Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful under
the securities laws of any such state. [offset in red, left-hand margin of cover
page]
SUBJECT TO COMPLETION
Preliminary Prospectus Dated January 21, 1997 [offset in red]
THE JPM INSTITUTIONAL GLOBAL STRATEGIC INCOME FUND
60 State Street
Boston, Massachusetts 02109
For information call (800) 766-7722
The investment objective of The JPM Institutional Global Strategic Income Fund
(the "Fund") is high total return from a portfolio of fixed income securities of
foreign and domestic issuers. THE FUND SEEKS TO ACHIEVE ITS OBJECTIVE BY
INVESTING ALL OF ITS INVESTABLE ASSETS IN THE GLOBAL STRATEGIC INCOME PORTFOLIO
(THE "PORTFOLIO"), WHICH HAS THE SAME INVESTMENT OBJECTIVE AS THE FUND. THE FUND
INVESTS IN THE PORTFOLIO THROUGH A TWO-TIER MASTER-FEEDER INVESTMENT FUND
STRUCTURE. SEE INFORMATION ABOUT THE MASTER-FEEDER STRUCTURE ON PAGE 1.
The Portfolio invests primarily in the following sectors of the fixed income
market: mortgage-backed securities and direct mortgage obligations;
investment grade U.S. dollar-denominated debt obligations of U.S. and non-U.S.
issuers; below investment grade debt obligations of U.S. and non-U.S. issuers;
investment grade non-dollar denominated debt obligations of non-U.S. issuers;
and obligations of emerging market issuers.
THE PORTFOLIO INVESTS IN LOWER QUALITY DEBT INSTRUMENTS ("JUNK BONDS"), WHICH
ARE SUBJECT TO HIGHER RISKS OF UNTIMELY INTEREST AND PRINCIPAL PAYMENTS, DEFAULT
AND PRICE VOLATILITY THAN HIGHER QUALITY SECURITIES AND MAY PRESENT LIQUIDITY
AND VALUATION PROBLEMS. THE PORTFOLIO'S INVESTMENTS IN SECURITIES OF FOREIGN
ISSUERS, INCLUDING ISSUERS IN EMERGING MARKETS, INVESTMENTS IN UNRATED AND LOWER
RATED DEBT OBLIGATIONS AND INVESTMENTS DENOMINATED OR QUOTED IN FOREIGN
CURRENCIES, AS WELL AS THE PORTFOLIO'S USE OF INTEREST RATE AND CURRENCY
MANAGEMENT TECHNIQUES, ENTAIL RISKS IN ADDITION TO THOSE THAT ARE CUSTOMARILY
ASSOCIATED WITH INVESTING IN DOLLAR-DENOMINATED, FIXED INCOME SECURITIES OF U.S.
ISSUERS. INVESTMENTS IN DIRECTLY PLACED MORTGAGES AND MORTGAGE-BACKED SECURITIES
MAY SUBJECT THE PORTFOLIO TO SOME OF THE RISKS ASSOCIATED WITH INVESTMENTS IN
REAL ESTATE. INTEREST RATE AND CURRENCY MANAGEMENT TECHNIQUES MAY BE UNAVAILABLE
OR INEFFECTIVE IN MITIGATING RISKS INHERENT IN THE PORTFOLIO. THE FUND MAY NOT
BE ABLE TO ACHIEVE ITS INVESTMENT OBJECTIVE. THE FUND IS INTENDED FOR INVESTORS
WHO CAN ACCEPT A HIGH DEGREE OF RISK AND IS NOT SUITABLE FOR ALL INVESTORS.
The Fund is a series of The JPM Institutional Funds, an open end management
investment company organized as a Massachusetts business trust (the "Trust").
The Portfolio is advised by Morgan Guaranty Trust Company of New York ("Morgan"
or the "Advisor").
This Prospectus sets forth concisely the information about the Fund that a
prospective investor should know before investing and should be retained for
future reference. Additional information has been filed with the Securities and
Exchange Commission in a Statement of Additional Information dated February ,
1997, as amended or supplemented from time to time. This information is
incorporated herein by reference and is available without charge upon written
request from the Fund's Distributor or by calling (800) 221-7930. The Fund's
Distributor is Funds Distributor, Inc. ("FDI" or the "Distributor"), 60 State
Street, Suite 1300, Boston, Massachusetts 02109, Attention: The JPM
Institutional Funds.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, MORGAN GUARANTY TRUST COMPANY OF NEW YORK 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 GOVERNMENT AGENCY. THE VALUE OF AN INVESTMENT
IN THE FUND MAY FLUCTUATE AND MAY, AT THE TIME IT IS REDEEMED, BE HIGHER OR
LOWER THAN THE AMOUNT ORIGINALLY INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS FEBRUARY , 1997
<PAGE>
TABLE OF CONTENTS
PAGE
Expense Table.................................................................1
Information About the Master-Feeder Structure.................................1
Who May Be a Suitable Investor in the Fund....................................2
Investment Objective and Policies.............................................2
Additional Investment Practices and Risks.....................................3
Management of the Fund and Portfolio..........................................10
Shareholder Inquiries and Services............................................12
Purchase of Shares............................................................13
Redemption of Shares..........................................................14
Exchange of Shares............................................................15
Dividends and Distributions...................................................15
Net Asset Value...............................................................15
Taxes.........................................................................15
Organization..................................................................16
Additional Information........................................................16
<PAGE>
THE JPM INSTITUTIONAL GLOBAL STRATEGIC INCOME FUND
EXPENSE TABLE
An investment in the Fund is not subject to any sales charges or redemption
fees. Operating expenses described below include the expenses of both the Fund
and the Portfolio. The Trustees believe that the Fund's operating expenses are
approximately equal to or less than would be the case if the Fund invested its
assets directly in securities instead of investing all of its investable assets
in the Portfolio.
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases(1)............................ None
Sales Charge Imposed on Reinvested Distributions........................ None
Deferred Sales Load..................................................... None
Redemption Fees......................................................... None
Exchange Fee............................................................ None
ANNUAL OPERATING EXPENSES(2)
Advisory Fees........................................................... 0.45%
Rule 12b-1 Fees......................................................... None
Other Expenses (after expense limitation)............................... 0.45%
-----
Total Operating Expenses (after expense limitation)..................... 0.90%
=====
(1) Certain Eligible Institutions (defined below) may impose fees in connection
with the purchase of the Fund's shares through such institutions.
(2) These expenses are based on the estimated expenses and estimated average net
assets for the Fund's first fiscal year, and through November 30, 1997, after
applicable expense limitation. Without such expense limitation, the estimated
Other Expenses and Total Operating Expenses would be equal on an annual basis to
0.51% and 0.96%, respectively, of the average daily net assets of the Fund.
EXAMPLE
An investor would pay the following expenses on a hypothetical $1,000
investment, assuming a 5% annual return and redemption at the end of each time
period. (The Fund's minimum initial investment is greater than $1,000.)
1 Year..................................................................... $ 9
3 Years.................................................................... $29
The above expense table is designed to assist investors in understanding the
various estimated direct and indirect costs and expenses that investors in the
Fund bear. For a complete description of contractual arrangements and other
expenses applicable to the Fund and the Portfolio, see Management of the Fund
and Portfolio and Shareholder Inquiries and Services -- Shareholder Servicing.
THE EXAMPLE IS INCLUDED SOLELY FOR ILLUSTRATIVE PURPOSES AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF FUTURE PERFORMANCE OR EXPENSES. ACTUAL EXPENSES
MAY BE MORE OR LESS THAN THOSE SHOWN.
INFORMATION ABOUT THE MASTER-FEEDER STRUCTURE
The Fund seeks to achieve its investment objective by investing all of its
investable assets in the Portfolio, which has an identical investment objective.
