As filed with the Securities and Exchange Commission on October 28, 1998.
Registration Nos. 033-54642 and 811-07342
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 57
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 58
J.P. MORGAN INSTITUTIONAL FUNDS
(formerly The JPM Institutional Funds)
(Exact Name of Registrant as Specified in Charter)
60 State Street, Suite 1300, Boston, Massachusetts 02109
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code:
(617) 557-0700
Christopher Kelley, c/o Funds Distributor, Inc.
60 State Street, Suite 1300, Boston, Massachusetts 02109
(Name and Address of Agent for Service)
Copy to: John E. Baumgardner, Jr., Esq.
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
It is proposed that this filing will become effective (check appropriate box):
[ ] Immediately upon filing pursuant to paragraph (b)
[X] on (October 28, 1998) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii
[ ] on (date) pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
The Diversified Portfolio has also executed this registration statement.
<PAGE>
J.P. MORGAN INSTITUTIONAL FUNDS
(J.P. MORGAN INSTITUTIONAL DIVERSIFIED FUND)
CROSS-REFERENCE SHEET
(As Required by Rule 495)
PART A ITEM NUMBER: Prospectus Headings.
1. COVER PAGE: Cover Page.
2. SYNOPSIS: Introduction; Investor Expenses.
3. CONDENSED FINANCIAL INFORMATION: Financial Highlights.
4. GENERAL DESCRIPTION OF REGISTRANT: Goal; Investment Approach;
Risk/Return Summary; Model Allocation; Master/Feeder Structure; Risk
and Reward Elements.
5. MANAGEMENT OF THE FUND: Cover Page; J.P. Morgan; Portfolio Management;
Management and Administration.
5A. MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE: Performance.
6. CAPITAL STOCK AND OTHER SECURITIES: Investing Directly; Account and
Transaction Policies; Dividends and Distributions; Tax Considerations;
Master/Feeder Structure.
7. PURCHASE OF SECURITIES BEING OFFERED: Introduction; Investing Directly;
Opening your Account; Adding to your Account; Account and Transaction
Policies.
8. REDEMPTION OR REPURCHASE: Selling Shares; Account and Transaction
Policies.
9. PENDING LEGAL PROCEEDINGS: Not Applicable.
PART B ITEM NUMBER: Statement of Additional Information Headings.
10. COVER PAGE: Cover Page.
11. TABLE OF CONTENTS: Table of Contents.
12. GENERAL INFORMATION AND HISTORY: General.
13. INVESTMENT OBJECTIVE AND POLICIES: Investment Objective and Policies;
Additional Investments; Investment Restrictions; Quality and
Diversification Requirements; Appendix A.
14. MANAGEMENT OF THE FUND: Trustees and Officers.
15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES: Description of
Shares.
16. INVESTMENT ADVISORY AND OTHER SERVICES: Investment Advisor;
Distributor; Co-Administrator; Services Agent; Custodian and Transfer Agent;
Shareholder Servicing; Eligible Institutions; Independent Accountants; Expenses.
17. BROKERAGE ALLOCATION AND OTHER PRACTICES: Portfolio Transactions.
18. CAPITAL STOCK AND OTHER SECURITIES: Massachusetts Trust; Description of
Shares.
19. PURCHASE, REDEMPTION AND PRICING OF SECURITIES BEING OFFERED: Net Asset
Value; Purchase of Shares; Redemption of Shares; Exchange of Shares;
Dividends and Distributions.
20. TAX STATUS: Taxes.
21. UNDERWRITERS: Distributor.
22. CALCULATION OF PERFORMANCE DATA: Performance Data.
23. FINANCIAL STATEMENTS: Financial Statements.
<PAGE>
================================================================================
NOVEMBER 2, 1998 | PROSPECTUS
================================================================================
J.P. MORGAN INSTITUTIONAL
DIVERSIFIED FUND
=========================================
A balanced fund seeking high total return
with reduced risk
This prospectus contains essential information for anyone investing in the fund.
Please read it carefully and keep it for reference.
Shares in the fund are not bank deposits and are not guaranteed or insured by
any bank, government entity, or the FDIC.
As with all mutual funds, the fact that these shares are registered with the
Securities and Exchange Commission does not mean that the commission approves
them or guarantees that the information in this prospectus is
correct or adequate. It is a criminal offense for anyone to state or suggest
otherwise.
Distributed by Funds Distributor, Inc. JP Morgan
<PAGE>
CONTENTS
<TABLE>
=====================================================================================================
<S> <C> <C>
2 | J.P. MORGAN INSTITUTIONAL DIVERSIFIED FUND
The fund's goal, investment approach, Fund description .......................................... 2
risks, expenses, performance, and
financial highlights Investor expenses ......................................... 2
Performance ............................................... 3
Financial highlights ...................................... 3
4 | YOUR INVESTMENT
Investing in the J.P. Morgan Investing through a financial professional ................ 4
Institutional Diversified Fund
Investing through an employer-sponsored retirement plan ... 4
Investing through an IRA or Rollover IRA .................. 4
Investing directly ........................................ 4
Opening your account ...................................... 4
Adding to your account .................................... 4
Selling shares ............................................ 5
Account and transaction policies .......................... 5
Dividends and distributions ............................... 6
Tax considerations ........................................ 6
7 | FUND DETAILS
More about risk and the fund's Master/feeder structure ................................... 7
business operations
Management and administration ............................. 7
Risk and reward elements .................................. 8
Investments ...............................................10
FOR MORE INFORMATION...............................back cover
</TABLE>
<PAGE>
INTRODUCTION
================================================================================
J.P. MORGAN INSTITUTIONAL DIVERSIFIED FUND
This fund invests in a diversified portfolio of stocks and bonds by investing
through a master portfolio (another fund with the same goal). As a shareholder,
you should anticipate risks and rewards beyond those of a typical bond fund, but
less than those of most stock funds.
WHO MAY WANT TO INVEST
The fund is designed for investors who:
o are pursuing a long-term goal such as retirement
o want an investment with the potential to outpace inflation
o seek less risk than a fund investing completely in stocks
o prefer to leave asset allocation decisions in the hands of an
investment professional
It is not designed for investors who:
o are looking for the higher long-term potential growth (with the higher risks)
of a fund investing completely in stocks
o require regular income or stability of principal
o are pursuing a short-term goal or investing emergency reserves
J.P. MORGAN
Known for its commitment to proprietary research and its disciplined investment
strategies, J.P. Morgan is the asset management choice for many of the world's
most respected corporations, financial institutions, governments, and
individuals. Today, J.P. Morgan employs over 300 analysts and portfolio managers
around the world and has more than $275 billion in assets under management,
including assets managed by the fund's advisor, J.P. Morgan Investment
Management Inc.
=====================================
Before you invest
Investors considering the fund
should understand that:
o The value of the fund's shares
will fluctuate over time. You could
lose money if you sell when the
fund's share price is lower than
when you invested.
o There is no assurance that the
fund will meet its investment goal.
o Future returns will not necessarily
resemble past performance.
- -------------------------------------
<PAGE>
J.P. MORGAN INSTITUTIONAL
DIVERSIFIED FUND | TICKER SYMBOL: JPDVX
================================================================================
REGISTRANT NAME: J.P. MORGAN INSTITUTIONAL FUNDS
(J.P. MORGAN INSTITUTIONAL DIVERSIFIED FUND)
[GRAPHIC] GOAL
The fund seeks to provide a high total return from a diversified portfolio of
stocks and bonds. This goal can be changed without shareholder approval.
[GRAPHIC] INVESTMENT APPROACH
Drawing on a variety of analytical tools, the portfolio management team
allocates assets among various types of stock and bond investments, based on the
model allocation shown at right. The team periodically adjusts the fund's actual
asset allocation according to the relative attractiveness of each asset class.
Within this asset allocation framework, the team selects the fund's securities.
With the stock portion of the portfolio, the fund keeps its economic sector
weightings in line with the markets in which it invests, while actively seeking
the most attractive stocks within each sector. In choosing individual stocks,
the team ranks them according to their relative value using a proprietary model
that incorporates research from J.P. Morgan's worldwide network of analysts.
Foreign stocks are chosen using a similar process, while also considering
country allocation and currency exposure.
With the bond portion of the portfolio, the team uses fundamental, economic, and
capital markets research to select securities. The team actively manages the mix
of U.S. and foreign bonds while typically keeping duration - a common
measurement of sensitivity to interest rate movements - within one year of the
average for the U.S. investment-grade bond universe (currently about 5 years).
[GRAPHIC] RISK/RETURN SUMMARY
The value of your investment in the fund will fluctuate in response to movements
in the stock and bond markets. The fund's broad diversification among asset
classes and among individual stocks and bonds is more effective in reducing
volatility when asset classes perform differently. Fund performance will also
depend on the management team's asset allocation and securities selection.
Over the long term, investors can anticipate that the fund's total return and
volatility should exceed those of bonds but remain less than those of medium-
and large-capitalization domestic stocks.
The fund's securities are described in more detail on page 8, along with their
main risks, which may cause the fund's share price to decline, and the fund's
strategies to reduce these risks.
MODEL ALLOCATION
[PIE CHART]
52% medium- and large-cap U.S. stocks
35% U.S. and foreign bonds
10% foreign stocks
3% small-cap U.S. stocks
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages over $275
billion, including more than $14.8 billion using the same strategy as the fund.
The portfolio management team is led by John M. Devlin, Vice President, who
joined the team in December of 1993 and has been at J.P. Morgan since 1986, and
Kate Jonas, who recently joined the team and has been at J.P. Morgan since 1997.
Prior to working at J.P. Morgan, Ms. Jonas worked, since 1985, in investment
related areas at Morgan Stanley Asset Management and Morgan Stanley Co.
================================================================================
INVESTOR EXPENSES
The current expenses you should expect to pay as an investor in the fund are
shown at right. The fund has no sales, redemption, exchange, or account fees,
although some institutions may charge you a fee for shares you buy through them.
The annual fund expenses shown are deducted from fund assets prior to
performance calculations.
Footnotes for this section are shown on next page.
- -------------------------------------
Annual fund operating expenses/1/ (%)
- -------------------------------------
Management fees 0.55
Marketing (12b-1) fees none
Other expenses/2/
(after reimbursement) 0.10
=====================================
Total operating expenses/2/
(after reimbursement) 0.65
- -------------------------------------
Expense example
- --------------------------------------------------------------------------------
The example below uses the same assumptions as other fund prospectuses: $1,000
initial investment, 5% annual total return, expenses unchanged, all shares sold
at the end of each time period. The example is for comparison only; the fund's
actual return and expenses will be different.
- --------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($) 7 21 36 81
- --------------------------------------------
2 | J.P. MORGAN INSTITUTIONAL DIVERSIFIED FUND
<PAGE>
================================================================================
PERFORMANCE (unaudited)
================================
<TABLE>
<CAPTION>
Average annual total return (%) Shows performance over time, for periods ended December 31, 1997
================================-----------------------------------------------------------------
<S> <C> <C> <C>
Since
1 yr. 3 yrs. inception/3/
J.P. Morgan Institutional Diversified Fund (after expenses) 18.89 19.18 14.24
- -------------------------------------------------------------------------------------------------
Fund Benchmark/4/ (no expenses) 21.26 20.91 14.85
- -------------------------------------------------------------------------------------------------
S&P 500 Index/5/ (no expenses) 33.36 31.15 22.13
- -------------------------------------------------------------------------------------------------
================================
Year-by-year total return (%) Shows changes in returns by calendar year
================================-----------------------------------------------------------------
1993/3/ 1994 1995 1996 1997
J.P. Morgan Institutional Diversified Fund 1.76 0.93 26.84 13.68 18.89
Fund Benchmark/4/ 1.43 0.46 27.75 14.10 21.26
S&P 500 Index/5/ 2.32 1.32 37.58 22.96 33.36
- -------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
================================
Per-share data For fiscal periods ended June 30
================================-----------------------------------------------------------------
1994/3/ 1995 1996 1997 1998
Net asset value, beginning of period ($) 10.00 9.90 11.26 12.02 13.39
- --------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.18 0.31 0.40 0.37 0.39
Net realized and unrealized gain (loss)
on investment and foreign currency ($) (0.23) 1.37 1.42 1.96 1.89
==================================================================================================
Total from investment operations ($) (0.05) 1.68 1.82 2.33 2.28
- --------------------------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) (0.05) (0.26) (0.42) (0.36) (0.59)
Net realized gain ($) -- (0.06) (0.64) (0.60) (0.90)
==================================================================================================
Total distributions ($) (0.05) (0.32) (1.06) (0.96) (1.49)
- --------------------------------------------------------------------------------------------------
Net asset value, end of period ($) 9.90 11.26 12.02 13.39 14.18
- --------------------------------------------------------------------------------------------------
================================
Supplemental data
================================
Total return (%) (0.56)/6/ 17.36 16.91 20.72 18.42
- --------------------------------------------------------------------------------------------------
Net assets at end of period ($ thousands) 59,222 164,855 193,219 237,449 331,946
- --------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 0.65/7/ 0.65 0.65 0.65 0.65
- --------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets (%) 2.92/7/ 3.70 3.34 3.34 3.12
- --------------------------------------------------------------------------------------------------
Decrease reflected in expense ratio due to
expense reimbursement (%) 0.97/7/ 0.53 0.33 0.33 0.23
- --------------------------------------------------------------------------------------------------
</TABLE>
The Financial Highlights have been audited by PricewaterhouseCoopers LLP, the
fund's independent accountants.
/1/ The fund has a master/feeder structure as described on page 7. This table
shows the fund's expenses and its share of master portfolio expenses for the
past fiscal year, expressed as a percentage of the fund's average net assets
and reflecting reimbursement for ordinary expenses over 0.65%.
/2/ Without reimbursement, other expenses and total operating expenses would
have been 0.33% and 0.88% respectively. This reimbursement arrangement can
be changed or terminated at any time at the option of J.P. Morgan.
/3/ The fund commenced operations on 9/10/93. Except in the Financial
Highlights, returns reflect performance of the fund from 9/30/93 through
12/31/93.
/4/ A composite benchmark of unmanaged indices that corresponds to the fund's
model allocation and that consists of the S&P 500 (52%), Russell 2000 (3%),
Salomon Brothers Broad Investment Grade Bond (35%), and MSCI EAFE(10%)
indices.
/5/ The S&P 500 Index is an unmanaged index of U.S. stocks widely used as a
measure of overall stock market performance.
/6/ Not annualized.
/7/ Annualized.
J.P. MORGAN INSTITUTIONAL DIVERSIFIED FUND | 3
<PAGE>
YOUR INVESTMENT
================================================================================
For your convenience, the J.P. Morgan Institutional Funds offer several ways to
initiate and maintain fund investments.
INVESTING THROUGH A FINANCIAL PROFESSIONAL
If you work with a financial professional, either at J.P. Morgan or elsewhere,
he or she is prepared to handle your planning and transaction needs. Your
financial professional will be able to assist you in establishing your fund
account, executing transactions, and monitoring your investment. If your fund
investment is not held in the name of your financial professional and you prefer
to place a transaction order yourself, please use the instructions for investing
directly.
INVESTING THROUGH AN EMPLOYER-SPONSORED RETIREMENT PLAN
Your fund investments are handled through your plan. Refer to your plan
materials or contact your benefits office for information on buying, selling, or
exchanging fund shares.
INVESTING THROUGH AN IRA OR ROLLOVER IRA
Please contact a J.P. Morgan Retirement Services Specialist at 1-888-576-4472
for information on J.P. Morgan's comprehensive IRA services, including lower
minimum investments.
INVESTING DIRECTLY
Investors may establish accounts without the help of an intermediary by using
the instructions below and at right:
o Determine the amount you are investing. The minimum amount for initial
investments in the fund is $3,000,000 and for additional investments $25,000,
although these minimums may be less for some investors. For more information
on minimum investments, call 1-800-766-7722.
o Complete the application, indicating how much of your investment you want to
allocate to which fund(s). Please apply now for any account privileges you may
want to use in the future, in order to avoid the delays associated with adding
them later on.
o Mail in your application, making your initial investment as shown at right.
For answers to any questions, please speak with a J.P. Morgan Funds Services
Representative at 1-800-766-7722.
OPENING YOUR ACCOUNT
By wire
o Mail your completed application to the Shareholder Services Agent.
o Call the Shareholder Services Agent to obtain an account number and to place a
purchase order. Funds that are wired without a purchase order will be returned
uninvested.
o After placing your purchase order, instruct your bank to wire the amount of
your investment to:
Morgan Guaranty Trust Company of New York
Routing number: 021-000-238
Credit: J.P. Morgan Institutional Funds
Account number: 001-57-689
FFC: your account number, name of registered owner(s) and fund name
By check
o Make out a check for the investment amount payable to J.P. Morgan
Institutional Funds.
o Mail the check with your completed application to the Shareholder Services
Agent.
By exchange
o Call the Shareholder Services Agent for an exchange.
ADDING TO YOUR ACCOUNT
By wire
o Call the Shareholder Services Agent to place a purchase order. Funds that are
wired without a purchase order will be returned uninvested.
o Once you have placed your purchase order, instruct your bank to wire the
amount of your investment as described above.
By check
o Make out a check for the investment amount payable to J.P. Morgan
Institutional Funds.
o Mail the check with a completed investment slip to the Shareholder Services
Agent. If you do not have an investment slip, attach a note indicating your
account number and how much you wish to invest in which fund(s).
By exchange
o Call the Shareholder Services Agent for an exchange.
4 | YOUR INVESTMENT
<PAGE>
================================================================================
SELLING SHARES
By phone -- wire payment
o Call the Shareholder Services Agent to verify that the wire redemption
privilege is in place on your account. If it is not, a representative can help
you add it.
o Place your wire request. If you are transferring money to a non-Morgan
account, you will need to provide the representative with the personal
identification number (PIN) that was provided to you when you opened your fund
account.
By phone -- check payment
o Call the Shareholder Services Agent and place your request. Once your request
has been verified, a check for the net amount, payable to the registered
owner(s), will be mailed to the address of record. For checks payable to any
other party or mailed to any other address, please make your request in
writing (see below).
In writing
o Write a letter of instruction that includes the following information: The
name of the registered owner(s) of the account; the account number; the fund
name; the amount you want to sell; and the recipient's name and address or
wire information, if different from those of the account registration.
o Indicate whether you want the proceeds sent by check or by wire.
o Make sure the letter is signed by an authorized party. The Shareholder
Services Agent may require additional information, such as a signature
guarantee.
o Mail the letter to the Shareholder Services Agent.
By exchange
o Call the Shareholder Services Agent to effect an exchange.
ACCOUNT AND TRANSACTION POLICIES
Telephone orders The fund accepts telephone orders from all shareholders. To
guard against fraud, the fund requires shareholders to use a PIN and may record
telephone orders or take other reasonable precautions. However, if the fund does
take such steps to ensure the authenticity of an order, you may bear any loss if
the order later proves fraudulent.
Exchanges You may exchange shares in this fund for shares in any other J.P.
Morgan Institutional or J.P. Morgan mutual fund at no charge (subject to the
securities laws of your state). When making exchanges, it is important to
observe any applicable minimums. Keep in mind that for tax purposes an exchange
is considered a sale.
The fund may alter, limit, or suspend its exchange policy at any time.
Business hours and NAV calculations The fund's regular business days and hours
are the same as those of the New York Stock Exchange. The fund calculates its
net asset value per share (NAV) every business day as of the close of trading on
the NYSE (normally 4:00 p.m. eastern time). The fund's securities are typically
priced using market quotes or pricing services. When these methods are not
available or do not represent a security's value at the time of pricing, the
security is valued in accordance with the fund's fair valuation procedures.
Timing of orders Orders to buy or sell shares are executed at the next NAV
calculated after the order has been accepted. Orders are accepted until 4:00
p.m. eastern time every business day and are executed the same day, at that
day's NAV. The fund has the right to suspend redemption of shares and to
postpone payment of proceeds for up to seven days or as permitted by law.
================================================================================
Shareholder Services Agent
J.P. Morgan Funds Services
522 Fifth Avenue
New York, NY 10036
1-800-766-7722
Representatives are available 8:00 a.m.
to 5:00 p.m. eastern time on fund
business days.
YOUR INVESTMENT | 5
<PAGE>
================================================================================
Timing of settlements When you buy shares, you will become the owner of record
when the fund receives your payment, generally the day following execution. When
you sell shares, the proceeds are generally available the day following
execution and will be forwarded according to your instructions.
When you sell shares that you recently purchased by check, your order will be
executed at the next NAV but the proceeds will not be available until your check
clears. This may take up to 15 days.
Statements and reports The fund sends monthly account statements as well as
confirmations after each purchase or sale of shares (except reinvestments).
Every six months the fund sends out an annual or semi-annual report containing
information on the fund's holdings and a discussion of recent and anticipated
market conditions and fund performance.
Accounts with below-minimum balances If your account balance falls below the
minimum for 30 days as a result of selling shares (and not because of
performance), the fund reserves the right to request that you buy more shares or
close your account. If your account balance is still below the minimum 60 days
after notification, the fund reserves the right to close out your account and
send the proceeds to the address of record.
DIVIDENDS AND DISTRIBUTIONS
The fund typically pays income dividends four times a year (usually in March,
June, September, and December) and makes capital gains distributions, if any,
once a year (usually in September). These dividends and distributions consist of
most or all of the fund's net investment income and net realized capital gains.
Dividends and distributions are reinvested in additional fund shares.
Alternatively, you may instruct your financial professional or J.P. Morgan Funds
Services to have them sent to you by check, credited to a separate account, or
invested in another J.P. Morgan Institutional Fund.
TAX CONSIDERATIONS
In general, selling shares, exchanging shares, and receiving distributions
(whether reinvested or taken in cash) are all taxable events. These transactions
typically create the following tax liabilities for taxable accounts:
- --------------------------------------------------------------------------------
Transaction Tax status
- --------------------------------------------------------------------------------
Income dividends Ordinary income
- --------------------------------------------------------------------------------
Short-term capital gains Ordinary income
distributions
- --------------------------------------------------------------------------------
Long-term capital gains Capital gains
distributions
- --------------------------------------------------------------------------------
Sales or exchanges of shares Capital gains or losses
owned for more than one year
- --------------------------------------------------------------------------------
Sales or exchanges of shares Gains are treated as ordinary
owned for one year or less income; losses are subject
to special rules
- --------------------------------------------------------------------------------
Because long-term capital gains distributions are taxable as capital gains
regardless of how long you have owned your shares, you may want to avoid making
a substantial investment when the fund is about to declare a long-term capital
gains distribution.
Every January, the fund issues tax information on its distributions for the
previous year.
Any investor for whom the fund does not have a valid taxpayer identification
number will be subject to backup withholding for taxes.
The tax considerations described in this section do not apply to tax-deferred
accounts or other non-taxable entities.
Because each investor's tax circumstances are unique, please consult your tax
professional about your fund investment.
6 | YOUR INVESTMENT
<PAGE>
FUND DETAILS
================================================================================
MASTER/FEEDER STRUCTURE
As noted earlier, the fund is a "feeder" fund that invests in a master
portfolio. (Except where indicated, this prospectus uses the term "the fund" to
mean the feeder fund and its master portfolio taken together).
The master portfolio accepts investments from other feeder funds, and the
feeders bear the master portfolio's expenses in proportion to their assets.
However, each feeder can set its own transaction minimums, fund-specific
expenses and other conditions. This means that one feeder could offer access to
the same master portfolio on more attractive terms, or could experience better
performance, than another feeder. Information about other feeders is available
by calling 1-800-766-7722. Generally, when the master portfolio seeks a vote,
the fund will hold a shareholder meeting and cast its vote proportionately, as
instructed by its shareholders. Fund shareholders are entitled to one full or
fractional vote for each dollar or fraction of a dollar invested.
The fund and its master portfolio expect to maintain consistent goals, but if
they do not, the fund will withdraw from the master portfolio, receiving its
assets either in cash or securities. The fund's trustees would then consider
whether the fund should hire its own investment adviser, invest in a different
master portfolio, or take other action.
MANAGEMENT AND ADMINISTRATION
The fund and its master portfolio are governed by the same trustees. The
trustees are responsible for overseeing all business activities. The trustees
are assisted by Pierpont Group, Inc., which they own and operate on a cost
basis; costs are shared by all funds governed by these trustees. Funds
Distributor, Inc., as co-administrator, along with J.P. Morgan, provides fund
officers. J.P. Morgan, as co-administrator, oversees the fund's other service
providers.
J.P. Morgan, subject to the expense reimbursements described earlier in this
prospectus, receives the following fees for investment advisory and other
services:
- --------------------------------------------------------------------------------
Advisory services 0.55% of the master portfolio's
average net assets
- --------------------------------------------------------------------------------
Administrative services Master portfolio's and fund's pro-
(fee shared with Funds rata portions of 0.09% of the first
Distributor, Inc.) $7 billion in J.P. Morgan-advised
portfolios, plus 0.04% of average
net assets over $7 billion
- --------------------------------------------------------------------------------
Shareholder services 0.10% of the fund's average
net assets
J.P. Morgan may pay fees to certain firms and professionals for providing
recordkeeping or other services in connection with investments in the fund.
Year 2000 Fund operations and shareholders could be adversely affected if the
computer systems used by J.P. Morgan, the fund's other service providers and
other entities with computer systems linked to the fund do not properly process
and calculate January 1, 2000 and after date-related information. J.P. Morgan is
working to avoid these problems and to obtain assurances from other service
providers that they are taking similar steps. However, it is not certain that
these actions will be sufficient to prevent these date-related problems from
adversely impacting fund operations and shareholders. In addition, to the extent
that operations of issuers of securities held by the fund are impaired by date-
related problems or prices of securities decline as a result of real or
perceived date-related problems of issuers held by the fund or generally, the
net asset value of the fund will decline.
The Euro Effective January 1, 1999 the euro, a single multinational currency,
will replace the national currencies of certain countries in the Economic
Monetary Union (EMU).
J.P. Morgan has identified the following potential risks to the fund, after the
conversion: The risk that the valuation of assets is not properly converted from
the national currency to the euro; currency risk resulting from increased
volatility in exchange rates between EMU countries and non-participating
countries; the inability of any of the fund, its service providers and the
issuers of the fund's portfolio securities to make information technology
updates timely; and the potential unenforceability of contracts. There have been
recent laws and regulations designed to ensure the continuity of contracts,
however there is a risk that the valuation of contracts will be negatively
impacted after the conversion. J.P. Morgan is working to avoid these problems
and to obtain assurances from other service providers that they are taking
similar steps. However, it is not certain that these actions will be sufficient
to prevent problems associated with the conversion from adversely impacting fund
operations and shareholders.
FUND DETAILS | 7
<PAGE>
================================================================================
RISK AND REWARD ELEMENTS
This table discusses the main elements that make up the fund's overall risk and
reward characteristics (described on page 2). It also outlines the fund's
policies toward various securities, including those that are designed to help
the fund manage risk.
