As filed with the Securities and Exchange Commission on July 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. 53
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 54
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
Margaret W. Chambers, c/o Funds Distributor, Inc.
60 State Street, Suite 1300, Boston, Massachusetts 02109
(Name and Address of Agent for Service)
Copy to: Stephen K. West, Esq.
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
It is proposed that this filing will become effective (check appropriate box):
[ ] Immediately upon filing pursuant to paragraph (b)
[X] on August 3, 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>
EXPLANATORY NOTE
This post-effective amendment No. 53 to the registration statement of
J.P. Morgan Institutional Funds (the "Registrant") on Form N-1A is being filed
to update the Registrant's disclosure in the Prospectus and Statement of
Additional Information relating to J.P. Morgan Institutional New York Total
Return Bond Fund (the "Fund"), a series of shares of the Registrant, to include
updated financial information for the fiscal year ended March 31, 1998 and to
update other information in the registration statement. As a result, the
Amendment does not affect any of the Registrant's other currently effective
prospectuses for each other series of shares of the Registrant.
<PAGE>
AUGUST 3, 1998 PROSPECTUS
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J.P. MORGAN INSTITUTIONAL NEW YORK
TOTAL RETURN BOND FUND
------------------------------------
Seeking high total return
by investing primarily in
fixed income securities.
This prospectus contains essential information for anyone investing in the fund.
Please read it carefully and keep it for reference.
As with all mutual funds, the fact that these shares are registered with the
Securities and Exchange Commission does not mean that the commission approves
them as an investment or guarantees that the information in this prospectus is
correct or adequate. It is a criminal offense to state or suggest otherwise.
Distributed by Funds Distributor, Inc. JP Morgan
<PAGE>
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<PAGE>
CONTENTS
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2 J.P. MORGAN INSTITUTIONAL NEW YORK TOTAL RETURN BOND
FUND
The fund's goal, Fund description ................................... 2
investment approach,
risks, expenses, and Performance ........................................ 3
performance1
Investor expenses .................................. 3
5 FIXED INCOME MANAGEMENT APPROACH
Fixed income investment process .................... 5
6 YOUR INVESTMENT
Investing in the Investing through a financial professional ......... 6
J.P. Morgan
Institutional New Investing directly ................................. 6
York Total Return
Bond Fund Opening your account ............................... 6
Adding to your account ............................. 6
Selling shares ..................................... 7
Account and transaction policies ................... 7
Dividends and distributions ........................ 8
Tax considerations ................................. 8
9 FUND DETAILS
Master/feeder structure ........................... 9
More about risk and
the fund's business Management and administration ..................... 9
operations
Risk and reward elements .......................... 10
Investments ....................................... 12
Financial highlights .............................. 13
FOR MORE INFORMATION ....................... back cover
1
<PAGE>
J.P. MORGAN INSTITUTIONAL NEW YORK
TOTAL RETURN BOND FUND TICKER SYMBOL: JPNTX
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REGISTRANT: J.P. MORGAN INSTITUTIONAL FUNDS
(J.P. MORGAN INSTITUTIONAL NEW YORK TOTAL
RETURN BOND FUND)
[GRAPHIC]
GOAL
The fund's goal is to provide high after-tax total return for New York
residents consistent with moderate risk of capital.
[GRAPHIC]
INVESTMENT APPROACH
The fund invests primarily in New York municipal securities whose income
is free from federal, state, and New York City personal income taxes for New
York residents. Because the fund's goal is high after-tax total return rather
than high tax-exempt income, the fund may invest to a limited extent in
securities of other states or territories. To the extent that the fund invests
in municipal securities of other states, the income from such securities would
be free from federal personal income taxes for New York residents but would be
subject to New York state and New York City personal income taxes. For non-New
York residents, the income from New York municipal securities is free from
federal personal income taxes only. The fund may also invest in taxable
securities. The fund's securities may be of any maturity, but under normal
market conditions the fund's duration will generally range between three and
seven years, similar to that of the Lehman Brothers 1-16 Year Municipal Bond
Index. At least 90% of assets must be invested in securities that, at the time
of purchase, are rated investment-grade (BBB/Baa or better) or are the unrated
equivalent. No more than 10% of assets may be invested in securities as low as
B.
[GRAPHIC]
RISK/RETURN SUMMARY
The fund's share price and total return will vary in response to changes
in interest rates. How well the fund's performance compares to that of similar
fixed income funds will depend on the success of the investment process, which
is described on page 5. Because most of the fund's investments will typically be
from issuers in the State of New York, its performance will be affected by the
fiscal and economic health of that state and its municipalities. The fund is
non-diversified and may invest more than 5% of assets in a single issuer, which
could further concentrate its risks. To the extent that the fund seeks higher
returns by investing in non-investment-grade bonds, it takes on additional
risks, since these bonds are more sensitive to economic news and their issuers
have a less secure financial condition. The fund's investments and their main
risks, as well as fund strategies, are described in more detail on pages 10-12.
Shares in the fund are not bank deposits and are not guaranteed or insured by
any bank, government entity, or the FDIC. 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.
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages over $285
billion, including more than $8 billion using the same strategy as this fund.
The portfolio management team is led by Robert W. Meiselas, vice president, who
has been at J.P. Morgan since 1987, and Elaine B. Young, vice president, who
joined J.P. Morgan from Scudder, Stevens & Clark, Inc. in 1994 where she was a
municipal bond trader and fixed income portfolio manager. Both have been on the
team since June of 1997.
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Before you invest
Investors considering the fund should understand that:
o There is no assurance that the fund will meet its investment goal.
o The fund invests a portion of assets in non-investment-grade bonds ("junk
bonds"), which offer higher potential yields but have a higher risk of
default and are more sensitive to market risk than investment-grade bonds.
o The fund does not represent a complete investment program.
2 J.P. MORGAN INSTITUTIONAL NEW YORK TOTAL RETURN BOND FUND
<PAGE>
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PERFORMANCE (unaudited)
The table and bar chart shown below indicate the risks of investing in J.P.
Morgan Institutional New York Total Return Bond Fund.
The table indicates the risks by showing how the fund's average annual returns
for the past year and the life of the fund compare to those of the Lehman
Brothers 1-16 Year Municipal Bond Index. This is a widely recognized, unmanaged
index of general obligation and revenue bonds with maturities of 1-16 years.(1)
The bar chart indicates the risks by showing changes in the performance of the
fund's shares from year to year since the fund's inception date.
The fund's past performance does not necessarily indicate how the fund will
perform in the future.
Shows performance over time, for
Average annual total return (%) periods ended December 31, 1997
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Past 1 yr. Life of fund(2)
J.P. Morgan Institutional New York
Total Return Bond Fund (after expenses) 7.68 6.91
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Lehman Brothers New York 1-15 Year
Municipal Bond Index (no expenses) 8.73 7.73
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Lehman Brothers 1-16 Year Municipal
Bond Index (no expenses) 7.97 7.29
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[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL]
Shows changes in returns by
Year-by-year total return (%) calendar year(3)
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1995 1996 1997
J.P. Morgan Institutional New
York Total Return Bond Fund 13.28 4.21 7.68
Lehman Brothers New York 1-15
Year Municipal Bond Index 14.69 4.93 8.73
Lehman Brothers 1-16 Year
Municipal Bond Index 7.97
For the period covered by this year-by-year total return chart, the fund's
highest quarterly return was 4.80% (for the quarter ended 3/31/95) and the
lowest quarterly return was -0.59% (for the quarter ended 3/31/96).
================================================================================
INVESTOR EXPENSES
The expenses of the fund before reimbursement are shown at right. The fund has
no sales, redemption, exchange, or account fees, although some institutions may
charge you a fee for shares you buy through them. The annual fund expenses after
reimbursement are deducted from fund assets prior to performance calculations.
Annual fund operating expenses(4) (%)
(expenses that are deducted from fund assets)
Management fees 0.30
Marketing (12b-1) fees none
Other expenses(5) 0.32
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Total annual fund
operating expenses(5) 0.62
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Expense example
The example below is intended to help you compare the cost of investing in the
fund with the cost of investing in other mutual funds. The example assumes:
$10,000 initial investment, 5% return each year, total operating expenses
(before reimbursement) unchanged, and all shares sold at the end of each time
period. The example is for comparison only; the fund's actual return and your
actual costs may be higher or lower.
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1 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($) 63 199 346 774
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================================================================================
(1) The fund's index changed from the Lehman Brothers New York 1-15 Year
Municipal Bond Index, a widely recognized, unmanaged index of New York
general obligation and revenue bonds with maturities of 1-15 years, to the
Lehman Brothers 1-16 Year Municipal Bond Index on 5/1/97 because this
index provided a broader mix of municipal securities and was not
concentrated in New York City bonds.
(2) The fund commenced operations on 4/11/94, and returns reflect performance
of the fund from 4/30/94.
(3) The fund's fiscal year end is 3/31. For the period 1/1/98 through 6/30/98,
the total return for the fund was 2.01% and the total return for the index
was 2.50%.
(4) The fund has a master/feeder structure as described on page 9. This table
is restated to show the current fee arrangements in effect as of August 1,
1998, and shows the fund's expenses and its share of master portfolio
expenses for the past fiscal year before reimbursement, expressed as a
percentage of the fund's average net assets.
(5) After reimbursement, other expenses and total operating expenses for the
past fiscal year were 0.20% and 0.50%, respectively. This reimbursement
arrangement can be changed or terminated at any time at the option of J.P.
Morgan.
J.P. MORGAN INSTITUTIONAL NEW YORK TOTAL RETURN BOND FUND 3
<PAGE>
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J.P. MORGAN INSTITUTIONAL NEW YORK TOTAL RETURN BOND FUND
This fund invests primarily in bonds and other fixed income securities through a
master portfolio (another fund with the same goal). The fund seeks high total
return consistent with moderate risk.
WHO MAY WANT TO INVEST
The fund is designed for investors who:
o want to add an income investment to further diversify a portfolio
o want an investment whose risk/return potential is higher than that of
money market funds but generally less than that of stock funds
o want an investment that pays monthly dividends
o are seeking income that is exempt from federal, state and local personal
income taxes in New York
The fund is not designed for investors who:
o are investing for aggressive long-term growth
o require stability of principal
o are investing through a tax-deferred account such as an IRA
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 $285 billion in assets under management,
including assets managed by the fund's advisor, Morgan Guaranty Trust Company of
New York.
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 January 1, 2000 and after
date-related problems from adversely impacting fund operations and
shareholders.
4
<PAGE>
FIXED INCOME MANAGEMENT APPROACH
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The J.P. Morgan Institutional New York Total Return Bond Fund invests primarily
in bonds and other fixed income securities.
The fund's investment philosophy, developed by its advisor, emphasizes the
potential for consistently enhancing performance while managing risk.
FIXED INCOME INVESTMENT PROCESS
J.P. Morgan seeks to generate an information advantage through the depth of its
global fixed-income research and the sophistication of its analytical systems.
Using a team-oriented approach, J.P. Morgan seeks to gain insights in a broad
range of distinct areas and may take positions in many different ones, helping
the fund to limit exposure to concentrated sources of risk.
In managing the fund, J.P. Morgan employs a three-step process that combines
sector allocation, fundamental research for identifying portfolio securities,
and duration management.
[GRAPHIC]
The fund invests across a range
of different types of securities
Sector allocation The sector allocation team meets monthly, analyzing the
fundamentals of a broad range of sectors in which the fund may invest. The team
seeks to enhance performance and manage risk by underweighting or overweighting
sectors.
[GRAPHIC]
The fund makes its portfolio decisions as
described earlier in this prospectus
Security selection Relying on the insights of different specialists, including
credit analysts, quantitative researchers, and dedicated fixed income traders,
the portfolio managers make buy and sell decisions according to the fund's goal
and strategy.
[GRAPHIC]
J.P. Morgan uses a disciplined process
to control the fund's sensitivity
to interest rates
Duration management Forecasting teams use fundamental economic factors to
develop strategic forecasts of the direction of interest rates. Based on these
forecasts, strategists establish the fund's target duration (a measure of
average weighted maturity of the securities held by the fund and a common
measurement of sensitivity to interest rate movements), typically remaining
relatively close to the duration of the market as a whole, as represented by the
fund's benchmark. The strategists closely monitor the fund and make tactical
adjustments as necessary.
FIXED INCOME MANAGEMENT APPROACH 5
<PAGE>
YOUR INVESTMENT
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For your convenience, the J.P. Morgan Institutional Funds offer several ways to
start and add to fund investments.
INVESTING THROUGH A FINANCIAL PROFESSIONAL
If you work with a financial professional, either at J.P. Morgan or elsewhere,
he or she is prepared to handle your planning and transaction needs. Your
financial professional will be able to assist you in establishing your fund
account, executing transactions, and monitoring your investment. If your fund
investment is not held in the name of your financial professional and you prefer
to place a transaction order yourself, please use the instructions for investing
directly.
INVESTING DIRECTLY
Investors may establish accounts without the help of an intermediary by using
the instructions below and at right:
o Determine the amount you are investing. The minimum amount for initial
investments is $5,000,000 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 to effect an exchange.
ADDING TO YOUR ACCOUNT
By wire
o Call the Shareholder Services Agent to place a purchase order. Funds that
are wired without a purchase order will be returned uninvested.
o Once you have placed your purchase order, instruct your bank to wire the
amount of your investment as described above.
By check
o Make out a check for the investment amount payable to J.P. Morgan
Institutional Funds.
o Mail the check with a completed investment slip to the Shareholder
Services Agent. If you do not have an investment slip, attach a note
indicating your account number and how much you wish to invest in which
fund(s).
By exchange
o Call the Shareholder Services Agent to effect an exchange.
6 YOUR INVESTMENT
<PAGE>
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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 (NYSE). The fund calculates
its net asset value per share (NAV) every business day as of the close of
trading on the NYSE (normally 4:00 p.m. eastern time). The fund's securities are
typically priced using pricing services or market quotes, but may be priced
using fair value pricing when these methods are not readily available.
Timing of orders Orders to buy or sell shares are executed at the next NAV
calculated after the order has been accepted. Orders are accepted until the
close of trading on the NYSE every business day and are executed the same day,
at that day's NAV. The fund has the right to suspend redemption of shares 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
Representatives are available 8:00 a.m to
5:00 p.m. eastern time on fund business days.
YOUR INVESTMENT 7
<PAGE>
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Timing of settlements When you buy shares, you will become the owner of record
when the fund receives your payment, generally the day following execution. When
you sell shares, proceeds are generally available the day following execution
and will be forwarded according to your instructions.
When you sell shares that you recently purchased by check, your order will be
executed at the next NAV but the proceeds will not be available until your check
clears. This may take up to 15 days.
Statements and reports The fund sends monthly account statements as well as
confirmations after each purchase or sale of shares (except reinvestments).
Every six months the fund sends out an annual or semi-annual report containing
information on the fund's holdings and a discussion of recent and anticipated
market conditions and fund performance.
Accounts with below-minimum balances If your account balance falls below the
minimum for 30 days as a result of selling shares (and not because of
performance), the fund reserves the right to request that you buy more shares or
close your account. If your account balance is still below the minimum 60 days
after notification, the fund reserves the right to close out your account and
send the proceeds to the address of record.
DIVIDENDS AND DISTRIBUTIONS
The fund typically declares income dividends daily and pays them monthly. If an
investor's shares are redeemed during the month, accrued but unpaid dividends
are paid with the redemption proceeds. Shares of the fund earn dividends on the
business day the purchase is effective, but not on the business day the
redemption is effective. The fund distributes capital gains, if any, once a
year. However, the fund may make more or fewer payments in a given year,
depending on its investment results and its tax compliance situation. These
dividends and distributions consist of most or all of the fund's net investment
income and net realized capital gains.
Dividends and distributions are reinvested in additional fund shares.
Alternatively, you may instruct your financial professional or J.P. Morgan Funds
Services to have them sent to you by check, credited to a separate account, or
invested in another J.P. Morgan Institutional Fund.
TAX CONSIDERATIONS
In general, selling shares, exchanging shares, and receiving distributions
(whether reinvested or taken in cash) are all taxable events. These transactions
typically create the following tax liabilities for taxable accounts:
================================================================================
Transaction Tax status
- --------------------------------------------------------------------------------
Income dividends Exempt from federal, state, and New
York City personal income taxes for
New York residents only
- --------------------------------------------------------------------------------
Short-term capital gains Ordinary income
distributions
- --------------------------------------------------------------------------------
Long-term capital gains Capital gains
distributions
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Sales or exchanges of Capital gains or losses
shares owned for more
than one year
- --------------------------------------------------------------------------------
Sales or exchanges of Gains are treated as ordinary
shares owned for one year income; losses are subject
or less to special rules
- --------------------------------------------------------------------------------
Because long-term capital gains distributions are taxable as capital gains
regardless of how long you have owned your shares, you may want to avoid making
a substantial investment when the fund is about to declare a long-term capital
gains distribution.
A portion of the fund's returns may be subject to federal, state, or local tax,
or the alternative minimum tax.
Every January, the fund issues tax information on its distributions for the
previous year.
Any investor for whom the fund does not have a valid taxpayer identification
number will be subject to backup withholding for taxes.
The tax considerations described in this section do not apply to tax-deferred
accounts or other non-taxable entities.
Because each investor's tax circumstances are unique, please consult your tax
professional about your fund investment.
8 YOUR INVESTMENT
<PAGE>
FUND DETAILS
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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 vote per
fund share.
The fund and its master portfolio expect to maintain consistent goals, but if
they do not, the fund will withdraw from the master portfolio, receiving its
assets either in cash or securities. The fund's trustees would then consider
whether the fund should hire its own investment adviser, invest in a different
master portfolio, or take other action.
MANAGEMENT AND ADMINISTRATION
The fund and its master portfolio are governed by the same trustees. The
trustees are responsible for overseeing all business activities. The trustees
are assisted by Pierpont Group, Inc., which they own and operate on a cost
basis; costs are shared by all funds governed by these trustees. Funds
Distributor, 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:
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Advisory services 0.30% of the master portfolio's
average net assets
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Administrative services Master portfolio's and fund's
(fee shared with Funds pro-rata portions of 0.09% of the
Distributor, Inc.) first $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.
FUND DETAILS 9
<PAGE>
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RISK AND REWARD ELEMENTS
This table discusses the main elements that make up the fund's overall risk and
reward characteristics (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
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<S> <C> <C>
Market conditions
o The fund's share price, yield, and o Bonds have generally outperformed o Under normal circumstances the
total return will fluctuate in money market investments over the fund plans to remain fully
response to bond market movements long term, with less risk than invested in bonds and other fixed
stocks income securities as noted in the
o The value of most bonds will fall table on page 12
when interest rates rise; the o Most bonds will rise in value when
longer a bond's maturity and the interest rates fall o The fund seeks to limit risk and
lower its credit quality, the more enhance total return or yields
its value typically falls o Asset-backed securities can offer through careful management, sector
attractive returns allocation, individual securities
o Adverse market conditions may from selection, and duration management
time to time cause the fund to
take temporary defensive positions o During severe market downturns,
that are inconsistent with its the fund has the option of
principal investment strategies investing up to 100% of assets in
and may hinder the fund from investment-grade short-term
acheiving its investment objective securities
o Asset-backed securities o J.P. Morgan monitors interest rate
(securities representing an trends, as well as geographic and
interest in, or secured by, a pool demographic information related to
of assets such as receivables) asset-backed securities and
could generate capital losses or prepayments
periods of low yields if they are
paid off substantially earlier or
later than anticipated
- ------------------------------------------------------------------------------------------------------------------------------------
Management choices
o The fund could underperform its o The fund could outperform its o J.P. Morgan focuses its active
benchmark due to its sector, benchmark due to these same management on those areas where it
securities, or duration choices choices believes its commitment to
research can most enhance returns
and manage risks in a consistent
way
- ------------------------------------------------------------------------------------------------------------------------------------
Credit quality
o The default of an issuer would o Investment-grade bonds have a o The fund maintains its own
leave the fund with unpaid lower risk of default policies for balancing credit
interest or principal quality against potential yields
o Junk bonds offer higher yields and and gains in light of its
o Junk bonds (those rated BB/Ba or higher potential gains investment goals
lower) have a higher risk of
default, tend to be less liquid, o J.P. Morgan develops its own
and may be more difficult to value ratings of unrated securities and
makes a credit quality
determination for unrated
securities
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
10 FUND DETAILS
<PAGE>
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<TABLE>
<CAPTION>
====================================================================================================================================
Potential risks Potential rewards Policies to balance risk and reward
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Illiquid holdings
o The fund could have difficulty o These holdings may offer more o The fund may not invest more than
valuing these holdings precisely attractive yields or potential 15% of net assets in illiquid
growth than comparable widely traded holdings
o The fund could be unable to sell securities
these holdings at the time or price o To maintain adequate liquidity to
desired meet redemptions, the fund may hold
investment-grade short-term
securities (including repurchase
agreements) and, for temporary or
extraordinary purposes, may borrow
from banks up to 33 1/3% of the value
of its assets
- ------------------------------------------------------------------------------------------------------------------------------------
When-issued and delayed
delivery securities
o When the fund buys securities before o The fund can take advantage of o The fund uses segregated accounts to
issue or for delayed delivery, it attractive transaction opportunities offset leverage risk
could be exposed to leverage risk if
it does not use segregated accounts
- ------------------------------------------------------------------------------------------------------------------------------------
Short-term trading
o Increased trading would raise the o The fund could realize gains in a o The fund anticipates a portfolio
fund's transaction costs short period of time turnover rate of approximately 75%
o Increased short-term capital gains o The fund could protect against o The fund generally avoids short-term
distributions would raise losses if a bond is overvalued and trading, except to take advantage of
shareholders' income tax liability its value later falls11 attractive or unexpected
opportunities or to meet demands
generated by shareholder activity
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The fund is also permitted to enter into futures and options transactions,
however, these transactions result in taxable gains or losses so it is expected
that the fund will utilize them infrequently.
FUND DETAILS 11
<PAGE>
- --------------------------------------------------------------------------------
Investments
This table discusses the customary types of securities which can be held by the
fund. In each case the principal types of risk are listed (see below for
definitions).
<TABLE>
<CAPTION>
|X| Permitted
|_| Permitted, but not
typically used New York
Total Return
Principal Types of Risk Bond Fund
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Asset-backed securities Interests in a credit, interest rate, market, |_|
stream of payments from specific assets, prepayment
such as auto or credit card receivables.
- ----------------------------------------------------------------------------------------
Bank obligations Negotiable certificates credit, liquidity |_|
of deposit, time deposits and bankers'
acceptances.
- ----------------------------------------------------------------------------------------
Commercial paper Unsecured short term credit, interest rate, |X|
debt issued by banks or corporations. liquidity, market
These securities are usually discounted
and are rated by S&P or Moody's.
- ----------------------------------------------------------------------------------------
Private placements Bonds or other credit, interest rate, |X|
investments that are sold directly to an liquidity, market, valuation
institutional investor.
- ----------------------------------------------------------------------------------------
Repurchase agreements Contracts whereby credit |_|
the seller of a security agrees to
repurchase the same security from the
buyer on a particular date and at a
specific price.
- ----------------------------------------------------------------------------------------
Synthetic variable rate instruments Debt credit, interest rate, |X|
instruments whereby the issuer agrees to leverage, liquidity, market
exchange one security for another in
order to change the maturity or quality
of a security in the fund.
- ----------------------------------------------------------------------------------------
Tax exempt municipal securities credit, interest rate, market, |X|(1)
Securities, generally issued as general natural event, political
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 interest rate |X|
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 credit, interest rate, |X|
payment securities Securities offering liquidity, market, valuation
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.
- ----------------------------------------------------------------------------------------
</TABLE>
Risk related to certain securities held by J.P. Morgan Institutional New York
Total Return Bond 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.
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 of a natural disaster, such as a hurricane or
similar event, will cause severe economic losses and default in payments by the
issuer of the security.
Political risk The risk governmental policies or other political actions will
negatively impact the value of the investment.
Prepayment risk The risk declining interest rates will result in unexpected
prepayments, causing the value of the investment to fall.
Valuation risk The risk the estimated value of a security does not match the
actual amount that can be realized if the security is sold.
(1) At least 65% of assets must be in New York municipal securities.
