PROSPECTUS
The JPM Institutional Service Prime Money Market Fund
60 State Street
Boston, Massachusetts 02109
For information call (800) 766-7722
The JPM Institutional Service Prime Money Market Fund (the "Fund") seeks to
maximize current income and maintain a high level of liquidity. It is
designed for investors who seek to preserve capital and earn current income
from a portfolio of high quality money market instruments.
The Fund is a diversified no-load mutual fund for which there are no sales
charges or exchange or redemption fees. The Fund is a series of The JPM
Institutional Funds, an open-end management investment company organized as
a Massachusetts business trust (the "Trust").
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 THE PRIME MONEY MARKET
PORTFOLIO (FORMERLY THE MONEY MARKET PORTFOLIO) (THE "PORTFOLIO"), A
CORRESPONDING DIVERSIFIED 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 ON PAGE 3.
The Portfolio is advised by Morgan Guaranty Trust Company of New York
("Morgan" or "Advisor").
This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing and it should be
retained for future reference. Additional information about the Fund has
been filed with the Securities and Exchange Commission in a Statement of
Additional Information dated May 30, 1997 (as 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,
Funds Distributor, Inc. ("FDI"), 60 State Street, Suite 1300, Boston,
Massachusetts 02109, Attention: The JPM Institutional Funds, or by calling
(800) 221-7930.
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. 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. ALTHOUGH THE FUND SEEKS TO MAINTAIN A STABLE NET ASSET VALUE OF
$1.00 PER SHARE, THERE CAN BE NO ASSURANCE THAT IT WILL BE ABLE TO CONTINUE
TO DO SO.
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 MAY 30, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Investors for Whom the Fund is Designed.................................... 1
Special Information Concerning Investment Structure........................ 3
Investment Objective and Policies.......................................... 4
Additional Investment Information and Risk
Factors................................................................... 5
Investment Restrictions.................................................... 7
Management of the Trust and the Portfolio.................................. 7
Shareholder Servicing...................................................... 9
</TABLE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
Purchase of Shares......................................................... 10
Redemption of Shares....................................................... 11
Exchange of Shares......................................................... 12
Dividends and Distributions................................................ 12
Net Asset Value............................................................ 12
Organization............................................................... 13
Taxes...................................................................... 13
Additional Information..................................................... 14
</TABLE>
<PAGE>
The JPM Institutional Service Prime Money Market Fund
INVESTORS FOR WHOM THE FUND IS DESIGNED
The Fund is designed to be an economical and convenient means of making sub-
stantial investments in money market instruments for investors who are inter-
ested in current income, preserving capital and maintaining liquidity. The Fund
seeks to achieve its investment objective by investing all of its investable
assets in The Prime Money Market Portfolio, a diversified open-end management
investment company having the same investment objective as the Fund. Since the
investment characteristics and experience of the Fund will correspond directly
with those of the Portfolio, the discussion in this Prospectus focuses on the
investments and investment policies of the Portfolio.
THE FUND SEEKS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE
CAN BE NO ASSURANCE THAT IT WILL BE ABLE TO CONTINUE TO DO SO.
The Fund generally requires a minimum initial investment of $10 million. The
minimum subsequent investment is $25,000. See Purchase of Shares. If an account
with the Fund is reduced to less than $10 million for more than 30 days, the
investment may be subject to mandatory redemption. See Redemption of Shares-
Mandatory Redemption by the Fund.
This Prospectus describes the financial history, investment objective and poli-
cies, management and operation of the Fund to enable investors to decide if the
Fund suits their needs. The Fund operates in a two-tier master-feeder invest-
ment structure. The Trustees believe that the Fund may achieve economies of
scale over time by utilizing this investment structure.
The following table illustrates that investors in the Fund incur no shareholder
transaction expenses; their investment in the Fund is subject only to the oper-
ating expenses set forth below for the Fund and the Portfolio, as a percentage
of average net assets of the Fund. The Trustees of the Trust believe that the
aggregate per share expenses of the Fund and the Portfolio will be approxi-
mately equal to and may be less than the expenses that the Fund would incur if
it retained the services of an investment adviser and invested its assets di-
rectly in portfolio securities. Fund and Portfolio expenses are discussed below
under the headings Management of the Trust and the Portfolio and Shareholder
Servicing.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases*........................................... None
Sales Load Imposed on Reinvested Dividends................................. None
Deferred Sales Load........................................................ None
Redemption Fees............................................................ None
Exchange Fees.............................................................. None
</TABLE>
- -------
* Certain Service Organizations (defined below) may impose fees in connection
with the purchase of the Fund's shares through such institutions. See Service
Organizations.
1
<PAGE>
EXPENSE TABLE
ANNUAL OPERATING EXPENSES*
<TABLE>
<S> <C>
Advisory Fees............................................................. 0.12%
Rule 12b-1 Fees........................................................... None
Other Expenses (after expense reimbursement).............................. 0.08%
Service Fees**............................................................ 0.25%
-----
Total Operating Expenses (after expense reimbursement).................... 0.45%
</TABLE>
* These expenses are based on the Fund's estimated expenses and estimated av-
erage net assets for its current fiscal year and through March 31, 1999, af-
ter applicable voluntary expense reimbursement. Without such expense reim-
bursement, the estimated Other Expenses and Total Operating Expenses would
be equal on an annual basis to 0.19% and 0.56%, respectively, of the average
daily net assets of the Fund.
** Service Organizations may charge other fees to their customers who are the
beneficial owners of shares in connection with their customers' accounts.
See Service Organizations. Such fees, if any, may affect the return such
customers realize with respect to their investments.
EXAMPLE
An investor would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<S> <C>
1 Year...................................................................... $ 5
3 Years..................................................................... $14
</TABLE>
The above expense table is designed to assist investors in understanding the
various direct and indirect costs and expenses that investors in the Fund
bear. The fees and expenses included in Other Expenses are the fees paid to
Morgan under the Administrative Services Agreements and the Shareholder Ser-
vicing Agreement, organization expenses, the fees paid to Pierpont Group, Inc.
under the Fund Services Agreements, the fees paid to FDI under the Co-Adminis-
tration Agreements, the fees paid to State Street Bank and Trust Company as
custodian and transfer agent, and other usual and customary expenses of the
Fund and the Portfolio. For a more detailed description of contractual fee ar-
rangements, including expense reimbursements, see Management of the Trust and
the Portfolio and Shareholder Servicing. In connection with the above example,
please note that $1,000 is less than the Fund's minimum investment requirement
and that there are no redemption or exchange fees of any kind. See Purchase of
Shares and Redemption of Shares. THE EXAMPLE IS HYPOTHETICAL; IT IS INCLUDED
SOLELY FOR ILLUSTRATIVE PURPOSES. IT SHOULD NOT BE CONSIDERED A REPRESENTATION
OF FUTURE PERFORMANCE; ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
2
<PAGE>
SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE
Unlike other mutual funds which directly acquire and manage their own portfo-
lio of securities, the Fund is an open-end management investment company which
seeks to achieve its investment objective by investing all of its investable
assets in the Portfolio, a separate registered investment company with the
same investment objective as the Fund. The investment objective of the Fund or
Portfolio may be changed only with the approval of the holders of the out-
standing shares of the Fund and the Portfolio. The master-feeder investment
fund structure has been developed relatively recently, so shareholders should
carefully consider this investment approach.
In addition to selling a beneficial interest to the Fund, the Portfolio may
sell beneficial interests to other mutual funds or institutional investors.
Such investors will invest in the Portfolio on the same terms and conditions
and will bear a proportionate share of the Portfolio's expenses. However, the
other investors investing in the Portfolio may sell shares of their own fund
using a different pricing structure than the Fund. Such different pricing
structures may result in differences in returns experienced by investors in
other funds that invest in the Portfolio. Such differences in returns are not
uncommon and are present in other mutual fund structures. Information concern-
ing other holders of interests in the Portfolio is available from Morgan at
(800) 766-7722.
The Trust may withdraw the investment of the Fund from the Portfolio at any
time if the Board of Trustees of the Trust determines that it is in the best
interests of the Fund to do so. Upon any such withdrawal, the Board of Trust-
ees would consider what action might be taken, including the investment of all
the assets of the Fund in another pooled investment entity having the same in-
vestment objective and restrictions as the Fund or the retaining of an invest-
ment adviser to manage the Fund's assets in accordance with the investment
policies described below with respect to the Portfolio.
Certain changes in the Portfolio's investment objective, policies or restric-
tions, or a failure by the Fund's shareholders to approve a change in the
Portfolio's investment objective or restrictions, may require withdrawal of
the Fund's interest in the Portfolio. Any such withdrawal could result in a
distribution in kind of portfolio securities (as opposed to a cash distribu-
tion) from the Portfolio which may or may not be readily marketable. The dis-
tribution in kind may result in the Fund having a less diversified portfolio
of investments or adversely affect the Fund's liquidity, and the Fund could
incur brokerage, tax or other charges in converting the securities to cash.
Notwithstanding the above, there are other means for meeting shareholder re-
demption requests, such as borrowing.
Smaller funds investing in the Portfolio may be materially affected by the ac-
tions of larger funds investing in the Portfolio. For example, if a large fund
withdraws from the Portfolio, the remaining funds may subsequently experience
higher pro rata operating expenses, thereby producing lower returns. Addition-
ally, because the Portfolio would become smaller, it may become less diversi-
fied, resulting in potentially increased portfolio risk (however, these possi-
bilities also exist for traditionally structured funds which have large or in-
stitutional investors who may withdraw from a fund). Also, funds with a
greater pro rata ownership in the Portfolio could have effective voting con-
trol of the operations of the Portfolio. Whenever the Fund is requested to
vote on matters pertaining to the Portfolio (other than a vote by the Fund to
continue the operation of the Portfolio upon the withdrawal of another in-
vestor in the Portfolio), the Trust will hold a meeting of shareholders of the
Fund and will cast all of its votes proportionately as instructed by the
Fund's shareholders. The Trust will vote the shares held by Fund shareholders
who do not give voting instructions in the same proportion as the shares of
Fund shareholders who do give voting instructions. Shareholders of the Fund
who do not vote will have no effect on the outcome of such matters.
For more information about the Portfolio's investment objective, policies and
restrictions, see Investment Objective and Policies, Additional Investment In-
formation and Risk Factors and Investment Restrictions. For more information
about the Portfolio's management and expenses, see Management of the Trust and
the Portfolio. For more information about changing the investment objective,
policies and restrictions of the Fund or the Portfolio, see Investment Re-
strictions.
3
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund and the Portfolio is described below, to-
gether with the policies they employ in their efforts to achieve this objec-
tive. Additional information about the investment policies of the Fund and the
Portfolio appears in the Statement of Additional Information under Investment
Objectives and Policies. There can be no assurance that the investment objec-
tive of the Fund or the Portfolio will be achieved.
The Fund's investment objective is to maximize current income and maintain a
high level of liquidity. The Fund is designed for investors who seek to pre-
serve capital and earn current income from a portfolio of high quality money
market instruments. The Fund attempts to achieve its objective by investing all
of its investable assets in The Prime Money Market Portfolio, a diversified
open-end management investment company having the same investment objective as
the Fund.
The Portfolio seeks to achieve its investment objective by maintaining a dol-
lar-weighted average portfolio maturity of not more than 90 days and by invest-
ing in the following high quality U.S. dollar-denominated securities which have
effective maturities of 397 calendar days or less. The market value of obliga-
tions in which the Portfolio invests is not guaranteed and may rise and fall in
response to changes in interest rates. The Portfolio's ability to achieve maxi-
mum current income is affected by its high quality standards (discussed below).
UNITED STATES GOVERNMENT OBLIGATIONS. The Portfolio may invest in obligations
issued or guaranteed by the U.S. Government and backed by the full faith and
credit of the United States. These securities include Treasury securities, ob-
ligations of the Government National Mortgage Association, the Farmers Home Ad-
ministration and the Export Import Bank. The Portfolio may also invest in obli-
gations issued or guaranteed by U.S. Government agencies or instrumentalities
where the Portfolio must look principally to the issuing or guaranteeing agency
for ultimate repayment; some examples of agencies or instrumentalities issuing
these obligations are the Federal Farm Credit System, the Federal Home Loan
Banks and the Federal National Mortgage Association.
BANK OBLIGATIONS. The Portfolio may invest in high quality U.S. dollar-denomi-
nated negotiable certificates of deposit, time deposits and bankers' accept-
ances of (i) banks, savings and loan associations and savings banks which have
more than $2 billion in total assets and are organized under U.S. federal or
state law, (ii) foreign branches of these banks or of foreign banks of equiva-
lent size (Euros) and (iii) U.S. branches of foreign banks of equivalent size
(Yankees). The Portfolio may also invest in obligations of international bank-
ing institutions designated or supported by national governments to promote
economic reconstruction, development or trade between nations (e.g., the Euro-
pean Investment Bank, the Inter-American Development Bank, or the World Bank).
These obligations may be supported by appropriated but unpaid commitments of
their member countries, and there is no assurance these commitments will be un-
dertaken or met in the future.
COMMERCIAL PAPER; BONDS. The Portfolio may invest in high quality commercial
paper and corporate bonds issued by U.S. corporations. The Portfolio may also
invest in bonds and commercial paper of foreign issuers if the obligation is
U.S. dollar-denominated and is not subject to foreign withholding tax.
ASSET-BACKED SECURITIES. The Portfolio may also invest in securities generally
referred to as asset-backed securities, which directly or indirectly represent
a participation interest in, or are secured by and payable from, a stream of
payments generated by particular assets, such as motor vehicle or credit card
receivables or other asset-backed securities collateralized by such assets. As-
set-backed securities provide periodic payments that generally consist of both
interest and principal payments. Consequently, the life of an asset-backed se-
curity varies with the prepayment experience of the underlying obligations.
QUALITY INFORMATION. The Portfolio will limit its investments to those securi-
ties which, in accordance with guidelines adopted by the Trustees, present min-
imal credit risks. In addition, the Portfolio will not purchase any security
(other than
4
<PAGE>
a U.S. Government security) unless (i) it is rated with the highest rating as-
signed to short-term debt securities by at least two nationally recognized
statistical rating organizations such as Moody's Investors Service, Inc.
("Moody's") and Standard & Poor's Ratings Group ("Standard & Poor's"), (ii) it
is rated by only one agency with the highest such rating, or (iii) it is not
rated and is determined to be of comparable quality. Determinations of compa-
rable quality shall be made in accordance with procedures established by the
Trustees. For a more detailed discussion of applicable quality requirements,
see Investment Objective and Policies in the Statement of Additional Informa-
tion. These standards must be satisfied at the time an investment is made. If
the quality of the investment later declines below the quality required for
purchase, the Portfolio shall dispose of the investment, subject in certain
circumstances to a finding by the Trustees that disposing of the investment
would not be in the Portfolio's best interest.
The Portfolio may also invest in securities on a when-issued or delayed deliv-
ery basis and in certain privately placed securities. The Portfolio may also
enter into repurchase and reverse repurchase agreements and lend its portfolio
securities. For a discussion of these investments and for more information on
foreign investments, see Additional Investment Information.
ADDITIONAL INVESTMENT INFORMATION AND RISK FACTORS
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase secu-
rities on a when-issued or delayed delivery basis. Delivery of and payment for
these securities may take as long as a month or more after the date of the
purchase commitment. The value of these securities is subject to market fluc-
tuation during this period and for fixed income securities no interest or in-
come accrues to the Portfolio until settlement. At the time of settlement a
when-issued security may be valued at less than its purchase price. The Port-
folio maintains with the Custodian a separate account with a segregated port-
folio of securities in an amount at least equal to these commitments. When en-
tering into a when-issued or delayed delivery transaction, the Portfolio will
rely on the other party to consummate the transaction; if the other party
fails to do so, the Portfolio may be disadvantaged. It is the current policy
of the Portfolio not to enter into when-issued commitments exceeding in the
aggregate 15% of the market value of the Portfolio's total assets less liabil-
ities other than the obligations created by these commitments.
REPURCHASE AGREEMENTS. The Portfolio may engage in repurchase agreement trans-
actions with brokers, dealers or banks that meet the credit guidelines estab-
lished by the Portfolio's Trustees. In a repurchase agreement, the Portfolio
buys a security from a seller that has agreed to repurchase it at a mutually
agreed upon date and price, reflecting the interest rate effective for the
term of the agreement. The term of these agreements is usually from overnight
to one week. A repurchase agreement may be viewed as a fully collateralized
loan of money by the Portfolio to the seller. The Portfolio always receives
securities as collateral with a market value at least equal to the purchase
price plus accrued interest and this value is maintained during the term of
the agreement. If the seller defaults and the collateral value declines, the
Portfolio might incur a loss. If bankruptcy proceedings are commenced with re-
spect to the seller, the Portfolio's realization upon the disposition of col-
lateral may be delayed or limited. Investments in certain repurchase agree-
ments and certain other investments which may be considered illiquid are lim-
ited. See Illiquid Investments; Privately Placed and other Unregistered Secu-
rities below.
LOANS OF PORTFOLIO SECURITIES. Subject to applicable investment restrictions,
the Portfolio is permitted to lend its securities in amount up to 33 1/3% of
the value of the Portfolio's net assets. The Portfolio 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 Portfolio 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 Portfolio any in-
come accruing thereon. Loans will be subject to termination by the Portfolio
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 Portfolio
and its respective investors. The Portfolio may
5
<PAGE>
pay reasonable finders' and custodial fees in connection with a loan. In addi-
tion, the Portfolio will consider all facts and circumstances, including the
creditworthiness of the borrowing financial institution, and the Portfolio
will not make any loans in excess of one year.
Loans of portfolio securities may be considered extensions of credit by the
Portfolio. The risks to the Portfolio with respect to borrowers of its portfo-
lio securities are similar to the risks to the Portfolio with respect to sell-
ers in repurchase agreement transactions. See Repurchase Agreements above. The
Portfolio will not lend its securities to any officer, Trustee, Director, em-
ployee or other affiliate of the Portfolio, the Advisor or the Distributor,
unless otherwise permitted by applicable law.
REVERSE REPURCHASE AGREEMENTS. The Portfolio is permitted to enter into re-
verse repurchase agreements. In a reverse repurchase agreement, the Portfolio
sells a security and agrees to repurchase it at a mutually agreed upon date
and price, reflecting the interest rate effective for the term of the agree-
ment. For purposes of the Investment Company Act of 1940, as amended (the
"1940 Act"), it is considered a form of borrowing by the Portfolio and, there-
fore, is a form of leverage. Leverage may cause any gains or losses of the
Portfolio to be magnified. See Investment Restrictions for investment limita-
tions applicable to reverse repurchase agreements and other borrowings. For
more information, see Investment Objectives and Policies in the Statement of
Additional Information.
FOREIGN INVESTMENT INFORMATION. The Portfolio may invest in certain U.S. dol-
lar-denominated foreign securities. Investment in securities of foreign is-
suers and in obligations of foreign branches of domestic banks involves some-
what different investment risks from those affecting securities of U.S. domes-
tic issuers. There may be limited publicly available information with respect
to foreign issuers, and foreign issuers are not generally subject to uniform
accounting, auditing and financial standards and requirements comparable to
those applicable to domestic companies. The Portfolio may only invest in for-
eign securities that are not subject to foreign withholding tax.
Investors should realize that the value of the Portfolio's investments in for-
eign securities may be adversely affected by changes in political or social
conditions, diplomatic relations, confiscatory taxation, expropriation, na-
tionalization, limitation on the removal of funds or assets, or imposition of
(or change in) exchange control or tax regulations in those foreign countries.
In addition, changes in government administrations or economic or monetary
policies in the United States or abroad could result in appreciation or depre-
ciation of portfolio securities and could favorably or unfavorably affect the
Portfolio's operations. Furthermore, the economies of individual foreign na-
tions may differ from the U.S. economy, whether favorably or unfavorably, in
areas such as growth of gross national product, rate of inflation, capital re-
investment, resource self-sufficiency and balance of payments position; it may
also be more difficult to obtain and enforce a judgment against a foreign is-
suer. Any foreign investments made by the Portfolio must be made in compliance
with U.S. and foreign currency restrictions and tax laws restricting the
amounts and types of foreign investments.
SYNTHETIC INSTRUMENTS. The Portfolio may invest in certain synthetic instru-
ments. Such instruments generally involve the deposit of asset-backed securi-
ties in a trust arrangement and the issuance of certificates evidencing inter-
ests in the trust. The certificates are generally sold in private placements
in reliance on Rule 144A. The Advisor will review the structure of synthetic
instruments to identify credit and liquidity risks and will monitor those
risks. See Illiquid Investments; Privately Placed and other Unregistered Secu-
rities.
ILLIQUID INVESTMENTS; PRIVATELY PLACED AND OTHER UNREGISTERED SECURITIES. The
Portfolio may not acquire any illiquid securities if, as a result thereof,
more than 10% of the Portfolio's net assets would be in illiquid investments.
Subject to this fundamental policy limitation, the Portfolio may acquire in-
vestments that are illiquid or have limited liquidity, such as private place-
ments or investments that are not registered under the Securities Act of 1933,
as amended (the "1993 Act"), and cannot be offered for public sale in the
United States without first being registered under the 1933 Act. An illiquid
investment is any investment that cannot be disposed of within seven days in
the normal course of business at approximately the amount at which it is val-
ued by the Portfolio. The price the Portfolio pays for illiquid securities or
6
<PAGE>
receives upon resale may be lower than the price paid or received for similar
securities with a more liquid market. Accordingly the valuation of these secu-
rities will reflect any limitations on their liquidity.
The Portfolio may also purchase Rule 144A securities sold to institutional in-
vestors without registration under the 1933 Act. These securities may be de-
termined to be liquid in accordance with guidelines established by the Advisor
and approved by the Trustees. The Trustees will monitor the Advisor's imple-
mentation of these guidelines on a periodic basis.
INVESTMENT RESTRICTIONS
As a diversified investment company, 75% of the assets of the Portfolio are
subject to the following fundamental limitations: (a) the Portfolio may not
invest more than 5% of its total assets in the securities of any one issuer,
except U.S. Government securities, and (b) the Portfolio may not own more than
10% of the outstanding voting securities of any one issuer. The Portfolio is
subject to additional non-fundamental requirements governing non-tax exempt
money market funds. These non-fundamental requirements generally prohibit the
Portfolio from investing more than 5% of its total assets in the securities of
any single issuer, except obligations of the U.S. Government and its agencies
and instrumentalities.
The investment objective of the Fund and the Portfolio, together with the in-
vestment restrictions described below and in the Statement of Additional In-
formation, except as noted, are deemed fundamental policies, i.e., they may be
changed only with the approval of the holders of a majority of the outstanding
voting securities of the Fund and the Portfolio. The Fund has the same invest-
ment restrictions as the Portfolio, except that the Fund may invest all of its
investable assets in another open-end investment company with the same invest-
ment objective and restrictions (such as the Portfolio). References below to
the Portfolio's investment restrictions also include the Fund's investment re-
strictions.
The Portfolio may not (i) acquire any illiquid securities if as a result more
than 10% of the market value of its total assets would be in investments which
are illiquid, (ii) enter into reverse repurchase agreements exceeding one-
third of the market value of its total assets, less certain liabilities, (iii)
borrow money, except from banks for extraordinary or emergency purposes and
then only in amounts up to 10% of the value of the Portfolio's total assets,
taken at cost at the time of borrowing, or purchase securities while
borrowings exceed 5% of its total assets; or mortgage, pledge or hypothecate
any assets except in connection with any such borrowings in amounts up to 10%
of the value of the Portfolio's net assets at the time of borrowing; or (iv)
invest more than 25% of its assets in any one industry, except there is no
percentage limitation with respect to investments in U.S. Government securi-
ties, negotiable certificates of deposit, time deposits, and bankers' accept-
ances of U.S. branches of U.S. banks.
For a more detailed discussion of the above investment restrictions, as well
as a description of certain other investment restrictions, see Investment Re-
strictions in the Statement of Additional Information.
MANAGEMENT OF THE TRUST AND THE PORTFOLIO
TRUSTEES. Pursuant to the Declarations of Trust for the Trust and for the
Portfolio, the Trustees decide upon matters of general policy and review the
actions of the Advisor and other service providers. The Trustees of the Trust
and of the Portfolio are identified below.
<TABLE>
<S> <C>
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;
Chairman, Pierpont Group, Inc.
Michael P. Mallardi................. Former Senior Vice President, Capital
Cities/ABC, Inc. and President, Broadcast
Group
</TABLE>
7
<PAGE>
A majority of the disinterested Trustees have adopted written procedures rea-
sonably 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 JPM Pierpont Funds, up to and including creating a separate board of trust-
ees. See Trustees and Officers in the Statement of Additional Information for
more information about the Trustees and Officers of the Fund and the Portfolio.
The Portfolio and the Trust have each entered into a Fund Services Agreement
with Pierpont Group, Inc. to assist the Trustees in exercising their overall
supervisory responsibilities for the Portfolio's and the Trust's affairs. The
fees to be paid under the agreements approximate the reasonable cost of Pier-
pont Group, Inc. in providing these services to the Trust, the Portfolio and
certain other registered investment companies subject to similar agreements
with Pierpont Group, Inc. Pierpont Group, Inc. was organized in 1989 at the re-
quest of the Trustees of The Pierpont Family of Funds for the purpose of pro-
viding these services at cost to these funds. See Trustees and Officers in the
Statement of Additional Information. The principal offices of Pierpont Group,
Inc. are located at 461 Fifth Avenue, New York, New York 10017.
ADVISOR. The Fund has not retained the services of an investment adviser be-
cause 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, with principal offices at 60 Wall
Street, New York, New York 10260, is a New York trust company which conducts a
general banking and trust business. Morgan is a wholly owned subsidiary of J.P.
Morgan & Co. Incorporated ("J.P. Morgan"), a bank holding company organized un-
der 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 adviser to individual and institutional clients with com-
bined assets under management of over $208 billion. Morgan provides investment
advice and portfolio management services to the Portfolio. Subject to the su-
pervision of the Portfolio's 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. See Investment Advisor in the
Statement of Additional Information.
Morgan uses a sophisticated, disciplined, collaborative process for managing
all asset classes. The following persons are primarily responsible for the day-
to-day management and implementation of Morgan's process for the Portfolio (the
inception date of each person's responsibility for the Portfolio and his busi-
ness experience for the past five years is indicated parenthetically): Robert
R. Johnson, Vice President (since June, 1988, employed by Morgan since prior to
1992) and Daniel B. Mulvey, Vice President (since January, 1995, employed by
Morgan since 1992).
As compensation for the services rendered and related expenses borne by Morgan
under the 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 0.20% of the Portfolio's average daily net assets up to $1
billion, and 0.10% of average daily net assets in excess of $1 billion.
Under separate agreements, Morgan also provides administrative and related
services to the Fund and the Portfolio and shareholder services to shareholders
of the Fund. See Administrative Services Agent and Shareholder Servicing below.
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, Funds Distributor, Inc. ("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 Port-
folio; (iii) prepares and files documents required for notification of state
securities administrators; (iv) reviews and files marketing and sales litera-
ture; (v) files Portfolio regulatory documents and mails Portfolio communica-
tions to Trustees and investors; and (vi) maintains related books and records.
8
<PAGE>
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 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 com-
pliance, 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 Portfo-
lio 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 Trust and certain other registered investment companies man-
aged by the Advisor 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 and as exclusive placement agent for the Portfolio. FDI
is a wholly owned indirect subsidiary of Boston Institutional Group, Inc.
FDI's principal business address is 60 State Street, Suite 1300, Boston, Mas-
sachusetts 02109.
CUSTODIAN. State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02110, serves as the Fund's and the Portfolio's
custodian and fund accounting and transfer agent and the Fund's dividend dis-
bursing agent. State Street also keeps the books of account for the Fund and
the Portfolio.
EXPENSES. In addition to the fees payable to Morgan, FDI and Pierpont Group,
Inc. under the various agreements discussed under Trustees, Advisor, Co-Admin-
istrator and Administrative Services Agent above and Shareholder Servicing be-
low, the Fund and the Portfolio are responsible for usual and customary ex-
penses associated with their respective operations. Such expenses include or-
ganization expenses, legal fees, accounting and audit expenses, insurance
costs, the compensation and expenses of the Trustees, costs associated with
its registration under federal securities laws, and extraordinary expenses ap-
plicable to the Fund or the Portfolio. For the Fund, such expenses also in-
clude transfer, registrar and dividend disbursement costs, the expenses of
printing and mailing reports, notices and proxy statements to Fund sharehold-
ers, and filing fees under state securities laws. For the Portfolio, such ex-
penses also include registration fees under foreign securities laws, custodian
fees and brokerage expenses.
Morgan has agreed that it will reimburse the Fund through at least March 31,
1999 to the extent necessary to maintain the Fund's total operating expenses
(which include expenses of the Fund and the Portfolio) at the annual rate of
0.45% of the Fund's average daily net assets. This limit does not cover ex-
traordinary expenses during the period. There is no assurance that Morgan will
continue this waiver beyond the specified period.
SHAREHOLDER SERVICING
Pursuant to a Shareholder Servicing Agreement with the Trust, Morgan acts as
shareholder servicing agent. The Fund pays Morgan for these services at an an-
nual 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 share-
holder servicing agent) of 0.05% of the Fund's average daily net assets. Under
the terms of the Shareholder Servicing Agreement with the Fund, Morgan may
delegate one or more of its responsibilities to other entities at Morgan's ex-
pense.
9
<PAGE>
The Fund may be sold to or through service organizations ("Service Organiza-
tions"), 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 Service Organizations. Organizations that provide re-
cordkeeping or other services to certain employee benefit or retirement plans
that include the Fund as an investment alternative may also be paid a fee.
Shareholders should address all inquiries to their Service Organization or to
J.P. Morgan Funds Services, Morgan Guaranty Trust Company of New York, 522
Fifth Avenue, New York, New York 10036 or call (800) 766-7722.
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 in-
structions relating to a Fund account from Morgan as shareholder servicing
agent for the customer. All purchase orders must be accepted by the Distribu-
tor. Investors must be customers of a Service Organization. The Trust reserves
the right to determine the purchase orders that it will accept.
The Fund requires a minimum initial investment of $10 million and a minimum
subsequent investment of $25,000. These minimum investment requirements may be
waived for certain investors, including investors for whom the Advisor is a fi-
duciary, who maintain related accounts with the Fund, other JPM Institutional
Funds or the Advisor, who make investments for a group of clients, such as fi-
nancial advisors, trust companies and investment advisors, or who maintain re-
tirement accounts with the Funds. 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. A Service Organization
may effect redemptions of noncomplying accounts and may impose a charge for any
special services rendered to its customers. Customers should contact their
Service Organizations for further information concerning such requirements and
charges. A Service Organization may purchase shares in connection with sweep
account programs.
PURCHASE PRICE AND SETTLEMENT. The Fund's shares are sold on a continuous basis
without a sales charge at the net asset value per share next determined after
receipt of an order. Prospective investors may purchase shares with the assis-
tance of a Service Organization that may establish its own terms, conditions
and charges.
To purchase shares in the Fund, investors should request a representative of
their Service Organization 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 same day. Any shareholder may also call J.P. Morgan Funds
Services at (800) 766-7722 for assistance in placing an order for Fund shares.
Purchase orders and immediately available funds must be received by 4:00 P.M.
New York time on a business day for the purchase to be effective and dividends
to be earned on the same day. The Fund does not accept orders after the indi-
cated time. If funds are received after 4:00 P.M. New York time for any reason,
including that the day is a Federal Reserve holiday, the purchase is not effec-
tive and dividends are not earned until the next business day.