<TABLE>
<CAPTION>
====================================================================================================================================
Potential risks Potential rewards Policies to balance risk and reward
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Market conditions
o The fund's share price o Stocks and bonds have o Under normal circumstances the fund plans to remain fully invested,
and performance will generally outperformed with approximately 65% in stocks and 35% in bonds; stock investments
fluctuate in response to more stable investments may include U.S. and foreign common stocks, convertible securities,
stock and bond market (such as short-term bonds preferred stocks, trust or partnership interests, warrants, rights,
movements and cash equivalents) over and investment company securities; bond investments may include U.S.
the long term and foreign corporate and government bonds, and mortgage-backed and
o The value of the fund's asset-backed securities (securities representing an interest in, or
bonds (and potentially o A diversified, balanced secured by, a pool of mortgages or other assets such as receivables)
its convertible portfolio should mitigate
securities and stocks) the effects of wide market o The fund seeks to limit risk through diversification in a large
could fall when interest fluctuations, especially number of stocks, and to a lesser extent bonds (typically holding
rates rise; the longer a when stock and bond prices more than 1,000 stock and bond positions)
bond's duration and the move in different
lower its credit directions o The fund seeks to keep the average duration of its bond portfolio
quality, the more its within one year of that for the U.S. investment-grade bond universe
value typically falls o The fund's bonds could
rise in value when o The fund monitors interest rate trends, as well as geographic and
o The fund's mortgage- interest rates fall demographic information, related to mortgage-backed securities and
backed and asset-backed mortgage prepayments
securities could o Mortgage-backed and asset-
generate capital losses backed securities can o During severe market downturns, the fund has the option of investing
or periods of low yields offer attractive returns up to 100% of assets in investment-grade short-term securities
if they are paid off
substantially earlier or
later than anticipated
o Adverse market
conditions may from time
to time cause the fund
to take temporary
defensive positions that
are inconsistent with
its principal investment
strategies and may
hinder the fund from
achieving its investment
objective
- ------------------------------------------------------------------------------------------------------------------------------------
Management choices
o The fund could o The fund could outperform o J.P. Morgan focuses its active management on asset allocation and
underperform its its benchmark due to these securities selection, areas where it believes its research advantage
benchmark due to its same choices can enhance returns
asset allocation and
securities choices
- ------------------------------------------------------------------------------------------------------------------------------------
Credit quality
o The default of an issuer o Investment-grade bonds o At least 75% of the fund's bonds must be investment-grade (BBB/Baa
would leave the fund have a lower risk of or better, of which 65% must be A or better), and no more than 25%
with unpaid interest or default BB/Ba or B; the fund may include unrated bonds of equivalent quality
principal in these categories
o Junk bonds offer higher
o Junk bonds (those rated yields and higher o The fund does not buy bonds lower than B
BB/Ba or lower) have a potential gains
higher risk of default
- ------------------------------------------------------------------------------------------------------------------------------------
Foreign investments
o Currency exchange rate o Favorable exchange rate o The fund anticipates that total foreign investments will not exceed
movements could reduce movements could generate 30% of assets
gains or create losses gains or reduce losses
o The fund actively manages the currency exposure of its foreign stock
o The fund could lose o Foreign investments, which and bond investments relative to its benchmark, and may hedge a
money because of foreign represent a major portion portion of its foreign currency exposure into the U.S. dollar from
government actions, of the world's securities, time to time (see also "Derivatives")
political instability, offer attractive potential
or lack of adequate and performance and
accurate information opportunities for
diversification
</TABLE>
8 | FUND DETAILS
<PAGE>
================================================================================
<TABLE>
<CAPTION>
====================================================================================================================================
Potential risks Potential rewards Policies to balance risk and reward
- ------------------------------------------------------------------------------------------------------------------------------------
Derivatives
<S> <C> <C>
o Derivatives such as o Hedges that correlate o The fund uses derivatives, such as futures, options, swaps and
futures, options, swaps well with underlying forward foreign currency contracts, for hedging and for risk
and forward foreign positions can reduce or management (i.e., to adjust duration or to establish or adjust
currency contracts/1/that eliminate losses at low exposure to particular securities, markets or currencies); risk
are used for hedging the cost management may include management of the fund's exposure relative to
portfolio or specific its benchmark
securities may not fully o The fund could make
offset the underlying money and protect o The fund only establishes hedges that it expects will be highly
positions and this could against losses if correlated with underlying positions
result in losses to the management's analysis
fund that would not have proves correct o While the fund may use derivatives that incidentally involve
otherwise occurred leverage, it does not use them for the specific purpose of
o Derivatives that involve leveraging the portfolio
o Derivatives used for leverage could generate
risk management may not substantial gains at low
have the intended cost
effects and may result
in losses or missed
opportunities
o The counterparty to a
derivatives contract
could default
o Derivatives that involve
leverage could magnify
losses
o Certain types of
derivatives involve
costs to the fund which
can reduce returns
- ------------------------------------------------------------------------------------------------------------------------------------
Illiquid holdings
o The fund could have o These holdings may offer o The fund may not invest more than 15% of net assets in illiquid
difficulty valuing these more attractive yields holdings
holdings precisely or potential growth than
comparable widely traded o To maintain adequate liquidity to meet redemptions, the fund may
o The fund could be unable securities hold investment-grade short-term securities (including repurchase
to sell these holdings agreements) and, for temporary or extraordinary purposes, may borrow
at the time or price it from banks up to 33 1/3% of the value of its total assets
desires
- ------------------------------------------------------------------------------------------------------------------------------------
When-issued and delayed
delivery securities
o When the fund buys o The fund can take o The fund uses segregated accounts to offset leverage risk
securities before issue advantage of attractive
or for delayed delivery, transaction
it could be exposed to opportunities
leverage risk if it does
not use segregated
accounts
- ------------------------------------------------------------------------------------------------------------------------------------
Short-term trading
o Increased trading would o The fund could realize o The fund anticipates a portfolio turnover rate of approximately 150%
raise the fund's gains in a short period
brokerage and related of time o The fund generally avoids short-term trading, except to take
costs advantage of attractive or unexpected opportunities or to meet
o The fund could protect demands generated by shareholder activity
o Increased short-term against losses if a
capital gains stock is overvalued and
distributions would its value later falls
raise shareholders'
income tax liability
</TABLE>
/1/ A futures contract is an agreement to buy or sell a set quantity of an
underlying instrument at a future date, or to make or receive a cash payment
based on changes in the value of a securities index. An option is a right to
buy or sell a set quantity or an underlying instrument of a predetermined
price. A swap is a privately negotiated agreement to exchange one stream of
payments for another. A forward foreign currency contract is an obligation
to buy or sell a given currency on a future date and at a set price.
FUND DETAILS | 9
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
Investments
- --------------------------------------------------------------------------------
This table discusses the customary types of investments which can be held by the
fund. In each case the principal types of risk (along with their definitions)
are listed on the following page. This table reads across two pages.
- --------------------------------------------------------------------------------
Asset-backed securities Interests in a stream of payments from specific assets,
such as auto or credit card receivables.
- --------------------------------------------------------------------------------
Bank obligations Negotiable certificates of deposit, time deposits and bankers'
acceptances of domestic and foreign issuers.
- --------------------------------------------------------------------------------
Commercial paper Unsecured short term debt issued by domestic and foreign banks
or corporations. These securities are usually discounted and are rated by S&P or
Moody's.
- --------------------------------------------------------------------------------
Convertible securities Domestic and foreign debt securities that can be
converted into equity securities at a future time and price.
- --------------------------------------------------------------------------------
Corporate bonds Debt securities of domestic and foreign industrial, utility,
banking, and other financial institutions.
- --------------------------------------------------------------------------------
Mortgages (directly held) Domestic debt instruments which give the lender a
lien on property as security for the loan payment.
- --------------------------------------------------------------------------------
Mortgage-backed securities Domestic and foreign securities (such as Ginnie
Maes, Freddie Macs, Fannie Maes) which represent interests in pools of
mortgages, whereby the principal and interest paid every month is passed through
to the holder of the securities.
- --------------------------------------------------------------------------------
Mortgage dollar rolls The purchase of mortgage-backed securities with the
promise to purchase similar securities upon the maturity of the original
security. Segregated accounts are used to offset leverage risk.
- --------------------------------------------------------------------------------
Participation interests Interests that represents a share of bank debt or
similar securities or obligations.
- --------------------------------------------------------------------------------
Private placements Bonds or other investments that are sold directly to an
institutional investor.
- --------------------------------------------------------------------------------
REITs and other real-estate related instruments Securities of issuers that
invest in real estate or are secured by real estate.
- --------------------------------------------------------------------------------
Repurchase agreements Contracts whereby the seller of a security agrees to
repurchase the same security from the buyer on a particular date and at a
specific price.
- --------------------------------------------------------------------------------
Sovereign debt, Brady bonds, and debt of supranational organizations Dollar- or
non-dollar-denominated securities issued by foreign governments or supranational
organizations. Brady bonds are issued in connection with debt restructurings.
- --------------------------------------------------------------------------------
Swaps Contractual agreement whereby a party agrees to exchange periodic
payments with a counterparty. Segregated accounts are used to offset leverage
risk.
- --------------------------------------------------------------------------------
Tax exempt municipal securities Securities, generally issued as general
obligation and revenue bonds, whose interest is exempt from federal taxation and
state and/or local taxes in the state where the securities were issued.
- --------------------------------------------------------------------------------
U.S. government securities Debt instruments (Treasury bills, notes, and bonds)
guaranteed by the U.S. government for the timely payment of principal and
interest.
- --------------------------------------------------------------------------------
Zero coupon, pay-in-kind, and deferred payment securities Domestic and foreign
securities offering non-cash or delayed-cash payment. Their prices are typically
more volatile than those of some other debt instruments and involve certain
special tax considerations.
- --------------------------------------------------------------------------------
10 | FUND DETAILS
<PAGE>
================================================================================
. Permitted (and if applicable, percentage of net assets limitation)
o Permitted, but not typically used
<TABLE>
<CAPTION>
Diversified
Principal Types of Risk Fund/1/
- -----------------------------------------------------------------------------------------------
<S> <C>
credit, interest rate, market, prepayment .
- -----------------------------------------------------------------------------------------------
credit, currency, liquidity, political .
- -----------------------------------------------------------------------------------------------
credit, currency, interest rate, liquidity, market, political .
- -----------------------------------------------------------------------------------------------
credit, currency, interest rate, liquidity, market, political, valuation .
- -----------------------------------------------------------------------------------------------
credit, currency, interest rate, liquidity, market, political, valuation .
- -----------------------------------------------------------------------------------------------
credit, environmental, extension, interest rate, liquidity, market,
natural event, political, prepayment, valuation o
- -----------------------------------------------------------------------------------------------
credit, currency, extension, interest rate, leverage, market, political, prepayment .
- -----------------------------------------------------------------------------------------------
extension, interest rate, leverage, liquidity, market, prepayment . 33 1/3%
- -----------------------------------------------------------------------------------------------
credit, currency, extension, interest rate, liquidity, political, prepayment .
- -----------------------------------------------------------------------------------------------
credit, interest rate, liquidity, market, valuation .
- -----------------------------------------------------------------------------------------------
credit, interest rate, liquidity, market, natural event, prepayment, valuation .
- -----------------------------------------------------------------------------------------------
credit .
- -----------------------------------------------------------------------------------------------
credit, currency, interest rate, market, political .
- -----------------------------------------------------------------------------------------------
credit, currency, interest rate, leverage, market, political .
- -----------------------------------------------------------------------------------------------
credit, interest rate, market, natural event, political o
- -----------------------------------------------------------------------------------------------
interest rate .
- -----------------------------------------------------------------------------------------------
credit, currency, interest rate, liquidity, market, political, valuation .
- -----------------------------------------------------------------------------------------------
</TABLE>
/1/ Under normal circumstances, the fund expects to invest approximately 30% of
total assets in foreign securities.
Risk related to certain investments held by J.P. Morgan Institutional
Diversified Fund:
Credit risk The risk a financial obligation will not be met by the issuer of a
security or the counterparty to a contract, resulting in a loss to the
purchaser.
Currency risk The risk currency exchange rate fluctuations may reduce gains or
increase losses on foreign investments.
Environmental risk The risk that an owner or operator of real estate may be
liable for the costs associated with hazardous or toxic substances located on
the property.
Extension risk The risk a rise in interest rates will extend the life of a
mortgage-backed security to a date later than the anticipated prepayment date,
causing the value of the investment to fall.
Interest rate risk The risk a change in interest rates will adversely affect
the value of an investment. The value of fixed income securities generally
moves in the opposite direction of interest rates (decreases when interest rates
rise and increases when interest rates fall).
Leverage risk The risk of gains or losses disproportionately higher than the
amount invested.
Liquidity risk The risk the holder may not be able to sell the security at the
time or price it desires.
Market risk The risk that when the market as a whole declines, the value of a
specific investment will decline proportionately. This systematic risk is
common to all investments and the mutual funds that purchase them.
Natural event risk The risk a natural disaster, such as a hurricane or similar
event, will cause severe economic losses and default in payments by the issuer
of the security.
Political risk The risk governmental policies or other political actions will
negatively impact the value of the investment.
Prepayment risk The risk declining interest rates will result in unexpected
prepayments, causing the value of the investment to fall.
Valuation risk The risk the estimated value of a security does not match the
actual amount that can be realized if the security is sold.
FUND DETAILS | 11
<PAGE>
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12 |
<PAGE>
================================================================================
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| 13
<PAGE>
================================================================================
FOR MORE INFORMATION
================================================================================
For investors who want more information on the fund, the following documents are
available free upon request:
Annual/Semi-Annual Reports Contain financial statements, performance data,
information on portfolio holdings, and a written analysis of market conditions
and fund performance for the fund's most recently completed fiscal year or half-
year.
Statement of Additional Information (SAI) Provides a fuller technical and legal
description of the fund's policies, investment restrictions, and business
structure. This prospectus incorporates the SAI by reference.
Copies of the current versions of these documents, along with other information
about the fund, may be obtained by contacting:
J.P. Morgan Institutional Diversified Fund
J.P. Morgan Funds Services
522 Fifth Avenue
New York, NY 10036
Telephone: 1-800-766-7722
Hearing impaired: 1-888-468-4015
Email: [email protected]
Text-only versions of these documents and this prospectus are available, upon
payment of a duplicating fee, from the Public Reference Room of the Securities
and Exchange Commission in Washington, D.C. (1-800-SEC-0330) and may be viewed
on-screen or downloaded from the SEC's Internet site at http://www.sec.gov. The
fund's investment company and 1933 Act registration numbers are 811-07342 and
033-54642.
J.P. MORGAN INSTITUTIONAL FUNDS AND THE MORGAN TRADITION
The J.P. Morgan Institutional Funds combine a heritage of integrity and
financial leadership with comprehensive, sophisticated analysis and management
techniques. Drawing on J.P. Morgan's extensive experience and depth as an
investment manager, the J.P. Morgan Institutional Funds offer a broad array of
distinctive opportunities for mutual fund investors.
JP Morgan
================================================================================
J.P. Morgan Institutional Funds
Advisor Distributor
J.P. Morgan Investment Management Inc. Funds Distributor, Inc.
522 Fifth Avenue 60 State Street
New York, NY 10036 Boston, MA 02109
1-800-766-7722 1-800-221-7930
<PAGE>
J.P. MORGAN INSTITUTIONAL FUNDS
J.P. MORGAN INSTITUTIONAL DIVERSIFIED FUND
STATEMENT OF ADDITIONAL INFORMATION
NOVEMBER 2, 1998
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT CONTAINS
ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE FUND'S
PROSPECTUS DATED NOVEMBER 2, 1998, AS SUPPLEMENTED FROM TIME TO TIME.
ADDITIONALLY, THIS STATEMENT OF ADDITIONAL INFORMATION INCORPORATES BY REFERENCE
THE FINANCIAL STATEMENTS INCLUDED IN THE SHAREHOLDER REPORT RELATING TO THE
FUND. THE PROSPECTUS AND THE FINANCIAL STATEMENTS, INCLUDING THE AUDITOR'S
REPORT THEREON, ARE AVAILABLE, WITHOUT CHARGE UPON REQUEST FROM FUNDS
DISTRIBUTOR, INC., ATTENTION: J.P. MORGAN INSTITUTIONAL FUNDS (800) 221-7930.
<PAGE>
Table of Contents
Page
General................................. 1
Investment Objective and Policies...... 1
Investment Restrictions................. 26
Trustees and Officers................... 28
Investment Advisor...................... 32
Distributor............................. 34
Co-Administrator........................ 35
Services Agent.......................... 36
Custodian and Transfer Agent............ 37
Shareholder Servicing................... 37
Financial Professionals................. 38
Independent Accountants................. 39
Expenses................................ 39
Purchase of Shares...................... 39
Redemption of Shares.................... 40
Exchange of Shares...................... 41
Dividends and Distributions............. 41
Net Asset Value......................... 42
Performance Data........................ 42
Portfolio Transactions.................. 44
Massachusetts Trust..................... 46
Description of Shares................... 46
Special Information Concerning
Investment Structure.................... 48
Taxes................................... 50
Additional Information.................. 54
Financial Statements.................... 56
Appendix A - Description of Securities
Ratings................................. A-1
<PAGE>
GENERAL
This Statement of Additional Information relates only to J.P. Morgan
Institutional Diversified Fund (the "Fund"). The Fund is a series of shares of
beneficial interest of J.P. Morgan Institutional Funds, an open-end management
investment company organized as a Massachusetts business trust (the "Trust"). In
addition to the Fund, the Trust consists of other series representing separate
investment funds (each a "J.P. Morgan Institutional Fund"). The other J.P.
Morgan Institutional Funds are covered by separate Statements of Additional
Information.
This Statement of Additional Information describes the financial
history, investment objective and policies, management and operation of the Fund
and provides additional information with respect to the Fund and should be read
in conjunction with the Fund's current Prospectus (the "Prospectus").
Capitalized terms not otherwise defined herein have the meanings accorded to
them in the Prospectus. The Fund's executive offices are located at 60 State
Street, Suite 1300, Boston, Massachusetts 02109.
Unlike other mutual funds which directly acquire and manage their own
portfolio of securities, the Fund seeks to achieve its investment objective by
investing all of its investable assets in The Diversified 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." Accordingly, references
below to the Fund also include the Portfolio; similarly, references to the
Portfolio also include the Fund unless the context requires otherwise.
The Portfolio is advised by J.P. Morgan Investment Management Inc. ("JPMIM"
or the "Advisor").
Investments in the Fund are not deposits or obligations of, or
guaranteed or endorsed by, Morgan Guaranty Trust Company of New York,
("Morgan"), an affiliate of the Advisor, or any other bank. Shares of the Fund
are not federally insured by the Federal Deposit Insurance Corporation, the
Federal Reserve Board, or any other governmental agency. An investment in the
Fund is subject to risk that may cause the value of the investment to fluctuate,
and when the investment is redeemed, the value may be higher or lower than the
amount originally invested by the investor.
INVESTMENT OBJECTIVE AND POLICIES
The following discussion supplements the information regarding the
investment objective of the Fund and the policies to be employed to achieve this
objective by the Portfolio as set forth herein and in the Prospectus. Since the
investment characteristics and experiences of the Fund correspond directly with
those of the Portfolio, the discussion in this Statement of Additional
Information focuses on the investments and investment policies of the Portfolio.
Accordingly, references below to the Portfolio also include the Fund; similarly,
references to the Fund also include the Portfolio unless the context requires
otherwise.
The Fund is designed for investors who wish to invest for long term
objectives such as retirement and who seek to attain real appreciation in their
investments over the long term, but with somewhat less price fluctuation than a
portfolio consisting solely of equity securities. The Fund's investment
objective is to provide a high total return from a diversified portfolio of
equity and fixed income securities.
<PAGE>
The mix of equities and fixed income is based on the risk premium model
and the anticipation of changing economic trends. The risk premium is the
difference between JPMIM's forecast of the long-term return on stocks
(determined using JPMIM's proprietary dividend discount model) and the current
nominal yield on 30-year U.S. Treasury bonds. When the risk premium is high,
more assets are allocated to stocks. When the risk premium is low, more assets
are allocated to bonds. Within U.S. equities, the allocation between large cap
and small cap stocks is based on the relative dividend discount rate spread
between large and small cap. The equity portion of the Portfolio will be
invested primarily in large and medium sized U.S. companies with market
capitalizations above $1.5 billion, with the balance in small U.S. companies
primarily included in the Russell 2000 Index and in foreign issuers primarily in
developed countries. Within fixed income, the allocation among sectors is based
on JPMIM's analysis of their relative valuations.
Investment Process for the Portfolio's Equity Component
With respect to the equity portion of the Portfolio, JPMIM uses:
Fundamental research: JPMIM's team of domestic equity analysts includes
more than 20 members, each an industry specialist with an average of over ten
years of experience, follow 600 medium and large capitalization U.S. companies.
Their research goal is to forecast intermediate-term earnings and prospective
dividend growth rates for the most attractive companies among those researched.
Systematic valuation: The analysts' forecasts are converted into
comparable expected returns using a proprietary dividend discount model, which
calculates the intermediate-term earnings by comparing a company's current stock
price with the "fair value" price forecasted by the estimated intermediate-term
earnings power. Within each sector, companies are ranked according to their
relative value and grouped into quintiles: those with the highest expected
returns (Quintile 1) are deemed the most undervalued relative to their long-term
earnings power, while those with the lowest expected returns (Quintile 5) are
deemed the most overvalued.
Disciplined portfolio construction: A broadly diversified portfolio is
constructed using disciplined buy and sell rules. Purchases are allocated among
stocks in the first three quintiles. The stocks selected reflect the portfolio
manager's judgment concerning the soundness of the underlying forecasts, the
likelihood that a perceived misvaluation will be corrected within a reasonable
time frame, and the manager's estimate of the magnitude of the risks versus the
potential rewards. A stock that falls into the fourth and fifth quintiles
generally becomes a candidate for sale, either because its price has risen or
its fundamentals have deteriorated. The Portfolio's sector weightings are
matched to those of the S&P 500 Index, reflecting JPMIM's belief that its
research has the potential to add value at the individual stock level, but not
at the sector level. JPMIM also controls the Portfolio's exposure to style and
theme bets and maintains near-market security weightings in individual security
holdings. This process results in an investment portfolio containing 250-300
stocks.
Investment Process for the Portfolio's Fixed Income Component
Duration/yield curve management: JPMIM's duration decision begins with
an analysis of real yields, which its research indicates are generally a
reliable indicator of longer term interest rate trends. Other factors JPMIM
studies in regard to interest rates include economic growth and inflation,
<PAGE>
capital flows and monetary policy. Based on this analysis, JPMIM forms
a view of the most likely changes in the level and shape of the yield curve --
as well as the timing of those changes -- and sets the Portfolio's duration and
maturity structure accordingly. JPMIM typically limits the overall duration of
the Portfolio to a range between one year shorter and one year longer than that
of the Salomon Brothers Broad Investment Grade Bond Index. The maturities of the
individual fixed income securities in the Portfolio may vary widely, however.
Sector allocations: Sector allocations are driven by JPMIM's
fundamental and quantitative analysis of the relative valuation of a broad array
of fixed income sectors. Specifically, JPMIM utilizes market and credit analysis
to assess whether the current risk-adjusted yield spreads of various sectors are
likely to widen or narrow. JPMIM then overweights (underweights) those sectors
its analysis indicates offer the most (least) relative value, basing the speed
and magnitude of these shifts on valuation considerations.
Security selection: Securities are selected by the portfolio manager,
with substantial input from JPMIM's fixed income analysts and traders. Using
quantitative analysis as well as traditional valuation methods, JPMIM's applied
research analysts aim to optimize security selection within the bounds of the
Portfolio's investment objective. In addition, credit analysts -- supported by
JPMIM's equity analysts -- assess the creditworthiness of issuers and
counterparties. A dedicated trading desk contributes to security selection by
tracking new issuance, monitoring dealer inventories, and identifying
attractively priced bonds. The traders also handle all transactions for the
Portfolio.
Investment Process for the Portfolio's U.S. Small Company Component
Fundamental research: JPMIM's domestic equity analysts also
continuously monitor 300-500 small cap stocks with the aim of identifying
companies that exhibit superior financial strength and operating returns.
Meetings with management and on-site visits play a key role in shaping their
assessments. Because JPMIM's analysts follow both the larger and smaller
companies in their industries -- in essence, covering their industries from top
to bottom -- they are able to bring broad perspective to the research they do on
both.
See "Systematic Valuation" above.
Disciplined portfolio construction: A diversified portfolio is
constructed as for the equity component, but purchases are concentrated among
the stocks in the top two quintiles of the rankings. Once a stock falls into the
third quintile, it generally becomes a candidate for sale. The portfolio manager
seeks to hold sector weightings close to those of the Russell 2000 Index. Sector
neutrality is also seen as a way to help to protect the portfolio from
macroeconomic risks and--together with diversification--represents an important
element of JPMIM's investment strategy.
Investment Process for the Portfolio's International Equity Component
Country allocation: JPMIM's country allocation decision begins with a
forecast of equity risk premiums, which provide a valuation signal by measuring
the relative attractiveness of stocks versus bonds. Using a proprietary
approach, JPMIM calculates this risk premium for each of the nations in the
Portfolio's universe, determines the extent of its deviation -- if any -- from
its historical norm, and then ranks countries according to the
<PAGE>
size of those deviations. Countries with high (low) rankings are
overweighted (underweighted) in comparisons to the Morgan Stanley Capital
International Europe, Australia and Far East Index (EAFE) to reflect the
above-average (below-average) attractiveness of their stock markets. In
determining weightings, JPMIM analyzes a variety of qualitative factors as well
- -- including the liquidity, earnings momentum and interest rate climate of the
market at hand. These qualitative assessments can change the magnitude but not
the direction of the country allocations called for by the risk premium
forecast. JPMIM places limits on the total size of the Portfolio's country over-
and under-weightings relative to the EAFE Index.
Stock selection: JPMIM's more than 90 international equity analysts,
each an industry and country specialist, forecast normalized earnings and
dividend payouts for roughly 1,200 non-U.S. companies -- taking a long-term
perspective rather than the short time frame common to consensus estimates. The
comparable expected returns generated by the dividend discount model are used to
rank companies from most to least attractive by industry and country. A
diversified portfolio is constructed using disciplined buy and sell rules. The
portfolio manager's objective is to concentrate the purchases in the stocks
deemed most undervalued and to keep sector weightings close to those of the EAFE
Index. Once a stock falls into the bottom half of the rankings, it generally
becomes a candidate for sale. Where available, warrants and convertibles may be
purchased instead of common stock if they are deemed a more attractive means of
investing in an undervalued company.
Currency management: Currency is actively managed, in conjunction with
country and stock allocation, with the goal of protecting and possibly enhancing
return. JPMIM's currency decisions are supported by a proprietary tactical model
which forecasts currency movements based on an analysis of four fundamental
factors --trade balance trends, purchasing power parity, real short-term
interest differentials and real bond yields --plus a technical factor designed
to improve the timing of transactions. Combining the output of this model with a
subjective assessment of economic, political and market factors, JPMIM's
currency group recommends currency strategies that are implemented in
conjunction with the Portfolio's investment strategy.
Fixed Income Investments
The Portfolio may invest in a broad range of debt securities of
domestic and foreign corporate and government issuers. The corporate securities
in which the Portfolio may invest include debt securities of various types and
maturities, e.g., debentures, notes, mortgage securities, equipment trust
certificates and other collateralized securities and zero coupon securities.
Collateralized securities are backed by a pool of assets such as loans or
receivables which generate cash flow to cover the payments due on the
securities. Collateralized securities are subject to certain risks, including a
decline in the value of the collateral backing the security, failure of the
collateral to generate the anticipated cash flow or in certain cases more rapid
prepayment because of events affecting the collateral, such as accelerated
prepayment of mortgages or other loans backing these securities or destruction
of equipment subject to equipment trust certificates. In the event of any such
prepayment the Portfolio will be required to reinvest the proceeds of
prepayments at interest rates prevailing at the time of reinvestment, which may
be lower. In addition, the value of zero coupon securities which do not pay
interest is more volatile than that of interest bearing debt securities with the
same maturity.
<PAGE>
Corporate Bonds and Other Debt Securities
As discussed in the Prospectus the Portfolio may invest in bonds and
other debt securities of domestic and foreign issuers to the extent consistent
with its investment objective and policies. See "Quality and Diversification
Requirements." For information on short-term investments in these securities,
see "Money Market Instruments."