12 FUND DETAILS
<PAGE>
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's
financial performance for the past four fiscal periods. Certain information
reflects financial results for a single fund share. The total returns in the
table represent the rate that an investor would have earned (or lost) on an
investment in the fund (assuming reinvestment of all dividends and
distributions). This information has been audited by PricewaterhouseCoopers LLP,
whose report, along with the fund's financial statements, are included in the
annual report, which is available upon request.
================================================================================
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Per-share data For fiscal periods ended March 31
- -------------------------------------------------------------------------------------------------------------
1995(1) 1996 1997 1998
<S> <C> <C> <C> <C>
Net asset value, beginning of period ($) 10.00 10.11 10.34 10.31
- -------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.42 0.49 0.48 0.48
Net realized and unrealized gain (loss)
on investment ($) 0.11 0.25 (0.02) 0.40
- -------------------------------------------------------------------------------------------------------------
Total from investment operations ($) 0.53 0.74 0.46 0.88
- -------------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income ($) (0.42) (0.49) (0.48) (0.48)
Net realized gain ($) -- (0.02) (0.01) (0.04)
- -------------------------------------------------------------------------------------------------------------
Total distributions ($) (0.42) (0.51) (0.49) (0.52)
- -------------------------------------------------------------------------------------------------------------
Net asset value, end of period ($) 10.11 10.34 10.31 10.67
Total return (%) 5.49(2) 7.40 4.54 8.64
- -------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 20,621 47,926 90,792 111,418
- -------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Expenses (%) 0.50(3) 0.50 0.50 0.50
- -------------------------------------------------------------------------------------------------------------
Net investment income (%) 4.65(3) 4.67 4.70 4.54
- -------------------------------------------------------------------------------------------------------------
Decrease reflected in expense ratio due to
expense reimbursement (%) 0.55(3) 0.17 0.14 0.09
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The fund commenced operations on 4/11/94.
(2) Not annualized.
(3) Annualized.
FUND DETAILS 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 fund's SAI by reference.
Copies of the current versions of these documents, along with other information
about the fund, may be obtained by contacting:
J.P. Morgan Institutional New York Tax Exempt Bond 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
Morgan Guaranty Trust Company of New York Funds Distributor, Inc.
522 Fifth Avenue 60 State Street
New York, NY 10036 Boston, MA 02109
1-800-766-7722 1-800-221-7930
PROS392-983
<PAGE>
J.P. MORGAN INSTITUTIONAL FUNDS
J.P. MORGAN INSTITUTIONAL NEW YORK TOTAL RETURN BOND FUND
STATEMENT OF ADDITIONAL INFORMATION
AUGUST 3, 1998
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT CONTAINS
ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS
DATED AUGUST 3, 1998 FOR THE FUND, AS SUPPLEMENTED FROM TIME TO TIME.
ADDITIONALLY, THIS STATEMENT OF ADDITIONAL INFORMATION INCORPORATES BY REFERENCE
THE FINANCIAL STATEMENTS AND SHAREHOLDER REPORT RELATING TO THE FUND DATED MARCH
31, 1998. THE PROSPECTUS AND THE FINANCIAL STATEMENTS, INCLUDING THE 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 . . . . . . . . . . . 21
Trustees and Officers . . . . . . . . . . . . 23
Investment Advisor . . . . . . . . . . . . . . 27
Distributor . . . . . . . . . . . . . . . . . 30
Co-Administrator . . . . . . . . . . . . . . . 30
Services Agent . . . . . . . . . . . . . . . . 31
Custodian and Transfer Agent . . . . . . . . . 32
Shareholder Servicing . . . . . . . . . . . . 32
Financial Professionals . . . . . . . . . . . . 33
Independent Accountants . . . . . . . . . . . 34
Expenses . . . . . . . . . . . . . . . . . . . 34
Purchase of Shares . . . . . . . . . . . . . . 35
Redemption of Shares . . . . . . . . . . . . . 35
Exchange of Shares . . . . . . . . . . . . . . 36
Dividends and Distributions . . . . . . . . . 36
Net Asset Value . . . . . . . . . . . . . . . 36
Performance Data . . . . . . . . . . . . . . . 38
Portfolio Transactions . . . . . . . . . . . . 39
Massachusetts Trust . . . . . . . . . . . . . 41
Description of Shares . . . . . . . . . . . . 42
Special Information Concerning Investment
Structure. . . . . . . . . . . . . . . . . . 44
Taxes . . . . . . . . . . . . . . . . . . . . 45
Additional Information . . . . . . . . . . . 48
Financial Statements . . . . . . . . . . . . . 49
Appendix A-Description of Security Ratings . . Appendix A-1
Appendix B-Additional Information Concerning
New York Obligations. . . . . . . . Appendix B-1
<PAGE>
GENERAL
This Statement of Additional Information relates only to the J.P.
Morgan Institutional New York Total Return Bond Fund (the "Fund"). The Fund is a
series of shares of beneficial interest of the J.P. Morgan Institutional Funds,
an open-end management investment company formed as a Massachusetts business
trust (the "Trust"). The Fund is a non-diversified, open-end management
investment company. 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 New York Total Return Bond
Portfolio (the "Portfolio"), a corresponding non-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 Morgan Guaranty Trust Company of New York
("Morgan" or the "Advisor").
Investments in the Fund are not deposits or obligations of, or
guaranteed or endorsed by, Morgan or any other bank. Shares of the Fund are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other governmental agency. An investment in the Fund is
subject to risk that may cause the value of the investment to fluctuate, and
when the investment is redeemed, the value may be higher or lower than the
amount originally invested by the investor.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to provide a high after-tax
total return for New York residents consistent with moderate risk of capital.
The investment objective of the Fund and the investment objective of the
Portfolio are identical. The Fund invests primarily in New York Municipal
Securities (defined below), the income from which is exempt from federal and New
York personal income taxes. It may also invest in other municipal securities
that generate income exempt from federal income tax but not from New York income
tax. In addition, in order to maximize after tax total return, the Fund may
invest in taxable debt obligations to the extent consistent with its objective.
The following discussion supplements the information regarding the
investment objective of the Fund and the policies to be employed to achieve
<PAGE>
this objective.
The Fund is designed for investors subject to federal and New York
State and New York City personal income taxes who seek a high after tax total
return and who are willing to receive some taxable income and capital gains to
achieve that return. Additionally, the Fund is designed to be an economical and
convenient means of investing in a portfolio consisting primarily of debt
obligations that are exempt from federal and New York State and New York City
personal income taxes. The Fund is not suitable for tax-deferred retirement or
pension plans, including Individual Retirement Accounts (IRAs), 401(k) plans and
403(b) plans. The Fund is not a complete investment program and there is no
assurance that the Fund will achieve its investment objective.
The Advisor actively manages the Fund's duration, the allocation of
securities across market sectors and the selection of securities to maximize
after tax total return. The Advisor adjusts the Fund's duration based upon
fundamental economic and capital markets research and the Advisor's interest
rate outlook. For example, if interest rates are expected to rise, the duration
may be shortened to lessen the Fund's exposure to the expected decrease in bond
prices. If interest rates are expected to remain stable, the Advisor may
lengthen the duration in order to enhance the Fund's yield.
Under normal market conditions, the Fund will have a duration of three
to seven years, although the maturities of individual portfolio securities may
vary widely. Duration measures the price sensitivity of the Fund's portfolio,
including expected cash flow under a wide range of interest rate scenarios. A
longer duration generally results in greater price volatility. As a result, when
interest rates increase, the prices of longer duration securities increase more
than the prices of comparable quality securities with a shorter duration.
The Advisor also attempts to enhance after tax total return by
allocating the Fund's assets among market sectors. Specific securities which the
Advisor believes are undervalued are selected for purchase within sectors using
advanced quantitative tools, analysis of credit risk, the expertise of a
dedicated trading desk and the judgment of fixed income portfolio managers and
analysts.
The Fund may engage in short-term trading to the extent consistent with
its objective. The annual portfolio turnover rate of the Fund is generally not
expected to exceed 75%. Portfolio transactions may generate taxable capital
gains and result in increased transaction costs.
Under normal circumstances, the Fund invests at least 65% of its total
assets in New York municipal bonds. For purposes of this policy, "New York
municipal bonds" has the same meaning as "New York Municipal Securities," which
are obligations of any duration (or maturity) issued by New York, its political
subdivisions and their agencies, authorities and instrumentalities and any other
obligations, the interest from which is exempt from New York State and New York
City personal income taxes. The interest from many but not all New York
Municipal Securities is also exempt from federal income tax. The Fund may also
invest in debt obligations of state and municipal issuers outside of New York.
In general, the interest on such securities is exempt from federal income tax
but subject to New York income tax. A portion of the Fund's distributions from
interest on New York Municipal Securities and other municipal securities in
which the Fund invests may under certain circumstances be subject to federal
alternative minimum tax. See "Taxes".
<PAGE>
Tax Exempt Obligations
Since the Fund invests primarily in New York Municipal Securities, its
performance and the ability of New York issuers to meet their obligations may be
affected by economic, political, demographic or other conditions in the State of
New York. As a result, the value of the Fund's shares may fluctuate more widely
than the value of shares of a fund investing in securities of issuers in
multiple states. The ability of state, county or local governments to meet their
obligations will depend primarily on the availability of tax and other revenues
to those governments and on their general fiscal conditions. Constitutional or
statutory restrictions may limit a municipal issuer's power to raise revenues or
increase taxes. The availability of federal, state and local aid to issuers of
New York Municipal Securities may also affect their ability to meet their
obligations. Payments of principal and interest on revenue bonds will depend on
the economic or fiscal condition of the issuer or specific revenue source from
whose revenues the payments will be made. Any reduction in the actual or
perceived ability of an issuer of New York Municipal Securities to meet its
obligations (including a reduction in the rating of its outstanding securities)
would probably reduce the market value and marketability of the Fund's portfolio
securities.
The Fund may invest in municipal securities of any maturity and type.
These include both general obligation bonds secured by the issuer's pledge of
its full faith, credit and taxing authority and revenue bonds payable from
specific revenue sources, but generally not backed by the issuer's taxing
authority. In addition, the Fund may invest in all types of municipal notes,
including tax, revenue and grant anticipation notes, municipal commercial paper,
and municipal demand obligations such as variable rate demand notes and master
demand obligations. There is no specific percentage limitation on these
investments.
Municipal Bonds. Municipal bonds are debt obligations issued by the
states, territories and possessions of the United States and the District of
Columbia, by their political subdivisions and by duly constituted authorities
and corporations. For example, states, territories, possessions and
municipalities may issue municipal bonds to raise funds for various public
purposes such as airports, housing, hospitals, mass transportation, schools,
water and sewer works. They may also issue municipal bonds to refund outstanding
obligations and to meet general operating expenses. Public authorities issue
municipal bonds to obtain funding for privately operated facilities, such as
housing and pollution control facilities, for industrial facilities or for water
supply, gas, electricity or waste disposal facilities.
Municipal bonds may be general obligation or revenue bonds. General
obligation bonds are secured by the issuer's pledge of its full faith, credit
and taxing power for the payment of principal and interest. Revenue bonds are
payable from revenues derived from particular facilities, from the proceeds of a
special excise tax or from other specific revenue sources. They are not
generally payable from the general taxing power of a municipality.
Municipal Notes. The Fund may also invest in municipal notes of various
types, including notes issued in anticipation of receipt of taxes, the proceeds
of the sale of bonds, other revenues or grant proceeds, as well as municipal
commercial paper and municipal demand obligations such as variable rate demand
notes and master demand obligations. The interest rate on variable rate demand
notes is adjustable at periodic intervals as specified in the
<PAGE>
notes. Master demand obligations permit the investment of fluctuating
amounts at periodically adjusted interest rates. They are governed by agreements
between the municipal issuer and Morgan acting as agent, for no additional fee,
in its capacity as Advisor to the Fund and as fiduciary for other clients for
whom it exercises investment discretion. Although master demand obligations are
not marketable to third parties, the Fund considers them to be liquid because
they are payable on demand. There is no specific percentage limitation on these
investments. Municipal notes are subdivided into three categories of short-term
obligations: municipal notes, municipal commercial paper and municipal demand
obligations.
Municipal notes are short-term obligations with a maturity at the time
of issuance ranging from six months to five years. The principal types of
municipal notes include tax anticipation notes, bond anticipation notes, revenue
anticipation notes, grant anticipation notes and project notes. Notes sold in
anticipation of collection of taxes, a bond sale, or receipt of other revenues
are usually general obligations of the issuing municipality or agency.
Municipal commercial paper typically consists of very short-term
unsecured negotiable promissory notes that are sold to meet seasonal working
capital or interim construction financing needs of a municipality or agency.
While these obligations are intended to be paid from general revenues or
refinanced with long-term debt, they frequently are backed by letters of credit,
lending agreements, note repurchase agreements or other credit facility
agreements offered by banks or institutions.
Municipal demand obligations are subdivided into two types: variable rate
demand notes and master demand obligations.
Variable rate demand notes are tax exempt municipal obligations or
participation interests that provide for a periodic adjustment in the interest
rate paid on the notes. They permit the holder to demand payment of the notes,
or to demand purchase of the notes at a purchase price equal to the unpaid
principal balance, plus accrued interest either directly by the issuer or by
drawing on a bank letter of credit or guaranty issued with respect to such note.
The issuer of the municipal obligation may have a corresponding right to prepay
at its discretion the outstanding principal of the note plus accrued interest
upon notice comparable to that required for the holder to demand payment. The
variable rate demand notes in which the Fund may invest are payable, or are
subject to purchase, on demand usually on notice of seven calendar days or less.
The terms of the notes provide that interest rates are adjustable at intervals
ranging from daily to six months, and the adjustments are based upon the prime
rate of a bank or other appropriate interest rate index specified in the
respective notes. Variable rate demand notes are valued at amortized cost; no
value is assigned to the right of the Fund to receive the par value of the
obligation upon demand or notice.
Master demand obligations are tax exempt municipal obligations that
provide for a periodic adjustment in the interest rate paid and permit daily
changes in the amount borrowed. The interest on such obligations is, in the
opinion of counsel for the borrower, excluded from gross income for federal
income tax purposes. For a description of the attributes of master demand
obligations, see "Tax Exempt Obligations-Municipal Notes" above.
Premium Securities. During a period of declining interest rates, many
municipal securities in which the Fund invests likely will bear coupon rates
<PAGE>
higher than current market rates, regardless of whether the securities
were initially purchased at a premium. In general, such securities have market
values greater than the principal amounts payable on maturity, which would be
reflected in the net asset value of the Fund's shares. The values of such
"premium" securities tend to approach the principal amount as they near
maturity.
Puts. The Fund may purchase without limit, municipal bonds or notes
together with the right to resell the bonds or notes to the seller at an agreed
price or yield within a specified period prior to the maturity date of the bonds
or notes. Such a right to resell is commonly known as a "put." The aggregate
price for bonds or notes with puts may be higher than the price for bonds or
notes without puts. Consistent with the Fund's investment objective and subject
to the supervision of the Trustees, the purpose of this practice is to permit
the Fund to be fully invested in tax exempt securities while preserving the
necessary liquidity to purchase securities on a when-issued basis, to meet
unusually large redemptions, and to purchase at a later date securities other
than those subject to the put. The principal risk of puts is that the writer of
the put may default on its obligation to repurchase. The Advisor will monitor
each writer's ability to meet its obligations under puts.
Puts may be exercised prior to the expiration date in order to fund
obligations to purchase other securities or to meet redemption requests. These
obligations may arise during periods in which proceeds from sales of Fund shares
and from recent sales of portfolio securities are insufficient to meet
obligations or when the funds available are otherwise allocated for investment.
In addition, puts may be exercised prior to the expiration date in order to take
advantage of alternative investment opportunities or in the event the Advisor
revises its evaluation of the creditworthiness of the issuer of the underlying
security. In determining whether to exercise puts prior to their expiration date
and in selecting which puts to exercise, the Advisor considers the amount of
cash available to the Fund, the expiration dates of the available puts, any
future commitments for securities purchases, alternative investment
opportunities, the desirability of retaining the underlying securities in the
Fund's portfolio and the yield, quality and maturity dates of the underlying
securities.
The Fund values any municipal bonds and notes subject to puts with
remaining maturities of less than 60 days by the amortized cost method. If the
Fund were to invest in municipal bonds and notes with maturities of 60 days or
more that are subject to puts separate from the underlying securities, the puts
and the underlying securities would be valued at fair value as determined in
accordance with procedures established by the Board of Trustees. The Board of
Trustees would, in connection with the determination of the value of a put,
consider, among other factors, the creditworthiness of the writer of the put,
the duration of the put, the dates on which or the periods during which the put
may be exercised and the applicable rules and regulations of the SEC. Prior to
investing in such securities, the Fund, if deemed necessary based upon the
advice of counsel, will apply to the SEC for an exemptive order, which may not
be granted, relating to the amortized valuation of such securities.
Since the value of the put is partly dependent on the ability of the
put writer to meet its obligation to repurchase, the Fund's policy is to enter
into put transactions only with municipal securities dealers who are approved by
the Advisor. Each dealer will be approved on its own merits, and it is the
Fund's general policy to enter into put transactions only with those dealers
<PAGE>
which are determined to present minimal credit risks. In connection
with such determination, the Advisor reviews regularly the list of approved
dealers, taking into consideration, among other things, the ratings, if
available, of their equity and debt securities, their reputation in the
municipal securities markets, their net worth, their efficiency in consummating
transactions and any collateral arrangements, such as letters of credit,
securing the puts written by them. Commercial bank dealers normally will be
members of the Federal Reserve System, and other dealers will be members of the
National Association of Securities Dealers, Inc. or members of a national
securities exchange. Other put writers will have outstanding debt rated Aa or
better by Moody's Investors Service, Inc. ("Moody's") or AA or better by
Standard & Poor's Ratings Group ("Standard & Poor's"), or will be of comparable
quality in the Advisor's opinion or such put writers' obligations will be
collateralized and of comparable quality in the Advisor's opinion. The Trustees
have directed the Advisor not to enter into put transactions with any dealer
which in the judgment of the Advisor become more than a minimal credit risk. In
the event that a dealer should default on its obligation to repurchase an
underlying security, the Fund is unable to predict whether all or any portion of
any loss sustained could subsequently be recovered from such dealer.
Entering into a put with respect to a tax exempt security may be
treated, depending upon the terms of the put, as a taxable sale of the tax
exempt security by the Fund with the result that, while the put is outstanding,
the Fund will no longer be treated as the owner of the security and the interest
income derived with respect to the security will be treated as taxable income to
the Fund.
Non-Municipal Securities
The Fund may invest in bonds and other debt securities of domestic
issuers to the extent consistent with its investment objective and policies. The
Fund may invest in U.S. Government, bank and corporate debt obligations, as well
as asset-backed securities and repurchase agreements. The Fund will purchase
such securities only when the Advisor believes that they would enhance the after
tax total return of a shareholder of the Fund in the highest federal and New
York income tax brackets. Under normal circumstances, the Fund's holdings of
non-municipal securities and securities of municipal issuers outside New York
will not exceed 35% of its total assets. A description of these investments
appears below. See "Quality and Diversification Requirements." For information
on short-term investments in these securities, see "Money Market Instruments."
Zero Coupon, Pay-in-Kind and Deferred Payment Securities. While
interest payments are not made on such securities, holders of such securities
are deemed to have received "phantom income." Because the Fund will distribute
"phantom income" to shareholders, to the extent that shareholders elect to
receive dividends in cash rather than reinvesting such dividends in additional
shares, the Fund will have fewer assets with which to purchase income producing
securities.
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
<PAGE>
a financial institution unaffiliated with the entities issuing the
securities. The asset-backed securities in which the Fund may invest are subject
to the Fund's overall credit requirements. However, asset-backed securities, in
general, are subject to certain risks. Most of these risks are related to
limited interests in applicable collateral. For example, credit card debt
receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of which
give such debtors the right to set off certain amounts on credit card debt
thereby reducing the balance due. Additionally, if the letter of credit is
exhausted, holders of asset-backed securities may also experience delays in
payments or losses if the full amounts due on underlying sales contracts are not
realized.
Money Market Instruments
The Fund may invest in money market instruments, to the extent
consistent with its investment objective and policies, that meet the quality
requirements described below except that short-term municipal obligations of New
York State issuers may be rated MIG-2 by Moody's or SP-2 by Standard & Poor's.
Under normal circumstances, the Fund will purchase these securities to invest
temporary cash balances or to maintain liquidity to meet withdrawals. However,
the Fund may also invest in money market instruments as a temporary defensive
measure taken during, or in anticipation of, adverse market conditions. A
description of the various types of money market instruments that may be
purchased by the Fund appears below. Also see "Quality and Diversification
Requirements."
Bank Obligations. The Fund may invest in negotiable certificates of
deposit, time deposits and bankers' acceptances of (i) banks, savings and loan
associations and savings banks which have more than $2 billion in total and are
organized under the laws of the United States or any state, (ii) foreign
branches of these banks of equivalent size (Euros) and (iii) U.S. branches of
foreign banks of equivalent size (Yankees). The Fund will not invest in
obligations for which the Advisor, or any of its affiliated persons, is the
ultimate obligor or accepting bank.
Commercial Paper. The Fund may invest in commercial paper, including
master demand obligations. For a description of master demand obligations, see
"Tax Exempt Obligations---Municipal Notes" above. The monies loaned to the
borrower come from accounts managed by the Advisor or its affiliates, pursuant
to arrangements with such accounts. Interest and principal payments are credited
to such accounts. The Advisor, acting as a fiduciary on behalf of its clients,
has the right to increase or decrease the amount provided to the borrower under
an obligation. The borrower has the right to pay without penalty all or any part
of the principal amount then outstanding on an obligation together with interest
to the date of payment. Since these obligations typically provide that the
interest rate is tied to the Federal Reserve commercial paper composite rate,
the rate on master demand obligations is subject to change. Repayment of a
master demand obligation to participating accounts depends on the ability of the
borrower to pay the accrued interest and principal of the obligation on demand
which is continuously monitored by the Advisor. Since master demand obligations
typically are not rated by credit rating agencies, the Fund may invest in such
unrated obligations only if at the time of an investment the obligation is
determined by the Advisor to have a credit quality which satisfies the Fund's
quality restrictions. See "Quality and Diversification Requirements." It is
possible that the issuer of a master demand obligation could be a client of
<PAGE>
Morgan, to whom Morgan, in its capacity as a commercial bank, has made
a loan.
Repurchase Agreements. The Fund may enter into repurchase agreements
with brokers, dealers or banks that meet the credit guidelines approved by the
Fund's Trustees. In a repurchase agreement, the Fund buys a security from a
seller that has agreed to repurchase the same security at a mutually agreed upon
date and price. The resale price normally is in excess of the purchase price,
reflecting an agreed upon interest rate. This interest rate is effective for the
period of time the Fund is invested in the agreement and is not related to the
coupon rate on the underlying security. A repurchase agreement may also be
viewed as a fully collateralized loan of money by the Fund to the seller. The
period of these repurchase agreements will usually be short, from overnight to
one week, and at no time will the Fund invest in repurchase agreements for more
than thirteen months. The securities which are subject to repurchase agreements,
however, may have maturity dates in excess of thirteen months from the effective
date of the repurchase agreement. The Fund will always receive securities as
collateral whose market value is, and during the entire term of the agreement
remains, at least equal to 100% of the dollar amount invested by the Fund in the
agreement plus accrued interest, and the Fund will make payment for such
securities only upon physical delivery or upon evidence of book entry transfer
to the account of the custodian. If the seller defaults, the Fund might incur a
loss if the value of the collateral securing the repurchase agreement declines
and might incur disposition costs in connection with liquidating the collateral.
In addition, if bankruptcy proceedings are commenced with respect to the seller
of the security, realization upon disposal of the collateral by the Fund may be
delayed or limited.
The Fund may make investments in other debt securities with remaining
effective maturities of not more than thirteen months, including without
limitation corporate bonds and other obligations described in this Statement of
Additional Information.
U.S. Treasury Securities. The Fund may invest in direct obligations of the
U.S. Treasury, including Treasury bills, notes and bonds, all of which are
backed as to principal and interest payments by the full faith and credit of the
United States.