SERVICE ORGANIZATIONS. The Trust has adopted a Service Plan with respect to
Fund shares which authorizes it to compensate Service Organizations for provid-
ing account administration and other services to their customers who are bene-
ficial owners of such shares. The Fund will enter into agreements with Service
Organizations which purchase shares on
10
<PAGE>
behalf of their customers ("Service Agreements"). The Service Agreements will
provide for compensation to the Service Organization in an amount up to 0.25 of
1% (on an annualized basis) of the average daily net asset value of the shares
of the Fund attributable to or held in the name of the Service Organization for
its customers. The services provided by a Service Organization may include act-
ing directly or through an agent as the sole shareholder of record, maintaining
or assisting in maintaining account records for its customers, and processing
or assisting in processing orders to purchase and redeem shares for its custom-
ers. Holders of shares of the Fund will bear all expenses and fees paid to
Service Organizations with respect to such shares as well as any other expenses
which are directly attributable to such shares.
Service Organizations may charge other fees to their customers who are the ben-
eficial owners of shares in connection with their customer accounts. These fees
would be in addition to any amounts received by the Service Organization under
a Service Agreement and may affect an investor's return with respect to an in-
vestment in the Fund. Such charges may vary among Service Organizations but in
all cases will be retained by the Service Organization and not remitted to the
Fund or Morgan.
REDEMPTION OF SHARES
METHOD OF REDEMPTION. To redeem shares in the Fund, an investor may instruct
his or her Service Organization to submit a redemption request to the Fund. Any
shareholder also may telephone J.P. Morgan Funds Services directly at (800)
766-7722 for assistance. The Fund executes effective redemption requests at the
next determined net asset value per share. See Net Asset Value. See Additional
Information below for an explanation of the telephone redemption policy of The
JPM Institutional Funds.
A redemption request received on a business day 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 day. Proceeds of an effective redemption are gen-
erally deposited the same day in immediately available funds to the sharehold-
er's account at his or her Service Organization. If a redemption request be-
comes effective on a day when the New York Stock Exchange is open but which is
a Federal Reserve holiday, the proceeds are paid the next business day. See
Further Redemption Information.
MANDATORY REDEMPTION BY THE FUND. If the value of an account in the Fund falls
below the Fund's initial investment amount of $10 million for more than 30 days
because of a redemption of shares, the Fund may redeem the remaining shares in
the account 60 days after written notice to the shareholder unless the account
is increased to the minimum investment amount or more.
FURTHER REDEMPTION INFORMATION. Investors should be aware that redemptions from
the Fund may not be processed if a redemption request is not submitted in
proper form. To be in proper form, the Fund must have received the sharehold-
er's taxpayer identification number and address. As discussed under Taxes be-
low, the Fund may be required to impose "back-up" withholding of federal income
tax on dividends, distributions and redemption proceeds when non-corporate in-
vestors have not provided a certified taxpayer identification number. In addi-
tion, if a shareholder sends a check for the purchase of Fund shares and shares
are purchased before the check has cleared, the transmittal of redemption pro-
ceeds from the shares will occur upon clearance of the check which may take up
to 15 days.
The Fund reserves the right to suspend the right of redemption and to postpone
the date of payment upon redemption for up to seven days and for such other pe-
riods as the 1940 Act or the Securities and Exchange Commission may permit. See
Redemption of Shares in the Statement of Additional Information.
11
<PAGE>
After a wire has been initiated by Morgan, neither Morgan nor the Trust assumes
any further responsibility for the performance of intermediaries or of the rel-
evant Service Organization in the transfer process. If a problem with such per-
formance arises, the shareholder should deal directly with such intermediaries
or its Service Organization.
EXCHANGE OF SHARES
An investor may exchange shares from the Fund into any other JPM Institutional
Fund, JPM Pierpont Fund or shares of JPM Series Trust Fund without charge. An
exchange may be made so long as after the exchange the investor has shares, in
each fund in which he or she remains an investor, with a value of at least that
fund's minimum investment amount. Shareholders should read the prospectus of
the fund into which they are exchanging and may only exchange between fund ac-
counts that are registered in the same name, address and taxpayer identifica-
tion number. Shares are exchanged on the basis of relative net asset value per
share. Exchanges are in effect redemptions from one fund and purchases of an-
other fund and the usual purchase and redemption procedures and requirements
are applicable to exchanges. See Purchase of Shares and Redemption of Shares in
this Prospectus and in the prospectuses for the other JPM Institutional Funds,
The JPM Pierpont Funds and JPM Series Trust. See also Additional Information
below for an explanation of the telephone exchange policy of The JPM Institu-
tional Funds.
Shareholders subject to federal income tax who exchange shares in one fund for
shares in another fund may recognize capital gain or loss for federal income
tax purposes. The Fund reserves the right to discontinue, alter or limit its
exchange privilege at any time. For investors in certain states, state securi-
ties laws may restrict the availability of the exchange privilege.
DIVIDENDS AND DISTRIBUTIONS
All of the Fund's net investment income is declared as a dividend daily and
paid monthly. If an investor's shares are redeemed during a month, accrued but
unpaid dividends are paid with the redemption proceeds. The net investment in-
come of the Fund for dividend purposes consists of its pro rata share of the
net income of the Portfolio less the Fund's expenses. Dividends and distribu-
tions are payable to shareholders of record at the time of declaration. The net
investment income of the Fund for each business day is determined immediately
prior to the determination of net asset value. Net investment income for other
days is determined at the time net asset value is determined on the prior busi-
ness day. Shares of the Fund earn dividends on the business day their purchase
is effective, but not on the business day their redemption is effective. See
Purchase of Shares and Redemption of Shares.
Net short-term capital gains, if any, will be distributed in accordance with
the requirements of the Internal Revenue Code of 1986, as amended (the "Code"),
and may be reflected in the Fund's daily dividends. Substantially all the real-
ized net long-term capital gains, if any, of the Fund are declared and paid on
an annual basis, except that an additional capital gains distribution may be
made in a given year to the extent necessary to avoid the imposition of federal
excise tax on the Fund.
Dividends and capital gains distributions paid by the Fund are automatically
reinvested in additional shares of the Fund unless the shareholder has elected
to have them paid in cash. Dividends and distributions to be paid in cash are
generally credited to the shareholder's account at Morgan or at his or her
Service Organization. The Fund reserves the right to discontinue, alter or
limit the automatic reinvestment privilege at any time.
NET ASSET VALUE
Net asset value per share for the Fund is determined by subtracting from the
value of the Fund's total assets (i.e., the value of its investment in the
Portfolio and other assets) the amount of its liabilities and dividing the re-
mainder by the
12
<PAGE>
number of its outstanding shares, rounded to the nearest cent. Expenses, in-
cluding the fees payable to Morgan, are accrued daily. The Portfolio values all
portfolio securities by the amortized cost method. This method attempts to
maintain for the Fund a constant net asset value per share of $1.00. No assur-
ances can be given that this goal can be attained. See Net Asset Value in the
Statement of Additional Information for more information on valuation of port-
folio securities for the Portfolio.
The Fund computes its net asset value once daily at 4:00 P.M. New York time on
Monday through Friday, except that the net asset value is not computed for the
Fund on the holidays listed under Net Asset Value in the Statement of Addi-
tional Information and may be computed at earlier times as set forth in the
Statement of Additional Information.
ORGANIZATION
The Trust was organized on November 4, 1992 as an unincorporated business trust
under Massachusetts law and is an entity commonly known as a "Massachusetts
business trust". The Declaration of Trust permits the Trustees to issue an un-
limited number of full and fractional shares ($0.001 par value) of one or more
series. To date 24 series of shares have been authorized and are available for
sale to the public. Only shares of the Fund are offered through this Prospec-
tus. No series of shares has any preference over any other series of shares.
See Massachusetts Trust in the Statement of Additional Information.
The Declaration of Trust for the Trust provides that no Trustee, shareholder,
officer, employee, or agent of the Fund shall be held to any personal liabili-
ty, nor shall resort be had to their private property for the satisfaction of
any obligation or claim or otherwise in connection with the affairs of the
Fund, but that the Trust property only shall be liable.
Shareholders of the Fund are entitled to one vote for each share and to the ap-
propriate fractional vote for each fractional share. There is no cumulative
voting. Shares have no preemptive or conversion rights. Shares are fully paid
and non- assessable by the Fund. The Trust does not intend to hold meetings of
shareholders annually. The Trustees may call meetings of shareholders for ac-
tion by shareholder vote as may be required by either the 1940 Act or the Dec-
laration of Trust. The Trustees will call a meeting of shareholders to vote on
removal of a Trustee upon the written request of the record holders of ten per-
cent of Trust shares and will assist shareholders in communicating with each
other as prescribed in Section 16(c) of the 1940 Act. For further organization
information, including certain shareholder rights, see Description of Shares in
the Statement of Additional Information.
The Portfolio is organized as a trust under the laws of the State of New York.
The Portfolio's Declaration of Trust provides that the Fund and other entities
investing in the Portfolio (e.g., other investment companies, insurance company
separate accounts and common and commingled trust funds) will each be liable
for all obligations of the Portfolio. However, the risk of the Fund incurring
financial loss on account of such liability is limited to circumstances in
which both inadequate insurance existed and the Portfolio itself was unable to
meet its obligations. Accordingly, the Trustees of the Trust believe that nei-
ther the Fund nor its shareholders will be adversely affected by reason of the
Fund's investing in the Portfolio.
TAXES
The following discussion of tax consequences is based on U.S. federal tax laws
in effect on the date of this Prospectus. These laws and regulations are sub-
ject to change by legislative or administrative action. Investors are urged to
consult their own tax advisors with respect to specific questions as to feder-
al, state or local taxes. See Taxes in the Statement of Additional Information.
Annual statements as to the current federal tax status of distributions, if ap-
plicable, are mailed to shareholders after the end of the taxable year for the
Fund.
13
<PAGE>
The Trust intends that the Fund will qualify as a separate regulated invest-
ment company under Subchapter M of the Code. For the Fund to qualify as a reg-
ulated investment company, the Portfolio, in addition to other requirements,
limits its investments so that at the close of each quarter of its taxable
year (a) no more than 25% of its total assets are invested in the securities
of any one issuer, except U.S. Government securities, and (b) with regard to
50% to its total assets, no more than 5% of its total assets are invested in
the securities of a single issuer, except U.S. Government securities. As a
regulated investment company, the Fund should not be subject to federal income
taxes or federal excise taxes if all of its net investment income and capital
gains less any available capital loss carryforwards are distributed to share-
holders within allowable time limits. The Portfolio intends to qualify as an
association treated as a partnership for federal income tax purposes. As such,
the Portfolio should not be subject to tax. The Fund's status as a regulated
investment company is dependent on, among other things, the Portfolio's con-
tinued qualification as a partnership for federal income tax purposes.
If a correct and certified taxpayer identification number is not on file, the
Fund is required, subject to certain exemptions, to withhold 31% of certain
payments made or distributions declared to non-corporate shareholders.
Distributions of net investment income and realized net short-term capital
gains in excess of net long-term capital losses are taxable as ordinary income
to shareholders of the Fund whether such distributions are taken in cash or
reinvested in additional shares. Distributions of this type to corporate
shareholders of the Fund are not eligible for the dividends- received deduc-
tion. Distributions of net long-term capital gains in excess of net short-term
capital losses are taxable to shareholders of the Fund as long-term capital
gains regardless of how long a shareholder has held shares in the Fund and re-
gardless of whether taken in cash or reinvested in additional shares. Long-
term capital gains distributions to corporate shareholders are not eligible
for the dividends-received deduction. The Fund does not expect to realize
long-term capital gains and thus does not contemplate paying distributions
taxable to shareholders who are subject to tax as long-term capital gains.
Any gain or loss realized on the redemption or exchange of Fund shares by a
shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held for more than one year, and
otherwise as short-term capital gain or loss. However, any loss realized by a
shareholder upon the redemption or exchange of shares in the Fund held for six
months or less will be treated as a long-term capital loss to the extent of
any long-term capital gain distributions received by the shareholder with re-
spect to such shares. In addition, no loss will be allowed on the redemption
or exchange of shares of the Fund if, within a period beginning 30 days before
the date of such redemption or exchange and ending 30 days after such date,
the shareholder acquires (such as through dividend reinvestment) securities
that are substantially identical to shares of the Fund.
ADDITIONAL INFORMATION
The Fund sends to its shareholders annual and semi-annual reports. The finan-
cial statements appearing in annual reports are audited by independent accoun-
tants. Shareholders also will be sent confirmations of each purchase and re-
demption and monthly statements, reflecting all other account activity, in-
cluding dividends and any distributions reinvested in additional shares or
credited as cash.
All shareholders are given the privilege to initiate transactions automati-
cally by telephone upon opening an account. However, investors should be aware
that a transaction authorized by telephone and reasonably believed to be genu-
ine by the Fund, Morgan, their Service Organization or the Distributor may
subject the investor to risk of loss if such instruction is subsequently found
not to be genuine. The Fund will employ reasonable procedures, including re-
quiring investors to give their Personal Identification Number and tape re-
cording of telephone instructions, to confirm that instructions communicated
from investors by telephone are genuine; if it does not, the Fund, the Share-
holder Servicing Agent or a shareholder's Service Organization may be liable
for any losses due to unauthorized or fraudulent instructions.
The Fund may make historical performance information available and may compare
its performance to other investments or relevant indexes, including data from
Lipper Analytical Services, Inc., Micropal Inc., Morningstar Inc., Ibbotson
Associates, the Donoghue averages and other industry publications. The Fund
may advertise "yield" and "effective yield".
14
<PAGE>
Yield refers to the net income generated by an investment in the Fund over a
stated seven-day period. This income is then annualized i.e., the amount of in-
come generated by the investment during that week is assumed to be generated
each week over a 52-week period and is shown as a percentage of the investment.
Effective yield is calculated similarly to the yield, but, when annualized, the
income earned by an investment in the Fund is assumed to be reinvested; the ef-
fective yield will be slightly higher than the yield because of the compounding
effect of this assumed reinvestment.
The Fund may advertise "total return" and non-standardized total return data.
The total return shows what an investment in the Fund would have earned over a
specified period of time (one, five or ten years or since commencement of oper-
ations, if less) assuming that all distributions and dividends by the Fund were
reinvested on the reinvestment dates during the period and less all recurring
fees. These methods of calculating yield and total return are required by regu-
lations of the Securities and Exchange Commission. Yield and total return data
similarly calculated, unless otherwise indicated, over other specified periods
of time may also be used. See Performance Data in the Statement of Additional
Information. All performance figures are based on historical earnings and are
not intended to indicate future performance. Shareholders may obtain perfor-
mance information by calling Morgan at (800) 766-7722.
15
<PAGE>
---------------------------------------
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 offer in such jurisdiction.
PROS366-975
The
JPM Institutional Service Prime
Money Market Fund
PROSPECTUS
May 30, 1997
<PAGE>
PROSPECTUS
The JPM Institutional Service Tax Exempt Money Market Fund
60 State Street
Boston, Massachusetts 02109
For information call (800) 766-7722
The JPM Institutional Service Tax Exempt Money Market Fund (the "Fund")
seeks to provide a high level of current income exempt from federal income
tax and maintain a high level of liquidity. It is designed for investors
who seek current income exempt from federal income tax, stability of capi-
tal and liquidity.
The Fund is a diversified no-load mutual fund for which there are no sales
charges or exchange or redemption fees. The Fund is a series of The JPM In-
stitutional Funds, an open-end management investment company organized as a
Massachusetts business trust (the "Trust").
UNLIKE OTHER MUTUAL FUNDS WHICH DIRECTLY ACQUIRE AND MANAGE THEIR OWN PORT-
FOLIO OF SECURITIES, THE FUND SEEKS TO ACHIEVE ITS INVESTMENT OBJECTIVE BY
INVESTING ALL OF ITS INVESTABLE ASSETS IN THE TAX EXEMPT MONEY MARKET PORT-
FOLIO (THE "PORTFOLIO"), A CORRESPONDING DIVERSIFIED 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 ON
PAGE 3.
The Portfolio is advised by Morgan Guaranty Trust Company of New York
("Morgan" or "Advisor").
This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing and it should be re-
tained for future reference. Additional information about the Fund has been
filed with the Securities and Exchange Commission in a Statement of Addi-
tional Information dated May 30, 1997 (as supplemented from time to time).
This information is incorporated herein by reference and is available with-
out charge upon written request from the Fund's Distributor, Funds Distrib-
utor, Inc. ("FDI"), 60 State Street, Suite 1300, Boston, Massachusetts
02109, Attention: The JPM Institutional Funds, or by calling (800) 221-
7930.
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. 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. ALTHOUGH THE FUND SEEKS TO MAINTAIN A STABLE NET ASSET VALUE OF
$1.00 PER SHARE, THERE CAN BE NO ASSURANCE THAT IT WILL BE ABLE TO CONTINUE
TO DO SO.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SE-
CURITIES 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 MAY 30, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Investors for Whom the Fund is Designed.................................... 1
Special Information Concerning Investment Structure........................ 3
Investment Objective and Policies.......................................... 4
Additional Investment Information and Risk
Factors................................................................... 5
Investment Restrictions.................................................... 7
Management of the Trust and the Portfolio.................................. 7
Shareholder Servicing...................................................... 9
</TABLE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
Purchase of Shares......................................................... 10
Redemption of Shares....................................................... 11
Exchange of Shares......................................................... 12
Dividends and Distributions................................................ 12
Net Asset Value............................................................ 12
Organization............................................................... 13
Taxes...................................................................... 13
Additional Information..................................................... 15
</TABLE>
<PAGE>
The JPM Institutional Service Tax Exempt Money Market Fund
INVESTORS FOR WHOM THE FUND IS DESIGNED
The Fund is designed for investors who seek current income exempt from federal
income tax, stability of capital and liquidity. See Taxes. The Fund seeks to
achieve its investment objective by investing all of its investable assets in
The Tax Exempt Money Market Portfolio, a diversified open-end management in-
vestment company having the same investment objective as the Fund. Since the
investment characteristics and experience of the Fund will correspond directly
with those of the Portfolio, the discussion in this Prospectus focuses on the
investments and investment policies of the Portfolio.
THE FUND SEEKS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE
CAN BE NO ASSURANCE THAT IT WILL BE ABLE TO CONTINUE TO DO SO.
The Fund generally requires a minimum initial investment of $10 million. The
minimum subsequent investment is $25,000. See Purchase of Shares. If an account
with the Fund is reduced to less than $10 million for more than 30 days, the
investment may be subject to mandatory redemption. See Redemption of Shares-
Mandatory Redemption by the Fund.
This Prospectus describes the financial history, investment objective and poli-
cies, management and operation of the Fund to enable investors to decide if the
Fund suits their needs. The Fund operates in a two-tier master-feeder invest-
ment fund structure. The Trustees believe that the Fund may achieve economies
of scale over time by utilizing this investment structure.
The following table illustrates that investors in the Fund incur no shareholder
transaction expenses; their investment in the Fund is subject only to the oper-
ating expenses set forth below for the Fund and the Portfolio, as a percentage
of average net assets of the Fund. The Trustees of the Trust believe that the
aggregate per share expenses of the Fund and the Portfolio will be approxi-
mately equal to and may be less than the expenses that the Fund would incur if
it retained the services of an investment adviser and invested its assets di-
rectly in portfolio securities. Fund and Portfolio expenses are discussed below
under the headings Management of the Trust and the Portfolio and Shareholder
Servicing.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Sales Load Imposed on Purchases*........................................... None
Sales Load Imposed on Reinvested Dividends................................. None
Deferred Sales Load........................................................ None
Redemption Fees............................................................ None
Exchange Fees.............................................................. None
</TABLE>
- -------
* Certain Service Organizations (defined below) may impose fees in connection
with the purchase of the Fund's shares through such institutions. See Service
Organizations.
1
<PAGE>
EXPENSE TABLE
ANNUAL OPERATING EXPENSES*
<TABLE>
<S> <C>
Advisory Fees............................................................. 0.18%
Rule 12b-1 Fees........................................................... None
Other Expenses (after waiver and expense reimbursement)................... 0.07%
Service Fees**............................................................ 0.25%
-----
Total Operating Expenses (after waiver and expense reimbursement)......... 0.50%
=====
</TABLE>
* These expenses are based on the Fund's estimated expenses and estimated av-
erage net assets for its current fiscal year and through December 31, 1998,
after applicable voluntary expense waiver and reimbursements. If actual as-
sets are lower than estimated, Total Operating Expenses may, because of the
Portfolio's expenses allocable to the Fund, exceed 0.50% but, in any event,
will not exceed 0.60% of the Fund's average daily net assets through Decem-
ber 31, 1998. Without the expense limitations described, the estimated Other
Expenses and Total Operating Expenses would be equal on an annual basis to
0.22% and 0.65%, respectively, of the average daily net assets of the Fund.
** Service Organizations may charge other fees to their customers who are the
beneficial owners of shares in connection with their customers' accounts.
See Service Organizations. Such fees, if any, may affect the return such
customers realize with respect to their investments.
EXAMPLE
An investor would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<S> <C>
1 Year...................................................................... $ 5
3 Years..................................................................... $16
</TABLE>
The above expense table is designed to assist investors in understanding the
various direct and indirect costs and expenses that investors in the Fund
bear. The fees and expenses included in Other Expenses are the fees paid to
Morgan under the Administrative Services Agreements and the Shareholder Ser-
vicing Agreement, organization expenses, the fees paid to Pierpont Group, Inc.
under the Fund Services Agreements, the fees paid to FDI under the Co-Adminis-
tration Agreements, the fees paid to State Street Bank and Trust Company as
custodian and transfer agent, and other usual and customary expenses of the
Fund and the Portfolio. For a more detailed description of contractual fee ar-
rangements, including expense reimbursements, see Management of the Trust and
the Portfolio and Shareholder Servicing. In connection with the above example,
please note that $1,000 is less than the Fund's minimum investment requirement
and that there are no redemption or exchange fees of any kind. See Purchase of
Shares and Redemption of Shares. THE EXAMPLE IS HYPOTHETICAL; IT IS INCLUDED
SOLELY FOR ILLUSTRATIVE PURPOSES. IT SHOULD NOT BE CONSIDERED A REPRESENTATION
OF FUTURE PERFORMANCE; ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
2
<PAGE>
SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE
Unlike other mutual funds which directly acquire and manage their own portfo-
lio of securities, the Fund is an open-end management investment company which
seeks to achieve its investment objective by investing all of its investable
assets in the Portfolio, a separate registered investment company with the
same investment objective as the Fund. The investment objective of the Fund or
Portfolio may be changed only with the approval of the holders of the out-
standing shares of the Fund and the Portfolio. The master-feeder investment
fund structure has been developed relatively recently, so shareholders should
carefully consider this investment approach.
In addition to selling a beneficial interest to the Fund, the Portfolio may
sell beneficial interests to other mutual funds or institutional investors.
Such investors will invest in the Portfolio on the same terms and conditions
and will bear a proportionate share of the Portfolio's expenses. However, the
other investors investing in the Portfolio may sell shares of their own fund
using a different pricing structure than the Fund. Such different pricing
structures may result in differences in returns experienced by investors in
other funds that invest in the Portfolio. Such differences in returns are not
uncommon and are present in other mutual fund structures. Information concern-
ing other holders of interests in the Portfolio is available from Morgan at
(800) 766-7722.
The Trust may withdraw the investment of the Fund from the Portfolio at any
time if the Board of Trustees of the Trust determines that it is in the best
interests of the Fund to do so. Upon any such withdrawal, the Board of Trust-
ees would consider what action might be taken, including the investment of all
the assets of the Fund in another pooled investment entity having the same in-
vestment objective and restrictions as the Fund or the retaining of an invest-
ment adviser to manage the Fund's assets in accordance with the investment
policies described below with respect to the Portfolio.
Certain changes in the Portfolio's investment objective, policies or restric-
tions, or a failure by the Fund's shareholders to approve a change in the
Portfolio's investment objective or restrictions, may require withdrawal of
the Fund's interest in the Portfolio. Any such withdrawal could result in a
distribution in kind of portfolio securities (as opposed to a cash distribu-
tion) from the Portfolio which may or may not be readily marketable. The dis-
tribution in kind may result in the Fund having a less diversified portfolio
of investments or adversely affect the Fund's liquidity, and the Fund could
incur brokerage, tax or other charges in converting the securities to cash.
Notwithstanding the above, there are other means for meeting shareholder re-
demption requests, such as borrowing.
Smaller funds investing in the Portfolio may be materially affected by the ac-
tions of larger funds investing in the Portfolio. For example, if a large fund
withdraws from the Portfolio, the remaining funds may subsequently experience
higher pro rata operating expenses, thereby producing lower returns. Addition-
ally, because the Portfolio would become smaller, it may become less diversi-
fied, resulting in potentially increased portfolio risk (however, these possi-
bilities also exist for traditionally structured funds which have large or in-
stitutional investors who may withdraw from a fund). Also, funds with a
greater pro rata ownership in the Portfolio could have effective voting con-
trol of the operations of the Portfolio. Whenever the Fund is requested to
vote on matters pertaining to the Portfolio (other than a vote by the Fund to
continue the operation of the Portfolio upon the withdrawal of another in-
vestor in the Portfolio), the Trust will hold a meeting of shareholders of the
Fund and will cast all of its votes proportionately as instructed by the
Fund's shareholders. The Trust will vote the shares held by Fund shareholders
who do not give voting instructions in the same proportion as the shares of
Fund shareholders who do give voting instructions. Shareholders of the Fund
who do not vote will have no effect on the outcome of such matters.
For more information about the Portfolio's investment objective, policies and
restrictions, see Investment Objective and Policies, Additional Investment In-
formation and Risk Factors and Investment Restrictions. For more information
about the Portfolio's management and expenses, see Management of the Trust and
the Portfolio. For more information about changing the investment objective,
policies and restrictions of the Fund or the Portfolio, see Investment Re-
strictions.
3
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund and the Portfolio is described below, to-
gether with the policies they employ in their efforts to achieve this objec-
tive. Additional information about the investment policies of the Fund and the
Portfolio appears in the Statement of Additional Information under Investment
Objectives and Policies. There can be no assurance that the investment objec-
tive of the Fund or the Portfolio will be achieved.
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.
The Fund is designed for investors who seek current income exempt from federal
income tax, stability of capital and liquidity. See Taxes. The Fund attempts to
achieve its objective by investing all of its investable assets in The Tax Ex-
empt Money Market Portfolio, a diversified open-end management investment com-
pany having the same investment objective as the Fund.
The Portfolio attempts to achieve its investment objective by investing primar-
ily in the following municipal securities which earn interest exempt from fed-
eral income tax in the opinion of bond counsel for the issuer and which have
effective maturities not greater than thirteen months and by maintaining a dol-
lar-weighted average portfolio maturity of not more than 90 days. The market
value of obligations in which the Portfolio invests is not guaranteed and may
rise and fall in response to changes in interest rates. During normal market
conditions, the Portfolio will invest substantially all, and not less than 80%,
of its net assets in tax exempt obligations. The Portfolio generally will not
invest in taxable securities, although in abnormal conditions, if, in the judg-
ment of the Advisor, tax exempt securities satisfying the Portfolio's invest-
ment objective may not be purchased, the Portfolio may, for defensive purposes
only, temporarily invest up to 20% of its total assets in such securities. In-
terest 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.
MUNICIPAL BONDS. The Portfolio may invest in bonds issued by or on behalf of
states, territories and possessions of the United States and the District of
Columbia and their political subdivisions, agencies, authorities and instrumen-
talities. These obligations may be general obligation bonds secured by the is-
suer's pledge of its full faith, credit and taxing power for the payment of
principal and interest, or they may be revenue bonds payable from specific rev-
enue sources, but not generally backed by the issuer's taxing power. These in-
clude industrial development bonds where payment is the responsibility of the
private industrial user of the facility financed by the bonds. The Portfolio
may invest more than 25% of its assets in industrial development bonds, but may
not invest more than 25% of its assets in these bonds in projects of similar
type or in the same state.
MUNICIPAL NOTES. The Portfolio may also invest in municipal notes of various
types, including notes issued in anticipation of receipt of taxes, the proceeds
of the sale of bonds, other revenues or grant proceeds, as well as municipal
commercial paper and municipal demand obligations such as variable rate demand
notes and master demand obligations. The interest rate on variable rate demand
notes is adjustable at periodic intervals as specified in the notes. Master de-
mand obligations permit the investment of fluctuating amounts at periodically
adjusted interest rates. They are governed by agreements between the municipal
issuer and Morgan acting as agent, for no additional fee, in its capacity as
Advisor to the Portfolio and as fiduciary for other clients. Although master
demand obligations are not marketable to third parties, the Portfolio considers
them to be liquid because they are payable on demand. There is no specific per-
centage limitation on these investments. For more information about municipal
notes, see Investment Objectives and Policies in the Statement of Additional
Information.
QUALITY INFORMATION. The Portfolio will limit its investments to those securi-
ties which, in accordance with guidelines adopted by the Trustees, present min-
imal credit risks. In addition, the Portfolio will not purchase any municipal
obligation unless (i) it is rated with the highest rating assigned to short-
term debt securities (or, in the case of New York State municipal notes, with
one of the two highest ratings assigned to short-term debt securities) by at
least two nationally recognized statistical rating organizations such as
Moody's and Standard & Poor's, (ii) it is rated by only one agency with such
rating, or (iii) it is not rated and is determined to be of comparable quality.
Determinations of comparable quality
4
<PAGE>
shall be made in accordance with procedures established by the Trustees. For a
more detailed discussion of applicable quality requirements, see Investment
Objectives and Policies in the Statement of Additional Information. These
standards must be satisfied at the time an investment is made. If the quality
of the investment later declines below the quality required for purchase, the
Portfolio shall dispose of the investment, subject in certain circumstances to
a finding by the Trustees that disposing of the investment would not be in the
Portfolio's best interest. The credit quality of variable rate demand notes
and other municipal obligations is frequently enhanced by various arrangements
with domestic or foreign financial institutions, such as letters of credit,
guarantees and insurance, and these arrangements are considered, along with
the credit quality of such institutions, when investment quality is evaluated.
Favorable or unfavorable changes in the credit quality of these institutions
may cause gains or losses to the Portfolio and affect the Fund's share price.
The Portfolio may purchase municipal obligations together with puts. In addi-
tion, the Portfolio may purchase municipal obligations on a when-issued or de-
layed delivery basis, enter into repurchase and reverse repurchase agreements,
loan its portfolio securities and purchase synthetic variable rate instru-
ments. For a discussion of these transactions, see Additional Investment In-
formation and Risk Factors.
ADDITIONAL INVESTMENT INFORMATION AND RISK FACTORS
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase secu-
rities on a when-issued or delayed delivery basis. Delivery of and payment for
these securities may take as long as a month or more after the date of the
purchase commitment. The value of these securities is subject to market fluc-
tuation during this period and for fixed income investments no interest ac-
crues to the Portfolio until settlement. At the time of settlement a when-is-
sued security may be valued at less than its purchase price. The Portfolio
maintains with the Custodian a separate account with a segregated portfolio of
securities in an amount at least equal to these commitments. When entering
into a when-issued or delayed delivery transaction, the Portfolio will rely on
the other party to consummate the transaction; if the other party fails to do
so, the Portfolio may be disadvantaged. It is the current policy of the Port-
folio not to enter into when-issued commitments exceeding in the aggregate 15%
of the market value of the Portfolio's total assets less liabilities other
than the obligations created by these commitments.