Mortgage-Backed Securities. The Portfolio may invest in mortgage-backed
securities. Each mortgage pool underlying mortgage-backed securities consists of
mortgage loans evidenced by promissory notes secured by first mortgages or first
deeds of trust or other similar security instruments creating a first lien on
owner occupied and non-owner occupied one-unit to four-unit residential
properties, multifamily (i.e., five or more) properties, agriculture properties,
commercial properties and mixed use properties. The investment characteristics
of adjustable and fixed rate mortgage-backed securities differ from those of
traditional fixed income securities. The major differences include the payment
of interest and principal on mortgage-backed securities on a more frequent
(usually monthly) schedule and the possibility that principal may be prepaid at
any time due to prepayments on the underlying mortgage loans or other assets.
These differences can result in significantly greater price and yield volatility
than is the case with traditional fixed income securities. As a result, a faster
than expected prepayment rate will reduce both the market value and the yield to
maturity from those which were anticipated. A prepayment rate that is slower
than expected will have the opposite effect of increasing yield to maturity and
market value.
Government Guaranteed Mortgage-Backed Securities. Government National
Mortgage Association mortgage-backed certificates ("Ginnie Maes") are supported
by the full faith and credit of the United States. Certain other U.S. Government
securities, issued or guaranteed by federal agencies or government sponsored
enterprises, are not supported by the full faith and credit of the United
States, but may be supported by the right of the issuer to borrow from the U.S.
Treasury. These securities include obligations of instrumentalities such as the
Federal Home Loan Mortgage Corporation ("Freddie Macs") and the Federal National
Mortgage Association ("Fannie Maes"). No assurance can be given that the U.S.
Government will provide financial support to these federal agencies,
authorities, instrumentalities and government sponsored enterprises in the
future.
There are several types of guaranteed mortgage-backed securities
currently available, including guaranteed mortgage pass-through certificates and
multiple class securities, which include guaranteed real estate mortgage
investment conduit certificates ("REMIC Certificates"), other collateralized
mortgage obligations ("CMOs") and stripped mortgage-backed securities.
Mortgage pass-through securities are fixed or adjustable rate
mortgage-backed securities which provide for monthly payments that are a
"pass-through" of the monthly interest and principal payments (including any
prepayments) made by the individual borrowers on the pooled mortgage loans, net
of any fees or other amounts paid to any guarantor, administrator and/or
servicer of the underlying mortgage loans.
Multiple class securities include CMOs and REMIC Certificates issued by
U.S. Government agencies, instrumentalities (such as Fannie Mae) and sponsored
enterprises (such as Freddie Mac) or by trusts formed by private originators of,
or investors in, mortgage loans, including savings and loan associations,
<PAGE>
mortgage bankers, commercial banks, insurance companies, investment
banks and special purpose subsidiaries of the foregoing. In general, CMOs are
debt obligations of a legal entity that are collateralized by, and multiple
class mortgage-backed securities represent direct ownership interests in, a pool
of mortgage loans or mortgaged-backed securities and payments on which are used
to make payments on the CMOs or multiple class mortgage-backed securities.
CMOs and guaranteed REMIC Certificates issued by Fannie Mae and Freddie
Mac are types of multiple class mortgage-backed securities. Investors may
purchase beneficial interests in REMICs, which are known as "regular" interests
or "residual" interests. The Portfolio does not intend to purchase residual
interests in REMICs. The REMIC Certificates represent beneficial ownership
interests in a REMIC trust, generally consisting of mortgage loans or Fannie
Mae, Freddie Mac or Ginnie Mae guaranteed mortgage-backed securities (the
"Mortgage Assets"). The obligations of Fannie Mae and Freddie Mac under their
respective guaranty of the REMIC Certificates are obligations solely of Fannie
Mae and Freddie Mac, respectively.
CMOs and REMIC Certificates are issued in multiple classes. Each class
of CMOs or REMIC Certificates, often referred to as a "tranche," is issued at a
specific adjustable or fixed interest rate and must be fully retired no later
than its final distribution date. Principal prepayments on the assets underlying
the CMOs or REMIC Certificates may cause some or all of the classes of CMOs or
REMIC Certificates to be retired substantially earlier than their final
scheduled distribution dates. Generally, interest is paid or accrues on all
classes of CMOs or REMIC Certificates on a monthly basis.
Stripped Mortgage-Backed Securities. Stripped mortgage-backed
securities ("SMBS") are derivative multiclass mortgage securities, issued or
guaranteed by the U.S. Government, its agencies or instrumentalities or by
private issuers. Although the market for such securities is increasingly liquid,
privately issued SMBS may not be readily marketable and will be considered
illiquid for purposes of the Portfolio's limitation on investments in illiquid
securities. The Advisor may determine that SMBS which are U.S. Government
securities are liquid for purposes of the Portfolio's limitation on investments
in illiquid securities in accordance with procedures adopted by the Board of
Trustees. The market value of the class consisting entirely of principal
payments generally is unusually volatile in response to changes in interest
rates. The yields on a class of SMBS that receives all or most of the interest
from Mortgage Assets are generally higher than prevailing market yields on other
mortgage-backed securities because their cash flow patterns are more volatile
and there is a greater risk that the initial investment will not be fully
recouped.
Mortgages (directly held). The Fund may invest directly in mortgages.
Mortgages are debt instruments secured by real property. Unlike mortgage-backed
securities, which generally represent an interest in a pool of mortgages, direct
investments in mortgages involve prepayment and credit risks of an individual
issuer and real property. Consequently, these investments require different
investment and credit analysis by the Advisor.
The directly placed mortgages in which the Fund invests may include
residential mortgages, multifamily mortgages, mortgages on cooperative apartment
buildings, commercial mortgages, and sale-leasebacks. These investments are
backed by assets such as office buildings, shopping centers, retail stores,
warehouses, apartment buildings and single-family dwellings. In the event that
the Fund forecloses on any non-performing mortgage, and acquires a direct
interest in the real property, the Fund will be subject to the risks generally
associated with the ownership of real property. There may
<PAGE>
be fluctuations in the market value of the foreclosed property and its
occupancy rates, rent schedules and operating expenses. There may also be
adverse changes in local, regional or general economic conditions, deterioration
of the real estate market and the financial circumstances of tenants and
sellers, unfavorable changes in zoning, building environmental and other laws,
increased real property taxes, rising interest rates, reduced availability and
increased cost of mortgage borrowings, the need for unanticipated renovations,
unexpected increases in the cost of energy, environmental factors, acts of God
and other factors which are beyond the control of the Fund or the Advisor.
Hazardous or toxic substances may be present on, at or under the mortgaged
property and adversely affect the value of the property. In addition, the owners
of property containing such substances may be held responsible, under various
laws, for containing, monitoring, removing or cleaning up such substances. The
presence of such substances may also provide a basis for other claims by third
parties. Costs of clean-up or of liabilities to third parties may exceed the
value of the property. In addition, these risks may be uninsurable. In light of
these and similar risks, it may be impossible to dispose profitably of
properties in foreclosure.
Zero Coupon, Pay-in-Kind and Deferred Payment Securities. Zero coupon
securities are securities that are sold at a discount to par value and on which
interest payments are not made during the life of the security. Upon maturity,
the holder is entitled to receive the par value of the security. Pay-in-kind
securities are securities that have interest payable by delivery of additional
securities. Upon maturity, the holder is entitled to receive the aggregate par
value of the securities. The Portfolio accrues income with respect to zero
coupon and pay-in-kind securities prior to the receipt of cash payments.
Deferred payment securities are securities that remain zero coupon securities
until a predetermined date, at which time the stated coupon rate becomes
effective and interest becomes payable at regular intervals. While interest
payments are not made on such securities, holders of such securities are deemed
to have received "phantom income." Because the Portfolio will distribute
"phantom income" to shareholders, to the extent that shareholders elect to
receive dividends in cash rather than reinvesting such dividends in additional
shares, the Portfolio will have fewer assets with which to purchase income
producing securities.
Asset-Backed Securities. Asset-backed securities directly or indirectly
represent a participation interest in, or are secured by and payable from, a
stream of payments generated by particular assets such as motor vehicle or
credit card receivables or other asset-backed securities collateralized by such
assets. Payments of principal and interest may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution unaffiliated with the entities issuing the securities. The
asset-backed securities in which the Portfolio may invest are subject to the
Portfolio's overall credit requirements. However, asset-backed securities, in
general, are subject to certain risks. Most of these risks are related to
limited interests in applicable collateral. For example, credit card debt
receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of which
give such debtors the right to set off certain amounts on credit card debt
thereby reducing the balance due. Additionally, if the letter of credit is
exhausted, holders of asset-backed securities may also experience delays in
payments or losses if the full amounts due on underlying sales contracts are not
realized. Because asset-backed securities are relatively new, the market
experience in these securities is limited and the market's ability to sustain
liquidity through all phases of the market cycle has not been tested.
<PAGE>
Money Market Instruments
The Portfolio may invest in money market instruments and other
short-term securities 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 Portfolio appears below. Also see "Quality and
Diversification Requirements."
U.S. Treasury Securities. The Portfolio may invest in direct obligations of
the U.S. Treasury, including Treasury bills, notes and bonds, all of which are
backed as to principal and interest payments by the full faith and credit of the
United States.
Additional U.S. Government Obligations. The Portfolio may invest in
obligations issued or guaranteed by U.S. Government agencies or
instrumentalities. These obligations may or may not be backed by the "full faith
and credit" of the United States. Securities which are backed by the full faith
and credit of the United States include obligations of the Government National
Mortgage Association, the Farmers Home Administration, and the Export-Import
Bank. In the case of securities not backed by the full faith and credit of the
United States, the Portfolio must look principally to the federal agency issuing
or guaranteeing the obligation for ultimate repayment and may not be able to
assert a claim against the United States itself in the event the agency or
instrumentality does not meet its commitments. Securities in which the Portfolio
may invest that are not backed by the full faith and credit of the United States
include, but are not limited to: (i) obligations of the Tennessee Valley
Authority, the Federal Home Loan Mortgage Corporation, the Federal Home Loan
Banks and the U.S. Postal Service, each of which has the right to borrow from
the U.S. Treasury to meet its obligations; (ii) securities issued by the Federal
National Mortgage Association, which are supported by the discretionary
authority of the U.S. Government to purchase the agency's obligations; and (iii)
obligations of the Federal Farm Credit System and the Student Loan Marketing
Association, each of whose obligations may be satisfied only by the individual
credits of the issuing agency.
Foreign Government Obligations. The Portfolio, subject to its applicable
investment policies, may also invest in short-term obligations of foreign
sovereign governments or of their agencies, instrumentalities, authorities or
political subdivisions. These securities may be denominated in the U.S. dollar
or in another currency. See "Foreign Investments."
Bank Obligations. The Portfolio may invest in negotiable certificates
of deposit, time deposits and bankers' acceptances of (i) banks, savings and
loan associations and savings banks which have more than $2 billion in total
assets and are organized under the laws of the United States or any state, (ii)
foreign branches of these banks or of foreign banks of equivalent size (Euros)
and (iii) U.S. branches of foreign banks of equivalent size (Yankees). See
"Foreign Investments." The Portfolio will not invest in obligations for which
the Advisor, or any of its affiliated persons, is the ultimate obligor or
accepting bank. The Portfolio may also invest in obligations of international
banking institutions designated or supported by national governments to promote
economic reconstruction, development or trade between nations (e.g., the
European Investment Bank, the Inter-American Development Bank, or the World
Bank).
Commercial Paper. The Portfolio may invest in commercial paper, including
master demand obligations. Master demand obligations are
<PAGE>
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 acting as agent, for no
additional fee. The monies loaned to the borrower come from accounts managed
Morgan or its affiliates, pursuant to arrangements with such accounts. Interest
and principal payments are credited to such accounts. Morgan has the right to
increase or decrease the amount provided to the borrower under an obligation.
The borrower has the right to pay without penalty all or any part of the
principal amount then outstanding on an obligation together with interest to the
date of payment. Since these obligations typically provide that the interest
rate is tied to the Federal Reserve commercial paper composite rate, the rate on
master demand obligations is subject to change. Repayment of a master demand
obligation to participating accounts depends on the ability of the borrower to
pay the accrued interest and principal of the obligation on demand which is
continuously monitored by Morgan. Since master demand obligations typically are
not rated by credit rating agencies, the Portfolio 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 Portfolio's quality
restrictions. See "Quality and Diversification Requirements." Although there is
no secondary market for master demand obligations, such obligations are
considered by the Portfolio to be liquid because they are payable upon demand.
The Portfolio does not have any specific percentage limitation on investments in
master demand obligations. It is possible that the issuer of a master demand
obligation could be a client of Morgan to whom Morgan, in its capacity as a
commercial bank, has made a loan.
Repurchase Agreements. The Portfolio may enter into repurchase
agreements with brokers, dealers or banks that meet the credit guidelines
approved by the Portfolio's Trustees. In a repurchase agreement, the Portfolio
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 Portfolio 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
Portfolio to the seller. The period of these repurchase agreements will usually
be short, from overnight to one week, and at no time will the Portfolio invest
in repurchase agreements for more than thirteen months. The securities which are
subject to repurchase agreements, however, may have maturity dates in excess of
thirteen months from the effective date of the repurchase agreement. The
Portfolio 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 Portfolio in each agreement plus accrued
interest, and the Portfolio will make payment for such securities only upon
physical delivery or upon evidence of book entry transfer to the account of its
custodian. If the seller defaults, the Portfolio 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 Portfolio may be delayed or
limited.
The Portfolio may make investments in other debt securities with
remaining effective maturities of not more than thirteen months, including
without limitation corporate and foreign bonds, asset-backed securities and
other obligations described herein.
<PAGE>
Corporate Fixed Income Securities. The Portfolio may invest in publicly
and privately issued debt obligations of U.S. and non-U.S. corporations,
including obligations of industrial, utility, banking and other financial
issuers. These securities are subject to the risk of an issuer's inability to
meet principal and interest payments on the obligation and may also be subject
to price volatility due to such factors as market interest rates, market
perception of the creditworthiness of the issuer and general market liquidity.
Equity Investments
The Portfolio may invest in equity securities consisting of common
stock and other securities with equity characteristics comprised of preferred
stock, warrants, rights, convertible securities, trust certificates, limited
partnership interests and equity participations (collectively, "Equity
Securities"). The Equity Securities in which the Portfolio invests include those
listed on any domestic or foreign securities exchange or traded in the
over-the-counter (OTC) market as well as certain restricted or unlisted
securities.
Equity Securities. The Equity Securities in which the Portfolio may invest
may or may not pay dividends and may or may not carry voting rights. Common
stock occupies the most junior position in a company's capital structure.
The convertible securities in which the Portfolio may invest include
any debt securities or preferred stock which may be converted into common stock
or which carry the right to purchase common stock. Convertible securities
entitle the holder to exchange the securities for a specified number of shares
of common stock, usually of the same company, at specified prices within a
certain period of time.
The terms of any convertible security determine its ranking in a
company's capital structure. In the case of subordinated convertible debentures,
the holders' claims on assets and earnings are subordinated to the claims of
other creditors, and are senior to the claims of preferred and common
shareholders. In the case of convertible preferred stock, the holders' claims on
assets and earnings are subordinated to the claims of all creditors and are
senior to the claims of common shareholders.
Common Stock Warrants
The Portfolio may invest in common stock warrants that entitle the
holder to buy common stock from the issuer of the warrant at a specific price
(the strike price) for a specific period of time. The market price of warrants
may be substantially lower than the current market price of the underlying
common stock, yet warrants are subject to similar price fluctuations. As a
result, warrants may be more volatile investments than the underlying common
stock.
Warrants generally do not entitle the holder to dividends or voting
rights with respect to the underlying common stock and do not represent any
rights in the assets of the issuer company. A warrant will expire worthless if
it is not exercised on or prior to the expiration date.
<PAGE>
Foreign Investments
The Portfolio may invest in certain foreign securities. The
Portfolio does not expect to invest more than 30% of its total assets at the
time of purchase in securities of foreign issuers and in obligations of foreign
branches of domestic banks. The economies of individual foreign nations may
differ from the U.S. economy, whether favorably or unfavorably, in areas such as
growth of gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position; it may also be more
difficult to obtain and enforce a judgment against a foreign issuer. Any foreign
investments made by the Portfolio must be made in compliance with U.S. and
foreign currency restrictions and tax laws restricting the amounts and types of
foreign investments.
Foreign investments may be made directly in securities of foreign
issuers or in the form of American Depositary Receipts ("ADRs"), European
Depositary Receipts ("EDRs") and Global Depositary Receipts ("GDRs") or other
similar securities of foreign issuers. ADRs are securities, typically issued by
a U.S. financial institution (a "depositary"), that evidence ownership interests
in a security or a pool of securities issued by a foreign issuer and deposited
with the depositary. ADRs include American Depositary Shares and New York
Shares. EDRs are receipts issued by a European financial institution. GDRs,
which are sometimes referred to as Continental Depositary Receipts ("CDRs"), are
securities, typically issued by a non-U.S. financial institution, that evidence
ownership interests in a security or a pool of securities issued by either a
U.S. or foreign issuer. ADRs, EDRs, GDRs and CDRs may be available for
investment through "sponsored" or "unsponsored" facilities. A sponsored facility
is established jointly by the issuer of the security underlying the receipt and
a depositary, whereas an unsponsored facility may be established by a depositary
without participation by the issuer of the receipt's underlying security. An
unsponsored depositary may not provide the same shareholder information that a
sponsored depositary is required to provide under its contractual arrangements
with the issuer of the underlying foreign security. Generally, ADRs, in
registered form, are designed for use in the U.S. securities markets, and EDRs,
in bearer form, are designed for use in European securities markets.
Holders of an unsponsored depositary receipt generally bear all costs
of the unsponsored facility. The depositary of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited security or to pass through to the
holders of the receipts voting rights with respect to the deposited securities.
Investment in securities of foreign issuers and in obligations of
foreign branches of domestic banks involves somewhat different investment risks
from those affecting securities of U.S. domestic issuers. There may be limited
publicly available information with respect to foreign issuers, and foreign
issuers are not generally subject to uniform accounting, auditing and financial
standards and requirements comparable to those applicable to domestic companies.
Dividends and interest paid by foreign issuers may be subject to withholding and
other foreign taxes which may decrease the net return on foreign investments as
compared to dividends and interest paid to the Portfolio by domestic companies.
Investors should realize that the value of the Portfolio's investments
in foreign securities may be adversely affected by changes in political or
social conditions, diplomatic relations, confiscatory taxation, expropriation,
<PAGE>
nationalization, limitation on the removal of funds or assets, or
imposition of (or change in) exchange control or tax regulations in those
foreign countries. In addition, changes in government administration or economic
or monetary policies in the United States or abroad could result in appreciation
or depreciation of portfolio securities and could favorably or unfavorably
affect the Portfolio's operations. Furthermore, the economies of individual
foreign nations may differ from the U.S. economy, whether favorably or
unfavorably, in areas such as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position; it may also be more difficult to obtain and enforce a
judgment against a foreign issuer. Any foreign investment 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.
In addition, while the volume of transactions effected on foreign
exchanges has increased in recent years, in most cases it remains appreciably
below that of domestic security exchanges. Accordingly, the Portfolio's foreign
investments may be less liquid and their prices may be more volatile than
comparable investments in securities of U.S. companies. Moreover, the settlement
periods for foreign securities, which are often longer than those for securities
of U.S. issuers, may affect portfolio liquidity. In addition, there is generally
less government supervision and regulation of securities exchanges, brokers and
issuers located in foreign countries than in the United States.
Since investments in foreign securities may involve foreign currencies,
the value of the Portfolio's assets as measured in U.S. dollars may be affected
favorably or unfavorably by changes in currency rates and in exchange control
regulations, including currency blockage. The Portfolio may enter into forward
commitments for the purchase or sale of foreign currencies in connection with
the settlement of foreign securities transactions or to manage the Portfolio's
currency exposure. See "Foreign Currency Exchange Transactions" below.
Foreign Currency Exchange Transactions.
Because the Portfolio may buy and sell securities and receive interest
and dividends in currencies other than the U.S. dollar, the Portfolio may enter
from time to time into foreign currency exchange transactions. The Portfolio
either enters into these transactions on a spot (i.e., cash) basis at the spot
rate prevailing in the foreign currency exchange market or uses forward
contracts to purchase or sell foreign currencies. The cost of the Portfolio's
spot currency exchange transactions is generally the difference between the bid
and offer spot rate of the currency being purchased or sold.
A forward foreign currency exchange contract is an obligation by the
Portfolio to purchase or sell a specific currency at a future date, which may be
any fixed number of days from the date of the contract. Forward foreign currency
exchange contracts establish an exchange rate at a future date. These contracts
are derivative instruments, as their value derives from the spot exchange rates
of the currencies underlying the contract. These contracts are entered into in
the interbank market directly between currency traders (usually large commercial
banks) and their customers. A forward foreign currency exchange contract
generally has no deposit requirement and is traded at a net price without
commission. Neither spot transactions nor forward foreign currency exchange
contracts eliminate fluctuations in the prices of the Portfolio's securities or
in foreign exchange rates, or prevent loss if the prices of these securities
should decline.
<PAGE>
The Portfolio may enter into forward foreign currency exchange
contracts to adjust its currency exposure relative to the EAFE Index, the
benchmark for its international equity investments. The Portfolio may enter into
foreign currency exchange transactions in an attempt to protect against changes
in foreign currency exchange rates between the trade and settlement dates of
specific securities transactions or anticipated securities transactions. The
Portfolio may also enter into forward contracts to hedge against a change in
foreign currency exchange rates that would cause a decline in the value of
existing investments denominated or principally traded in a foreign currency. To
do this, the Portfolio would enter into a forward contract to sell the foreign
currency in which the investment is denominated or principally traded in
exchange for U.S. dollars or in exchange for another foreign currency. The
Portfolio will only enter into forward contracts to sell a foreign currency for
another foreign currency if the Advisor expects the foreign currency purchased
to appreciate against the U.S.
dollar.
Although these transactions are intended to minimize the risk of loss
due to a decline in the value of the hedged currency, at the same time they
limit any potential gain that might be realized should the value of the hedged
currency increase. In addition, forward contracts that convert a foreign
currency into another foreign currency will cause the Portfolio to assume the
risk of fluctuations in the value of the currency purchased vis a vis the hedged
currency and the U.S. dollar. The precise matching of the forward contract
amounts and the value of the securities involved will not generally be possible
because the future value of such securities in foreign currencies will change as
a consequence of market movements in the value of such securities between the
date the forward contract is entered into and the date it matures. The
projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly uncertain.
Sovereign Fixed Income Securities. The Portfolio may invest in fixed
income securities issued or guaranteed by a foreign sovereign government or its
agencies, authorities or political subdivisions. Investment in sovereign fixed
income securities involves special risks not present in corporate fixed income
securities. The issuer of the sovereign debt or the governmental authorities
that control the repayment of the debt may be unable or unwilling to repay
principal or interest when due, and the Portfolio may have limited recourse in
the event of a default. During periods of economic uncertainty, the market
prices of sovereign debt, and the Portfolio's net asset value, may be more
volatile than prices of U.S. debt obligations. In the past, certain foreign
countries have encountered difficulties in servicing their debt obligations,
withheld payments of principal and interest and declared moratoria on the
payment of principal and interest on their sovereign debts.
A sovereign debtor's willingness or ability to repay principal and pay
interest in a timely manner may be affected by, among other factors, its cash
flow situation, the extent of its foreign currency reserves, the availability of
sufficient foreign exchange, the relative size of the debt service burden, the
sovereign debtor's policy toward international lenders and local political
constraints. Sovereign debtors may also be dependent on expected disbursements
from foreign governments, multilateral agencies and other entities to reduce
principal and interest arrearages on their debt. The failure of a sovereign
debtor to implement economic reforms, achieve specified levels of economic
performance or repay principal or interest when due may result in the
cancellation of third-party commitments to lend funds to the sovereign debtor,
which may further impair such debtor's ability or willingness to service its
debts.
<PAGE>
Obligations of Supranational Entities. The Portfolio may invest in
obligations of supranational entities designated or supported by governmental
entities to promote economic reconstruction or development and of international
banking institutions and related government agencies. Examples include the
International Bank for Reconstruction and Development (the "World Bank"), the
European Coal and Steel Community, the Asian Development Bank and the
Inter-American Development Bank. Each supranational entity's lending activities
are limited to a percentage of its total capital (including "callable capital"
contributed by its governmental members at the entity's call), reserves and net
income. There is no assurance that participating governments will be able or
willing to honor their commitments to make capital contributions to a
supranational entity.
Additional Investments
Convertible Securities. The Portfolio may invest in convertible
securities of domestic and foreign issuers. The convertible securities in which
the Portfolio may invest include any debt securities or preferred stock which
may be converted into common stock or which carry the right to purchase common
stock. Convertible securities entitle the holder to exchange the securities for
a specified number of shares of common stock, usually of the same company, at
specified prices within a certain period of time.
When-Issued and Delayed Delivery Securities. The Portfolio 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 Portfolio until settlement takes place. At the time
the Portfolio 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 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 Portfolio will maintain with its 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 Portfolio will meet
its obligations from maturities or sales of the securities held in the
segregated account and/or from cash flow. If the Portfolio 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. Also, a Fund may be disadvantaged if the other party
to the transaction defaults. 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 liabilities other than the
obligations created by when-issued commitments.
Investment Company Securities. Securities of other investment companies
may be acquired by the Portfolio to the extent permitted under the 1940 Act, or
any order pursuant thereto. These limits currently require that, as determined
immediately after a purchase is made, (i) not more than 5% of the value of the
Portfolio'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
<PAGE>
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 Portfolio. As a shareholder
of another investment company, the 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 Portfolio bears directly in connection with its own
operations. The Portfolio has applied for exemptive relief from the SEC to
permit the Portfolio to invest in affiliated investment companies. If the
requested relief is granted, the Portfolio would then be permitted to invest in
affiliated funds, subject to certain conditions specified in the applicable
order.
Reverse Repurchase Agreements. The Portfolio may enter into reverse
repurchase agreements. In a reverse repurchase agreement, the Portfolio sells a
security and agrees to repurchase the same security at a mutually agreed upon
date and price reflecting the interest rate effective for the term of the
agreement. For purposes of the 1940 Act a reverse repurchase agreement is also
considered as the borrowing of money by the Portfolio and, therefore, a form of
leverage. Leverage may cause any gains or losses for a Fund to be magnified. The
Portfolio will invest the proceeds of borrowings under reverse repurchase
agreements. In addition, the Portfolio 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 Portfolio
will not invest the proceeds of a reverse repurchase agreement for a period
which exceeds the duration of the reverse repurchase agreement. The Portfolio
will establish and maintain with its 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. See "Investment
Restrictions" for the Portfolio's limitations on reverse repurchase agreements
and bank borrowings.
Mortgage Dollar Roll Transactions. The Portfolio may engage in mortgage
dollar roll transactions with respect to mortgage securities issued by the
Government National Mortgage Association, the Federal National Mortgage
Association and the Federal Home Loan Mortgage Corporation. In a mortgage dollar
roll transaction, the Portfolio sells a mortgage backed security and
simultaneously agrees to repurchase a similar security on a specified future
date at an agreed upon price. During the roll period, the Portfolio will not be
entitled to receive any interest or principal paid on the securities sold. The
Portfolio is compensated for the lost interest on the securities sold by the
difference between the sales price and the lower price for the future repurchase
as well as by the interest earned on the reinvestment of the sales proceeds. The
Portfolio may also be compensated by receipt of a commitment fee. When the
Portfolio enters into a mortgage dollar roll transaction, liquid assets in an
amount sufficient to pay for the future repurchase are segregated with the
custodian. Mortgage dollar roll transactions are considered reverse repurchase
agreements for purposes of the Fund's investment restrictions.
Loans of Portfolio Securities. 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 income 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
<PAGE>
securities which occurs during the term of the loan inures to the
Portfolio and its investors. The Portfolio may pay reasonable finders' and
custodial 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 not will make any loans in
excess of one year. 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.