Additional U.S. Government Obligations. The Fund may invest in
obligations issued or guaranteed by U.S. Government agencies or
instrumentalities. These obligations may or may not be backed by the "full faith
and credit" of the United States. Securities which are backed by the full faith
and credit of the United States include obligations of the Government National
Mortgage Association, the Farmers Home Administration, and the Export-Import
Bank. In the case of securities not backed by the full faith and credit of the
United States, the Fund must look principally to the federal agency issuing or
guaranteeing the obligation for ultimate repayment and may not be able to assert
a claim against the United States itself in the event the agency or
instrumentality does not meet its commitments. Securities in which the Fund may
invest that are not backed by the full faith and credit of the United States
include, but are not limited to: (i) obligations of the Tennessee Valley
Authority, the Federal Home Loan Mortgage Corporation, the Federal Home Loan
Banks and the U.S. Postal Service, each of which has the right to borrow from
the U.S. Treasury to meet its obligations; (ii) securities issued by the Federal
National Mortgage Association, which are supported by the discretionary
authority of the U.S. Government to purchase the agency's obligations; and (iii)
obligations of the Federal Farm Credit
<PAGE>
System and the Student Loan Marketing Association, each of whose
obligations may be satisfied only by the individual credits of the issuing
agency.
Additional Investments
When-Issued and Delayed Delivery Securities. The Fund may purchase
securities on a when-issued or delayed delivery basis. For example, delivery of
and payment for these securities can take place a month or more after the date
of the purchase commitment. The purchase price and the interest rate payable, if
any, on the securities are fixed on the purchase commitment date or at the time
the settlement date is fixed. The value of such securities is subject to market
fluctuation and for money market instruments and other fixed income securities
no interest accrues to the Fund until settlement takes place. At the time the
Fund makes the commitment to purchase securities on a when-issued or delayed
delivery basis, it will record the transaction, reflect the value each day of
such securities in determining its net asset value and, if applicable, calculate
the maturity for the purposes of average maturity from that date. At the time of
settlement a when-issued security may be valued at less than the purchase price.
To facilitate such acquisitions, the Fund will maintain with the custodian a
segregated account with liquid assets, consisting of cash, U.S. Government
securities or other appropriate securities, in an amount at least equal to such
commitments. On delivery dates for such transactions, the Fund will meet its
obligations from maturities or sales of the securities held in the segregated
account and/or from cash flow. If the Fund chooses to dispose of the right to
acquire a when-issued security prior to its acquisition, it could, as with the
disposition of any other portfolio obligation, incur a gain or loss due to
market fluctuation. Also, the Fund may be disadvantaged if the other party to
the transaction defaults. It is the current policy of the Fund not to enter into
when-issued commitments exceeding in the aggregate 15% of the market value of
the Fund's total assets, less liabilities other than the obligations created by
when-issued commitments.
Investment Company Securities. Securities of other investment companies
may be acquired by the Fund to the extent permitted under the 1940 Act. These
limits require that, as determined immediately after a purchase is made, (i) not
more than 5% of the value of the Fund's total assets will be invested in the
securities of any one investment company, (ii) not more than 10% of the value of
its total assets will be invested in the aggregate in securities of investment
companies as a group, and (iii) not more than 3% of the outstanding voting stock
of any one investment company will be owned by the Fund, provided however, that
the Fund may invest all of its investable assets in an open-end investment
company that has the same investment objective as the Fund. As a shareholder of
another investment company, the Fund would bear, along with other shareholders,
its pro rata portion of the other investment company's expenses, including
advisory fees. These expenses would be in addition to the advisory and other
expenses that the Fund bears directly in connection with its own operations.
Reverse Repurchase Agreements. The Fund may enter into reverse
repurchase agreements. In a reverse repurchase agreement, the Fund sells a
security and agrees to repurchase the same security at a mutually agreed upon
date and price, reflecting the interest rate effective for the term of the
agreement. For purposes of the 1940 Act a reverse repurchase agreement is also
considered as the borrowing of money by the Fund and, therefore, a form of
leverage. Leverage may cause any gains or losses for the Fund to be magnified.
The Fund will invest the proceeds of borrowings under reverse
<PAGE>
repurchase agreements. In addition, the Fund will enter into a reverse
repurchase agreement only when the interest income to be earned from the
investment of the proceeds is greater than the interest expense of the
transaction. The Fund will not invest the proceeds of a reverse repurchase
agreement for a period which exceeds the duration of the reverse repurchase
agreement. The Fund will establish and maintain with the custodian a separate
account with a segregated portfolio of securities in an amount at least equal to
its purchase obligations under its reverse repurchase agreements. See
"Investment Restrictions" for the Fund's limitations on reverse repurchase
agreements and bank borrowings.
Loans of Portfolio Securities. Subject to applicable investment
restrictions, the Fund is permitted to lend securities in an amount up to 331/3%
of the value of the Fund's total assets. The Fund may lend its securities if
such loans are secured continuously by cash or equivalent collateral or by a
letter of credit in favor of the Fund at least equal at all times to 100% of the
market value of the securities loaned, plus accrued interest. While such
securities are on loan, the borrower will pay the Fund any income accruing
thereon. Loans will be subject to termination by the Fund in the normal
settlement time, generally three business days after notice, or by the borrower
on one day's notice. Borrowed securities must be returned when the loan is
terminated. Any gain or loss in the market price of the borrowed securities
which occurs during the term of the loan inures to the Fund and its respective
investors. The Fund may pay reasonable finders' and custodial fees in connection
with a loan. In addition, the Fund will consider all facts and circumstances
including the creditworthiness of the borrowing financial institution, and the
Fund will not make any loans in excess of one year. The Fund will not lend its
securities to any officer, Trustee, Director, employee or other affiliate of the
Fund, the Advisor or the Distributor, unless otherwise permitted by applicable
law.
Illiquid Investments; Privately Placed and Other Unregistered
Securities. The Fund may not acquire any illiquid securities if, as a result
thereof, more than 15% of the Fund's net assets would be in illiquid
investments. Subject to this non-fundamental policy limitation, the Fund may
acquire investments that are illiquid or have limited liquidity, such as private
placements or investments that are not registered under the Securities Act of
1933, as amended (the "1933 Act"), and cannot be offered for public sale in the
United States without first being registered under the 1933 Act. An illiquid
investment is any investment that cannot be disposed of within seven days in the
normal course of business at approximately the amount at which it is valued by
the Portfolio. The price the Fund pays for illiquid securities or receives upon
resale may be lower than the price paid or received for similar securities with
a more liquid market. Accordingly the valuation of these securities will reflect
any limitations on their liquidity.
The Fund 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 Fund is subject to a risk that should
the Fund decide to sell them when a ready buyer is not available at a price the
Fund deems representative of their value, the value of the Fund's net assets
could be adversely affected. Where an illiquid security must be registered under
the 1933 Act, before it may be sold, the Fund may be
<PAGE>
obligated to pay all or part of the registration expenses, and a
considerable period may elapse between the time of the decision to sell and the
time the Fund may be permitted to sell a security under an effective
registration statement. If, during such a period, adverse market conditions were
to develop, the Fund might obtain a less favorable price than prevailed when it
decided to sell.
Synthetic Variable Rate Instruments. The Fund may invest in certain
synthetic variable rate instruments. Such instruments generally involve the
deposit of a long-term tax exempt bond in a custody or trust arrangement and the
creation of a mechanism to adjust the long-term interest rate on the bond to a
variable short-term rate and a right (subject to certain conditions) on the part
of the purchaser to tender it periodically to a third party at par. Morgan will
review the structure of synthetic variable rate instruments to identify credit
and liquidity risks (including the conditions under which the right to tender
the instrument would no longer be available) and will monitor those risks. In
the event that the right to tender the instrument is no longer available, the
risk to the Fund will be that of holding the long-term bond. In the case of some
types of instruments credit enhancement is not provided, and if certain events,
which may include (a) default in the payment of principal or interest on the
underlying bond, (b) downgrading of the bond below investment grade or (c) a
loss of the bond's tax exempt status, occur, then (i) the put will terminate,
(ii) the risk to the Fund will be that of holding a long-term bond.
Quality and Diversification Requirements
The Fund is registered as a non-diversified investment company which
means that the Fund is not limited by the 1940 Act in the proportion of its
assets that may be invested in the obligations of a single issuer. Thus, the
Fund may invest a greater proportion of its assets in the securities of a
smaller number of issuers and, as a result, may be subject to greater risk with
respect to its portfolio securities. The Fund, however, 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".
It is the current policy of the Fund that under normal circumstances at
least 90% of total assets will consist of securities that at the time of
purchase are rated Baa or better by Moody's or BBB or better by Standard &
Poor's. The remaining 10% of total assets may be invested in securities that are
rated B or better by Moody's or Standard & Poor's. In each case, the Fund may
invest in securities which are unrated, if in the Advisor's opinion, such
securities are of comparable quality. Securities rated Baa by Moody's or BBB by
Standard & Poor's are considered investment grade, but have some speculative
characteristics. Securities rated Ba or B by Moody's and BB or B by Standard &
Poor's are below investment grade and considered to be speculative with regard
to payment of interest and principal. These standards must be satisfied at the
time an investment is made. If the quality of the investment later declines, the
Fund may continue to hold the investment.
The Fund invests principally in a portfolio of "investment grade" tax
exempt securities. An investment grade bond is rated, on the date of investment,
within the four highest ratings of Moody's, currently Aaa, Aa, A and Baa or of
Standard & Poor's, currently AAA, AA, A and BBB, while high grade debt is rated,
on the date of the investment, within the two highest of such ratings.
Investment grade municipal notes are rated, on the date of
<PAGE>
investment, MIG-1 or MIG-2 by Standard & Poor's or SP-1 and SP-2 by
Moody's. Investment grade municipal commercial paper is rated, on the date of
investment, Prime 1 or Prime 2 by Moody's and A-1 or A-2 by Standard & Poor's.
The Fund may also invest up to 10% of its total assets in securities which are
"below investment grade." Such securities must be rated, on the date of
investment, B or better by Moody's or Standard & Poor's, or of comparable
quality. The Fund may invest in debt securities which are not rated or other
debt securities to which these ratings are not applicable, if in the opinion of
the Advisor, such securities are of comparable quality to the rated securities
discussed above. In addition, at the time the Fund invests in any taxable
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.
Certain lower rated securities purchased by the Fund, such as those
rated Ba or B by Moody's or BB or B by 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 Fund 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 Fund's portfolio
securities for purposes of determining the Fund's net asset value. See Appendix
A for more detailed information on these ratings.
Futures and Options Transactions
The Fund may enter into derivative contracts to hedge against
fluctuations in securities prices or as a substitute for the purchase or sale of
securities. The Fund may also use derivative contracts for risk management
purposes. See "Risk Management" below. The Fund may purchase and sell (write)
exchange traded and over-the-counter ("OTC") put and call options on securities
and securities indexes, purchase and sell futures contracts on securities and
securities indexes and purchase and sell (write) put and call options on futures
contracts on securities and securities indexes. Some futures and options
strategies, including selling futures contracts, buying
<PAGE>
puts and writing calls, tend to hedge the Fund's investments against
price fluctuations. Other strategies, including buying futures contracts,
writing puts and buying calls, tend to increase market exposure. Options and
futures contracts may be combined with each other in order to adjust the risk
and return characteristics of the Fund's overall strategy in a manner consistent
with the Fund's objective and policies. Because transactions in derivative
instruments result in taxable gains or losses it is expected that the Fund will
utilize derivatives contracts infrequently.
Transactions in derivative contracts often involve a risk of loss or
depreciation due to unanticipated adverse changes in securities prices. The Fund
incurs liability to a counterparty in connection with transactions in futures
contracts and the writing of options. As a result, the loss on these derivative
contracts may exceed the Fund's initial investment. The Fund may also lose the
entire premium paid for purchased options that expire before they can be
profitably exercised by the Fund. In addition, the Fund incurs transaction costs
in opening and closing positions in derivative contracts.
Derivative contracts may sometimes increase or leverage the Fund's
exposure to a particular market risk. Leverage magnifies the price volatility of
derivative contracts held by the Fund. The Fund is required to offset the
leverage inherent in derivatives contracts by maintaining a segregated account
consisting of cash or liquid securities, by holding offsetting portfolio
securities or contracts or by covering written options.
The Fund's success in using derivative contracts to hedge portfolio
assets depends on the degree of price correlation between the derivative
contract and the hedged asset. Imperfect correlation may be caused by several
factors, including temporary price disparities among the trading markets for the
derivative contract, the assets underlying the derivative contract and the
Fund's portfolio assets.
During periods of extreme market volatility, a commodity or options
exchange may suspend or limit trading in an exchange-traded derivative contract,
which may make the contract temporarily illiquid and difficult to price. The
Fund's ability to terminate OTC derivative contracts may depend on the
cooperation of the counterparties to such contracts. For thinly traded
derivative contracts, the only source of price quotations may be the selling
dealer or counterparty. In addition, derivative securities and OTC derivative
contracts involve a risk that the issuer or counterparty will fail to perform
its contractual obligations.
The Fund will not engage in a transaction in futures or options on
futures for risk management purposes if, immediately thereafter, the sum of
additional margin deposits and premiums required to establish risk management
positions in futures contracts and options on futures would exceed 5% of the
Fund's net assets.
Exchange Traded and OTC Options. All options purchased or sold by the
Fund will be traded on a securities exchange or will be purchased or sold by
securities dealers (OTC options) that meet the Fund's credit standards.
Exchange-traded options are obligations of the Options Clearing Corporation.
However, when the Fund purchases an OTC option, it relies on the dealer from
which it purchased the option to make or take delivery of the underlying
securities. Failure by the dealer to do so would result in the loss of the
premium paid by the Fund as well as loss of the expected benefit of the
transaction.
<PAGE>
The staff of the SEC has taken the position that certain purchased OTC
options and the underlying securities used to cover certain written OTC options
are illiquid securities. However, the Fund may treat as liquid purchased OTC
options and underlying securities used to cover written OTC options determined
by the Advisor to be liquid on a case-by-case basis pursuant to procedures
approved by the Trustees of the Trust.
Futures Contracts and Options on Futures Contracts. The Fund may
purchase or sell (write) futures contracts and purchase put and call options,
including put and call options on futures contracts. In addition, the Fund may
sell (write) put and call options, including options on futures. 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 indices of fixed income securities (including municipal securities) and
indices composed of equity securities.
A futures contract 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. Each party to an open futures contract makes
daily payments of "variation" margin to the other party in an amount equal to
the decrease. In contrast, an option on a futures contract entitles its holder
to decide on or before the expiration 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 cash payments of "variation" margin to reflect the
change in the value of the underlying 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 Fund are paid by the Fund into a segregated account
maintained by the Fund's custodian in the name of the futures commission
merchant. In connection with such transactions, the Fund will also segregate
cash or other liquid assets in a separate account in accordance with applicable
SEC requirements.
Combined Positions. The Fund may engage in options transactions in
combination with other options, futures or forward contracts. For example, the
Fund may purchase a put option and write a call option on the same underlying
instrument, in order to construct a combined position whose risk and return
characteristics are similar to selling a futures contract. Another possible
combined position would involve writing a call option at one strike price and
buying a call option at a lower strike price, in order to reduce the risk of the
written call option in the event of a substantial price increase. Because
combined options positions involve multiple trades, they result in higher
transaction costs and may be more difficult to open and close out.
Correlation of Price Changes. Because there are a limited number of
types of exchange-traded options and futures contracts, it is likely that the
standardized options and futures contracts available will not match the Fund's
current or anticipated investments exactly. The Fund may enter into options
<PAGE>
and futures contracts based on securities with different issuers,
maturities, or other characteristics from the securities in which it typically
invests. This practice involves a risk that the options or futures position will
not track the performance of the Fund's other investments in securities.
Options and futures contracts prices can also diverge from the prices
of their underlying instruments, even if the underlying instruments correlate
well with the Fund's investments. Options and futures contracts prices are
affected by such factors as current and anticipated interest rates, changes in
the price volatility of the underlying instrument, and the time remaining until
expiration of the contract, which may not affect security prices the same way.
Imperfect correlation may also result from differing levels of demand in the
options and futures markets and the securities markets, from structural
differences in how options and futures and securities are traded, or from the
imposition of daily price fluctuation limits or trading halts. The Fund 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 Fund's options or futures positions are poorly correlated with its other
investments, the positions may fail to produce anticipated gains or result in
losses that are not offset by gains in other investments.
Liquidity of Options and Futures Contracts. There is no assurance that
a liquid market will exist for any particular option or futures contract at any
particular time even if the contract is traded on an exchange. In addition,
exchanges may establish daily price fluctuation limits for options and futures
contracts and may halt trading if a contract's price moves up or down more than
the limit in a given day. On volatile trading days when the price fluctuation
limit is reached or a trading halt is imposed, it may be impossible for the Fund
to enter into new positions or close out existing positions. If the market for a
contract is not liquid because of price fluctuation limits or otherwise, it
could prevent prompt liquidation of unfavorable positions, and could potentially
require the Fund to continue to hold a position until delivery or expiration
regardless of changes in its value. As a result, the Fund's access to other
assets held to cover its options or futures positions could also be impaired.
Position Limits. Futures exchanges can limit the number of futures and
options on futures contracts that can be held or controlled by an entity. If an
adequate exemption cannot be obtained, the Fund or the Advisor may be required
to reduce the size of its futures and options positions or may not be able to
trade a certain futures or options contract in order to avoid exceeding such
limits.
Asset Coverage for Futures Contracts and Options Positions. The Fund
intends to comply with Rule 4.5 under the Commodity Exchange Act, which limits
the extent to which the Fund can commit assets to initial margin deposits and
option premiums. In addition, the Fund will comply with guidelines established
by the SEC with respect to coverage of options and futures contracts by mutual
funds. If the guidelines so require, the Fund will set aside appropriate liquid
assets in a segregated custodial account in the amount prescribed. Securities
held in a segregated account cannot be sold while the futures contract or option
is outstanding, unless they are replaced with other suitable assets. As a
result, there is a possibility that segregation of a large percentage of the
Fund's assets could impede portfolio
<PAGE>
management or the Fund's ability to meet redemption requests or other
current obligations.
Risk Management
The Fund may employ non-hedging risk management techniques. Examples of
such strategies include synthetically altering the duration of its portfolio or
the mix of securities in its portfolio. For example, if the Advisor wishes to
extend maturities in a fixed income portfolio in order to take advantage of an
anticipated decline in interest rates, but does not wish to purchase the
underlying long-term securities, it might cause the Fund to purchase futures
contracts on long-term debt securities. Similarly, if the Advisor wishes to
decrease fixed income securities or purchase equities, it could cause the Fund
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.
Special Factors Affecting the Fund
The Fund intends to invest a high proportion of its assets in municipal
obligations in New York Municipal Securities. Payment of interest and
preservation of principal is dependent upon the continuing ability of New York
issuers and/or obligors of New York Municipal Securities to meet their
obligations thereunder.
The fiscal stability of New York is related, at least in part, to the
fiscal stability of its localities and authorities. Various New York agencies,
authorities and localities have issued large amounts of bonds and notes either
guaranteed or supported by New York through lease-purchase arrangements, other
contractual arrangements or moral obligation provisions. While debt service is
normally paid out of revenues generated by projects of such New York agencies,
authorities and localities, in the past the State has had to provide special
assistance, in some cases of a recurring nature, to enable such agencies,
authorities and localities to meet their financial obligations and, in some
cases, to prevent or cure defaults. The presence of such aid in the future
should not be assumed. To the extent that New York agencies and local
governments require State assistance to meet their financial obligations, the
ability of New York to meet its own obligations as they become due or to obtain
additional financing could be adversely affected.
For further information concerning New York Municipal Obligations, see
Appendix B to this Statement of Additional Information. The summary set forth
above and in Appendix B is based on information from an official statement of
New York general obligation municipal obligations and does not purport to be
complete.
Portfolio Turnover
The portfolio turnover rates for the fiscal years ended March 31, 1997
and 1998 were 35% and 51%, 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
<PAGE>
income for federal income tax purposes. See "Taxes" below.
INVESTMENT RESTRICTIONS
The investment restrictions of the Fund and Portfolio are identical,
unless otherwise specified. Accordingly, references below to the Fund also
include the Portfolio unless the context requires otherwise; similarly,
references to the Portfolio also include the Fund unless the context requires
otherwise.
The investment restrictions below have been adopted by the Trust, with
respect to the Fund, and by the Portfolio. Except where otherwise noted, these
investment restrictions are "fundamental" policies which, under the 1940 Act,
may not be changed without the vote of a majority of the outstanding voting
securities of the Fund or Portfolio, as the case may be. A "majority of the
outstanding voting securities" is defined in the 1940 Act as the lesser of (a)
67% or more of the voting securities present at a meeting if the holders of more
than 50% of the outstanding voting securities are present or represented by
proxy, or (b) more than 50% of the outstanding voting securities. The percentage
limitations contained in the restrictions below apply at the time of the
purchase of securities. Whenever the Fund is requested to vote on a change in
the fundamental investment restrictions of the Portfolio, the Trust will hold a
meeting of Fund shareholders and will cast its votes as instructed by the Fund's
shareholders.
Unless Sections 8(b)(1) and 13(a) of the 1940 Act or any SEC or SEC
staff interpretations thereof, are amended or modified, the Fund and its
corresponding Portfolio may not:
1. Purchase any security if, as a result, more than 25% of the value of
the Fund's total assets would be invested in securities of issuers
having their principal business activities in the same industry. This
limitation shall not apply to obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities;
2. Borrow money, except that the Fund may (i) borrow money from banks for
temporary or emergency purposes (not for leveraging purposes) and (ii)
enter into reverse repurchase agreements for any purpose; provided that
(i) and (ii) in total do not exceed 33 1/3% of the value of the Fund's
total assets (including the amount borrowed) less liabilities (other
than borrowings). If at any time any borrowings come to exceed 33 1/3%
of the value of the Fund's total assets, the Fund will reduce its
borrowings within three business days to the extent necessary to comply
with the 33 1/3% limitation;
3. Make loans to other persons, except through the purchase of debt
obligations, loans of portfolio securities, and participation in
repurchase agreements;
4. Purchase or sell physical commodities or contracts thereon, unless
acquired as a result of the ownership of securities or instruments, but
the Fund may purchase or sell futures contracts or options (including
options on futures contracts, but excluding options or futures
contracts on physical commodities) and may enter into foreign currency
forward contracts;
<PAGE>
5. Purchase or sell real estate, but the Fund may purchase or sell
securities that are secured by real estate or issued by companies
(including real estate investment trusts) that invest or deal in real
estate;
6. Underwrite securities of other issuers, except to the extent the Fund,
in disposing of portfolio securities, may be deemed an underwriter
within the meaning of the 1933 Act;
7. Issue senior securities, except as permitted under the 1940 Act or any
rule, order or interpretation thereunder; or
8. Notwithstanding any other investment restriction of the Fund, the Fund
may invest all of its investable assets in an open-end management
investment company having the same investment objective and
restrictions as the Fund.
Non-Fundamental Investment Restrictions. The investment restrictions
described below are not fundamental policies of the Fund and its corresponding
Portfolio and may be changed by their Trustees. These non-fundamental investment
policies require that the Fund and its corresponding Portfolio may not:
(i) Acquire securities of other investment companies, except as permitted by the
1940 Act or any rule, order or interpretation thereunder, or in connection with
a merger, consolidation, reorganization, acquisition of assets or an offer of
exchange;
(ii) 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 that are illiquid;
(iii) Sell any security short, unless it owns or has the right to obtain
securities equivalent in kind and amount to the securities sold or unless it
covers such short sales as required by the current rules or positions of the SEC
or its staff. Transactions in futures contracts and options shall not constitute
selling securities short; or
(iv) Purchase securities on margin, but the Fund may obtain such short term
credits as may be necessary for the clearance of transactions.
There will be no violation of any investment restriction if that
restriction is complied with at the time the relevant action is taken
notwithstanding a later change in market value of an investment, in net or total
assets, in the securities rating of the investment, or any other later change.
For purposes of fundamental investment restrictions regarding industry
concentration, the Advisor may classify issuers by industry in accordance with
classifications set forth in the Directory of Companies Filing Annual Reports
With The Securities and Exchange Commission or other sources. In the absence of
such classification or if the Advisor determines in good faith based on its own
information that the economic characteristics affecting a particular issuer make
it more appropriately considered to be engaged in a different industry, the
Advisor may classify an issuer accordingly. For instance, personal credit
finance companies and business credit finance companies are
<PAGE>
deemed to be separate industries and wholly owned finance companies are
considered to be in the industry of their parents if their activities are
primarily related to financing the activities of their parents.