REPURCHASE AGREEMENTS. The Portfolio may engage in repurchase agreement trans-
actions with brokers, dealers or banks that meet the credit guidelines estab-
lished by the Portfolio's Trustees. In a repurchase agreement, the Portfolio
buys a security from a seller that has agreed to repurchase it at a mutually
agreed upon date and price, reflecting the interest rate effective for the
term of the agreement. The term of these agreements is usually from overnight
to one week. A repurchase agreement may be viewed as a fully collateralized
loan of money by the Portfolio to the seller. The Portfolio always receives
securities as collateral with a market value at least equal to the purchase
price plus accrued interest and this value is maintained during the term of
the agreement. If the seller defaults and the collateral value declines, the
Portfolio might incur a loss. If bankruptcy proceedings are commenced with re-
spect to the seller, the Portfolio's realization upon the disposition of col-
lateral may be delayed or limited. Investments in certain repurchase agree-
ments and certain other investments which may be considered illiquid are lim-
ited. See Illiquid Investments; Privately Placed and other Unregistered Secu-
rities below.
LOANS OF PORTFOLIO SECURITIES. Subject to applicable investment restrictions,
the Portfolio is permitted to lend its securities in an amount up to 33 1/3%
of the value of the Portfolio's net assets. The Portfolio may lend its securi-
ties if such loans are secured continuously by cash or equivalent collateral
or by a letter of credit in favor of the Portfolio 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 Portfolio any in-
come accruing thereon. Loans will be subject to termination by the Portfolio
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
5
<PAGE>
securities which occurs during the term of the loan inures to the Portfolio and
its respective investors. The Portfolio may pay reasonable finders' and custo-
dial fees in connection with a loan. In addition, the Portfolio will consider
all facts and circumstances, including the creditworthiness of the borrowing
financial institution, and the Portfolio will not make any loans in excess of
one year. Loans of portfolio securities may be considered extensions of credit
by the Portfolio. The risks to the Portfolio with respect to borrowers of its
portfolio securities are similar to the risks to the Portfolio with respect to
sellers in repurchase agreement transactions. See Repurchase Agreements above.
The Portfolio will not lend its securities to any officer, Trustee, Director,
employee or other affiliate of the Portfolio, the Advisor or the Distributor,
unless otherwise permitted by applicable law.
REVERSE REPURCHASE AGREEMENTS. The Portfolio is permitted to enter into reverse
repurchase agreements. In a reverse repurchase agreement, the Portfolio sells a
security and agrees to repurchase it at a mutually agreed upon date and price,
reflecting the interest rate effective for the term of the agreement. For pur-
poses of the Investment Company Act of 1940, as amended (the "1940 Act"), it is
considered a form of borrowing by the Portfolio and, therefore, is a form of
leverage. Leverage may cause any gains or losses of the Portfolio to be magni-
fied. For more information, see Investment Objectives and Policies in the
Statement of Additional Information.
TAXABLE INVESTMENTS. The Portfolio attempts to invest its assets in tax exempt
municipal securities; however, in abnormal market conditions, if, in the judg-
ment of the Advisor, tax exempt securities satisfying the investment objective
of the Portfolio may not be purchased, the Portfolio may, for defensive pur-
poses only, temporarily invest up to 20% of its total assets in securities, the
interest income on which may be subject to federal, state or local income tax-
es. The taxable investments permitted for the Portfolio include obligations of
the U.S. Government and its agencies and instrumentalities, bank obligations,
commercial paper and repurchase agreements.
PUTS. The Portfolio may purchase without limit municipal bonds or notes to-
gether with the right to resell them at an agreed price or yield within a spec-
ified period prior to maturity. This right to resell is known as a put. The ag-
gregate price paid for securities with puts may be higher than the price which
otherwise would be paid. Consistent with the investment objective of the Port-
folio and subject to the supervision of the Trustees, the purpose of this prac-
tice is to permit the Portfolio to be fully invested in tax exempt securities
while maintaining the necessary liquidity to purchase securities on a when-is-
sued basis, to meet unusually large withdrawals and to purchase at a later date
securities other than those subject to the put. The principal risk of puts is
that the put writer may default on its obligation to repurchase. Morgan will
monitor each writer's ability to meet its obligations under puts.
The amortized cost method is used by the Portfolio to value all municipal secu-
rities; no value is assigned to any puts.
SYNTHETIC VARIABLE RATE INSTRUMENTS. The Portfolio may invest in certain syn-
thetic variable rate instruments. Such instruments generally involve the de-
posit of a long-term tax exempt bond in a custody or trust arrangement and the
creation of a mechanism to adjust the long-term interest rate on the bond to a
variable short-term rate and a right (subject to certain conditions) on the
part of the purchaser to tender it periodically to a third party at par. Morgan
will review the structure of synthetic variable rate instruments to identify
credit and liquidity risks (including the conditions under which the right to
tender the instrument would no longer be available) and will monitor those
risks. In the event that the right to tender the instrument is no longer avail-
able, the risk to the Portfolio will be that of holding the long-term bond,
which may require the disposition of the bond which could be at a loss.
ILLIQUID INVESTMENTS; PRIVATELY PLACED AND OTHER UNREGISTERED SECURITIES. The
Portfolio may not acquire any illiquid securities if, as a result thereof, more
than 10% of the Portfolio's net assets would be in illiquid investments. Sub-
ject to this non-fundamental policy limitation, the Portfolio may acquire in-
vestments that are illiquid or have limited
6
<PAGE>
liquidity, such as private placements or investments that are not registered
under the Securities Act of 1933, as amended (the "1933 Act"), and cannot be
offered for public sale in the United States without first being registered un-
der the 1933 Act. An illiquid investment is any investment that cannot be dis-
posed of within seven days in the normal course of business at approximately
the amount at which it is valued by the Portfolio. 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. Accordingly
the valuation of these securities will reflect any limitations on their liquid-
ity.
The Portfolio may also purchase Rule 144A securities sold to institutional in-
vestors without registration under the 1933 Act. These securities may be deter-
mined to be liquid in accordance with guidelines established by the Advisor and
approved by the Trustees. The Trustees will monitor the Advisor's implementa-
tion of these guidelines on a periodic basis.
INVESTMENT RESTRICTIONS
As a diversified investment company, 75% of the assets of the Portfolio are
subject to the following fundamental limitations: (a) the Portfolio may not in-
vest more than 5% of its total assets in the securities of any one issuer, ex-
cept U.S. government securities, and (b) the Portfolio may not own more than
10% of the outstanding voting securities of any one issuer.
The investment objective of the Fund and the Portfolio, together with the in-
vestment restrictions described below and in the Statement of Additional Infor-
mation, except as noted, are deemed fundamental policies, i.e., they may be
changed only with the approval of the holders of a majority of the outstanding
voting securities of the Fund and the Portfolio. The Fund has the same invest-
ment restrictions as the Portfolio, except that the Fund may invest all of its
investable assets in another open-end investment company with the same invest-
ment objective and restrictions (such as the Portfolio). References below to
the Portfolio's investment restrictions also include the Fund's investment re-
strictions.
The Portfolio may not (i) borrow money, except from banks for temporary, ex-
traordinary or emergency purposes and then only in amounts up to 10% of the
value of Portfolio's total assets, taken at cost at the time of borrowing, or
purchase securities while borrowings exceed 5% of its total assets; or mort-
gage, pledge or hypothecate any assets except in connection with any such
borrowings in amounts up to 10% of the value of the Portfolio's net assets at
the time of borrowing; or (ii) acquire industrial revenue bonds if as a result
more than 5% of the Portfolio's total assets would be invested in industrial
revenue bonds where payment of principal and interest is the responsibility of
companies with fewer than three years of operating history.
For a more detailed discussion of the above investment restrictions, as well as
a description of certain other investment restrictions, see Investment Restric-
tions in the Statement of Additional Information.
MANAGEMENT OF THE TRUST AND THE PORTFOLIO
TRUSTEES. Pursuant to the Declarations of Trust for the Trust and for the Port-
folio, the Trustees decide upon matters of general policy and review the ac-
tions of the Advisor and other service providers. The Trustees of the Trust and
of the Portfolio are identified below.
<TABLE>
<S> <C>
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;
Chairman, Pierpont Group, Inc.
Michael P. Mallardi................. Former Senior Vice President, Capital
Cities/ABC, Inc., and President, Broadcast
Group
</TABLE>
7
<PAGE>
A majority of the disinterested Trustees have adopted written procedures rea-
sonably 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 JPM Pierpont Funds, up to and including creating a separate board of trust-
ees. See Trustees and Officers in the Statement of Additional Information for
more information about the Trustees and Officers of the Fund and the Portfolio.
The Portfolio and the Trust have each entered into a Fund Services Agreement
with Pierpont Group, Inc. to assist the Trustees in exercising their overall
supervisory responsibilities for the Portfolio's and the Trust's affairs. The
fees to be paid under the agreements approximate the reasonable cost of Pier-
pont Group, Inc. in providing these services. Pierpont Group, Inc. was orga-
nized in 1989 at the request of the Trustees of The Pierpont Family of Funds
for the purpose of providing these services at cost to those funds. See Trust-
ees and Officers in the Statement of Additional Information. The principal of-
fices of Pierpont Group, Inc. are located at 461 Fifth Avenue, New York, New
York 10017.
ADVISOR. The Fund has not retained the services of an investment adviser be-
cause 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, with principal offices at 60 Wall
Street, New York, New York 10260, is a New York trust company which conducts a
general banking and trust business. Morgan is a wholly owned subsidiary of J.P.
Morgan & Co. Incorporated ("J.P. Morgan"), a bank holding company organized un-
der 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 adviser to individual and institutional clients with com-
bined assets under management of over $208 billion. Morgan provides investment
advice and portfolio management services to the Portfolio. Subject to the su-
pervision of the Portfolio's 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. See Investment Advisor in the
Statement of Additional Information.
The following persons are primarily responsible for the day-to-day management
and implementation of Morgan's process for the Portfolio (the inception date of
each person's responsibility for the Portfolio and her or his business experi-
ence for the past five years is indicated parenthetically): Daniel B. Mulvey,
Vice President (since August, 1995, employed by Morgan since September 1992),
Elizabeth A. Augustin, Vice President (since January, 1992, employed by Morgan
since prior to 1992) and Richard W. Oswald, Vice President (since October,
1996, employed by CBS since prior to 1992).
As compensation for the services rendered and related expenses borne by Morgan
under the 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 0.20% of the Portfolio's average daily net assets up to $1
billion, and 0.10% of average daily net assets in excess of $1 billion.
Under separate agreements, Morgan also provides administrative and related
services to the Fund and the Portfolio and shareholder services to shareholders
of the Fund. See Administrative Services Agent and Shareholder Servicing below.
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, Funds Distributor, Inc. ("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 Port-
folio; (iii) prepares and files documents required for notification of state
securities administrators; (iv) reviews and files marketing and sales litera-
ture; (v) files Portfolio regulatory documents and mails Portfolio communica-
tions to Trustees and investors; and (vi) maintains related books and records.
8
<PAGE>
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 an-
nual 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 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 com-
pliance, 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 Portfo-
lio 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 Trust and certain other registered investment companies managed
by the Advisor 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 and as exclusive placement agent for the Portfolio, FDI is a
wholly owned indirect subsidiary of Boston Institutional Group, Inc. FDI's
principal business address is 60 State Street, Suite 1300, boston, Massachu-
setts 02109.
CUSTODIAN. State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02110, serves as the Fund's and the Portfolio's
Custodian and Transfer Agent and the Fund's Dividend Disbursing Agent. State
Street also keeps the books of account for the Fund and the Portfolio.
EXPENSES. In addition to the fees payable to Morgan, FDI and Pierpont Group,
Inc. under the various agreements discussed under Trustees, Advisor, Co-Admin-
istrator and Administrative Services Agent above and Shareholder Servicing be-
low, the Fund and the Portfolio are responsible for usual and customary ex-
penses associated with their respective operations. Such expenses include or-
ganization expenses, legal fees, accounting and audit expenses, insurance
costs, the compensation and expenses of the Trustees, costs associated with its
registration under federal securities laws, and extraordinary expenses applica-
ble to the Fund or the Portfolio. For the Fund, such expenses also include
transfer, registrar and dividend disbursement costs, the expenses of printing
and mailing reports, notices and proxy statements to Fund shareholders, and
registration fees under state securities laws. For the Portfolio, such expenses
also include custodian fees and brokerage expenses.
Morgan has agreed that it will reimburse the Fund through at least December 31,
1998 to the extent necessary to maintain the Total Operating Expenses (which
includes expenses of the Fund and the Portfolio) at the annual rate of 0.60% of
the Fund's average daily net assets, subject to the additional expense limita-
tions described under Annual Operating Expenses. This limit does not cover ex-
traordinary expenses during the period. There is no assurance that Morgan will
continue this waiver beyond the specified period.
SHAREHOLDER SERVICING
Pursuant to a Shareholder Servicing Agreement with the Trust, Morgan acts as
shareholder servicing agent. The Fund pays Morgan for these services at an an-
nual 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 share-
holder servicing agent) of 0.05% of the Fund's average daily net assets. Under
the terms of the Shareholder Servicing Agreement with the Fund, Morgan may del-
egate one or more of its responsibilities to other entities at Morgan's ex-
pense.
The Fund may be sold to or through service organizations ("Service Organiza-
tions"), 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
9
<PAGE>
Fund. See Service Organizations. 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.
Shareholders should address all inquiries to their Service Organization or to
J.P. Morgan Funds Services, Morgan Guaranty Trust Company of New York, 522
Fifth Avenue, New York, New York 10036 or call (800) 766-7722.
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 in-
structions relating to a Fund account from Morgan as agent for the customer.
All purchase orders must be accepted by the Distributor. Investors must be cus-
tomers of a Service Organization. The Trust reserves the right to determine the
purchase orders that it will accept.
The Fund requires a minimum initial investment of $10 million and a minimum
subsequent investment of $25,000. These minimum investment requirements may be
waived for certain investors, including investors for whom the Advisor is a fi-
duciary, who maintain related accounts with the Fund, other JPM Institutional
Funds or the Advisor, who make investments for a group of clients, such as fi-
nancial advisors, trust companies and investment advisors, or who maintain re-
tirement accounts with the Funds. 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. A Service Organization
may effect redemptions of noncomplying accounts and may impose a charge for any
special services rendered to its customers. Customers should contact their
Service Organizations for further information concerning such requirements and
charges. A Service Organization may purchase shares in connection with sweep
account programs.
PURCHASE PRICE AND SETTLEMENT. The Fund's shares are sold on a continuous basis
without a sales charge at the net asset value per share next determined after
receipt of an order. Prospective investors may purchase shares with the assis-
tance of a Service Organization that may establish its own terms, conditions
and charges.
To purchase shares in the Fund, investors should request a representative of
their Service Organization 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 same day. Any shareholder may also call J.P. Morgan Funds
Services at (800) 766-7722 for assistance in placing an order for Fund shares.
Purchase orders must be received by 12:00 noon and immediately available funds
must be received by 4:00 P.M. New York time on a business day for the purchase
to be effective and dividends to be earned on the same day. The Fund does not
accept orders after the indicated time. If funds are received after 4:00 P.M.
New York time for any reason, including that the day is a Federal Reserve holi-
day, the purchase is not effective and dividends are not earned until the next
business day.
SERVICE ORGANIZATIONS. The Trust has adopted a Service Plan with respect to
Fund shares which authorizes it to compensate Service Organizations for provid-
ing account administration and other services to their customers who are bene-
ficial owners of such shares. The Fund will enter into agreements with Service
Organizations which purchase shares on behalf of their customers ("Service
Agreements"). The Service Agreements will provide for compensation to the Serv-
ice Organization in an amount up to 0.25 of 1% (on an annualized basis) of the
average daily net asset value of the shares of
10
<PAGE>
the Fund attributable to or held in the name of the Service Organization for
its customers. The services provided by a Service Organization may include
acting, directly or through an agent, as the sole shareholder of record, main-
taining or assisting in maintaining account records for its customers, and
processing or assisting in processing orders to purchase and redeem shares for
its customers. Holders of shares of the Fund will bear all expenses and fees
paid to Service Organizations with respect to such shares as well as any other
expenses which are directly attributable to such shares.
Service Organizations may charge other fees to their customers who are the
beneficial owners of shares in connection with their customer accounts. These
fees would be in addition to any amounts received by the Service Organization
under a Service Agreement and may affect an investor's return with respect to
an investment in the Fund. Such charges may vary among Service Organizations
but in all cases will be retained by the Service Organization and not remitted
to the Fund or Morgan.
REDEMPTION OF SHARES
METHOD OF REDEMPTION. To redeem shares in the Fund, an investor may instruct
his or her Service Organization to submit a redemption request to the Fund.
Any shareholder also may telephone J.P. Morgan Funds Services directly at
(800) 766-7722 for assistance. The Fund executes effective redemption requests
at the next determined net asset value per share. See Net Asset Value. See Ad-
ditional Information below for an explanation of the telephone redemption pol-
icy of The JPM Institutional Funds.
A redemption request received on a business day prior to 12:00 noon New York
time is effective on that day. A redemption request received after that time
becomes effective on the next day. Proceeds of an effective redemption are
generally deposited the same day in immediately available funds to the share-
holder's account at his or her Service Organization. If a redemption request
becomes effective on a day when the New York Stock Exchange is open but which
is a Federal Reserve holiday, the proceeds are paid the next business day. See
Further Redemption Information.
MANDATORY REDEMPTION BY THE FUND. If the value of an account in the Fund falls
below the Fund's initial investment amount of $10 million for more than 30
days because of a redemption of shares, the Fund may redeem the remaining
shares in the account 60 days after written notice to the shareholder unless
the account is increased to the Fund's minimum investment amount or more.
FURTHER REDEMPTION INFORMATION. Investors should be aware that redemptions
from the Fund may not be processed if a redemption request is not submitted in
proper form. To be in proper form, the Fund must have received the sharehold-
er's taxpayer identification number and address. As discussed under Taxes be-
low, the Fund may be required to im-pose "back-up" withholding of federal in-
come tax on dividends, distributions and redemption proceeds when non-
corporate investors have not provided a certified taxpayer identification num-
ber. In addition, if a shareholder sends a check for the purchase of Fund
shares and shares are purchased before the check has cleared, the transmittal
of redemption proceeds from the shares will occur upon clearance of the check
which may take up to 15 days.
The Fund reserves the right to suspend the right of redemption and to postpone
the date of payment upon redemption for up to seven days and for such other
periods as the 1940 Act or the Securities and Exchange Commission may permit.
See Redemption of Shares in the Statement of Additional Information.
After a wire has been initiated by Morgan, neither Morgan nor the Trust as-
sumes any further responsibility for the performance of intermediaries or of
the relevant Service Organization in the transfer process. If a problem with
such performance arises, the shareholder should deal directly with such inter-
mediaries or its Service Organization.
11
<PAGE>
EXCHANGE OF SHARES
An investor may exchange shares from the Fund into any other JPM Institutional
Fund or JPM Pierpont Fund without charge. An exchange may be made so long as
after the exchange the investor has shares, in each fund in which he or she
remains an investor, with a value of at least that fund's minimum investment
amount. See Method of Purchase in the prospectuses for the other JPM Institu-
tional Funds and The JPM Pierpont Funds for the minimum investment amount for
each of those funds. Shares are exchanged on the basis of relative net asset
value per share. Exchanges are in effect redemptions from one fund and pur-
chases of another fund and the usual purchase and redemption procedures and
requirements are applicable to exchanges. See Purchase of Shares and Redemp-
tion of Shares in this Prospectus and in the prospectuses for the other JPM
Institutional Funds and The JPM Pierpont Funds. See also Additional Informa-
tion below for an explanation of the telephone exchange policy of The JPM In-
stitutional Funds.
Shareholders subject to federal income tax who exchange shares in one fund for
shares in another fund may recognize capital gain or loss for federal income
tax purposes. The Fund reserves the right to discontinue, alter or limit its
exchange privilege at any time. For investors in certain states, state securi-
ties laws may restrict the availability of the exchange privilege.
DIVIDENDS AND DISTRIBUTIONS
All of the Fund's net investment income is declared as a dividend daily and
paid monthly. If an investor's shares are redeemed during a month, accrued but
unpaid dividends are paid with the redemption proceeds. The net investment in-
come of the Fund for dividend purposes consists of its pro rata share of the
net income of the Portfolio less the Fund's expenses. Dividends and distribu-
tions are payable to shareholders of record at the time of declaration. The
net investment income of the Fund for each business day is determined immedi-
ately prior to the determination of net asset value. Net investment income for
other days is determined at the time net asset value is determined on the
prior business day. Shares of the Fund earn dividends on the business day
their purchase is effective, but not on the business day redemption proceeds
are paid. See Purchase of Shares and Redemption of Shares.
Net short-term capital gains, if any, will be distributed in accordance with
the requirements of the Internal Revenue Code of 1986, as amended (the
"Code"), and may be reflected in the Fund's daily dividends. Substantially all
the realized net long-term capital gains, if any, of the Fund are declared and
paid on an annual basis, except that an additional capital gains distribution
may be made in a given year to the extent necessary to avoid the imposition of
federal excise tax on the Fund.
Dividends and capital gains distributions paid by the Fund are automatically
reinvested in additional shares of the Fund unless the shareholder has elected
to have them paid in cash. Dividends and distributions to be paid in cash are
generally credited to the shareholder's account at Morgan or at his or her
Service Organization. The Fund reserves the right to discontinue, alter or
limit the automatic reinvestment privilege at any time.
NET ASSET VALUE
Net asset value per share for the Fund is determined by subtracting from the
value of the Fund's total assets (i.e., the value of its investment in the
Portfolio and other assets) the amount of its liabilities and dividing the re-
mainder by the number of its outstanding shares, rounded to the nearest cent.
Expenses, including the fees payable to Morgan, are accrued daily. The Portfo-
lio values all portfolio securities by the amortized cost method. This method
attempts to maintain for the Fund a constant net asset value per share of
$1.00. No assurances can be given that this goal can be attained. See Net As-
set Value in the Statement of Additional Information for more information on
valuation of portfolio securities for the Portfolio.
12
<PAGE>
The Fund computes its net asset value once daily at 4:00 P.M. New York time on
Monday through Friday, except that the net asset value is not computed for the
Fund on the holidays listed under Net Asset Value in the Statement of Addi-
tional Information.
ORGANIZATION
The Trust was organized on November 4, 1992 as an unincorporated business trust
under Massachusetts law and is an entity commonly known as a "Massachusetts
business trust". The Declaration of Trust permits the Trustees to issue an un-
limited number of full and fractional shares ($0.001 par value) of one or more
series. To date 24 series of shares have been authorized and are available for
sale to the public. Only shares of the Fund are offered through this Prospec-
tus. No series of shares has any preference over any other series of shares.
See Massachusetts Trust in the Statement of Additional Information.
The Declaration of Trust for the Trust provides that no Trustee, shareholder,
officer, employee, or agent of the Fund shall be held to any personal liabili-
ty, nor shall resort be had to their private property for the satisfaction of
any obligation or claim or otherwise in connection with the affairs of the
Fund, but that the Trust property only shall be liable.
Shareholders of the Fund are entitled to one vote for each share and to the ap-
propriate fractional vote for each fractional share. There is no cumulative
voting. Shares have no preemptive or conversion rights. Shares are fully paid
and non-assessable by the Fund. The Trust does not intend to hold meetings of
shareholders annually. The Trustees may call meetings of shareholders for ac-
tion by shareholder vote as may be required by either the 1940 Act or the Dec-
laration of Trust. The Trustees will call a meeting of shareholders to vote on
removal of a Trustee upon the written request of the record holders of ten per-
cent of Trust shares and will assist shareholders in communicating with each
other as prescribed in Section 16(c) of the 1940 Act. For further organization
information, including certain shareholder rights, see Description of Shares in
the Statement of Additional Information.
The Portfolio is organized as a trust under the laws of the State of New York.
The Portfolio's Declaration of Trust provides that the Fund and other entities
investing in the Portfolio (e.g., other investment companies, insurance company
separate accounts and common and commingled trust funds) will each be liable
for all obligations of the Portfolio. However, the risk of the Fund incurring
financial loss on account of such liability is limited to circumstances in
which both inadequate insurance existed and the Portfolio itself was unable to
meet its obligations. Accordingly, the Trustees of the Trust believe that nei-
ther the Fund nor its shareholders will be adversely affected by reason of the
Fund's investing in the Portfolio.
TAXES
The following discussion of tax consequences is based on U.S. federal tax laws
in effect on the date of this Prospectus. These laws and regulations are sub-
ject to change by legislative or administrative action. Investors are urged to
consult their own tax advisors with respect to specific questions as to feder-
al, state or local taxes. See Taxes in the Statement of Additional Information.
Annual statements as to the current federal tax status of distributions, if ap-
plicable, are mailed to shareholders after the end of the taxable year for the
Fund.
The Trust intends that the Fund will qualify as a separate regulated investment
company under Subchapter M of the Code. For the Fund to qualify as a regulated
investment company, the Portfolio, in addition to other requirements, limits
its investments so that at the close of each quarter of its taxable year (a) no
more than 25% of its total assets are invested in the securities of any one is-
suer, except U.S. Government securities, and (b) with regard to 50% of its to-
tal assets, no more than 5% of its total assets are invested in the securities
of a single issuer, except U.S. Government securities. As a regulated invest-
ment company, the Fund should not be subject to federal income taxes or federal
excise taxes if substantially all of its net investment income and capital
gains less any available capital loss carryforwards are distributed to
13
<PAGE>
shareholders within allowable time limits. The Portfolio intends to qualify as
an association treated as a partnership for federal income tax purposes. As
such, the Portfolio should not be subject to tax. The Fund's status as a regu-
lated investment company is dependent on, among other things, the Portfolio's
continued qualification as a partnership for federal income tax purposes.
If a correct and certified taxpayer identification number is not on file, the
Fund is required, subject to certain exemptions, to withhold 31% of certain
payments made or distributions declared to non-corporate shareholders.
The Fund intends to qualify to pay exempt-interest dividends to its sharehold-
ers 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
consists of interest received by the Fund on tax exempt securities. Exempt-in-
terest dividends received from the Fund will be treated for federal income tax
purposes as tax exempt interest income. In view of the Fund's investment poli-
cies, it is expected that a substantial portion of the Fund's 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 tax-
able securities under certain circumstances. See Taxable Investments.
Interest on certain tax exempt municipal obligations issued after August 7,
1986 is a preference item for purposes of the alternative minimum tax applica-
ble to individuals and corporations. Under tax regulations to be issued, the
portion of an exempt-interest dividend of a regulated investment company that
is allocable to these obligations will be treated as a preference item for pur-
poses of the alternative minimum tax.
Corporations should, however, be aware that interest on all municipal securi-
ties will be included in calculating (i) adjusted current earnings for purposes
of the alternative minimum tax applicable to them, (ii) the additional tax im-
posed on certain corporations by the Superfund Revenue Act of 1986, and (iii)
the foreign branch profits tax imposed on effec-
tively connected earnings and profits of United States branches of foreign cor-
porations. Furthermore, special tax provi-sions may apply to certain financial
institutions and property and casualty insurance companies, and they should
consult their tax advisors before purchasing shares of the Fund.
Interest on indebtedness incurred or continued by a shareholder (whether a cor-
poration or an individual) to purchase or carry shares of the Fund is not de-
ductible. The Treasury has been given authority to issue regulations which
would disallow the interest deduction if incurred to purchase or carry shares
of the Fund owned by the taxpayer's spouse, minor child or entity controlled by
the taxpayer. Entities or persons who are "substantial users" (or related per-
sons) of facilities financed by tax exempt bonds should consult their tax advi-
sors before purchasing shares of the Fund.
Distributions of taxable net investment income and realized net short-term cap-
ital gains in excess of net long-term capital losses are taxable as ordinary
income to shareholders of the Fund whether such distributions are taken in cash
or reinvested in additional shares. Distributions of this type to corporate
shareholders of the Fund are not eligible for the dividends-received deduction.
Distributions of net long-term capital gains in excess of net short-term capi-
tal losses are taxable to shareholders of the Fund as long-term capital gains
regardless of how long a shareholder has held shares in the Fund and regardless
of whether taken in cash or reinvested in additional shares. Long-term capital
gains distributions to corporate shareholders are not eligible for the divi-
dends-received deduction. The Fund does not expect to realize long-term capital
gains and thus does not contemplate paying distributions taxable to sharehold-
ers who are subject to tax as long-term capital gains.
14
<PAGE>
Any gain or loss realized on the redemption or exchange of Fund shares by a
shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held for more than one year, and
otherwise as short-term capital gain or loss. However, any loss realized by a
shareholder upon the redemption or exchange of shares in the Fund held for six
months or less will be treated as a long-term capital loss to the extent of
any long-term capital gain distributions received by the shareholder with re-
spect to such shares. In addition, any loss realized by a shareholder upon the
redemption or exchange of shares in the Fund held six months or less will be
disallowed to the extent of any exempt-interest dividends received by the
shareholder with respect to the shares. See Taxes in the Statement of Addi-
tional Information.
ADDITIONAL INFORMATION
The Fund sends to its shareholders annual and semi-annual reports. The finan-
cial statements appearing in annual reports are audited by independent accoun-
tants. Shareholders also will be sent confirmations of each purchase and re-
demption and monthly statements, reflecting all other account activity, in-
cluding dividends and any distributions reinvested in additional shares or
credited as cash.
All shareholders are given the privilege to initiate transactions automati-
cally by telephone upon opening an account. However, investors should be aware
that a transaction authorized by telephone and reasonably believed to be genu-
ine by the Fund, Morgan, their Service Organization or the Distributor may
subject the investor to risk of loss if such instruction is subsequently found
not to be genuine. The Fund will employ reasonable procedures, including re-
quiring investors to give their Personal Identification Number and tape re-
cording of telephone instructions, to confirm that instructions communicated
from investors by telephone are genuine; if it does not, the Fund, the Share-
holder Servicing Agent or a shareholder's Service Organization may be liable
for any losses due to unauthorized or fraudulent instructions.
The Fund may make historical performance information available and may compare
its performance to other investments or relevant indexes, including data from
Lipper Analytical Services, Inc., Micropal Inc., Morningstar Inc., Ibbotson
Associates, Donoghue's Money Market and Tax Free Money Market fund averages
and other industry publications. The Fund may advertise "yield," "effective
yield," and "tax equivalent yield". Yield refers to the net income generated
by an investment in the Fund over a stated seven-day period. This income is
then annualized-i.e., the amount of income generated by the investment during
that week is assumed to be generated each week over a 52-week period and is
shown as a percentage of the investment. Effective yield is calculated simi-
larly to the yield, but, when annualized, the income earned by an investment
in the Fund is assumed to be reinvested; the effective yield will be slightly
higher than the yield because of the compounding effect of this assumed rein-
vestment. Tax equivalent yield is calculated similarly to the yield for the
Fund, except that the yield is increased using a stated income tax rate to
demonstrate the taxable yield necessary to produce an after-tax equivalent to
the Fund.
The Fund may advertise "total return" and non-standardized total return data.
The total return shows what an investment in the Fund would have earned over a
specified period of time (one, five or ten years or since commencement of op-
erations, if less) assuming that all distributions and dividends by the Fund
were reinvested on the reinvestment dates during the period and less all re-
curring fees. These methods of calculating yield and total return are required
by regulations of the Securities and Exchange Commission. Yield and total re-
turn data similarly calculated, unless otherwise indicated, over other speci-
fied periods of time may also be used. See Performance Data in the Statement
of Additional Information. All performance figures are based on historical
earnings and are not intended to indicate future performance. Shareholders may
obtain performance information by calling Morgan at (800) 766-7722.