Illiquid Investments; Privately Placed and Certain Unregistered
Securities. The Portfolio may not acquire any illiquid holdings if, as a result
thereof, more than 15% of the Portfolio's net assets would be in illiquid
investments. Subject to this non-fundamental policy limitation, the Portfolio
may acquire investments that are illiquid or have limited liquidity, such as
private placements or investments that are not registered under the Securities
Act of 1933, as amended (the "1933 Act") and cannot be offered for public sale
in the United States without first being registered under the 1933 Act. An
illiquid investment is any investment that cannot be disposed of within seven
days in the normal course of business at approximately the amount at which it is
valued by the 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 liquidity.
The Portfolio may also purchase Rule 144A securities sold to
institutional investors without registration under the 1933 Act. These
securities may be determined to be liquid in accordance with guidelines
established by the Advisor and approved by the Trustees. The Trustees will
monitor the Advisor's implementation of these guidelines on a periodic basis.
As to illiquid investments, the Portfolio is subject to a risk that
should the Portfolio decide to sell them when a ready buyer is not available at
a price the Portfolio deems representative of their value, the value of the
Portfolio's net assets could be adversely affected. Where an illiquid holding
must be registered under the 1933 Act before it may be sold, the Portfolio 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
Portfolio may be permitted to sell a holding under an effective registration
statement. If, during such a period, adverse market conditions were to develop,
the Portfolio might obtain a less favorable price than prevailed when it decided
to sell.
Quality and Diversification Requirements
The Portfolio intends to meet the diversification requirements of the
1940 Act. Current 1940 Act diversification requirements require that with
respect to 75% of the assets of the Portfolio: (1) the Portfolio 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 Portfolio may not own more than 10% of the outstanding voting securities of
any one issuer. As for the other 25% of the Portfolio's assets not subject to
the limitation described above, there is no limitation on investment of these
assets under the 1940 Act, so that all of such assets may be invested in
securities of any one issuer. Investments not subject to the limitations
described above could involve an increased risk to the Portfolio 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.
<PAGE>
The Portfolio will comply with the diversification requirements imposed
by the Internal Revenue Code of 1986, as amended (the "Code"), for qualification
as a regulated investment company. See "Taxes".
Below Investment Grade Debt. Certain lower rated securities purchased
by the Portfolio, such as those rated Ba or B by Moody's Investors Service
("Moody's") or BB or B by Standard & Poor's Ratings Group (Standard & Poor's")
(commonly known as junk bonds), may be subject to certain risks with respect to
the issuing entity's ability to make scheduled payments of principal and
interest and to greater market fluctuations. While generally providing higher
coupons or interest rates than investments in higher quality securities, lower
quality fixed income securities involve greater risk of loss of principal and
income, including the possibility of default or bankruptcy of the issuers of
such securities, and have greater price volatility, especially during periods of
economic uncertainty or change. These lower quality fixed income securities tend
to be affected by economic changes and short-term corporate and industry
developments to a greater extent than higher quality securities, which react
primarily to fluctuations in the general level of interest rates. To the extent
that the Portfolio invests in such lower quality securities, the achievement of
its investment objective may be more dependent on the Advisor's own credit
analysis.
Lower quality fixed income securities are affected by the market's
perception of their credit quality, especially during times of adverse
publicity, and the outlook for economic growth. Economic downturns or an
increase in interest rates may cause a higher incidence of default by the
issuers of these securities, especially issuers that are highly leveraged. The
market for these lower quality fixed income securities is generally less liquid
than the market for investment grade fixed income securities. It may be more
difficult to sell these lower rated securities to meet redemption requests, to
respond to changes in the market, or to value accurately the Portfolio's
portfolio securities for purposes of determining the Fund's net asset value. See
Appendix A for more detailed information on these ratings.
The Portfolio may invest in convertible debt securities, for which
there are no specific quality requirements. The fixed income portion of the
Portfolio invests in a diversified portfolio of securities with the ratings
described in the Prospectus. These securities are considered "high grade",
"investment grade" and "below investment grade" as described in Appendix A. In
addition, at the time the Portfolio invests in any commercial paper, bank
obligation or repurchase agreement, the issuer must have outstanding debt rated
A or higher by Moody's or Standard & Poor's, the issuer's parent corporation, if
any, must have outstanding commercial paper rated Prime-1 by Moody's or A-1 by
Standard & Poor's, or if no such ratings are available, the investment must be
of comparable quality in the Advisor's opinion. At the time the Portfolio
invests in any other short-term debt securities, they must be rated A or higher
by Moody's or Standard & Poor's, or if unrated, the investment must be of
comparable quality in the Advisor's opinion.
In determining suitability of investment in a particular unrated
security, the Advisor takes into consideration asset and debt service coverage,
the purpose of the financing, history of the issuer, existence of other rated
securities of the issuer, and other relevant conditions, such as comparability
to other issuers.
<PAGE>
Options and Futures Transactions
The Portfolio may purchase and sell (a) exchange traded and
over-the-counter (OTC) put and call options on fixed income or equity
securities, indexes of fixed income or equity securities and futures contracts
on fixed income securities and indexes of fixed income or equity securities and
(b) futures contracts on fixed income securities and indexes of fixed income or
equity securities. Each of these instruments is a derivative instrument as its
value derives from the underlying asset or index.
The Portfolio may use futures contracts and options for hedging and
risk management purposes. The Portfolio may not use futures contracts and
options for speculation.
The Portfolio may utilize options and futures contracts to manage its
exposure to changing interest rates and/or security prices. Some options and
futures strategies, including selling futures contracts and buying puts, tend to
hedge the Portfolio's investments against price fluctuations. Other strategies,
including buying futures contracts, writing puts and calls, and buying calls,
tend to increase market exposure. Options and futures contracts may be combined
with each other or with forward contracts in order to adjust the risk and return
characteristics of the Portfolio's overall strategy in a manner deemed
appropriate to the Advisor and consistent with the Portfolio's objective and
policies. Because combined options positions involve multiple trades, they
result in higher transaction costs and may be more difficult to open and close
out.
The use of options and futures is a highly specialized activity which
involves investment strategies and risks different from those associated with
ordinary portfolio securities transactions, and there can be no guarantee that
their use will increase the Portfolio's return. While the use of these
instruments by the Portfolio may reduce certain risks associated with owning its
portfolio securities, these techniques themselves entail certain other risks. If
the Advisor applies a strategy at an inappropriate time or judges market
conditions or trends incorrectly, options and futures strategies may lower the
Portfolio's return. Certain strategies limit the Portfolio's possibilities to
realize gains as well as limiting its exposure to losses. The Portfolio could
also experience losses if the prices of its options and futures positions were
poorly correlated with its other investments, or if it could not close out its
positions because of an illiquid secondary market. In addition, the Portfolio
will incur transaction costs, including trading commissions and option premiums,
in connection with its futures and options transactions and these transactions
could significantly increase the Portfolio's turnover rate.
The Portfolio may purchase put and call options on securities, indexes
of securities and futures contracts, or purchase and sell futures contracts,
only if such options are written by other persons and if (i) the aggregate
premiums paid on all such options which are held at any time do not exceed 20%
of the Portfolio's net assets, and (ii) the aggregate margin deposits required
on all such futures or options thereon held at any time do not exceed 5% of the
Portfolio's total assets. In addition, the Portfolio will not purchase or sell
(write) futures contracts, options on futures contracts or commodity options for
risk management purposes if, as a result, the aggregate initial margin and
options premiums required to establish these positions exceed 5% of the net
asset value of the Portfolio.
<PAGE>
Options
Purchasing Put and Call Options. By purchasing a put option, the
Portfolio obtains the right (but not the obligation) to sell the instrument
underlying the option at a fixed strike price. In return for this right, the
Portfolio pays the current market price for the option (known as the option
premium). Options have various types of underlying instruments, including
specific securities, indexes of securities, indexes of securities prices, and
futures contracts. The Portfolio may terminate its position in a put option it
has purchased by allowing it to expire or by exercising the option. The
Portfolio may also close out a put option position by entering into an
offsetting transaction, if a liquid market exists. If the option is allowed to
expire, the Portfolio will lose the entire premium it paid. If the Portfolio
exercises a put option on a security, it will sell the instrument underlying the
option at the strike price. If the Portfolio exercises an option on an index,
settlement is in cash and does not involve the actual sale of securities. If an
option is American style, it may be exercised on any day up to its expiration
date. A European style option may be exercised only on its expiration date.
The buyer of a typical put option can expect to realize a gain if the
price of the underlying instrument falls substantially. However, if the price of
the instrument underlying the option does not fall enough to offset the cost of
purchasing the option, a put buyer can expect to suffer a loss (limited to the
amount of the premium paid, plus related transaction costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the instrument underlying the option at the option's
strike price. A call buyer typically attempts to participate in potential price
increases of the instrument underlying the option with risk limited to the cost
of the option if security prices fall. At the same time, the buyer can expect to
suffer a loss if security prices do not rise sufficiently to offset the cost of
the option.
Selling (Writing) Put and Call Options. When the Portfolio writes a put
option, it takes the opposite side of the transaction from the option's
purchaser. In return for receipt of the premium, the Portfolio assumes the
obligation to pay the strike price for the instrument underlying the option if
the other party to the option chooses to exercise it. The Portfolio may seek to
terminate its position in a put option it writes before exercise by purchasing
an offsetting option in the market at its current price. If the market is not
liquid for a put option the Portfolio has written, however, the Portfolio must
continue to be prepared to pay the strike price while the option is outstanding,
regardless of price changes, and must continue to post margin as discussed
below.
If the price of the underlying instrument rises, a put writer would
generally expect to profit, although its gain would be limited to the amount of
the premium it received. If security prices remain the same over time, it is
likely that the writer will also profit, because it should be able to close out
the option at a lower price. If security prices fall, the put writer would
expect to suffer a loss. This loss should be less than the loss from purchasing
and holding the underlying instrument directly, however, because the premium
received for writing the option should offset a portion of the decline.
<PAGE>
Writing a call option obligates the Portfolio to sell or deliver the
option's underlying instrument in return for the strike price upon exercise of
the option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium a call writer offsets part of the effect of a price decline. At the same
time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is greater,
a call writer gives up some ability to participate in security price increases.
The writer of an exchange traded put or call option on a security, an
index of securities or a futures contract is required to deposit cash or
securities or a letter of credit as margin and to make mark to market payments
of variation margin as the position becomes unprofitable.
Options on Indexes. The Fund may purchase or sell put and call options
on any securities index based on securities in which the Fund may invest.
Options on securities indexes are similar to options on securities, except that
the exercise of securities index options is settled by cash payment and does not
involve the actual purchase or sale of securities. In addition, these options
are designed to reflect price fluctuations in a group of securities or segment
of the securities market rather than price fluctuations in a single security.
The Fund, in purchasing or selling index options, is subject to the risk that
the value of its portfolio securities may not change as much as index because
the Fund's investments generally will not match the composition of an index.
For a number of reasons, a liquid market may not exist and thus the
Portfolio may not be able to close out an option position that it has previously
entered into. When the Portfolio purchases an OTC option, it will be relying on
its counterparty to perform its obligations, and the Portfolio may incur
additional losses if the counterparty is unable to perform.
Exchange Traded and OTC Options. All options purchased or sold by the
Portfolio will be traded on a securities exchange or will be purchased or sold
by securities dealers (OTC options) that meet creditworthiness standards
approved by the Portfolio's Board of Trustees. While exchange-traded options are
obligations of the Options Clearing Corporation, in the case of OTC options, the
Portfolio relies on the dealer from which it purchased the option to perform if
the option is exercised. Thus, when the Portfolio purchases an OTC option, it
relies on the dealer from which it purchased the option to make or take delivery
of the underlying securities. Failure by the dealer to do so would result in the
loss of the premium paid by the Portfolio as well as loss of the expected
benefit of the transaction.
Provided that the Portfolio has arrangements with certain qualified
dealers who agree that the Portfolio may repurchase any option it writes for a
maximum price to be calculated by a predetermined formula, the Portfolio may
treat the underlying securities used to cover written OTC options as liquid. In
these cases, the OTC option itself would only be considered illiquid to the
extent that the maximum repurchase price under the formula exceeds the intrinsic
value of the option.
<PAGE>
Futures Contracts
The Portfolio may purchase and sell futures contracts. When the
Portfolio purchases a futures contract, it agrees to purchase a specified
quantity of an underlying instrument at a specified future date or to make a
cash payment based on the value of a securities index. When the Portfolio sells
a futures contract, it agrees to sell a specified quantity of the underlying
instrument at a specified future date or to receive a cash payment based on the
value of a securities index. The price at which the purchase and sale will take
place is fixed when the Portfolio enters into the contract. Futures can be held
until their delivery dates or the position can be (and normally is) closed out
before then. There is no assurance, however, that a liquid market will exist
when the Portfolio wishes to close out a particular position.
When the Portfolio purchases a futures contract, the value of the
futures contract tends to increase and decrease in tandem with the value of its
underlying instrument. Therefore, purchasing futures contracts will tend to
increase the Portfolio's exposure to positive and negative price fluctuations in
the underlying instrument, much as if it had purchased the underlying instrument
directly. When the Portfolio sells a futures contract, by contrast, the value of
its futures position will tend to move in a direction contrary to the value of
the underlying instrument. Selling futures contracts, therefore, will tend to
offset both positive and negative market price changes, much as if the
underlying instrument had been sold.
The purchaser or seller of a futures contract is not required to
deliver or pay for the underlying instrument unless the contract is held until
the delivery date. However, when the Portfolio buys or sells a futures contract
it will be required to deposit "initial margin" with its custodian in a
segregated account in the name of its futures broker, known as a futures
commission merchant (FCM). Initial margin deposits are typically equal to a
small percentage of the contract's value. If the value of either party's
position declines, that party will be required to make additional "variation
margin" payments equal to the change in value on a daily basis. The party that
has a gain may be entitled to receive all or a portion of this amount. The
Portfolio may be obligated to make payments of variation margin at a time when
it is disadvantageous to do so. Furthermore, it may not always be possible for
the Portfolio to close out its futures positions. Until it closes out a futures
position, the Portfolio will be obligated to continue to pay variation margin.
Initial and variation margin payments do not constitute purchasing on margin for
purposes of a Portfolio's investment restrictions. In the event of the
bankruptcy of an FCM that holds margin on behalf of the Portfolio, the Portfolio
may be entitled to return of margin owed to it only in proportion to the amount
received by the FCM's other customers, potentially resulting in losses to the
Portfolio.
The Portfolio will segregate liquid assets in connection with its use
of options and futures contracts to the extent required by the staff of the
Securities and Exchange Commission. Securities held in a segregated account
cannot be sold while the futures contract or option is outstanding, unless they
are replaced with other suitable assets. As a result, there is a possibility
that segregation of a large percentage of the Portfolio's assets could impede
portfolio management or the Portfolio's ability to meet redemption requests or
other current obligations.
<PAGE>
Options on Futures Contracts. The Portfolio may purchase and sell put
and call options, including put and call options on futures contracts. Futures
contracts obligate the buyer to take and the seller to make delivery at a future
date of a specified quantity of a financial instrument or an amount of cash
based on the value of a securities index. Currently, futures contracts are
available on various types of fixed income securities, including but not limited
to U.S. Treasury bonds, notes and bills, Eurodollar certificates of deposit and
on indexes of fixed income securities and indexes of equity securities.
Unlike a futures contract, which requires the parties to buy and sell a
security or make a cash settlement payment based on changes in a financial
instrument or securities index on an agreed date, an option on a futures
contract entitles its holder to decide on or before a future date whether to
enter into such a contract. If the holder decides not to exercise its option,
the holder may close out the option position by entering into an offsetting
transaction or may decide to let the option expire and forfeit the premium
thereon. The purchaser of an option on a futures contract pays a premium for the
option but makes no initial margin payments or daily payments of cash in the
nature of "variation" margin payments to reflect the change in the value of the
underlying contract as does a purchaser or seller of a futures contract.
The seller of an option on a futures contract receives the premium paid
by the purchaser and may be required to pay initial margin. Amounts equal to the
initial margin and any additional collateral required on any options on futures
contracts sold by the Portfolio are paid by the Portfolio into a segregated
account, in the name of the FCM, as required by the 1940 Act and the SEC's
interpretations thereunder.
Combined Positions. The Portfolio may purchase and write options in
combination with each other, or in combination with futures or forward
contracts, to adjust the risk and return characteristics of the overall
position. For example, the Portfolio may purchase a put option and write a call
option on the same underlying instrument, in order to construct a combined
position whose risk and return characteristics are similar to selling a futures
contract. Another possible combined position would involve writing a call option
at one strike price and buying a call option at a lower price, in order to
reduce the risk of the written call option in the event of a substantial price
increase. Because combined options positions involve multiple trades, they
result in higher transaction costs and may be more difficult to open and close
out.
Correlation of Price Changes. Because there are a limited number of
types of exchange-traded options and futures contracts, it is likely that the
standardized options and futures contracts available will not match the
Portfolio's current or anticipated investments exactly. The Portfolio may invest
in options and futures contracts based on securities with different issuers,
maturities, or other characteristics from the securities in which it typically
invests, which involves a risk that the options or futures position will not
track the performance of the Portfolio's other investments.
Options and futures contracts prices can also diverge from the prices
of their underlying instruments, even if the underlying instruments match the
Portfolio's investments well. Options and futures contracts prices are affected
by such factors as current and anticipated short term interest rates, changes in
volatility of the underlying instrument, and the time remaining until expiration
of the contract, which may not affect security prices the
<PAGE>
same way. Imperfect correlation may also result from differing levels
of demand in the options and futures markets and the securities markets, from
structural differences in how options and futures and securities are traded, or
from imposition of daily price fluctuation limits or trading halts. The
Portfolio may purchase or sell options and futures contracts with a greater or
lesser value than the securities it wishes to hedge or intends to purchase in
order to attempt to compensate for differences in volatility between the
contract and the securities, although this may not be successful in all cases.
If price changes in the Portfolio's options or futures positions are poorly
correlated with its other investments, the positions may fail to produce
anticipated gains or result in losses that are not offset by gains in other
investments.
Liquidity of Options and Futures Contracts. There is no assurance a
liquid market will exist for any particular option or futures contract at any
particular time even if the contract is traded on an exchange. In addition,
exchanges may establish daily price fluctuation limits for options and futures
contracts and may halt trading if a contract's price moves up or down more than
the limit in a given day. On volatile trading days when the price fluctuation
limit is reached or a trading halt is imposed, it may be impossible for the
Portfolio to enter into new positions or close out existing positions. If the
market for a contract is not liquid because of price fluctuation limits or
otherwise, it could prevent prompt liquidation of unfavorable positions, and
could potentially require the Portfolio to continue to hold a position until
delivery or expiration regardless of changes in its value. As a result, the
Portfolio's access to other assets held to cover its options or futures
positions could also be impaired. (See "Exchange Traded and OTC Options" above
for a discussion of the liquidity of options not traded on an exchange.)
Position Limits. Futures exchanges can limit the number of futures and
options on futures contracts that can be held or controlled by an entity. If an
adequate exemption cannot be obtained, the Portfolio or the Advisor may be
required to reduce the size of its futures and options positions or may not be
able to trade a certain futures or options contract in order to avoid exceeding
such limits.
Asset Coverage for Futures Contracts and Options Positions. The
Portfolio intends to comply with Section 4.5 of the regulations under the
Commodity Exchange Act, which limits the extent to which the Portfolio can
commit assets to initial margin deposits and option premiums. In addition, the
Portfolio will comply with guidelines established by the SEC with respect to
coverage of options and futures contracts by mutual funds, and if the guidelines
so require, will set aside appropriate liquid assets in a segregated custodial
account in the amount prescribed. Securities held in a segregated account cannot
be sold while the futures contract or option is outstanding, unless they are
replaced with other suitable assets. As a result, there is a possibility that
segregation of a large percentage of the Portfolio's assets could impede
portfolio management or the Portfolio's ability to meet redemption requests or
other current obligations.
Swaps and Related Swap Products
The Portfolio may engage in swap transactions, including, but not
limited to, interest rate, currency, securities index, basket, specific security
and commodity swaps, interest rate caps, floors and collars and options on
interest rate swaps (collectively defined as "swap transactions").
<PAGE>
The Portfolio may enter into swap transactions for any legal purpose
consistent with its investment objective and policies, such as for the purpose
of attempting to obtain or preserve a particular return or spread at a lower
cost than obtaining that return or spread through purchases and/or sales of
instruments in cash markets, to protect against currency fluctuations, as a
duration management technique, to protect against any increase in the price of
securities the Portfolio anticipates purchasing at a later date, or to gain
exposure to certain markets in the most economical way possible. The Portfolio
will not sell interest rate caps, floors or collars if it does not own
securities with coupons which provide the interest that the Portfolio may be
required to pay.
Swap agreements are two-party contracts entered into primarily by
institutional counterparties for periods ranging from a few weeks to several
years. In a standard swap transaction, two parties agree to exchange the returns
(or differentials in rates of return) that would be earned or realized on
specified notional investments or instruments. The gross returns to be exchanged
or "swapped" between the parties are calculated by reference to a "notional
amount," i.e., the return on or increase in value of a particular dollar amount
invested at a particular interest rate, in a particular foreign currency or
commodity, or in a "basket" of securities representing a particular index. The
purchaser of an interest rate cap or floor, upon payment of a fee, has the right
to receive payments (and the seller of the cap is obligated to make payments) to
the extent a specified interest rate exceeds (in the case of a cap) or is less
than (in the case of a floor) a specified level over a specified period of time
or at specified dates. The purchaser of an interest rate collar, upon payment of
a fee, has the right to receive payments (and the seller of the collar is
obligated to make payments) to the extent that a specified interest rate falls
outside an agreed upon range over a specified period of time or at specified
dates. The purchaser of an option on an interest rate swap, upon payment of a
fee (either at the time of purchase or in the form of higher payments or lower
receipts within an interest rate swap transaction) has the right, but not the
obligation, to initiate a new swap transaction of a pre-specified notional
amount with pre-specified terms with the seller of the option as the
counterparty.
The "notional amount" of a swap transaction is the agreed upon basis
for calculating the payments that the parties have agreed to exchange. For
example, one swap counterparty may agree to pay a floating rate of interest
(e.g., 3 month LIBOR) calculated based on a $10 million notional amount on a
quarterly basis in exchange for receipt of payments calculated based on the same
notional amount and a fixed rate of interest on a semi-annual basis. In the
event the Portfolio is obligated to make payments more frequently than it
receives payments from the other party, it will incur incremental credit
exposure to that swap counterparty. This risk may be mitigated somewhat by the
use of swap agreements which call for a net payment to be made by the party with
the larger payment obligation when the obligations of the parties fall due on
the same date. Under most swap agreements entered into by the Portfolio,
payments by the parties will be exchanged on a "net basis", and the Portfolio
will receive or pay, as the case may be, only the net amount of the two
payments.
<PAGE>
The amount of the Portfolio's potential gain or loss on any swap
transaction is not subject to any fixed limit. Nor is there any fixed limit on
the Portfolio's potential loss if it sells a cap or collar. If the Portfolio
buys a cap, floor or collar, however, the Portfolio's potential loss is limited
to the amount of the fee that it has paid. When measured against the initial
amount of cash required to initiate the transaction, which is typically zero in
the case of most conventional swap transactions, swaps, caps, floors and collars
tend to be more volatile than many other types of instruments.
The use of swap transactions, caps, floors and collars involves
investment techniques and risks which are different from those associated with
portfolio security transactions. If the Advisor is incorrect in its forecasts of
market values, interest rates, and other applicable factors, the investment
performance of the Portfolio will be less favorable than if these techniques had
not been used. These instruments are typically not traded on exchanges.
Accordingly, there is a risk that the other party to certain of these
instruments will not perform its obligations to the Portfolio or that the
Portfolio may be unable to enter into offsetting positions to terminate its
exposure or liquidate its position under certain of these instruments when it
wishes to do so.
Such occurrences could result in losses to the Portfolio.
The Advisor will, however, consider such risks and will enter into swap
and other derivatives transactions only when it believes that the risks are not
unreasonable.
The Portfolio will maintain cash or liquid assets in a segregated
account with its custodian in an amount sufficient at all times to cover its
current obligations under its swap transactions, caps, floors and collars. If
the Portfolio enters into a swap agreement on a net basis, it will segregate
assets with a daily value at least equal to the excess, if any, of the
Portfolio's accrued obligations under the swap agreement over the accrued amount
the Portfolio is entitled to receive under the agreement. If the Portfolio
enters into a swap agreement on other than a net basis, or sells a cap, floor or
collar, it will segregate assets with a daily value at least equal to the full
amount of the Portfolio's accrued obligations under the agreement.
The Portfolio will not enter into any swap transaction, cap, floor, or
collar, unless the counterparty to the transaction is deemed creditworthy by the
Advisor. If a counterparty defaults, the Portfolio may have contractual remedies
pursuant to the agreements related to the transaction. The swap markets in which
many types of swap transactions are traded have grown substantially in recent
years, with a large number of banks and investment banking firms acting both as
principals and as agents utilizing standardized swap documentation. As a result,
the markets for certain types of swaps (e.g., interest rate swaps) have become
relatively liquid. The markets for some types of caps, floors and collars are
less liquid.
The liquidity of swap transactions, caps, floors and collars will be as
set forth in guidelines established by the Advisor and approved by the
<PAGE>
Trustees which are based on various factors, including (1) the
availability of dealer quotations and the estimated transaction volume for the
instrument, (2) the number of dealers and end users for the instrument in the
marketplace, (3) the level of market making by dealers in the type of
instrument, (4) the nature of the instrument (including any right of a party to
terminate it on demand) and (5) the nature of the marketplace for trades
(including the ability to assign or offset the Portfolio's rights and
obligations relating to the instrument). Such determination will govern whether
the instrument will be deemed within the 15% restriction on investments in
securities that are not readily marketable.
During the term of a swap, cap, floor or collar, changes in the value
of the instrument are recognized as unrealized gains or losses by marking to
market to reflect the market value of the instrument. When the instrument is
terminated, the Portfolio will record a realized gain or loss equal to the
difference, if any, between the proceeds from (or cost of) the closing
transaction and the Portfolio's basis in the contract.
The federal income tax treatment with respect to swap transactions,
caps, floors, and collars may impose limitations on the extent to which the
Portfolio may engage in such transactions.
Risk Management
The Portfolio may employ non-hedging risk management techniques.
Examples of risk management strategies include synthetically altering the
duration of the fixed income portion of portfolio or the mix of securities in
the Portfolio. For example, if the Advisor wishes to extend maturities in the
fixed income portion of the portfolio in order to take advantage of an
anticipated decline in interest rates, but does not wish to purchase the
underlying long term securities, it might cause the Portfolio to purchase
futures contracts on long term debt securities. Similarly, if the Advisor wishes
to decrease fixed income securities or purchase equities, it could cause the
Portfolio to sell futures contracts on debt securities and purchase futures
contracts on a stock index. Such non-hedging risk management techniques are not
speculative, but because they involve leverage include, as do all leveraged
transactions, the possibility of losses as well as gains that are greater than
if these techniques involved the purchase and sale of the securities themselves
rather than their synthetic derivatives.
Portfolio Turnover
The Portfolio's turnover rates for the fiscal years ended June 30, 1997
and 1998 were 100% and 82%, respectively. A rate of 100% indicates that the
equivalent of all of the Portfolio's assets have been sold and reinvested in a
year. High portfolio turnover may result in the realization of substantial net
capital gains or losses. To the extent net short term capital gains are
realized, any distributions resulting from such gains are considered ordinary
income for federal income tax purposes. See "Taxes" below.
INVESTMENT RESTRICTIONS
The investment restrictions below have been adopted by the Fund and 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 and
<PAGE>
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, the Trust will hold a meeting of Fund
shareholders and will cast its votes as instructed by the Fund's shareholders.