The Fund is a feeder fund and the Portfolio is the master fund in a so-called
master-feeder structure.
1
<PAGE>
In addition to the Fund, other feeder funds may invest in the Portfolio, and
information about these other feeder funds is available from the Fund's
Distributor. The other feeder funds invest in the Portfolio on the same terms as
the Fund and bear a proportionate share of the Portfolio's expenses. The other
feeder funds may sell shares on different terms and under a different pricing
structure than the Fund, which may produce different performance results.
There are certain risks associated with an investment in a master-feeder
structure. Large scale redemptions by other feeder funds in the Portfolio may
reduce the diversification of the Portfolio's investments, reduce economies of
scale and increase the Portfolio's operating expenses. If the Board of Trustees
of the Portfolio approves a change to the investment objective of the Portfolio
that is not approved by the Fund's Board of Trustees, the Fund would be required
to withdraw its investment in the Portfolio and engage the services of an
investment advisor or find a substitute master fund. Withdrawal of the Fund's
interest in the Portfolio might cause the Fund to incur expenses it would not
otherwise be required to pay.
If the Fund is requested to vote on a matter affecting the Portfolio, the Fund
will call a meeting of its shareholders to vote on the matter. The Fund will
vote on any matter at the meeting of the Portfolio's investors in the same
proportion that the Fund's shareholders voted on the matter. The Fund will vote
the shares held by Fund shareholders who do not vote in the same proportion as
the shares of Fund shareholders who do vote.
WHO MAY BE A SUITABLE INVESTOR IN THE FUND
An investment in the Fund may offer greater potential for gains and losses but
may be more volatile than an investment in a fund investing primarily in
investment grade fixed income securities. THE FUND IS INTENDED FOR INVESTORS WHO
CAN ACCEPT A HIGH DEGREE OF RISK AND IS NOT SUITABLE FOR ALL INVESTORS. THE FUND
DOES NOT REPRESENT A COMPLETE INVESTMENT PROGRAM.
Investments in high yield and emerging markets securities may be considered
speculative and involve risks not associated with investments in higher-rated
securities. Investments in securities of foreign issuers, including issuers in
emerging markets, investments in unrated and lower rated debt obligations and
investments denominated or quoted in foreign currencies, as well as the
Portfolio's use of interest rate and currency management techniques, entail
risks in addition to those that are customarily associated with investing in
dollar-denominated fixed income securities of U.S. issuers. Investments in
directly placed mortgages and mortgage-backed securities may subject the
Portfolio to some of the risks associated with investments in real estate.
Interest rate and currency management techniques may be unavailable or
ineffective in mitigating risks inherent in the Portfolio. The Fund may not be
able to achieve its investment objective.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is high total return from a portfolio of fixed
income securities of foreign and domestic issuers. The Fund seeks to achieve its
objective by investing all of its investable assets in the Portfolio, which has
the same investment objective as the Fund. Since the investment characteristics
of the Fund correspond directly to those of the Portfolio, the following is a
discussion of the investment policies and risks of the Portfolio.
PRIMARY INVESTMENTS. The Portfolio will invest primarily in the following
sectors of foreign and domestic fixed-income markets: direct mortgage
obligations and mortgage-backed securities; investment grade U.S. dollar-
denominated debt obligations of U.S. and non-U.S. issuers; below investment
grade debt obligations of U.S. and non-U.S. issuers; investment grade
non-dollar denominated debt obligations of non-U.S. issuers; and obligations
of emerging markets issuers. Within such sectors, the Portfolio may invest in
a broad range of issuers and securities with varying maturities. Under normal
market conditions, substantially all and at least 65% of the Portfolio's total
assets will be invested in fixed-income securities in at least three
countries, including the United States.
2
<PAGE>
The Portfolio may invest up to 60% of its assets in fixed income securities
rated below investment grade by one or more internationally recognized rating
agencies such as Standard & Poor's Ratings Group ("S&P") or Moody's Investors
Service, Inc. ("Moody's") or in unrated securities determined to be of
comparable credit quality by the Advisor. The Portfolio will not invest in
securities rated below B3 by Moody's or B- by S&P. The Portfolio is not required
to dispose of securities whose ratings fall below B3 or B-. Below
investment-grade securities, commonly called "junk bonds," are considered
speculative and include securities that are unrated or in default. See
Additional Investment Practices and Risks.
The Portfolio's non-U.S. investments include obligations of government and
corporate issuers in developed and emerging markets. These securities may be
denominated in foreign currencies or the U.S. dollar. The Portfolio generally
attempts to hedge the currency risks resulting from its investments in
securities denominated in currencies of developed countries. The Portfolio will
not routinely hedge the currency exposure resulting from its emerging market
investments. The Advisor may from time to time decide to maintain unhedged
foreign currency positions in any currency or engage in foreign currency
transactions if the Advisor believes the foreign currency exposure or
transaction will benefit the Portfolio.
HOW INVESTMENTS ARE SELECTED. The Portfolio seeks to achieve its objective
through sector allocation and security selection. Under normal circumstances,
the Portfolio allocates its assets among the market sectors described above on
the basis of relative investment opportunities. Using a variety of analytical
tools and based on experienced judgment, the Advisor assesses the relative
attractiveness of each market sector and seeks to optimize the allocation among
them. Specific securities within the sectors which the Advisor believes are
undervalued are selected for purchase using fundamental and quantitative
analysis, analysis of credit and liquidity risk, the expertise of a dedicated
trading desk and the judgment of fixed income portfolio managers and analysts
specializing in each market sector.
The Portfolio's duration will generally be approximately equal to the duration
of the Lehman Brothers Aggregate Bond Index (the "Index"). In addition to
securities selection, the Advisor may use futures contracts to adjust the
Portfolio's duration. Currently the Index's duration is approximately four and
one-half years. The maturities of the securities in the Portfolio may vary
widely, however.
Duration is a measure of the weighted average maturity of the debt obligations
held by the Portfolio and the sensitivity of the Portfolio's market value to
changes in interest rates. Generally, the longer the duration of the Portfolio,
the more sensitive it will be to changes in interest rates.
ADDITIONAL INVESTMENT PRACTICES AND RISKS
Investments in fixed income securities entail certain risks, including adverse
income and principal value fluctuations associated with general economic
conditions affecting the fixed income securities markets, as well as adverse
interest rate changes and volatility of yields. The value of fixed income
securities generally will increase when interest rates decline and decline as
interest rates increase. As a result of this price volatility, an investment in
the Fund could go down in value.
INVESTMENT IN LOWER RATED FIXED INCOME SECURITIES. Below investment-grade
securities, commonly called junk bonds, are considered speculative. While
generally providing greater income than investments in higher quality
securities, lower quality fixed income securities involve greater risk of loss
of principal and income, including the possibility of default or bankruptcy of
the issuers of such securities, and have greater price volatility, especially
during periods of economic uncertainty or change. These lower quality fixed
income securities tend to be affected by economic changes and short-term
corporate and industry developments to a greater extent than higher quality
securities, which react primarily to fluctuations in the general level of
interest rates. To the extent that the Portfolio invests in such lower quality
securities, the achievement of its investment objective may be more dependent on
the Advisor's credit analysis.
3
<PAGE>
Lower quality fixed income securities are affected by the market's perception of
their credit quality, especially during times of adverse publicity, and the
outlook for economic growth. Economic downturns or an increase in interest rates
may cause a higher incidence of default by the issuers of these securities,
especially issuers that are highly leveraged. The market for these lower quality
fixed income securities is generally less liquid than the market for investment
grade fixed income securities. It may be more difficult to sell these lower
rated securities to meet redemption requests, to respond to changes in the
market, or to determine accurately the Fund's net asset value.