15
<PAGE>
---------------------------------------
The
JPM Institutional
Service Tax Exempt
Money Market
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 offer in such jurisdiction.
PROS368-975
PROSPECTUS
May 30, 1997
<PAGE>
PROSPECTUS
The JPM Institutional Service Federal Money Market Fund
60 State Street
Boston, Massachusetts 02109
For information call (800) 766-7722
The JPM Institutional Service Federal Money Market Fund (the "Fund") seeks
to provide current income, maintain a high level of liquidity and preserve
capital. It is designed for investors who seek to preserve capital and
earn current income from a portfolio of direct obligations of the U.S.
Treasury and obligations of certain U.S. Government agencies.
The Fund is a diversified no-load mutual fund for which there are no sales
charges or exchange or redemption fees. The Fund is a series of The JPM
Institutional Funds, an open-end management investment company organized
as a Massachusetts business trust (the "Trust").
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 THE FEDERAL MONEY
MARKET PORTFOLIO (THE "PORTFOLIO"), A CORRESPONDING DIVERSIFIED 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 ON PAGE 3.
The Portfolio is advised by Morgan Guaranty Trust Company of New York
("Morgan" or "Advisor").
This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing and it should be
retained for future reference. Additional information about the Fund has
been filed with the Securities and Exchange Commission in a Statement of
Additional Information dated May 30, 1997 (as 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,
Funds Distributor, Inc. ("FDI"), 60 State Street, Suite 1300, Boston,
Massachusetts 02109, Attention: The JPM Institutional Funds, or by calling
(800) 221-7930.
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. 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. ALTHOUGH THE FUND SEEKS TO MAINTAIN A STABLE NET
ASSET VALUE OF $1.00 PER SHARE, THERE CAN BE NO ASSURANCE THAT IT WILL BE
ABLE TO CONTINUE TO DO SO.
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 MAY 30, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Investors for Whom the Fund is Designed.................................... 1
Special Information Concerning Investment Structure........................ 3
Investment Objective and Policies.......................................... 4
Additional Investment Information and Risk Factors......................... 4
Investment Restrictions.................................................... 6
Management of the Trust and the Portfolio.................................. 6
Shareholder Servicing...................................................... 8
</TABLE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
Purchase of Shares......................................................... 9
Redemption of Shares....................................................... 10
Exchange of Shares......................................................... 11
Dividends and Distributions................................................ 11
Net Asset Value............................................................ 11
Organization............................................................... 12
Taxes...................................................................... 12
Additional Information..................................................... 13
</TABLE>
<PAGE>
The JPM Institutional Service Federal Money Market Fund
INVESTORS FOR WHOM THE FUND IS DESIGNED
The Fund is designed to be an economical and convenient means of making sub-
stantial investments in money market instruments for investors who are inter-
ested in current income, preserving capital and maintaining liquidity. The Fund
seeks to achieve its investment objective by investing all of its investable
assets in The Federal Money Market Portfolio, a diversified open-end management
investment company having the same investment objective as the Fund. Since the
investment characteristics and experience of the Fund will correspond directly
with those of the Portfolio, the discussion in this Prospectus focuses on the
investments and investment policies of the Portfolio.
THE FUND SEEKS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE
CAN BE NO ASSURANCE THAT IT WILL BE ABLE TO CONTINUE TO DO SO.
The Fund generally requires a minimum initial investment of $10 million. The
minimum subsequent investment is $25,000. See Purchase of Shares. If an account
with the Fund is reduced to less than $10 million for more than 30 days, the
investment may be subject to mandatory redemption. See Redemption of Shares-
Mandatory Redemption by the Fund.
This Prospectus describes the financial history, investment objective and poli-
cies, management and operation of the Fund to enable investors to decide if the
Fund suits their needs. The Fund operates in a two-tier master-feeder invest-
ment structure. The Trustees believe that the Fund may achieve economies of
scale over time by utilizing this investment structure.
The following table illustrates that investors in the Fund incur no shareholder
transaction expenses; their investment in the Fund is subject only to the oper-
ating expenses set forth below for the Fund and the Portfolio, as a percentage
of average net assets of the Fund. The Trustees of the Trust believe that the
aggregate per share expenses of the Fund and the Portfolio will be approxi-
mately equal to and may be less than the expenses that the Fund would incur if
it retained the services of an investment adviser and invested its assets di-
rectly in portfolio securities. Fund and Portfolio expenses are discussed below
under the headings Management of the Trust and the Portfolio and Shareholder
Servicing.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases*........................................... None
Sales Load Sales on Reinvested Dividends................................... None
Deferred Sales Load........................................................ None
Redemption Fees............................................................ None
Exchange Fees.............................................................. None
</TABLE>
- -------
* Certain Service Organizations (defined below) may impose fees in connection
with the purchase of the Fund's shares through such institutions. See Service
Organizations.
1
<PAGE>
EXPENSE TABLE
ANNUAL OPERATING EXPENSES*
<TABLE>
<S> <C>
Advisory Fees............................................................. 0.20%
Rule 12b-1 Fees........................................................... None
Other Expenses (after expense reimbursement).............................. None
Service Fees**............................................................ 0.25%
-----
Total Operating Expenses (after expense reimbursement).................... 0.45%
</TABLE>
* These expenses are based on the Fund's estimated expenses and estimated av-
erage net assets for its current fiscal year and through February 28, 1999,
after applicable voluntary expense reimbursement. Without such expense reim-
bursement, the estimated Other Expenses and Total Operating Expenses would
be equal on an annual basis to 0.26% and 0.71%, respectively, of the average
daily net assets of the Fund.
** Service Organizations may charge other fees to their customers who are the
beneficial owners of shares in connection with their customers' accounts.
See Service Organizations. Such fees, if any, may affect the return such
customers realize with respect to their investments.
EXAMPLE
An investor would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<S> <C>
1 Year...................................................................... $ 5
3 Years..................................................................... $14
</TABLE>
The above expense table is designed to assist investors in understanding the
various direct and indirect costs and expenses that investors in the Fund
bear. The fees and expenses included in Other Expenses are the fees paid to
Morgan under the Administrative Services Agreements and the Shareholder Ser-
vicing Agreement, organization expenses, the fees paid to Pierpont Group, Inc.
under the Fund Services Agreements, the fees paid to FDI under the Co-Adminis-
tration Agreements, the fees paid to State Street Bank and Trust Company as
custodian and transfer agent, and other usual and customary expenses of the
Fund and the Portfolio. For a more detailed description of contractual fee ar-
rangements, including expense reimbursements, see Management of the Trust and
the Portfolio and Shareholder Servicing. In connection with the above example,
please note that $1,000 is less than the Fund's minimum investment requirement
and that there are no redemption or exchange fees of any kind. See Purchase of
Shares and Redemption of Shares. THE EXAMPLE IS HYPOTHETICAL; IT IS INCLUDED
SOLELY FOR ILLUSTRATIVE PURPOSES. IT SHOULD NOT BE CONSIDERED A REPRESENTATION
OF FUTURE PERFORMANCE; ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
2
<PAGE>
SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE
Unlike other mutual funds which directly acquire and manage their own portfo-
lio of securities, the Fund is an open-end management investment company which
seeks to achieve its investment objective by investing all of its investable
assets in the Portfolio, a separate registered investment company with the
same investment objective as the Fund. The investment objective of the Fund or
Portfolio may be changed only with the approval of the holders of the out-
standing shares of the Fund and the Portfolio. The master-feeder investment
fund structure has been developed relatively recently, so shareholders should
carefully consider this investment approach.
In addition to selling a beneficial interest to the Fund, the Portfolio may
sell beneficial interests to other mutual funds or institutional investors.
Such investors will invest in the Portfolio on the same terms and conditions
and will bear a proportionate share of the Portfolio's expenses. However, the
other investors investing in the Portfolio may sell shares of their own fund
using a different pricing structure than the Fund. Such different pricing
structures may result in differences in returns experienced by investors in
other funds that invest in the Portfolio. Such differences in returns are not
uncommon and are present in other mutual fund structures. Information concern-
ing other holders of interests in the Portfolio is available from Morgan at
(800) 766-7722.
The Trust may withdraw the investment of the Fund from the Portfolio at any
time if the Board of Trustees of the Trust determines that it is in the best
interests of the Fund to do so. Upon any such withdrawal, the Board of Trust-
ees would consider what action might be taken, including the investment of all
the assets of the Fund in another pooled investment entity having the same in-
vestment objective and restrictions as the Fund or the retaining of an invest-
ment adviser to manage the Fund's assets in accordance with the investment
policies described below with respect to the Portfolio.
Certain changes in the Portfolio's investment objective, policies or restric-
tions, or a failure by the Fund's shareholders to approve a change in the
Portfolio's investment objective or restrictions, may require withdrawal of
the Fund's interest in the Portfolio. Any such withdrawal could result in a
distribution in kind of portfolio securities (as opposed to a cash distribu-
tion) from the Portfolio which may or may not be readily marketable. The dis-
tribution in kind may result in the Fund having a less diversified portfolio
of investments or adversely affect the Fund's liquidity, and the Fund could
incur brokerage, tax or other charges in converting the securities to cash.
Notwithstanding the above, there are other means for meeting shareholder re-
demption requests, such as borrowing.
Smaller funds investing in the Portfolio may be materially affected by the ac-
tions of larger funds investing in the Portfolio. For example, if a large fund
withdraws from the Portfolio, the remaining funds may subsequently experience
higher pro rata operating expenses, thereby producing lower returns. Addition-
ally, because the Portfolio would become smaller, it may become less diversi-
fied, resulting in potentially increased portfolio risk (however, these possi-
bilities also exist for traditionally structured funds which have large or in-
stitutional investors who may withdraw from a fund). Also, funds with a
greater pro rata ownership in the Portfolio could have effective voting con-
trol of the operations of the Portfolio. Whenever the Fund is requested to
vote on matters pertaining to the Portfolio (other than a vote by the Fund to
continue the operation of the Portfolio upon the withdrawal of another in-
vestor in the Portfolio), the Trust will hold a meeting of shareholders of the
Fund and will cast all of its votes proportionately as instructed by the
Fund's shareholders. The Trust will vote the shares held by Fund shareholders
who do not give voting instructions in the same proportion as the shares of
Fund shareholders who do give voting instructions. Shareholders of the Fund
who do not vote will have no effect on the outcome of such matters.
For more information about the Portfolio's investment objective, policies and
restrictions, see Investment Objective and Policies, Additional Investment In-
formation and Risk Factors and Investment Restrictions. For more information
about the Portfolio's management and expenses, see Management of the Trust and
the Portfolio. For more information about changing the investment objective,
policies and restrictions of the Fund or the Portfolio, see Investment Re-
strictions.
3
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund and the Portfolio is described below, to-
gether with the policies they employ in their efforts to achieve this objec-
tive. Additional information about the investment policies of the Fund and the
Portfolio appears in the Statement of Additional Information under Investment
Objectives and Policies. There can be no assurance that the investment objec-
tive of the Fund or the Portfolio will be achieved.
The Fund's investment objective is to provide current income, maintain a high
level of liquidity and preserve capital. The Fund attempts to achieve its in-
vestment objective by investing all of its investable assets in The Federal
Money Market Portfolio, a diversified open-end management investment company
having the same investment objective as the Fund.
The Portfolio seeks to achieve its investment objective by investing in direct
obligations of the U.S. Treasury and in obligations of certain U.S. Government
agencies described below. The market value of obligations in which the Portfo-
lio invests is not guaranteed and may rise and fall in response to changes in
interest rates. The Portfolio maintains a dollar-weighted average portfolio
maturity of not more than 90 days and invests in the following securities
which have effective maturities of 397 calendar days or less.
TREASURY SECURITIES; CERTAIN U.S. GOVERNMENT AGENCY OBLIGATIONS. The Portfolio
will invest in 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 ("Treasury Securities"). Treasury Bills have initial maturities of one
year or less; Treasury Notes have initial maturities of one to ten years; and
Treasury Bonds generally have initial maturities of greater than ten years.
During ordinary market conditions substantially all of the Portfolio's net as-
sets will be invested in Treasury Securities and obligations, that are gener-
ally exempt from state and local income taxes, issued by U.S. Government agen-
cies where the Portfolio must look to the issuing agency for ultimate repay-
ment, including the Federal Farm Credit System, the Federal Home Loan Banks,
the Tennessee Valley Authority and the Student Loan Marketing Association
("Permitted Agency Securities"). Each such obligation must have a remaining
maturity of 397 days or less at the time of purchase by the Portfolio.
The Portfolio also may purchase Treasury Securities and Permitted Agency Secu-
rities on a when-issued or delayed delivery basis and, although it has no cur-
rent intention to do so, may engage in repurchase and reverse repurchase
agreement transactions involving such securities. For a discussion of these
transactions, see Additional Investment Information and Risk Factors.
ADDITIONAL INVESTMENT INFORMATION AND RISK FACTORS
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase secu-
rities on a when-issued or delayed delivery basis. Delivery of and payment for
these securities may take as long as a month or more after the date of the
purchase commitment. The value of these securities is subject to market fluc-
tuation during this period and for fixed income securities no interest or in-
come accrues to the Portfolio until settlement. At the time of settlement a
when-issued security may be valued at less than its purchase price. The Port-
folio maintains with the Custodian a separate account with a segregated port-
folio of securities in an amount at least equal to these commitments. When en-
tering into a when-issued or delayed delivery transaction, the Portfolio will
rely on the other party to consummate the transaction; if the other party
fails to do so, the Portfolio may be disadvantaged. It is the current policy
of the Portfolio not to enter into when-issued commitments exceeding in the
aggregate 15% of the market value of the Portfolio's total assets less liabil-
ities other than the obligations created by these commitments.
REPURCHASE AGREEMENTS. The Portfolio may, although it has no intention to do
so, engage in repurchase agreement transactions with brokers, dealers or banks
that meet the credit guidelines established by the Portfolio's Trustees. In a
repurchase agreement, the Portfolio buys a security from a seller that has
agreed to repurchase it at a mutually agreed upon date and price, reflecting
the interest rate effective for the term of the agreement. The Portfolio may
only enter
4
<PAGE>
into repurchase agreements involving Treasury Securities and Permitted Agency
Securities. The term of these agreements is usually from overnight to one
week. A repurchase agreement may be viewed as a fully collateralized loan of
money by the Portfolio to the seller. The Portfolio always receives securities
as collateral with a market value at least equal to the purchase price plus
accrued interest and this value is maintained during the term of the agree-
ment. If the seller defaults and the collateral value declines, the Portfolio
might incur a loss. If bankruptcy proceedings are commenced with respect to
the seller, the Portfolio's realization upon the disposition of collateral may
be delayed or limited. Investments in certain repurchase agreements and cer-
tain other investments which may be considered illiquid are limited. See Il-
liquid Investments; Privately Placed and other Unregistered Securities below.
LOANS OF PORTFOLIO SECURITIES. Subject to applicable investment restrictions,
the Portfolio is permitted to lend its securities in an amount up to 33 1/3%
of the value of the Portfolio's net assets. The Portfolio may lend its securi-
ties if such loans are secured continuously by cash or equivalent collateral
or by a letter of credit in favor of the Portfolio 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 Portfolio any in-
come accruing thereon. Loans will be subject to termination by the Portfolio
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 Portfolio
and its respective investors. The Portfolio may pay reasonable finders' and
custodial fees in connection with a loan. In addition, the Portfolio will con-
sider all facts and circumstances, including the creditworthiness of the bor-
rowing financial institution, and the Portfolio will not make any loans in ex-
cess of one year.
Loans of portfolio securities may be considered extensions of credit by the
Portfolio. The risks to the Portfolio with respect to borrowers of its portfo-
lio securities are similar to the risks to the Portfolio with respect to sell-
ers in repurchase agreement transactions. See Repurchase Agreements above. The
Portfolio will not lend its securities to any officer, Trustee, Director, em-
ployee or other affiliate of the Portfolio, the Advisor or the Distributor,
unless otherwise permitted by applicable law.
REVERSE REPURCHASE AGREEMENTS. The Portfolio is permitted to enter into re-
verse repurchase agreements. In a reverse repurchase agreement, the Portfolio
sells a security and agrees to repurchase it at a mutually agreed upon date
and price, reflecting the interest rate effective for the term of the agree-
ment. For purposes of the Investment Company Act of 1940, as amended (the
"1940 Act"), it is considered a form of borrowing by the Portfolio and, there-
fore, is a form of leverage. Leverage may cause any gains or losses of the
Portfolio to be magnified. See Investment Restrictions for investment limita-
tions applicable to reverse repurchase agreements and other borrowings. For
more information, see Investment Objectives and Policies in the Statement of
Additional Information.
ILLIQUID INVESTMENTS; PRIVATELY PLACED AND OTHER UNREGISTERED SECURITIES. The
Portfolio may not acquire any illiquid securities if, as a result thereof,
more than 10% of the Portfolio's net assets would be in illiquid investments.
Subject to this fundamental policy limitation, the Portfolio may acquire in-
vestments that are illiquid or have limited liquidity, such as private place-
ments or investments that are not registered under the Securities Act of 1933,
as amended (the "1933 Act"), and cannot be offered for public sale in the
United States without first being registered under the 1933 Act. An illiquid
investment is any investment that cannot be disposed of within seven days in
the normal course of business at approximately the amount at which it is val-
ued by the Portfolio. 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. Accordingly the valuation of these secu-
rities will reflect any limitations on their liquidity.
The Portfolio may also purchase Rule 144A securities sold to institutional in-
vestors without registration under the 1933 Act. These securities may be de-
termined to be liquid in accordance with guidelines established by the Advisor
and approved by the Trustees. The Trustees will monitor the Advisor's imple-
mentation of these guidelines on a periodic basis.
5
<PAGE>
INVESTMENT RESTRICTIONS
As a diversified investment company, 75% of the assets of the Portfolio are
subject to the following fundamental limitations: (a) the Portfolio may not in-
vest more than 5% of its total assets in the securities of any one issuer, ex-
cept U.S. Government securities, and (b) the Portfolio may not own more than
10% of the outstanding voting securities of any one issuer. The Portfolio is
subject to additional non-fundamental requirements governing non-tax exempt
money market funds. These non-fundamental requirements generally prohibit the
Portfolio from investing more than 5% of its total assets in the securities of
any single issuer, except obligations of the U.S. Government and its agencies
and instrumentalities.
The investment objective of the Fund and the Portfolio, together with the in-
vestment restrictions described below and in the Statement of Additional Infor-
mation, except as noted, are deemed fundamental policies, i.e., they may be
changed only with the approval of the holders of a majority of the outstanding
voting securities of the Fund and the Portfolio. The Fund has the same invest-
ment restrictions as the Portfolio, except that the Fund may invest all of its
investable assets in another open-end investment company with the same invest-
ment objective and restrictions (such as the Portfolio). References below to
the Portfolio's investment restrictions also include the Fund's investment re-
strictions.
The Portfolio may not (i) enter into reverse repurchase agreements which to-
gether with any other borrowings exceed one-third of the market value of its
total assets, less certain liabilities, or (ii) borrow money (not including re-
verse 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
Portfolio's total assets, taken at cost at the time of borrowing (and provided
that such borrowings and reverse repurchase agreements do not exceed in the ag-
gregate one-third of the market value of the Portfolio's total assets less lia-
bilities other than the obligations represented by the bank borrowings and re-
verse repurchase agreements), or purchase securities while borrowings exceed 5%
of its total assets; or mortgage, pledge or hypothecate any assets except in
connection with any such borrowings in amounts up to 10% of the value of the
Portfolio's net assets at the time of borrowing, or (iii) make loans, except
through purchasing or holding debt obligations, repurchase agreements, or loans
of portfolio securities in accordance with the Portfolio's investment objective
and policies.
For a more detailed discussion of the above investment restrictions, as well as
a description of certain other investment restrictions, see Investment Restric-
tions in the Statement of Additional Information.
MANAGEMENT OF THE TRUST AND THE PORTFOLIO
TRUSTEES. Pursuant to the Declarations of Trust for the Trust and for the Port-
folio, the Trustees decide upon matters of general policy and review the ac-
tions of the Advisor and other service providers. The Trustees of the Trust and
of the Portfolio are identified below.
<TABLE>
<S> <C>
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;
Chairman, Pierpont Group, Inc.
Michael P. Mallardi................. Former Senior Vice President, Capital
Cities/ABC, Inc. and President, Broadcast
Group
</TABLE>
6
<PAGE>
A majority of the disinterested Trustees have adopted written procedures rea-
sonably 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 JPM Pierpont Funds, up to and including creating a separate board of trust-
ees. See Trustees and Officers in the Statement of Additional Information for
more information about the Trustees and Officers of the Fund and the Portfolio.
The Portfolio and the Trust have each entered into a Fund Services Agreement
with Pierpont Group, Inc. to assist the Trustees in exercising their overall
supervisory responsibilities for the Portfolio's and the Trust's affairs. The
fees to be paid under the agreements approximate the reasonable cost of Pier-
pont Group, Inc. in providing these services to the Trust, the Portfolio and
certain other registered investment companies subject to similar agreements
with Pierpont Group, Inc. Pierpont Group, Inc. was organized in 1989 at the re-
quest of the Trustees of The Pierpont Family of Funds for the purpose of pro-
viding these services at cost to these funds. See Trustees and Officers in the
Statement of Additional Information. The principal offices of Pierpont Group,
Inc. are located at 461 Fifth Avenue, New York, New York 10017.
ADVISOR. The Fund has not retained the services of an investment adviser be-
cause 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, with principal offices at 60 Wall
Street, New York, New York 10260, is a New York trust company which conducts a
general banking and trust business. Morgan is a wholly owned subsidiary of J.P.
Morgan & Co. Incorporated ("J.P. Morgan"), a bank holding company organized un-
der 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 adviser to individual and institutional clients with com-
bined assets under management of over $208 billion. Morgan provides investment
advice and portfolio management services to the Portfolio. Subject to the su-
pervision of the Portfolio's 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. See Investment Advisor in the
Statement of Additional Information.
The following persons are primarily responsible for the day-to-day management
and implementation of Morgan's 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): Robert R. Johnson, Vice
President (since January 1993, employed by Morgan since prior to 1992) and Dan-
iel B. Mulvey, Vice President (since October 1996, employed by Morgan since
1992).
As compensation for the services rendered and related expenses borne by Morgan
under the 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 0.20% of the Portfolio's average daily net assets up to $1
billion, and 0.10% of average daily net assets in excess of $1 billion.
Under separate agreements, Morgan also provides administrative and related
services to the Fund and the Portfolio and shareholder services to shareholders
of the Fund. See Administrative Services Agent and Shareholder Servicing below.
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, Funds Distributor, Inc. ("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 Port-
folio; (iii) prepares and files documents required for notification of state
securities administrators; (iv) reviews and files marketing and sales litera-
ture; (v) files Portfolio regulatory documents and mails Portfolio communica-
tions to Trustees and investors; and (vi) maintains related books and records.
7
<PAGE>
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 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 com-
pliance, 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 Portfo-
lio 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 Trust and certain other registered investment companies man-
aged by the Advisor 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 and as exclusive placement agent for the Portfolio. FDI
is a wholly owned indirect subsidiary of Boston Institutional Group, Inc.
FDI's principal business address is 60 State Street, Suite 1300, Boston, Mas-
sachusetts 02109.
CUSTODIAN. State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02110, serves as the Fund's and the Portfolio's
custodian and fund accounting and transfer agent and the Fund's dividend dis-
bursing agent. State Street also keeps the books of account for the Fund and
the Portfolio.
EXPENSES. In addition to the fees payable to Morgan, FDI and Pierpont Group,
Inc. under the various agreements discussed under Trustees, Advisor, Co-Admin-
istrator and Administrative Services Agent above and Shareholder Servicing be-
low, the Fund and the Portfolio are responsible for usual and customary ex-
penses associated with their respective operations. Such expenses include or-
ganization expenses, legal fees, accounting and audit expenses, insurance
costs, the compensation and expenses of the Trustees, costs associated with
its registration under federal securities laws, and extraordinary expenses ap-
plicable to the Fund or the Portfolio. For the Fund, such expenses also in-
clude transfer, registrar and dividend disbursement costs, the expenses of
printing and mailing reports, notices and proxy statements to Fund sharehold-
ers, and filing fees under state securities laws. For the Portfolio, such ex-
penses also include custodian fees and brokerage expenses.
Morgan has agreed that it will reimburse the Fund through at least February
28, 1999 to the extent necessary to maintain the Fund's total operating ex-
penses (which include expenses of the Fund and the Portfolio) at the annual
rate of 0.45% of the Fund's average daily net assets. This limit does not
cover extraordinary expenses during the period. There is no assurance that
Morgan will continue this waiver beyond the specified period.
SHAREHOLDER SERVICING
Pursuant to a Shareholder Servicing Agreement with the Trust, Morgan acts as
shareholder servicing agent. The Fund pays Morgan for these services at an an-
nual 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 share-
holder servicing agent) of 0.05% of the Fund's average daily net assets. Under
the terms of the Shareholder Servicing Agreement with the Fund, Morgan may
delegate one or more of its responsibilities to other entities at Morgan's ex-
pense.
The Fund may be sold to or through service organizations ("Service Organiza-
tions"), 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
8
<PAGE>
Fund. See Service Organizations. 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.
Shareholders should address all inquiries to their Service Organization or to
J.P. Morgan Funds Services, Morgan Guaranty Trust Company of New York, 522
Fifth Avenue, New York, New York 10036 or call (800) 766-7722.
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 in-
structions relating to a Fund account from Morgan as shareholder servicing
agent for the customer. All purchase orders must be accepted by the Distribu-
tor. Investors must be customers of a Service Organization. The Trust reserves
the right to determine the purchase orders that it will accept.
The Fund requires a minimum initial investment of $10 million and a minimum
subsequent investment of $25,000. These minimum investment requirements may be
waived for certain investors, including investors for whom the Advisor is a fi-
duciary, who maintain related accounts with the Fund, other JPM Institutional
Funds or the Advisor, who make investments for a group of clients, such as fi-
nancial advisors, trust companies and investment advisors, or who maintain re-
tirement accounts with the Funds. 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. A Service Organization
may effect redemptions of noncomplying accounts and may impose a charge for any
special services rendered to its customers. Customers should contact their
Service Organizations for further information concerning such requirements and
charges. A Service Organization may purchase shares in connection with sweep
account programs.
PURCHASE PRICE AND SETTLEMENT. The Fund's shares are sold on a continuous basis
without a sales charge at the net asset value per share next determined after
receipt of an order. Prospective investors may purchase shares with the assis-
tance of a Service Organization that may establish its own terms, conditions
and charges.
To purchase shares in the Fund, investors should request a representative of
their Service Organization 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 same day. Any shareholder may also call J.P. Morgan Funds
Services at (800) 766-7722 for assistance in placing an order for Fund shares.
Purchase orders must be received by 1:00 P.M. and immediately available funds
must be received by 4:00 P.M. New York time on a business day for the purchase
to be effective and dividends to be earned on the same day. The Fund does not
accept orders after the indicated time. If funds are received after 4:00 P.M.
New York time for any reason, including that the day is a Federal Reserve holi-
day, the purchase is not effective and dividends are not earned until the next
business day.
SERVICE ORGANIZATIONS. The Trust has adopted a Service Plan with respect to
Fund shares which authorizes it to compensate Service Organizations for provid-
ing account administration and other services to their customers who are bene-
ficial owners of such shares. The Fund will enter into agreements with Service
Organizations which purchase shares on behalf of their customers ("Service
Agreements"). The Service Agreements will provide for compensation to the Serv-
ice Organization in an amount up to 0.25 of 1% (on an annualized basis) of the
average daily net asset value of the shares of
9
<PAGE>
the Fund attributable to or held in the name of the Service Organization for
its customers. The services provided by a Service Organization may include act-
ing, directly or through an agent, as the sole shareholder of record, maintain-
ing or assisting in maintaining account records for its customers and process-
ing or assisting in processing orders to purchase and redeem shares for its
customers. Holders of shares of the Fund will bear all expenses and fees paid
to Service Organizations with respect to such shares as well as any other ex-
penses which are directly attributable to such shares.
Service Organizations may charge other fees to their customers who are the ben-
eficial owners of shares in connection with their customer accounts. These fees
would be in addition to any amounts received by the Service Organization under
a Service Agreement and may affect an investor's return with respect to an in-
vestment in the Fund. Such charges may vary among Service Organizations but in
all cases will be retained by the Service Organization and not remitted to the
Fund or Morgan.
REDEMPTION OF SHARES
METHOD OF REDEMPTION. To redeem shares in the Fund, an investor may instruct
his or her Service Organization to submit a redemption request to the Fund. Any
shareholder also may telephone J.P. Morgan Funds Services directly at (800)
766-7722 for assistance. The Fund executes effective redemption requests at the
next determined net asset value per share. See Net Asset Value. See Additional
Information below for an explanation of the telephone redemption policy of The
JPM Institutional Funds.
A redemption request received on a business day prior to 1:00 P.M. New York
time is effective on that day. A redemption request received after that time
becomes effective on the next day. Proceeds of an effective redemption are gen-
erally deposited the same day in immediately available funds to the sharehold-
er's account at his or her Service Organization. If a redemption request be-
comes effective on a day when the New York Stock Exchange is open but which is
a Federal Reserve holiday, the proceeds are paid the next business day. See
Further Redemption Information.
MANDATORY REDEMPTION BY THE FUND. If the value of an account in the Fund falls
below the Fund's initial investment amount of $10 million for more than 30 days
because of a redemption of shares, the Fund may redeem the remaining shares in
the account 60 days after written notice to the shareholder unless the account
is increased to the minimum investment amount or more.
FURTHER REDEMPTION INFORMATION. Investors should be aware that redemptions from
the Fund may not be processed if a redemption request is not submitted in
proper form. To be in proper form, the Fund must have received the sharehold-
er's taxpayer identification number and address. As discussed under Taxes be-
low, the Fund may be required to impose "back-up" withholding of federal income
tax on dividends, distributions and redemption proceeds when non-corporate in-
vestors have not provided a certified taxpayer identification number. In addi-
tion, if a shareholder sends a check for the purchase of Fund shares and shares
are purchased before the check has cleared, the transmittal of redemption pro-
ceeds from the shares will occur upon clearance of the check which may take up
to 15 days.
The Fund reserves the right to suspend the right of redemption and to postpone
the date of payment upon redemption for up to seven days and for such other pe-
riods as the 1940 Act or the Securities and Exchange Commission may permit. See
Redemption of Shares in the Statement of Additional Information.
10
<PAGE>
After a wire has been initiated by Morgan, neither Morgan nor the Trust assumes
any further responsibility for the performance of intermediaries or of the rel-
evant Service Organization in the transfer process. If a problem with such per-
formance arises, the shareholder should deal directly with such intermediaries
or its Service Organization.
EXCHANGE OF SHARES
An investor may exchange shares from the Fund into any other JPM Institutional
Fund, JPM Pierpont Fund or shares of JPM Series Trust without charge. An ex-
change may be made so long as after the exchange the investor has shares, in
each fund in which he or she remains an investor, with a value of at least that
fund's minimum investment amount. Shareholders should read the prospectus of
the fund into which they are exchanging and may only exchange between fund ac-
counts that are registered in the same name, address and taxpayer identifica-
tion number. Shares are exchanged on the basis of relative net asset value per
share. Exchanges are in effect redemptions from one fund and purchases of an-
other fund and the usual purchase and redemption procedures and requirements
are applicable to exchanges. See Purchase of Shares and Redemption of Shares in
this Prospectus and in the prospectuses for the other JPM Institutional Funds,
The JPM Pierpont Funds and JPM Series Trust. See also Additional Information
below for an explanation of the telephone exchange policy of The JPM Institu-
tional Funds.