The Fund has the same investment restrictions as the Portfolio, unless
otherwise specified. References below to the Portfolio's investment restrictions
also include the Fund's investment restrictions unless the context requires
otherwise.
The Portfolio:
1. May not make any investments inconsistent with a Fund's classification as
a diversified investment company under the Investment Company Act of 1940;
2. May not purchase any security which would cause the Fund to concentrate
its investments in the securities of issuers primarily engaged in any
particular industry except as permitted by the SEC;
3. May not issue senior securities, except as permitted under the Investment
Company Act of 1940 or any rule, order or interpretation thereunder;
4. May not borrow money, except to the extent permitted by applicable law;
5. May not underwrite securities of other issuers, except to the extent that
the Fund, in disposing of portfolio securities, may be deemed an
underwriter within the meaning of the 1933 Act;
6. May not purchase or sell real estate, except that, to the extent permitted
by applicable law, the Fund may (a) invest in securities or other
instruments directly or indirectly secured by real estate, (b) invest in
securities or other instruments issued by issuers that invest in real
estate and (c) make direct investments in mortgages;
7. May not purchase or sell commodities or commodity contracts unless
acquired as a result of ownership of securities or other instruments
issued by persons that purchase or sell commodities or commodities
contracts; but this shall not prevent the Fund from purchasing, selling
and entering into financial futures contracts (including futures contracts
on indices of securities, interest rates and currencies), options on
financial futures contracts (including futures contracts on indices of
securities, interest rates and currencies), warrants, swaps, forward
contracts, foreign currency spot and forward contracts or other derivative
instruments that are not related to physical commodities; and
8. May make loans to other persons, in accordance with the Fund's investment
objectives and policies and to the extent permitted by applicable law.
Non-Fundamental Investment Restrictions - The investment restrictions
described below are not fundamental policies of the Fund and the Portfolio and
may be changed by their respective Trustees. These non-fundamental investment
restrictions require that the Portfolio:
<PAGE>
(i) May not acquire any illiquid securities, such as repurchase agreements with
more than seven days to maturity or fixed time deposits with a duration of over
seven calendar days, if as a result thereof, more than 15% of the market value
of the Fund's net assets would be in investments which are illiquid;
(ii) May not purchase securities on margin, make short sales of securities, or
maintain a short position, provided that this restriction shall not be deemed to
be applicable to the purchase or sale of when-issued or delayed delivery
securities, or to short sales that are covered in accordance with SEC rules; and
(iii) May not acquire securities of other investment companies, except as
permitted by the 1940 Act or any order pursuant thereto.
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 the fundamental investment restriction regarding
industry concentration, JPMIM 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 (the "SEC") or other
sources. In the absence of such classification or if JPMIM 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, JPMIM may classify an issuer accordingly. For instance,
personal credit finance companies and business credit finance companies are
deemed to be separate industries and wholly owned finance companies are
considered to be in the industry of their parents if their activities are
primarily related to financing the activities of their parents.
TRUSTEES AND OFFICERS
Trustees
The Trustees of the Trust, who are also the Trustees of the Portfolio
and the other Master Portfolios as defined below, their business addresses,
principal occupations during the past five years and dates of birth are set
forth below.
FREDERICK S. ADDYAATrustee; Retired; Prior to April 1994, Executive Vice
President and Chief Financial Officer, Amoco Corporation. His address is 5300
Arbutus Cove, Austin, Texas 78746, and his date of birth is January 1, 1932.
WILLIAM G. BURNSAATrustee; Retired, Former Vice Chairman and Chief
Financial Officer, NYNEX. His address is 2200 Alaqua Drive, Longwood, Florida
32779, and his date of birth is November 2, 1932.
ARTHUR C. ESCHENLAUERAATrustee; Retired; Former Senior Vice President,
Morgan Guaranty Trust Company of New York. His address is 14 Alta Vista Drive,
RD #2, Princeton, New Jersey 08540, and his date of birth is May 23, 1934.
<PAGE>
MATTHEW HEALEY (*)AATrustee, Chairman and Chief Executive Officer;
Chairman, Pierpont Group, Inc., since prior to 1993. His address is Pine Tree
Country Club Estates, 10286 Saint Andrews Road, Boynton Beach, Florida 33436,
and his date of birth is August 23, 1937.
MICHAEL P. MALLARDIAATrustee; Retired; Prior to April 1996, Senior Vice
President, Capital Cities/ABC, Inc. and President, Broadcast Group. His address
is 10 Charnwood Drive, Suffern, New York 10910, and his date of birth is March
17, 1934.
- ------------------------
(*) Mr. Healey is an "interested person" (as defined in the 1940 Act) of
the Trust. Mr. Healey is also an "interested person" (as defined in the 1940 Act
of the Advisor due to his son's affiliation with JPMIM.
The Trustees of the Trust are the same as the Trustees of the
Portfolio. A majority of the disinterested Trustees have adopted written
procedures reasonably appropriate to deal with potential conflicts of interest
arising from the fact that the same individuals are Trustees of the Trust, the
Portfolio and the J.P. Morgan Funds, up to and including creating a separate
board of trustees.
Each Trustee is currently paid an annual fee of $75,000 (adjusted as of
April 1, 1997) for serving as Trustee of the Trust, each of the Master
Portfolios (as defined below), J.P. Morgan Funds and J.P. Morgan Series Trust
and is reimbursed for expenses incurred in connection with service as a Trustee.
The Trustees may hold various other directorships unrelated to these funds.
Trustee compensation expenses accrued by the Trust for the calendar year
ended December 31, 1997 are set forth below.
- ---------------------------------- ------------------- ------------------
TOTAL TRUSTEE
COMPENSATION ACCRUED BY
AGGREGATE TRUSTEE THE MASTER PORTFOLIOS(*),
COMPENSATION J.P. MORGAN FUNDS, J.P.
ACCRUED BY THE MORGAN SERIES TRUST AND
TRUST DURING 1997 THE TRUST DURING 1997
NAME OF TRUSTEE (***)
- ---------------------------------- ------------------- ------------------
- ---------------------------------- ------------------- ------------------
Frederick S. Addy, Trustee $11,786 $72,500
- ---------------------------------- ------------------- ------------------
- ---------------------------------- ------------------- ------------------
William G. Burns, Trustee $11,786 $72,500
- ---------------------------------- ------------------- ------------------
- ---------------------------------- ------------------- ------------------
Arthur C. Eschenlauer, Trustee $11,786 $72,500
- ---------------------------------- ------------------- ------------------
- ---------------------------------- ------------------- ------------------
$11,786 $72,500
Matthew Healey, Trustee (**)
Chairman and Chief Executive
Officer
- ---------------------------------- ------------------- ------------------
- ---------------------------------- ------------------- ------------------
Michael P. Mallardi, Trustee $11,786 $72,500
- ---------------------------------- ------------------- ------------------
(*) Includes the Portfolio, and 19 other Portfolios (collectively the "Master
Portfolios"), for which JPMIM acts as investment advisor.
<PAGE>
(**) During 1997, Pierpont Group, Inc. paid Mr. Healey, in his role as
Chairman of Pierpont Group, Inc., compensation in the amount of $147,500,
contributed $22,100 to a defined contribution plan on his behalf and paid
$20,500 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 Trust, J.P. Morgan Funds and J.P. Morgan
Series Trust) in the fund complex.
The Trustees decide upon matters of general policy and are responsible
for overseeing the Trust's and Portfolio's business affairs. The Port-
folio and the Trust have entered into a Fund Services Agreement with Pierpont
Group, Inc. to assist the Trustees in exercising their overall supervisory
responsibilities over the affairs of the Portfolio and the Trust. Pierpont
Group, Inc. was organized in July 1989 to provide services for the J.P. Morgan
Family of Funds (formerly "The Pierpont Family of Funds"), and the Trustees are
the equal and sole shareholders of Pierpont Group, Inc. The Trust and the
Portfolio have agreed to pay Pierpont Group, Inc. a fee in an amount
representing its reasonable costs in performing these services. These costs are
periodically reviewed by the Trustees. The principal offices of Pierpont Group,
Inc. are located at 461 Fifth Avenue, New York, New York 10017.
The aggregate fees paid to Pierpont Group, Inc. by the Fund and the
Portfolio during the indicated fiscal years are set forth below:
Fund -- For the fiscal years ended June 30, 1996, 1997, and 1998: $11,024,
$7,842, and $9,571 respectively.
Portfolio -- For the fiscal years ended June 30, 1996, 1997, and 1998: $13,109,
$9,911, and $13,886 respectively.
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" or the "Distributor"), 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,
the Portfolio and the other Master Portfolios. The business address of each of
the officers unless otherwise noted is Funds Distributor, Inc., 60 State Street,
Suite 1300, Boston, Massachusetts 02109.
MATTHEW HEALEY; Chief Executive Officer; Chairman, Pierpont Group,
since prior to 1993. His address is Pine Tree Club Estates, 10286 Saint Andrews
Road, Boynton Beach, Florida 33436. His date of birth is August 23, 1937.
MARGARET W. CHAMBERS; Vice President and Secretary. Senior Vice President
and General Counsel of FDI since April, 1998. From August 1996 to March 1998,
Ms. Chambers was Vice President and Assistant General Counsel for Loomis, Sayles
& Company, L.P. From January 1986 to July 1996, she was an
<PAGE>
associate with the law firm of Ropes & Gray. Her date of birth is October
12, 1959.
MARIE E. CONNOLLY; Vice President and Assistant Treasurer. President,
Chief Executive Officer, Chief Compliance Officer and Director of FDI, Premier
Mutual Fund Services, Inc., an affiliate of FDI ("Premier Mutual") and an
officer of certain investment companies distributed or administered by FDI.
Prior to July 1994, she was President and Chief Compliance Officer of FDI. Her
date of birth is August 1, 1957.
DOUGLAS C. CONROY; Vice President and Assistant Treasurer. Assistant Vice
President and Assistant Department Manager of Treasury Services and
Administration of FDI and an officer of certain investment companies distributed
or administered by FDI. Prior to April 1997, Mr. Conroy was Supervisor of
Treasury Services and Administration of FDI. From April 1993 to January 1995,
Mr. Conroy was a Senior Fund Accountant for Investors Bank & Trust Company. His
date of birth is March 31, 1969.
JACQUELINE HENNING; Assistant Secretary and Assistant Treasurer of the
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 was Managing Director of Bank of Nova Scotia Trust
Company (Cayman) Limited prior to September 1993. Address: P.O. Box 2508 GT,
Elizabethan Square, 2nd Floor, Shedden Road, George Town, Grand Cayman, Cayman
Islands, BWI. Her date of birth is March 24, 1942.
KAREN JACOPPO-WOOD; Vice President and Assistant Secretary. Vice President
and Senior Counsel of FDI and an officer of certain investment companies
distributed or administered by FDI. From June 1994 to January 1996, Ms.
Jacoppo-Wood was a Manager of SEC Registration at Scudder, Stevens & Clark, Inc.
Prior 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.
CHRISTOPHER J. KELLEY; Vice President and Assistant Secretary. Vice
President and Senior Associate General Counsel of FDI and Premier Mutual and an
officer of certain investment companies distributed or administered by FDI. From
April 1994 to July 1996, Mr. Kelley was Assistant Counsel at Forum Financial
Group. Prior to April 1994, Mr. Kelley was employed by Putnam Investments in
legal and compliance capacities. His date of birth is December 24, 1964.
KATHLEEN K. MORRISEY. Vice President and Assistant Secretary. Vice
President and Assistant Secretary of FDI. Manager of Treasury Services
Administration and an officer of certain investment companies advised or
administered by Montgomery Asset Management, L.P. and Dresdner RCM Global
Investors, Inc., and their respective affiliates. From July 1994 to November
1995, Ms. Morrisey was a Fund Accountant II for Investors Bank & Trust Company.
Prior to July 1994 she was a Finance student at Stonehill College in North
Easton, Massachusetts. Her date of birth is July 5, 1972.
MARY A. NELSON; Vice President and Assistant Treasurer. Vice President and
Manager of Treasury Services and Administration of FDI and Premier Mutual and an
officer of certain investment companies distributed or administered by FDI.
Prior to August 1994, Ms. Nelson was an Assistant Vice President and Client
Manager for The Boston Company, Inc. Her date of birth is April 22, 1964.
<PAGE>
MARY JO PACE; Assistant Treasurer. Vice President, Morgan Guaranty Trust
Company of New York since 1990. Ms. Pace serves in the Funds Administration
group as a Manager for the Budgeting and Expense Processing Group. Prior to
September 1995, Ms. Pace served as a Fund Administrator for Morgan Guaranty
Trust Company of New York. Her address is 60 Wall Street, New York, New York
10260. Her date of birth is March 13, 1966.
MICHAEL S. PETRUCELLI; Vice President and Assistant Secretary. Senior Vice
President and Director of Strategic Client Initiatives for FDI since December
1996. From December 1989 through November 1996, Mr. Petrucelli was employed with
GE Investments where he held various financial, business development and
compliance positions. He also served as Treasurer of the GE Funds and as
Director of GE Investment Services. Address: 200 Park Avenue, New York, New
York, 10166. His date of birth is May 18, 1961.
STEPHANIE D. PIERCE; Vice President and Assistant Secretary. Vice President
and Client Development Manager for FDI since April 1998. From April 1997 to
March 1998, Ms. Pierce was employed by Citibank, NA as an officer of Citibank
and Relationship Manager on the Business and Professional Banking team handling
over 22,000 clients. Address: 200 Park Avenue, New York, New York 10166. Her
date of birth is August 18, 1968.
GEORGE A. RIO; President and Treasurer. Executive Vice President and Client
Service Director of FDI since April 1998. From June 1995 to March 1998, Mr. Rio
was Senior Vice President and Senior Key Account Manager for Putnam Mutual
Funds. From May 1994 to June 1995, Mr. Rio was Director of Business Development
for First Data Corporation. From September 1983 to May 1994, Mr. Rio was Senior
Vice President & Manager of Client Services and Director of Internal Audit at
The Boston Company. His date of birth is January 2, 1955.
CHRISTINE ROTUNDO; Assistant Treasurer. Vice President, Morgan Guaranty
Trust Company of New York. Ms. Rotundo serves in the Funds Administration group
as a Manager of the Tax Group and is responsible for U.S. mutual fund tax
matters. Prior to September 1995, Ms. Rotundo served as a Senior Tax Manager in
the Investment Company Services Group of Deloitte & Touche LLP. Her address is
60 Wall Street, New York, New York 10260. Her date of birth is September 26,
1965.
INVESTMENT ADVISOR
The Fund has not retained the services of an investment adviser because
the Fund seeks to achieve its investment objective by investing all of its
investable assets in the Portfolio. Subject to the supervision of the
Portfolio's Trustees, the Advisor makes the Portfolio's day-to-day investment
decisions, arranges for the execution of portfolio transactions and generally
manages the Portfolio's investments. Prior to October 28, 1998, Morgan was the
Portfolio's investment advisor. JPMIM, a wholly owned subsidiary of J.P. Morgan
& Co. Incorporated ("J.P. Morgan"), is a registered investment adviser under the
Investment Advisers Act of 1940, as amended, 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
comingled pension trust funds for which Morgan serves as trustee.
<PAGE>
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 more than $275 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.
Morgan, also a wholly owned subsidiary of J.P. Morgan, is a bank holding company
organized under the laws of the State of Delaware. Morgan, whose principal
offices are at 60 Wall Street, New York, New York 10260, is a New York trust
company which conducts a general banking and trust business. Morgan is subject
to regulation by the New York State Banking Department and is a member bank of
the Federal Reserve System. Through offices in New York City and abroad, Morgan
offers a wide range of services, primarily to governmental, institutional,
corporate and high net worth individual customers in the United States and
throughout the world.
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 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 conclusions of
the equity analysts' fundamental research is quantified into a set of projected
returns for individual companies through the use of a dividend discount model.
These returns are projected for 2 to 5 years to enable analysts to take a longer
term view. These returns, or normalized earnings, are used to establish relative
values among stocks in each industrial sector. These values may not be the same
as the markets' current valuations of these companies. This provides the basis
for ranking the attractiveness of the companies in an industry according to five
distinct quintiles or rankings. This ranking is one of the factors considered in
determining the stocks purchased and sold in each sector. The Advisor's fixed
income investment process is based on analysis of real rates, sector
diversification and quantitative and credit analysis.
The investment advisory services the Advisor provides to the Portfolio are
not exclusive under the terms of the Advisory Agreement. The Advisor is free to
and does render similar investment advisory services to others. The Advisor
serves as investment advisor to personal investors and other investment
companies and acts as fiduciary for trusts, estates and employee benefit plans.
Certain of the assets of trusts and estates under management are invested in
common trust funds for which the Advisor serves as trustee. The accounts which
are managed or advised by the Advisor have varying investment objectives and the
Advisor invests assets of such accounts in investments substantially similar to,
or the same as, those which are expected to constitute the principal investments
of the Portfolio. Such accounts are supervised by officers and employees of the
Advisor who may also be acting in similar capacities for the Portfolio. See
"Portfolio Transactions."
Sector weightings are generally similar to a benchmark with the
emphasis on security selection as the method to achieve investment performance
superior to the benchmark. The Portfolio's benchmark is comprised of 52% S&P
500, 35% Salomon Brothers Broad Investment Grade Bond, 3% Russell 2000 and 10%
MSCI
<PAGE>
EAFE indexes.
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
certain other investment management affiliates of J.P. Morgan.
As compensation for the services rendered and related expenses such as
salaries of advisory personnel borne by the Advisor under the Advisory
Agreement, the Portfolio has agreed to pay the Advisor a fee, which is computed
daily and may be paid monthly, equal to the annual rate of 0.55% of the
Portfolio's average daily net assets.
For the fiscal years ended June 30, 1996, 1997, and 1998 the advisory
fees paid by the Portfolio to Morgan, the Portfolio's Advisor prior to October
28, 1998, were $1,122,941, $1,591,589, and $2,359,972 respectively. See the
Portfolio's June 30, 1998 Annual Report.
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 and their subsidiaries, such as the Advisor, from engaging in the business
of underwriting or distributing securities, and the Board of Governors of the
Federal Reserve System has issued an interpretation to the effect that under
these laws a bank holding company registered under the federal Bank Holding
Company Act or certain subsidiaries thereof may not sponsor, organize, or
control a registered open-end investment company continuously engaged in the
issuance of its shares, such as the Trust. The interpretation does not prohibit
a holding company or a subsidiary thereof from acting as investment advisor and
custodian to such an investment company. The Advisor believes that it may
perform the services for the Portfolio contemplated by the Advisory Agreement
without violation of the Glass-Steagall Act or other applicable banking laws or
regulations. State laws on this issue may differ from the interpretation of
relevant federal law, and banks and financial institutions may be required to
register as dealers pursuant to state securities laws. However, it is possible
that future changes in either federal or state statutes and regulations
concerning the permissible activities of banks or trust companies, as well as
further judicial or administrative decisions and interpretations of present and
future statutes and regulations, might prevent the Advisor from continuing to
perform such services for the Portfolio.
If the Advisor were prohibited from acting as investment advisor to the
Portfolio, it is expected that the Trustees of the Portfolio would recommend to
investors that they approve the Portfolio's entering into a new investment
advisory agreement with another qualified investment advisor selected by the
Trustees.
Under separate agreements, Morgan also provides certain financial, fund
accounting and administrative services to the Trust and the Portfolio and
<PAGE>
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. FDI is a wholly owned indirect subsidiary
of Boston Institutional Group, Inc. FDI also serves as exclusive placement agent
for the Portfolio. FDI currently provides administration and distribution
services for a number of other investment companies.
The Distribution Agreement shall continue in effect with respect to the
Fund for a period of two years after execution only if it is approved at least
annually thereafter (i) by a vote of the holders of a majority of the Fund's
outstanding shares or by its Trustees and (ii) by a vote of a majority of the
Trustees of the Trust who are not "interested persons" (as defined by the 1940
Act) of the parties to the Distribution Agreement, cast in person at a meeting
called for the purpose of voting on such approval (see "Trustees and Officers").
The Distribution Agreement will terminate automatically if assigned by either
party thereto and is terminable at any time without penalty by a vote of a
majority of the Trustees of the Trust, a vote of a majority of the Trustees who
are not "interested persons" of the Trust, or by a vote of the holders of a
majority of the Fund's outstanding shares as defined under "Additional
Information," in any case without payment of any penalty on 60 days' written
notice to the other party. The principal offices of FDI are located at 60 State
Street, Suite 1300, Boston, Massachusetts 02109.
CO-ADMINISTRATOR
Under Co-Administration Agreements with the Trust and the Portfolio
dated August 1, 1996, FDI also serves as the Trust's and the Portfolio's
Co-Administrator. The Co-Administration Agreements may be renewed or amended by
the respective Trustees without a shareholder vote. The Co-Administration
Agreements are terminable at any time without penalty by a vote of a majority of
the Trustees of the Trust or the Portfolio, as applicable, on not more than 60
days' written notice nor less than 30 days' written notice to the other party.
The Co-Administrator may subcontract for the performance of its obligations,
provided, however, that unless the Trust or the Portfolio, as applicable,
expressly agrees in writing, the Co-Administrator shall be fully responsible for
the acts and omissions of any subcontractor as it would for its own acts or
omissions. See "Services Agent" below.
FDI (i) provides office space, equipment and clerical personnel for
maintaining the organization and books and records of the Trust and the
Portfolio; (ii) provides officers for the Trust and the Portfolio; (iii)
prepares and files documents required for notification of state securities
administrators; (iv) reviews and files marketing and sales literature; (v) files
Portfolio regulatory documents and mails Portfolio communications to Trustees
and investors; and (vi) maintains related books and records.
For its services under the Co-Administration Agreements, each of the
Fund and the Portfolio has agreed to pay FDI fees equal to its allocable share
of an annual complex-wide charge of $425,000 plus FDI's out-of-pocket expenses.
The amount allocable to the Fund or the Portfolio is based on the
<PAGE>
ratio of its net assets to the aggregate net assets of the Trust, the
Master Portfolios and other investment companies subject to similar agreements
with FDI.
The table below sets forth the administrative fees paid to FDI for the
fiscal period indicated. See "Expenses" below for applicable expense
limitations.
Portfolio -- For the period August 1, 1996 through June 30, 1997 and the
fiscal year ended June 30, 1998: $6,791 and $8,817, respectively.
Fund - For the period August 1, 1996 through June 30, 1997 and the fiscal
year ended June 30, 1998: $7,183 and $7,165.
The administrative fees paid to Signature Broker-Dealer Services, Inc.
(which provided distribution and administrative services to the Trust and
placement agent and administrative services to the Portfolio prior to August 1,
1997) were as follows:
Portfolio -- For the fiscal year ended June 30, 1996 and the period from
July 1, 1996 through through July 31, 1996: $19,517 and $2,938 respectively.
Fund -- For the fiscal year ended June 30, 1996 and the period from July 1,
1996 through July 31, 1996: $31,954 and $2,370 respectively.
See "Expenses" below for applicable expense limitations.
SERVICES AGENT
The Trust, on behalf of the Fund, and the Portfolio have entered into
Administrative Services Agreements (the "Services Agreements") with Morgan
effective December 29, 1995, as amended effective August 1, 1996, pursuant to
which Morgan is responsible for certain administrative and related services
provided to the Fund and Portfolio. The Services Agreements may be terminated at
any time, without penalty, by the Trustees or Morgan, in each case on not more
than 60 days' nor less than 30 days' written notice to the other party.
Under the Services Agreements, Morgan provides certain administrative
and related services to the Fund and the Portfolio, including services related
to tax compliance, preparation of financial statements, calculation of
performance data, oversight of service providers and certain regulatory and
Board of Trustee matters.
Under the amended Services Agreements, each of the Fund and Portfolio
has agreed to pay Morgan fees equal to its allocable share of an annual
complex-wide charge. This charge is calculated daily based on the aggregate net
assets of the Master Portfolios and J.P. Morgan Series Trust in accordance with
the following annual schedule: 0.09% of the first $7 billion of their aggregate
average daily net assets and 0.04% of their aggregate average daily net assets
in excess of $7 billion, less the complex-wide fees payable to FDI. The portion
of this charge payable by the Fund or the Portfolio is determined by the
proportionate share that its net assets bear to the total net assets of the
Trust, the Master Portfolios, other investors in the Master Portfolios for which
Morgan provides similar services and J.P. Morgan Series Trust.
Under prior administrative services agreements in effect from December
29, 1995 through July 31, 1996, with Morgan, each of the Fund and the Portfolio
paid Morgan a fee equal to its proportionate share of an annual
<PAGE>
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 Portfolio's aggregate
average daily net assets, and 0.03% of the Master Portfolio's average daily net
assets in excess of $7 billion.
Prior to December 29, 1995, the Trust and the Portfolio had entered
into Financial and Fund Accounting Services Agreements with Morgan, the
provisions of which included certain of the activities described above and,
prior to September 1, 1995, also included reimbursement of usual and customary
expenses.
The table below sets forth the fees paid to Morgan, net of fee waivers
and reimbursements, as Services Agent. See "Expenses" below for applicable
expense limitations.
Portfolio -- For the fiscal years ended June 30, 1996, 1997, and 1998:
$45,687, $89,749, and $(120,189)* respectively.
Fund -- For the fiscal years ended June 30, 1996, 1997, and 1998: $12,610,
$70,546, and $(421,256)* respectively.
- ------------------------------------
(*) Indicates a reimbursement by Morgan for expenses in excess of its fees under
the prior financial and fund accounting services agreements. For the fiscal year
ended June 30, 1998, fees for the Portfolio and the Fund amounted to $127,584
and $85,827, respectively. No fees were paid for the fiscal period as a result
of these reimbursements.
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02110, serves as the Trust's and the Portfolio's
custodian and fund accounting agent and the Fund's transfer and dividend
disbursing agent. Pursuant to the Custodian Contracts, State Street is
responsible for maintaining the books of account and records of portfolio
transactions and holding portfolio securities and cash. In the case of foreign
assets held outside the United States, the custodian employs various
subcustodians who were approved by the Trustees of the Portfolio in accordance
with the regulations of the SEC. The custodian maintains portfolio transaction
records. As transfer agent and dividend disbursing agent, State Street is
responsible for maintaining account records detailing the ownership of Fund
shares and for crediting income, capital gains and other changes in share
ownership to shareholder accounts.
SHAREHOLDER SERVICING
The Trust on behalf of the Fund has entered into a Shareholder
Servicing Agreement with Morgan pursuant to which Morgan acts as shareholder
servicing agent for its customers and for other Fund investors who are customers
of a financial professional. Under this agreement, Morgan is responsible for
performing shareholder account administrative and servicing functions, which
include but are not limited to, answering inquiries regarding account status and
history, the manner in which purchases and redemptions of Fund shares may be
effected, and certain other matters pertaining to the Fund; assisting customers
in designating and changing dividend options, account designations and
addresses; providing necessary personnel and facilities to coordinate the
establishment and maintenance of shareholder accounts and records with the
transfer agent; transmitting purchase and redemption orders to the transfer
<PAGE>
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; and providing other related services.
Effective August 1, 1998, under the Shareholder Servicing Agreement,
the Fund has agreed to pay Morgan a fee for these services at the annual rate of
0.10% of the average daily net asset value of Fund shares owned by or for
shareholders.
The shareholder servicing fees paid by the Fund to Morgan, net of fee
waivers and reimbursements, were $127,086, $228,074 and $288,049 for the fiscal
years ended June 30, 1996, 1997, and 1998, respectively.
As discussed under "Investment Advisor," the Glass-Steagall Act and
other applicable laws and regulations limit the activities of bank holding
companies and certain of their subsidiaries in connection with registered
open-end investment companies. The activities of Morgan in acting as shareholder
servicing agent for Fund shareholders under the Shareholder Servicing Agreement
and providing administrative services to the Fund and the Portfolio under the
Services Agreements, and the activities of JPMIM in acting as Advisor to the
Portfolio under the Investment Advisory Agreement, may raise issues under these
laws. However, JPMIM and Morgan believe that they may properly perform these
services and the other activities described herein 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.