TRUSTEES AND OFFICERS
Trustees
The Trustees of the Trust, who are also the Trustees of the Portfolio,
their business addresses, principal occupations during the past five years and
dates of birth are set forth below.
FREDERICK S. ADDY--Trustee; Retired; 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. BURNS--Trustee; 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. ESCHENLAUER--Trustee; 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.
MATTHEW HEALEY1--Trustee, Chairman and Chief Executive Officer;
Chairman, Pierpont Group, Inc., since prior to 1993. His address is Pine Tree
Club Estates, 10286 Saint Andrews Road, Boynton Beach, Florida 33436, and his
date of birth is August 23, 1937.
MICHAEL P. MALLARDI--Trustee; Retired; Prior to April 1996, Senior Vice
President, Capital Cities/ABC, Inc. and President, Broadcast Group. His address
is 10 Charnwood Drive, Suffern, New York 10910, and his date of birth is March
17, 1934.
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 Institutional 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 the Fund.
______________________
1 Mr. Healey is an "interested person" of the Trust, the Advisor and the
Portfolio as that term is defined in the 1940 Act.
<PAGE>
Trustee compensation expenses paid by the Trust for the calendar
year ended December 31, 1997 are set forth below.
<TABLE>
<C> <S> <S>
- --------------------------------------------------- ------------------------------ -------------------------------------------
TOTAL TRUSTEE COMPENSATION ACCRUED BY THE
MASTER PORTFOLIOS(*), J.P. MORGAN FUNDS,
AGGREGATE TRUSTEE J.P. MORGAN SERIES TRUST AND THE TRUST
COMPENSATION DURING 1997(**)
PAID BY THE
NAME OF TRUSTEE TRUST DURING 1997
- --------------------------------------------------- ------------------------------ -------------------------------------------
- --------------------------------------------------- ------------------------------ -------------------------------------------
$11,772.77 $72,500
Frederick S. Addy, Trustee
- --------------------------------------------------- ------------------------------ -------------------------------------------
- --------------------------------------------------- ------------------------------ -------------------------------------------
William G. Burns, Trustee $11,786.38 $72,500
- --------------------------------------------------- ------------------------------ -------------------------------------------
- --------------------------------------------------- ------------------------------ -------------------------------------------
Arthur C. Eschenlauer, Trustee $11,786.38 $72,500
- --------------------------------------------------- ------------------------------ -------------------------------------------
- --------------------------------------------------- ------------------------------ -------------------------------------------
Matthew Healey, Trustee(***), $11,786.38 $72,500
Chairman and Chief Executive
Officer
- --------------------------------------------------- ------------------------------ -------------------------------------------
- --------------------------------------------------- ------------------------------ -------------------------------------------
Michael P. Mallardi, Trustee $11,786.38 $72,500
- --------------------------------------------------- ------------------------------ -------------------------------------------
</TABLE>
(*) Includes the Portfolio and 21 other Portfolios (collectively the
"Master Portfolios") for which Morgan acts as investment adviser.
(**) 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, the J.P. Morgan Funds and
J.P. Morgan Series Trust) in the fund complex.
(***) 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.
The Trustees decide upon matters of general policies and are
responsible for overseeing the Trust's and Portfolio's business affairs. The
Portfolio and the Trust have entered into a Fund Services Agreement with
Pierpont Group, Inc. to assist the Trustees in exercising their overall
supervisory responsibilities over the affairs of the Portfolio and the Trust.
Pierpont Group, Inc. was organized in July 1989 to provide services for The
Pierpont Family of Funds (now the J.P. Morgan Family of Funds), and the Trustees
are the equal and sole shareholders of Pierpont Group, Inc. The Trust and the
Portfolio have agreed to pay Pierpont Group, Inc. a fee in an amount
representing its reasonable costs in performing these services to the Trust, the
Portfolio and certain other registered investment companies subject to similar
agreements with Pierpont Group, Inc. These costs are periodically reviewed by
the Trustees. The principal offices of Pierpont Group, Inc. are located at 461
Fifth Avenue, New York, New York 10017.
The aggregate fees paid to Pierpont Group, Inc. by the Fund and the
Portfolio during the indicated fiscal years are set forth below:
Fund -- For the fiscal years ended March 31, 1996, 1997 and 1998: $2,409, $2,907
and $3,447, respectively.
<PAGE>
Portfolio -- For the fiscal years ended March 31, 1996, 1997 and 1998: $5,530,
$5,302 and $5,740, respectively.
Officers
The Trust's and Portfolio's executive officers (listed below), other
than the Chief Executive Officer and the officers who are employees of the
Advisor, are provided and compensated by Funds Distributor, Inc. ("FDI"), a
wholly owned indirect subsidiary of Boston Institutional Group, Inc. The
officers conduct and supervise the business operations of the Trust and the
Portfolio. The Trust and the Portfolio have no employees.
The officers of the Trust and the Portfolio, their principal
occupations during the past five years and dates of birth are set forth below.
Unless otherwise specified, each officer holds the same position with the Trust
and the Portfolio and other trusts and portfolios in the J.P. Morgan Family of
Funds. 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 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.
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.
<PAGE>
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.
MARY JO PACE; Assistant Treasurer. Vice President, Morgan Guaranty Trust
Company of New York. Ms. Pace serves in the Funds Administration group as a
Manager for the Budgeting and Expense Processing Group. Prior to September 1995,
Ms. Pace served as a Fund Administrator for Morgan Guaranty Trust Company of New
York. Her address is 60 Wall Street, New York, New York 10260. Her date of birth
is March 13, 1966.
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.
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.
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.
<PAGE>
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.
JOSEPH F. TOWER III; Vice President and Assistant Treasurer. Senior Vice
President, Treasurer and Chief Financial Officer, Chief Administrative Officer
and Director of FDI. Senior Vice President, Treasurer and Chief Financial
Officer, Chief Administrative Officer and Director of Premier Mutual and an
officer of certain investment companies distributed or administered by FDI.
Prior to November 1993, Mr. Tower was Financial Manager of The Boston Company,
Inc. His date of birth is June 13, 1962.
INVESTMENT ADVISOR
The Advisor, a wholly owned subsidiary of J.P. Morgan & Co.
Incorporated ("J.P. Morgan"), is a bank holding company organized under the laws
of the State of Delaware. The Advisor, whose principal offices are at 60 Wall
Street, New York, New York 10260, is a New York trust company which conducts a
general banking and trust business. The Advisor is subject to regulation by the
New York State Banking Department and is a member bank of the Federal Reserve
System. Through offices in New York City and abroad, the Advisor offers a wide
range of services, primarily to governmental, institutional, corporate and high
net worth individual customers in the United States and throughout the world.
J.P. Morgan, through the Advisor and other subsidiaries, acts as
investment advisor to individuals, governments, corporations, employee benefit
plans, mutual funds and other institutional investors with combined assets under
management of approximately $285 billion.
J.P. Morgan has a long history of service as adviser, underwriter and
lender to an extensive roster of major companies and as a financial advisor to
national governments. The firm, through its predecessor firms, has been in
business for over a century and has been managing investments since 1913.
The basis of the Advisor's investment process is fundamental investment
research as the firm believes that fundamentals should determine an asset's
value over the long term. J.P. Morgan currently employs over 100 full time
research analysts, among the largest research staffs in the money management
industry, in its investment management divisions located in New York, London,
Tokyo, Frankfurt, and Singapore to cover companies, industries and countries on
site. In addition, the investment management divisions employ approximately 300
capital market researchers, portfolio managers and traders. The Advisor's fixed
income investment process is based on analysis of real rates, sector
diversification, and quantitative and credit analysis.
The investment advisory services the Advisor provides to the Portfolio
are not exclusive under the terms of the Advisory Agreement. The Advisor is free
to and does render similar investment advisory services to others. The Advisor
serves as investment advisor to personal investors and other investment
companies and acts as fiduciary for trusts, estates and employee benefit plans.
Certain of the assets of trusts and estates under management are invested in
common trust funds for which the Advisor serves as trustee.
<PAGE>
The accounts which are managed or advised by the Advisor have varying
investment objectives and the Advisor invests assets of such accounts in
investments substantially similar to, or the same as, those which are expected
to constitute the principal investments of the Portfolio. Such accounts are
supervised by officers and employees of the Advisor who may also be acting in
similar capacities for the Portfolio. See "Portfolio Transactions."
Sector weightings are generally similar to a benchmark with the
emphasis on security selection as the method to achieve investment performance
superior to the benchmark. The benchmark for the Portfolio in which the Fund
invests is currently: Lehman Brothers 1-16 Year Municipal Bond Index.
J.P. Morgan Investment Management Inc., also a wholly owned subsidiary
of J.P. Morgan, is a registered investment adviser under the Investment Advisers
Act of 1940, as amended, which manages employee benefit funds of corporations,
labor unions and state and local governments and the accounts of other
institutional investors, including investment companies. Certain of the assets
of employee benefit accounts under its management are invested in commingled
pension trust funds for which the Advisor serves as trustee. J.P. Morgan
Investment Management Inc. advises the Advisor on investment of the commingled
pension trust funds.
The Portfolio is managed by officers of the Advisor who, in acting for
their customers, including the Portfolio, do not discuss their investment
decisions with any personnel of J.P. Morgan or any personnel of other divisions
of the Advisor or with any of its affiliated persons, with the exception of J.P.
Morgan Investment Management Inc. and certain other investment management
affiliates of J.P. Morgan.
As compensation for the services rendered and related expenses such as
salaries of advisory personnel borne by the Advisor under the Investment
Advisory Agreement, the Portfolio has agreed to pay the Advisor a fee, which is
computed daily and may be paid monthly, equal to the annual rate of 0.30% of the
Portfolio's average daily net assets.
For the fiscal years ended March 31, 1996, 1997 and 1998, the advisory
fees paid by the Portfolio were $246,966, $380,380 and $513,516, respectively.
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
<PAGE>
from acting as investment advisor and custodian to such an investment
company. The Advisor believes that it may perform the services for the Portfolio
contemplated by the Advisory Agreement without violation of the Glass-Steagall
Act or other applicable banking laws or regulations. State laws on this issue
may differ from the interpretation of relevant federal law, and banks and
financial institutions may be required to register as dealers pursuant to state
securities laws. However, it is possible that future changes in either federal
or state statutes and regulations concerning the permissible activities of banks
or trust companies, as well as further judicial or administrative decisions and
interpretations of present and future statutes and regulations, might prevent
the Advisor from continuing to perform such services for the Portfolio.
If the Advisor were prohibited from acting as investment advisor to the
Portfolio, it is expected that the Trustees of the Portfolio would recommend to
investors that they approve the Portfolio's entering into a new investment
advisory agreement with another qualified investment advisor selected by the
Trustees.
Under separate agreements, Morgan also provides certain financial, fund
accounting and administrative services to the Trust and the Portfolio and
shareholder services for the Trust. See "Services Agent" and "Shareholder
Servicing" below.
DISTRIBUTOR
FDI serves as the Trust's exclusive Distributor and holds itself
available to receive purchase orders for the Fund's shares. In that capacity,
FDI has been granted the right, as agent of the Trust, to solicit and accept
orders for the purchase of the Fund's shares in accordance with the terms of the
Distribution Agreement between the Trust and FDI. Under the terms of the
Distribution Agreement between FDI and the Trust, FDI receives no compensation
in its capacity as the Trust's distributor.
The Distribution Agreement shall continue in effect with respect to the
Fund for a period of two years after execution only if it is approved at least
annually thereafter (i) by a vote of the holders of a majority of the Fund's
outstanding shares or by its Trustees and (ii) by a vote of a majority of the
Trustees of the Trust who are not "interested persons" (as defined by the 1940
Act) of the parties to the Distribution Agreement, cast in person at a meeting
called for the purpose of voting on such approval (see "Trustees and Officers").
The Distribution Agreement will terminate automatically if assigned by either
party thereto and is terminable at any time without penalty by a vote of a
majority of the Trustees of the Trust, a vote of a majority of the Trustees who
are not "interested persons" of the Trust, or by a vote of the holders of a
majority of the Fund's outstanding shares as defined under "Additional
Information," in any case without payment of any penalty on 60 days' written
notice to the other party. The principal offices of FDI are located at 60 State
Street, Suite 1300, Boston, Massachusetts 02109.
CO-ADMINISTRATOR
Under Co-Administration Agreements with the Trust and the Portfolio
dated August 1, 1996, FDI also serves as the Trust's and the Portfolio's
Co-Administrator. The Co-Administration Agreements may be renewed or amended by
the respective Trustees without a shareholder vote. The Co-Administration
Agreements are terminable at any time without penalty by a vote of a majority
<PAGE>
of the Trustees of the Trust or the Portfolio, as applicable, on not
more than 60 days' written notice nor less than 30 days' written notice to the
other party. The Co-Administrator may subcontract for the performance of its
obligations, provided, however, that unless the Trust or the Portfolio, as
applicable, expressly agrees in writing, the Co-Administrator shall be fully
responsible for the acts and omissions of any subcontractor as it would for its
own acts or omissions. See "Services Agent" below.
For its services under the Co-Administration Agreements, the Fund and
Portfolio have agreed to pay FDI fees equal to its allocable share of an annual
complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The amount
allocable to the Fund or Portfolio is based on the ratio of its net assets to
the aggregate net assets of the Trust, the Master Portfolios and certain other
investment companies subject to similar agreements with FDI.
The table below sets forth for the Fund and the Portfolio the
administrative fees paid to FDI for the fiscal periods indicated.
Fund -- For the period August 1, 1996 through March 31, 1997: $1,867. For
the fiscal year ended March 31, 1998: $2,809.
Portfolio -- For the period August 1, 1996 through March 31, 1997: $1,914.
For the fiscal year ended March 31, 1998: $2,869.
The table below sets forth for the Fund and the Portfolio the
administrative fees paid to Signature Broker-Dealer Services, Inc. (which
provided distribution and administrative services to the Trust and placement
agent and administrative services to the Portfolio prior to August 1, 1996) for
the fiscal periods indicated.
Fund -- For the fiscal year ended March 31, 1996: $5,065. For the period
April 1, 1996 through July 31, 1996: $2,361.
Portfolio -- For the fiscal year ended March 31, 1996: $6,648. For the
period April 1, 1996 through July 31, 1996: $4,617.
SERVICES AGENT
The Trust, on behalf of the Fund, and the Portfolio have entered into
Administrative Services Agreements (the "Services Agreements") with Morgan,
pursuant to which Morgan is responsible for certain administrative and related
services provided to the Fund and Portfolio. The Services Agreements may be
terminated at any time, without penalty, by the Trustees or Morgan, in each case
on not more than 60 days' nor less than 30 days' written notice to the other
party.
Under the Services Agreements, the Fund and the Portfolio have agreed
to pay Morgan fees equal to its allocable share of an annual complex-wide
charge. This charge is calculated daily based on the aggregate net assets of the
Master Portfolios and J.P. Morgan Series Trust in accordance with the following
annual schedule: 0.09% 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 and Portfolio is determined by the proportionate share that
its net assets bear to the total net assets of the Trust, the Master Portfolios,
the other investors in the Master Portfolios for which Morgan provides similar
services and J.P. Morgan Series Trust.
<PAGE>
Under prior administrative services agreements in effect from December
29, 1995 through July 31, 1996, with Morgan, the Portfolio paid Morgan a fee
equal to its proportionate share of an annual complex-wide charge. This charge
was calculated daily based on the aggregate net assets of Master Portfolios in
accordance with the following schedule: 0.06% of the first $7 billion of the
Master Portfolios' aggregate average daily net assets, and 0.03% of the Master
Portfolios' aggregate average daily net assets in excess of $7 billion. Prior to
December 29, 1995, the Trust and the Portfolio had entered into Financial and
Fund Accounting Services Agreements with Morgan, the provisions of which
included certain of the activities described above and, prior to September 1,
1995, also included reimbursement of usual and customary expenses.
The table below sets forth for the Fund and the Portfolio the fees paid
to Morgan as Services Agent.
Fund -- For the fiscal years ended March 31, 1996, 1997 and 1998: $(10,606)*,
$21,188 and $31,005, respectively.
Portfolio -- For the fiscal years ended March 31, 1996, 1997 and 1998: $6,153,
$37,675 and $52,013, respectively.
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02110, serves as the Trust's and the Portfolio's
custodian and fund accounting agent and the Fund's transfer and dividend
disbursing agent. Pursuant to the Custodian Contracts, State Street is
responsible for maintaining the books of account and records of portfolio
transactions and holding portfolio securities and cash. In addition, the
Custodian has entered into subcustodian agreements on behalf of the Portfolio
with Bankers Trust Company for the purpose of holding TENR Notes and with Bank
of New York and Chemical Bank, N.A. for the purpose of holding certain variable
rate demand notes. The Custodian maintains portfolio transaction records. As
transfer agent and dividend disbursing agent, State Street is responsible for
maintaining account records detailing the ownership of Fund shares and for
crediting income, capital gains and other changes in share ownership to
shareholder accounts.
SHAREHOLDER SERVICING
The Trust, on behalf of the Fund, has entered into a Shareholder
Servicing Agreement with Morgan pursuant to which Morgan acts as shareholder
servicing agent for its customers and for other Fund investors who are customers
of a Financial Professional. Under this agreement, Morgan is responsible for
performing shareholder account, administrative and servicing functions, which
include but are not limited to, answering inquiries regarding account status and
history, the manner in which purchases and redemptions of Fund shares may be
effected, and certain other matters pertaining to the Fund; assisting customers
in designating and changing dividend options, account designations and
addresses; providing necessary personnel and facilities to coordinate the
establishment and maintenance of shareholder accounts and records with the
Fund's transfer agent; transmitting purchase and redemption
_________________
* Indicates a reimbursement by Morgan for expenses in excess of its fees
under the Services Agreement. No fees were paid for the fiscal year.
<PAGE>
orders to the Fund's transfer agent and arranging for the wiring or
other transfer of funds to and from customer accounts in connection with orders
to purchase or redeem Fund shares; verifying purchase and redemption orders,
transfers among and changes in accounts; informing the Distributor of the gross
amount of purchase orders for Fund shares; monitoring the activities of the
Fund's transfer agent; and providing other related services.
Under the Shareholder Servicing Agreement, the Fund has agreed to pay
Morgan for these services a fee at an annual rate of 0.10% (expressed as a
percentage of the average daily net asset value of Fund shares owned by or for
shareholders for whom Morgan is acting as shareholder servicing agent). Morgan
acts as shareholder servicing agent for all shareholders.
The shareholder servicing fees paid by the Fund to Morgan for the
fiscal years ended March 31, 1996, 1997 and 1998 were $21,606, $53,364 and
$76,492, 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 in acting as Advisor to the Portfolio under the
Investment Advisory Agreement may raise issues under these laws. However, Morgan
believes that it may properly perform these services and the other activities
described in the Prospectus without violating 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 record keeping 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
subacounting, 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
<PAGE>
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.
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 or other fee for
their services. Such charges may vary among financial professionals and not be
remitted to the Fund or J.P.
Morgan.
The Fund has authorized one or more brokers to accept purchase and
redemption orders on its behalf. Such brokers are authorized to designate other
intermediaries to accept purchase and redemption orders on the Fund's behalf.
The Fund will be deemed to have received a purchase or redemption order when an
authorized broker or, if applicable, a broker's authorized designee, accepts the
order. These orders will be priced at the Fund's net asset value next calculated
after they are so accepted.
INDEPENDENT ACCOUNTANTS
The independent accountants of the Trust 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 the Fund's and the Portfolio's federal and state income tax returns
and consults with the Fund and the Portfolio as to matters of accounting and
federal and state income taxation.
EXPENSES
In addition to the fees payable to Pierpont Group, Inc., Morgan and FDI
under various agreements discussed under "Trustees and Officers," "Investment
Advisor", "Co-Administrator", "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 and audit expenses,
insurance costs, the compensation and expenses of the Trustees, costs associated
with registration fees under federal securities laws, and extraordinary expenses
applicable to the Fund or the Portfolio. For the Fund, such expenses also
include transfer, registrar and dividend disbursing costs, the expenses of
printing and mailing reports, notices and proxy statements to Fund shareholders;
and filing fees under state securities laws. For the Portfolio, such expenses
also include custodian fees and brokerage expenses. Under fee arrangements prior
to September 1, 1995, Morgan as Services Agent was responsible for
reimbursements to the Trust and the Portfolio and the usual and customary
expenses described above (excluding organization and extraordinary expenses,
custodian fees and brokerage expenses).
PURCHASE OF SHARES
Investors may open Fund accounts and purchase shares as described in
the Prospectus. References in the Prospectus and this Statement of Additional
Information to customers of J.P. Morgan or a Financial Professional include
customers of their affiliates and references to transactions by customers with
J.P. Morgan or a Financial Professional include transactions with their
affiliates. Only Fund investors who are using the services of a financial
institution acting as shareholder servicing agent pursuant to an agreement
<PAGE>
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 for the Fund's corresponding Portfolio. In addition, securities
accepted in payment for shares must: (i) meet the investment objective and
policies of 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 a Financial Professional may charge the investor a
fee for this service and other services it provides to its customers.
REDEMPTION OF SHARES
Investors may redeem shares as described in the Prospectus.
Accordingly, a redemption request might result in payment of a dollar amount
which differs from the number of shares redeemed. See "Net Asset Value" below.
If the Trust, on behalf of the Fund, and the Portfolio determines that
it would be detrimental to the best interest of the remaining shareholders of a
Fund to make payment wholly or partly in cash, payment of the redemption price
may be made in whole or in part by a distribution in kind of securities from the
Portfolio, in lieu of cash, in conformity with the applicable rule of the SEC.
If shares are redeemed in kind, the redeeming shareholder might incur
transaction costs in converting the assets into cash. The method of valuing
portfolio securities is described under "Net Asset Value," and such valuation
will be made as of the same time the redemption price is determined. The Trust
on behalf of the Fund and the Portfolio have elected to be governed by Rule
18f-1 under the 1940 Act pursuant to which the Fund and the Portfolio are
obligated to redeem shares solely in cash up to the lesser of $250,000 or one
percent of the net asset value of the Fund during any 90 day period for any one
shareholder. The Trust will redeem Fund shares in kind only if it has received a
redemption in kind from the Portfolio and therefore shareholders of the Fund
that receive redemptions in kind will receive securities of the Portfolio. The
Portfolio has advised the Trust that the Portfolio will not redeem in kind
except in circumstances in which the Fund is permitted to redeem in kind.
Further Redemption Information. The Trust, on behalf of the Fund, and
the Portfolio reserve the right to suspend the right of redemption and to
postpone the date of payment upon redemption as follows: (i) for up to seven
days, (ii) during periods when the New York Stock Exchange is closed for other
than weekends and holidays or when trading on such Exchange is restricted as
determined by the SEC by rule or regulation, (iii) during periods in which an
emergency, as determined by the SEC, exists that causes disposal by the
<PAGE>
Portfolio of, or evaluation of the net asset value of, its portfolio
securities to be unreasonable or impracticable, or (iv) for such other periods
as the SEC may permit.
EXCHANGE OF SHARES
An investor may exchange shares from any J.P. Morgan Institutional Fund
into any other J.P. Morgan Institutional Fund, J.P. Morgan Fund or shares of
J.P. Morgan Series Trust as described in the Prospectus. For complete
information, the Prospectus as it relates to the Fund into which a transfer is
being made should be read prior to the transfer. Requests for exchange are made
in the same manner as requests for redemptions. See "Redemption of Shares."
Shares of the Fund to be acquired are purchased for settlement when the proceeds
from redemption become available. In the case of investors in certain states,
state securities laws may restrict the availability of the exchange privilege.
The Trust reserves the right to discontinue, alter or limit the exchange
privilege at any time.
DIVIDENDS AND DISTRIBUTIONS
The Fund declares and pays dividends and distributions as described in
the Prospectus.
If a shareholder has elected to receive dividends and/or capital gain
distributions in cash and the postal or other delivery service is unable to
deliver checks to the shareholder's address of record, such shareholder's
distribution option will automatically be converted to having all dividend and
other distributions reinvested in additional shares. No interest will accrue on
amounts represented by uncashed distribution or redemption checks.
NET ASSET VALUE
The Fund computes its net asset value once daily on Monday through
Friday at the time 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 Fund's business days.