Shareholders subject to federal income tax who exchange shares in one fund for
shares in another fund may recognize capital gain or loss for federal income
tax purposes. The Fund reserves the right to discontinue, alter or limit its
exchange privilege at any time. For investors in certain states, state securi-
ties laws may restrict the availability of the exchange privilege.
DIVIDENDS AND DISTRIBUTIONS
All of the Fund's net investment income is declared as a dividend daily and
paid monthly. If an investor's shares are redeemed during a month, accrued but
unpaid dividends are paid with the redemption proceeds. The net investment in-
come of the Fund for dividend purposes consists of its pro rata share of the
net income of the Portfolio less the Fund's expenses. Dividends and distribu-
tions are payable to shareholders of record at the time of declaration. The net
investment income of the Fund for each business day is determined immediately
prior to the determination of net asset value. Net investment income for other
days is determined at the time net asset value is determined on the prior busi-
ness day. Shares of the Fund earn dividends on the business day their purchase
is effective, but not on the business day their redemption is effective. See
Purchase of Shares and Redemption of Shares.
Net short-term capital gains, if any, will be distributed in accordance with
the requirements of the Internal Revenue Code of 1986, as amended (the "Code")
and may be reflected in the Fund's daily dividends. Substantially all the real-
ized net long-term capital gains, if any, of the Fund are declared and paid on
an annual basis, except that an additional capital gains distribution may be
made in a given year to the extent necessary to avoid the imposition of federal
excise tax on the Fund.
Dividends and capital gains distributions paid by the Fund are automatically
reinvested in additional shares of the Fund unless the shareholder has elected
to have them paid in cash. Dividends and distributions to be paid in cash are
generally credited to the shareholder's account at Morgan or at his or her
Service Organization. The Fund reserves the right to discontinue, alter or
limit the automatic reinvestment privilege at any time.
NET ASSET VALUE
Net asset value per share for the Fund is determined by subtracting from the
value of the Fund's total assets (i.e., the value of its investment in the
Portfolio and other assets) the amount of its liabilities and dividing the re-
mainder by the
11
<PAGE>
number of its outstanding shares, rounded to the nearest cent. Expenses, in-
cluding the fees payable to Morgan, are accrued daily. The Portfolio values all
portfolio securities by the amortized cost method. This method attempts to
maintain for the Fund a constant net asset value per share of $1.00. No assur-
ances can be given that this goal can be attained. See Net Asset Value in the
Statement of Additional Information for more information on valuation of port-
folio securities for the Portfolio.
The Fund computes its net asset value once daily at 4:00 P.M. New York time on
Monday through Friday, except that the net asset value is not computed for the
Fund on the holidays listed under Net Asset Value in the Statement of Addi-
tional Information and may be computed at earlier times as set forth in the
Statement of Additional Information.
ORGANIZATION
The Trust was organized on November 4, 1992 as an unincorporated business trust
under Massachusetts law and is an entity commonly known as a "Massachusetts
business trust". The Declaration of Trust permits the Trustees to issue an un-
limited number of full and fractional shares ($0.001 par value) of one or more
series. To date 24 series of shares have been authorized and are available for
sale to the public. Only shares of the Fund are offered through this Prospec-
tus. No series of shares has any preference over any other series of shares.
See Massachusetts Trust in the Statement of Additional Information.
The Declaration of Trust for the Trust provides that no Trustee, shareholder,
officer, employee, or agent of the Fund shall be held to any personal liabili-
ty, nor shall resort be had to their private property for the satisfaction of
any obligation or claim or otherwise in connection with the affairs of the
Fund, but that the Trust property only shall be liable.
Shareholders of the Fund are entitled to one vote for each share and to the ap-
propriate fractional vote for each fractional share. There is no cumulative
voting. Shares have no preemptive or conversion rights. Shares are fully paid
and non- assessable by the Fund. The Trust does not intend to hold meetings of
shareholders annually. The Trustees may call meetings of shareholders for ac-
tion by shareholder vote as may be required by either the 1940 Act or the Dec-
laration of Trust. The Trustees will call a meeting of shareholders to vote on
removal of a Trustee upon the written request of the record holders of ten per-
cent of Trust shares and will assist shareholders in communicating with each
other as prescribed in Section 16(c) of the 1940 Act. For further organization
information, including certain shareholder rights, see Description of Shares in
the Statement of Additional Information.
The Portfolio is organized as a trust under the laws of the State of New York.
The Portfolio's Declaration of Trust provides that the Fund and other entities
investing in the Portfolio (e.g., other investment companies, insurance company
separate accounts and common and commingled trust funds) will each be liable
for all obligations of the Portfolio. However, the risk of the Fund incurring
financial loss on account of such liability is limited to circumstances in
which both inadequate insurance existed and the Portfolio itself was unable to
meet its obligations. Accordingly, the Trustees of the Trust believe that nei-
ther the Fund nor its shareholders will be adversely affected by reason of the
Fund's investing in the Portfolio.
TAXES
The following discussion of tax consequences is based on U.S. federal tax laws
in effect on the date of this Prospectus. These laws and regulations are sub-
ject to change by legislative or administrative action. Investors are urged to
consult their own tax advisors with respect to specific questions as to feder-
al, state or local taxes. See Taxes in the Statement of Additional Information.
Annual statements as to the current federal tax status of distributions, if ap-
plicable, are mailed to shareholders after the end of the taxable year for the
Fund.
12
<PAGE>
The Trust intends that the Fund will qualify as a separate regulated investment
company under Subchapter M of the Code. For the Fund to qualify as a regulated
investment company, the Portfolio, in addition to other requirements, limits
its investments so that at the close of each quarter of its taxable year (a) no
more than 25% of its total assets are invested in the securities of any one is-
suer, except U.S. Government securities, and (b) with regard to 50% to its to-
tal assets, no more than 5% of its total assets are invested in the securities
of a single issuer, except U.S. Government securities. As a regulated invest-
ment company, the Fund should not be subject to federal income taxes or federal
excise taxes if all of its net investment income and capital gains less any
available capital loss carryforwards are distributed to shareholders within al-
lowable time limits. The Portfolio intends to qualify as an association treated
as a partnership for federal income tax purposes. As such, the Portfolio should
not be subject to tax. The Fund's status as a regulated investment company is
dependent on, among other things, the Portfolio's continued qualification as a
partnership for federal income tax purposes.
If a correct and certified taxpayer identification number is not on file, the
Fund is required, subject to certainexemptions, to withhold 31% of certain pay-
ments made or distributions declared to non-corporate shareholders.
Distributions of net investment income and realized net short-term capital
gains in excess of net long-term capital losses are taxable as ordinary income
to shareholders of the Fund whether such distributions are taken in cash or re-
invested in additional shares. Distributions of this type to corporate share-
holders of the Fund are not eligible for the dividends- received deduction.
Distributions of net long-term capital gains in excess of net short-term capi-
tal losses are taxable to shareholders of the Fund as long-term capital gains
regardless of how long a shareholder has held shares in the Fund and regardless
of whether taken in cash or reinvested in additional shares. Long-term capital
gains distributions to corporate shareholders are not eligible for the divi-
dends-received deduction. The Fund does not expect to realize long-term capital
gains and thus does not contemplate paying distributions taxable to sharehold-
ers who are subject to tax as long-term capital gains.
Any gain or loss realized on the redemption or exchange of Fund shares by a
shareholder who is not a dealer in securities will be treated as long-term cap-
ital gain or loss if the shares have been held for more than one year, and oth-
erwise as short-term capital gain or loss. However, any loss realized by a
shareholder upon the redemption or exchange of shares in the Fund held for six
months or less will be treated as a long-term capital loss to the extent of any
long-term capital gain distributions received by the shareholder with respect
to such shares.
Shareholders should consult their tax advisors to assess the consequences of
investing in the Fund under state and local laws. Interest income derived from
Treasury Securities is generally not subject to state and local personal income
taxation. Most states allow a pass-through to the individual shareholders of
the Fund of the tax-exempt character of this income, subject to certain re-
strictions, for purposes of those states' personal income taxes. In addition,
no loss will be allowed on the redemption or exchange of shares of the Fund if,
within a period beginning 30 days before the date of such redemption or ex-
change and ending 30 days after such date, the shareholder acquires (such as
through dividend reinvestment) securities that are substantially identical to
shares of the Fund.
ADDITIONAL INFORMATION
The Fund sends to its shareholders annual and semi-annual reports. The finan-
cial statements appearing in annual reports are audited by independent accoun-
tants. Shareholders also will be sent confirmations of each purchase and re-
demption and monthly statements, reflecting all other account activity, includ-
ing dividends and any distributions reinvested in additional shares or credited
as cash.
All shareholders are given the privilege to initiate transactions automatically
by telephone upon opening an account. However, investors should be aware that a
transaction authorized by telephone and reasonably believed to be genuine by
the Fund, Morgan, their Service Organization or the Distributor may subject the
investor to risk of loss if such
13
<PAGE>
instruction is subsequently found not to be genuine. The Fund will employ rea-
sonable procedures, including requiring investors to give their Personal Iden-
tification Number and tape recording of telephone instructions, to confirm that
instructions communicated from investors by telephone are genuine; if it does
not, the Fund, the Shareholder Servicing Agent or a shareholder's Service Or-
ganization may be liable for any losses due to unauthorized or fraudulent in-
structions.
The Fund may make historical performance information available and may compare
its performance to other investments or relevant indexes, including data from
Lipper Analytical Services, Inc., the Donoghue averages, Micropal Inc., Morn-
ingstar Inc., Ibbotson Associates and other industry publications. The Fund may
advertise "yield" and "effective yield". Yield refers to the net income gener-
ated by an investment in the Fund over a stated seven-day period. This income
is then annualized -- i.e., the amount of income generated by the investment
during that week is assumed to be generated each week over a 52-week period and
is shown as a percentage of the investment. Effective yield is calculated simi-
larly to the yield, but, when annualized, the income earned by an investment in
the Fund is assumed to be reinvested; the effective yield will be slightly
higher than the yield because of the compounding effect of this assumed rein-
vestment.
The Fund may advertise "total return" and non-standardized total return data.
The total return shows what an investment in the Fund would have earned over a
specified period of time (one, five or ten years or since commencement of oper-
ations, if less) assuming that all distributions and dividends by the Fund were
reinvested on the reinvestment dates during the period and less all recurring
fees. These methods of calculating yield and total return are required by regu-
lations of the Securities and Exchange Commission. Yield and total return data
similarly calculated, unless otherwise indicated, over other specified periods
of time may also be used. See Performance Data in the Statement of Additional
Information. All performance figures are based on historical earnings and are
not intended to indicate future performance. Shareholders may obtain perfor-
mance information by calling Morgan at (800) 766-7722.
14
<PAGE>
---------------------------------------
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 offer in such jurisdiction.
PROS367-975
The JPM Institutional
Service Federal Money Market Fund
PROSPECTUS
May 30, 1997
<PAGE>
PROSPECTUS
The JPM Institutional Service Treasury Money Market Fund
60 State Street
Boston, Massachusetts 02109
For information call (800) 766-7722
The JPM Institutional Service Treasury Money Market Fund (the "Fund") seeks
to provide current income, maintain a high level of liquidity and preserve
capital. It is designed for investors who seek to preserve capital and earn
current income from a portfolio of direct obligations of the U.S. Treasury
and repurchase agreement transactions with respect to those obligations.
The Fund is a diversified no-load mutual fund for which there are no sales
charges or exchange or redemption fees. The Fund is a series of The JPM
Institutional Funds, an open-end management investment company organized as
a Massachusetts business trust (the "Trust").
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 THE TREASURY MONEY MARKET
PORTFOLIO (THE "PORTFOLIO"), A CORRESPONDING DIVERSIFIED 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 ON PAGE 3.
The Portfolio is advised by Morgan Guaranty Trust Company of New York
("Morgan" or "Advisor").
This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing and it should be
retained for future reference. Additional information about the Fund has
been filed with the Securities and Exchange Commission in a Statement of
Additional Information dated May 30, 1997 (as 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,
Funds Distributor, Inc. ("FDI"), 60 State Street, Suite 1300, Boston,
Massachusetts 02109, Attention: The JPM Institutional Funds, or by calling
(800) 221-7930.
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. 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. ALTHOUGH THE FUND SEEKS TO MAINTAIN A STABLE NET ASSET VALUE OF
$1.00 PER SHARE, THERE CAN BE NO ASSURANCE THAT IT WILL BE ABLE TO CONTINUE
TO DO SO.
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 MAY 30, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Investors for Whom the Fund is Designed.................................... 1
Special Information Concerning Investment Structure........................ 3
Investment Objective and Policies.......................................... 4
Additional Investment Information and Risk Factors......................... 4
Investment Restrictions.................................................... 5
Management of the Trust and the Portfolio.................................. 6
Shareholder Servicing...................................................... 8
</TABLE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
Purchase of Shares......................................................... 8
Redemption of Shares....................................................... 9
Exchange of Shares......................................................... 10
Dividends and Distributions................................................ 10
Net Asset Value............................................................ 11
Organization............................................................... 11
Taxes...................................................................... 12
Additional Information..................................................... 13
</TABLE>
<PAGE>
The JPM Institutional Service Treasury Money Market Fund
INVESTORS FOR WHOM THE FUND IS DESIGNED
The Fund is designed to be an economical and convenient means of making sub-
stantial investments in money market instruments for investors who are inter-
ested in current income, preserving capital and maintaining liquidity. The Fund
seeks to achieve its investment objective by investing all of its investable
assets in The Treasury Money Market Portfolio, a diversified open-end manage-
ment investment company having the same investment objective as the Fund. Since
the investment characteristics and experience of the Fund will correspond di-
rectly with those of the Portfolio, the discussion in this Prospectus focuses
on the investments and investment policies of the Portfolio.
THE FUND SEEKS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE
CAN BE NO ASSURANCE THAT IT WILL BE ABLE TO CONTINUE TO DO SO.
The Fund generally requires a minimum initial investment of $10 million. The
minimum subsequent investment is $25,000. See Purchase of Shares. If an account
with the Fund is reduced to less than $10 million for more than 30 days, the
investment may be subject to mandatory redemption. See Redemption of Shares-
Mandatory Redemption by the Fund.
This Prospectus describes the financial history, investment objective and poli-
cies, management and operation of the Fund to enable investors to decide if the
Fund suits their needs. The Fund operates in a two-tier master-feeder invest-
ment structure. The Trustees believe that the Fund may achieve economies of
scale over time by utilizing this investment structure.
The following table illustrates that investors in the Fund incur no shareholder
transaction expenses; their investment in the Fund is subject only to the oper-
ating expenses set forth below for the Fund and the Portfolio, as a percentage
of average net assets of the Fund. The Trustees of the Trust believe that the
aggregate per share expenses of the Fund and the Portfolio will be approxi-
mately equal to and may be less than the expenses that the Fund would incur if
it retained the services of an investment adviser and invested its assets di-
rectly in portfolio securities. Fund and Portfolio expenses are discussed below
under the headings Management of the Trust and the Portfolio and Shareholder
Servicing.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases*........................................... None
Sales Load Sales on Reinvested Dividends................................... None
Deferred Sales Load........................................................ None
Redemption Fees............................................................ None
Exchange Fees.............................................................. None
</TABLE>
- -------
* Certain Service Organizations (defined below) may impose fees in connection
with the purchase of the Fund's shares through such institutions. See Service
Organizations.
1
<PAGE>
EXPENSE TABLE
ANNUAL OPERATING EXPENSES*
<TABLE>
<S> <C>
Advisory Fees (after expense reimbursement)............................... 0.11%
Rule 12b-1 Fees........................................................... None
Other Expenses (after expense reimbursement).............................. None
Service Fees**............................................................ 0.25%
-----
Total Operating Expenses (after expense reimbursement).................... 0.36%
</TABLE>
* Fees and expenses in the expense table are expressed as a percentage of the
Fund's estimated average daily net assets for its fiscal year ending July
31, 1998, after applicable voluntary expense reimbursements. Morgan has vol-
untarily agreed to reimburse the Fund so that total operating expenses will
be equal to the following respective percentages of average daily net assets
of the Fund for the periods indicated below:
<TABLE>
<S> <C>
June 1, 1997--August 31, 1997........................................... 0.25%
September 1, 1997--November 30, 1997.................................... 0.30%
December 1, 1997--February 28, 1998..................................... 0.35%
March 1, 1998--May 31, 1998............................................. 0.40%
June 1, 1998--November 30, 1998......................................... 0.45%
</TABLE>
The Total Operating Expenses for the Fund is a blended number which repre-
sents an estimate based on the reimbursements in effect throughout the fiscal
year ending July 31, 1998 and may not necessarily represent the actual Total
Operating Expenses for the Fund at any particular time during the periods in-
dicated; the actual amount may be higher (ranging from 0.35%--0.45% during
the second half of the year) or lower (ranging from 0.25%--0.35% during the
first half of the year) than that shown above. Without any expense limita-
tions, the Advisory Fee, estimated Other Expenses and Total Operating Ex-
penses would be equal on an annual basis to 0.20%, 0.26% and 0.71%, respec-
tively, of the average daily net assets of the Fund.
** Service Organizations may charge other fees to their customers who are the
beneficial owners of shares in connection with their customers' accounts.
See Service Organizations. Such fees, if any, may affect the return such
customers realize with respect to their investments.
EXAMPLE
An investor would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<S> <C>
1 Year...................................................................... $ 4
3 Years..................................................................... $14
</TABLE>
The above expense table is designed to assist investors in understanding the
various direct and indirect costs and expenses that investors in the Fund
bear. The fees and expenses included in Other Expenses are the fees paid to
Morgan under the Administrative Services Agreements and the Shareholder Ser-
vicing Agreement, organization expenses, the fees paid to Pierpont Group, Inc.
under the Fund Services Agreements, the fees paid to FDI under the Co-Adminis-
tration Agreements, the fees paid to State Street Bank and Trust Company as
custodian and transfer agent, and other usual and customary expenses of the
Fund and the Portfolio. For a more detailed description of contractual fee ar-
rangements, including expense reimbursements, see Management of the Trust and
the Portfolio and Shareholder Servicing. In connection with the above example,
please note that $1,000 is less than the Fund's minimum investment requirement
and that there are no redemption or exchange fees of any kind. See Purchase of
Shares and Redemption of Shares. THE EXAMPLE IS HYPOTHETICAL; IT IS INCLUDED
SOLELY FOR ILLUSTRATIVE PURPOSES. IT SHOULD NOT BE CONSIDERED A REPRESENTATION
OF FUTURE PERFORMANCE; ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
2
<PAGE>
SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE
Unlike other mutual funds which directly acquire and manage their own portfo-
lio of securities, the Fund is an open-end management investment company which
seeks to achieve its investment objective by investing all of its investable
assets in the Portfolio, a separate registered investment company with the
same investment objective as the Fund. The investment objective of the Fund or
Portfolio may be changed only with the approval of the holders of the out-
standing shares of the Fund and the Portfolio. The master-feeder investment
fund structure has been developed relatively recently, so shareholders should
carefully consider this investment approach.
In addition to selling a beneficial interest to the Fund, the Portfolio may
sell beneficial interests to other mutual funds or institutional investors.
Such investors will invest in the Portfolio on the same terms and conditions
and will bear a proportionate share of the Portfolio's expenses. However, the
other investors investing in the Portfolio may sell shares of their own fund
using a different pricing structure than the Fund. Such different pricing
structures may result in differences in returns experienced by investors in
other funds that invest in the Portfolio. Such differences in returns are not
uncommon and are present in other mutual fund structures. Information concern-
ing other holders of interests in the Portfolio is available from Morgan at
(800) 766-7722.
The Trust may withdraw the investment of the Fund from the Portfolio at any
time if the Board of Trustees of the Trust determines that it is in the best
interests of the Fund to do so. Upon any such withdrawal, the Board of Trust-
ees would consider what action might be taken, including the investment of all
the assets of the Fund in another pooled investment entity having the same in-
vestment objective and restrictions as the Fund or the retaining of an invest-
ment adviser to manage the Fund's assets in accordance with the investment
policies described below with respect to the Portfolio.
Certain changes in the Portfolio's investment objective, policies or restric-
tions, or a failure by the Fund's shareholders to approve a change in the
Portfolio's investment objective or restrictions, may require withdrawal of
the Fund's interest in the Portfolio. Any such withdrawal could result in a
distribution in kind of portfolio securities (as opposed to a cash distribu-
tion) from the Portfolio which may or may not be readily marketable. The dis-
tribution in kind may result in the Fund having a less diversified portfolio
of investments or adversely affect the Fund's liquidity, and the Fund could
incur brokerage, tax or other charges in converting the securities to cash.
Notwithstanding the above, there are other means for meeting shareholder re-
demption requests, such as borrowing.
Smaller funds investing in the Portfolio may be materially affected by the ac-
tions of larger funds investing in the Portfolio. For example, if a large fund
withdraws from the Portfolio, the remaining funds may subsequently experience
higher pro rata operating expenses, thereby producing lower returns. Addition-
ally, because the Portfolio would become smaller, it may become less diversi-
fied, resulting in potentially increased portfolio risk (however, these possi-
bilities also exist for traditionally structured funds which have large or in-
stitutional investors who may withdraw from a fund). Also, funds with a
greater pro rata ownership in the Portfolio could have effective voting con-
trol of the operations of the Portfolio. Whenever the Fund is requested to
vote on matters pertaining to the Portfolio (other than a vote by the Fund to
continue the operation of the Portfolio upon the withdrawal of another in-
vestor in the Portfolio), the Trust will hold a meeting of shareholders of the
Fund and will cast all of its votes proportionately as instructed by the
Fund's shareholders. The Trust will vote the shares held by Fund shareholders
who do not give voting instructions in the same proportion as the shares of
Fund shareholders who do give voting instructions. Shareholders of the Fund
who do not vote will have no effect on the outcome of such matters.
For more information about the Portfolio's investment objective, policies and
restrictions, see Investment Objective and Policies, Additional Investment In-
formation and Risk Factors and Investment Restrictions. For more information
about the Portfolio's management and expenses, see Management of the Trust and
the Portfolio. For more information about changing the investment objective,
policies and restrictions of the Fund or the Portfolio, see Investment Re-
strictions.
3
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund and the Portfolio is described below, to-
gether with the policies they employ in their efforts to achieve this objec-
tive. Additional information about the investment policies of the Fund and the
Portfolio appears in the Statement of Additional Information under Investment
Objectives and Policies. There can be no assurance that the investment objec-
tive of the Fund or the Portfolio will be achieved.
The Fund's investment objective is to provide current income, maintain a high
level of liquidity and preserve capital. The Fund attempts to achieve its in-
vestment objective by investing all of its investable assets in The Treasury
Money Market Portfolio, a diversified open-end management investment company
having the same investment objective as the Fund.
The Portfolio seeks to achieve its investment objective by investing in direct
obligations of the U.S. Treasury and engaging in repurchase agreement transac-
tions with respect to those obligations. The market value of obligations in
which the Portfolio invests is not guaranteed and may rise and fall in response
to changes in interest rates. The Portfolio maintains a dollar-weighted average
portfolio maturity of not more than 90 days and invests in the following secu-
rities which have effective maturities of 397 calendar days or less.
TREASURY SECURITIES. The Portfolio will invest in 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 ("Treasury Securities"). Treasury
bills have initial maturities of one year or less; Treasury notes have initial
maturities of one to ten years; and Treasury bonds generally have initial matu-
rities of greater than ten years. Each such obligation must have a remaining
maturity of 397 days or less at the time of purchase by the Portfolio. The
Portfolio will not invest in U.S. Government agency obligations.
The Portfolio also may purchase Treasury Securities on a when-issued or delayed
delivery basis and may engage in repurchase and reverse repurchase agreement
transactions involving such securities. For a discussion of these transactions,
see Additional Investment Information and Risk Factors.
ADDITIONAL INVESTMENT INFORMATION AND RISK FACTORS
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase securi-
ties on a when-issued or delayed delivery basis. Delivery of and payment for
these securities may take as long as a month or more after the date of the pur-
chase commitment. The value of these securities is subject to market fluctua-
tion during this period and no interest or income accrues to the Portfolio un-
til settlement. At the time of settlement a when-issued security may be valued
at less than its purchase price. The Portfolio maintains with the Custodian a
separate account with a segregated portfolio of securities in an amount at
least equal to these commitments. When entering into a when-issued or delayed
delivery transaction, the Portfolio will rely on the other party to consummate
the transaction; if the other party fails to do so, the Portfolio may be disad-
vantaged.
REPURCHASE AGREEMENTS. The Portfolio may engage in repurchase agreement trans-
actions with brokers, dealers or banks that meet the credit guidelines estab-
lished by the Portfolio's Trustees. In a repurchase agreement, the Portfolio
buys a security from a seller that has agreed to repurchase it at a mutually
agreed upon date and price, reflecting the interest rate effective for the term
of the agreement. The Portfolio only enters into repurchase agreements involv-
ing Treasury Securities. The term of these agreements is usually from overnight
to one week. A repurchase agreement may be viewed as a fully collateralized
loan of money by the Portfolio to the seller. The Portfolio always receives se-
curities as collateral with a market value at least equal to the purchase price
plus accrued interest and this value is maintained during the term of the
agreement. If the seller defaults and the collateral value declines, the Port-
folio might incur a loss. If bankruptcy proceedings are commenced with respect
to the seller, the Portfolio's realization upon the disposition of collateral
may be delayed or limited. Investments in certain repurchase agreements and
certain other investments which may be considered illiquid are limited. See Il-
liquid Investments; Privately Placed and other Unregistered Securities below.
4
<PAGE>
LOANS OF PORTFOLIO SECURITIES. Subject to applicable investment restrictions,
the Portfolio is permitted to lend its securities in an amount up to 33 1/3%
of the value of the Portfolio's net assets. The Portfolio may lend its securi-
ties if such loans are secured continuously by cash or equivalent collateral
or by a letter of credit in favor of the Portfolio 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 Portfolio any in-
come accruing thereon. Loans will be subject to termination by the Portfolio
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 Portfolio
and its respective investors. The Portfolio may pay reasonable finders' and
custodial fees in connection with a loan. In addition, the Portfolio will con-
sider all facts and circumstances, including the creditworthiness of the bor-
rowing financial institution, and the Portfolio will not make any loans in ex-
cess of one year.
Loans of portfolio securities may be considered extensions of credit by the
Portfolio. The risks to the Portfolio with respect to borrowers of its portfo-
lio securities are similar to the risks to the Portfolio with respect to sell-
ers in repurchase agreement transactions. See Repurchase Agreements above. The
Portfolio will not lend its securities to any officer, Trustee, Director, em-
ployee or other affiliate of the Portfolio, the Advisor or the Distributor,
unless otherwise permitted by applicable law.
BORROWING AND REVERSE REPURCHASE AGREEMENTS. The Portfolio may (1) borrow
money from banks solely for temporary or emergency (but not for leverage) pur-
poses 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.
ILLIQUID INVESTMENTS; PRIVATELY PLACED AND OTHER UNREGISTERED SECURITIES. The
Portfolio may not acquire any illiquid securities if, as a result thereof,
more than 10% of the Portfolio's net assets would be in illiquid investments.
Subject to this policy limitation, the Portfolio may acquire investments that
are illiquid or have limited liquidity, such as private placements or invest-
ments that are not registered under the Securities Act of 1933, as amended
(the "1933 Act"), and cannot be offered for public sale in the United States
without first being registered under the 1933 Act. An illiquid investment is
any investment that cannot be disposed of within seven days in the normal
course of business at approximately the amount at which it is valued by the
Portfolio. The price the Portfolio pays for illiquid securities or receives
upon resale may be lower than the price paid or received for similar securi-
ties with a more liquid market. Accordingly the valuation of these securities
will reflect any limitations on their liquidity.
The Portfolio may also purchase Rule 144A securities sold to institutional in-
vestors without registration under the 1933 Act. These securities may be de-
termined to be liquid in accordance with guidelines established by the Advisor
and approved by the Trustees. The Trustees will monitor the Advisor's imple-
mentation of these guidelines on a periodic basis.
INVESTMENT RESTRICTIONS
INVESTMENT POLICIES AND RESTRICTIONS. Except as otherwise stated in this Pro-
spectus or the Statement of Additional Information, the Fund's and the Portfo-
lio'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 (1) 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 (in-
vest 25% or more of its total assets) in the securities of issuers in any one
industry (other than U.S. Government securities or repurchase agreements col-
lateralized by such securities).
5
<PAGE>
For a more detailed discussion of the above investment restrictions, as well as
a description of certain other investment restrictions, see Investment Restric-
tions in the Statement of Additional Information.
MANAGEMENT OF THE TRUST AND THE PORTFOLIO
TRUSTEES. Pursuant to the Declarations of Trust for the Trust and for the Port-
folio, the Trustees decide upon matters of general policy and review the ac-
tions of the Advisor and other service providers. The Trustees of the Trust and
of the Portfolio are identified below.
<TABLE>
<S> <C>
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;
Chairman, Pierpont Group, Inc.
Michael P. Mallardi................. Former Senior Vice President, Capital
Cities/ABC, Inc. and President, Broadcast
Group
</TABLE>
A majority of the disinterested Trustees have adopted written procedures rea-
sonably 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 JPM Pierpont Funds, up to and including creating a separate board of trust-
ees. See Trustees and Officers in the Statement of Additional Information for
more information about the Trustees and Officers of the Fund and the Portfolio.
The Portfolio and the Trust have each entered into a Fund Services Agreement
with Pierpont Group, Inc. to assist the Trustees in exercising their overall
supervisory responsibilities for the Portfolio's and the Trust's affairs. The
fees to be paid under the agreements approximate the reasonable cost of Pier-
pont Group, Inc. in providing these services to the Trust, the Portfolio and
certain other registered investment companies subject to similar agreements
with Pierpont Group, Inc. Pierpont Group, Inc. was organized in 1989 at the re-
quest of the Trustees of The Pierpont Family of Funds for the purpose of pro-
viding these services at cost to these funds. See Trustees and Officers in the
Statement of Additional Information. The principal offices of Pierpont Group,
Inc. are located at 461 Fifth Avenue, New York, New York 10017.
ADVISOR. The Fund has not retained the services of an investment adviser be-
cause 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, with principal offices at 60 Wall
Street, New York, New York 10260, is a New York trust company which conducts a
general banking and trust business. Morgan is a wholly owned subsidiary of J.P.
Morgan & Co. Incorporated ("J.P. Morgan"), a bank holding company organized un-
der 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 adviser to individual and institutional clients with com-
bined assets under management of over $208 billion. Morgan provides investment
advice and portfolio management services to the Portfolio. Subject to the su-
pervision of the Portfolio's 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. See Investment Advisor in the
Statement of Additional Information.
The following persons are primarily responsible for the day-to-day management
and implementation of Morgan's process for the Portfolio since its inception
(business experience for the past five years is indicated parenthetically):
Robert R. Johnson, Vice President (employed by Morgan since prior to 1992) and
Daniel B. Mulvey, Vice President (employed by Morgan since 1992).
6
<PAGE>
As compensation for the services rendered and related expenses borne by Morgan
under the 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 0.20% of the Portfolio's average daily net assets up to
$1 billion, and 0.10% of average daily net assets in excess of $1 billion.
