Schedule A of Form BD filed by FDI with the Securities and Exchange Commission
pursuant to the Securities Act of 1934 (SEC File No. 8-20518).
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
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).
MORGAN GUARANTY TRUST COMPANY OF NEW YORK: 60 Wall Street, New York, New
York 10260-0060, 522 Fifth Avenue, New York, New York 10036 or 9 West 57th
Street, New York, New York 10019 (records relating to its functions as
shareholder servicing agent and administrative services agent).
STATE STREET BANK AND TRUST COMPANY: 1776 Heritage Drive, North Quincy,
Massachusetts 02171 and 40 King Street West, Toronto, Ontario, Canada M5H 3Y8
(records relating to its functions as fund accountant, 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).
ITEM 31. MANAGEMENT SERVICES.
Not Applicable.
ITEM 32. 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 third 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.
(c) The Registrant undertakes to file a Post-Effective Amendment on behalf
of The JPM Institutional Treasury Money Market Fund, The JPM Institutional
Service Treasury Money Market Fund, The JPM Institutional Service Federal Money
Market Fund, The JPM Institutional Service Prime Money Market Fund, The JPM
Institutional Service Tax Exempt Money Market Fund and The JPM Ultra
Institutional Bond Fund using financial statements which need not be certified,
within four to six months from the commencement of public investment operations
of such funds.
C-6
<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 Commonwealth of Massachusetts on the 1st
day of December, 1997.
THE JPM INSTITUTIONAL FUNDS
By /s/ Christopher J. Kelly
-----------------------
Christopher J. Kelly
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 December 1st, 1997.
/s/ Richard W. Ingram*
- ------------------------------
Richard W. Ingram
President and Treasurer (Principal Financial and Accounting Officer)
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 J. Kelly
----------------------------
Christopher J. Kelly
as attorney-in-fact pursuant to a power of attorney previously filed.
C-7
<PAGE>
SIGNATURES
Each Portfolio has duly caused this registration statement on Form N-1A
("Registration Statement") of The JPM Institutional Funds (the "Trust") (File
No. 033-54642) to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of George Town, Grand Cayman, on the 1st day of
December, 1997.
THE PRIME MONEY MARKET PORTFOLIO AND THE FEDERAL MONEY MARKET PORTFOLIO.
/s/ Lenore J. McCabe
By -------------------------
Lenore J. McCabe
Assistant Secretary and Assistant Treasurer
Pursuant to the requirements of the Securities Act of 1933, the Trust's
Registration Statement has been signed below by the following persons in the
capacities indicated on December 1st, 1997.
Richard W. Ingram*
- ----------------------------
Richard W. Ingram
President and Treasurer (Principal Financial and Accounting Officer)
of the Portfolios
Matthew Healey*
- ----------------------------
Matthew Healey
Trustee, Chairman and Chief Executive Officer (Principal Executive Officer)
of the Portfolios
Frederick S. Addy*
- ----------------------------
Frederick S. Addy
Trustee of the Portfolios
William G. Burns*
- ----------------------------
William G. Burns
Trustee of the Portfolios
Arthur C. Eschenlauer*
- ----------------------------
Arthur C. Eschenlauer
Trustee of the Portfolios
Michael P. Mallardi*
- ----------------------------
Michael P. Mallardi
Trustee of the Portfolios
/s/ Lenore J. McCabe
*By ------------------------
Lenore J. McCabe
as attorney-in-fact pursuant to a power of attorney previously filed.
C-8
<PAGE>
SIGNATURES
Each Portfolio has duly caused this registration statement on Form N-1A
("Registration Statement") of The JPM Institutional Funds (the "Trust") (File
No. 033-54642) to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Boston, and Commonwealth of Massachusetts on the 1st
day of December, 1997.
THE TAX EXEMPT MONEY MARKET PORTFOLIO AND SERIES PORTFOLIO II
/s/ Karen Jacoppo-Wood
By -------------------------
Karen Jacoppo-Wood
Vice President and Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, the Trust's
Registration Statement has been signed below by the following persons in the
capacities indicated on December 1st, 1997.
Richard W. Ingram*
- ----------------------------
Richard W. Ingram
President and Treasurer (Principal Financial and Accounting Officer)
of the Portfolios
Matthew Healey*
- ----------------------------
Matthew Healey
Trustee, Chairman and Chief Executive Officer (Principal Executive Officer)
of the Portfolios
Frederick S. Addy*
- ----------------------------
Frederick S. Addy
Trustee of the Portfolios
William G. Burns*
- ----------------------------
William G. Burns
Trustee of the Portfolios
Arthur C. Eschenlauer*
- ----------------------------
Arthur C. Eschenlauer
Trustee of the Portfolios
Michael P. Mallardi*
- ----------------------------
Michael P. Mallardi
Trustee of the Portfolios
/s/ Karen Jacoppo-Wood
*By -------------------------
Karen Jacoppo-Wood
as attorney-in-fact pursuant to a power of attorney previously filed.
C-9