MORTGAGES AND MORTGAGE-BACKED SECURITIES. Mortgages are debt instruments secured
by real property. Mortgage-backed securities represent direct or indirect
participations in, or are collateralized by and payable from, mortgage loans
secured by real property. Mortgagors can generally prepay interest or principal
on their mortgages whenever they choose. Therefore, mortgages and
mortgage-backed securities are often subject to more rapid repayment than their
stated maturity dates would indicate as a result of principal prepayments on the
underlying loans. This can result in significantly greater price and yield
volatility than with traditional fixed income securities. During periods of
declining interest rates, prepayments can be expected to accelerate and thus
impair the Portfolio's ability to reinvest the returns of principal at
comparable yields. Conversely, in a rising interest rate environment, a
declining prepayment rate will extend the average life of many mortgage-backed
securities and prevent the Portfolio from taking advantage of such higher
yields. Unlike mortgage-backed securities, which generally represent an interest
in a pool of mortgages, direct investments in mortgages involve prepayment and
credit risks of an individual issuer and real property. Consequently, these
investments require different investment and credit analysis by the Advisor.
The Portfolio may invest in publicly and privately issued mortgage-backed
securities including mortgage-backed securities issued or guaranteed by the U.S.
Government or any of its agencies, instrumentalities or sponsored enterprises,
including but not limited to Government National Mortgage Association ("Ginnie
Mae"), Federal National Mortgage Association ("Fannie Mae") and Federal Home
Loan Mortgage Corporation ("Freddie Mac"). Ginnie Mae securities are backed by
the full faith and credit of the U.S. Government, which means that the U.S.
Government guarantees that the interest and principal will be paid when due.
Fannie Mae securities and Freddie Mac securities are not backed by the full
faith and credit of the U.S. Government; however, these enterprises have the
ability to obtain financing from the U.S. Treasury.
The Portfolio may also invest in multiple class securities, including
collateralized mortgage obligations ("CMOs") and Real Estate Mortgage Investment
Conduit ("REMIC") pass-through or participation certificates. CMOs provide an
investor with a specified interest in the cash flow from a pool of underlying
mortgages or other mortgage-backed securities. CMOs are issued in multiple
classes, each with a specified fixed or floating interest rate and a final
scheduled distribution date. In most cases, payments of principal are applied to
the CMO classes in the order of their respective stated maturities, so that no
principal payments will be made on a CMO class until all other classes having an
earlier stated maturity date are paid in full. A REMIC is a CMO that qualifies
for special tax treatment under the Internal Revenue Code of 1986, as amended
(the "Code"), and invests in certain mortgages principally secured by interests
in real property and other permitted investments. The Portfolio does not intend
to purchase residual interests in REMICs.
Stripped mortgage-backed securities ("SMBS") are derivative multiple class
mortgage-backed securities. SMBS are usually structured with two different
classes: one that receives 100% of the interest payments and the other that
receives 100% of the principal payments from a pool of mortgage loans. If the
underlying mortgage loans experience different than anticipated prepayments of
principal, the Portfolio may fail to fully recoup its initial investment in
these securities. Although the market for SMBS is increasingly liquid, certain
SMBS may not be readily marketable and will be considered illiquid for purposes
of the Portfolio's limitation on investments in illiquid securities. The market
value of the class consisting entirely of principal payments generally is
unusually volatile in response to changes in interest rates. The yields on a
class of SMBS that receives all or most of the interest from mortgage loans are
generally higher than prevailing market yields on other mortgage-backed
securities because their cash flow patterns are more volatile and there is a
greater risk that the initial investment will not be fully recouped.
4
<PAGE>
The directly placed mortgages in which the Portfolio invests may include
residential mortgages, multifamily mortgages, mortgages on cooperative apartment
buildings, commercial mortgages, and sale-leasebacks. These investments are
backed by assets such as office buildings, shopping centers, retail stores,
warehouses, apartment buildings and single-family dwellings. In the event that
the Portfolio forecloses on any non-performing mortgage, and acquires a direct
interest in the real property, the Portfolio will be subject to the risks
generally associated with the ownership of real property. There may be
fluctuations in the market value of the foreclosed property and its occupancy
rates, rent schedules and operating expenses. There may also be adverse changes
in local, regional or general economic conditions, deterioration of the real
estate market and the financial circumstances of tenants and sellers,
unfavorable changes in zoning, building, environmental and other laws, increased
real property taxes, rising interest rates, reduced availability and increased
cost of mortgage borrowings, the need for unanticipated renovations, unexpected
increases in the cost of energy, environmental factors, acts of God and other
factors which are beyond the control of the Portfolio or the Advisor. Hazardous
or toxic substances may be present on, at or under the mortgaged property and
adversely affect the value of the property. In addition, the owners of property
containing such substances may be held responsible, under various laws, for
containing, monitoring, removing or cleaning up such substances. The presence of
such substances may also provide a basis for other claims by third parties.
Costs of clean-up or of liabilities to third parties may exceed the value of the
property. In addition, these risks may be uninsurable. In light of these and
similar risks, it may be impossible to dispose profitably of properties in
foreclosure.
MORTGAGE DOLLAR ROLLS. The Portfolio may enter into mortgage dollar rolls in
which the Portfolio sells securities for delivery in the current month and
simultaneously contracts with the same counterparty to repurchase similar (same
type, coupon and maturity) but not identical securities on a specified future
date. During the roll period, the Portfolio loses the right to receive principal
(including prepayments of principal) and interest paid on the securities sold.
However, the Portfolio may benefit from the interest earned on the cash proceeds
of the securities sold until the settlement date of the forward purchase. The
Portfolio will hold and maintain in a segregated account until the settlement
date cash or liquid securities in an amount equal to the forward purchase price.
The benefits derived from the use of mortgage dollar rolls depend upon the
Advisor's ability to manage mortgage prepayments. There is no assurance that
mortgage dollar rolls can be successfully employed.
CORPORATE FIXED INCOME SECURITIES. The Portfolio may invest in publicly and
privately issued debt obligations of U.S. and non-U.S. corporations, including
obligations of industrial, utility, banking and other financial issuers. These
securities are subject to the risk of an issuer's inability to meet principal
and interest payments on the obligation and may also be subject to price
volatility due to such factors as market interest rates, market perception of
the creditworthiness of the issuer and general market liquidity.
The Portfolio may purchase privately issued corporate fixed income securities
pursuant to Rule 144A of the Securities Act of 1933 ("Rule 144A") or pursuant to
a directly negotiated agreement between the investors, including the Portfolio,
and the corporate issuer. At times, the Portfolio may be the only investor in a
privately issued fixed income security, or one of only a few institutional
investors. In this circumstance, there may be restrictions on the Portfolio's
ability to resell the privately issued fixed income security that result from
contractual limitations in the offering agreement and a limited trading market.
The Advisor will monitor the liquidity of privately issued fixed income
securities in accordance with guidelines established by the Advisor and
monitored by the Trustees. See Illiquid Securities.
ASSET-BACKED SECURITIES. The principal and interest payments on asset-backed
securities are collateralized by pools of assets such as auto loans, credit card
receivables, leases, installment contracts and personal property. Such asset
pools are securitized through the use of special purpose trusts or corporations.
Principal and interest payments may be credit enhanced by a letter of credit, a
pool insurance policy or a senior/subordinated structure. Like mortgage-backed
securities, asset-backed securities are subject to more rapid prepayment of
principal than indicated by their stated maturity which may greatly increase
price and yield volatility.