The net asset value of the Fund is equal to the value of the Fund's
investment in the Portfolio (which is equal to the Fund's pro rata share of the
total investment of the Fund and of any other investors in the Portfolio less
the Fund's pro rata share of the Portfolio's liabilities) less the Fund's
liabilities. The following is a discussion of the procedures used by the
Portfolio in valuing its assets.
The value of investments listed on a domestic securities exchange, is
based on the last sale prices on such exchange. In the absence of recorded
sales, investments are valued at the average of readily available closing bid
and asked prices on such exchange. Securities listed on a foreign exchange are
valued at the last quoted sale prices on such exchange. Unlisted securities are
valued at the average of the quoted bid and asked prices in the OTC
<PAGE>
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 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 on most foreign exchanges and OTC markets is
normally completed before the close of trading of the New York Stock Exchange
(normally 4:00 p.m.) and may also take place on days on which the New York Stock
Exchange is closed. If events materially affecting the value of securities occur
between the time when the exchange on which they are traded closes and the time
when the Fund's net asset value is calculated, such 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 yield,
tax equivalent yield, actual distributions, average annual and aggregate total
returns or capital appreciation in reports, sales literature and advertisements
published by the Trust. Current performance information for the Fund may be
obtained by calling the number provided on the cover page of this Statement of
Additional Information.
Yield Quotations. As required by regulations of the SEC, the annualized
yield for the Fund is computed by dividing the Fund's net investment income per
share earned during a 30-day period by the net asset value on the last day of
the period. The average daily number of shares outstanding during the period
that are eligible to receive dividends is used in determining the net investment
income per share. Income is computed by totaling the interest earned on all debt
obligations during the period and subtracting from that amount the total of all
recurring expenses incurred during the period. The 30-day yield is then
annualized on a bond-equivalent basis assuming semi-annual reinvestment and
compounding of net investment income. Annualized tax-equivalent yield reflects
the approximate annualized yield that a taxable investment must earn for
shareholders at specified federal and New York income tax levels to produce an
after-tax yield equivalent to the annualized tax-exempt yield.
Below is set forth historical yield information for the period ended March
31, 1998: 30-day yield: 4.11%; 30-day tax equivalent yield at 39.6% tax rate:
6.80%.
<PAGE>
Total Return Quotations. 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 ended March 31, 1998: Average annual total return, 1 year: 7.68%; average
annual total return, 5 years: N/A; average annual total return, commencement of
operations (April 11, 1994) to period end: 6.57%; aggregate total return, 1
year: 8.64%; aggregate total return, 5 years: N/A; aggregate total return,
commencement of operations (April 11, 1994) to period end: 28.67%.
General. The Fund's performance will vary from time to time depending
upon market conditions, the composition of the Portfolio, and operating
expenses. Consequently, any given performance quotation should not be considered
representative of the Fund's performance for any specified period in the future.
In addition, because performance will fluctuate, it may not provide a basis for
comparing an investment in the Fund with certain bank deposits or other
investments that pay a fixed yield or return for a stated period of time.
Comparative performance information may be used from time to time in
advertising the Fund's shares, including appropriate market indices including
the benchmarks indicated under "Investment Advisor" above or data from Lipper
Analytical Services, Inc., Micropal, Inc., Ibbotson Associates, Morningstar
Inc., the Dow Jones Industrial Average and other industry publications.
From time to time, the Fund may, in addition to any other permissible
information, include the following types of information in advertisements,
supplemental sales literature and reports to shareholders: (1) discussions of
general economic or financial principles (such as the effects of compounding and
the benefits of dollar-cost averaging); (2) discussions of general economic
trends; (3) presentations of statistical data to supplement such discussions;
(4) descriptions of past or anticipated portfolio holdings for the Fund; (5)
descriptions of investment strategies for the Fund; (6) descriptions or
comparisons of various savings and investment products (including, but not
limited to, qualified retirement plans and individual stocks and bonds), which
may or may not include the Fund; (7) comparisons of investment products
(including the Fund) with relevant markets or industry indices or other
appropriate benchmarks; (8) discussions of fund rankings or ratings by
recognized rating organizations; and (9) discussions of various statistical
methods quantifying the Fund's volatility relative to its benchmark or to past
performance, including risk adjusted measures. The Fund may also include
calculations, such as hypothetical compounding examples, which describe
hypothetical investment results in such communications. Such performance
examples will be based on an express set of assumptions and are not indicative
of the performance of the Fund.
<PAGE>
PORTFOLIO TRANSACTIONS
The Advisor places orders for the Portfolio for all purchases and sales of
portfolio securities, enters into repurchase agreements, and may enter into
reverse repurchase agreements and execute loans of portfolio securities on
behalf of the Portfolio. See "Investment Objective and Policies."
Fixed income and debt securities and municipal bonds and notes are
generally traded at a net price with dealers acting as principal for their own
accounts without a stated commission. The price of the security usually includes
profit to the dealers. In underwritten offerings, securities are purchased at a
fixed price which includes an amount of compensation to the underwriter,
generally referred to as the underwriter's concession or discount. On occasion,
certain securities may be purchased directly from an issuer, in which case no
commissions or discounts are paid. The Advisor intends to seek best execution on
a competitive basis for both purchases and sales of securities.
Portfolio transactions for the Portfolio will be undertaken principally
to accomplish a Portfolio's objective in relation to expected movements in the
general level of interest rates. The Portfolio may engage in short-term trading
consistent with its objective. See "Investment Objective and Policies --
Portfolio Turnover"
In connection with portfolio transactions for the Portfolio, the
Advisor intends to seek the best execution on a competitive basis for both
purchases and sales of securities.
Subject to the overriding objective of obtaining the best execution of
orders, the Advisor may allocate a portion of the Portfolio's brokerage
transactions to affiliates of the Advisor. In order for affiliates of the
Advisor to effect any portfolio transactions for the Portfolio, the commissions,
fees or other remuneration received by such affiliates must be reasonable and
fair compared to the commissions, fees, or other remuneration paid to other
brokers in connection with comparable transactions involving similar securities
being purchased or sold on a securities exchange during a comparable period of
time. Furthermore, the Trustees of the Portfolio, including a majority of the
Trustees who are not "interested persons," have adopted procedures which are
reasonably designed to provide that any commissions, fees, or other remuneration
paid to such affiliates are consistent with the foregoing standard.
Portfolio securities will not be purchased from or through or sold to
or through the Co-Administrator, the Distributor or the Advisor or any other
"affiliated person" (as defined in the 1940 Act) of the Co-Administrator,
Distributor or Advisor when such entities are acting as principals, except to
the extent permitted by law. In addition, the Portfolio will not purchase
securities from any underwriting group of which the Advisor or an affiliate of
the Advisor is a member, except to the extent permitted by law.
Investment decisions made by the Advisor are the product of many
factors in addition to basic suitability for the particular portfolio or other
client in question. Thus, a particular security may be bought or sold for
certain clients even though it could have been bought or sold for other clients
at the same time. Likewise, a particular security may be bought for one or more
clients when one or more other clients are selling the same security. The Fund
may only sell a security to other portfolios or accounts managed by the
<PAGE>
Advisor or its affiliates in accordance with procedures adopted by the
Trustees.
On those occasions when the Advisor deems the purchase or sale of a
security to be in the best interests of the Portfolio as well as other customers
including other Portfolios, the Advisor to the extent permitted by applicable
laws and regulations, may, but is not obligated to, aggregate the securities to
be sold or purchased for the Portfolio with those to be sold or purchased for
other customers in order to obtain best execution, including lower brokerage
commissions if appropriate. In such event, allocation of the securities so
purchased or sold as well as any expenses incurred in the transaction will be
made by the Advisor in the manner it considers to be most equitable and
consistent with its fiduciary obligations to the Portfolio. In some instances,
this procedure might adversely affect the Portfolio.
If the Portfolio writes options that effect 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 trust fund of the type commonly known as a
"Massachusetts business trust" of which the Fund is a separate and distinct
series. A copy of the Declaration of Trust for the Trust is on file in the
office of the Secretary of The Commonwealth of Massachusetts. The Declaration of
Trust and the by-laws of the Trust are designed to make the Trust similar in
most respects to a Massachusetts business corporation. The principal distinction
between the two forms concerns shareholder liability described below.
Effective January 1, 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.
Under Massachusetts law, shareholders of such a trust may, under
certain circumstances, be held personally liable as partners for the obligations
of the trust which is not the case for a corporation. However, the Trust's
Declaration of Trust provides that the shareholders shall not be subject to any
personal liability for the acts or obligations of the Fund and that every
written agreement, obligation, instrument or undertaking made on behalf of the
Fund shall contain a provision to the effect that the shareholders are not
personally liable thereunder.
No personal liability will attach to the shareholders under any
undertaking containing such provision when adequate notice of such provision is
given, except possibly in a few jurisdictions. With respect to all types of
claims in the latter jurisdictions, (i) tort claims, (ii) contract claims where
the provision referred to is omitted from the undertaking, (iii) claims for
taxes, and (iv) certain statutory liabilities in other jurisdictions, a
<PAGE>
shareholder may be held personally liable to the extent that claims are
not satisfied by the Fund. However, upon payment of such liability, the
shareholder will be entitled to reimbursement from the general assets of the
Fund. The Trustees intend to conduct the operations of the Trust in such a way
so as to avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the Fund.
The Trust's Declaration of Trust further provides that the name of the
Trust refers to the Trustees collectively as Trustees, not as individuals or
personally, that no Trustee, officer, employee or agent of the Fund is liable to
the Fund or to a shareholder, and that no Trustee, officer, employee, or agent
is liable to any third persons in connection with the affairs of the Fund,
except as such liability may arise from his or its own bad faith, willful
misfeasance, gross negligence or reckless disregard of his or its duties to such
third persons. It also provides that all third persons shall look solely to Fund
property for satisfaction of claims arising in connection with the affairs of
the Fund. With the exceptions stated, the Trust's Declaration of Trust provides
that a Trustee, officer, employee, or agent is entitled to be indemnified
against all liability in connection with the affairs of the Fund.
The Trust shall continue without limitation of time subject to the
provisions in the Declaration of Trust concerning termination by action of the
shareholders or by action of the Trustees upon notice to the shareholders.
DESCRIPTION OF SHARES
The Trust is an open-end management investment company organized as a
Massachusetts business trust in which the Fund represents a separate series of
shares of beneficial interest. See "Massachusetts Trust."
The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares ($0.001 par value) of one or more series
and classes within any series and to divide or combine the shares (of any
series, if applicable) without changing the proportionate beneficial interest of
each shareholder in a Fund (or in the assets of other series, if applicable). To
date shares of 24 series are currently available for sale to the public. Each
share represents an equal proportional interest in a 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 a Fund have no preemptive or conversion rights
and are fully paid and nonassessable. The rights of redemption and exchange are
described in the Prospectus and elsewhere in this Statement of Additional
Information.
The shareholders of the Trust are entitled to a full vote for each full
share held and to a fractional vote for each fractional share. Subject to the
1940 Act, the Trustees themselves have the power to alter the number and the
terms of office of the Trustees, to lengthen their own terms, or to make their
terms of unlimited duration subject to certain removal procedures, and appoint
their own successors, provided, however, that immediately after such appointment
the requisite majority of the Trustees have been elected by the shareholders of
the Trust. The voting rights of shareholders are not cumulative so that holders
of more than 50% of the shares voting can, if they choose, elect all Trustees
being selected while the shareholders of the remaining shares would be unable to
elect any Trustees. It is the intention of the Trust not to hold meetings of
shareholders annually. The Trustees may
<PAGE>
call meetings of shareholders for action by shareholder vote as may be
required by either the 1940 Act or the Trust's Declaration of Trust.
Shareholders of the Trust have the right, upon the declaration in
writing or vote of more than two-thirds of its outstanding shares, to remove a
Trustee. The Trustees will call a meeting of shareholders to vote on removal of
a Trustee upon the written request of the record holders of 10% of the Trust's
shares. In addition, whenever ten or more shareholders of record who have been
such for at least six months preceding the date of application, and who hold in
the aggregate either shares having a net asset value of at least $25,000 or at
least 1% of the Trust's outstanding shares, whichever is less, shall apply to
the Trustees in writing, stating that they wish to communicate with other
shareholders with a view to obtaining signatures to request a meeting for the
purpose of voting upon the question of removal of any Trustee or Trustees and
accompanied by a form of communication and request which they wish to transmit,
the Trustees shall within five business days after receipt of such application
either: (1) afford to such applicants access to a list of the names and
addresses of all shareholders as recorded on the books of the Trust; or (2)
inform such applicants as to the approximate number of shareholders of record,
and the approximate cost of mailing to them the proposed communication and form
of request. If the Trustees elect to follow the latter course, the Trustees,
upon the written request of such applicants, accompanied by a tender of the
material to be mailed and of the reasonable expenses of mailing, shall, with
reasonable promptness, mail such material to all shareholders of record at their
addresses as recorded on the books, unless within five business days after such
tender the Trustees shall mail to such applicants and file with the SEC,
together with a copy of the material to be mailed, a written statement signed by
at least a majority of the Trustees to the effect that in their opinion either
such material contains untrue statements of fact or omits to state facts
necessary to make the statements contained therein not misleading, or would be
in violation of applicable law, and specifying the basis of such opinion. After
opportunity for hearing upon the objections specified in the written statements
filed, the SEC may, and if demanded by the Trustees or by such applicants shall,
enter an order either sustaining one or more of such objections or refusing to
sustain any of them. If the SEC shall enter an order refusing to sustain any of
such objections, or if, after the entry of an order sustaining one or more of
such objections, the SEC shall find, after notice and opportunity for hearing,
that all objections so sustained have been met, and shall enter an order so
declaring, the Trustees shall mail copies of such material to all shareholders
with reasonable promptness after the entry of such order and the renewal of such
tender.
The Trustees have authorized the issuance and sale to the public of
shares of 24 series of the Trust. The Trustees have no current intention to
create any classes within the initial series or any subsequent series. The
Trustees may, however, authorize the issuance of shares of additional series and
the creation of classes of shares within any series with such preferences,
privileges, limitations and voting and dividend rights as the Trustees may
determine. The proceeds from the issuance of any additional series would be
invested in separate, independently managed portfolios with distinct investment
objectives, policies and restrictions, and share purchase, redemption and net
asset valuation procedures. Any additional classes would be used to distinguish
among the rights of different categories of shareholders, as might be required
by future regulations or other unforeseen circumstances. All consideration
received by the Trust for shares of any additional series or class, and all
assets in which such consideration is
<PAGE>
invested, would belong to that series or class, subject only to the
rights of creditors of the Trust and would be subject to the liabilities related
thereto. Shareholders of any additional series or class will approve the
adoption of any management contract or distribution plan relating to such series
or class and of any changes in the investment policies related thereto, to the
extent required by the 1940 Act.
For information relating to mandatory redemption of Fund shares or
their redemption at the option of the trust under certain circumstances, see the
Prospectus.
As of June 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:
Morgan as Agent for Trust of LHP Klotz for the benefit of R. Klotz (9.81%);
Morgan as Agent for G. Attfield and A. Hubbard (8.65%); Morgan as Agent
for G. Attfield and A. Hubbard (8.31%); Morgan as Agent for Shubert
Organization (5.02%).
The address of each owner 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.
For information relating to mandatory redemption of Fund shares or
their redemption at the option of the trust under certain circumstances, see the
Prospectus.
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 Master Portfolio, a separate registered
investment company with the same investment objective as the Fund. Generally,
when the corresponding Master Portfolio seeks a vote to change its investment
objective, its feeder fund(s) will hold a shareholder meeting and cast its vote
proportionately, as instructed by its shareholders. Fund shareholders are
entitled to one vote per fund share.
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
<PAGE>
of all the assets of the Fund in another pooled investment entity
having the same investment objective and restrictions in accordance with the
investment policies with respect to the Portfolio described above and in the
Fund's Prospectus.
Certain changes in the Portfolio's investment objective, policies or
restrictions, or a failure by the Fund's shareholders to approve a change in the
portfolio's investment objective or restrictions, may require withdrawal of the
Fund's interest in the Portfolio. Any such withdrawal could result in a
distribution in kind of portfolio securities (as opposed to a cash 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 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 affect on the outcome of such matters.
TAXES
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; (b) diversify its
holdings so that, at the end of each fiscal quarter, (i) at least 50% of the
value of the Fund's total assets is represented by cash, U.S. Government
securities, investments in other regulated investment companies and other
securities limited, in respect of any one issuer, to an amount not greater than
5% of the Fund's total assets, and 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its total assets is
invested in the securities of any one issuer (other than U.S. Government
securities or the securities of other regulated investment companies).
<PAGE>
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.
Under the Code, the Fund will be subject to a 4% excise tax on a
portion of its undistributed income if it fails to meet certain distribution
requirements by the end of the calendar year. The Fund intends to make
distributions in a timely manner and accordingly does not expect to be subject
to the excise tax.
For federal income tax purposes, dividends that are declared by the
Fund in October, November or December as of a record date in such month and
actually paid in January of the following year will be treated as if they were
paid on December 31 of the year declared. Therefore, such dividends will
generally be taxable to a shareholder in the year declared rather than the year
paid.
The Fund intends to qualify to pay exempt-interest dividends to its
shareholders by having, at the close of each quarter of its taxable year, at
least 50% of the value of its total assets consist of tax exempt securities. An
exempt-interest dividend is that part of dividend distributions made by the Fund
which consists of interest received by the Fund on tax exempt securities.
Shareholders will not incur any federal income tax on the amount of
exempt-interest dividends received by them from the Fund. In view of the Fund's
investment policies, it is expected that a substantial portion of all dividends
will be exempt-interest dividends, although the Fund may from time to time
realize and distribute net short-term capital gains and may invest limited
amounts in taxable securities under certain circumstances. As of March 31, 1997,
the Fund incurred and elected to defer post-October losses of $20,009 until the
next taxable year. For federal income tax purposes, the Fund has a capital loss
carryforward at March 31, 1997 of approximately $44,000, all of which expires in
the year 2005. To the extent that this capital loss is used to offset future
gains, it is probable that the gains so offset will not be distributed to
shareholders.
Distributions of net investment income (other than exempt-interest
dividends) and realized net short-term capital gains in excess of net long-term
capital losses are generally taxable to shareholders of the Fund as ordinary
income whether such distributions are taken in cash or reinvested in additional
shares. Distributions of net long-term capital gains (i.e., net long-term
capital gains in excess of net short-term capital losses) are taxable to
shareholders of the Fund as long-term capital gains, 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. Other gains or losses on the sale of securities
will be short-term capital gains or losses. Gains and losses on
<PAGE>
the sale, lapse or other termination of options on securities will be
treated as gains and losses from the sale of securities. If an option written by
the Fund lapses or is terminated through a closing transaction, such as a
repurchase by the Fund of the option from its holder, the Fund will realize a
short-term capital gain or loss, depending on whether the premium income is
greater or less than the amount paid by the Fund in the closing transaction. If
securities are purchased by the Fund pursuant to the exercise of a put option
written by it, the Fund will subtract the premium received from its cost basis
in the securities purchased.
Any distribution of net investment income or capital gains will have
the effect of reducing the net asset value of Fund shares held by a shareholder
by the same amount as the distribution. If the net asset value of the shares is
reduced below a shareholder's cost as a result of such a distribution, the
distribution, although constituting a return of capital to the shareholder, will
be taxable as described above. Investors should thus consider the consequences
of purchasing shares in the Fund shortly before the Fund declares a sizable
dividend distribution.
Any gain or loss realized on the redemption or exchange of Fund shares
by a shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held for more than one year, and
otherwise as short-term capital gain or loss. 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.
Certain options and futures held by the Fund at the end of each fiscal
year will be required to be "marked to market" for federal income tax purposes
- -- i.e., treated as having been sold at market value. For options and futures
contracts, 60% of any gain or loss recognized on these deemed sales and on
actual dispositions will be treated as long-term capital gain or loss, and the
remainder will be treated as short-term capital gain or loss regardless of how
long the Fund has held such options or futures. Any gain or loss recognized on
foreign currency contracts will be treated as ordinary income.
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
<PAGE>
franchise tax in the State of New York or The Commonwealth of
Massachusetts. The investment by the Fund in the Portfolio does not cause the
Fund to be liable for any income or franchise tax in the State of New York.
ADDITIONAL INFORMATION
As used in this Statement of Additional Information and the Prospectus,
the term "majority of the outstanding voting securities" means the vote of (i)
67% or more of the Fund's shares or the Portfolio's outstanding voting
securities present at a meeting, if the holders of more than 50% of the Fund's
outstanding shares or the Portfolio's outstanding voting securities are present
or represented by proxy, or (ii) more than 50% of the Fund's outstanding shares
or the Portfolio's outstanding voting securities, whichever is less.
Telephone calls to the Fund, J.P. Morgan or Financial Professionals as
shareholder servicing agent may be tape recorded. With respect to the securities
offered hereby, this Statement of Additional Information and the Prospectus do
not contain all the information included in the Trust's registration statement
filed with the SEC under the 1933 Act and the Trust's and the Portfolio's
registration statement filed under the 1940 Act. Pursuant to the rules and
regulations of the SEC, certain portions have been omitted. The registration
statement including the exhibits filed therewith may be examined at the office
of the SEC in Washington, D.C.
Statements contained in this Statement of Additional Information and
the Prospectus concerning the contents of any contract or other document are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the applicable
Registration Statements.
Each such statement is qualified in all respects by such reference.
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in the
Prospectus and this Statement of Additional Information, in connection with the
offer contained therein and, if given or made, such other information or
representations must not be relied upon as having been authorized by any of the
Trust, the Fund or the Distributor. The Prospectus and this Statement of
Additional Information do not constitute an offer by the Fund or by the
Distributor to sell or solicit any offer to buy any of the securities offered
hereby in any jurisdiction to any person to whom it is unlawful for the Fund or
the Distributor to make such offer in such jurisdictions.
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.
<PAGE>
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.
FINANCIAL STATEMENTS
The financial statements and the report thereon of
PricewaterhouseCoopers LLP are incorporated herein by reference to the Fund's
March 31, 1998 annual report filing made with the SEC on May 28, 1998 pursuant
to Section 30(b) of the 1940 Act and Rule 30b2-1 thereunder (Accession Number
0001016969-98-000036). The financial statements are available without charge
upon request by calling J.P. Morgan Funds Services at (800) 766-7722. The Fund's
financial statements include the financial statements of the Portfolio.
i:\dsfndlgl\institut\0898.pea\nytrbsai.doc
Appendix A-31
<PAGE>
APPENDIX A
Description of Security Ratings
STANDARD & POOR'S
Corporate and Municipal Bonds
AAA - Debt rated AAA have the highest ratings assigned by Standard & Poor's
to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
AA - Debt rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in a small
degree.
A - Debt rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
BBB - Debt rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for debt in
higher rated categories.
BB - Debt rated BB are regarded as having less near-term vulnerability to
default than other speculative issues. However, they face major ongoing
uncertainties or exposure to adverse business, financial or economic
conditions which could lead to inadequate capacity to meet timely
interest and principal payments.
B - An obligation rated B is more vulnerable to nonpayment than
obligations rated BB, but the obligor currently has the capacity to
meet its financial commitment on the obligation. Adverse business,
financial, or economic conditions will likely impair the obligor's
capacity or willingness to meet its financial commitment on the
obligation.
CCC - An obligation rated CCC is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial, and economic conditions
for the obligor to meet its financial commitment on the obligation. In
the event of adverse business, financial, or economic conditions, the
obligor is not likely to have the capacity to meet its financial
commitment on the obligation.
CC - An obligation rated CC is currently highly vulnerable to nonpayment.
C - The C rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action has been taken, but payments
on this obligation are being continued.
<PAGE>
Commercial Paper, including Tax Exempt
A - Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are
further refined with the designations 1, 2, and 3 to indicate the
relative degree of safety.
A-1 - This designation indicates that the degree of safety regarding timely
payment is very strong.
Short-Term Tax-Exempt Notes
SP-1 - The short-term tax-exempt note rating of SP-1 is the highest
rating assigned by Standard & Poor's and has a very strong or
strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics are
given a "plus" (+) designation.
SP-2 - The short-term tax-exempt note rating of SP-2 has a satis-
factory 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.