The Fund may be sold to or through financial intermediaries who are
customers of J.P. Morgan ("financial professionals"), including financial
institutions and broker-dealers, that may be paid fees by J.P. Morgan or its
affiliates for services provided to their clients that invest in the Fund. See
"Financial Professionals" below. Organizations that provide recordkeeping or
other services to certain employee benefit or retirement plans that include the
Fund as an investment alternative may also be paid a fee.
FINANCIAL PROFESSIONALS
The services provided by financial professionals may include
establishing and maintaining shareholder accounts, processing purchase and
redemption transactions, arranging for bank wires, performing shareholder
subaccounting, answering client inquiries regarding the Trust, assisting clients
in changing dividend options, account designations and addresses, providing
periodic statements showing the client's account balance and integrating these
statements with those of other transactions and balances in the client's other
accounts serviced by the financial professional, transmitting proxy statements,
periodic reports, updated prospectuses and other communications to shareholders
and, with respect to meetings of shareholders, collecting, tabulating and
forwarding executed proxies and obtaining such other information and performing
such other services as Morgan or the financial professional's clients may
reasonably request and agree upon with the financial professional.
<PAGE>
Although there is no sales charge levied directly by the Fund,
financial professionals may establish their own terms and conditions for
providing their services and may charge investors a transaction-based or other
fee for their services. Such charges may vary among financial professionals but
in all cases will be retained by the financial professional and not be remitted
to the Fund or J.P. Morgan.
The Fund has authorized one or more brokers to accept purchase and
redemption orders on its behalf. Such brokers are authorized to designate other
intermediaries to accept purchase and redemption orders on a Fund's behalf. A
Fund will be deemed to have received a purchase or redemption order when an
authorized broker or, if applicable, a broker's authorized designee, accepts the
order. These orders will be priced at the Fund's net asset value next calculated
after they are so accepted.
INDEPENDENT ACCOUNTANTS
The independent accountants of the Trust and the Portfolio are
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York
10036. PricewaterhouseCoopers LLP conducts an annual audit of the financial
statements of the Fund 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., JPMIM, Morgan
and FDI under various agreements discussed under "Trustees and Officers,"
"Investment Advisor," "Co-Administrator," "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, registration
fees under federal securities laws, and extraordinary expenses applicable to the
Fund and 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
registration fees under foreign securities laws, custodian fees and brokerage
expenses. Under fee arrangements prior to September 1, 1995, Morgan as Services
Agent was responsible for reimbursements to the Trust and the Portfolio and the
usual and customary expenses described above (excluding organization and
extraordinary expenses, custodian fees and brokerage expenses).
Morgan has agreed that it will reimburse the Fund until further notice
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 0.65% 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.
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
<PAGE>
to accept any instructions relating to a Fund account from Morgan as
shareholder servicing agent for the customer. All purchase orders must be
accepted by the Distributor. Prospective investors who are not already customers
of Morgan may apply to become customers of Morgan for the sole purpose of Fund
transactions. There are no charges associated with becoming a Morgan customer
for this purpose. Morgan reserves the right to determine the customers that it
will accept, and the Trust reserves the right to determine the purchase orders
that it will accept.
References in the Prospectus and this Statement of Additional
Information to customers of Morgan or a financial professional include customers
of their affiliates and references to transactions by customers with Morgan or a
financial professional include transactions with their affiliates. Only Fund
investors who are using the services of a financial institution acting as
shareholder servicing agent pursuant to an agreement with the Trust on behalf of
the Fund may make transactions in shares of the Fund.
The Fund may, at its own option, accept securities in payment for
shares. The securities delivered in such a transaction are valued by the method
described in "Net Asset Value" as of the day the Fund receives the securities.
This is a taxable transaction to the shareholder. Securities may be accepted in
payment for shares only if they are, in the judgment of the Advisor, appropriate
investments. In addition, securities accepted in payment for shares must: (i)
meet the investment objective and policies of the Portfolio; (ii) be acquired by
the Fund for investment and not for resale (other than for resale to the
Portfolio); (iii) be liquid securities which are not restricted as to transfer
either by law or liquidity of market; and (iv) if stock, have a value which is
readily ascertainable as evidenced by a listing on a stock exchange, OTC market
or by readily available market quotations from a dealer in such securities. The
Fund reserves the right to accept or reject at its own option any and all
securities offered in payment for its shares.
Prospective investors may purchase shares with the assistance of a
financial professional, and the financial professional may establish its own
minimums and charge the investor a fee for this service and other services it
provides to its customers. Morgan may pay fees to financial professionals for
services in connection with fund investments.
REDEMPTION OF SHARES
Investors may redeem shares as described in the Prospectus.
If the Trust on behalf of the Fund determines 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 Fund,
in lieu of cash, in conformity with the applicable rule of the SEC. If shares
are redeemed in kind, the redeeming shareholder might incur transaction costs in
converting the assets into cash. The method of valuing portfolio securities is
described under "Net Asset Value," and such valuation will be made as of the
same time the redemption price is determined. The Trust, on behalf of the Fund
and the Portfolio, 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
<PAGE>
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. 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
shareholder's taxpayer identification number and address. 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 Trust, on behalf of the Fund, and the Portfolio, reserves the right to
suspend the right of redemption and to postpone the date of payment upon
redemption as follows: (i) for up to seven days, (ii) during periods when the
New York Stock Exchange is closed for other than weekends and holidays or when
trading 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. For information regarding
redemption orders placed through a financial professional, please see "Financial
Professionals" above.
EXCHANGE OF SHARES
An investor may exchange shares from the Fund into any other J.P.
Morgan Institutional Fund, J.P. Morgan Fund or J.P. Morgan 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 accounts that are registered in the same name, address and
taxpayer identification number. Shares are exchanged on the basis of relative
net asset value per share. Exchanges are in effect redemptions from one fund and
purchases of another fund and the usual purchase and redemption procedures and
requirements are applicable to exchanges. Shareholders subject to federal income
tax who exchange shares in one fund for shares in another fund may recognize
capital gain or loss for federal income tax purposes. Shares of the fund to be
acquired are purchased for settlement when the proceeds from redemption become
available. In the case of investors in certain states, state securities laws may
restrict the availability of the exchange privilege. The Fund reserves the right
to discontinue, alter or limit its exchange privilege at any time.
DIVIDENDS AND DISTRIBUTIONS
The Fund declares and pays dividends and distributions as described
under "Dividends and Distributions" in the Prospectus.
Dividends and capital gains distributions paid by the Fund are
automatically reinvested in additional shares of the Fund unless the shareholder
has elected to have them paid in cash. Dividends and distributions to be paid in
cash are credited to the shareholder's account at Morgan or at his financial
professional or, in the case of certain Morgan customers, are mailed by check in
accordance with the customer's instructions. The Fund reserves the right to
discontinue, alter or limit the automatic reinvestment privilege at any time.
<PAGE>
If a shareholder has elected to receive dividends and/or capital gain
distributions in cash and the postal or other delivery service is unable to
deliver checks to the shareholder's address of record, such shareholder's
distribution option will automatically be converted to having all dividend and
other distributions reinvested in additional shares. No interest will accrue on
amounts represented by uncashed distribution or redemption checks.
NET ASSET VALUE
The Fund computes its net asset value separately for each class of
shares outstanding once daily as of the close of trading on the New York Stock
Exchange (normally 4:00 p.m. eastern time) on each business day as described in
the Prospectus. The net asset value will not be computed on the day the
following legal holidays are observed: New Year's Day, Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day. On days when U.S. trading markets close
early in observance of these holidays, the Fund will close for purchases and
redemptions at the same time. The Fund 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 Funds' business days.
The net asset value of the 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 Portfolio corresponding to the Fund in valuing its assets.
Portfolio securities are valued at the last sale price on the
securities exchange or national securities market on which such securities are
primarily traded. Unlisted securities are valued at the last average of the
quoted bid and asked prices in the OTC market. The value of each security for
which readily available market quotations exist is based on a decision as to the
broadest and most representative market for such security. For purposes of
calculating net asset value all assets and liabilities initially expressed in
foreign currencies will be converted into U.S. dollars at the prevailing average
currency exchange rate on the valuation date.
Securities or other assets for which market quotations are not readily
available (including certain restricted and illiquid securities) are valued at
fair value in accordance with procedures established by and under the general
supervision and responsibility of the Trustees. Such procedures include the use
of independent pricing services which use prices based upon yields or prices of
securities of comparable quality, coupon, maturity and type; indications as to
values from dealers; and general market conditions. Short-term investments which
mature in 60 days or less are valued at amortized cost if their original
maturity was 60 days or less, or by amortizing their value on the 61st day prior
to maturity, if their original maturity when acquired by the Portfolio was more
than 60 days, unless this is determined not to represent fair value by the
Trustees.
Trading in securities in most foreign markets is normally completed
before the close of trading in U.S. markets and may also take place on days on
which the U.S. markets are closed. If events materially affecting the value of
securities occur between the time when the market in which they are traded
closes and the time when the Portfolio's net asset value is calculated, such
<PAGE>
securities will be valued at fair value in accordance with procedures
established by and under the general supervision of the Trustees.
PERFORMANCE DATA
From time to time, the Fund may quote performance in terms of actual
distributions, total return or capital appreciation in reports, sales literature
and advertisements published by the Trust. Shareholders may obtain current
performance information by calling the number provided on the cover page of this
Statement of Additional Information. See also the Prospectus.
Comparative performance information may be used from time to time in
advertising the Funds' shares, including appropriate market indices including
the benchmarks indicated under "Investment Advisor" above or data from Lipper
Analytical Services, Inc., Micropal, Inc., Ibbotson Associates, Morningstar
Inc., the Dow Jones Industrial
Average and other industry publications.
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
operations, 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. This method of calculating total return is required by
regulations of the SEC. Total return data similarly calculated, unless otherwise
indicated, over other specified periods of time may also be used. All
performance figures are based on historical earnings and are not intended to
indicate future performance.
Total Return Quotations. The Fund may advertise "total return" and
non-standardized total return data. The total return shows what an investment in
a Fund would have earned over a specified period of time (one, five or ten years
or since commencement of operations, 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. This method of calculating total return is
required by regulations of the SEC. Total return data similarly calculated,
unless otherwise indicated, over other specified periods of time may also be
used. All performance figures are based on historical earnings and are not
intended to indicate future performance.
As required by regulations of the SEC, the average annual total return
of the Fund for a period is computed by assuming a hypothetical initial payment
of $1,000. It is then assumed that all of the dividends and distributions by the
Fund over the period are reinvested. It is then assumed that at the end of the
period, the entire amount is redeemed. The average annual total return is then
calculated by determining the annual rate required for the initial payment to
grow to the amount which would have been received upon redemption.
Aggregate total returns, reflecting the cumulative percentage change
over a measuring period, may also be calculated.
Below is set forth historical return information for the Fund for the
period indicated.
(6/30/98): Average annual total return, 1 year: 18.42%; average annual
total return, 5 years: N/A; average annual total return, commencement of
operations(*) to period end: 14.82%; aggregate total return, 1 year: 18.42%;
aggregate total return, 5 years: N/A; aggregate total return, commencement of
operations(*) to period end: 94.26%.
<PAGE>
- -------------------
* The Fund commenced public investment operations on September 10, 1993.
General. The Fund's performance will vary from time to time depending upon
market conditions, the composition of the Portfolio and the Fund's 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.
From time to time, the Fund may, in addition to any other permissible
information, include the following types of information in advertisements,
supplemental sales literature and reports to shareholders: (1) discussions of
general economic or financial principles (such as the effects of compounding and
the benefits of dollar-cost averaging); (2) discussions of general economic
trends; (3) presentations of statistical data to supplement such discussions;
(4) descriptions of past or anticipated portfolio holdings (5) descriptions of
investment strategies; (6) descriptions or comparisons of various savings and
investment products (including, but not limited to, qualified retirement plans
and individual stocks and bonds), which may or may not include the Fund; (7)
comparisons of investment products (including the Fund) with relevant markets or
industry indices or other appropriate benchmarks; (8) discussions of fund
rankings or ratings by recognized rating organizations; and (9) discussions of
various statistical methods quantifying the fund's volatility relative to its
benchmark or to past performance, including risk adjusted measures. The Fund may
also include calculations, such as hypothetical compounding examples, which
describe hypothetical investment results in such communications. Such
performance examples will be based on an express set of assumptions and are not
indicative of the performance of the Fund.
PORTFOLIO TRANSACTIONS
The Advisor places orders for the 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 all the Portfolio. See "Investment Objective and Policies."
Fixed income and debt securities are generally traded at a net price
with dealers acting as principal for their own accounts without a stated
commission. The price of the security usually includes profit to the dealers. In
underwritten offerings, securities are purchased at a fixed price which includes
an amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount. On occasion, certain securities may be
purchased directly from an issuer, in which case no commissions or discounts are
paid.
Portfolio transactions for the Portfolio's fixed income investments 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 fixed income portfolio transactions for the
Portfolio, the Advisor intends to seek best execution on a competitive basis for
both purchases and sales of securities.
<PAGE>
In connection with transactions in Equity Securities for the Portfolio,
the overriding objective is to obtain the best execution of purchase and sale
orders.
In selecting a broker, the Advisor considers a number of factors
including: the price per unit of the security; the broker's reliability for
prompt, accurate confirmations and on-time delivery of securities; the firm's
financial condition; as well as the commissions charged. A broker may be paid a
brokerage commission in excess of that which another broker might have charged
for effecting the same transaction if, after considering the foregoing factors,
the Advisor decides that the broker chosen will provide the best execution. The
Advisor monitors the reasonableness of the brokerage commissions paid in light
of the execution received. The Trustees of the Portfolio review regularly the
reasonableness of commissions and other transaction costs incurred by the
Portfolio in light of facts and circumstances deemed relevant from time to time,
and, in that connection, will receive reports from the Advisor and published
data concerning transaction costs incurred by institutional investors generally.
Research services provided by brokers to which the Advisor has allocated
brokerage business in the past include economic statistics and forecasting
services, industry and company analyses, portfolio strategy services,
quantitative data, and consulting services from economists and political
analysts. Research services furnished by brokers are used for the benefit of all
the Advisor's clients and not solely or necessarily for the benefit of the
Portfolio. The Advisor believes that the value of research services received is
not determinable and does not significantly reduce its expenses. The Portfolio
does not reduce its fee to the Advisor by any amount that might be attributable
to the value of such services.
The Portfolio paid the following approximate brokerage commissions for the
fiscal years ended June 30, 1998: $314,363; 1997: $219,273; and 1996: $220,206.
Subject to the overriding objective of obtaining the best possible
execution of orders, the Advisor may allocate a portion of the Portfolio's
brokerage transactions to affiliates of the Advisor. In order for affiliates of
the Advisor to effect any portfolio transactions for the Portfolio, the
commissions, fees or other remuneration received by such affiliates must be
reasonable and fair compared to the commissions, fees, or other remuneration
paid to other brokers in connection with comparable transactions involving
similar securities being purchased or sold on a securities exchange during a
comparable period of time. Furthermore, the Trustees of the Portfolio, including
a majority of the Trustees who are not "interested persons," have adopted
procedures which are reasonably designed to provide that any commissions, fees,
or other remuneration paid to such affiliates are consistent with the foregoing
standard.
Portfolio securities will not be purchased from or through or sold to or
through the Co-Administrator, the Distributor or the Advisor or any other
"affiliated person" (as defined in the 1940 Act) of the Co-Administrator,
Distributor or Advisor when such entities are acting as principals, except to
the extent permitted by law. In addition, the 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.
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
<PAGE>
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.
If the Portfolio effects a closing purchase transaction with respect to
an option written by it, normally such transaction will be executed by the same
broker-dealer who executed the sale of the option. The writing of options by the
Portfolio will be subject to limitations established by each of the exchanges
governing the maximum number of options in each class which may be written by a
single investor or group of investors acting in concert, regardless of whether
the options are written on the same or different exchanges or are held or
written in one or more accounts or through one or more brokers. The number of
options which the Portfolio may write may be affected by options written by the
Advisor for other investment advisory clients. An exchange may order the
liquidation of positions found to be in excess of these limits, and it may
impose certain other sanctions.
MASSACHUSETTS TRUST
The Trust is 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.
Under Massachusetts law, shareholders of such a trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
trust. However, the Trust's Declaration of Trust provides that the shareholders
will not be subject to any personal liability for the acts or obligations of any
Fund and that every written agreement, obligation, instrument or undertaking
made on behalf of any Fund will contain a provision to the effect that the
shareholders are not personally liable thereunder.
Effective January 1, 1998, the name of the Trust was changed from "The
JPM Institutional Funds" to "J.P. Morgan Institutional Funds", and the Fund's
name changed accordingly.
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.
<PAGE>
DESCRIPTION OF SHARES
The Trust is an open-end management investment company organized as a
Massachusetts business trust on November 4, 1992 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) without changing the proportionate beneficial interest of each
shareholder in a series (or in the assets of other series, if applicable). To
date shares of 23 series have been authorized and are available for sale to the
public. 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 or elsewhere in this
Statement of Additional Information.
The shareholders of the Trust are entitled to one vote for each dollar
of net asset value (or a proportionate fractional vote in respect of a
fractional dollar amount), on matters on which shares of the Fund shall be
entitled to vote. 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
<PAGE>
expenses of mailing, shall, with reasonable promptness, mail such
material to all shareholders of record at their addresses as recorded on the
books, unless within five business days after such tender the Trustees shall
mail to such applicants and file with the SEC, together with a copy of the
material to be mailed, a written statement signed by at least a majority of the
Trustees to the effect that in their opinion either such material contains
untrue statements of fact or omits to state facts necessary to make the
statements contained therein not misleading, or would be in violation of
applicable law, and specifying the basis of such opinion. After opportunity for
hearing upon the objections specified in the written statements filed, the SEC
may, and if demanded by the Trustees or by such applicants shall, enter an order
either sustaining one or more of such objections or refusing to sustain any of
them. If the SEC shall enter an order refusing to sustain any of such
objections, or if, after the entry of an order sustaining one or more of such
objections, the SEC shall find, after notice and opportunity for hearing, that
all objections so sustained have been met, and shall enter an order so
declaring, the Trustees shall mail copies of such material to all shareholders
with reasonable promptness after the entry of such order and the renewal of such
tender.
The Trustees have no current intention to create any classes within the
initial series or any subsequent series. The Trustees may 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 Portfolio shares or
their redemption at the option of the Trust under certain circumstances, see
"Redemption of Shares."
As of September 30, 1998, the following owned of record or, to the
knowledge of management, beneficially owned more than 5% of the outstanding
shares of the Fund:
Celtic Insurance Company Ltd. (11.93%); Boston Foundation Inc. (9.22%);
Morgan as Agent for Unifi Inc. Profit Sharing Plan Trust J.P. Morgan
Institutional Dividend Fund NationsBank Master Trust (8.32%); T.J. Martell
Foundation (6.23%); Boehringer Ingelheim Corporations and its Affiliates
Retirement Savings Plan (5.70%); CBS Corporation Investment Plan Bankers Trust
Co as Trustee (5.12%).
The address of the owners listed above is c/o Morgan, 522 Fifth Avenue,
New York, New York 10036. As of the date of this Statement of Additional
Information, the officers and Trustees as a group owned less than 1% of the
shares of the Fund.
<PAGE>
SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE
Unlike other mutual funds which directly acquire and manage their own
portfolio 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 a corresponding Portfolio, a separate registered investment
company with the same investment objective and policies as the Fund. Fund
shareholders are entitled to one vote for each dollar of net asset value (or a
proportionate fractional vote in respect of a fractional dollar amount), on
matters on which shares of the Fund shall be entitled to vote.
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 concerning 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 Trustees
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
investment objective and restrictions as the Fund or the retaining of an
investment 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 fundamental investment policies or
restrictions, or a failure by the Fund's shareholders to approve such change in
the Portfolio's investment 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 distribution) from the
Portfolio which may or may not be readily marketable. The distribution 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 redemption requests, such
as borrowing.
Smaller funds investing in the Portfolio may be materially affected by
the actions 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.
Additionally, because the Portfolio would become smaller, it may become
less diversified, resulting in potentially increased portfolio risk (however,
these possibilities also exist for traditionally structured funds which have
large or institutional investors who may withdraw from a fund). Also, funds with
a greater pro rata ownership in the Portfolio could have effective voting
control 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
<PAGE>
investor 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.
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 subject to change by legislative or administrative action.
The Fund intends to qualify and remain qualified as a regulated
investment company under Subchapter M of the Code. As a regulated investment
company, the Fund must, among other things, (a) derive at least 90% of its gross
income from dividends, interest, payments with respect to loans of stock and
securities, gains from the sale or other disposition of stock, securities 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; and (b) diversify its
holdings so that, at the end of each fiscal 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, investments in other regulated investment
companies, and other securities limited, in respect of any one issuer, to an
amount not greater than 5% of the Fund's total assets, and 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its total assets is invested in the securities of any one issuer (other
than U.S. Government securities or securities of other regulated investment
companies).
As a regulated investment company, the Fund (as opposed to its
shareholders) will not be subject to federal income taxes on the net investment
income and capital gains that it distributes to its shareholders, provided that
at least 90% of its net investment income and realized net short-term capital
gains in excess of net long-term capital losses for the taxable year is
distributed in accordance with the Code's timing requirements.
Under the Code, the Fund will be subject to a 4% excise tax on a
portion of its undistributed taxable income and capital gains if it fails to
meet certain distribution requirements by the end of the calendar year. The Fund
intends to make distributions in a timely manner and accordingly does not expect
to be subject to the excise tax.
For federal income tax purposes, dividends that are declared by the
Fund in October, November or December as of a record date in such month and
actually paid in January of the following year will be treated as if they were
paid on December 31 of the year declared. Therefore, such dividends generally
will be taxable to a shareholder in the year declared rather than the year paid.
Distributions of net investment income, certain foreign currency gains, and
realized net short-term capital gain in excess of net long-term capital losses
(other than exempt interest dividends) are generally taxable to shareholders of
the Fund as ordinary income whether such distributions are taken in cash or
reinvested in additional shares. If dividend payments exceed income earned by
the Fund, the over distribution would be considered a return of capital rather
than a dividend payment. The Fund intends to pay dividends in such a manner so
as to minimize the possibility of a return of capital. The
<PAGE>
Fund expects that a portion of these distributions to corporate
shareholders will be eligible for the dividends-received deduction, subject to
applicable limitations under the Code. 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. In
general, long-term capital gain of an individual shareholder will be subject to
a reduced rate of tax. Investors should consult their tax advisors concerning
the treatment of capital gains and losses.
Gains or losses on sales of portfolio securities will be treated as
long-term capital gains or losses if the securities have been held for more than
one year except in certain cases where, if applicable, a put is acquired or a
call option is written thereon or the straddle rules described below are
otherwise applicable. Other gains or losses on the sale of securities will be
short-term capital gains or losses. Gains and losses on the sale, lapse or other
termination of options on securities will be treated as gains and losses from
the sale of securities. If an option written by the 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.
Any distribution of net investment income or capital gains will have
the effect of reducing the net asset value of Fund shares held by a shareholder
by the same amount as the distribution. If the net asset value of the shares is
reduced below a shareholder's cost as a result of such a distribution, the
distribution, although constituting a return of capital to the shareholder, will
be taxable as described above.
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 (i) 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, and (ii) will be disallowed to the extent of any
exempt-interest dividends received by the shareholder with respect to such
shares. In addition, no loss will be allowed on the redemption or exchange of
shares of the Fund, if within a period beginning 30 days before the date of such
redemption or exchange and ending 30 days after such date, the shareholder
acquires (such as through dividend reinvestment) securities that are
substantially identical to shares of the Fund.
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.
<PAGE>
Forward currency contracts, options and futures contracts entered into
by the Portfolio may create "straddles" for U.S. federal income tax purposes and
this may affect the character and timing of gains or losses realized by the
Portfolio on forward currency contracts, options and futures contracts or on the
underlying securities.
Certain options, futures and foreign currency contracts held by the
Portfolio at the end of each taxable year will be required to be "marked to
market" for federal income tax purposes -- i.e., treated as having been sold at
market value. For options and futures contracts, 60% of any gain or loss
recognized on these deemed sales and on actual dispositions will be treated as
long-term capital gain or loss, and the remainder will be treated as short-term
capital gain or loss regardless of how long the Portfolio has held such options
or futures. However, gain or loss recognized on certain foreign currency
contracts will be treated as ordinary income or loss.
The Portfolio may invest in equity securities of foreign issuers. If
the Portfolio purchases shares in certain foreign corporations (referred to as
passive foreign investment companies ("PFICs") under the Code, the Fund may be
subject to federal income tax on a portion of any "excess distribution" from
such foreign corporation including any gain from the disposition of such shares,
even though a portion of such income may have to be distributed as a taxable
dividend by the Fund to its shareholders. In addition, certain interest charges
may be imposed on the Fund as a result of any such distributions. Alternatively,
a Fund may in some cases be permitted to include each year in its income and
distribute to shareholders a pro rata portion of the PFIC's income, whether or
not distributed to the Fund.
For taxable years of the Portfolio beginning after 1997, the Portfolio
will be permitted to "mark to market" any marketable stock held by the Portfolio
in a PFIC. If the Portfolio made such an election, the Fund would include in
income each year an amount equal to its share of the excess, if any of the fair
market value of the PFIC stock as of the taxable year over the adjusted basis of
such stock. The Fund would be allowed a deduction for its shares in excess, if
any, of the adjusted basis of the PFIC stock over its fair market value as of
the close of the taxable year, but only to the extent of any net mark-to-market
gains with respect to the stock included by the Fund for prior taxable years.
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.
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.
<PAGE>
In the case of a foreign shareholder who is a nonresident alien
individual or foreign entity, the Fund may be required to withhold U.S. federal
income tax as "backup withholding" at the rate of 31% from distributions treated
as long-term capital gains and from the proceeds of redemptions, exchanges or
other dispositions of Fund shares unless IRS Form W-8 is provided. Transfers by
gift of shares of the Fund by a foreign shareholder who is a nonresident alien
individual will not be subject to U.S. federal gift tax, but the value of shares
of the Fund held by such a shareholder at his or her death will be includible in
his or her gross estate for U.S. federal estate tax purposes.