Under separate agreements, Morgan also provides administrative and related
services to the Fund and the Portfolio and shareholder services to sharehold-
ers of the Fund. See Administrative Services Agent and Shareholder Servicing
below. INVESTMENTS IN THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARAN-
TEED 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, Funds Distributor, Inc. ("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 Port-
folio; (iii) prepares and files documents required for notification of state
securities administrators; (iv) reviews and files marketing and sales litera-
ture; (v) files Portfolio regulatory documents and mails Portfolio communica-
tions 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 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 com-
pliance, 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 Portfo-
lio 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 Trust and certain other registered investment companies man-
aged by the Advisor 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 and as exclusive placement agent for the Portfolio. FDI
is a wholly owned indirect subsidiary of Boston Institutional Group, Inc.
FDI's principal business address is 60 State Street, Suite 1300, Boston, Mas-
sachusetts 02109.
CUSTODIAN. State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02110, serves as the Fund's and the Portfolio's
custodian and fund accounting and transfer agent and the Fund's dividend dis-
bursing agent. State Street also keeps the books of account for the Fund and
the Portfolio.
EXPENSES. In addition to the fees payable to Morgan, FDI and Pierpont Group,
Inc. under the various agreements discussed under Trustees, Advisor, Co-Admin-
istrator and Administrative Services Agent above and Shareholder Servicing be-
low, the Fund and the Portfolio are responsible for usual and customary ex-
penses associated with their respective operations. Such expenses include or-
ganization expenses, legal fees, accounting and audit expenses, insurance
costs, the compensation and expenses of the Trustees, costs associated with
its registration under federal securities laws, and extraordinary expenses ap-
plicable to the Fund or the Portfolio. For the Fund, such expenses also in-
clude transfer, registrar and
7
<PAGE>
dividend disbursement costs, the expenses of printing and mailing reports, no-
tices 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.
Morgan has agreed that it will reimburse the Fund through at least November 30,
1998 to the extent necessary to maintain the Fund's total operating expenses
(which include expenses of the Fund and the Portfolio) at the percentages indi-
cated by the schedule under Annual Operating Expenses. This limit does not
cover extraordinary expenses during any period. There is no assurance that Mor-
gan will continue this waiver beyond the specified period.
SHAREHOLDER SERVICING
Pursuant to a Shareholder Servicing Agreement with the Trust, Morgan acts as
shareholder servicing agent. The Fund pays Morgan for these services at an an-
nual 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 share-
holder servicing agent) of 0.05% of the Fund's average daily net assets. Under
the terms of the Shareholder Servicing Agreement with the Fund, Morgan may del-
egate one or more of its responsibilities to other entities at Morgan's ex-
pense.
The Fund may be sold to or through service organizations ("Service Organiza-
tions"), 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 Service Organizations. Organizations that provide re-
cordkeeping or other services to certain employee benefit or retirement plans
that include the Fund as an investment alternative may also be paid a fee.
Shareholders should address all inquiries to their Service Organization or to
J.P. Morgan Funds Services, Morgan Guaranty Trust Company of New York, 522
Fifth Avenue, New York, New York 10036 or call (800) 766-7722.
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 in-
structions relating to a Fund account from Morgan as shareholder servicing
agent for the customer. All purchase orders must be accepted by the Distribu-
tor. Investors must be customers of a Service Organization. The Trust reserves
the right to determine the purchase orders that it will accept.
The Fund requires a minimum initial investment of $10 million and a minimum
subsequent investment of $25,000. These minimum investment requirements may be
waived for certain investors, including investors for whom the Advisor is a fi-
duciary, who maintain related accounts with the Fund, other JPM Institutional
Funds or the Advisor, who make investments for a group of clients, such as fi-
nancial advisors, trust companies and investment advisors, or who maintain re-
tirement accounts with the Funds. 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. A Service Organization
may effect redemptions of noncomplying accounts, and may impose a charge for
any special services rendered to its customers. Customers should contact their
Service Organizations for further information concerning such requirements and
charges. A Service Organization may purchase shares in connection with sweep
account programs.
PURCHASE PRICE AND SETTLEMENT. The Fund's shares are sold on a continuous basis
without a sales charge at the net asset value per share next determined after
receipt of an order. Prospective investors may purchase shares with the assis-
tance of a Service Organization that may establish its own terms, conditions
and charges.
8
<PAGE>
To purchase shares in the Fund, investors should request a representative of
their Service Organization 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 same day. Any shareholder may also call J.P. Morgan Funds
Services at (800) 766-7722 for assistance in placing an order for Fund shares.
Purchase orders and immediately available funds must be received by 4:00 P.M.
New York time on a business day for the purchase to be effective and dividends
to be earned on the same day. The Fund does not accept orders after the indi-
cated time. If funds are received after 4:00 P.M. New York time for any reason,
including that the day is a Federal Reserve holiday, the purchase is not effec-
tive and dividends are not earned until the next business day.
SERVICE ORGANIZATIONS. The Trust has adopted a Service Plan with respect to
Fund shares which authorizes it to compensate Service Organizations for provid-
ing account administration and other services to their customers who are bene-
ficial owners of such shares. The Fund will enter into agreements with Service
Organizations which purchase shares on behalf of their customers ("Service
Agreements"). The Service Agreements will provide for compensation to the Serv-
ice Organization in an amount up to 0.25 of 1% (on an annualized basis) of the
average daily net asset value of the shares of the Fund attributable to or held
in the name of the Service Organization for its customers. The services pro-
vided by a Service Organization may include acting, directly or through an
agent, as the sole shareholder of record, maintaining or assisting in maintain-
ing account records for its customers, and processing or assisting in process-
ing orders to purchase and redeem shares for its customers. Holders of shares
of the Fund will bear all expenses and fees paid to Service Organizations with
respect to such shares as well as any other expenses which are directly attrib-
utable to such shares.
Service Organizations may charge other fees to their customers who are the ben-
eficial owners of shares in connection with their customer accounts. These fees
would be in addition to any amounts received by the Service Organization under
a Service Agreement and may affect an investor's return with respect to an in-
vestment in the Fund. Such charges may vary among Service Organizations but in
all cases will be retained by the Service Organization and not remitted to the
Fund or Morgan.
REDEMPTION OF SHARES
METHOD OF REDEMPTION. To redeem shares in the Fund, an investor may instruct
his or her Service Organization to submit a redemption request to the Fund. Any
shareholder also may telephone J.P. Morgan Funds Services directly at (800)
766-7722 for assistance. The Fund executes effective redemption requests at the
next determined net asset value per share. See Net Asset Value. See Additional
Information below for an explanation of the telephone redemption policy of The
JPM Institutional Funds.
A redemption request received on a business day 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 day. Proceeds of an effective redemption are gen-
erally deposited the same day in immediately available funds to the sharehold-
er's account at Morgan or at his or her Service Organization or, in the case of
certain Morgan customers, are mailed by check or wire transferred in accordance
with the customer's instructions. If a redemption request becomes effective on
a day when the New York Stock Exchange is open but which is a Federal Reserve
holiday, the proceeds are paid the next business day. See Further Redemption
Information.
MANDATORY REDEMPTION BY THE FUND. If the value of an account in the Fund falls
below the Fund's initial investment amount of $10 million for more than 30 days
because of a redemption of shares, the Fund may redeem the remaining shares in
the account 60 days after written notice to the shareholder unless the account
is increased to the minimum investment amount or more.
FURTHER REDEMPTION INFORMATION. Investors should be aware that redemptions from
the Fund may not be processed if a redemption request is not submitted in
proper form. To be in proper form, the Fund must have received the share-
9
<PAGE>
holder's taxpayer identification number and address. As discussed under Taxes
below, the Fund may be required to impose "back-up" withholding of federal in-
come tax on dividends, distributions and redemption proceeds when non-corporate
investors have not provided a certified taxpayer identification number. In ad-
dition, if a shareholder sends a check for the purchase of Fund shares and
shares are purchased before the check has cleared, the transmittal of redemp-
tion proceeds from the shares will occur upon clearance of the check which may
take up to 15 days.
The Fund reserves the right to suspend the right of redemption and to postpone
the date of payment upon redemption for up to seven days and for such other pe-
riods as the 1940 Act or the Securities and Exchange Commission may permit. See
Redemption of Shares in the Statement of Additional Information.
After a wire has been initiated by Morgan, neither Morgan nor the Trust assumes
any further responsibility for the performance of intermediaries or of the rel-
evant Service Organization in the transfer process. If a problem with such per-
formance arises, the shareholder should deal directly with such intermediaries
or its Service Organization.
EXCHANGE OF SHARES
An investor may exchange shares from the Fund into any other JPM Institutional
Fund, JPM Pierpont Fund or shares of JPM Series Trust without charge. An ex-
change may be made so long as after the exchange the investor has shares, in
each fund in which he or she remains an investor, with a value of at least that
fund's minimum investment amount. Shareholders should read the prospectus of
the fund into which they are exchanging and may only exchange between fund ac-
counts that are registered in the same name, address and taxpayer identifica-
tion number. Shares are exchanged on the basis of relative net asset value per
share. Exchanges are in effect redemptions from one fund and purchases of an-
other fund and the usual purchase and redemption procedures and requirements
are applicable to exchanges. See Purchase of Shares and Redemption of Shares in
this Prospectus and in the prospectuses for the other JPM Institutional Funds,
The JPM Pierpont Funds and JPM Series Trust. See also Additional Information
below for an explanation of the telephone exchange policy of The JPM Institu-
tional Funds.
Shareholders subject to federal income tax who exchange shares in one fund for
shares in another fund may recognize capital gain or loss for federal income
tax purposes. The Fund reserves the right to discontinue, alter or limit its
exchange privilege at any time. For investors in certain states, state securi-
ties laws may restrict the availability of the exchange privilege.
DIVIDENDS AND DISTRIBUTIONS
All of the Fund's net investment income is declared as a dividend daily and
paid monthly. If an investor's shares are redeemed during a month, accrued but
unpaid dividends are paid with the redemption proceeds. The net investment in-
come of the Fund for dividend purposes consists of its pro rata share of the
net income of the Portfolio less the Fund's expenses. Dividends and distribu-
tions are payable to shareholders of record at the time of declaration. The net
investment income of the Fund for each business day is determined immediately
prior to the determination of net asset value. Net investment income for other
days is determined at the time net asset value is determined on the prior busi-
ness day. Shares of the Fund earn dividends on the business day their purchase
is effective, but not on the business day their redemption is effective. See
Purchase of Shares and Redemption of Shares.
Net short-term capital gains, if any, will be distributed in accordance with
the requirements of the Internal Revenue Code of 1986, as amended (the "Code"),
and may be reflected in the Fund's daily dividends. Substantially all the real-
ized net long-term capital gains, if any, of the Fund are declared and paid on
an annual basis, except that an additional capital gains distribution may be
made in a given year to the extent necessary to avoid the imposition of federal
excise tax on the Fund.
10
<PAGE>
Dividends and capital gains distributions paid by the Fund are automatically
reinvested in additional shares of the Fund unless the shareholder has elected
to have them paid in cash. Dividends and distributions to be paid in cash are
credited to the shareholder's account at Morgan or at his or her Service Organ-
ization or, in the case of certain Morgan customers, are mailed by check in ac-
cordance with the customer's instructions. The Fund reserves the right to dis-
continue, alter or limit the automatic reinvestment privilege at any time.
NET ASSET VALUE
Net asset value per share for the Fund is determined by subtracting from the
value of the Fund's total assets (i.e., the value of its investment in the
Portfolio and other assets) the amount of its liabilities and dividing the re-
mainder by the number of its outstanding shares, rounded to the nearest cent.
Expenses, including the fees payable to Morgan, are accrued daily. The Portfo-
lio values all portfolio securities by the amortized cost method. This method
attempts to maintain for the Fund a constant net asset value per share of
$1.00. No assurances can be given that this goal can be attained. See Net Asset
Value in the Statement of Additional Information for more information on valua-
tion of portfolio securities for the Portfolio.
The Fund computes its net asset value once daily at 4:00 P.M. New York time on
Monday through Friday, except that the net asset value is not computed for the
Fund on the holidays listed under Net Asset Value in the Statement of Addi-
tional Information and may be computed at earlier times as set forth in the
Statement of Additional Information.
ORGANIZATION
The Trust was organized on November 4, 1992 as an unincorporated business trust
under Massachusetts law and is an entity commonly known as a "Massachusetts
business trust". The Declaration of Trust permits the Trustees to issue an un-
limited number of full and fractional shares ($0.001 par value) of one or more
series. To date 24 series of shares have been authorized and are available for
sale to the public. Only shares of the Fund are offered through this Prospec-
tus. No series of shares has any preference over any other series of shares.
See Massachusetts Trust in the Statement of Additional Information.
The Declaration of Trust for the Trust provides that no Trustee, shareholder,
officer, employee, or agent of the Fund shall be held to any personal liabili-
ty, nor shall resort be had to their private property for the satisfaction of
any obligation or claim or otherwise in connection with the affairs of the
Fund, but that the Trust property only shall be liable.
Shareholders of the Fund are entitled to one vote for each share and to the ap-
propriate fractional vote for each fractional share. There is no cumulative
voting. Shares have no preemptive or conversion rights. Shares are fully paid
and non- assessable by the Fund. The Trust does not intend to hold meetings of
shareholders annually. The Trustees may call meetings of shareholders for ac-
tion by shareholder vote as may be required by either the 1940 Act or the Dec-
laration of Trust. The Trustees will call a meeting of shareholders to vote on
removal of a Trustee upon the written request of the record holders of ten per-
cent of Trust shares and will assist shareholders in communicating with each
other as prescribed in Section 16(c) of the 1940 Act. For further organization
information, including certain shareholder rights, see Description of Shares in
the Statement of Additional Information.
The Portfolio is organized as a trust under the laws of the State of New York.
The Portfolio's Declaration of Trust provides that the Fund and other entities
investing in the Portfolio (e.g., other investment companies, insurance company
separate accounts and common and commingled trust funds) will each be liable
for all obligations of the Portfolio. However, the risk of the Fund incurring
financial loss on account of such liability is limited to circumstances in
which both inadequate insurance existed and the Portfolio itself was unable to
meet its obligations. Accordingly, the Trustees of the Trust believe that nei-
ther the Fund nor its shareholders will be adversely affected by reason of the
Fund's investing in the Portfolio.
11
<PAGE>
TAXES
The following discussion of tax consequences is based on U.S. federal tax laws
in effect on the date of this Prospectus. These laws and regulations are sub-
ject to change by legislative or administrative action. Investors are urged to
consult their own tax advisors with respect to specific questions as to feder-
al, state or local taxes. See Taxes in the Statement of Additional Information.
Annual statements as to the current federal tax status of distributions, if ap-
plicable, are mailed to shareholders after the end of the taxable year for the
Fund.
The Trust intends that the Fund will qualify as a separate regulated investment
company under Subchapter M of the Code. For the Fund to qualify as a regulated
investment company, the Portfolio, in addition to other requirements, limits
its investments so that at the close of each quarter of its taxable year (a) no
more than 25% of its total assets are invested in the securities of any one is-
suer, except U.S. Government securities, and (b) with regard to 50% to its to-
tal assets, no more than 5% of its total assets are invested in the securities
of a single issuer, except U.S. Government securities. As a regulated invest-
ment company, the Fund should not be subject to federal income taxes or federal
excise taxes if all of its net investment income and capital gains less any
available capital loss carryforwards are distributed to shareholders within al-
lowable time limits. The Portfolio intends to qualify as an association treated
as a partnership for federal income tax purposes. As such, the Portfolio should
not be subject to tax. The Fund's status as a regulated investment company
is dependent on, among other things, the Portfolio's continued qualification as
a partnership for federal income tax purposes.
If a correct and certified taxpayer identification number is not on file, the
Fund is required, subject to certainexemptions, to withhold 31% of certain pay-
ments made or distributions declared to non-corporate shareholders.
Distributions of net investment income and realized net short-term capital
gains in excess of net long-term capital losses are taxable as ordinary income
to shareholders of the Fund whether such distributions are taken in cash or re-
invested in additional shares. Distributions of this type to corporate share-
holders of the Fund are not eligible for the dividends-received deduction. Dis-
tributions of net long-term capital gains in excess of net short-term capital
losses are taxable to shareholders of the Fund as long-term capital gains re-
gardless of how long a shareholder has held shares in the Fund and regardless
of whether taken in cash or reinvested in additional shares. Long-term capital
gains distributions to corporate shareholders are not eligible for the divi-
dends-received deduction. The Fund does not expect to realize long-term capital
gains and thus does not contemplate paying distributions taxable to sharehold-
ers who are subject to tax as long-term capital gains.
Any gain or loss realized on the redemption or exchange of Fund shares by a
shareholder who is not a dealer in securities will be treated as long-term cap-
ital gain or loss if the shares have been held for more than one year, and oth-
erwise as short-term capital gain or loss. However, any loss realized by a
shareholder upon the redemption or exchange of shares in the Fund held for six
months or less will be treated as a long-term capital loss to the extent of any
long-term capital gain distributions received by the shareholder with respect
to such shares.
Shareholders should consult their tax advisors to assess the consequences of
investing in the Fund under state and local laws. Interest income derived from
Treasury Securities is generally not subject to state and local personal income
taxation. Most states allow a pass-through to the individual shareholders of
the Fund of the tax-exempt character of this income, subject to certain re-
strictions, for purposes of those states' personal income taxes. In addition,
no loss will be allowed on the redemption or exchange of shares of the Fund if,
within a period beginning 30 days before the date of such redemption or ex-
change and ending 30 days after such date, the shareholder acquires (such as
through dividend reinvestment) securities that are substantially identical to
shares of the Fund.
12
<PAGE>
ADDITIONAL INFORMATION
The Fund sends to its shareholders annual and semi-annual reports. The finan-
cial statements appearing in annual reports are audited by independent accoun-
tants. Shareholders also will be sent confirmations of each purchase and re-
demption and monthly statements, reflecting all other account activity, includ-
ing dividends and any distributions reinvested in additional shares or credited
as cash.
All shareholders are given the privilege to initiate transactions automatically
by telephone upon opening an account. However, investors should be aware that a
transaction authorized by telephone and reasonably believed to be genuine by
the Fund, Morgan, their Service Organization or the Distributor may subject the
investor to risk of loss if such instruction is subsequently found not to be
genuine. The Fund will employ reasonable procedures, including requiring in-
vestors to give their Personal Identification Number and tape recording of tel-
ephone instructions, to confirm that instructions communicated from investors
by telephone are genuine; if it does not, the Fund, the Shareholder Servicing
Agent or a shareholder's Service Organization may be liable for any losses due
to unauthorized or fraudulent instructions.
The Fund may make historical performance information available and may compare
its performance to other investments or relevant indexes, including data from
Lipper Analytical Services, Inc., the Donoghue averages, Micropal Inc., Morn-
ingstar Inc., Ibbotson Associates and other industry publications. The Fund may
advertise "yield" and "effective yield". Yield refers to the net income gener-
ated by an investment in the Fund over a stated seven-day period. This income
is then annualized -- i.e., the amount of income generated by the investment
during that week is assumed to be generated each week over a 52-week period and
is shown as a percentage of the investment. Effective yield is calculated simi-
larly to the yield, but, when annualized, the income earned by an investment in
the Fund is assumed to be reinvested; the effective yield will be slightly
higher than the yield because of the compounding effect of this assumed rein-
vestment.
The Fund may advertise "total return" and non-standardized total return data.
The total return shows what an investment in the Fund would have earned over a
specified period of time (one, five or ten years or since commencement of oper-
ations, if less) assuming that all distributions and dividends by the Fund were
reinvested on the reinvestment dates during the period and less all recurring
fees. These methods of calculating yield and total return are required by regu-
lations of the Securities and Exchange Commission. Yield and total return data
similarly calculated, unless otherwise indicated, over other specified periods
of time may also be used. See Performance Data in the Statement of Additional
Information. All performance figures are based on historical earnings and are
not intended to indicate future performance. Shareholders may obtain perfor-
mance information by calling Morgan at (800) 766-7722.
13
<PAGE>
---------------------------------------
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 offer in such jurisdiction.
PROS369-975
The
JPM Institutional Service Treasury
Money Market Fund
PROSPECTUS
May 30, 1997
<PAGE>
THE JPM INSTITUTIONAL FUNDS
THE JPM INSTITUTIONAL SERVICE PRIME MONEY MARKET FUND
THE JPM INSTITUTIONAL SERVICE TAX EXEMPT MONEY MARKET FUND
THE JPM INSTITUTIONAL SERVICE FEDERAL MONEY MARKET FUND
THE JPM INSTITUTIONAL SERVICE TREASURY MONEY MARKET FUND
STATEMENT OF ADDITIONAL INFORMATION
MAY 30, 1997
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT CONTAINS
ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS
DATED MAY 30, 1997 FOR THE FUND OR FUNDS LISTED ABOVE, AS SUPPLEMENTED FROM TIME
TO TIME, WHICH MAY BE OBTAINED UPON REQUEST FROM FUNDS DISTRIBUTOR, INC.,
ATTENTION: THE JPM INSTITUTIONAL SERVICE FUNDS; (800) 221-7930.
<PAGE>
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
i:\dsfndlgl\institut\0497.pea\mmktsai
<PAGE>
GENERAL
This Statement of Additional Information relates only to The JPM
Institutional Service Prime Money Market Fund, The JPM Institutional Service Tax
Exempt Money Market Fund, The JPM Institutional Service Federal Money Market
Fund and The JPM Institutional Service Treasury Money Market Fund (each, a
"Fund" and collectively, the "Funds"). Each Fund is a series of shares of
beneficial interest of The JPM 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 20 other series representing
separate investment funds (each a "JPM Institutional Fund"). The other JPM
Institutional Funds are covered by separate Statements of Additional
Information.
This Statement of Additional Information describes the 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.
INVESTMENT OBJECTIVES AND POLICIES
The JPM 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 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."
THE JPM INSTITUTIONAL SERVICE TAX EXEMPT MONEY MARKET FUND (the "Tax
Exempt Money Market Fund") is designed to be an economical and convenient means
of making substantial investments in instruments that are exempt from federal
income tax. The Tax Exempt Money Market 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 Tax
Exempt 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. 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
i:\dsfndlgl\institut\0497.pea\mmktsai
-1-
<PAGE>
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."
THE JPM 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
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. Government agencies, as described in the Prospectus and in this Statement
of Additional Information that have effective maturities of not more than 397
days. See "Quality and Diversification Requirements."
THE JPM 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 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 in this Statement of
Additional Information that have effective maturities of not more than 397 days.
See "Quality and Diversification Requirements."
MONEY MARKET INSTRUMENTS
As discussed in the Prospectus, each Fund may invest in money market
instruments to the extent consistent with its investment objective and policies.
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
i:\dsfndlgl\institut\0497.pea\mmktsai
-2-
<PAGE>
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. Each of the Funds, except the Treasury Money Market
Fund and The Federal 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 Tax Exempt Money Market Fund may
not invest in obligations of foreign branches of foreign banks. See "Foreign
Investments." The Funds will not invest in obligations for which the Advisor, or
any of its affiliated persons, is the ultimate obligor or accepting bank. Each
of the Funds, other than the Tax Exempt Money Market and Treasury Money Market
Funds, may also invest in obligations of international banking institutions
designated or supported by national governments to promote economic
reconstruction, development or trade between nations (e.g., the European
Investment Bank, the Inter-American Development Bank, or the World Bank).
COMMERCIAL PAPER. Each of the Funds, except the Treasury Money Market
Fund and the Federal 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 Portfolios 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 Funds 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 Funds to be liquid because they are payable upon demand. The
Funds do not have any specific percentage limitation on investments in master
demand obligations.
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 the Funds 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
i:\dsfndlgl\institut\0497.pea\mmktsai
-3-
<PAGE>
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 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.
Each of the Funds, other than the Treasury Money Market Fund and the
Federal 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. The Tax Exempt Money Market Fund may not invest in foreign bonds or
asset-backed securities.
TAX EXEMPT OBLIGATIONS
As discussed in the Prospectus, the Tax Exempt Money Market Fund may invest
in tax exempt obligations to the extent consistent with the Fund's investment
objective and policies. A description of the various types of tax exempt
obligations which may be purchased by the Fund appears 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.
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
i:\dsfndlgl\institut\0497.pea\mmktsai
-4-
<PAGE>
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 each 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 each 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 each Fund to be liquid because they are payable upon demand. The Funds have
no specific percentage limitations on investments in master demand obligations.
The Tax Exempt Money Market 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 Tax Exempt Money
Market 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 Tax Exempt Money Market 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
i:\dsfndlgl\institut\0497.pea\mmktsai
-5-
<PAGE>
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 Tax Exempt Money Market 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 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. 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
i:\dsfndlgl\institut\0497.pea\mmktsai
-6-
<PAGE>
(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
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.
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
i:\dsfndlgl\institut\0497.pea\mmktsai
-7-
<PAGE>
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 Tax Exempt Money Market 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 a 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.
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 these Funds is
subject to the following fundamental limitations: (1) the Fund may not invest
more than 5% of its total assets in the securities of any one issuer, except
obligations of the U.S. Government, its agencies and instrumentalities, and (2)
the Fund may not own more than 10% of the outstanding voting securities of any
one issuer. As for the other 25% of the Fund's assets not subject to the
limitation described above, there is no limitation on investment of these assets
under the 1940 Act, so that all of such assets may be invested in securities of
any one issuer, 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.
With respect to the Tax Exempt Money Market Fund, 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."
i:\dsfndlgl\institut\0497.pea\mmktsai
-8-
<PAGE>
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 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.
TAX EXEMPT MONEY MARKET FUND. In order to attain its objective of
maintaining a stable net asset value, the Tax Exempt Money Market 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.
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.
i:\dsfndlgl\institut\0497.pea\mmktsai
-9-
<PAGE>
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.
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
(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;
i:\dsfndlgl\institut\0497.pea\mmktsai
-10-
<PAGE>
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 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 TAX EXEMPT MONEY MARKET FUND and its corresponding 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.
i:\dsfndlgl\institut\0497.pea\mmktsai
-11-
<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
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
- --------
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.
i:\dsfndlgl\institut\0497.pea\mmktsai
-12-
<PAGE>
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");
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.
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;
i:\dsfndlgl\institut\0497.pea\mmktsai
-13-
<PAGE>
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.3
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.
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
- --------
3Although 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.
i:\dsfndlgl\institut\0497.pea\mmktsai
-14-
<PAGE>
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 - TAX EXEMPT MONEY MARKET FUND,
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.
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.
i:\dsfndlgl\institut\0497.pea\mmktsai
-15-
<PAGE>
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 (*) -- 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 and each Portfolio as that
term is defined in the 1940 Act.
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 JPM
Pierpont 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 JPM
Pierpont Funds and the JPM 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, 1996 is set forth below.
TOTAL TRUSTEE COMPENSATION
ACCRUED BY THE MASTER
AGGREGATE TRUSTEE PORTFOLIOS (*), THE JPM
COMPENSATION PIERPONT FUNDS, JPM SERIES
ACCRUED BY THE TRUST AND THE TRUST DURING
TRUST DURING 1996 1996 (***)
Frederick S. Addy, Trustee $12,593
$65,000
William G. Burns, Trustee $12,593 $65,000
Arthur C. Eschenlauer, Trustee $12,593 $65,000
Matthew Healey, Trustee(**), $12,593 $65,000
Chairman and Chief Executive
Officer
Michael P. Mallardi, Trustee $12,593 $65,000
i:\dsfndlgl\institut\0497.pea\mmktsai
-16-
<PAGE>
(*) Includes the Portfolios and 19 other portfolios (collectively, the "Master
Portfolios") for which Morgan acts as investment advisor.
(**) During 1996, Pierpont Group, Inc. paid Mr. Healey, in his role as
Chairman of Pierpont Group, Inc., compensation in the amount of $140,000,
contributed $21,000 to a defined contribution plan on his behalf and paid
$21,500 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 JPM Pierpont Funds, the Trust and JPM
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 aggregate fees paid to Pierpont Group, Inc. by each Fund's
corresponding Portfolio during the indicated fiscal years are set forth below:
THE PRIME MONEY MARKET PORTFOLIO -- For the fiscal year ended November 30,
1994: $246,089. For the fiscal year ended November 30, 1995: $261,045. For the
fiscal year ended November 30, 1996: $157,428.
THE TAX EXEMPT MONEY MARKET PORTFOLIO -- For the fiscal year ended August
31, 1994: $79,046. For the fiscal year ended August 31, 1995: $110,325. For the
fiscal year ended August 31, 1996: $62,310.
THE FEDERAL MONEY MARKET PORTFOLIO -- For the fiscal year ended October 31,
1994: $17,104. For the fiscal year ended October 31, 1995: $22,791. For the
fiscal year ended October 31, 1996: $16,144.
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 1992. 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 and
Chief Executive Officer and Director of FDI, Premier Mutual Fund Services, Inc.
("Premier Mutual") and an officer of certain investment
i:\dsfndlgl\institut\0497.pea\mmktsai
-17-
<PAGE>
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. Supervisor of
Treasury Services and Administration of FDI and an officer of certain investment
companies advised or administered by Dreyfus or its affiliates. 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 (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. Senior 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. 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, 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 September 1995, Ms. Keeley was enrolled at
Fordham University School of Law and received her JD in May 1995. Prior to
September 1992, Ms. Keeley was an assistant at the National Association for
Public Interest Law. Address: FDI, 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. Prior to September 1992, Mr. Kelley was enrolled at
Boston College Law School and received his JD in May 1992. His date of birth is
December 24, 1964.
LENORE J. MCCABE; Assistant Secretary and Assistant Treasurer (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.
i:\dsfndlgl\institut\0497.pea\mmktsai
-18-
<PAGE>
MARY A. NELSON; Vice President and Assistant Treasurer. Vice President and
Manager of Treasury Services and Administration of FDI, 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.
JOHN E. PELLETIER; Vice President and Secretary. Senior Vice President and
General 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. From February 1992 to April 1994, Mr. Pelletier
served as Counsel for TBCA. From August 1990 to February 1992, Mr. Pelletier was
employed as an Associate at Ropes & Gray. His date of birth is June 24, 1964.
MICHAEL S. PETRUCELLI; Vice President and Assistant Secretary. Senior Vice
President and Director of Strategic Client Initiatives for Funds Distributor,
Inc. 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. His date of birth is May
18, 1961.
JOSEPH F. TOWER III; Vice President and Assistant Treasurer. Senior Vice
President, Treasurer and Chief Financial Officer of FDI and Premier Mutual and
an officer of Waterhouse Investors Cash Management Fund, Inc. and certain
investment companies advised or administered by Dreyfus. 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
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 $208 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.
i:\dsfndlgl\institut\0497.pea\mmktsai
-19-
<PAGE>
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 Federal Money Market Portfolio--IBC/Donoghue's U.S.
Government and Agency Money Fund Average; The Tax Exempt Money Market
Portfolio--IBC/Donoghue's Tax Exempt Money Fund Average; and The Treasury Money
Market Portfolio--IBC/Donoghue's Treasury and Repo 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 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.
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 each Portfolio's average daily net assets shown below.
PRIME MONEY MARKET: 0.20% of net assets up to $1 billion and 0.10% of net
assets in excess of $1 billion
TAX EXEMPT MONEY MARKET: 0.20% of net assets up to $1 billion and 0.10% of
net assets in excess of $1 billion
FEDERAL MONEY MARKET: 0.20% of net assets up to $1 billion and 0.10% of net
assets in excess of $1 billion
TREASURY MONEY MARKET: 0.20% of net assets up to $1 billion and 0.10% of
net assets in excess of $1 billion
The table below sets forth for each Fund listed the advisory fees paid
by its corresponding Portfolio to the Advisor for the fiscal periods indicated.