5
<PAGE>
INVESTING IN FOREIGN SECURITIES. Investing in the securities of foreign issuers
involves risks that are not typically associated with investing in U.S.
dollar-denominated securities of domestic issuers. In addition to changes
affecting securities markets generally, these investments may be affected by
changes in currency exchange rates, changes in foreign or U.S. laws or
restrictions applicable to these investments and in exchange control regulations
(e.g., currency blockage). Transaction costs for foreign securities may be
higher than those for similar transactions in the United States. In addition,
clearance and settlement procedures may be different in foreign countries and,
in certain markets, these procedures have on occasion been unable to keep pace
with the volume of securities transactions, thus making it difficult to conduct
securities transactions.
Foreign issuers are not generally subject to uniform accounting, auditing and
financial reporting standards comparable to those applicable to U.S. issuers.
There may be less publicly available information about a foreign issuer than
about a U.S. issuer. In addition, there is generally less government regulation
of foreign markets, companies and securities dealers than in the United States.
Foreign securities markets may have substantially less volume than U.S.
securities markets and securities of many foreign issuers are less liquid and
more volatile than securities of comparable U.S. issuers. Furthermore, there is
a possibility of nationalization, expropriation or confiscatory taxation,
imposition of withholding taxes on interest payments, limitations on the removal
of funds or other assets, political or social instability or diplomatic
developments which could affect investments in certain foreign countries.
Currency Risks. The U.S. dollar value of securities denominated in a foreign
currency will vary with changes in currency exchange rates, which can be
volatile. Accordingly, changes in the value of the currencies in which the
Portfolio's investments are denominated relative to the U.S. dollar will affect
the Portfolio's net asset value. Exchange rates are generally affected by the
forces of supply and demand in the international currency markets, the relative
merits of investing in different countries and the intervention or failure to
intervene of U.S. or foreign governments and central banks. Some countries in
emerging markets also may have managed currencies, which are not free floating
against the U.S. dollar. In addition, emerging markets are subject to the risk
of restrictions upon the free conversion of their currencies into other
currencies. Any devaluations relative to the U.S. dollar in the currencies in
which the Portfolio's securities are quoted would reduce the Portfolio's net
asset value.
The Portfolio may invest any portion of its assets in securities denominated in
a particular currency. The portion of the Portfolio's assets invested in
securities denominated in non-U.S. currencies will vary depending on market
conditions. The Portfolio may enter into forward foreign currency exchange
transactions in order to hedge the currency risk associated with the Portfolio's
holdings.
INVESTING IN EMERGING MARKETS. Investing in the securities of emerging market
issuers involves considerations and potential risks not typically associated
with investing in the securities of issuers in the United States and other
developed countries.
Market Characteristics. The fixed income securities markets of emerging
countries generally have substantially less volume than the markets for similar
securities in the United States and may not be able to absorb, without price
disruptions, a significant increase in trading volume or trade size.
Additionally, market making activities may be less extensive in such markets,
which may contribute to increased volatility and reduced liquidity in those
markets. The less liquid the market, the more difficult it may be for the
Portfolio to accurately price its portfolio securities or to dispose of such
securities at the times determined to be appropriate. The risks associated with
reduced liquidity may be particularly acute to the extent that the Fund needs
cash to meet redemption requests, to pay dividends and other distributions or to
pay expenses.
Transaction costs in emerging markets may be higher than in the United States
and other developed securities markets. As legal systems in emerging markets
develop, foreign investors may be adversely affected by new or amended laws and
regulations or may not be able to obtain swift and equitable enforcement of
existing law.
6
<PAGE>
Economic, Political and Social Factors. Emerging markets may be subject to a
greater degree of economic, political and social instability that could
significantly disrupt the principal financial markets than are markets in the
United States and in other developed countries. Such instability may result from
among other things: (i) authoritarian governments or military involvement in
political and economic decision making, including changes or attempted changes
in government through extraconstitutional means; (ii) popular unrest associated
with demands for improved economic, political and social conditions; (iii)
internal insurgencies; (iv) hostile relations with neighboring countries; and
(v) ethnic, religious and racial disaffection and conflict. Many emerging
markets have experienced in the past, and continue to experience, high rates of
inflation. In certain countries inflation has at times accelerated rapidly to
hyperinflationary levels, creating a negative interest rate environment and
sharply eroding the value of outstanding financial assets in those countries.
The economies of many emerging markets are heavily dependent upon international
trade and are accordingly affected by protective trade barriers and the economic
conditions of their trading partners. In addition, the economies of some
emerging markets are vulnerable to weakness in world prices for their commodity
exports. The economies of emerging markets may differ unfavorably from the U.S.
economy in such respects as growth of gross domestic product, rate of inflation,
capital reinvestment, resources, self-sufficiency and balance of payments
position.
Restrictions on Investment and Repatriation. Certain emerging markets limit, or
require governmental approval prior to, investments by foreign persons.
Repatriation of investment income and capital from certain emerging markets is
subject to certain governmental consents. Even where there is no outright
restriction on repatriation of capital, the mechanics of repatriation may affect
the operation of the Portfolio.
SOVEREIGN FIXED INCOME SECURITIES. The Fund may invest in fixed income
securities issued or guaranteed by a foreign sovereign government or its
agencies, authorities or political subdivisions. Investment in sovereign fixed
income securities involves special risks not present in corporate fixed income
securities. The issuer of the sovereign debt or the governmental authorities
that control the repayment of the debt may be unable or unwilling to repay
principal or interest when due, and the Portfolio may have limited recourse in
the event of a default. During periods of economic uncertainty, the market
prices of sovereign debt, and the Portfolio's net asset value, may be more
volatile than prices of U.S. debt obligations. In the past, certain foreign
countries have encountered difficulties in servicing their debt obligations,
withheld payments of principal and interest and declared moratoria on the
payment of principal and interest on their sovereign debts.
A sovereign debtor's willingness or ability to repay principal and pay interest
in a timely manner may be affected by, among other factors, its cash flow
situation, the extent of its foreign currency reserves, the availability of
sufficient foreign exchange, the relative size of the debt service burden, the
sovereign debtor's policy toward international lenders and local political
constraints. Sovereign debtors may also be dependent on expected disbursements
from foreign governments, multilateral agencies and other entities to reduce
principal and interest arrearages on their debt. The failure of a sovereign
debtor to implement economic reforms, achieve specified levels of economic
performance or repay principal or interest when due may result in the
cancellation of third-party commitments to lend funds to the sovereign debtor,
which may further impair such debtor's ability or willingness to service its
debts.
BRADY BONDS. Brady bonds are securities created through the exchange of existing
commercial bank loans to public and private entities in certain emerging markets
for new bonds in connection with debt restructurings. Brady bonds have been
issued since 1989 and do not have a long payment history. In light of the
history of defaults of countries issuing Brady bonds on their commercial bank
loans, investments in Brady bonds may be viewed as speculative. Brady bonds may
be fully or partially collateralized or uncollateralized, are issued in various
currencies (but primarily the dollar) and are actively traded in
over-the-counter secondary markets. Incomplete collateralization of interest or
principal payment obligations results in increased credit risk.
Dollar-denominated collateralized Brady bonds, which may be fixed-rate bonds or
floating-rate bonds, are generally collateralized by U.S. Treasury zero coupon
bonds having the same maturity as the Brady Bonds.
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OBLIGATIONS OF SUPRANATIONAL ENTITIES. The Portfolio may invest in obligations
of supranational entities designated or supported by governmental entities to
promote economic reconstruction or development and of international banking
institutions and related government agencies. Examples include the International
Bank for Reconstruction and Development (the "World Bank"), the European Coal
and Steel Community, the Asian Development Bank and the Inter-American
Development Bank. Each supranational entity's lending activities are limited to
a percentage of its total capital (including "callable capital" contributed by
its governmental members at the entity's call), reserves and net income. There
is no assurance that participating governments will be able or willing to honor
their commitments to make capital contributions to a supranational entity.