<PAGE>
Ba - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection
of interest and principal payments may be very moderate, and thereby
not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or
of maintenance of other terms of the contract over any long period of
time may be small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca - Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
Commercial Paper, including Tax Exempt
Prime-1 - Issuers rated Prime-1 (or related supporting institutions)
have a superior capacity for repayment of short-term
promissory obligations. Prime-1 repayment capacity will
normally be evidenced by the following characteristics:
- Leading market positions in well established industries.
- High rates of return on funds employed.
- Conservative capitalization structures with moderate reliance
on debt and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.
- Well established access to a range of financial markets and
assured sources of alternate liquidity.
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>
APPENDIX B
ADDITIONAL INFORMATION CONCERNING NEW YORK MUNICIPAL OBLIGATIONS
The following information is a summary of special factors affecting
investments in New York municipal obligations. It does not purport to be a
complete description and is based on information from the supplement (dated
January 30, 1998) to the Annual Information Statement of the State of New York
dated August 15, 1997, and other sources of information. The factors affecting
the financial condition of New York State (the "State") and New York City (the
"City") are complex and the following description constitutes only a summary.
General
New York is the third most populous state in the nation and has a
relatively high level of personal wealth. The state's economy is diverse, with a
comparatively large share of the nation's finance, insurance, transportation,
communications and services employment, and a very small share of the nation's
farming and mining activity. The State's location and its excellent air
transport facilities and natural harbors have made it an important link in
international commerce. Travel and tourism constitute an important part of the
economy. Like the rest of the nation, New York has a declining proportion of its
workforce engaged in manufacturing, and an increasing proportion engaged in
service industries.
Services: The services sector, which includes entertainment, personal
services, such as health care and auto repairs, and business-related services,
such as information processing, law and accounting, is the State's leading
economic sector. The services sector accounts for more than three of every ten
nonagricultural jobs in New York and has a noticeably higher proportion of total
jobs than does the rest of the nation.
Manufacturing: Manufacturing employment continues to decline in
importance in New York, as in most other states, and New York's economy is less
reliant on this sector than is the nation. The principal manufacturing
industries in recent years produced printing and publishing materials,
instruments and related products, machinery, apparel and finished fabric
products, electronic and other electric equipment, food and related products,
chemicals and allied products, and fabricated metal products.
Trade: Wholesale and retail trade is the second largest sector in terms
of nonagricultural jobs in New York but is considerably smaller when measured by
income share. Trade consists of wholesale businesses and retail businesses, such
as department stores and eating and drinking establishments.
Finance, Insurance and Real Estate: New York City is the nation's
leading center of banking and finance and, as a result, this is a far more
important sector in the State than in the nation as a whole. Although this
sector accounts for under one-tenth of all nonagricultural jobs in the State, it
contributes over one-sixth of all nonfarm labor and proprietors' income.
Agriculture: Farming is an important part of the economy of large regions
of the State, although it constitutes a very minor part of total State output.
Principal agricultural products of the State include milk
<PAGE>
and dairy products, greenhouse and nursery products, apples and other fruits,
and fresh vegetables. New York ranks among the nation's leaders in the
production of these commodities.
Government: Federal, State and local government together are the third
largest sector in terms of nonagricultural jobs, with the bulk of the employment
accounted for by local governments. Public education is the source of nearly
one-half of total state and local government employment.
The importance of the different sectors of the State's economy relative
to the national economy is shown in the following table, which compares
nonagricultural employment and income by industrial categories for the State and
the nation as a whole. Relative to the nation, the State has a smaller share of
manufacturing and construction and a larger share of service-related industries.
The State's finance, insurance, and real estate share, as measured by income, is
particularly large relative to the nation. The State is likely to be less
affected than the nation as a whole during an economic recession that is
concentrated in manufacturing and construction, but likely to be more affected
during a recession that is concentrated in the service-producing sector.
Economic Outlook
U. S. Economy
The State has updated its mid-year forecast of national and state
economic activity through the end of calendar year 1999. At the national level,
although the current projection is for a faster annual growth rate for 1998 as a
whole and slower annual growth for 1999 than expected in the earlier forecast,
growth in both years is still expected to be substantially slower than it was
during 1997. The revised forecast projects real Gross Domestic Product (GDP)
growth of 2.6 percent in 1998, which is more than a full percentage point lower
than the estimated 1997 growth rate. In 1999, real GDP growth is expected to
fall even further to 2.0 percent. The growth of nominal GDP is projected to
decline from 5.8 percent in 1997 to 4.8 percent in 1998 and 4.3 percent in 1999.
The inflation rate is expected to drop to 2.2 percent in 1998 before rising to
2.5 percent in 1999. The annual rate of job growth is expected to be 2.3 percent
in 1998, equaling the strong growth rate experienced in 1997. In 1999, however,
employment growth is forecast to slow markedly to 1.3 percent. Growth in
personal income and wages is expected to slow in 1998 and again in 1999.
State Economy
At the State level, moderate growth is projected to continue in 1998
and 1999 for employment, wages and personal income, although the growth rates
will lessen gradually during the course of the two years. Personal income is
estimated to grow by 5.4 percent in 1997, fueled in part by a continued large
increase in financial sector bonus payments, and is projected to grow 4.7
percent in 1998 and 4.4 percent in 1999. Increases in bonus payments at year-end
1998 are projected to be modest, a substantial change from the rate of increase
of the last few years. Overall employment growth is expected to continue at a
modest rate, reflecting the slowing growth in the national economy, continued
spending restraint in government, and restructuring in the health care, social
service, and banking sectors.
<PAGE>
State Financial Plan
The State Constitution requires the Governor to submit to the
legislature a balanced executive budget which contains a complete plan of
expenditures (the "State Financial Plan") for the ensuing fiscal year and all
moneys and revenues estimated to be available therefor, accompanied by bills
containing all proposed appropriations or reappropriations and any new or
modified revenue measures to be enacted in connection with the executive budget.
A final budget must be approved before the statutory deadline of April 1. The
State Financial Plan is updated quarterly pursuant to law.
1997-98 Fiscal Year
The State's current fiscal year commenced on April 1, 1997, and ends on
March 31, 1998, and is referred to herein as the State's 1997-98 fiscal year.
The State's budget for the 1997-98 fiscal year was adopted by the Legislature on
August 4, 1997, more than four months after the start of the fiscal year. Prior
to adoption of the budget, the Legislature enacted appropriations for
disbursements considered to be necessary for State operations and other
purposes, including necessary appropriations for State-supported debt service.
The State's Financial Plan for the 1997-98 fiscal year was formulated on August
11, 1997 and is based on the State's budget as enacted by the Legislature, as
well as actual results for the first quarter of the current fiscal year. The
1997-98 State Financial Plan is expected to be updated in October and January.
The adopted 1997-98 budget projects an increase in General Fund
disbursements of $1.7 billion or 5.2 percent over 1996-97 levels. The average
annual growth rate over the last three fiscal years is approximately 1.2
percent. State Funds disbursements (excluding federal grants) are projected to
increase by 5.4 percent from the 1996-97 fiscal year. All Governmental Funds
projected to increase by 7.0 percent over the 1996-97 fiscal year. See Exhibit A
to this Annual Information Statement for a description of the State's fund
types.
The 1997-98 State Financial Plan is projected to be balanced on a cash
basis. The Financial Plan projections include a reserve for future needs of $530
million. As compared to the Governor's Executive Budget as amended in February
1997, the State's adopted budget for 1997-98 increases General Fund spending by
$1.7 billion, primarily from increases for local assistance ($1.3 billion).
Resources used to fund these additional expenditures include increased revenues
projected for the 1997-98 fiscal year, increased resources produced in the
1996-97 fiscal year that will be utilized in 1997-98, reestimates of social
service, fringe benefit and other spending, and certain non-recurring resources.
Total non-recurring resources included in the 1997-98 Financial Plan are
projected by DOB to be $270 million, or 0.7 percent of total General Fund
receipts.
The 1997-98 adopted budget includes multi-year tax reductions,
including a State funded property and local income tax reduction program, estate
tax relief, utility gross receipts tax reductions, permanent reductions in the
State sales tax on clothing, and elimination of assessments on medical
providers. These reductions are intended to reduce the overall level of State
and local taxes in New York and to improve the State's competitive position
vis-a-vis other states. The various elements of the State and local tax and
assessment reductions have little or no impact on the 1997-98 Financial Plan,
and do not begin
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to materially affect the outyear projections until the State's
1999-2000 fiscal year. The adopted 1997-98 budget also makes significant
investments in education, and proposes a new $2.4 billion general obligation
bond proposal for school facilities to be submitted to the voters in November
1997.
The 1997-98 Financial Plan also includes: a projected General Fund
reserve of $530 million; a projected balance of $332 million in the Tax
Stabilization Reserve Fund; and a projected $65 million balance in the
Contingency Reserve Fund.
The projections do not include any subsequent actions that the Governor
may take to exercise his line-item veto (or vetoing any companion legislation)
before signing the 1997-98 budget appropriation bills into law. Under the
Constitution, the Governor may veto any additions to the Executive Budget within
10 days after the submission of appropriation bills for his approval. If the
Governor were to take such action, the resulting impact on the Financial Plan
would be positive.
The economic and financial condition of the State may be affected by
various financial, social, economic and political factors. Those factors can be
very complex, may vary from fiscal year to fiscal year, and are frequently the
result of actions taken not only by the State and its agencies and
instrumentalities, but also by entities, such as the federal government, that
are not under the control of the State. In addition, the State Financial Plan is
based upon forecasts of national and State economic activity. Economic forecasts
have frequently failed to predict accurately the timing and magnitude of changes
in the national and the State economies. The Division of Budget believes that
its projections of receipts and disbursements relating to the current State
Financial Plan, and the assumptions on which they are based, are reasonable.
Actual results, however, could differ materially and adversely from the
projections set forth in this Annual Information Statement, and those
projections may be changed materially and adversely from time to time. See the
section entitled "Special Considerations" below for a discussion of risks and
uncertainties faced by the State.
Third Quarter Update (current fiscal year)
The State revised the cash-basis 1997-98 State Financial Plan on
January 20, 1998, in conjunction with the release of the Executive Budget for
the 1998-99 fiscal year. The changes from the prior Update reflect actual
results through December 1997, as well as modified economic and spending
projections for the balance of the current fiscal year.
The 1997-98 General Fund Financial Plan continues to be balanced, with
a projected cash surplus of $1.83 billion, an increase of $1.3 billion over the
surplus estimate of $530 million in the prior update. The increase in the
surplus results primarily from higher-than-expected tax receipts, which are
forecast to exceed the October estimate by $1.28 billion.
In order to make the surplus available to help finance 1998-99
requirements, the State plans to accelerate $1.18 billion in income tax refund
payments into 1997-98, or provide reserves for such payments. The balance in the
refund reserve on March 31, 1998 is projected to be $1.647 billion, including
$521 million as a result of LGAC. This acceleration decreases reported personal
income receipts by $1.18 billion in 1997-98, while increasing available personal
income receipts
<PAGE>
in 1998-99, as these refunds will no longer be a charge against current
revenues in 1998-99. As a result, projections of available receipts in 1997-98
have been increased by only $103 million from the Mid-Year Update.
Compared to the prior update, personal income tax collections for
1997-98 are now projected at $18.50 billion, or $363 million less than projected
in October after accounting for the refund reserve transaction discussed above.
Business tax receipts are projected at $4.98 billion, an increase of $158
million. User tax collections are estimated at $7.06 billion, or $52 million
higher than the prior update, and reflect a projected loss of $20 million in
sales tax receipts from an additional week of sales tax exemption for clothing
and footwear costing less than $500, which was authorized and implemented in
January 1998. Other tax receipts are projected to increase by $103 million over
the prior update and total $1.09 billion for the fiscal year. Miscellaneous
receipts and transfers from other funds are projected to reach $3.57 billion, or
$153 million higher than the Mid-Year Update.
The State projects that disbursements will increase by $565 million
over the Mid-Year Update, with nearly the entire increase attributable to
one-time disbursements of $561 million that pre-pay expenditures previously
scheduled for 1998-99. In the absence of these accelerated payments, projected
General Fund spending in the current year would have remained essentially
unchanged from the Mid-Year Update. The Governor is proposing legislation to use
a portion of the current year surplus to transfer $425 million to pay for
capital projects authorized under the Community Enhancement Facilities
Assistance Program (CEFAP) that were previously planned to be financed with bond
proceeds in 1998-99 and thereafter, and $136 million in costs for an additional
Medicaid payment originally scheduled for 1998-99. Aside from these actions, a
number of other changes produced a net increase of $4 million in projected
disbursements over the Mid-Year Update. These included higher spending in
General State charges ($80 million), largely as a result of litigation
settlements and collective bargaining costs, an increase in General Fund
transfers for education ($70 million) to offset declines in Lottery receipts,
and additional costs associated with a delay of Housing Finance Agency (HFA)
receipts into 1998-99 that were originally planned to offset capital projects
spending ($25 million). These increases were offset in part by projected savings
in Medicaid ($85 million), social services ($75 million), and debt service ($37
million).
The General Fund closing balance is projected to be $465 million at the
end of 1997-98, a decline of $462 million from the Mid-Year Update. The decline
reflects the application of the $530 million undesignated reserve plus
additional surplus monies projected in the January Update to pay for certain
one-time costs in the State's Financial Plan (as described above). The effect of
this action is to help lower the State's projected disbursements in 1998-99.
The remaining General Fund closing balance will be held in two funds,
the TSRF and CRF. The TSRF is projected to have $400 million on deposit at the
close of the fiscal year, following a required deposit of $15 million and an
extraordinary deposit of $68 million made from the 1997-98 surplus. The CRF is
projected to have a closing balance of $65 million, following an earlier planned
deposit of $24 million in 1997-98. A description of these funds can be found in
Exhibit A, "Glossary of Financial Terms," in the Annual Information Statement.
<PAGE>
1998-99 Fiscal Year (Executive Budget Forecast)
The Governor presented his 1998-99 Executive Budget to the Legislature
on January 20, 1998. The Executive Budget contains financial projections for the
State's 1997-98 through 2000-01 fiscal years, detailed estimates of receipts and
a proposed Capital Program and Financing Plan for the 1997-98 through 2002-03
fiscal years. It is expected that the Governor will prepare amendments to his
Executive Budget as permitted under law and that these amendments will be
reflected in a revised Financial Plan to be released on or before February 19,
1998. There can be no assurance that the Legislature will enact into law the
Executive Budget as proposed by the Governor, or that the State's adopted budget
projections will not differ materially and adversely from the projections set
forth in this Update. For a more detailed discussion of the State's budgetary
process and uncertainties involving its forecasts and projections, see "State
Organization- State Financial Procedures" in the Annual Information Statement.
The 1998-99 Financial Plan is projected to be balanced on a cash basis
in the General Fund. Total General Fund receipts, including transfers from other
funds, are projected to be $36.22 billion, an increase of $1.02 billion over
projected receipts in the current fiscal year. Total General Fund disbursements,
including transfers to other funds, are projected to be $36.18 billion, an
increase of $1.02 billion over the projected expenditures (including
prepayments), for the current fiscal year. As compared to the 1997-98 State
Financial Plan, the Executive Budget proposes year-to-year growth in General
Fund spending of 2.89 percent. State Funds spending (i.e., General Fund plus
other dedicated funds, with the exception of federal aid) is projected to grow
by 8.5 percent. Spending from All Governmental Funds (excluding transfers) is
proposed to increase by 7.6 percent from the prior fiscal year.
Current law and programmatic requirements are primarily responsible for
the year-to-year growth in General Fund spending. These include a current law
increase in school aid ($607 million), cost and enrollment growth in handicapped
education ($91 million) and Medicaid ($212 million), and employee contract
increases and inflation adjustments for State agency operations. The Executive
Budget also includes increases of $84 million for corrections programs to cover
new capacity demands and $152 million for mental health programs to finance
current law increases and the expansion of community beds. Other spending growth
reflects a requested increase of $108 million for the Judiciary and $117 million
for long-term debt service. New spending is partially offset by reductions of
$453 million in capital projects transfers due to the financing of CEFAP from
resources available in 1997-98, $37 million in welfare assistance savings, $36
million from lower spending in General State charges, and $68 million in lower
transfers primarily due to the elimination of the Lottery transfer made in
1997-98.
The 1998-99 Financial Plan projects that the State will end 1998-99
with a closing balance in the General Fund of $500 million, which reflects $400
million in the TSRF and $100 million in the CRF, following an anticipated
deposit of $35 million in the latter fund during the year.
<PAGE>
Outyear Projections Of Receipts And Disbursements
The Executive Budget projects gaps of approximately $1.75 billion
in 1990-00 growing to $3.75 billion in 2000-01.
General Fund receipts are projected at $36.14 billion and $35.75
billion for 1999-00 and 2000-01, respectively. The receipt projections were
prepared on the basis of an economic forecast of a steadily growing national
economy, in an environment of low inflation and slow employment growth. The
forecast for the State's economic performance likewise is for slow but steady
economic growth. Personal income is expected to rise between 4.25 and 4.5
percent over this period, with average total employment growth of slightly less
than one percent a year. Private sector employment is expected to rise slightly
more rapidly.
Statutory changes affecting General Fund receipts are dominated by the
dedication of a portion of the income tax to fund school tax reductions under
STAR. Personal income receipts dedicated to STAR are estimated at $1.39 billion
in 1999-00 and at $2.04 billion in 2000-01. The General Fund tax relief provided
by the estate and gift tax reduction program, sales tax reductions and other
1997 enactments further reduce taxes and fees by roughly $1 billion by the last
year of the forecast period. Other 1998-99 budget proposals that lower General
Fund taxes and fees will annualize to approximately $110 million in 1990-00 and
$100 million in 2000-01.
The receipt projections reflect constant law income tax liability growth of
approximately 5.3 percent annually and sales tax growth averaging slightly less
than 5 percent over the period. Constant law business tax liability is projected
to rise slowly over the two years.
Miscellaneous receipt projections reflect $250 million in each of the
outyears as the potential State benefit from a broader national settlement
involving tobacco taxes and health liability.
Disbursements from the General Fund are projected at $37.84 billion in
1999-00 and $39.45 billion in 2000-01, after assuming implementation of spending
proposals contained in the Executive Budget, the value of which is annualized
and assumed to continue. The projections include additional school aid increases
of roughly 7 percent annually to finance present law and implement proposals
enacted under the STAR/School Aid program. Additional funding to implement
welfare reform is also included, as well as funding for mental health community
reinvestment, prison expansion, and other previous multi-year spending
commitments. Growth in General Fund Medicaid spending is projected at just over
6 percent annually. Other spending growth is projected to follow recent trends.
Consistent with past practice, funding is not included for any costs associated
with new collective bargaining agreements after the expiration of the current
round of contracts at the end of the 1998-99 fiscal year.
Savings actions totaling $600 million in 1999-00 and growing to $800
million in 2000-01 are assumed in these spending projections. It is expected
that the 1999-00 Financial Plan will include continued actions by State agencies
to deliver services more efficiently, continued savings from workforce
management efforts, aggressive efforts to maximize federal and other non-General
Fund spending offsets, and other efforts to control State spending.
<PAGE>
The Governor is required by law to propose a balanced budget each year.
In order to address any potential remaining budget gap, the Governor is expected
to make additional proposals to bring receipts in line with disbursements. The
State has closed projected budget gaps of $5.0 billion, $3.9 billion and $2.3
billion in its 1995-96, 1996-97 and 1997-98 fiscal years, respectively.
Special Considerations
The Division of the Budget believes that the economic assumptions and
projections of receipts and disbursements accompanying the 1998-99 Executive
Budget are reasonable. However, the economic and financial condition of the
State may be affected by various financial, social, economic and political
factors. Those factors can be very complex, can vary from fiscal year to fiscal
year, and are frequently the result of actions taken not only by the State but
by entities, such as the federal government, that are outside the State's
control. Because of the uncertainty and unpredictability of changes in these
factors, their impact cannot be fully included in the assumptions underlying the
State's projections. For example, there can be no assurance that the Legislature
will enact the Governor's proposals or that the State's actions will be
sufficient to preserve budgetary balance or to align recurring receipts and
disbursements in either 1998-99 or in future fiscal years.
Uncertainties with regard to the economy present the largest potential
risk to future budget balance in New York State. This risk includes either a
financial market or broader economic "correction" during the period, a risk
heightened by the relatively lengthy expansions currently underway. The
securities industry is more important to the New York economy than the national
economy, and a significant deterioration in stock market performance could
ultimately produce adverse changes in wage and employment levels. In addition, a
normal "forecast error" of one percentage point in the expected growth rate
could cumulatively raise or lower receipts by over $1 billion by the last year
of the 1998 through 2001 projection period. On the other hand, the national or
State economy may continue to perform better than projected, which could produce
beneficial short-term results in State receipts.
An additional risk to the State Financial Plan arises from the
potential impact of certain litigation and federal disallowances now pending
against the State, which could produce adverse effects on the State's
projections of receipts and disbursements. The Financial Plan assumes no
significant federal disallowances or other federal actions that could affect
State finances, but has reserves of $500 million in the event of such an action,
as indicated in the section entitled "General Fund Closing Balance." For more
information on litigation pending against the State, see the section entitled
"Litigation" in this update and in the Annual Information Statement.
On August 11, 1997 President Clinton exercised his line-item veto
powers to cancel a provision in the Federal Balanced Budget Act of 1997 that
would have deemed New York State's health care provider taxes to be approved by
the federal government. New York and several other states have used hospital
rate assessments and other provider tax mechanisms to finance various Medicaid
and health insurance programs since the early 1980s. The State's process of
taxation and redistribution of health care dollars was sanctioned by federal
legislation in 1987 and 1991. However, the federal Health Care Financing
Administration (HCFA)
<PAGE>
regulations governing the use of provider taxes require the State to seek
waivers from HCFA that grant explicit approval of the provider taxing system now
in place. The State filed the majority of these waivers with HCFA in 1995 but
has yet to receive final approval.
The Balanced Budget Act of 1997 provision passed by Congress was
intended to rectify the uncertainty created by continued inaction on the State's
waiver requests. A federal disallowance of the State's provider tax system could
jeopardize up to $2.6 billion in Medicaid reimbursement received through
December 31, 1998. The President's veto message valued any potential
disallowance at $200 million. The Financial Plan projections do not anticipate
any provider tax disallowance.
On October 9, 1997 the President offered a corrective amendment to the
HCFA regulations governing such taxes. The Governor stated that this proposal
did not appear to address all of the State's concerns, and negotiations are
ongoing between the State and HCFA. In addition, the City of New York and other
affected parties in the health care industry have filed a lawsuit challenging
the constitutionality of the President's line-item veto.
General Portfolio Receipts
The 1998-99 Financial Plan projects General Fund receipts (including
transfers from other funds) of $36.22 billion, an increase of $1.02 billion over
the estimated 1997-98 level. Recurring growth in the State General Fund tax base
is projected to be approximately six percent during 1998-99, after adjusting for
tax law and administrative changes. This growth rate is lower than the rates for
1996-97 or currently estimated for 1997-98, but roughly equivalent to the rate
for 1995-96.
The forecast of General Fund receipts in 1998-99 incorporates several
Executive Budget tax proposals that, if enacted, would further reduce receipts
otherwise available to the General Fund by approximately $700 million during
1998-99. The Executive Budget proposes accelerating school tax relief for senior
citizens under STAR, which is projected to reduce General Fund receipts by $537
million in 1998-99. The proposed reduction supplements STAR tax reductions
already scheduled in law, which are projected at $187 million in 1998-99. The
Budget also proposes several new tax-cut initiatives and other funding changes
that are projected to further reduce receipts available to the General Fund by
over $200 million. These initiatives include reducing the fee to register
passenger motor vehicles and earmarking a larger portion of such fees to
dedicated funds and other purposes; extending the number of weeks in which
certain clothing purchases are exempt from sales taxes; more fully conforming
State law to reflect recent Federal changes in estate taxes; continuing lower
pari-mutuel tax rates; and accelerating scheduled property tax relief for
farmers from 1999 to 1998. In addition to the specific tax and fee reductions
discussed above, the Executive Budget also proposes establishing a reserve of
$100 million to permit the acceleration into 1998-99 of other tax reductions
that are otherwise scheduled in law for implementation in future fiscal years.