See "Expenses" in the Prospectus and below for applicable expense limitations.
THE PRIME MONEY MARKET PORTFOLIO -- For the fiscal year ended November 30,
1994: $3,423,576. For the fiscal year ended November 30, 1995: $3,913,479. For
the fiscal year ended November 30, 1996: $4,503,793.
i:\dsfndlgl\institut\0497.pea\mmktsai
-20-
<PAGE>
THE TAX EXEMPT MONEY MARKET PORTFOLIO -- For the fiscal year ended August
31, 1994: $2,021,476. For the fiscal year ended August 31, 1995: $2,150,291. For
the fiscal year ended August 31, 1996: $2,154,248.
THE FEDERAL MONEY MARKET PORTFOLIO -- For the fiscal year ended October 31,
1994: $339,521. For the fiscal year ended October 31, 1995: $492,941. For the
fiscal year ended October 31, 1996: $653,326.
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. 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
i:\dsfndlgl\institut\0497.pea\mmktsai
-21-
<PAGE>
"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 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 JPM Pierpont Funds, the Master
Portfolios, JPM Series Trust and JPM Series Trust II.
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 "Expenses" in the Prospectus and below for applicable expense limitations.
THE PRIME MONEY MARKET PORTFOLIO -- For the period August 1, 1996 through
November 30, 1996: $33,012.
THE TAX EXEMPT MONEY MARKET PORTFOLIO -- For the period August 1, 1996
through August 31, 1996: $2,284.
THE FEDERAL MONEY MARKET PORTFOLIO -- For the period August 1, 1996 through
October 31, 1996: $1,663.
The table below sets forth for each Fund's 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 "Expenses" in the Prospectus and below for
applicable expense limitations.
THE PRIME MONEY MARKET PORTFOLIO -- For the fiscal year ended November 30,
1994: $165,519. For the fiscal year ended November 30, 1995: $176,717. For the
period December 1, 1995 through July 31, 1996: $272,989.
THE TAX EXEMPT MONEY MARKET PORTFOLIO -- For the fiscal year ended August
31, 1994: $62,565. For the fiscal year ended August 31, 1995: $72,729. For the
period September 1, 1995 through July 31, 1996: $110,848.
THE FEDERAL MONEY MARKET PORTFOLIO -- For the fiscal year ended October 31,
1994: $11,777. For the fiscal year ended October 31, 1995: $17,480. For the
period November 1, 1995 through July 31, 1996: $28,623.
i:\dsfndlgl\institut\0497.pea\mmktsai
-22-
<PAGE>
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 the 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 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 JPM Pierpont Funds, the
Master Portfolios, the other investors in the Master Portfolios for which Morgan
provides similar services and JPM Series Trust.
Under prior administrative services agreements in effect from December
29, 1995 through July 31, 1996, with Morgan, each Fund's (except for the
Treasury Money Market Fund) corresponding 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' 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's
corresponding Portfolio the fees paid to Morgan, net of fee waivers and
reimbursements, as Services Agent. See "Expenses" in the Prospectus and below
for applicable expense limitations.
THE PRIME MONEY MARKET PORTFOLIO -- For the fiscal year ended November 30,
1994: $385,012. For the fiscal year ended November 30, 1995: $373,077. For the
fiscal year ended November 30, 1996: $881,737.
THE TAX EXEMPT MONEY MARKET PORTFOLIO -- For the fiscal year ended August
31, 1994: $153,204. For the fiscal year ended August 31, 1995: $169,754. For the
fiscal year ended August 31, 1996: $205,419.
THE FEDERAL MONEY MARKET PORTFOLIO -- For the fiscal year ended October 31,
1994: $(13,844)*. For the fiscal year ended October 31, 1995: $(146,180)*. For
the fiscal year ended October 31, 1996: $(165,137)*.
- ------------------------------------
(*) 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. In addition, the
Custodian has entered into subcustodian agreements on behalf of the Portfolio
for the Tax Exempt Money Market Fund with Bankers Trust Company for the purpose
of holding TENR Notes and with Bank of New York and Chemical Bank,
i:\dsfndlgl\institut\0497.pea\mmktsai
-23-
<PAGE>
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.
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 (with respect to the Treasury Money Market
Fund) 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 includes but is 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. See "Expenses" in 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 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
i:\dsfndlgl\institut\0497.pea\mmktsai
-24-
<PAGE>
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
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
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
i:\dsfndlgl\institut\0497.pea\mmktsai
-25-
<PAGE>
extraordinary expenses, custodian fees and brokerage expenses). For additional
information regarding waivers or expense subsidies, see "Management of the Trust
and the Portfolio" in the Prospectus.
PURCHASE OF SHARES
Investors may open Fund accounts and purchase shares as described in
the Prospectus under "Purchase of Shares." 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.
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 under
"Redemption of Shares." 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" in the Prospectus and 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 all of the Funds and the Federal Money Market
Portfolio have elected
i:\dsfndlgl\institut\0497.pea\mmktsai
-26-
<PAGE>
to be governed by Rule 18f-1 under the 1940 Act pursuant to which the Funds and
the Federal Money Market Portfolio are 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
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 JPM
Institutional Fund, JPM Pierpont Fund, or shares of JPM Series Trust, as
described under "Exchange of Shares" 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
Each Fund declares and pays dividends and distributions as described
under "Dividends and Distributions" 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.
NET ASSET VALUE
Each of the Funds computes its net asset value once daily on Monday
through Friday as described under "Net Asset Value" in the Prospectus. The net
asset value will not be computed on the day the following legal holidays are
observed: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor 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 Fund
closes early, purchase and redemption
i:\dsfndlgl\institut\0497.pea\mmktsai
-27-
<PAGE>
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.
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 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 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. In the case of the Tax Exempt Money Market
Fund, 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
Prime Money Market, Tax Exempt Money Market and Federal Money Market Funds will
be that of the respective related series of The JPM Pierpont Funds and will be
presented in accordance with applicable SEC staff interpretations. The
applicable financial information in the registration statement for The JPM
Pierpont Funds (Registration Nos. 33-54632 and 811-7340) is incorporated herein
by reference.
The historical performance information shown below may reflect
operating expenses which were lower, by up to .05% of net assets (after
reimbursements), than those of the corresponding JPM Institutional Service
Funds.
i:\dsfndlgl\institut\0497.pea\mmktsai
-28-
<PAGE>
Accordingly, the historical yield and historical returns for the related JPM
Pierpont Funds may be higher than would have occurred if an investment had been
made during the periods indicated in the JPM Institutional Service Funds.
Below is set forth historical yield information of each Fund's related
series of The JPM Pierpont Funds for the periods indicated:
PRIME MONEY MARKET FUND (11/30/96): 7-day current yield: 5.08%; 7-day
effective yield: 5.21%.
TAX EXEMPT MONEY MARKET FUND (2/28/97): 7-day current yield: 3.02%; 7-day
tax equivalent yield at 39.6% tax rate: 5.00%; 7-day effective yield: 3.07%.
FEDERAL MONEY MARKET FUND (10/31/96): 7-day current yield: 4.83%; 7-day
effective yield: 4.95%.
TOTAL RETURN QUOTATIONS. Historical performance information for periods
prior to the establishment of the Prime Money Market, Tax Exempt Money Market
and Federal Money Market Funds will be that of the respective related series of
The JPM Pierpont Funds and will be presented in accordance with applicable SEC
staff interpretations. The applicable financial information in the registration
statement for The JPM Pierpont Funds (Registration Nos. 33-54632 and 811-7340)
is incorporated herein by reference.
Below is set forth historical return information of each Fund's related
series of The JPM Pierpont Funds for the periods indicated:
PRIME MONEY MARKET FUND (11/30/96): Average annual total return, 1 year:
5.27%; average annual total return, 5 years: 4.28%; average annual total return,
10 years: 5.83%; aggregate total return, 1 year: 5.27%; aggregate total return,
5 years: 23.28%; aggregate total return, 10 years: 76.18%.
TAX EXEMPT MONEY MARKET FUND (2/28/97): Average annual total return, 1
year: 3.11%; Average annual total return, 5 years: 2.77%; average annual total
return, 10 years: 3.87%; aggregate total return, 1 year: 3.11%; aggregate total
return, 5 years: 14.66%; aggregate total return, 10 years: 46.19%.
FEDERAL MONEY MARKET FUND (10/31/96): Average annual total return, 1 year:
5.03%; average annual total return, 5 years: N/A; average annual total return,
commencement of operations(*) to period end: 4.18%; aggregate total return, 1
year: 5.03%; aggregate total return, 5 years: N/A; aggregate total return,
commencement of operations(*) to period end: 16.96%.
- -----------------------------------------------
* The JPM Pierpont Federal Money Market Fund commenced operations on January 4,
1993.
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
i:\dsfndlgl\institut\0497.pea\mmktsai
-29-
<PAGE>
from Lipper Analytical Services, Inc., Micropal, Inc., Ibbotson Associates,
Morningstar Inc., the Dow Jones Industrial Average and other industry
publications.
From time to time, the Funds may quote performance in terms of yield,
actual distributions, total return, or capital appreciation in reports, sales
literature, and advertisements published by the Funds. 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.
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." The Tax Exempt Money Market 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 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
which the Advisor or an affiliate of the Advisor is a member, except to the
extent permitted by law.
i:\dsfndlgl\institut\0497.pea\mmktsai
-30-
<PAGE>
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.
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 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 Funds.
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.
i:\dsfndlgl\institut\0497.pea\mmktsai
-31-
<PAGE>
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.
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.
i:\dsfndlgl\institut\0497.pea\mmktsai
-32-
<PAGE>
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 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
"Redemption of Shares" in the Prospectus.
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.
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.
The Tax Exempt Money Market 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
i:\dsfndlgl\institut\0497.pea\mmktsai
-33-
<PAGE>
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
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. See "Investment
Objective(s) and Policies" in the Prospectus.
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. See "Taxes" in
the Prospectus for a discussion of the federal income tax treatment of any gain
or loss realized on the redemption or exchange of a Fund's shares. 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 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.
i:\dsfndlgl\institut\0497.pea\mmktsai
-34-
<PAGE>
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 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.
i:\dsfndlgl\institut\0497.pea\mmktsai
-35-
<PAGE>
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.
i:\dsfndlgl\institut\0497.pea\mmktsai
-36-
<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.
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.
i:\dsfndlgl\institut\0497.pea\mmktsai
A-1
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.
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.
i:\dsfndlgl\institut\0497.pea\mmktsai
A-2
<PAGE>
PROSPECTUS
The JPM Institutional Treasury Money Market Fund
60 State Street
Boston, Massachusetts 02109
For information call (800) 766-7722
The JPM Institutional Treasury Money Market Fund (the "Fund") seeks to provide
current income, maintain a high level of liquidity and preserve capital. It is
designed for investors who seek to preserve capital and earn current income
from a portfolio of direct obligations of the U.S. Treasury and repurchase
agreement transactions with respect to those obligations.
The Fund is a diversified no-load mutual fund for which there are no sales
charges or exchange or redemption fees. The Fund is a series of The JPM
Institutional Funds, an open-end management investment company organized as a
Massachusetts business trust (the "Trust").
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 THE TREASURY MONEY MARKET PORTFOLIO (THE
"PORTFOLIO"), A CORRESPONDING DIVERSIFIED 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 ON PAGE 3.
The Portfolio is advised by Morgan Guaranty Trust Company of New York ("Morgan"
or "Advisor").
This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing and it should be retained
for future reference. Additional information about the Fund has been filed with
the Securities and Exchange Commission in a Statement of Additional Information
dated May 30, 1997 (as 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, Funds Distributor, Inc. ("FDI"), 60 State
Street, Suite 1300, Boston, Massachusetts 02109, Attention: The JPM
Institutional Funds, or by calling (800) 221-7930.
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.
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. ALTHOUGH
THE FUND SEEKS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE, THERE
CAN BE NO ASSURANCE THAT IT WILL BE ABLE TO CONTINUE TO DO SO.
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 MAY 30, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Investors for Whom the Fund is Designed.................................... 1
Special Information Concerning Investment Structure........................ 3
Investment Objective and Policies.......................................... 4
Additional Investment Information and Risk Factors......................... 4
Investment Restrictions.................................................... 5
Management of the Trust and the Portfolio.................................. 6
</TABLE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
Shareholder Servicing...................................................... 8
Purchase of Shares......................................................... 8
Redemption of Shares....................................................... 9
Exchange of Shares......................................................... 10
Dividends and Distributions................................................ 10
Net Asset Value............................................................ 11
Organization............................................................... 11
Taxes...................................................................... 12
Additional Information..................................................... 13
</TABLE>
<PAGE>
The JPM Institutional Treasury Money Market Fund
INVESTORS FOR WHOM THE FUND IS DESIGNED
The Fund is designed to be an economical and convenient means of making sub-
stantial investments in money market instruments for investors who are inter-
ested in current income, preserving capital and maintaining liquidity. The Fund
seeks to achieve its investment objective by investing all of its investable
assets in The Treasury Money Market Portfolio, a diversified open-end manage-
ment investment company having the same investment objective as the Fund. Since
the investment characteristics and experience of the Fund will correspond di-
rectly with those of the Portfolio, the discussion in this Prospectus focuses
on the investments and investment policies of the Portfolio.
THE FUND SEEKS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE
CAN BE NO ASSURANCE THAT IT WILL BE ABLE TO CONTINUE TO DO SO.
The Fund generally requires a minimum initial investment of $10 million. The
minimum subsequent investment is $25,000. See Purchase of Shares. If a share-
holder reduces his or her investment in the Fund to less than $10 million for
more than 30 days, the investment may be subject to mandatory redemption. See
Redemption of Shares-Mandatory Redemption by the Fund.
This Prospectus describes the financial history, investment objective and poli-
cies, management and operation of the Fund to enable investors to decide if the
Fund suits their needs. The Fund operates in a two-tier master-feeder invest-
ment structure. The Trustees believe that the Fund may achieve economies of
scale over time by utilizing this investment structure.
The following table illustrates that investors in the Fund incur no shareholder
transaction expenses; their investment in the Fund is subject only to the oper-
ating expenses set forth below for the Fund and the Portfolio, as a percentage
of average net assets of the Fund. The Trustees of the Trust believe that the
aggregate per share expenses of the Fund and the Portfolio will be approxi-
mately equal to and may be less than the expenses that the Fund would incur if
it retained the services of an investment adviser and invested its assets di-
rectly in portfolio securities. Fund and Portfolio expenses are discussed below
under the headings Management of the Trust and the Portfolio and Shareholder
Servicing.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases*........................................... None
Sales Load Sales on Reinvested Dividends................................... None
Deferred Sales Load........................................................ None
Redemption Fees............................................................ None
Exchange Fees.............................................................. None
</TABLE>
- -------
* Certain Eligible Institutions (defined below) may impose fees in connection
with the purchase of the Fund's shares through such institutions.
1
<PAGE>
EXPENSE TABLE
ANNUAL OPERATING EXPENSES*
<TABLE>
<S> <C>
Advisory Fees (after expense reimbursement)............................... 0.11%
Rule 12b-1 Fees........................................................... None
Other Expenses (after expense reimbursement).............................. None
-----
Total Operating Expenses (after expense reimbursement).................... 0.11%
</TABLE>
* Fees and expenses in the expense table are expressed as a percentage of the
Fund's estimated average daily net assets for its fiscal year ending July
31, 1998, after applicable voluntary expense reimbursements. Morgan has vol-
untarily agreed to reimburse the Fund so that total operating expenses will
be equal to the following respective percentages of average daily net assets
of the Fund for the periods indicated below:
<TABLE>
<S> <C>
June 1, 1997-August 31, 1997........................................ 0.00%
September 1, 1997-November 30, 1997................................. 0.05%
December 1, 1997-February 28, 1998.................................. 0.10%
March 1, 1998-May 31, 1998.......................................... 0.15%
June 1, 1998-November 30, 1998...................................... 0.20%
</TABLE>
The Total Operating Expenses for the Fund is a blended number which represents
an estimate based on the reimbursements in effect throughout the fiscal year
ending July 31, 1998 and may not necessarily represent the actual Total Oper-
ating Expenses for the Fund at any particular time during the periods indicat-
ed; the actual amount may be higher (ranging from 0.10%-0.20% during the sec-
ond half of the year) or lower (ranging from 0%-0.10% during the first half of
the year) than that shown above. Without any expense limitations, the Advisory
Fee, estimated Other Expenses and Total Operating Expenses would be equal on
an annual basis to 0.20%, 0.26% and 0.46%, respectively, of the average daily
net assets of the Fund.
EXAMPLE
An investor would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<S> <C>
1 Year...................................................................... $ 1
3 Years..................................................................... $ 6
</TABLE>
The above expense table is designed to assist investors in understanding the
various direct and indirect costs and expenses that investors in the Fund
bear. The fees and expenses included in Other Expenses are the fees paid to
Morgan under the Administrative Services Agreements and the Shareholder Ser-
vicing Agreement, organization expenses, the fees paid to Pierpont Group, Inc.
under the Fund Services Agreements, the fees paid to FDI under the Co-Adminis-
tration Agreements, the fees paid to State Street Bank and Trust Company as
custodian and transfer agent, and other usual and customary expenses of the
Fund and the Portfolio. For a more detailed description of contractual fee ar-
rangements, including expense reimbursements, see Management of the Trust and
the Portfolio and Shareholder Servicing. In connection with the above example,
please note that $1,000 is less than the Fund's minimum investment requirement
and that there are no redemption or exchange fees of any kind. See Purchase of
Shares and Redemption of Shares. THE EXAMPLE IS HYPOTHETICAL; IT IS INCLUDED
SOLELY FOR ILLUSTRATIVE PURPOSES. IT SHOULD NOT BE CONSIDERED A REPRESENTATION
OF FUTURE PERFORMANCE; ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
2
<PAGE>
SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE
Unlike other mutual funds which directly acquire and manage their own portfo-
lio of securities, the Fund is an open-end management investment company which
seeks to achieve its investment objective by investing all of its investable
assets in the Portfolio, a separate registered investment company with the
same investment objective as the Fund. The investment objective of the Fund or
Portfolio may be changed only with the approval of the holders of the out-
standing shares of the Fund and the Portfolio. The master-feeder investment
fund structure has been developed relatively recently, so shareholders should
carefully consider this investment approach.
In addition to selling a beneficial interest to the Fund, the Portfolio may
sell beneficial interests to other mutual funds or institutional investors.
Such investors will invest in the Portfolio on the same terms and conditions
and will bear a proportionate share of the Portfolio's expenses. However, the
other investors investing in the Portfolio may sell shares of their own fund
using a different pricing structure than the Fund. Such different pricing
structures may result in differences in returns experienced by investors in
other funds that invest in the Portfolio. Such differences in returns are not
uncommon and are present in other mutual fund structures. Information concern-
ing other holders of interests in the Portfolio is available from Morgan at
(800) 766-7722.
The Trust may withdraw the investment of the Fund from the Portfolio at any
time if the Board of Trustees of the Trust determines that it is in the best
interests of the Fund to do so. Upon any such withdrawal, the Board of Trust-
ees would consider what action might be taken, including the investment of all
the assets of the Fund in another pooled investment entity having the same in-
vestment objective and restrictions as the Fund or the retaining of an invest-
ment adviser to manage the Fund's assets in accordance with the investment
policies described below with respect to the Portfolio.
Certain changes in the Portfolio's investment objective, policies or restric-
tions, or a failure by the Fund's shareholders to approve a change in the
Portfolio's investment objective or restrictions, may require withdrawal of
the Fund's interest in the Portfolio. Any such withdrawal could result in a
distribution in kind of portfolio securities (as opposed to a cash distribu-
tion) from the Portfolio which may or may not be readily marketable. The dis-
tribution in kind may result in the Fund having a less diversified portfolio
of investments or adversely affect the Fund's liquidity, and the Fund could
incur brokerage, tax or other charges in converting the securities to cash.
Notwithstanding the above, there are other means for meeting shareholder re-
demption requests, such as borrowing.
Smaller funds investing in the Portfolio may be materially affected by the ac-
tions of larger funds investing in the Portfolio. For example, if a large fund
withdraws from the Portfolio, the remaining funds may subsequently experience
higher pro rata operating expenses, thereby producing lower returns. Addition-
ally, because the Portfolio would become smaller, it may become less diversi-
fied, resulting in potentially increased portfolio risk (however, these possi-
bilities also exist for traditionally structured funds which have large or in-
stitutional investors who may withdraw from a fund). Also, funds with a
greater pro rata ownership in the Portfolio could have effective voting con-
trol of the operations of the Portfolio. Whenever the Fund is requested to
vote on matters pertaining to the Portfolio (other than a vote by the Fund to
continue the operation of the Portfolio upon the withdrawal of another in-
vestor in the Portfolio), the Trust will hold a meeting of shareholders of the
Fund and will cast all of its votes proportionately as instructed by the
Fund's shareholders. The Trust will vote the shares held by Fund shareholders
who do not give voting instructions in the same proportion as the shares of
Fund shareholders who do give voting instructions. Shareholders of the Fund
who do not vote will have no effect on the outcome of such matters.
For more information about the Portfolio's investment objective, policies and
restrictions, see Investment Objective and Policies, Additional Investment In-
formation and Risk Factors and Investment Restrictions. For more information
about the Portfolio's management and expenses, see Management of the Trust and
the Portfolio. For more information about changing the investment objective,
policies and restrictions of the Fund or the Portfolio, see Investment Re-
strictions.
3
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund and the Portfolio is described below, to-
gether with the policies they employ in their efforts to achieve this objec-
tive. Additional information about the investment policies of the Fund and the
Portfolio appears in the Statement of Additional Information under Investment
Objectives and Policies. There can be no assurance that the investment objec-
tive of the Fund or the Portfolio will be achieved.
The Fund's investment objective is to provide current income, maintain a high
level of liquidity and preserve capital. The Fund attempts to achieve its in-
vestment objective by investing all of its investable assets in The Treasury
Money Market Portfolio, a diversified open-end management investment company
having the same investment objective as the Fund.
The Portfolio seeks to achieve its investment objective by investing in direct
obligations of the U.S. Treasury and engaging in repurchase agreement transac-
tions with respect to those obligations. The market value of obligations in
which the Portfolio invests is not guaranteed and may rise and fall in response
to changes in interest rates. The Portfolio maintains a dollar-weighted average
portfolio maturity of not more than 90 days and invests in the following secu-
rities which have effective maturities of 397 calendar days or less.
TREASURY SECURITIES. The Portfolio will invest in 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 ("Treasury Securities"). Treasury
bills have initial maturities of one year or less; Treasury notes have initial
maturities of one to ten years; and Treasury bonds generally have initial matu-
rities of greater than ten years. Each such obligation must have a remaining
maturity of 397 days or less at the time of purchase by the Portfolio. The
Portfolio will not invest in U.S. Government agency obligations.
The Portfolio also may purchase Treasury Securities on a when-issued or delayed
delivery basis and may engage in repurchase and reverse repurchase agreement
transactions involving such securities. For a discussion of these transactions,
see Additional Investment Information and Risk Factors.
ADDITIONAL INVESTMENT INFORMATION AND RISK FACTORS
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase securi-
ties on a when-issued or delayed delivery basis. Delivery of and payment for
these securities may take as long as a month or more after the date of the pur-
chase commitment. The value of these securities is subject to market fluctua-
tion during this period and no interest or income accrues to the Portfolio un-
til settlement. At the time of settlement a when-issued security may be valued
at less than its purchase price. The Portfolio maintains with the Custodian a
separate account with a segregated portfolio of securities in an amount at
least equal to these commitments. When entering into a when-issued or delayed
delivery transaction, the Portfolio will rely on the other party to consummate
the transaction; if the other party fails to do so, the Portfolio may be disad-
vantaged.
REPURCHASE AGREEMENTS. The Portfolio may engage in repurchase agreement trans-
actions with brokers, dealers or banks that meet the credit guidelines estab-
lished by the Portfolio's Trustees. In a repurchase agreement, the Portfolio
buys a security from a seller that has agreed to repurchase it at a mutually
agreed upon date and price, reflecting the interest rate effective for the term
of the agreement. The Portfolio only enters into repurchase agreements involv-
ing Treasury Securities. The term of these agreements is usually from overnight
to one week. A repurchase agreement may be viewed as a fully collateralized
loan of money by the Portfolio to the seller. The Portfolio always receives se-
curities as collateral with a market value at least equal to the purchase price
plus accrued interest and this value is maintained during the term of the
agreement. If the seller defaults and the collateral value declines, the Port-
folio might incur a loss. If bankruptcy proceedings are commenced with respect
to the seller, the Portfolio's realization upon the disposition of collateral
may be delayed or limited. Investments in certain repurchase agreements and
certain other investments which may be considered illiquid are limited. See Il-
liquid Investments; Privately Placed and other Unregistered Securities below.
4
<PAGE>
LOANS OF PORTFOLIO SECURITIES. Subject to applicable investment restrictions,
the Portfolio is permitted to lend its securities in an amount up to 33 1/3%
of the value of the Portfolio's net assets. The Portfolio may lend its securi-
ties if such loans are secured continuously by cash or equivalent collateral
or by a letter of credit in favor of the Portfolio 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 Portfolio any in-
come accruing thereon. Loans will be subject to termination by the Portfolio
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 Portfolio
and its respective investors. The Portfolio may pay reasonable finders' and
custodial fees in connection with a loan. In addition, the Portfolio will con-
sider all facts and circumstances, including the creditworthiness of the bor-
rowing financial institution, and the Portfolio will not make any loans in ex-
cess of one year.
Loans of portfolio securities may be considered extensions of credit by the
Portfolio. The risks to the Portfolio with respect to borrowers of its portfo-
lio securities are similar to the risks to the Portfolio with respect to sell-
ers in repurchase agreement transactions. See Repurchase Agreements above. The
Portfolio will not lend its securities to any officer, Trustee, Director, em-
ployee or other affiliate of the Portfolio, the Advisor or the Distributor,
unless otherwise permitted by applicable law.
BORROWING AND REVERSE REPURCHASE AGREEMENTS. The Portfolio may (1) borrow
money from banks solely for temporary or emergency (but not for leverage) pur-
poses 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.
ILLIQUID INVESTMENTS; PRIVATELY PLACED AND OTHER UNREGISTERED SECURITIES. The
Portfolio may not acquire any illiquid securities if, as a result thereof,
more than 10% of the Portfolio's net assets would be in illiquid investments.
Subject to this policy limitation, the Portfolio may acquire investments that
are illiquid or have limited liquidity, such as private placements or invest-
ments that are not registered under the Securities Act of 1933, as amended
(the "1933 Act"), and cannot be offered for public sale in the United States
without first being registered under the 1933 Act. An illiquid investment is
any investment that cannot be disposed of within seven days in the normal
course of business at approximately the amount at which it is valued by the
Portfolio. The price the Portfolio pays for illiquid securities or receives
upon resale may be lower than the price paid or received for similar securi-
ties with a more liquid market. Accordingly the valuation of these securities
will reflect any limitations on their liquidity.
The Portfolio may also purchase Rule 144A securities sold to institutional in-
vestors without registration under the 1933 Act. These securities may be de-
termined to be liquid in accordance with guidelines established by the Advisor
and approved by the Trustees. The Trustees will monitor the Advisor's imple-
mentation of these guidelines on a periodic basis.
INVESTMENT RESTRICTIONS
INVESTMENT POLICIES AND RESTRICTIONS. Except as otherwise stated in this Pro-
spectus or the Statement of Additional Information, the Fund's and the Portfo-
lio'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 (1) 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 (in-
vest 25% or more of its total assets) in the securities of issuers in any one
industry (other than U.S. Government securities or repurchase agreements col-
lateralized by such securities).
5
<PAGE>
For a more detailed discussion of the above investment restrictions, as well as
a description of certain other investment restrictions, see Investment Restric-
tions in the Statement of Additional Information.
MANAGEMENT OF THE TRUST AND THE PORTFOLIO
TRUSTEES. Pursuant to the Declarations of Trust for the Trust and for the Port-
folio, the Trustees decide upon matters of general policy and review the ac-
tions of the Advisor and other service providers. The Trustees of the Trust and
of the Portfolio are identified below.
<TABLE>
<S> <C>
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;
Chairman, Pierpont Group, Inc.
Michael P. Mallardi................. Former Senior Vice President, Capital
Cities/ABC, Inc. and President, Broadcast
Group
</TABLE>
A majority of the disinterested Trustees have adopted written procedures rea-
sonably 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 JPM Pierpont Funds, up to and including creating a separate board of trust-
ees. See Trustees and Officers in the Statement of Additional Information for
more information about the Trustees and Officers of the Fund and the Portfolio.
The Portfolio and the Trust have each entered into a Fund Services Agreement
with Pierpont Group, Inc. to assist the Trustees in exercising their overall
supervisory responsibilities for the Portfolio's and the Trust's affairs. The
fees to be paid under the agreements approximate the reasonable cost of Pier-
pont Group, Inc. in providing these services to the Trust, the Portfolio and
certain other registered investment companies subject to similar agreements
with Pierpont Group, Inc. Pierpont Group, Inc. was organized in 1989 at the re-
quest of the Trustees of The Pierpont Family of Funds for the purpose of pro-
viding these services at cost to these funds. See Trustees and Officers in the
Statement of Additional Information. The principal offices of Pierpont Group,
Inc. are located at 461 Fifth Avenue, New York, New York 10017.
ADVISOR. The Fund has not retained the services of an investment adviser be-
cause 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, with principal offices at 60 Wall
Street, New York, New York 10260, is a New York trust company which conducts a
general banking and trust business. Morgan is a wholly owned subsidiary of J.P.
Morgan & Co. Incorporated ("J.P. Morgan"), a bank holding company organized un-
der 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 adviser to individual and institutional clients with com-
bined assets under management of over $208 billion. Morgan provides investment
advice and portfolio management services to the Portfolio. Subject to the su-
pervision of the Portfolio's 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. See Investment Advisor in the
Statement of Additional Information.
6
<PAGE>
The following persons are primarily responsible for the day-to-day management
and implementation of Morgan's process for the Portfolio since its inception
(business experience for the past five years is indicated parenthetically):
Robert R. Johnson, Vice President (employed by Morgan since prior to 1992) and
Daniel B. Mulvey, Vice President (employed by Morgan since 1992).
As compensation for the services rendered and related expenses borne by Morgan
under the 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 0.20% of the Portfolio's average daily net assets up to
$1 billion, and 0.10% of average daily net assets in excess of $1 billion.
Under separate agreements, Morgan also provides administrative and related
services to the Fund and the Portfolio and shareholder services to sharehold-
ers of the Fund. See Administrative Services Agent and Shareholder Servicing
below. INVESTMENTS IN THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARAN-
TEED 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, Funds Distributor, Inc. ("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 Port-
folio; (iii) prepares and files documents required for notification of state
securities administrators; (iv) reviews and files marketing and sales litera-
ture; (v) files Portfolio regulatory documents and mails Portfolio communica-
tions 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 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 com-
pliance, 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 Portfo-
lio 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 Trust and certain other registered investment companies man-
aged by the Advisor 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 and as exclusive placement agent for the Portfolio. FDI
is a wholly owned indirect subsidiary of Boston Institutional Group, Inc.
FDI's principal business address is 60 State Street, Suite 1300, Boston, Mas-
sachusetts 02109.
CUSTODIAN. State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02110, serves as the Fund's and the Portfolio's
custodian and fund accounting and transfer agent and the Fund's dividend dis-
bursing agent. State Street also keeps the books of account for the Fund and
the Portfolio.