CONVERTIBLE SECURITIES. Convertible securities in which the Portfolio may invest
consist of bonds, notes, debentures and preferred stocks. Convertible debt
securities and preferred stock acquired by the Portfolio will entitle the
Portfolio to exchange such instruments for common stock of the issuer at a
predetermined rate. Convertible securities are subject both to the credit and
interest rate risks associated with debt obligations and to the stock market
risk associated with equity securities.
ZERO COUPON, PAY-IN-KIND AND DEFERRED PAYMENT SECURITIES. Zero coupon securities
are securities that are sold at a discount to par value and on which interest
payments are not made during the life of the security. Upon maturity, the holder
is entitled to receive the par value of the security. Pay-in-kind securities are
securities that have interest payable by delivery of additional securities. Upon
maturity, the holder is entitled to receive the aggregate par value of the
securities. The Portfolio accrues income with respect to zero coupon and
pay-in-kind securities prior to the receipt of cash payments. Deferred payment
securities are securities that remain zero coupon securities until a
predetermined date, at which time the stated coupon rate becomes effective and
interest becomes payable at regular intervals. Zero coupon, pay-in-kind and
deferred payment securities may be subject to greater fluctuation in value and
lesser liquidity in the event of adverse market conditions than comparably rated
securities paying cash interest at regular interest payment periods.
INVESTMENTS IN OTHER INVESTMENT COMPANIES. The Portfolio may invest up to 10% of
its total assets in shares of other investment companies and up to 5% of its
total assets in any one investment company as long as that investment does not
represent more than 3% of the total voting shares of the acquired investment
company. Investments in the securities of other investment companies may involve
duplication of advisory fees and other expenses.
MONEY MARKET INSTRUMENTS. Under normal market conditions, the Portfolio will
purchase money market instruments to invest temporary cash balances or to
maintain liquidity to meet redemptions. However, the Portfolio may also invest
in money market instruments without limitation as a temporary defensive measure
taken in the Advisor's judgment during, or in anticipation of, adverse market
conditions. These money market instruments include obligations issued or
guaranteed by the U.S. Government or any of its agencies or instrumentalities,
any foreign government or any of its political subdivisions, commercial paper,
bank obligations, repurchase agreements and other fixed income securities of
U.S. and foreign issuers. If a repurchase agreement counterparty defaults on its
obligations, the Portfolio may, under some circumstances, be limited or delayed
in disposing of the repurchase agreement collateral to recover its investment.
ILLIQUID SECURITIES. The Portfolio may acquire securities that have restrictions
on their resale (restricted securities) or securities for which there is a
limited trading market. However, the Portfolio may not purchase any illiquid
securities, such as illiquid restricted securities or securities that are not
readily marketable, if, as a result, more than 15% of the market value of the
Portfolio's net assets would be invested in illiquid investments. The price the
Portfolio pays for illiquid securities or receives upon resale may be lower than
the price paid or received for similar securities with a more liquid market. In
addition, illiquid securities may be more difficult to value due to the
unavailability of reliable broker quotes for these securities. The Portfolio may
experience delays in disposing of illiquid securities and this may have an
adverse effect on the ability of the Fund to meet redemptions in an orderly
manner. The Portfolio may purchase re-
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stricted securities that are eligible for resale to qualified institutional
buyers pursuant to Rule 144A. Restricted securities eligible for resale under
Rule 144A may be determined to be liquid in accordance with guidelines
established by the Advisor and approved by the Trustees. The Trustees will
monitor the Advisor's implementation of these guidelines on a periodic basis.
WHEN-ISSUED AND FORWARD COMMITMENT TRANSACTIONS. The Portfolio may purchase
when-issued securities and enter into other forward commitments to purchase or
sell securities. The value of securities purchased on a when-issued or forward
commitment basis may decline between the purchase date and the settlement date.
DERIVATIVE INSTRUMENTS. The Portfolio may purchase derivative securities to
enhance return and enter into derivative contracts to hedge against fluctuations
in securities prices or currency exchange rates, to change the duration of the
Portfolio's fixed income holdings or as a substitute for the purchase or sale of
securities or currency. The Portfolio's investments in derivative securities may
include structured securities.
All of the Portfolio's transactions in derivative instruments involve a risk of
loss or depreciation due to unanticipated adverse changes in interest rates,
securities prices or currency exchange rates. The loss on derivative contracts
(other than purchased options) may exceed the Portfolio's initial investment in
these contracts. In addition, the Portfolio may lose the entire premium paid for
purchased options that expire before they can be profitably exercised by the
Portfolio.
Structured Securities. The Portfolio may invest in structured securities,
including currency linked securities. The interest rate or, in some cases, the
principal payable at the maturity of a structured security may change positively
or inversely in relation to one or more interest rates, financial indices,
currency rates or other financial indicators (reference prices). A structured
security may be leveraged to the extent that the magnitude of any change in the
interest rate or principal payable on a structured security is a multiple of the
change in the reference price. Thus, structured securities may decline in value
due to adverse market changes in currency exchange rates and other reference
prices.
Derivative Contracts. The Portfolio may purchase and sell a variety of
derivative contracts, including futures contracts on securities, indices or
currency; options on futures contracts; options on securities, indices or
currency; forward contracts to purchase or sell securities or currency; and
interest rate and currency swaps. The Portfolio incurs liability to a
counterparty in connection with transactions in futures contracts, forward
contracts and swaps and in selling options. The Portfolio pays a premium for
purchased options. In addition, the Portfolio incurs transaction costs in
opening and closing positions in derivative contracts.
RISKS ASSOCIATED WITH DERIVATIVE SECURITIES AND CONTRACTS. The risks associated
with the Portfolio's transactions in derivative securities and contracts may
include some or all of the following: market risk, leverage and volatility risk,
correlation risk, credit risk, and liquidity and valuation risk.
Market Risk. Investments in structured securities are subject to the market
risks described above. Entering into a derivative contract involves a risk that
the applicable market will move against the Portfolio's position and that the
Portfolio will incur a loss. For derivative contracts other than purchased
options, this loss may exceed the amount of the initial investment made or the
premium received by the Portfolio.
Leverage and Volatility Risk. Derivative instruments may sometimes increase or
leverage the Portfolio's exposure to a particular market risk. Leverage enhances
the price volatility of derivative instruments held by the Portfolio. If the
Portfolio enters into futures contracts, writes options or engages in certain
foreign currency exchange transactions, it is required to
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<PAGE>
maintain a segregated account consisting of cash or liquid assets, hold
offsetting portfolio securities or cover written options which may offset the
leverage inherent in these transactions.
Correlation Risk. The Portfolio's success in using derivative contracts to hedge
portfolio assets depends on the degree of price correlation between the
derivative contract and the hedged asset. Imperfect correlation may be caused by
several factors, including temporary price disparities among the trading markets
for the derivative contract, the assets underlying the derivative contract and
the Portfolio's assets.
Credit Risk. Derivative securities and over-the-counter derivative contracts
involve a risk that the issuer or counterparty will fail to perform its
contractual obligations.
Liquidity and Valuation Risk. Some derivative securities are not readily
marketable or may become illiquid under adverse market conditions. In addition,
during periods of extreme market volatility, a commodity or exchange may suspend
or limit trading in an exchange-traded derivative contract, which may make the
contract temporarily illiquid and difficult to price. The Portfolio's ability to
terminate over-the-counter derivative contracts may depend on the cooperation of
the counterparties to such contracts. For thinly traded derivative securities
and contracts, the only source of price quotations may be the selling dealer or
counterparty.