Foreign Taxes. It is expected that the Fund may be subject to foreign
withholding taxes or other foreign taxes with respect to income (possibly
including, in some cases, capital gains) received from sources within foreign
countries. So long as more than 50% in value of the total assets of the Fund at
the close of any taxable year consists of stock or securities of foreign
corporations, the Fund may elect to treat any foreign income taxes deemed paid
by it as paid directly by its shareholders. The Fund will make such an election
only if it deems it to be in the best interest of Fund shareholders. The Fund
will notify its shareholders in writing each year if it makes the election and
of the amount of foreign income taxes, if any, to be treated as paid by the
shareholders and the amount of foreign taxes, if any, for which shareholders of
the Fund will not be eligible to claim a foreign tax credit because the holding
period requirements (described below) have not been satisfied. If the Fund makes
the election, each shareholder will be required to include in his income (in
addition to the dividends and distributions he receives) his proportionate share
of the amount of foreign income taxes deemed paid by the Fund and will be
entitled to claim either a credit (subject to the limitations discussed below)
or, if he itemizes deductions, a deduction for his share of the foreign income
taxes in computing federal income tax liability (no deduction will be permitted
in computing an individual's alternative minimum tax liability). Effective for
dividends paid after September 5, 1997, shareholders of the Fund will not be
eligible to claim a foreign tax credit with respect to taxes paid by the Fund
(notwithstanding that the Fund elects to treat the foreign taxes deemed paid by
it as paid directly by its shareholders) unless certain holding period
requirements are met. A shareholder who is a nonresident alien individual or a
foreign corporation may be subject to U.S. withholding tax on the income
resulting from the election described in this paragraph, but may not be able to
claim a credit or deduction against such U.S. tax for the foreign taxes treated
as having been paid by such shareholder. A tax-exempt shareholder will not
ordinarily benefit from this election. Shareholders who choose to utilize a
credit (rather than a deduction) for foreign taxes will be subject to the
limitation that the credit may not exceed the shareholder's U.S. tax (determined
without regard to the availability of the credit) attributable to his or her
total foreign source taxable income. For this purpose, the portion of dividends
and distributions paid by the Fund from its foreign source net investment income
will be treated as foreign source income. The Fund's gains and losses from the
sale of securities will generally be treated as derived from U.S. sources,
however, and certain foreign currency gains and losses likewise will be treated
as derived from U.S. sources. The limitation on the foreign tax credit is
applied separately to foreign source "passive income," such as the portion of
dividends received from the Fund which qualifies as foreign source income. In
addition, the foreign tax credit is allowed to offset only 90% of the
alternative minimum tax imposed on corporations and individuals. Because of
these limitations, if the election is made, shareholders may nevertheless be
unable to claim a credit for the full amount of their proportionate shares of
the foreign income taxes paid by the
<PAGE>
Portfolio. Effective for taxable years of a shareholder beginning after
December 31, 1997, individual shareholders of the Fund with $300 or less of
creditable foreign taxes ($600 in the case of an individual shareholder filing
jointly) may elect to be exempt from the foreign tax credit limitation rules
described above (other than the 90% limitation applicable for purposes of the
alternative minimum tax), provided that all of such individual shareholder's
foreign source income is "qualified passive income" (which generally includes
interest, dividends, rents, royalties and certain other types of income) and
further provided that all of such foreign source income is shown on one or more
payee statements furnished to the shareholder. Shareholders making this election
will not be permitted to carry over any excess foreign taxes to or from a tax
year to which such an election applies.
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
Telephone calls to the Fund, J.P. Morgan or a Financial Professional 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 1940 Act and the Portfolio's
registration statement 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.
<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 Portfolio or the Distributor. The Prospectus and this Statement of
Additional Information do not constitute an offer by the Fund or by the
Distributor to sell or solicit any offer to buy any of the securities offered
hereby in any jurisdiction to any person to whom it is unlawful for the Fund or
the Distributor to make such offer in such jurisdictions.
The Year 2000 Initiative. With the new millennium rapidly approaching,
organizations are examining their computer systems to ensure they are year 2000
compliant. The issue, in simple terms, is that many existing computer systems
use only two numbers to identify a year in the date field with the assumption
that the first two digits are always 19. As the century is implied in the date,
on January 1, 2000, computers that are not year 2000 compliant will assume the
year is 1900. Systems that calculate, compare, or sort using the incorrect date
will cause erroneous results, ranging from system malfunctions to incorrect or
incomplete transaction processing. If not remedied, potential risks include
business interruption or shutdown, financial loss, reputation loss, and/or legal
liability.
J.P. Morgan has undertaken a firmwide initiative to address the year
2000 issue and has developed a comprehensive plan to prepare, as appropriate,
its computer systems. Each business line has taken responsibility for
identifying and fixing the problem within its own area of operation and for
addressing all interdependencies. A multidisciplinary team of internal and
external experts supports the business teams by providing direction and firmwide
coordination. Working together, the business and multidisciplinary teams have
completed a thorough education and awareness initiative and a global inventory
and assessment of J.P. Morgan's technology and application portfolio to
understand the scope of the year 2000 impact at J.P. Morgan. J.P. Morgan
presently is renovating and testing these technologies and applications in
partnership with external consulting and software development organizations, as
well as with year 2000 tool providers. J.P. Morgan is on target with its plan to
substantially complete renovation, testing, and validation of its key systems by
year-end 1998 and to participate in industry-wide testing (or streetwide
testing) in 1999. J.P. Morgan is also working with key external parties,
including clients, counterparties, vendors, exchanges, depositories, utilities,
suppliers, agents and regulatory agencies, to stem the potential risks the year
2000 problem poses to J.P. Morgan and to the global financial community.
Costs associated with efforts to prepare J.P. Morgan's systems for the
year 2000 approximated $95 million in 1997. In 1998, J.P. Morgan will continue
its efforts to prepare its systems for the year 2000. The total cost to become
year-2000 compliant is estimated at $250 million, for internal systems
renovation and testing, testing equipment, and both internal and external
resources working on the project. Remaining costs will be incurred primarily in
1998. The costs associated with J.P. Morgan becoming year-2000 compliant will be
borne by J.P. Morgan and not the Fund nor the Portfolio.
The Euro. Effective January 1, 1999 the euro, a single multinational
currency, will replace the national currencies of certain countries in the
Economic Monetary Union (EMU). Conversion rates among EMU countries will be
fixed on December 31, 1998, however, existing currencies will still be used
through July 1, 2002. During this transition period, transactions may be
<PAGE>
settled in either euro or existing currencies, but financial markets
and payment systems are expected to use the euro exclusively. Beginning January
1, 1999, J.P. Morgan intends to conduct and settle all fund transactions, where
appropriate, in the euro.
J.P. Morgan has identified the following potential risks to the Fund,
after the conversion: The risk that valuation of assets are not properly
redenominated; currency risk resulting from increased volatility in exchange
rates between EMU countries and non-participating countries; the inability any
of the Funds, their service providers and the issuers of the Fund's portfolio
securities to make information technology updates timely; and the potential
unenforceability of contracts. There have been recent laws and regulations
designed to ensure the continuity of contracts, however there is a risk that
the valuation of contracts will be negatively impacted after the Funds'
conversion. J.P. Morgan is working to avoid these problems and to obtain
assurances from other service providers that they are taking similar steps.
However, it is not certain that these actions will be sufficient to prevent
problems associated with the conversion from adversely impacting fund
operations and shareholders.
The I.R.S has concluded that euro conversion will not cause a U.S.
taxpayer to realize gain or loss to the extent taxpayer's rights and
obligations are altered solely by reason of the conversion.
FINANCIAL STATEMENTS
The financial statements and the reports thereon of
PricewaterhouseCoopers LLP are incorporated herein by reference from the Fund's
June 30, 1998 annual report filing made with the SEC pursuant to Section 30(b)
of the 1940 Act and Rule 30b2-1 thereunder (Accession No. 0001047469-98-033154).
The Fund's financial reports include the Portfolio's financial statements. The
annual and subsequent semi-annual reports are available without charge upon
request by calling J.P. Morgan Funds Services at (800) 766-7722.
<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.
BB - Debt rated BB is regarded as having less near-term vulnerability to default
than other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments.
B - An obligation rated B is more vulnerable to nonpayment than obligations
rated BB, but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
CCC - An obligation rated CCC is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
CC - An obligation rated CC is currently highly vulnerable to nonpayment.
C - The C rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments on this obligation
are being continued.
Commercial Paper, including Tax Exempt
A - Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined with
the designations 1, 2, and 3 to indicate the relative degree of safety.
A-1 - This designation indicates that the degree of safety regarding timely
payment is very strong.
<PAGE>
Short-Term Tax-Exempt Notes
SP-1 - The short-term tax-exempt note rating of SP-1 is the highest rating
assigned by Standard & Poor's and has a very strong or strong capacity to pay
principal and interest. Those issues determined to possess overwhelming safety
characteristics are given a "plus" (+) designation.
SP-2 - The short-term tax-exempt note rating of SP-2 has a satisfactory capacity
to pay principal and interest.
MOODY'S
Corporate and Municipal Bonds
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
Fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
<PAGE>
C - Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Commercial Paper, including Tax Exempt
Prime-1 - Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
- - Leading market positions in well established industries.
- - High rates of return on funds employed.
- - Conservative capitalization structures with moderate reliance on debt and
ample asset protection.
- - Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- - Well established access to a range of financial markets and assured sources of
alternate liquidity.
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.
<PAGE>
PART C
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements
The following financial statements are included in Part A:
Financial Highlights: J.P. Morgan Institutional Diversified Fund
The following financial statements are incorporated by reference into Part B:
J.P. MORGAN INSTITUTIONAL DIVERSIFIED FUND
Statement of Assets and Liabilities at June 30, 1998
Statement of Operations for the fiscal year ended June 30, 1998
Statement of Changes in Net Assets for the fiscal years ended June 30, 1998 and
1997 Financial Highlights
Notes to Financial Statements June 30, 1998
THE DIVERSIFIED PORTFOLIO Schedule of Investments at June 30, 1998
Statement of Assets and Liabilities at June 30, 1998
Statement of Operations for the fiscal year ended June 30, 1998
Statement of Changes in Net Assets for the fiscal years ended June 30, 1998 and
1997 Supplementary Data
Notes to Financial Statements June 30, 1998
(b) Exhibits
Exhibit Number
1. Declaration of Trust, as amended, was filed as Exhibit No. 1 to
Post-Effective Amendment No. 25 to the Registration Statement filed on September
26, 1996 (Accession Number 0000912057-96-021281).
1(a). Amendment No. 5 to Declaration of Trust; Amendment and Fifth Amended
and Restated Establishment and Designation of Series of Shares of Beneficial
Interest.*
1(b). Amendment No. 6 to Declaration of Trust; Amendment and Sixth Amended
and Restated Establishment and Designation of Series of Shares of Beneficial
Interest filed as Exhibit No. 1(b) to Post-Effective Amendment No. 31 to the
Registration Statement on February 28, 1997 (Accession Number
0001016964-97-000041).
1(c). Amendment No. 7 to Declaration of Trust; Amendment and Seventh
Amended and Restated Establishment and Designation of Series of Shares of
Beneficial Interest filed as Exhibit No. 1(c) to Post-Effective Amendment No. 32
to the Registration Statement on April 15, 1997 (Accession Number
0001016964-97-000053).
1(d). Amendment No. 8 to Declaration of Trust; Amendment and Eighth Amended
and Restated Establishment and Designation of Series of Shares of Beneficial
Interest filed as Exhibit No. 1(d) to Post-Effective Amendment No. 40 to the
Registration Statement on October 9, 1997 (Accession Number
0001016964-97-000158).
1(e) Amendment No. 9 to Declaration of Trust; Amendment and Ninth Amended
and Restated Establishment and Designation of Series of Shares of Beneficial
Interest. (filed herewith)
2. Restated By-Laws of Registrant.*
4. Form of Share Certificate.*
6. Distribution Agreement between Registrant and Funds Distributor, Inc.
("FDI").*
8. Custodian Contract between Registrant and State Street Bank and Trust
Company ("State Street").*
9(a). Co-Administration Agreement between Registrant and FDI.*
9(b). Restated Shareholder Servicing Agreement between Registrant and
Morgan Guaranty Trust Company of New York ("Morgan Guaranty").**
9(c). Transfer Agency and Service Agreement between Registrant and State
Street.*
9(d). Restated Administrative Services Agreement between Registrant and
Morgan Guaranty.*
9(e). Fund Services Agreement, as amended, between Registrant and Pierpont
Group, Inc.*
9(f). Service Plan with respect to Registrant's Service Money Market
Funds.** 10. Opinion and consent of Sullivan & Cromwell.*
11. Consents of independent accountants. (filed herewith)
13. Purchase agreements with respect to Registrant's initial shares.*
16. Schedule for computation of performance quotations.*
18. Powers of Attorney were filed as Exhibit No. 18 to Post-Effective
Amendment No. 40 to the Registration Statement on October 9, 1997 (Accession
Number 0001016964-97-000158).
27. Financial Data Schedules. (filed herewith)
- -------------------------
* Incorporated herein by reference to Post-Effective Amendment No. 29 to
the Registration Statement filed on December 26, 1996 (Accession Number
0001016964-96-000061).
** Incorporated herein by reference to Post-Effective Amendment No. 33 to
the Registration Statement filed on April 30, 1997 (Accession Number
00001016964-97-000059).
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Not applicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
Shares of Beneficial Interest ($0.001 par value).
Title of Class: Number of Record Holders as of February 27, 1998.
J.P. Morgan Institutional Prime Money Market Fund: 528
J.P. Morgan Institutional Federal Money Market Fund: 237
J.P. Morgan Institutional Bond Fund: 242
J.P. Morgan Institutional Diversified Fund: 111
J.P. Morgan Institutional U.S. Small Company Fund: 544
J.P. Morgan Institutional International Equity Fund: 367
J.P. Morgan Institutional Emerging Markets Equity Fund: 400
J.P. Morgan Institutional International Bond Fund: 47
J.P. Morgan Institutional Short Term Bond Fund: 75
J.P. Morgan Institutional U.S. Equity Fund: 194
J.P. Morgan Institutional Tax Exempt Money Market Fund: 455
J.P. Morgan Institutional Tax Exempt Bond Fund: 324
J.P. Morgan Institutional New York Tax Exempt Bond Fund: 121
J.P. Morgan Institutional European Equity Fund: 57
J.P. Morgan Institutional Disciplined Equity Fund: 226
J.P. Morgan Institutional International Opportunities Fund: 408
J.P. Morgan Institutional Global Strategic Income Fund: 199
J.P. Morgan Institutional Treasury Money Market Fund: 50
J.P. Morgan Institutional Service Prime Money Market Fund: 127
J.P. Morgan Institutional Service Federal Money Market Fund: 39
J.P. Morgan Institutional Service Tax Exempt Money Market Fund: 21
J.P. Morgan Institutional Service Treasury Money Market Fund: 111
J.P. Morgan Institutional Bond Fund - Ultra: 22
ITEM 27. INDEMNIFICATION.
Reference is made to Section 5.3 of Registrant's Declaration of Trust and
Section 5 of Registrant's Distribution Agreement.
Registrant, its Trustees and officers are insured against certain expenses in
connection with the defense of claims, demands, actions, suits, or proceedings,
and certain liabilities that might be imposed as a result of such actions, suits
or proceedings.
Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended (the "1933 Act"), may be permitted to directors, trustees,
officers and controlling persons of the Registrant and the principal underwriter
pursuant to the foregoing provisions or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the 1933 Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, trustee, officer, or controlling person of the Registrant
and the principal underwriter in connection with the successful defense of any
action, suite or proceeding) is asserted against the Registrant by such
director, trustee, officer or controlling person or principal underwriter in
connection with the shares being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the 1933 Act and
will be governed by the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Not Applicable.
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) FDI, located at 60 State Street, Suite 1300, Boston, Massachusetts 02109, is
the principal underwriter of the Registrant's shares.
FDI acts as principal underwriter of the following investment companies other
than the Registrant:
American Century California Tax-Free and Municipal Funds
American Century Capital Portfolios, Inc.
American Century Government Income Trust
American Century International Bond Funds
American Century Investment Trust
American Century Municipal Trust
American Century Mutual Funds, Inc.
American Century Premium Reserves, Inc.
American Century Quantitative Equity Funds
American Century Strategic Asset Allocations, Inc.
American Century Target Maturities Trust
American Century Variable Portfolios, Inc.
American Century World Mutual Funds, Inc.
BJB Investment Funds
The Brinson Funds
Dresdner RCM Capital Funds, Inc.
Dresdner RCM Equity Funds, Inc.
Founders Funds, Inc.
Harris Insight Funds Trust
HT Insight Funds, Inc. d/b/a Harris Insight Funds
J.P. Morgan Funds
J.P. Morgan Series Trust
J.P. Morgan Series Trust II
LaSalle Partners Funds, Inc.
Monetta Fund, Inc.
Monetta Trust
The Montgomery Funds
The Montgomery Funds II
The Munder Framlington Funds Trust
The Munder Funds Trust
The Munder Funds, Inc.
Orbitex Group of Funds
St. Clair Funds, Inc.
The Skyline Funds
Waterhouse Investors Family of Funds, Inc.
WEBS Index Fund, Inc.
FDI is registered with the Securities and Exchange Commission as a broker-dealer
and is a member of the National Association of Securities Dealers. FDI is an
indirect wholly-owned subsidiary of Boston Institutional Group, Inc., a holding
company all of whose outstanding shares are owned by key employees.
(b) The information required by this Item 29(b) with respect to each director,
officer and partner of FDI is incorporated herein by reference to Schedule A of
Form BD filed by FDI with the Securities and Exchange Commission pursuant to the
Securities Act of 1934 (SEC File No. 8-20518).
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
PIERPONT GROUP, INC.: 461 Fifth Avenue, New York, New York 10017 (records
relating to its assisting the Trustees in carrying out their duties in
supervising the Registrant's affairs).
MORGAN GUARANTY TRUST COMPANY OF NEW YORK: 60 Wall Street, New York, New
York 10260-0060, 522 Fifth Avenue, New York, New York 10036 or 9 West 57th
Street, New York, New York 10019 (records relating to its functions as
shareholder servicing agent and administrative services agent).
STATE STREET BANK AND TRUST COMPANY: 1776 Heritage Drive, North Quincy,
Massachusetts 02171 and 40 King Street West, Toronto, Ontario, Canada M5H 3Y8
(records relating to its functions as fund accountant, custodian, transfer agent
and dividend disbursing agent).
FUNDS DISTRIBUTOR, INC.: 60 State Street, Suite 1300, Boston, Massachusetts
02109 (records relating to its functions as distributor and co-administrator).
ITEM 31. MANAGEMENT SERVICES.
Not Applicable.
ITEM 32. UNDERTAKINGS.
(a) If the information called for by Item 5A of Form N-1A is contained in
the latest annual report to shareholders, the Registrant shall furnish
each person to whom a prospectus is delivered with a copy of the
Registrant's latest annual report to shareholders upon request and
without charge.
(b) The Registrant undertakes to comply with Section 16(c) of the 1940 Act
as though such provisions of the 1940 Act were applicable to the
Registrant, except that the request referred to in the third full
paragraph thereof may only be made by shareholders who hold in the
aggregate at least 10% of the outstanding shares of the Registrant,
regardless of the net asset value of shares held by such requesting
shareholders.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this registration statement
to be signed on its behalf by the undersigned, thereto duly authorized, in the
City of Boston and Commonwealth of Massachusetts on the 28th day of October,
1998.
J.P. MORGAN INSTITUTIONAL FUNDS
By /s/ Michael S. Petrucelli
--------------------------
Michael S. Petrucelli
Vice President and Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed below by the following persons in the capacities
indicated on October 28, 1998.
George A. Rio*
- ------------------------------
George A. Rio
President and Treasurer
Officer of the Portfolios
Matthew Healey*
- -----------------------------
Matthew Healey
Trustee, Chairman and Chief Executive Officer (Principal Executive Officer)
Frederick S. Addy*
- ------------------------------
Frederick S. Addy
Trustee
William G. Burns*
- ------------------------------
William G. Burns
Trustee
Arthur C. Eschenlauer*
- ------------------------------
Arthur C. Eschenlauer
Trustee
Michael P. Mallardi*
- ------------------------------
Michael P. Mallardi
Trustee
*By /s/ Michael S. Petrucelli
--------------------------
Michael S. Petrucelli
as attorney-in-fact pursuant to a power of attorney previously filed.
<PAGE>
SIGNATURES
The Portfolio has duly caused this registration statement on Form N-1A
("Registration Statement") of the J.P. Morgan Institutional Funds (the "Trust")
(File No. 033-54642) to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of George Town, and Grand Cayman on the 28th day of
October, 1998.
THE DIVERSIFIED PORTFOLIO
By /s/ Jacqueline Henning
-------------------------
Jacqueline Henning
Assistant Secretary and Assistant Treasurer
Pursuant to the requirements of the Securities Act of 1933, the Trust's
Registration Statement has been signed below by the following persons in the
capacities indicated on October 28, 1998.
George A. Rio*
- ------------------------------
George A. Rio
President and Treasurer
Officer of the Portfolios
Matthew Healey*
- ----------------------------
Matthew Healey
Trustee, Chairman and Chief Executive Officer (Principal Executive Officer) of
the Portfolios
Frederick S. Addy*
- ----------------------------
Frederick S. Addy
Trustee of the Portfolios
William G. Burns*
- ----------------------------
William G. Burns
Trustee of the Portfolios
Arthur C. Eschenlauer*
- ----------------------------
Arthur C. Eschenlauer
Trustee of the Portfolios
Michael P. Mallardi*
- ----------------------------
Michael P. Mallardi
Trustee of the Portfolios
*By /s/ Jacqueline Henning
--------------------------
Jacqueline Henning
as attorney-in-fact pursuant to a power of attorney previously filed
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
- ------------- ----------------------
EX-11 Consents of Independent Accountants
EX-27.1-27.18 Financial Data Schedules
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 57 to the registration statement on Form N-1A (the "Registration
Statement") of our reports dated August 18, 1998, relating to the financial
statements and financial highlights of J.P. Morgan Institutional Diversified
Fund and the financial statements and supplementary data of the Diversified
Portfolio appearing in the June 30, 1998 Annual Report, which are also
incorporated by reference into the Registration Statement. We also consent to
the references to us under the heading "Financial Highlights" in the Prospectus
and under the headings "Independent Accountants" and "Financial Statements" in
the Statement of Additional Information.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
October 26, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE REPORT ON
FORM N-SAR DATED MAY 31, 1998 FOR J.P. MORGAN INSTITUTIONAL PRIME MONEY
MARKET FUND AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
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<NAME> J.P. MORGAN INSTITUTIONAL FUNDS
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 3,302,074
<RECEIVABLES> 266
<ASSETS-OTHER> 7
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,302,347
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,790
<TOTAL-LIABILITIES> 4,790
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,297,881
<SHARES-COMMON-STOCK> 3,297,871
<SHARES-COMMON-PRIOR> 1,388,102
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (38)
<OVERDISTRIBUTION-GAINS> 0
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<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 56,857
<OTHER-INCOME> 0
<EXPENSES-NET> 305
<NET-INVESTMENT-INCOME> 56,552
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<NET-CHANGE-FROM-OPS> 56,550
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 56,552
<DISTRIBUTIONS-OF-GAINS> (1)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11,535,880
<NUMBER-OF-SHARES-REDEEMED> 9,660,086
<SHARES-REINVESTED> 33,974
<NET-CHANGE-IN-ASSETS> 1,909,765
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,006
<AVERAGE-NET-ASSETS> 2,041,360
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .028
<PER-SHARE-GAIN-APPREC> .000
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .028
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REPORT ON FORM N-SAR DATED FEBRUARY 28, 1998 FOR J.P.MORGAN INSTITUTIONAL TAX
EXEMPT MONEY MARKET FUND AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
REPORT.
</LEGEND>
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<NUMBER> 007
<NAME> J.P.MORGAN INSTITUTIONAL TAX EXEMPT MONEY MARKET FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 641,743
<INVESTMENTS-AT-VALUE> 641,743
<RECEIVABLES> 25
<ASSETS-OTHER> 5
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 641,773
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 375
<TOTAL-LIABILITIES> 375
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 641,358
<SHARES-COMMON-STOCK> 641,359
<SHARES-COMMON-PRIOR> 290,970
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 39
<OVERDISTRIBUTION-GAINS> 0
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<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 6,687
<REALIZED-GAINS-CURRENT> 66
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 6,753
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 6,687
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,433,637
<NUMBER-OF-SHARES-REDEEMED> 1,087,384
<SHARES-REINVESTED> 4,135
<NET-CHANGE-IN-ASSETS> 350,454
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 122
<AVERAGE-NET-ASSETS> 394,328
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .017
<PER-SHARE-GAIN-APPREC> .000
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .017
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .22
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE REPORT ON
FORM N-SAR DATED APRIL 30, 1998 FOR J.P. MORGAN INSTITUTIONAL FEDERAL MONEY
MARKET FUND AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000894088
<NAME> J.P. MORGAN INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 001
<NAME> J.P. MORGAN INSTITUTIONAL FEDERAL MONEY MARKET FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 644086
<RECEIVABLES> 54
<ASSETS-OTHER> 3
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 644143
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 446
<TOTAL-LIABILITIES> 446
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 643698
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (1)
<NET-ASSETS> 643697
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 9408
<OTHER-INCOME> 0
<EXPENSES-NET> 338
<NET-INVESTMENT-INCOME> 9070
<REALIZED-GAINS-CURRENT> 1
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 9071
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 9070
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1474755
<NUMBER-OF-SHARES-REDEEMED> 975745
<SHARES-REINVESTED> 7380
<NET-CHANGE-IN-ASSETS> 506391
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (2)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 619
<AVERAGE-NET-ASSETS> 341087
<PER-SHARE-NAV-BEGIN> 1.0
<PER-SHARE-NII> .027
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .027
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.0
<EXPENSE-RATIO> .20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE REPORT ON
FORM N-SAR DATED APRIL 30, 1998 FOR J.P. MORGAN INSTITUTIONAL SHORT TERM BOND
FUND AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000894088
<NAME> J.P. MORGAN INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 002
<NAME> J.P. MORGAN INSTITUTIONAL SHORT TERM BOND FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 76855
<RECEIVABLES> 113
<ASSETS-OTHER> 2
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 76970
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 36
<TOTAL-LIABILITIES> 36
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 77117
<SHARES-COMMON-STOCK> 7818
<SHARES-COMMON-PRIOR> 2781
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 12
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 188
<ACCUM-APPREC-OR-DEPREC> 17
<NET-ASSETS> 76934
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 1806
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 1806
<REALIZED-GAINS-CURRENT> 55
<APPREC-INCREASE-CURRENT> (16)
<NET-CHANGE-FROM-OPS> 1846
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1809
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5813
<NUMBER-OF-SHARES-REDEEMED> 952
<SHARES-REINVESTED> 176
<NET-CHANGE-IN-ASSETS> 49558
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 9
<OVERDIST-NET-GAINS-PRIOR> 243
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 99
<AVERAGE-NET-ASSETS> 59114
<PER-SHARE-NAV-BEGIN> 9.84
<PER-SHARE-NII> .3
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .3
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.84
<EXPENSE-RATIO> .25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE REPORT ON
FORM N-SAR DATED APRIL 30, 1998 FOR J.P. MORGAN INSTITUTIONAL BOND FUND AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000894088
<NAME> J.P. MORGAN INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 003
<NAME> J.P. MORGAN INSTITUTIONAL BOND FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 910,661
<RECEIVABLES> 462
<ASSETS-OTHER> 7
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 911,130
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,839
<TOTAL-LIABILITIES> 2,839
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 889,240
<SHARES-COMMON-STOCK> 91,073
<SHARES-COMMON-PRIOR> 91,147
<ACCUMULATED-NII-CURRENT> 391
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3,636
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 15,024
<NET-ASSETS> 908,291
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 29,883
<EXPENSES-NET> 558
<NET-INVESTMENT-INCOME> 29,325
<REALIZED-GAINS-CURRENT> 3,719
<APPREC-INCREASE-CURRENT> (586)
<NET-CHANGE-FROM-OPS> 32,458
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 29,384
<DISTRIBUTIONS-OF-GAINS> 5,896
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9,594
<NUMBER-OF-SHARES-REDEEMED> 11,704
<SHARES-REINVESTED> 2,035
<NET-CHANGE-IN-ASSETS> (3,763)
<ACCUMULATED-NII-PRIOR> 450
<ACCUMULATED-GAINS-PRIOR> 5,813
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 558
<AVERAGE-NET-ASSETS> 895,898
<PER-SHARE-NAV-BEGIN> 10.01
<PER-SHARE-NII> 0.33
<PER-SHARE-GAIN-APPREC> 0.03
<PER-SHARE-DIVIDEND> 0.33
<PER-SHARE-DISTRIBUTIONS> 0.07
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.97
<EXPENSE-RATIO> 0.49
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REPORT ON FORM N-SAR DATED FEBRUARY 28, 1998 FOR J.P. MORGAN INSTITUTIONAL TAX
EXEMPT BOND FUND AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000894088
<NAME> J.P. MORGAN INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 006
<NAME> J.P. MORGAN INSTITUTIONAL TAX EXEMPT BOND FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 243,891
<INVESTMENTS-AT-VALUE> 243,891
<RECEIVABLES> 2
<ASSETS-OTHER> 4
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 243,897
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 674
<TOTAL-LIABILITIES> 674
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 235,394
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 44
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7,785
<NET-ASSETS> 243,223
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5,316
<OTHER-INCOME> 0
<EXPENSES-NET> 142
<NET-INVESTMENT-INCOME> 5,174
<REALIZED-GAINS-CURRENT> 64
<APPREC-INCREASE-CURRENT> 3,964
<NET-CHANGE-FROM-OPS> 9,202
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 5,174
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 66,036
<NUMBER-OF-SHARES-REDEEMED> 30,101
<SHARES-REINVESTED> 1,646
<NET-CHANGE-IN-ASSETS> 41,609
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (20)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 162
<AVERAGE-NET-ASSETS> 223,760
<PER-SHARE-NAV-BEGIN> 10.12
<PER-SHARE-NII> .24
<PER-SHARE-GAIN-APPREC> .19
<PER-SHARE-DIVIDEND> .0
<PER-SHARE-DISTRIBUTIONS> .24
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.31
<EXPENSE-RATIO> .50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REPORT ON FORM N-SAR DATED MARCH 31, 1998 FOR J.P. MORGAN INSTITUTIONAL NEW YORK
TOTAL RETURN BOND FUND AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
REPORT.