EXPENSES. In addition to the fees payable to Morgan, FDI and Pierpont Group,
Inc. under the various agreements discussed under Trustees, Advisor Co-Admin-
istrator and Administrative Services Agent above and Shareholder Servicing
7
<PAGE>
below, the Fund and the Portfolio are responsible for usual and customary ex-
penses associated with their respective operations. Such expenses include or-
ganization expenses, legal fees, accounting and audit expenses, insurance
costs, the compensation and expenses of the Trustees, costs associated with
its registration under federal securities laws, and extraordinary expenses ap-
plicable to the Fund or the Portfolio. For the Fund, such expenses also in-
clude transfer, registrar and dividend disbursement costs, the expenses of
printing and mailing reports, notices and proxy statements to Fund sharehold-
ers, and filing fees under state securities laws. For the Portfolio, such ex-
penses also include custodian fees and brokerage expenses.
Morgan has agreed that it will reimburse the Fund through at least November
30, 1998 to the extent necessary to maintain the Fund's total operating ex-
penses (which include expenses of the Fund and the Portfolio) at the percent-
ages indicated by the schedule under Annual Operating Expenses. This limit
does not cover extraordinary expenses during any period. There is no assurance
that Morgan will continue this waiver beyond the specified period.
SHAREHOLDER SERVICING
Pursuant to a Shareholder Servicing Agreement with the Trust, Morgan acts as
shareholder servicing agent for its customers and other Fund investors who are
customers of an eligible institution which is a customer of Morgan (an "Eligi-
ble Institution"). The Fund pays Morgan for these services at an 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 servic-
ing agent) of 0.05% of the Fund's average daily net assets. Under the terms of
the Shareholder Servicing Agreement with the Fund, Morgan may delegate one or
more of its responsibilities to other entities at Morgan's expense.
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 affil-
iates for services provided to their clients that invest in the Fund. See Eli-
gible 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.
Shareholders should address all inquiries to J.P. Morgan Funds Services, Mor-
gan Guaranty Trust Company of New York, 522 Fifth Avenue, New York, New York
10036 or call (800) 766-7722.
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 Mor-
gan as shareholder servicing agent and the Fund is authorized to accept any
instructions relating to a Fund account from Morgan as shareholder servicing
agent for the customer. All purchase orders must be accepted by the Distribu-
tor. Investors must be either customers of Morgan or of an Eligible Institu-
tion or 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 pur-
pose 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 Trust reserves the right to determine
the purchase orders that it will accept.
The Fund requires a minimum initial investment of $10 million and a minimum
subsequent investment of $25,000. These minimum investment requirements may be
waived for certain investors, including investors for whom the Advisor
8
<PAGE>
is a fiduciary, who maintain related accounts with the Fund, other JPM Insti-
tutional Funds or 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 Funds.
PURCHASE PRICE AND SETTLEMENT. The Fund's shares are sold on a continuous ba-
sis without a sales charge at the net asset value per share 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, condi-
tions and charges.
To purchase shares in the Fund, investors should request their Morgan repre-
sentative (or a representative of their Eligible Institution) to assist them
in placing a purchase order with the Fund's Distributor and to transfer imme-
diately available funds to the Fund's Distributor on the same day. Any share-
holder may also call J.P. Morgan Funds Services at (800) 766-7722 for assis-
tance in placing an order for Fund shares. Purchase orders and immediately
available funds must be received by 4:00 P.M. New York time on a business day
for the purchase to be effective and dividends to be earned on the same day.
The Fund does not accept orders after the indicated time. If funds are re-
ceived after 4:00 P.M. New York time for any reason, including that the day is
a Federal Reserve holiday, the purchase is not effective and dividends are not
earned until the next business day.
ELIGIBLE INSTITUTIONS. The services provided by Eligible Institutions may in-
clude establishing and maintaining shareholder accounts, processing purchase
and redemption transactions, arranging for bank wires, performing shareholder
sub- accounting, answering client inquiries regarding the Trust, assisting
clients in changing dividend options, account designations and addresses, pro-
viding periodic statements showing the client's account balance and integrat-
ing these statements with those of other transactions and balances in the cli-
ent'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, tabu-
lating 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 Insti-
tutions may establish their own terms and conditions for providing their serv-
ices and may charge investors a transaction-based or other fee for their serv-
ices. 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 Mor-
gan.
REDEMPTION OF SHARES
METHOD OF REDEMPTION. To redeem shares in the Fund, an investor may instruct
Morgan or his or her Eligible Institution, as appropriate, to submit a redemp-
tion request to the Fund or may telephone J.P. Morgan Funds Services directly
at (800) 766-7722 and give the Shareholder Service Representative a preas-
signed shareholder Personal Identification Number and the amount of the re-
demption. The Fund executes effective redemption requests at the next deter-
mined net asset value per share. See Net Asset Value. See Additional Informa-
tion below for an explanation of the telephone redemption policy of The JPM
Institutional Funds.
A redemption request received on a business day 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 day. Proceeds of an effective redemption are
generally deposited the same day in immediately available funds to the share-
holder's account at Morgan or at his or her Eligible Institution or, in the
case of certain Morgan customers, are mailed by check or wire transferred in
accordance with the customer's instructions. If a redemption request becomes
effective on a day when the New York Stock Exchange is open but which is a
Federal Reserve holiday, the proceeds are paid the next business day. See Fur-
ther Redemption Information.
9
<PAGE>
MANDATORY REDEMPTION BY THE FUND. If the value of a shareholder's holdings in
the Fund falls below the Fund's initial investment amount of $10 million for
more than 30 days because of a redemption of shares, the Fund may redeem the
remaining shares in the account 60 days after written notice to the shareholder
unless the account is increased to the minimum investment amount or more.
FURTHER REDEMPTION INFORMATION. Investors should be aware that redemptions from
the Fund may not be processed if a redemption request is not submitted in
proper form. To be in proper form, the Fund must have received the sharehold-
er's taxpayer identification number and address. As discussed under Taxes be-
low, the Fund may be required to impose "back-up" withholding of federal income
tax on dividends, distributions and redemption proceeds when non-corporate in-
vestors have not provided a certified taxpayer identification number. In addi-
tion, if a shareholder sends a check for the purchase of Fund shares and shares
are purchased before the check has cleared, the transmittal of redemption pro-
ceeds from the shares will occur upon clearance of the check which may take up
to 15 days.
The Fund reserves the right to suspend the right of redemption and to postpone
the date of payment upon redemption for up to seven days and for such other pe-
riods as the 1940 Act or the Securities and Exchange Commission may permit. See
Redemption of Shares in the Statement of Additional Information.
EXCHANGE OF SHARES
An investor may exchange shares from the Fund into any other JPM Institutional
Fund, JPM Pierpont Fund or shares of JPM Series Trust without charge. An ex-
change may be made so long as after the exchange the investor has shares, in
each fund in which he or she remains an investor, with a value of at least that
fund's minimum investment amount. Shareholders should read the prospectus of
the fund into which they are exchanging and may only exchange between fund ac-
counts that are registered in the same name, address and taxpayer identifica-
tion number. Shares are exchanged on the basis of relative net asset value per
share. Exchanges are in effect redemptions from one fund and purchases of an-
other fund and the usual purchase and redemption procedures and requirements
are applicable to exchanges. See Purchase of Shares and Redemption of Shares in
this Prospectus and in the prospectuses for the other JPM Institutional Funds,
The JPM Pierpont Funds and JPM Series Trust. See also Additional Information
below for an explanation of the telephone exchange policy of The JPM Institu-
tional Funds.
Shareholders subject to federal income tax who exchange shares in one fund for
shares in another fund may recognize capital gain or loss for federal income
tax purposes. The Fund reserves the right to discontinue, alter or limit its
exchange privilege at any time. For investors in certain states, state securi-
ties laws may restrict the availability of the exchange privilege.
DIVIDENDS AND DISTRIBUTIONS
All of the Fund's net investment income is declared as a dividend daily and
paid monthly. If an investor's shares are redeemed during a month, accrued but
unpaid dividends are paid with the redemption proceeds. The net investment in-
come of the Fund for dividend purposes consists of its pro rata share of the
net income of the Portfolio less the Fund's expenses. Dividends and distribu-
tions are payable to shareholders of record at the time of declaration. The net
investment income of the Fund for each business day is determined immediately
prior to the determination of net asset value. Net investment income for other
days is determined at the time net asset value is determined on the prior busi-
ness day. Shares of the Fund earn dividends on the business day their purchase
is effective, but not on the business day their redemption is effective. See
Purchase of Shares and Redemption of Shares.
Net short-term capital gains, if any, will be distributed in accordance with
the requirements of the Internal Revenue Code of 1986, as amended (the "Code"),
and may be reflected in the Fund's daily dividends. Substantially all the real-
ized net long-term capital gains, if any, of the Fund are declared and paid on
an annual basis, except that an additional capital
10
<PAGE>
gains distribution may be made in a given year to the extent necessary to avoid
the imposition of federal excise tax on the Fund.
Dividends and capital gains distributions paid by the Fund are automatically
reinvested in additional shares of the Fund unless the shareholder has elected
to have them paid in cash. Dividends and distributions to be paid in cash are
credited to the shareholder's account at Morgan or at his or her Eligible In-
stitution or, in the case of certain Morgan customers, are mailed by check in
accordance with the customer's instructions. The Fund reserves the right to
discontinue, alter or limit the automatic reinvestment privilege at any time.
NET ASSET VALUE
Net asset value per share for the Fund is determined by subtracting from the
value of the Fund's total assets (i.e., the value of its investment in the
Portfolio and other assets) the amount of its liabilities and dividing the re-
mainder by the number of its outstanding shares, rounded to the nearest cent.
Expenses, including the fees payable to Morgan, are accrued daily. The Portfo-
lio values all portfolio securities by the amortized cost method. This method
attempts to maintain for the Fund a constant net asset value per share of
$1.00. No assurances can be given that this goal can be attained. See Net Asset
Value in the Statement of Additional Information for more information on valua-
tion of portfolio securities for the Portfolio.
The Fund computes its net asset value once daily at 4:00 P.M. New York time on
Monday through Friday, except that the net asset value is not computed for the
Fund on the holidays listed under Net Asset Value in the Statement of Addi-
tional Information and may be computed at earlier times as set forth in the
Statement of Additional Information.
ORGANIZATION
The Trust was organized on November 4, 1992 as an unincorporated business trust
under Massachusetts law and is an entity commonly known as a "Massachusetts
business trust". The Declaration of Trust permits the Trustees to issue an un-
limited number of full and fractional shares ($0.001 par value) of one or more
series. To date 24 series of shares have been authorized and are available for
sale to the public. Only shares of the Fund are offered through this Prospec-
tus. No series of shares has any preference over any other series of shares.
See Massachusetts Trust in the Statement of Additional Information.
The Declaration of Trust for the Trust provides that no Trustee, shareholder,
officer, employee, or agent of the Fund shall be held to any personal liabili-
ty, nor shall resort be had to their private property for the satisfaction of
any obligation or claim or otherwise in connection with the affairs of the
Fund, but that the Trust property only shall be liable.
Shareholders of the Fund are entitled to one vote for each share and to the ap-
propriate fractional vote for each fractional share. There is no cumulative
voting. Shares have no preemptive or conversion rights. Shares are fully paid
and non- assessable by the Fund. The Trust does not intend to hold meetings of
shareholders annually. The Trustees may call meetings of shareholders for ac-
tion by shareholder vote as may be required by either the 1940 Act or the Dec-
laration of Trust. The Trustees will call a meeting of shareholders to vote on
removal of a Trustee upon the written request of the record holders of ten per-
cent of Trust shares and will assist shareholders in communicating with each
other as prescribed in Section 16(c) of the 1940 Act. For further organization
information, including certain shareholder rights, see Description of Shares in
the Statement of Additional Information.
The Portfolio is organized as a trust under the laws of the State of New York.
The Portfolio's Declaration of Trust provides that the Fund and other entities
investing in the Portfolio (e.g., other investment companies, insurance company
separate accounts and common and commingled trust funds) will each be liable
for all obligations of the Portfolio. However, the risk of the Fund incurring
financial loss on account of such liability is limited to circumstances in
which both
11
<PAGE>
inadequate insurance existed and the Portfolio itself was unable to meet its
obligations. Accordingly, the Trustees of the Trust believe that neither the
Fund nor its shareholders will be adversely affected by reason of the Fund's
investing in the Portfolio.
TAXES
The following discussion of tax consequences is based on U.S. federal tax laws
in effect on the date of this Prospectus. These laws and regulations are sub-
ject to change by legislative or administrative action. Investors are urged to
consult their own tax advisors with respect to specific questions as to feder-
al, state or local taxes. See Taxes in the Statement of Additional Information.
Annual statements as to the current federal tax status of distributions, if ap-
plicable, are mailed to shareholders after the end of the taxable year for the
Fund.
The Trust intends that the Fund will qualify as a separate regulated investment
company under Subchapter M of the Code. For the Fund to qualify as a regulated
investment company, the Portfolio, in addition to other requirements, limits
its investments so that at the close of each quarter of its taxable year (a) no
more than 25% of its total assets are invested in the securities of any one is-
suer, except U.S. Government securities, and (b) with regard to 50% to its to-
tal assets, no more than 5% of its total assets are invested in the securities
of a single issuer, except U.S. Government securities. As a regulated invest-
ment company, the Fund should not be subject to federal income taxes or federal
excise taxes if all of its net investment income and capital gains less any
available capital loss carryforwards are distributed to shareholders within al-
lowable time limits. The Portfolio intends to qualify as an association treated
as a partnership for federal income tax purposes. As such, the Portfolio should
not be subject to tax. The Fund's status as a regulated investment company is
dependent on, among other things, the Portfolio's continued qualification as a
partnership for federal income tax
purposes.
If a correct and certified taxpayer identification number is not on file, the
Fund is required, subject to certainexemptions, to withhold 31% of certain pay-
ments made or distributions declared to non-corporate shareholders.
Distributions of net investment income and realized net short-term capital
gains in excess of net long-term capital losses are taxable as ordinary income
to shareholders of the Fund whether such distributions are taken in cash or re-
invested in additional shares. Distributions of this type to corporate share-
holders of the Fund are not eligible for the dividends-received deduction. Dis-
tributions of net long-term capital gains in excess of net short-term capital
losses are taxable to shareholders of the Fund as long-term capital gains re-
gardless of how long a shareholder has held shares in the Fund and regardless
of whether taken in cash or reinvested in additional shares. Long-term capital
gains distributions to corporate shareholders are not eligible for the divi-
dends-received deduction. The Fund does not expect to realize long-term capital
gains and thus does not contemplate paying distributions taxable to sharehold-
ers who are subject to tax as long-term capital gains.
Any gain or loss realized on the redemption or exchange of Fund shares by a
shareholder who is not a dealer in securities will be treated as long-term cap-
ital gain or loss if the shares have been held for more than one year, and oth-
erwise as short-term capital gain or loss. However, any loss realized by a
shareholder upon the redemption or exchange of shares in the Fund held for six
months or less will be treated as a long-term capital loss to the extent of any
long-term capital gain distributions received by the shareholder with respect
to such shares.
Shareholders should consult their tax advisors to assess the consequences of
investing in the Fund under state and local laws. Interest income derived from
Treasury Securities is generally not subject to state and local personal income
taxation. Most states allow a pass-through to the individual shareholders of
the Fund of the tax-exempt character of this income, subject to certain re-
strictions, for purposes of those states' personal income taxes. In addition,
no loss will be allowed on the redemption or exchange of shares of the Fund if,
within a period beginning 30 days before the date of such redemption or ex-
change and ending 30 days after such date, the shareholder acquires (such as
through dividend reinvestment) securities that are substantially identical to
shares of the Fund.
12
<PAGE>
ADDITIONAL INFORMATION
The Fund sends to its shareholders annual and semi-annual reports. The finan-
cial statements appearing in annual reports are audited by independent accoun-
tants. Shareholders also will be sent confirmations of each purchase and re-
demption and monthly statements, reflecting all other account activity, includ-
ing dividends and any distributions reinvested in additional shares or credited
as cash.
All shareholders are given the privilege to initiate transactions automatically
by telephone upon opening an account. However, investors should be aware that a
transaction authorized by telephone and reasonably believed to be genuine by
the Fund, Morgan, their Eligible Institution or the Distributor may subject the
investor to risk of loss if such instruction is subsequently found not to be
genuine. The Fund will employ reasonable procedures, including requiring in-
vestors to give their Personal Identification Number and tape recording of tel-
ephone instructions, to confirm that instructions communicated from investors
by telephone are genuine; if it does not, the Fund, the Shareholder Servicing
Agent or a shareholder's Eligible Institution may be liable for any losses due
to unauthorized or fraudulent instructions.
The Fund may make historical performance information available and may compare
its performance to other investments or relevant indexes, including data from
Lipper Analytical Services, Inc., the Donoghue averages, Micropal Inc., Morn-
ingstar Inc., Ibbotson Associates and other industry publications. The Fund may
advertise "yield" and "effective yield". Yield refers to the net income gener-
ated by an investment in the Fund over a stated seven-day period. This income
is then annualized -- i.e., the amount of income generated by the investment
during that week is assumed to be generated each week over a 52-week period and
is shown as a percentage of the investment. Effective yield is calculated simi-
larly to the yield, but, when annualized, the income earned by an investment in
the Fund is assumed to be reinvested; the effective yield will be slightly
higher than the yield because of the compounding effect of this assumed rein-
vestment.
The Fund may advertise "total return" and non-standardized total return data.
The total return shows what an investment in the Fund would have earned over a
specified period of time (one, five or ten years or since commencement of oper-
ations, if less) assuming that all distributions and dividends by the Fund were
reinvested on the reinvestment dates during the period and less all recurring
fees. These methods of calculating yield and total return are required by regu-
lations of the Securities and Exchange Commission. Yield and total return data
similarly calculated, unless otherwise indicated, over other specified periods
of time may also be used. See Performance Data in the Statement of Additional
Information. All performance figures are based on historical earnings and are
not intended to indicate future performance. Shareholders may obtain perfor-
mance information by calling Morgan at (800) 766-7722.
13
<PAGE>
---------------------------------------
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 offer in such jurisdiction.
PROS365-975
The
JPM Institutional
Treasury Money Market Fund
PROSPECTUS
May 30, 1997
<PAGE>
THE JPM INSTITUTIONAL FUNDS
THE JPM INSTITUTIONAL TREASURY MONEY MARKET FUND
STATEMENT OF ADDITIONAL INFORMATION
MAY 30, 1997
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT CONTAINS
ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS
DATE MAY 30, 1997 FOR THE FUND, AS SUPPLEMENTED FROM TIME TO TIME, WHICH MAY BE
OBTAINED UPON REQUEST FROM FUNDS DISTRIBUTOR, INC., ATTENTION:
THE JPM INSTITUTIONAL FUNDS; (800) 221-7930.
<PAGE>
Table of Contents
PAGE
General................................................................ 1
Investment Objective and Policies.........................................1
Investment Restrictions...................................................3
Trustees and Officers.....................................................5
Investment Advisor........................................................8
Distributor...............................................................10
Co-Administrator..........................................................10
Services Agent............................................................11
Custodian and Transfer Agent..............................................11
Shareholder Servicing.....................................................11
Independent Accountants...................................................12
Expenses..................................................................12
Purchase of Shares........................................................12
Redemption of Shares......................................................13
Exchange of Shares........................................................13
Dividends and Distributions...............................................13
Net Asset Value...........................................................14
Performance Data..........................................................14
Portfolio Transactions....................................................15
Massachusetts Trust.......................................................16
Description of Shares.....................................................17
Taxes.....................................................................18
Additional Information....................................................20
Appendix A - Description of Security Ratings..............................A-1
i:\dsfndlgl\institut\0497.pea\tmmsai
<PAGE>
GENERAL
This Statement of Additional Information relates only to The JPM
Institutional Treasury Money Market Fund (the "Fund" ). The Fund is a series of
shares of beneficial interest of The JPM 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 23 other series
representing separate investment funds (each a "JPM Institutional Fund"). The
other JPM Institutional Funds are covered by separate Statements of Additional
Information.
This Statement of Additional Information describes the 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 Prospectuses (the "Prospectus"). Capitalized terms not otherwise
defined herein have the meanings accorded to them in the Prospectus. The Fund's
executive offices are located at 60 State Street, Suite 1300, Boston,
Massachusetts 02109.
INVESTMENT OBJECTIVE AND POLICIES
The 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 Fund's investment objective
is to provide current income, maintain a high level of liquidity and preserve
capital. The 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 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 in this Statement of
Additional Information that have effective maturities of not more than 397 days.
See "Quality and Diversification Requirements."
MONEY MARKET INSTRUMENTS
As discussed in the Prospectus, the Fund may invest in money market
instruments to the extent consistent with its investment objective and policies.
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.
REPURCHASE AGREEMENTS. The Fund 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 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 only enter into repurchase agreements
involving U.S. Treasury securities. The Fund will always receive securities as
collateral whose market value is, and during the entire term
i:\dsfndlgl\institut\0497.pea\tmmsai
-1-
<PAGE>
of the agreement remains, at least equal to 100% of the dollar amount invested
by the Fund in each agreement plus accrued interest, and the Fund will make
payment for such securities only upon physical delivery or upon evidence of book
entry transfer to the account of the Custodian. 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.
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.
INVESTMENT COMPANY SECURITIES. Securities of other investment companies
may be acquired by the Fund and the 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 (the 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 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. The 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 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
i:\dsfndlgl\institut\0497.pea\tmmsai
-2-
<PAGE>
$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 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.
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 is subject to the
following fundamental limitations: (1) the Fund may not invest more than 5% of
its total assets in the securities of any one issuer, except obligations of the
U.S. Government, its agencies and instrumentalities, and (2) the Fund may not
own more than 10% of the outstanding voting securities of any one issuer. As for
the other 25% of the Fund's assets not subject to the limitation described
above, there is no limitation on investment of these assets under the 1940 Act,
so that all of such assets may be invested in securities of any one issuer,
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.
In order to attain its objective of maintaining a stable net asset
value, the 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.
INVESTMENT RESTRICTIONS
The investment restrictions of the Fund and the 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.
i:\dsfndlgl\institut\0497.pea\tmmsai
-3-
<PAGE>
The FUND and the 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
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 Objective 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
- --------
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.
i:\dsfndlgl\institut\0497.pea\tmmsai
-4-
<PAGE>
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. The investment restriction
described below is not a fundamental policy of the Fund or its corresponding
Portfolio and may be changed by the 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 net assets
would be in investments that are illiquid.
Notwithstanding any other 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 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
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.
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.
i:\dsfndlgl\institut\0497.pea\tmmsai
-5-
<PAGE>
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 and 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, each of the Portfolios and The JPM
Pierpont 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 JPM
Pierpont Funds and JPM 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, 1996 is set forth below.
TOTAL TRUSTEE COMPENSATION
ACCRUED BY THE MASTER
AGGREGATE TRUSTEE PORTFOLIOS(*), THE JPM
COMPENSATION PIERPONT FUNDS, JPM SERIES
ACCRUED BY THE TRUST AND THE TRUST DURING
TRUST DURING 1996 1996 (***)
----------------- ----------
Frederick S. Addy, Trustee $12,593 $65,000
William G. Burns, Trustee $12,593 $65,000
Arthur C. Eschenlauer, Trustee $12,593 $65,000
Matthew Healey, Trustee(**), $12,593 $65,000
Chairman and Chief Executive
Officer
Michael P. Mallardi, Trustee $12,593 $65,000
(*) Includes the Portfolio and 22 other portfolios (collectively. the
"Master Portfolios") for which Morgan acts as investment advisor.
(**) During 1996, Pierpont Group, Inc. paid Mr. Healey, in his role as
Chairman of Pierpont Group, Inc., compensation in the amount of $140,000,
contributed $21,000 to a defined contribution plan on his behalf and paid
$21,500 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 JPM Pierpont Funds, the Trust
and JPM 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 each 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
i:\dsfndlgl\institut\0497.pea\tmmsai
-6-
<PAGE>
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.
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 1992. 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 and
Chief Executive Officer and Director of FDI, Premier Mutual Fund Services, Inc.
("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. Supervisor of
Treasury Services and Administration of FDI and an officer of certain investment
companies advised or administered by Dreyfus or its affiliates. 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. Senior 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. 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, 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 September 1995, Ms. Keeley was enrolled at
Fordham University School of Law and received her JD in May 1995. Prior to
September 1992, Ms. Keeley was an assistant at the National Association for
Public Interest Law. Address: FDI, 200 Park Avenue, New York, New York 10166.
Her date of birth is September 14, 1969.
i:\dsfndlgl\institut\0497.pea\tmmsai
-7-
<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. Prior to September 1992, Mr. Kelley was enrolled at
Boston College Law School and received his JD in May 1992. 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, 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.
JOHN E. PELLETIER; Vice President and Secretary. Senior Vice President and
General 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. From February 1992 to April 1994, Mr. Pelletier
served as Counsel for TBCA. From August 1990 to February 1992, Mr. Pelletier was
employed as an Associate at Ropes & Gray. His date of birth is June 24, 1964.
MICHAEL S. PETRUCELLI; Vice President and Assistant Secretary. Senior Vice
President and Director of Strategic Client Initiatives for Funds Distributor,
Inc. 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. His date of birth is May
18, 1961.
JOSEPH F. TOWER III; Vice President and Assistant Treasurer. Senior Vice
President, Treasurer and Chief Financial Officer of FDI and Premier Mutual and
an officer of Waterhouse Investors Cash Management Fund, Inc. and certain
investment companies advised or administered by Dreyfus. 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 $208 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.
i:\dsfndlgl\institut\0497.pea\tmmsai
-8-
<PAGE>
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 Investment Advisory Agreement. The
Advisor is free to and does render similar investment advisory services to
others. The Advisor serves as investment advisor to personal investors and other
investment companies and acts as fiduciary for trusts, estates and employee
benefit plans. Certain of the assets of trusts and estates under management are
invested in common trust funds for which the Advisor serves as trustee. The
accounts which are managed or advised by the Advisor have varying investment
objectives and the Advisor invests assets of such accounts in investments
substantially similar to, or the same as, those which are expected to constitute
the principal investments of the 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 Treasury and Repo 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.
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 corresponding to the Fund has agreed to pay
the Advisor a fee, which is computed daily and may be paid monthly, equal to
0.20% of net assets up to $1 billion and 0.10% of net assets in excess of $1
billion of the Portfolio's average daily net assets.
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
i:\dsfndlgl\institut\0497.pea\tmmsai
-9-
<PAGE>
and custodian to such an investment company. The Advisor believes that it may
perform the services for the Portfolio contemplated by the Investment 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 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,
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 JPM Pierpont Funds, the Master
Portfolios, JPM Series Trust and JPM Series Trust II.
i:\dsfndlgl\institut\0497.pea\tmmsai
-10-
<PAGE>
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 the 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 their allocable share of an annual complex-wide
charge. This charge is calculated daily based on the aggregate net assets of the
Master Portfolios and the 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 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 JPM Pierpont Funds, the
Master Portfolios, the other investors in the Master Portfolios for which Morgan
provides similar services and JPM Series Trust.
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. 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 an Eligible Institution. Under this agreement, Morgan is responsible for
performing shareholder account administrative and servicing functions, which
includes but is 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 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. See "Expenses" in 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
i:\dsfndlgl\institut\0497.pea\tmmsai
-11-
<PAGE>
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.
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 each 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 its
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. For additional information
regarding waivers or expense subsidies, see "Management of the Trust and the
Portfolio" in the Prospectus.
PURCHASE OF SHARES
Investors may open Fund accounts and purchase shares as described in
the Prospectus under "Purchase of Shares." References in the Prospectus and this
Statement of Additional Information to customers of Morgan or an Eligible
Institution include customers of their affiliates and references to transactions
by customers with Morgan or an Eligible Institution 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 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. 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 an
Eligible Institution, and the Eligible Institution may charge the investor a fee
for this service and other services it provides to its customers.
i:\dsfndlgl\institut\0497.pea\tmmsai
-12-
<PAGE>
REDEMPTION OF SHARES
Investors may redeem shares as described in the Prospectus under
"Redemption of Shares." Shareholders redeeming shares of the Fund should be
aware that the Fund attempt 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" in the Prospectus and 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 Trust is in the
process of seeking exemptive relief from the SEC with respect to redemptions in
kind by the Fund. If the requested relief is granted, the Fund would then be
permitted to pay redemptions to greater than 5% shareholders in securities,
rather than in cash, to the extent permitted by the SEC and applicable law. The
method of valuing portfolio securities is described under "Net Asset Value," and
such valuation will be made as of the same time the redemption price is
determined. The Trust on behalf of the Fund has elected to be governed by Rule
18f-1 under the 1940 Act pursuant to which the Fund and the Portfolio are
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 JPM
Institutional Fund, JPM Pierpont Fund, or shares of JPM Series Trust, as
described under "Exchange of Shares" 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
under "Dividends and Distributions" 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."
i:\dsfndlgl\institut\0497.pea\tmmsai
-13-
<PAGE>
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.
NET ASSET VALUE
The Fund computes its net asset value once daily on Monday through
Friday as described under "Net Asset Value" in the Prospectus. The net asset
value will not be computed on the day the following legal holidays are observed:
New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor 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. 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 their 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 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 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. See "Additional
Information" in the Prospectus.
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. 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
i:\dsfndlgl\institut\0497.pea\tmmsai
-14-
<PAGE>
individuals and then added to the portion of the yield that is not attributable
to securities, the income of which was tax exempt.
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 its corresponding 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.
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 Fund. Current performance
information for the Fund may be obtained by calling the number provided on the
cover page of this Statement of Additional Information. See "Additional
Information" in the Prospectus.
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 Objective and Policies."
Fixed income securities are generally traded at a net price with
dealers acting as principal for their own accounts without a stated commission.
The price of the security usually includes profit to the dealers. In
underwritten offerings, securities are purchased at a fixed price which includes
an amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount. On occasion, certain securities may be
purchased directly from an issuer, in which case no commissions or discounts are
paid.
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."
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
turnovers. 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
i:\dsfndlgl\institut\0497.pea\tmmsai
-15-
<PAGE>
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 Master 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
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.
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 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.
i:\dsfndlgl\institut\0497.pea\tmmsai
-16-
<PAGE>
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 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 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
i:\dsfndlgl\institut\0497.pea\tmmsai
-17-
<PAGE>
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 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
"Redemption of Shares" in the Prospectus.
TAXES
The Fund intends 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.
i:\dsfndlgl\institut\0497.pea\tmmsai
-18-
<PAGE>
Distributions of net investment income and realized net short-term
capital gain in excess of net long-term capital loss are generally taxable to
shareholders of the Fund as ordinary income whether such distributions are taken
in cash or reinvested in additional shares. Distributions to corporate
shareholders of the Fund are not eligible for the dividends received 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. See "Taxes" in the Prospectus for a discussion of
the federal income tax treatment of any gain or loss realized on the redemption
or exchange of the Fund's shares. 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 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
i:\dsfndlgl\institut\0497.pea\tmmsai
-19-
<PAGE>
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 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.
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 Eligible Institutions 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
i:\dsfndlgl\institut\0497.pea\tmmsai
-20-
<PAGE>
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\0497.pea\tmmsai
-21-
<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.
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.
i:\dsfndlgl\institut\0497.pea\tmmsai
A-1
<PAGE>
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.
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.
i:\dsfndlgl\institut\0497.pea\tmmsai
A-2