PORTFOLIO SECURITIES LOANS. The Portfolio may lend portfolio securities with a
value up to one-third of its total assets. Each loan must be fully
collateralized by cash or other eligible assets. The Portfolio may pay
reasonable fees in connection with securities loans. The Advisor will evaluate
the creditworthiness of prospective institutional borrowers and monitor the
adequacy of the collateral to reduce the risk of default by borrowers.
BORROWING AND REVERSE REPURCHASE AGREEMENTS. The Portfolio may (1) borrow money
from banks solely for temporary or emergency (but not for leverage) purposes and
(2) enter into reverse repurchase agreements for any purpose. The aggregate
amount of such borrowings and reverse repurchase agreements may not exceed
one-third of the Portfolio's total assets less liabilities (other than
borrowings). For the purposes of the Investment Company Act of 1940 (the "1940
Act"), reverse repurchase agreements are considered a form of borrowing by the
Portfolio and, therefore, a form of leverage. Leverage may cause any gains or
losses of the Portfolio to be magnified.
SHORT-TERM TRADING. The Portfolio will sell a portfolio security without regard
to the length of time such security has been held if, in the Advisor's view, the
security meets the criteria for sale. The annual portfolio turnover rate of the
Portfolio is generally not expected to exceed 300%. A high portfolio turnover
rate involves higher transaction costs to the Portfolio in the form of dealer
spreads. This policy is subject to certain requirements for qualification of the
Fund as a regulated investment company under the Code.
INVESTMENT POLICIES AND RESTRICTIONS. Except as otherwise stated in this
Prospectus or the Statement of Additional Information, the Fund's and the
Portfolio's investment objective, policies and restrictions are not fundamental
and may be changed without shareholder approval. The Portfolio is diversified
and therefore may not, with respect to 75% of its total assets (i) invest more
than 5% of its total assets in the securities of any one issuer, other than U.S.
Government securities, or (2) acquire more than 10% of the outstanding voting
securities of any one issuer. The Portfolio will not concentrate (invest 25% or
more of its total assets) in the securities of issuers in any one industry. For
purposes of this limitation, the staff of the Securities and Exchange Commission
(the "SEC") considers (a) all supranational organizations as a group to be a
single industry and (b) each foreign government and its political subdivisions
to be a single industry.
MANAGEMENT OF THE FUND AND PORTFOLIO
TRUSTEES. The Trustees of the Trust and the Portfolio decide upon matters of
general policy and review the actions of Morgan and other service providers.
The Trustees of the Trust and the Portfolio are identified below. A majority
of the
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non-interested Trustees have adopted written procedures to deal with any
potential conflicts of interest that may arise because the same persons are
Trustees of both the Trust and the Portfolio.
Frederick S. Addy . . . . . . . Former Executive Vice President and Chief
Financial Officer, Amoco Corporation
William G. Burns . . . . . . . Former Vice Chairman of the Board and
Chief Financial Officer, NYNEX Corporation
Arthur C. Eschenlauer . . . . . Former Senior Vice President, Morgan
Guaranty Trust Company of New York
Matthew Healey . . . . . . . . Chairman and Chief Executive Officer of
the Trust and the Portfolio; Chairman,
Pierpont Group, Inc.
Michael P. Mallardi . . . . . . Former Senior Vice President, Capital
Cities/ABC, Inc. and President, Broadcast
Group
ADVISOR. The Fund has not retained the services of an investment advisor because
the Fund seeks to achieve its investment objective by investing all of its
investable assets in the Portfolio. The Portfolio has retained the services of
Morgan as investment advisor. Morgan provides investment advice and portfolio
management services to the Portfolio. Subject to the supervision of the
Trustees, Morgan makes the Portfolio's day-to-day investment decisions, arranges
for the execution of portfolio transactions and generally manages the
Portfolio's investments.
Morgan, with principal offices at 60 Wall Street, New York, New York 10260, is a
New York trust company that conducts a general banking and trust business.
Morgan is a wholly owned subsidiary of J.P. Morgan & Co. Incorporated ("J.P.
Morgan"), a bank holding company organized under the laws of Delaware. Through
offices in New York City and abroad, J.P. Morgan, through the Advisor and other
subsidiaries, offers a wide range of services to governmental, institutional,
corporate and individual customers and acts as investment advisor to individual
and institutional clients with combined assets under management of over $197
billion (of which the Advisor advises over $30 billion).
Morgan uses a sophisticated, disciplined, collaborative process for managing all
asset classes. The following persons have been primarily responsible for the
day-to-day management and implementation of Morgan's investment process for the
Portfolio (the inception date of each person's responsibility for the Portfolio
and his business experience for the past five years is indicated
parenthetically): Gerard W. Lillis, Managing Director (since February, 1997,
employed by Morgan since prior to 1992) and Mark E. Smith, Vice President (since
February, 1997, employed by Morgan since prior to 1992).
As compensation for the services rendered and related expenses borne by Morgan
under its investment advisory agreement with the Portfolio, the Portfolio has
agreed to pay Morgan a fee which is computed daily and may be paid monthly at
the annual rate of 0.45% of the Portfolio's average daily net assets.
INVESTMENTS IN THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, MORGAN GUARANTY TRUST COMPANY OF NEW YORK OR ANY OTHER BANK.
CO-ADMINISTRATOR. Pursuant to Co-Administration Agreements with the Trust and
the Portfolio, FDI serves as the Co-Administrator for the Fund and the
Portfolio. FDI (i) provides office space, equipment and clerical personnel for
maintaining the organization and books and records of the Fund and the
Portfolio; (ii) provides officers for the Trust and the Portfolio; (iii)
prepares and files documents required for notification of state securities
administrators; (iv) reviews and files
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<PAGE>
marketing and sales literature; (v) files Portfolio regulatory documents and
mails Portfolio communications to Trustees and investors; and (vi) maintains
related books and records.
For its services under the Co-Administration Agreements, each of the Fund and
the 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 the Fund or the Portfolio is based on the ratio of its net
assets to the aggregate net assets of the Trust, the Portfolio and certain other
registered investment companies subject to similar agreements with FDI.
ADMINISTRATIVE SERVICES AGENT. Pursuant to Administrative Services Agreements
with the Trust and the Portfolio, Morgan provides administrative and related
services to the Fund and the Portfolio, including services related to tax
compliance, preparation of financial statements, calculation of performance
data, oversight of service providers and certain regulatory and Board of
Trustees matters.
Under the Administrative Services Agreements, each of the Fund and the Portfolio
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 Portfolio,the other portfolios in which series of the Trust or The
JPM Pierpont Funds invest and JPM 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.
DISTRIBUTOR. FDI, a registered broker-dealer, also serves as the Distributor of
shares of the Fund. FDI is a wholly owned indirect subsidiary of Boston
Institutional Group, Inc. FDI's principal business address is 60 State Street,
Suite 1300, Boston, Massachusetts 02109.
FUND SERVICES AGREEMENTS. Pursuant to Fund Services Agreements with the Trust
and the Portfolio, Pierpont Group, Inc. ("PGI"), 461 Fifth Avenue, New York, New
York 10017, assists the Trustees in exercising their overall supervisory
responsibilities for the affairs of the Trust, the Portfolio and other funds for
which the Trustees serve as trustees. PGI provides these services for a fee
approximating its reasonable cost.
CUSTODIAN AND TRANSFER AGENT. State Street Bank and Trust Company ("State
Street"), 225 Franklin Street, Boston, Massachusetts 02110, serves as the
custodian, fund accounting and transfer agent for the Fund and the Portfolio and
as the Fund's dividend disbursing agent. State Street keeps the books of account
for the Fund and the Portfolio.