</LEGEND>
<CIK> 0000894088
<NAME> J.P. MORGAN INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 013
<NAME> J.P. MORGAN INSTITUTIONAL NEW YORK TOTAL RETURN BOND FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 111759
<RECEIVABLES> 31
<ASSETS-OTHER> 2
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 111792
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 374
<TOTAL-LIABILITIES> 11418
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 107644
<SHARES-COMMON-STOCK> 10441
<SHARES-COMMON-PRIOR> 8809
<ACCUMULATED-NII-CURRENT> 44
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 138
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3592
<NET-ASSETS> 111418
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5140
<OTHER-INCOME> 0
<EXPENSES-NET> 510
<NET-INVESTMENT-INCOME> 4630
<REALIZED-GAINS-CURRENT> 535
<APPREC-INCREASE-CURRENT> 3136
<NET-CHANGE-FROM-OPS> 8301
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4630
<DISTRIBUTIONS-OF-GAINS> 332
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4438
<NUMBER-OF-SHARES-REDEEMED> 2899
<SHARES-REINVESTED> 91
<NET-CHANGE-IN-ASSETS> 20626
<ACCUMULATED-NII-PRIOR> 44
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 600
<AVERAGE-NET-ASSETS> 68773
<PER-SHARE-NAV-BEGIN> 10.31
<PER-SHARE-NII> .48
<PER-SHARE-GAIN-APPREC> .40
<PER-SHARE-DIVIDEND> .48
<PER-SHARE-DISTRIBUTIONS> .04
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.67
<EXPENSE-RATIO> .50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE REPORT ON FORM
N-SAR DATED MAY 31, 1998 FOR J.P. MORGAN INSTITUTIONAL U.S. EQUITY FUND AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000894088
<NAME> J.P. MORGAN INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 010
<NAME> J.P. MORGAN INSTITUTIONAL U.S EQUITY FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 379,003
<RECEIVABLES> 44
<ASSETS-OTHER> 23
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 379,070
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 82
<TOTAL-LIABILITIES> 82
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 276,263
<SHARES-COMMON-STOCK> 22,652
<SHARES-COMMON-PRIOR> 21,060
<ACCUMULATED-NII-CURRENT> 790
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 42,379
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 59,556
<NET-ASSETS> 378,988
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 3,698
<EXPENSES-NET> 482
<NET-INVESTMENT-INCOME> 3,216
<REALIZED-GAINS-CURRENT> 84,156
<APPREC-INCREASE-CURRENT> 2,673
<NET-CHANGE-FROM-OPS> 90,045
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,867
<DISTRIBUTIONS-OF-GAINS> 57,684
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,995
<NUMBER-OF-SHARES-REDEEMED> 6,122
<SHARES-REINVESTED> 3,719
<NET-CHANGE-IN-ASSETS> 49,212
<ACCUMULATED-NII-PRIOR> 1,443
<ACCUMULATED-GAINS-PRIOR> 26,884
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 597
<AVERAGE-NET-ASSETS> 360,672
<PER-SHARE-NAV-BEGIN> 15.66
<PER-SHARE-NII> 0.15
<PER-SHARE-GAIN-APPREC> 3.81
<PER-SHARE-DIVIDEND> 0.18
<PER-SHARE-DISTRIBUTIONS> 2.71
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.73
<EXPENSE-RATIO> 0.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE REPORT ON FORM
N-SAR DATED MAY 31, 1998 FOR J.P. MORGAN INSTITUTIONAL U.S. SMALL COMPANY
FUND AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000894088
<NAME> J.P. MORGAN INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 011
<NAME> J.P. MORGAN INSTITUTIONAL U.S. SMALL COMPANY FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 420072
<RECEIVABLES> 420
<ASSETS-OTHER> 14
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 420506
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 93
<TOTAL-LIABILITIES> 93
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 348593
<SHARES-COMMON-STOCK> 27474
<SHARES-COMMON-PRIOR> 28511
<ACCUMULATED-NII-CURRENT> 359
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 36599
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 34862
<NET-ASSETS> 420413
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 2926
<EXPENSES-NET> 501
<NET-INVESTMENT-INCOME> 2425
<REALIZED-GAINS-CURRENT> 102704
<APPREC-INCREASE-CURRENT> (14451)
<NET-CHANGE-FROM-OPS> 90678
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2161
<DISTRIBUTIONS-OF-GAINS> 52222
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5152
<NUMBER-OF-SHARES-REDEEMED> 7445
<SHARES-REINVESTED> 1256
<NET-CHANGE-IN-ASSETS> 18616
<ACCUMULATED-NII-PRIOR> 553
<ACCUMULATED-GAINS-PRIOR> 17869
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 732
<AVERAGE-NET-ASSETS> 437716
<PER-SHARE-NAV-BEGIN> 14.09
<PER-SHARE-NII> .09
<PER-SHARE-GAIN-APPREC> 3.04
<PER-SHARE-DIVIDEND> .08
<PER-SHARE-DISTRIBUTIONS> 1.84
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.30
<EXPENSE-RATIO> .80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE REPORT ON
FORM N-SAR DATED APRIL 30, 1998 FOR J.P. MORGAN INSTITUTIONAL INTERNATIONAL
EQUITY FUND AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000894088
<NAME> J.P. MORGAN INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 004
<NAME> J.P. MORGAN INSTITUTIONAL INTERNATIONAL EQUITY FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 509239
<RECEIVABLES> 285
<ASSETS-OTHER> 8
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 509532
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 937
<TOTAL-LIABILITIES> 937
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 414499
<SHARES-COMMON-STOCK> 41284
<SHARES-COMMON-PRIOR> 53982
<ACCUMULATED-NII-CURRENT> 330
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4668
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 89098
<NET-ASSETS> 508595
<DIVIDEND-INCOME> 3941
<INTEREST-INCOME> 542
<OTHER-INCOME> 0
<EXPENSES-NET> 2574
<NET-INVESTMENT-INCOME> 1909
<REALIZED-GAINS-CURRENT> 4785
<APPREC-INCREASE-CURRENT> 63315
<NET-CHANGE-FROM-OPS> 70009
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 16640
<DISTRIBUTIONS-OF-GAINS> 16688
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3528
<NUMBER-OF-SHARES-REDEEMED> 17699
<SHARES-REINVESTED> 1473
<NET-CHANGE-IN-ASSETS> (106064)
<ACCUMULATED-NII-PRIOR> 15062
<ACCUMULATED-GAINS-PRIOR> 16571
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 56
<GROSS-EXPENSE> 2574
<AVERAGE-NET-ASSETS> 528377
<PER-SHARE-NAV-BEGIN> 11.39
<PER-SHARE-NII> .08
<PER-SHARE-GAIN-APPREC> 1.55
<PER-SHARE-DIVIDEND> .35
<PER-SHARE-DISTRIBUTIONS> .35
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.32
<EXPENSE-RATIO> .96
<AVG-DEBT-OUTSTANDING> 2660
<AVG-DEBT-PER-SHARE> .06
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL SUMMARY DATA EXTRACTED FROM THE
REPORT ON FROM N-SAR DATED APRIL 30, 1998 FOR J.P. MORGAN INSTITUTIONAL EMERGING
MARKETS EQUITY FUND AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
REPORT.
</LEGEND>
<CIK> 0000894088
<NAME> J.P. MORGAN INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 005
<NAME> J.P. MORGAN INSTITUTIONAL EMERGING MARKETS EQUITY FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 260061
<RECEIVABLES> 346
<ASSETS-OTHER> 38
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 260445
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 107
<TOTAL-LIABILITIES> 107
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 302568
<SHARES-COMMON-STOCK> 28022
<SHARES-COMMON-PRIOR> 31075
<ACCUMULATED-NII-CURRENT> (112)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (49402)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7284
<NET-ASSETS> 260338
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 1452
<EXPENSES-NET> 257
<NET-INVESTMENT-INCOME> 1195
<REALIZED-GAINS-CURRENT> (48126)
<APPREC-INCREASE-CURRENT> 47015
<NET-CHANGE-FROM-OPS> 83
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2993
<DISTRIBUTIONS-OF-GAINS> 11850
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11165
<NUMBER-OF-SHARES-REDEEMED> 15446
<SHARES-REINVESTED> 1228
<NET-CHANGE-IN-ASSETS> (46043)
<ACCUMULATED-NII-PRIOR> 1686
<ACCUMULATED-GAINS-PRIOR> 10574
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 90
<GROSS-EXPENSE> 311
<AVERAGE-NET-ASSETS> 254338
<PER-SHARE-NAV-BEGIN> 9.86
<PER-SHARE-NII> 0.07
<PER-SHARE-GAIN-APPREC> (0.01)
<PER-SHARE-DIVIDEND> (0.13)
<PER-SHARE-DISTRIBUTIONS> (0.50)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.29
<EXPENSE-RATIO> 1.46
<AVG-DEBT-OUTSTANDING> 3025
<AVG-DEBT-PER-SHARE> 0.11
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE REPORT ON
FORM N-SAR DATED JUNE 30, 1998 FOR J.P. MORGAN INSTITUTIONAL DIVERSIFIED
FUND AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000894088
<NAME> J.P. MORGAN INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 008
<NAME> J.P. MORGAN INSTITUTIONAL DIVERSIFIED FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 331984
<RECEIVABLES> 184
<ASSETS-OTHER> 3
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 332171
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 225
<TOTAL-LIABILITIES> 225
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 258037
<SHARES-COMMON-STOCK> 23401
<SHARES-COMMON-PRIOR> 22115
<ACCUMULATED-NII-CURRENT> 335
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 12579
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 60995
<NET-ASSETS> 331946
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 9002
<EXPENSES-NET> 1
<NET-INVESTMENT-INCOME> 9001
<REALIZED-GAINS-CURRENT> 18284
<APPREC-INCREASE-CURRENT> 21984
<NET-CHANGE-FROM-OPS> 49269
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 12389
<DISTRIBUTIONS-OF-GAINS> 17151
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5286
<NUMBER-OF-SHARES-REDEEMED> 1682
<SHARES-REINVESTED> 2067
<NET-CHANGE-IN-ASSETS> 94498
<ACCUMULATED-NII-PRIOR> 160
<ACCUMULATED-GAINS-PRIOR> 608
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 508
<AVERAGE-NET-ASSETS> 288049
<PER-SHARE-NAV-BEGIN> 13.39
<PER-SHARE-NII> .39
<PER-SHARE-GAIN-APPREC> 1.89
<PER-SHARE-DIVIDEND> .59
<PER-SHARE-DISTRIBUTIONS> .9
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.18
<EXPENSE-RATIO> .65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE REPORT ON
FORM N-SAR DATED MARCH 31, 1998 FOR J.P. MORGAN INSTITUTIONAL INTERNATIONAL BOND
FUND AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000894088
<NAME> J.P. MORGAN INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 008
<NAME> J.P. MORGAN INSTITUTIONAL INTERNATIONAL BOND FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> MAR-31-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 6229
<RECEIVABLES> 14
<ASSETS-OTHER> 9
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6252
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 54
<TOTAL-LIABILITIES> 54
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6068
<SHARES-COMMON-STOCK> 764
<SHARES-COMMON-PRIOR> 823
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (205)
<ACCUMULATED-NET-GAINS> 477
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (142)
<NET-ASSETS> 6198
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 139
<EXPENSES-NET> 1
<NET-INVESTMENT-INCOME> 138
<REALIZED-GAINS-CURRENT> 375
<APPREC-INCREASE-CURRENT> (132)
<NET-CHANGE-FROM-OPS> 381
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 668
<DISTRIBUTIONS-OF-GAINS> 172
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 509
<NUMBER-OF-SHARES-REDEEMED> 658
<SHARES-REINVESTED> 89
<NET-CHANGE-IN-ASSETS> (928)
<ACCUMULATED-NII-PRIOR> 325
<ACCUMULATED-GAINS-PRIOR> 274
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 23
<AVERAGE-NET-ASSETS> 7326
<PER-SHARE-NAV-BEGIN> 8.65
<PER-SHARE-NII> .10
<PER-SHARE-GAIN-APPREC> .32
<PER-SHARE-DIVIDEND> .76
<PER-SHARE-DISTRIBUTIONS> .20
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.11
<EXPENSE-RATIO> .65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE REPORT ON
FORM N-SAR DATED JUNE 30, 1998 FOR J.P. MORGAN INSTITUTIONAL EUROPEAN
EQUITY FUND AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000894088
<NAME> J.P. MORGAN INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 014
<NAME> J.P. MORGAN INSTITUTIONAL EUROPEAN EQUITY FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 21456
<RECEIVABLES> 10
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 68
<TOTAL-ASSETS> 21534
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 38
<TOTAL-LIABILITIES> 38
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 20732
<SHARES-COMMON-STOCK> 1374
<SHARES-COMMON-PRIOR> 810
<ACCUMULATED-NII-CURRENT> 158
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 514
<ACCUM-APPREC-OR-DEPREC> 1120
<NET-ASSETS> 21496
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 169
<EXPENSES-NET> 7
<NET-INVESTMENT-INCOME> 162
<REALIZED-GAINS-CURRENT> 1078
<APPREC-INCREASE-CURRENT> 826
<NET-CHANGE-FROM-OPS> 2067
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 779
<NUMBER-OF-SHARES-REDEEMED> 215
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 11322
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 4
<OVERDIST-NET-GAINS-PRIOR> 1593
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 42
<AVERAGE-NET-ASSETS> 13252
<PER-SHARE-NAV-BEGIN> 12.56
<PER-SHARE-NII> .12
<PER-SHARE-GAIN-APPREC> 2.96
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.64
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 72
<AVG-DEBT-PER-SHARE> .08
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE REPORT ON
FORM N-SAR DATED JUNE 30, 1998 FOR J.P. MORGAN INSTITUTIONAL JAPAN EQUITY
FUND AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000894088
<NAME> J.P. MORGAN INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 016
<NAME> J.P. MORGAN INSTITUTIONAL JAPAN EQUITY FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 1334
<RECEIVABLES> 0
<ASSETS-OTHER> 5
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1339
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 24
<TOTAL-LIABILITIES> 24
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3181
<SHARES-COMMON-STOCK> 221
<SHARES-COMMON-PRIOR> 305
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 14
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 2128
<ACCUM-APPREC-OR-DEPREC> 276
<NET-ASSETS> 1315
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 1
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 1
<REALIZED-GAINS-CURRENT> (908)
<APPREC-INCREASE-CURRENT> 871
<NET-CHANGE-FROM-OPS> (36)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 14
<NUMBER-OF-SHARES-REDEEMED> 98
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (558)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (15)
<OVERDIST-NET-GAINS-PRIOR> (1219)
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 26
<AVERAGE-NET-ASSETS> 1639
<PER-SHARE-NAV-BEGIN> 6.14
<PER-SHARE-NII> (.00)
<PER-SHARE-GAIN-APPREC> (.19)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 5.95
<EXPENSE-RATIO> .92
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE REPORT ON
FORM N-SAR DATED MAY 31, 1998 FOR J.P. MORGAN INSTITUTIONAL DISCIPLINED
EQUITY FUND AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000894088
<NAME> J.P. MORGAN INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 0
<NAME> J.P. MORGAN INSTITUTIONAL DISCIPLINED EQUITY FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 296107
<RECEIVABLES> 229
<ASSETS-OTHER> 10
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 296346
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 155
<TOTAL-LIABILITIES> 155
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 253085
<SHARES-COMMON-STOCK> 19799
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 779
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 11188
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 31139
<NET-ASSETS> 296191
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 2835
<EXPENSES-NET> 743
<NET-INVESTMENT-INCOME> 2092
<REALIZED-GAINS-CURRENT> 12850
<APPREC-INCREASE-CURRENT> 28026
<NET-CHANGE-FROM-OPS> 42968
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1506
<DISTRIBUTIONS-OF-GAINS> 1517
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 16123
<NUMBER-OF-SHARES-REDEEMED> 893
<SHARES-REINVESTED> 233
<NET-CHANGE-IN-ASSETS> 246465
<ACCUMULATED-NII-PRIOR> 192
<ACCUMULATED-GAINS-PRIOR> (144)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1189
<AVERAGE-NET-ASSETS> 165110
<PER-SHARE-NAV-BEGIN> 11.47
<PER-SHARE-NII> 0.12
<PER-SHARE-GAIN-APPREC> 3.62
<PER-SHARE-DIVIDEND> 0.12
<PER-SHARE-DISTRIBUTIONS> 0.13
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0.45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE REPORT ON
FORM N-SAR DATED MAY 31, 1998 FOR J.P. MORGAN INSTITUTIONAL INTERNATIONAL
OPPORTUNITIES FUND AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000894088
<NAME> J.P. MORGAN INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 017
<NAME> J.P. MORGAN INSTITUTIONAL INTERNATIONAL OPPORTUNITIES FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 441052
<RECEIVABLES> 2404
<ASSETS-OTHER> 654
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 444110
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 16197
<TOTAL-LIABILITIES> 16197
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 396488
<SHARES-COMMON-STOCK> 38573
<SHARES-COMMON-PRIOR> 21257
<ACCUMULATED-NII-CURRENT> 2820
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 8786
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 19819
<NET-ASSETS> 427913
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 3152
<EXPENSES-NET> 292
<NET-INVESTMENT-INCOME> 2860
<REALIZED-GAINS-CURRENT> 12365
<APPREC-INCREASE-CURRENT> 27134
<NET-CHANGE-FROM-OPS> 42359
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1945
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 22575
<NUMBER-OF-SHARES-REDEEMED> 5318
<SHARES-REINVESTED> 59
<NET-CHANGE-IN-ASSETS> 216684
<ACCUMULATED-NII-PRIOR> 1906
<ACCUMULATED-GAINS-PRIOR> (3579)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 311
<AVERAGE-NET-ASSETS> 376535
<PER-SHARE-NAV-BEGIN> 9.94
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 1.17
<PER-SHARE-DIVIDEND> 0.07
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.09
<EXPENSE-RATIO> 0.94
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE REPORT ON
FORM N-SAR DATED APRIL 30, 1998 FOR J.P. MORGAN INSTITUTIONAL GLOBAL STRATEGIC
INCOME FUND AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000894088
<NAME> J.P. MORGAN INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 019
<NAME> J.P. MORGAN INSTITUTIONAL GLOBAL STRATEGIC INCOME FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 190320
<RECEIVABLES> 8039
<ASSETS-OTHER> 28
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 198387
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 809
<TOTAL-LIABILITIES> 809
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 194919
<SHARES-COMMON-STOCK> 19156
<SHARES-COMMON-PRIOR> 10340
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 185
<ACCUMULATED-NET-GAINS> 67
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2777
<NET-ASSETS> 197578
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 5289
<EXPENSES-NET> 18
<NET-INVESTMENT-INCOME> 5271
<REALIZED-GAINS-CURRENT> (25)
<APPREC-INCREASE-CURRENT> 2775
<NET-CHANGE-FROM-OPS> 8021
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 5641
<DISTRIBUTIONS-OF-GAINS> 298
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9377
<NUMBER-OF-SHARES-REDEEMED> 727
<SHARES-REINVESTED> 166
<NET-CHANGE-IN-ASSETS> 92527
<ACCUMULATED-NII-PRIOR> 185
<ACCUMULATED-GAINS-PRIOR> 389
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 140
<AVERAGE-NET-ASSETS> 146989
<PER-SHARE-NAV-BEGIN> 10.16
<PER-SHARE-NII> .39
<PER-SHARE-GAIN-APPREC> .19
<PER-SHARE-DIVIDEND> .40
<PER-SHARE-DISTRIBUTIONS> .03
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.31
<EXPENSE-RATIO> .65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE REPORT ON
FORM N-SAR DATED APRIL 30, 1998 FOR J.P. MORGAN INSTITUTIONAL SERVICE TREASURY
MONEY MARKET FUND AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000894088
<NAME> J.P. MORGAN INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 020
<NAME> J.P. MORGAN INSTITUTIONAL SERVICE TREASURY MONEY MARKET FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 359300
<RECEIVABLES> 30
<ASSETS-OTHER> 10
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 359340
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1808
<TOTAL-LIABILITIES> 1808
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 357534
<SHARES-COMMON-STOCK> 357534
<SHARES-COMMON-PRIOR> 35982
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 357532
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6812
<OTHER-INCOME> 0
<EXPENSES-NET> 313
<NET-INVESTMENT-INCOME> 6499
<REALIZED-GAINS-CURRENT> (2)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 6497
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 6499
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2899516
<NUMBER-OF-SHARES-REDEEMED> 2578144
<SHARES-REINVESTED> 180
<NET-CHANGE-IN-ASSETS> 321550
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 467
<AVERAGE-NET-ASSETS> 252890
<PER-SHARE-NAV-BEGIN> 1
<PER-SHARE-NII> .026
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .026
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1
<EXPENSE-RATIO> .35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE REPORT ON
FORM N-SAR DATED APRIL 30, 1998 FOR J.P. MORGAN INSTITUTIONAL TREASURY MONEY
MARKET FUND AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000894088
<NAME> J.P. MORGAN INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 021
<NAME> J.P. MORGAN INSTITUTIONAL TREASURY MONEY MARKET FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 199779
<RECEIVABLES> 16
<ASSETS-OTHER> 10
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 199805
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 554
<TOTAL-LIABILITIES> 554
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 199255
<SHARES-COMMON-STOCK> 199255
<SHARES-COMMON-PRIOR> 80922
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (4)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 199251
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3786
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 3786
<REALIZED-GAINS-CURRENT> (5)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 3781
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3786
<DISTRIBUTIONS-OF-GAINS> 1
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 799866
<NUMBER-OF-SHARES-REDEEMED> 683427
<SHARES-REINVESTED> 1894
<NET-CHANGE-IN-ASSETS> 118327
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 2
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 112
<AVERAGE-NET-ASSETS> 140108
<PER-SHARE-NAV-BEGIN> 1
<PER-SHARE-NII> .027
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .027
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1
<EXPENSE-RATIO> .09
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE REPORT ON FORM
N-SAR DATED MAY 31, 1998 FOR J.P. MORGAN INSTITUTIONAL SERVICE PRIME MONEY
MARKET FUND AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000894088
<NAME> J.P. MORGAN INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 22
<NAME> J.P. MORGAN INSTITUTIONAL SERVICE PRIME MONEY MARKET FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-END> MAY-31-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 608,608
<RECEIVABLES> 57
<ASSETS-OTHER> 9
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 608,674
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,500
<TOTAL-LIABILITIES> 2,500
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 606,176
<SHARES-COMMON-STOCK> 606,176
<SHARES-COMMON-PRIOR> 384
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 606,174
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5,178
<OTHER-INCOME> 0
<EXPENSES-NET> 263
<NET-INVESTMENT-INCOME> 4,915
<REALIZED-GAINS-CURRENT> (1)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 4,914
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,915
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,114,425
<NUMBER-OF-SHARES-REDEEMED> 508,716
<SHARES-REINVESTED> 82
<NET-CHANGE-IN-ASSETS> 605,790
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 360
<AVERAGE-NET-ASSETS> 187,863
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .027
<PER-SHARE-GAIN-APPREC> .000
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .027
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE REPORT ON
FORM N-SAR DATED FEBRUARY 28, 1998 FOR J.P. MORGAN INSTITUTIONAL SERVICE TAX
EXEMPT MONEY MARKET FUND AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
REPORT.
</LEGEND>
<CIK> 0000894088
<NAME> J.P. MORGAN INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 23
<NAME> INSTITUTIONAL SERVICE TAX EXEMPT MONEY MARKET FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 38,595
<INVESTMENTS-AT-VALUE> 38,595
<RECEIVABLES> 6,717
<ASSETS-OTHER> 10,301
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 55,613
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 37,703
<TOTAL-LIABILITIES> 37,703
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 17,906
<SHARES-COMMON-STOCK> 17,906
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 17,910
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 369
<OTHER-INCOME> 0
<EXPENSES-NET> 32
<NET-INVESTMENT-INCOME> 337
<REALIZED-GAINS-CURRENT> 4
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 341
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 337
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 238,645
<NUMBER-OF-SHARES-REDEEMED> 220,739
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 17,910
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 27,441
<AVERAGE-NET-ASSETS> 28,605
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .009
<PER-SHARE-GAIN-APPREC> .000
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .009
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE REPORT ON
FORM N-SAR DATED APRIL 30, 1998 FOR J.P. MORGAN INSTITUTIONAL SERVICE FEDERAL
MONEY MARKET FUND AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000894088
<NAME> J.P. MORGAN INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 24
<NAME> J.P. MORGAN INSTITUTIONAL SERVICE FEDERAL MONEY MARKET FUND
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 12464
<RECEIVABLES> 6
<ASSETS-OTHER> 10
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 12480
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 51
<TOTAL-LIABILITIES> 51
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 12429
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 12429
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 24
<OTHER-INCOME> 0
<EXPENSES-NET> 2
<NET-INVESTMENT-INCOME> 22
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 22
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 22
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 25900
<NUMBER-OF-SHARES-REDEEMED> 13471
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 12429
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 39
<AVERAGE-NET-ASSETS> 880
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .026
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .026
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE REPORT ON
FORM N-SAR DATED APRIL 30, 1998 FOR J.P. MORGAN INSTITUTIONAL BOND FUND - ULTRA
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000894088
<NAME> J.P. MORGAN INSTITUTIONAL FUNDS
<SERIES>
<NUMBER> 25
<NAME> J.P. MORGAN INSTITUTIONAL BOND FUND - ULTRA
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 68,985
<RECEIVABLES> 13
<ASSETS-OTHER> 9
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 69,007
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 265
<TOTAL-LIABILITIES> 265
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 68,743
<SHARES-COMMON-STOCK> 6,845
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 13
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 343
<ACCUM-APPREC-OR-DEPREC> 329
<NET-ASSETS> 68,743
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 1,053
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 1,053
<REALIZED-GAINS-CURRENT> (343)
<APPREC-INCREASE-CURRENT> 329
<NET-CHANGE-FROM-OPS> 1,039
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,040
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,806
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 39
<NET-CHANGE-IN-ASSETS> 68,743
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 46
<AVERAGE-NET-ASSETS> 41,695
<PER-SHARE-NAV-BEGIN> 10.03
<PER-SHARE-NII> 0.25
<PER-SHARE-GAIN-APPREC> 0.01
<PER-SHARE-DIVIDEND> 0.25
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.04
<EXPENSE-RATIO> 0.36
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