General Fund receipts in 1998-99 will also be affected by the loss of
certain one-time receipts recorded in 1997-98, the largest of which include
approximately $200 million in retroactive federal reimbursements for prior-year
social service spending recorded as a transfer from other funds and about $55
million in retroactive assessments on Office of Mental Retardation and
Developmental Disabilities facilities that were received in 1997-98 as
miscellaneous receipts. Estimates for 1998-99
<PAGE>
also reflect the loss of the one-time receipts from a tax amnesty program.
Personal income tax collections in the General Fund are projected to
increase by $1.32 billion over 1997-98, from $18.50 billion to $19.82 billion.
The increase reflects growth in constant law liability of over six percent in
1998, down from an estimated 12 percent growth in 1997. Growth in personal
income tax liability in 1997 benefited from a temporary surge in capital-gains
income in response to 1997 reductions in the federal tax rate on such income. In
addition to the General Fund receipts, approximately $724 million in personal
income tax collections will be deposited in special revenue funds to finance the
School Tax Assistance Program (STAR).
User tax collections and fee receipts are projected to reach $7.2
billion in 1998-99, an increase of $144 million over the current year. The
largest source of receipts in this category is the sales and use tax, which
accounts for nearly 80 percent of projected receipts. Sales tax receipts are the
most responsive to economic trends such as nominal growth in income, prices,
employment, and consumer confidence. The strong growth in income experienced
this year produced continuing growth in the base of the sales and use tax of 5.2
percent in 1997-98. The sales tax growth rate projected for the coming year is
expected to be marginally higher.
The 1998-99 forecast for user taxes and fees also reflects the impact
of scheduled tax reductions that will lower receipts by $38 million, as well as
the impact of two Executive Budget proposals that are projected to lower
receipts by an additional $79 million. The first proposal would divert $30
million in motor vehicle registration fees from the General Fund to the
Dedicated Highway and Bridge Trust Fund; the second would reduce fees for motor
vehicle registrations, which would further lower receipts by $49 million. The
underlying growth of receipts in this category is projected at 4 percent, after
adjusting for these scheduled and recommended changes.
In comparison to the current fiscal year, business tax receipts are
projected to decline slightly in 1998-99, falling from $4.98 billion to $4.96
billion. The decline in this category is largely attributable to scheduled tax
reductions. In total, collections for corporation and utility taxes and the
petroleum business tax are projected to fall by $107 million from 1997-98. The
decline in receipts in these categories is partially offset by growth in the
corporation franchise, insurance and bank taxes, which are projected to grow by
$88 million over the current fiscal year.
Receipts from other taxes, which include taxes on estate and gifts,
real property gains, and pari-mutuel wagering, are projected to total $1.01
billion in 1998-99, a decline of $78 million from the current year. The main
reason for the decline is an expected fall in the number and value of large
estate tax payments from the extraordinary level achieved in 1997-98. The
decline also reflects the first full-year impact of the repeal of the gains tax.
Miscellaneous receipts, which include license revenues, fee and fine
income, investment income and abandoned property proceeds, as well as the yield
of the largest share of the State's medical provider assessments, are projected
to fall from $1.57 billion in the current year to $1.4 billion in 1998-99, a
decline of $170 million. The decline is largely a result of the loss of over $90
million in one-time
<PAGE>
transactions and $56 million in statutory reductions in medical provider assess-
ments.
Transfers to the General Fund from other funds consist primarily of tax
revenues in excess of debt service requirements. Proceeds from the one-cent
sales tax in excess of those used to support debt service payments to the Local
Government Assistance Corporation (LGAC) account for 85 percent of the 1998-99
receipts in this category. LGAC transfers to the General Fund are projected to
increase by $72 million to $1.55 billion in 1998-99, consistent with estimates
for sales and use receipts. Other transfers periodically include non-recurring
transactions, which result in significant annual increases and decreases for
this category. All other transfers are projected to decrease by $250 million to
$270 million in 1998-99. These reflect nearly $200 million in nonrecurring
federal reimbursements that will be unavailable in 1998-99 and thereafter.
Disbursements
The 1998-99 Financial Plan projects General Fund disbursements of
$36.18 billion, an increase of $1.02 billion over projected spending for the
current year.
Disbursements from the category of Grants to Local Government
constitute approximately 67.9 percent of all General Fund spending, and include
payments to local governments, non-profit providers and individuals.
Disbursements in this category are projected to increase by $931 million to
$24.55 billion in 1998-99, or 3.9 percent above 1997-98. The largest increases
are for school aid and Medicaid.
School aid is projected at $9.47 billion in 1998-99, an increase of
$607 million on a State fiscal year basis. This increase funds both the balance
of aid payable for the 1997-98 school year and a proposed 1998-99 school year
increase of $518 million. Medicaid costs are estimated to increase $212 million
to $5.68 billion, about the same spending level as in 1994-95. After adjusting
1997-98 spending for the one-time acceleration of a 53rd weekly Medicaid payment
scheduled for 1998-99, Medicaid spending is projected to increase by $348
million or 6.5 percent. The adjustment eliminates this extraordinary payment in
1997-98 for purposes of comparison with 1998-99. Spending in local assistance
programs for higher education, handicapped education, mental hygiene, local
public health and revenue sharing are also proposed to increase.
Support for State operations, which pays for the costs of operating the
Executive, Legislative, and Judicial branches of government, is projected to
increase by $524 million to $6.73 billion, or 8.4 percent higher than 1997-98.
This projected increase is primarily due to costs associated with an additional
27th payroll and current collective bargaining agreements, the loss of Federal
disproportionate share receipts that offset General Fund spending in mental
hygiene programs, and a $108 million requested increase in the Judiciary's
budget. Adjusting for the extra payroll, State operations spending increases by
a projected 6.1 percent. The State workforce is roughly 191,000 at present and
is projected to remain stable over the year.
Total spending in General State charges is projected to decline
slightly from 1997-98 to $2.23 billion. This annual decline reflects projected
decreases in one-time costs for pension and Court of Claims
<PAGE>
payments, offset by projected increases for health insurance contributions,
social security costs, and the loss of reimbursements due to a reduction in the
fringe benefit rate charged to positions financed by non-General funds.
Transfers in support of debt service are projected to grow at 5.8
percent in 1998-99, from $2.03 billion to $2.15 billion. Transfers in support of
capital projects for 1998-99 are estimated to total $190 million, a decrease of
$453 million from 1997-98, reflecting the absence of one-time transfers for the
Hudson River Park and CEFAP in 1997-98.
All other transfers reflect remaining transfers from the General Fund
to other funds. These transfers decline by $68 million to $323 million in
1998-99, reflecting non-recurring transfers in 1997-98 to the State University
Tuition Stabilization Fund ($29 million) and to the Lottery fund to support
school aid as a result of lower-than-projected 1997-98 Lottery receipts ($70
million), offset by a $34 million increase in the State subsidy to the Roswell
Park Cancer Institute.
General Portfolio Closing Portfolio Balance
The State projects a General Fund closing balance of $500 million for
1998-99. The TSRF is projected to have a balance of $400 million (the same as
1997-98) and the CRF a balance of $100 million, following a planned $35 million
deposit to the CRF in 1998-99.
Non-recurring Resources
The Division of the Budget estimates that the 1998-99 Financial Plan
includes approximately $62 million in non-recurring resources, comprising less
than two-tenths of one percent of General Fund disbursements. The non-recurring
resources projected for use in 1998-99 consist of $27 million in retroactive
federal welfare reimbursements for family assistance recipients with HIV/AIDS,
$25 million in receipts from the Housing Finance Agency that were originally
anticipated in 1997-98, and $10 million in other measures, including $5 million
in asset sales.
Special Revenue Funds
For 1998-99, the Financial Plan projects disbursements of $30.16
billion from Special Revenue Funds (SRFs), an increase of $2.32 billion or 8.3
percent over 1997-98. Disbursements in State SRFs are projected at $8.29
billion, an increase of $1.09 billion or 15.2 percent from 1997-98.
Disbursements from federal funds, which account for approximately three-quarters
of all SRF spending, are estimated at $21.87 billion in 1998-99, an increase of
$1.22 billion or 5.9 percent from 1997-98.
The implementation of the first phase of the STAR program accounts for
$724 million of the $1.09 billion increase in proposed State SRF spending in
1998-99. Other projected State SRF spending increases include: $149 million in
additional operating assistance for mass transit systems; $82 million to expand
the Child Health Plus program, which provides health insurance for uninsured
children under 19 years of age; and $138 million for various State agency
activities. Spending from the State Lottery Fund is projected to increase
slightly over 1997-98, while disbursements from the Indigent Care Fund are
projected to remain flat.
<PAGE>
The $1.22 billion year-to-year growth in federal SRF spending is
primarily due to increases in Medicaid ($433 million), Children and Family
Assistance Programs ($297 million), education programs ($172 million), the
expanded Child Health Plus program ($144 million), and the welfare program ($50
million).
Capital Projects Funds
Disbursements from Capital Projects funds in 1998-99 are estimated at
$4.82 billion, or $1.07 billion higher than 1997-98. The proposed spending plan
includes: $2.51 billion in disbursements for transportation purposes, including
the State and local highway and bridge program; $815 million for environmental
activities; $379 million for correctional services; $228 million for SUNY and
CUNY; $290 million for mental hygiene projects; and $375 million for CEFAP.
Approximately 28 percent of capital projects are proposed to be
financed by "pay-as-you-go" resources. State-supported bond issuances finance 46
percent of capital projects, with federal grants financing the remaining 26
percent.
Debt Service Funds
Disbursements from Debt Service Funds are estimated at $3.39 billion in
1998-99, an increase of $281 million in debt service costs from 1997-98. The
increase in debt service is primarily attributable to bonds previously issued in
support of the following: $107 million for transportation purposes in the State
and local highway and bridge programs financed by the Dedicated Highway and
Bridge Trust Fund; $26 million for the mental hygiene programs financed through
the Mental Health Services Fund; $34 million for the environment; $37 million
for public protection purposes; and $43 million for CUNY senior and community
college debt service formerly classified as local assistance in the General
Fund. Debt service for LGAC bonds is projected at $345 million, an increase of
$15 million from 1997-98.
Cash Flow
The projected 1998-99 General Fund cash flow will not depend on either
short-term spring borrowing or the issuance of LGAC bonds. The new-money bond
issuance portion of the LGAC program was completed in 1995-96, and provisions
prohibiting the State from returning to a reliance upon cash flow manipulation
to balance its budget will remain in bond covenants until the LGAC bonds are
retired.
The 1998-99 cash flow projects substantial closing balances in each
quarter of the fiscal year, with excesses in receipts over disbursements in
every quarter of the fiscal year and no monthly balance (prior to March) lower
than $1.5 billion. The closing fund balance is projected at $500 million.
Prior Fiscal Years
Cash-Basis Results for Prior Fiscal Years
The State reports its financial results on two bases of accounting: the
cash basis, showing receipts and disbursements; and the modified accrual basis,
prescribed by generally Accepted Accounting Principles ("GAAP"), showing
revenues and expenditures.
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General Fund 1994-95 through 1996-97
The General Fund is the principal operating fund of the State and is
used to account for all financial transactions, except those required to be
accounted for in another fund. It is the State's largest fund and receives most
State taxes and other resources not dedicated to particular purposes. General
Fund moneys are also transferred to other funds, primarily to support certain
capital projects and debt service payments in other fund types. A narrative
description of cash-basis results in the General Fund is presented below,
followed by a tabular presentation of the actual General Fund results for the
prior three fiscal years.
New York State's financial operations have improved during recent
fiscal years. During the period 1989-90 through 1991-92, the State incurred
General Fund operating deficits that were closed with receipts from the issuance
of tax and revenue anticipation notes ("TRANs"). A national recession, followed
by the lingering economic slowdown in New York and the regional economy,
resulted in repeated shortfalls in receipts and three budget deficits during
those years. During its last five fiscal years, however, the State has recorded
balanced budgets on a cash basis, with positive fund balances as described
below.
1996-97 Fiscal Year
The State ended its 1996-97 fiscal year on March 31, 1997 in balance on
a cash basis, with a General Fund cash surplus as reported by DOB of
approximately $1.4 billion. The cash surplus was derived primarily from
higher-than-expected revenues and lower-than-expected spending for social
services programs. The Governor in his Executive Budget applied $1.05 billion of
the cash surplus amount to finance the 1997-98 Financial Plan when enacted by
the State Legislature.
The General Fund closing fund balance was $433 million. Of that amount,
$317 million was in the TSRF, after a required deposit of $15 million and an
additional deposit of $65 million in 1996-97. The TSRF can be used in the event
of any future General Fund deficit, as provided under the State Constitution and
State Finance Law. In addition, $41 million remains on deposit in the CRF. This
fund assists the State in financing any extraordinary litigation costs during
the fiscal year. The remaining $75 million reflects amounts on deposit in the
Community Projects Fund. This fund was created to fund certain legislative
initiatives. The General Fund closing fund balance does not include $1.86
billion in the tax refund reserve account, of which $521 million was made
available as a result of the Local Government Assistance Corporation ("LGAC")
financing program and was required to be on deposit as of March 31, 1997.
General Fund receipts and transfers from other funds for the 1996-97
fiscal year totaled $33.04 billion, an increase of 0.7 percent from the previous
fiscal year (excluding deposits into the tax refund reserve account). General
Fund disbursements and transfers to other funds totaled $32.90 billion for the
1996-97 fiscal year, an increase of 0.7 percent from the 1995-96 fiscal year.
1995-96 Fiscal Year
The State ended its 1995-96 fiscal year on March 31, 1996 with a
General Fund cash surplus, as reported by DOB, of $445 million. Of that amount,
$65 million was deposited into the TSRF, and $380 million was
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used to reduce 1996-97 Financial Plan liabilities.
The General Fund closing fund balance was $287 million, an increase of
$129 million from 1994-95 levels. The $129 million change in fund balance is
attributable to the $65 million voluntary deposit to the TSRF, a $15 million
required deposit to the TSRF, a $40 million deposit to the CRF, and a $9 million
deposit to the Revenue Accumulation Fund. The closing fund balance included $237
million on deposit in the TSRF. In addition, $41 million was on deposit in the
CRF. The remaining $9 million reflected amounts then on deposit in the Revenue
Accumulation Fund. The General Fund closing balance does not include $678
million in the tax refund reserve account of which $521 million was made
available as a result of the LGAC financing program and was required to be on
deposit as of March 31, 1996.
General Fund receipts and transfers from other funds totaled $32.81
billion, a decrease of 1.1 percent from 1994-95 levels. General Fund
disbursements and transfers to other funds totaled $32.68 billion for the
1995-96 fiscal year, a decrease of 2.2 percent from 1994-95 levels.
1994-95 Fiscal Year
The State ended its 1994-95 fiscal year with the General Fund in
balance. There was a $241 million decline in the fund balance reflecting the
planned use of $264 million from the CRF, partially offset by the required
deposit of $23 million to the TSRF. In addition, $278 million was on deposit in
the tax refund reserve account, $250 million of which was deposited to continue
the process of restructuring the State's cash flow as part of the LGAC program.
The closing fund balance of $158 million reflects $157 million in the TSRF and
$1 million in the CRF.
General Fund receipts and transfers from other funds totaled $33.16
billion, an increase of 2.9 percent from 1993-94 levels. General Fund
disbursements and transfers to other funds totaled $33.40 billion for the
1994-95 fiscal year, an increase of 4.7 percent from the previous fiscal year.
Other Governmental Funds (1994-95 through 1996-97)
Activity in the three other governmental funds has remained relatively
stable over the last three fiscal years, with federally-funded programs
comprising approximately two-thirds of these funds. The most significant change
in the structure of these funds has been the redirection of a portion of
transportation-related revenues from the General Fund to two new dedicated funds
in the Special Revenue and Capital Projects fund types. These revenues are used
to support the capital programs of the Department of Transportation and the
Metropolitan Transportation Authority ("MTA").
In the Special Revenue Funds, disbursements increased from $24.38
billion to $26.02 billion over the last three years, primarily as a result of
increased costs for the federal share of Medicaid. Other activity reflected
dedication of taxes to a new fund for mass transportation, new lottery games,
and new fees for criminal justice programs.
Disbursements in the Capital Projects Funds declined from $3.62
billion to $3.54 billion over the last three years, as spending for
<PAGE>
miscellaneous capital programs decreased, partially offset by increases for
mental hygiene, health and environmental programs. The composition of this fund
type's receipts also changed as the dedicated transportation taxes began to be
deposited, general obligation bond proceeds declined substantially, federal
grants remained stable, and reimbursements from public authority bonds
(primarily transportation related) increased. The increase in the negative fund
balance in 1994-95 resulted from delays in reimbursements caused by delays in
the timing of public authority bond sales.
Activity in the Debt Service Funds reflected increased use of bonds
during the three-year period for improvements to the State's capital facilities
and the continued implementation of the LGAC fiscal reform program. The
increases were moderated by the refunding savings achieved by the State over the
last several years using strict present value savings criteria. The growth in
LGAC debt service was offset by reduced short-term borrowing costs reflected in
the General Fund.
Litigation
State Finance Policies
Insurance Law
Proceedings have been brought by two groups of petitioners challenging
regulations promulgated by the Superintendent of Insurance that established
excess medical malpractice premium rates for the 1986-87 through 1995-96 and
1996-97 fiscal years, respectively (New York State Health Maintenance
Organization Conference, Inc., et al. v. Muhl, et al. ["HMO"], and New York
State Conference of Blue Cross and Blue Shield Plans, et al. v. Muhl, et al.
["Blue Cross `I' and `II'"], Supreme Court, Albany County). By order filed
January 22, 1997, the Court in Blue Cross I permitted the plaintiffs in HMO to
intervene and dismissed the challenges to the rates for the period prior to
1995-96. By decision dated July 24, 1997, the Court in Blue Cross I held that
the determination made by the Superintendent in establishing the 1995-96 rate
was arbitrary and capricious and directed that premiums paid pursuant to that
determination be returned to the payors. The State has appealed this decision.
Office of Mental/Health Patient-Care Costs
Two actions, Balzi, et al. v. Surles, et al., commenced in November
1985 in the United States District Court for the Southern District of New York,
and Brogan, et al. v. Sullivan, et al., commenced in May 1990 in the United
States District Court for the Western District of New York, now consolidated,
challenge the practice of using patients' Social Security benefits for the costs
of care of patients of State Office of Mental Health facilities. The cases have
been settled by a stipulation and order dated January 7, 1998.
State Programs
Medicaid
Several cases, including Port Jefferson Health Care Facility, et al. v.
Wing (Supreme Court, Suffolk County), challenge the constitutionally of Public
Health Law 2807-d, which imposes a tax on the gross receipts hospitals and
residential health care facilities receive from all patient care services.
Plaintiffs allege that the tax assessments were not uniformly applied, in
violation of federal regulations. In a decision dated June 30, 1997, the Court
held that the
<PAGE>
1.2 percent and 3.8 percent assessments on gross receipts imposed pursuant to
Public health Law 2807-d(2)(b)(ii) and 2807-d(2)(b)(iii),
respectively, are unconstitutional. An order entered August 27, 1997 enforced
the terms of the decision. The State has appealed that order.
Shelter Allowance
In an action commenced in March 1987 against State and New York City
officials (Jiggetts, et al. v. Bane, et al., Supreme Court, New York County),
plaintiffs allege that the shelter allowance granted to recipients of public
assistance is not adequate for proper housing. In a decision dated April 16,
1997, the Court held that the shelter allowance promulgated by the Legislature
and enforced through Department of Social Services regulations is not reasonably
related to the cost of rental housing in New York City and results in
homelessness to families in New York City. A judgment was entered on July 25,
1997, directing, inter alia, that the State (i) submit a proposed schedule of
shelter allowances (for the Aid to Department Children program and any successor
program) that bears a reasonable relation to the cost of housing in New York
City; and (ii) compel the New York City Department of Social Services to pay
plaintiffs a monthly shelter allowance in the full amount of their contract
rents, provided they continue to meet the eligibility requirements for public
assistance, until such time as a lawful shelter allowance is implemented, and
provide interim relief to other eligible recipients of Aid to Department
Children under the interim relief system established in this case. The State has
sought relief from each and every provision of this judgment except that portion
directing the continued provision of interim relief.
Tax Law
In Matter of the Petition of Consolidated Rail Corporation v. Tax
Appeals Tribunal (Appellate Division, Third Department, commenced December 22,
1995), petitioner, a rail freight corporation that purchases diesel motor fuel
out of State and imports the fuel into the State for use, distribution, storage
or sale in the State, contended that the assessment of the petroleum business
tax imposed pursuant to Tax Law 301-a to such fuel purchases violated the
Commerce Clause of the United States Constitution. Petitioner contended that the
application of Section 301-a to the interstate transaction, but not to
purchasers who purchase fuel within the State for use, distribution, storage or
sale within the State, discriminates against interstate commerce. In a decision
dated July 17, 1997, the Appellate Division, Third Department, dismissed the
petition. Petitioner appealed to the Court of Appeals. On December 4, 1997, the
Court of Appeals dismissed the appeal, sua sponte, upon the ground that no
substantial Constitutional question was directly involved.
In New York Association of Convenience Stores, et al. v. Urbach, et
al., petitioners, New York Association of Convenience Stores, National
Association of Convenience Stores, M.W.S. Enterprises, Inc. and Sugarcreek
Stores, Inc. seek to compel respondents, the Commissioner of Taxation and
Finance and the Department of Taxation and Finance, to enforce sales and excise
taxes imposed pursuant to Tax Law Articles 12-A, 20 and 28 on tobacco products
and motor fuel sold to non-Indian consumers on Indian reservations. In orders
dated August 13, 1996 and August 24, 1996, the Supreme Court, Albany County,
ordered, inter alia, that there be equal implementation and enforcement of said
taxes for sales to non-Indian consumers on and off Indian reservations, and
further ordered that, if respondents failed to comply within 120 days,
<PAGE>
no tobacco products or motor fuel could be introduced onto Indian reservations
other than for Indian consumption or, alternatively, the collection and
enforcement of such taxes would be suspended statewide. Respondents appealed to
the Appellate Division, Third Department, and invoked CPLR 5519(a)(1), which
provides that the taking of the appeal stayed all proceedings to enforce the
orders pending the appeal. Petitioner's motion to vacate the stay was denied. In
a decision entered May 8, 1997, the Third Department modified the orders by
deleting the portion thereof that provided for the statewide suspension of the
enforcement and collection of the sales and excise taxes on motor fuel and
tobacco products. The Third Department held, inter alia, that petitioners had
not sought such relief in their petition and that it was an error for the
Supreme Court to have awarded such undemanded relief without adequate notice of
its intent to do so. On May 22, 1997, respondents appealed to the Court of
Appeals on other grounds, and again invoked the statutory stay. On October 23,
1997, the Court of Appeals granted petitioners' motion for leave to cross-appeal
from the portion of the Third Department's decision that deleted the statewide
suspension of the enforcement and collection of the sales and excise taxes on
motor fuel and tobacco.
Civil Rights Claims
In an action commenced in 1980 (United States, et al. v. Yonkers Board
of Education, et al.), the United States District Court for the Southern
District of New York found, in 1985, that Yonkers and its public schools were
intentionally segregated. In 1986, the District Court ordered Yonkers to develop
and comply with a remedial educational improvement plan ("EIP I"). On January
19, 1989, the District Court granted motions by Yonkers and the NAACP to add the
State Education Department, the Yonkers Board of Education, and the State Urban
Development Corporation as defendants, based on allegations that they had
participated in the perpetuation of the segregated school system. On August 30,
1993, the District Court found that vestiges of a dual school system continued
to exist in Yonkers. On March 27, 1995, the District Court made factual findings
regarding the role of the State and the other State defendants (the "State") in
connection with the creation and maintenance of the dual school system, but
found no legal basis for imposing liability. On September 3, 1996, the Court of
Appeals, based on the District Court's factual findings, held the State
defendants liable under 42 USC 1983 and the Equal Educational Opportunity
Act, 20 USC 1701, et seq., for the unlawful dual school system,
because the State, inter alia, had taken no action to force the school district
to desegregate despite its actual or constructive knowledge of de jure
segregation. By Order dated October 8, 1997, the District Court held that
vestiges of the prior segregated school system continued to exist and that,
based on the State's conduct in creating and maintaining that system, the State
is liable for eliminating segregation and its vestiges in Yonkers and must fund
a remedy to accomplish that goal. Yonkers presented a proposed educational
improvement plan ("EIP II") to eradicate these vestiges of segregation. The
October 8, 1997 Order of the District Court ordered that EIP II be implemented
and directed that, within 10 days of the entry of the Order, the State make
available to Yonkers $450,000 to support planning activities to prepare the EIP
II budget for 1997-98 and the accompanying capital facilities plan. A final
judgment to implement EIP II was entered on October 14, 1997. The State intends
to appeal that judgment. Additionally, the Court adopted a requirement that the
State pay to Yonkers $9 million as its pro rata share of the funding of EIP I
for the 1996-97 school year. The requirement for State funding of EIP I has not
yet been reduced to an
<PAGE>
order.