EXPENSES. In addition to the fees payable to the service providers identified
above, the Fund and the Portfolio are responsible for usual and customary
expenses associated with their respective operations. These include, among other
things, organization expenses, legal fees, audit and accounting expenses,
insurance costs, the compensation and expenses of the Trustees, interest, taxes
and extraordinary expenses (such as for litigation). For the Fund, such expenses
also include printing and mailing reports, notices and proxy statements to
shareholders and registration fees under federal and state securities laws. For
the Portfolio, such expenses also include registration fees under foreign
securities laws.
Morgan has agreed that it will, at least through November 30, 1997, maintain the
Fund's total operating expenses (which includes expenses of the Fund and the
Portfolio) at the annual rate of 0.90% of the Fund's average daily net assets.
This expense limitation does not cover extraordinary expenses during the period.
SHAREHOLDER INQUIRIES AND SERVICES
Shareholders may call J.P. Morgan Funds Services at (800) 766-7722 for
information about the Fund and assistance with shareholder transactions.
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SHAREHOLDER SERVICING. Under a shareholder servicing agreement with the Trust,
Morgan, acting directly or through an agent (designated as an Eligible
Institution), provides account administration and personal and account
maintenance services to Fund shareholders. These services include assisting in
the maintenance of accurate account records; processing orders to purchase and
redeem shares of the Fund; and responding to shareholder inquiries. The Fund has
agreed to pay Morgan a fee for these services at an annual rate of 0.10% of the
average daily net assets of the Fund.
The Fund may be sold to or through Eligible Institutions, including financial
institutions and broker-dealers, that may be paid fees by Morgan or its
affiliates for services provided to their clients that invest in the Fund. See
Eligible Institutions. Organizations that provide recordkeeping or other
services to certain employee benefit or retirement plans that include the Fund
as an investment alternative may also be paid a fee.
The business days of the Fund and the Portfolio are the days the New York Stock
Exchange is open.
PURCHASE OF SHARES
METHOD OF PURCHASE. Investors may open accounts with the Fund only through the
Distributor. All purchase transactions in Fund accounts are processed by Morgan
as shareholder servicing agent and the Fund is authorized to accept any
instructions relating to a Fund account from Morgan as shareholder servicing
agent for the customer. All purchases must be accepted by the Fund's
Distributor. Investors must be customers of Morgan or an Eligible Institution.
Investors may also be employer-sponsored retirement plans that have designated
the Fund as an investment option for the plans. Prospective investors who are
not already customers of Morgan may apply to become customers of Morgan for the
sole purpose of Fund transactions. There are no charges associated with becoming
a Morgan customer for this purpose. Morgan reserves the right to determine the
customers that it will accept, and the Fund reserves the right to determine the
purchase orders that it will accept.
MINIMUM INVESTMENT REQUIREMENTS. The minimum initial investment in the Fund is
$1,000,000. The minimum subsequent investment is $25,000. These minimum initial
investment requirements may be waived for certain investors, including investors
for whom the Advisor is a fiduciary, who maintain related accounts with the
Fund, other JPM Institutional Funds or with the Advisor, who make investments
for a group of clients, such as financial advisors, trust companies and
investment advisors, or who maintain retirement accounts with the Fund.
PURCHASE PRICE AND SETTLEMENT. The Fund's shares are sold on a continuous basis
without a sales charge at the net asset value next determined after receipt of
an order. Prospective investors may purchase shares with the assistance of an
Eligible Institution that may establish its own terms, conditions and charges.
To purchase Fund shares, investors should request their Morgan representative
(or a representative of their Eligible Institution) to assist them in placing a
purchase order with the Fund's Distributor and to transfer immediately available
funds to the Fund's Distributor on the next business day. Any shareholder may
also call J.P. Morgan Funds Services at (800) 766-7722 for assistance in placing
an order for shares. If the Fund or its agent receives a purchase order prior to
4:00 P.M. New York time on any business day, the purchase of Fund shares is
effective and is made at the net asset value determined that day, and the
purchaser becomes a holder of record on the next business day upon the Fund's
receipt of payment in immediately available funds. If the Fund or its agent
receives a purchase order after 4:00 P.M. New York time, the purchase is
effective and is made at the net asset value determined on the next business
day, and the purchaser becomes a holder of record on the following business day
upon the Fund's receipt of payment.
ELIGIBLE INSTITUTIONS. Shares may be sold to or through Eligible Institutions,
including financial institutions and broker-dealers, that may be paid fees by
Morgan or its affiliates for services provided to their clients that invest in
the Fund.
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Organizations that provide recordkeeping or other services to certain employee
benefit or retirement plans that include the Fund as an investment alternative
may also be paid a fee.
The services provided by Eligible Institutions may include establishing and
maintaining shareholder accounts, processing purchase and redemption
transactions, arranging for bank wires, performing shareholder subaccounting,
answering client inquiries regarding the Trust, assisting clients in changing
dividend options, account designations and addresses, providing periodic
statements showing the client's account balance and integrating these statements
with those of other transactions and balances in the client's other accounts
serviced by the Eligible Institution, transmitting proxy statements, periodic
reports, updated prospectuses and other communications to shareholders and, with
respect to meetings of shareholders, collecting, tabulating and forwarding
executed proxies and obtaining such other information and performing such other
services as Morgan or the Eligible Institution's clients may reasonably request
and agree upon with the Eligible Institution.
Although there is no sales charge levied directly by the Fund, Eligible
Institutions may establish their own terms and conditions for providing their
services and may charge investors a transaction-based or other fee for their
services. Such charges may vary among Eligible Institutions but in all cases
will be retained by the Eligible Institution and not remitted to the Fund or
Morgan.
REDEMPTION OF SHARES
METHOD OF REDEMPTION. To redeem Fund shares, an investor may instruct Morgan or
his or her Eligible Institution, as appropriate, to submit a redemption request
to the Fund or may telephone J.P. Morgan Funds Services directly at (800)
766-7722 and give the Shareholder Service Representative a preassigned
shareholder Personal Identification Number and the amount of the redemption. The
Fund executes effective redemption requests at the next determined net asset
value per share ("NAV"). See Net Asset Value.
A redemption request received by the Fund or its agent prior to 4:00 P.M. New
York time is effective on that day. A redemption request received after that
time becomes effective on the next business day. Cash proceeds of an effective
redemption are generally deposited the next business day in immediately
available funds to the shareholder's account at Morgan or at his Eligible
Institution or, in the case of certain Morgan customers, are mailed by check or
wire transferred in accordance with the customer's instructions and, subject to
further redemption information below, in any event are paid within seven days.
OTHER REDEMPTION PROCESSING INFORMATION. Redemption requests may not be
processed if the redemption request is not submitted in proper form. To be in
proper form, the Fund must have received the shareholder's certified taxpayer
identification number and address. In addition, if shares were paid for by check
and the check has not yet cleared, redemption proceeds will not be transmitted
until the check has cleared, which may take up to 15 days. The Fund reserves the
right to suspend the right of redemption or postpone the payment of redemption
proceeds to the extent permitted by the SEC.
MANDATORY REDEMPTION. If a redemption of shares reduces the value of a
shareholder's account balance below the required initial minimum investment, the
Fund may redeem the remaining shares in the account 60 days after providing
written notice to the shareholder of the mandatory redemption. An account will
not be subject to mandatory redemption if the shareholder purchases sufficient
shares during the 60-day period to increase the account balance to the required
minimum investment amount.
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EXCHANGE OF SHARES
Shares of the Fund may be exchanged for shares of any of The JPM Pierpont Funds,
The JPM Institutional Funds or JPM Series Trust at net asset value without a
sales charge. Shareholders should read the prospectus of the fund into which
they are exchanging and may only exchange between fund accounts that are
registered in the same name, address and taxpayer identification number. After
the exchange, shareholders must meet the minimum investment requirements for the
fund in which they are then investing. An exchange is a redemption of shares
from one fund and a purchase of shares in another and is therefore a taxable
transaction that may have tax consequences. The Fund reserves the right to
discontinue, alter or limit the exchange privilege at any time. Exchanges are
available only in states where an exchange may legally be made.
DIVIDENDS AND DISTRIBUTIONS
Income dividends for the Fund are declared and paid at least annually. Realized
net capital gains will be distributed at least annually. The Fund may also
declare additional dividends from net investment income or capital gains in a
given year to the extent necessary to avoid the imposition of federal income or
excise tax on the Fund. Dividends and distributions will be payable to
shareholders of record on the record date. The Fund's dividends and
distributions are paid in additional Fund shares unless the shareholder elects
to have them paid in cash. The tax treatment of dividends and distributions is
the same whether they are paid in shares or cash. Cash dividends and
distributions are either (1) credited to the shareholder's account at Morgan or
the shareholder's Eligible Institution or (2) in the case of certain Morgan
clients, paid by a check mailed in accordance with the client's instructions.
NET ASSET VALUE
The Fund computes its NAV at 4:15 p.m. New York time on each business day. The
NAV is determined by subtracting from the value of the Fund's total assets (the
value of the Fund's investment in the Portfolio) the amount of its liabilities
and dividing the remainder by the number of outstanding shares.
TAXES
The Fund intends to elect to be treated as a regulated investment company under
Subchapter M of the Code. To qualify as such, the Fund must satisfy certain
requirements relating to the sources of its income, diversification of its
assets and distribution of its income to shareholders. As a regulated investment
company, the Fund will not be subject to federal income or excise tax on any net
investment income and net realized capital gains that are distributed to
shareholders in accordance with certain timing requirements of the Code.
Dividends paid by the Fund from net investment income, certain net foreign
currency gains, and the excess of net short-term capital gain over net long-term
capital loss will be taxable to its shareholders as ordinary income.
Distributions paid by the Fund from the excess of net long-term capital gain
over net short-term capital loss and designated as "capital gain dividends" will
be taxable as long-term capital gains regardless of how long shareholders have
held their shares. These tax consequences will apply whether distributions are
received in additional shares or in cash. The Fund's dividends and distributions
will generally not qualify for the corporate dividends-received deduction under
the Code. Shareholders will be informed annually about the amount and character,
for federal income tax purposes, of distributions received from the Fund.
The Portfolio anticipates that it may be required to pay foreign taxes on its
income from certain foreign investments, which will reduce its return from those
investments. The Fund may be permitted to elect to pass through its share of any
qualifying foreign taxes paid by the Portfolio to its shareholders. If this
election is made, shareholders will then include
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their share of such taxes in income (in addition to actual dividends and
distributions) and may be entitled, subject to applicable limitations, to a
corresponding federal income tax credit or deduction. The Fund will provide
appropriate information to shareholders if this election is made.
Investors should consider the adverse tax implications of buying shares before a
distribution. Investors who purchase shares shortly before the record date for a
distribution will pay a per share price that includes the value of the
anticipated distribution and will be taxed on the distribution even though the
distribution represents a return of a portion of the purchase price.
Redemptions of shares, whether for cash or in-kind, are taxable events on which
a shareholder may recognize a gain or loss and may be subject to special tax
rules if the redeemed shares were held less than six months or if a reinvestment
occurs. Individuals and certain other shareholders may be subject to 31% backup
withholding of federal income tax on distributions and redemptions if they fail
to furnish their correct taxpayer identification number and certain
certifications or if they are otherwise subject to backup withholding.
In addition to federal taxes, a shareholder may be subject to state, local or
other taxes on Fund distributions, redemptions or exchanges of shares of the
Fund, or the value of their Fund investment. Shareholders are urged to consult
their own tax advisors concerning specific questions about federal, state, local
or other taxes.
ORGANIZATION
The Trust was organized on November 4, 1992 as a Massachusetts business trust.
The Trust currently has 20 series of shares, including the Fund, that are
offered to the public.
Shareholders of the Fund are entitled to one full or fractional vote for each
share of the Fund. There is no cumulative voting and shares have no preemption
or conversion rights. The Trust does not intend to hold annual meetings of
shareholders. The Trustees will call special meetings of shareholders to the
extent required by the Trust's Declaration of Trust or the 1940 Act. The 1940
Act requires the Trustees, under certain circumstances, to call a meeting to
allow shareholders to vote on the removal of a Trustee and to assist
shareholders in communicating with each other.
ADDITIONAL INFORMATION
THE LEHMAN BROTHERS AGGREGATE BOND INDEX. The Index is a widely recognized
measure of the aggregate U.S. bond market and represents an unmanaged portfolio
of fixed income securities. The Index represents approximately 4,000 investment
grade corporate, government, and mortgage-backed securities weighted by the
market value of each security.
SHAREHOLDER REPORTS AND CONFIRMATIONS. The Fund sends to its shareholders annual
and semiannual reports. The financial statements appearing in annual reports are
audited by independent accountants. Shareholders will also be sent confirmations
of each purchase and redemption transaction and monthly statements reflecting
all account activity.
TELEPHONE TRANSACTIONS. All shareholders are entitled to initiate redemptions
and other transactions by telephone. However, a transaction authorized by
telephone and reasonably believed by the Fund, Morgan, an Eligible Institution
or the Distributor to be genuine may result in a loss to the investor if the
transaction is not in fact genuine. The Fund will employ reasonable procedures
to confirm that investor instructions communicated by telephone are genuine.
These include requiring investors to give their personal identification numbers
and tape recording telephone instructions. If these procedures are not followed,
the Fund, Morgan, the investor's Eligible Institution or the Distributor may be
liable for any losses resulting from unauthorized or fraudulent instructions.
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PERFORMANCE ADVERTISING. The Fund may advertise historical performance
information and compare its performance to other investments or relevant
indexes. An advertisement may also include data supplied by Lipper Analytical
Services, Inc., Micropal Inc., Morningstar Inc., Ibbotson Associates and other
industry publications.
The Fund may advertise average annual total return and other forms of total
return data. Average annual total return is determined by computing the average
annual percentage change in value of $1,000 invested at NAV for specified
periods ending with the most recent calendar quarter. The total return
calculation assumes a complete redemption of the investment at the end of the
relevant period. The Fund may also advertise total return on a cumulative,
average, year-by-year or other basis for specified periods. The investment
results of the Fund will fluctuate over time and should not be considered a
representation of the Fund's performance in the future.
The Fund may advertise its yield. Yield reflects the Fund's rate of income on
portfolio investments as a percentage of its NAV. Yield is computed by
annualizing the result of dividing the net investment income per share over a
30-day period by the NAV on the last day of that period. Yield is calculated by
accounting methods that are standardized for all stock and bond funds and differ
from the methods used for other accounting purposes. Therefore, the yield on the
Fund's shares may not equal the income paid on these shares or the income
reported in the Fund's financial statements.
Performance information may be obtained by calling Morgan at (800) 766-7722.
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THE
JPM
INSTITUTIONAL
GLOBAL
STRATEGIC
INCOME
FUND
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in this
Prospectus, in connection with the offer contained in this Prospectus and, if
given or made, such other information or representations must not be relied upon
as having been authorized by the Trust or the Distributor. This Prospectus does
not constitute an offer by the Trust or by the Distributor to sell or a
solicitation of any offer to buy any of the securities offered hereby in any
jurisdiction to any person to whom it is unlawful for the Trust or the
Distributor to make such an offer in such jurisdiction.
PROSPECTUS
FEBRUARY , 1997