Contract and Tort Claims
In Inter-Power of New York, Inc. v. State of New York, commenced
November 16, 1994 in the Court of Claims, plaintiffs alleged that by reason of
the failure of the State's Department of Environmental Conservation to provide
in a timely manner accurate and complete data, plaintiff was unable to complete
by the projected completion date a cogeneration facility, and thereby suffered
damages. The parties have agreed to settle this case for $29 million.
Authorities and Localities
Public Authorities
The fiscal stability of the State is related in part to the fiscal
stability of its public authorities. For the purposes of this Interim Annual
Information Statement, public authorities refer to public benefit corporations
created pursuant to State law, other than local authorities. Public authorities
are not subject to the constitutional restrictions on the incurrence of debt
which apply to the State itself and may issue bonds and notes within the amounts
and restrictions set forth in legislative authorization. The State's access to
the public credit markets could be impaired and the market price of its
outstanding debt may be materially and adversely affected if any of its public
authorities were to default on their respective obligations, particularly those
using the financing techniques referred to as State-supported or State-related
debt under the section entitled "Debt and Other Financing Activities" in this
Interim Annual Information Statement. As of September 30, 1996, there were 17
public authorities that had outstanding debt of $100 million or more, and the
aggregate outstanding debt, including refunding bonds, of all State authorities
was $75.4 billion, only a portion of which constitutes State-supported or
State-related debt.
There are numerous public authorities with various responsibilities,
including those which finance, construct and/or operate revenue producing public
facilities. Public authority operating expenses and debt service costs are
generally paid by revenues generated by the projects financed or operated, such
as tolls charged for the use of highways, bridges or tunnels, rentals charged
for housing units, and charges for occupancy at medical care facilities. In
addition, State legislation authorizes several financing techniques for public
authorities that are described under the section entitled "Debt and Other
Financing Activities." Also, there are statutory arrangements providing for
State local assistance payments otherwise payable to localities to be made under
certain circumstances to public authorities. Although the State has no
obligation to provide additional assistance to localities whose local assistance
payments have been paid to public authorities under these arrangements, if local
assistance payments are diverted the affected localities could seek additional
State assistance. Some authorities also receive moneys from State appropriations
to pay for the operating costs of certain of their programs. As described below,
the MTA receives the bulk of this money in order to provide transit and commuter
services.
<PAGE>
Metropolitan Transportation Authority
The MTA oversees the operation of subway and bus lines in New York City
by its affiliates, the New York City Transit Authority and the Manhattan and
Bronx Surface Transit Operating Authority (collectively, the "TA"). The MTA
operates certain commuter rail and bus services in the New York Metropolitan
area through MTA's subsidiaries, the Long Island Rail Road Company, the
Metro-North Commuter Railroad Company, and the Metropolitan Suburban Bus
Authority. In addition, the Staten Island Rapid Transit Operating Authority, an
MTA subsidiary, operates a rapid transit line on Staten Island. Through its
affiliated agency, the Triborough Bridge and Tunnel Authority (the "TBTA"), the
MTA operates certain intrastate toll bridges and tunnels. Because fare revenues
are not sufficient to finance the mass transit portion of these operations, the
MTA has depended on, and will continue to depend on, operating support from the
State, local governments and TBTA, and, to the extent available, federal
operating assistance, including loans, grants and subsidies. If current revenue
projections are not realized and/or operating expenses exceed current
projections, the TA or commuter railroads may be required to seek additional
State assistance, raise fares or take other actions.
Since 1980, the State has enacted several taxes--including a surcharge
on the profits of banks, insurance corporations and general business
corporations doing business in the 12-county Metropolitan Transportation Region
served by the MTA and a special one-quarter of 1 percent regional sales and use
tax-that provide revenues for mass transit purposes, including assistance to the
MTA. Since 1987 State law has required that the proceeds of a one-quarter of 1
percent mortgage recording tax paid on certain mortgages in the Metropolitan
Transportation Region be deposited in a special MTA fund for operating or
capital expenses. In 1993, the State dedicated a portion of certain additional
State petroleum business tax receipts to fund operating or capital assistance to
the MTA. For the 1997-98 fiscal year, State assistance to the MTA is projected
to total approximately $1.2 billion, an increase of $76 million over the 1996-97
fiscal year.
State legislation accompanying the 1996-97 adopted State budget
authorized the MTA, TBTA and TA to issue an aggregate of $6.5 billion in bonds
to finance a portion of the $12.17 billion MTA capital plan for the 1995 through
1999 calendar years (the "1995-99 Capital Program"). In July 1997, the Capital
Program Review Board ("CPRB") approved the 1995-99 Capital Program, which
supersedes the overlapping portion of the MTA's 1992-96 Capital Program. The
1995-99 Capital Program is the fourth capital plan since the Legislature
authorized procedures for the adoption, approval and amendment of MTA capital
programs and is designed to upgrade the performance of the MTA's transportation
systems by investing in new rolling stock, maintaining replacement schedules for
existing assets and bringing the MTA system into a state of good repair. The
1995-99 Capital Program assumes the issuance of an estimated $5.1 billion in
bonds under this $6.5 billion aggregate bonding authority. The remainder of the
plan is projected to be financed through assistance from the State, the federal
government, and the City of New York, and from various other revenues generated
from actions taken by the MTA.
There can be no assurance that all the necessary governmental actions
for future capital programs will be taken, that funding sources currently
identified will not be decreased or eliminated, or that the 1995-99 Capital
Program, or parts thereof, will not be delayed or reduced. Should funding levels
fall below current projections, the MTA
<PAGE>
would have to revise its 1995-99 Capital Program accordingly. If the 1995-99
Capital Program is delayed or reduced, ridership and fare revenues may decline,
which could, among other things, impair the MTA's ability to meet its operating
expenses without additional assistance.
The City of New York
The fiscal health of the State may also be affected by the fiscal
health of New York City ("the City"), which continues to require significant
financial assistance from the State. The City depends on State aid both to
enable the City to balance its budget and to meet its cash requirements. The
State could also be affected by the ability of the City and certain entities
issuing debt for the benefit of the City to market their securities successfully
in the public credit markets.
The City has achieved balanced operating results for each of its fiscal
years since 1981 as reported in accordance with the then-applicable GAAP
standards. The City's financial plans are usually prepared quarterly, and the
annual financial report for its most recent completed fiscal year is prepared at
the end of October of each year. For current information on the City's four-year
financial plan and its most recent financial disclosure, contact the Office of
the Comptroller, Municipal Building, Room 517, One Centre Street, New York, NY
10007, Attention: Deputy Comptroller for Finance.
Fiscal Oversight
In response to the City's fiscal crisis in 1975, the State took action
to assist the City in returning to fiscal stability. Among those actions, the
State established NYC MAC to provide financing assistance to the City; the New
York State Financial Control Board (the "Control Board") to oversee the City's
financial affairs; and the Office of the State Deputy Comptroller for the City
of New York ("OSDC") to assist the Control Board in exercising its powers and
responsibilities. A "Control Period" existed from 1975 to 1986 during which the
City was subject to certain statutorily-prescribed fiscal controls. Although the
Control Board terminated the Control Period in 1986 when certain statutory
conditions were met and suspended certain Control Board powers, upon the
occurrence or "substantial likelihood and imminence" of the occurrence of
certain events, including (but not limited to) a City operating deficit of more
than $100 million or impaired access to the public credit markets, the Control
Board is required by law to reimpose a Control Period.
Currently, the City and its Covered Organizations (i.e., those which
received or may receive moneys from the City directly, indirectly or
contingently) operate under a four-year financial plan (the "Financial Plan")
which the City prepares annually and periodically updates. The City's Financial
Plan includes it capital, revenue and expense projections and outlines proposed
gap-closing programs for years with projected budget gaps. The City's
projections set forth in the Financial Plan are based on various assumptions and
contingencies, some of which are uncertain and may not materialize. Unforeseen
developments and changes in major assumptions could significantly affect the
city's ability to balance its budget as required by State law and to meet its
annual cash flow and financing requirements.
Implementation of the Financial Plan is also dependent upon the ability to
the City and certain entities issuing debt for the benefit of the city to market
their securities successfully. The City issues
<PAGE>
securities to finance, refinance and rehabilitate infrastructure and other
capital needs, as well as for seasonal financing needs. In order to help the
City to avoid exceeding its State Constitutional general debt limit, the State
created the New York City Transitional Finance Authority to finance a portion of
the City's capital program. Despite this additional financing mechanism, the
City currently projects that, if no further action is taken, it will reach its
debt limit in City fiscal year 1999-2000. On June 2, 1997, an action was
commenced seeking a declaratory judgment declaring the legislation establishing
the Transitional Finance Authority to be unconstitutional. If such legislation
were voided, projected contracts for City capital projects would exceed the
City's debt limit during fiscal year 1997-98. Future developments concerning the
City or entities issuing debt for the benefit of the City, and public discussion
of such developments, as well as prevailing market conditions and securities
credit ratings, may affect the ability or cost to sell securities issued by the
City or such entities and may also affect the market for their outstanding
securities.
Monitoring Agencies
The staffs of the Control Board, OSDC and the City Comptroller issue
periodic reports on the City's Financial Plans which analyze the City's
forecasts of revenues and expenditures, cash flow, and debt service requirements
for, and Financial Plan compliance by, the City and its Covered Organizations.
According to recent staff reports, while economic recovery in New York City has
been slower than in other regions of the country, a surge in Wall Street
profitability resulted in increased tax revenues and generated a substantial
surplus for the City in City fiscal year 1996-97. Although several sectors of
the City's economy have expanded recently, especially tourism and business and
professional services, City tax revenues remain heavily dependent on the
continued profitability of the securities industries and the course of the
national economy. These reports have also indicated that recent City budgets
have been balanced in part through the use of non-recurring resources; that the
City's Financial Plan tends to rely on actions outside its direct control; that
the City has not yet brought its long-term expenditure growth in line with
recurring revenue growth; and that the City is therefore likely to continue to
face substantial gaps between forecast revenues and expenditures in future years
that must be closed with reduced expenditures and/or increased revenues. In
addition to these monitoring agencies, the Independent Budget Office ("IBO") has
been established pursuant to the City Charter to provide analysis to elected
officials and the public on relevant fiscal and budgetary issues affecting the
City. Copies of the most recent Control Board, OSDC, City Comptroller, and IBO
staff reports are available by contacting the Control Board at 270 Broadway,
21st Floor, New York, NY 10007, Attention: Executive Director; OSDC at 270
Broadway, 23rd Floor, New York, NY 10007, Attention: Deputy Comptroller; the
City Comptroller at Municipal Building, Room 517, One Centre Street, New York,
NY 10007, Attention: Deputy Comptroller for Finance; and the IBO at 110 William
Street, 14th Floor, New York, NY 10038, Attention: Director.
Other Localities
Certain localities outside New York City have experienced financial
problems and have requested and received additional State assistance during the
last several State fiscal years. The potential impact on the State of any future
requests by localities for additional assistance is not included in the
projections of the State's receipts
<PAGE>
and disbursements for the State's 1997-98 fiscal year.
Fiscal difficulties experienced by the City of Yonkers resulted in the
re-establishment of the Financial Control Board of the City of Yonkers by the
State in 1984. That Board is charged with oversight of the fiscal affairs of
Yonkers. Future actions taken by the State to assist Yonkers could result in
increased State expenditures for extraordinary local assistance.
Beginning in 1990, the City of Troy experienced a series of budgetary
deficits that resulted in the establishment of a Supervisory Board for the City
of Troy in 1994. The Supervisory Board's powers were increased in 1995, when
Troy MAC was created to help Troy avoid default on certain obligations. The
legislation creating Troy MAC prohibits the City of Troy from seeking federal
bankruptcy protection while Troy MAC bonds are outstanding. Troy MAC has issued
bonds to effect a restructuring of the City of Troy's obligations.
Eighteen municipalities received extraordinary assistance during the
1996 legislative session through $50 million in special appropriations targeted
for distressed cities, aid that was largely continued in 1997. Twenty-eight
municipalities are scheduled to share the more than $32 million in targeted
unrestricted aid allocated in the 1997-98 budget. An additional $21 million will
be dispersed among all cities, towns and villages, a 3.97 percent increase in
General Purpose State Aid.
Municipalities and school districts have engaged in substantial
short-term and long-term borrowings. In 1995, the total indebtedness of all
localities in the State other than New York City was approximately $19.0
billion. A small portion (approximately $102.3 million) of that indebtedness
represented borrowing to finance budgetary deficits and was issued pursuant to
State enabling legislation. State law requires the Comptroller to review and
make recommendations concerning the budgets of those local government units
other than New York City authorized by State law to issue debt to finance
deficits during the period that such deficit financing is outstanding. Eighteen
localities had outstanding indebtedness for deficit financing at the close of
their fiscal year ending in 1995.
From time to time, federal expenditure reductions could reduce, or in
some cases eliminate, federal funding of some local programs and accordingly
might impose substantial increased expenditure requirements on affected
localities. If the State, the City or any of the public authorities were to
suffer serious financial difficulties jeopardizing their respective access to
the public credit markets, the marketability of notes and bonds issued by
localities within the State could be adversely affected. Localities also face
anticipated and potential problems resulting from certain pending litigation,
judicial decisions and long-range economic trends. Long-range potential problems
of declining urban population, increasing expenditures and other economic trends
could adversely affect localities and require increasing State assistance in the
future.
<PAGE>
PART C
ITEM 23. EXHIBITS.
(a) 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).
(a)1 Amendment No. 5 to Declaration of Trust; Amendment and Fifth Amended
and Restated Establishment and Designation of Series of Shares of Beneficial
Interest.*
(a)2 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).
(a)3 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).
(a)4 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).
(a)5 Amendment No. 9 to Declaration of Trust; Amendment and Ninth Amended
and Restated Establishment and Designation of Series of Shares of Beneficial
Interest filed as Exhibit No. 1(e) to Post-Effective Amendment No. 50 to the
Registration Statement on March 2, 1998 (Accession Number 0001042058-98-000036).
(b) Restated By-Laws of Registrant.*
(e) Distribution Agreement between Registrant and Funds Distributor, Inc.
("FDI").*
(g) Custodian Contract between Registrant and State Street Bank and Trust
Company ("State Street").*
(h)1 Co-Administration Agreement between Registrant and FDI.*
(h)2 Restated Shareholder Servicing Agreement between Registrant and Morgan
Guaranty Trust Company of New York ("Morgan Guaranty").**
(h)3 Transfer Agency and Service Agreement between Registrant and State
Street.*
<PAGE>
(h)4 Restated Administrative Services Agreement between Registrant and
Morgan Guaranty.*
(h)5 Fund Services Agreement, as amended, between Registrant and Pierpont
Group, Inc.*
(h)6 Service Plan with respect to Registrant's Service Money Market Funds.**
(i) Opinion and consent of Sullivan & Cromwell.*
(j) Consent of independent accountants. (filed herewith)
(l) Purchase agreements with respect to Registrant's initial shares.*
(n) 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 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND.
Not applicable.
ITEM 25. INDEMNIFICATION.
Reference is made to Section 5.3 of Registrant's Declaration of Trust and
Section 5 of Registrant's Distribution Agreement.
Registrant, its Trustees and officers are insured against certain expenses in
connection with the defense of claims, demands, actions, suits, or proceedings,
and certain liabilities that might be imposed as a result of such actions, suits
or proceedings.
<PAGE>
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 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER.
Not Applicable.
ITEM 27. PRINCIPAL UNDERWRITERS.
(a) Funds Distributor, Inc. (the "Distributor") is the principal
underwriter of the Registrant's shares.
Funds Distributor, Inc. acts as principal underwriter for the following
investment companies other than the Registrant:
American Century California Tax-Free and Municipal Funds
American Century Capital Portfolios, Inc.
American Century Government Income Trust
American Century International Bond Funds
American Century Investment Trust
American Century Municipal Trust
American Century Mutual Funds, Inc.
American Century Premium Reserves, Inc.
American Century Quantitative Equity Funds
American Century Strategic Asset Allocations, Inc.
American Century Target Maturities Trust
American Century Variable Portfolios, Inc.
American Century World Mutual Funds, Inc.
BJB Investment Funds
The Brinson Funds
Dresdner RCM Capital Funds, Inc.
Dresdner RCM Equity Funds, Inc.
Founders Funds, Inc.
Harris Insight Funds Trust
HT Insight Funds, Inc. d/b/a Harris Insight Funds
J.P. Morgan Funds
J.P. Morgan 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.
<PAGE>
Funds Distributor, Inc. does not act as depositor or investment adviser to
any of the investment companies.
Funds Distributor, Inc. is registered with the Securities and Exchange
Commission as a broker-dealer and is a member of the National Association of
Securities Dealers. Funds Distributor, Inc. is located at 60 State Street, Suite
1300, Boston, Massachusetts 02109. Funds Distributor, Inc. is an indirect
wholly-owned subsidiary of Boston Institutional Group, Inc., a holding company
all of whose outstanding shares are owned by key employees.
(b) The following is a list of the executive officers, directors and
partners of Funds Distributor, Inc.:
Director, President and Chief Executive Officer: Marie E. Connolly
Executive Vice President: George Rio
Executive Vice President: Donald R. Roberson
Executive Vice President: William S. Nichols
Senior Vice President: Michael S. Petrucelli
Director, Senior Vice President, Treasurer and
Chief Financial Officer: Joseph F. Tower, III
Senior Vice President: Paula R. David
Senior Vice President: Allen B. Closser
Senior Vice President: Bernard A. Whalen
Director: William J. Nutt
(c) Not applicable.
ITEM 28. 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).
<PAGE>
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 29. MANAGEMENT SERVICES.
Not Applicable.
ITEM 30. UNDERTAKINGS.
(a) If the information called for by Item 5A of Form N-1A is contained in
the latest annual report to shareholders, the Registrant shall furnish
each person to whom a prospectus is delivered with a copy of the
Registrant's latest annual report to shareholders upon request and
without charge.
(b) The Registrant undertakes to comply with Section 16(c) of the 1940 Act
as though such provisions of the 1940 Act were applicable to the
Registrant, except that the request referred to in the 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 New York and State of New York on the 27th day of July, 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 July 27, 1998.
/s/ Michael S. Petrucelli
- ------------------------------
Michael S. Petrucelli
Vice President and Assistant Secretary
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.
<PAGE>
SIGNATURES
The New York Total Return Bond Portfolio has duly caused this registration
statement on Form N-1A ("Registration Statement") of 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 New York and State of New
York on the 27th day of July, 1998.
THE NEW YORK TOTAL RETURN BOND PORTFOLIO
/s/ Michael S. Petrucelli
By ----------------------------
Michael S. Petrucelli
Vice President and Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, the Trust's
Registration Statement has been signed below by the following persons in the
capacities indicated on July 27, 1998.
/s/ Michael S. Petrucelli
- ----------------------------
Michael S. Petrucelli
Vice President and Assistant Secretary of the Portfolio
Matthew Healey*
- ----------------------------
Matthew Healey
Trustee, Chairman and Chief Executive Officer (Principal Executive Officer) of
the Portfolio
Frederick S. Addy*
- ----------------------------
Frederick S. Addy
Trustee of the Portfolio
William G. Burns*
- ----------------------------
William G. Burns
Trustee of the Portfolio
Arthur C. Eschenlauer*
- ----------------------------
Arthur C. Eschenlauer
Trustee of the Portfolio
Michael P. Mallardi*
- ----------------------------
Michael P. Mallardi
Trustee of the Portfolio
/s/ Michael S. Petrucelli
*By -----------------------------
Michael S. Petrucelli
as attorney-in-fact pursuant to a power of attorney.
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
- ------------- ----------------------
EX-99.B11 Consent of Independent Accountants
EX-27.1-27.24 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. 53 to the registration statement on Form N-1A (the "Registration
Statement") of our reports dated May 19, 1998, relating to the financial
statements and financial highlights of J.P. Morgan Institutional New York Total
Return Bond Fund and the financial statements and supplementary data of The New
York Total Return Bond Portfolio appearing in the March 31, 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/ PricewaterhouseCoopers LLP
--------------------------
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
July 23, 1998
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE REPORT ON
FORM N-SAR DATED NOVEMBER 30, 1997 FOR J.P. MORGAN INSTITUTIONAL PRIME MONEY
MARKET FUND AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
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<PERIOD-END> NOV-30-1997
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<INVESTMENTS-AT-VALUE> 1389606
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<TOTAL-ASSETS> 1389718
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<PAID-IN-CAPITAL-COMMON> 1388112
<SHARES-COMMON-STOCK> 1388102
<SHARES-COMMON-PRIOR> 1126480
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<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (34)
<OVERDISTRIBUTION-GAINS> (286)
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<EXPENSES-NET> 205
<NET-INVESTMENT-INCOME> 67847
<REALIZED-GAINS-CURRENT> (34)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 67813
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 67847
<DISTRIBUTIONS-OF-GAINS> 372
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<NUMBER-OF-SHARES-SOLD> 6802405
<NUMBER-OF-SHARES-REDEEMED> 6681230
<SHARES-REINVESTED> 46622
<NET-CHANGE-IN-ASSETS> 167391
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<PER-SHARE-NAV-BEGIN> 1
<PER-SHARE-NII> .054
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .054
<PER-SHARE-DISTRIBUTIONS> 0000
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<PER-SHARE-NAV-END> 1
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<AVG-DEBT-PER-SHARE> 0
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<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 MONEY MARKET FUND AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
REPORT.
</LEGEND>
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<PERIOD-END> FEB-28-1998
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<INVESTMENTS-AT-VALUE> 641,743
<RECEIVABLES> 25
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<TOTAL-ASSETS> 641,773
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<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 375
<TOTAL-LIABILITIES> 375
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<PAID-IN-CAPITAL-COMMON> 641,358
<SHARES-COMMON-STOCK> 641,359
<SHARES-COMMON-PRIOR> 290,970
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<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 39
<OVERDISTRIBUTION-GAINS> 0
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<NET-ASSETS> 641,398
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<INTEREST-INCOME> 6,687
<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
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<GROSS-EXPENSE> 122
<AVERAGE-NET-ASSETS> 394,328
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .017
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<PER-SHARE-DIVIDEND> 0
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<PER-SHARE-NAV-END> 1.00
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<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.
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<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 644086
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<ASSETS-OTHER> 3
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<OTHER-INCOME> 0
<EXPENSES-NET> 338
<NET-INVESTMENT-INCOME> 9070
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<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 9071
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<DISTRIBUTIONS-OF-INCOME> 9070
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<NET-CHANGE-IN-ASSETS> 506391
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<ACCUMULATED-GAINS-PRIOR> (2)
<OVERDISTRIB-NII-PRIOR> 0
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</TABLE>
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<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>
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<OTHER-ITEMS-ASSETS> 0
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<PAID-IN-CAPITAL-COMMON> 77117
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<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
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<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>
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<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>
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<SERIES>
<NUMBER> 003
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<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-31-1997
<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 NOVEMBER 30, 1997 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> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 298,504
<INVESTMENTS-AT-VALUE> 356,181
<RECEIVABLES> 8
<ASSETS-OTHER> 9
<OTHER-ITEMS-ASSETS> 27
<TOTAL-ASSETS> 356,225
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 117
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 264,352
<SHARES-COMMON-STOCK> 22,357
<SHARES-COMMON-PRIOR> 21,060
<ACCUMULATED-NII-CURRENT> 1,523
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 32,556
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 57,677
<NET-ASSETS> 356,108
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 1,757
<EXPENSES-NET> 235
<NET-INVESTMENT-INCOME> 1,522
<REALIZED-GAINS-CURRENT> 33,442
<APPREC-INCREASE-CURRENT> 794
<NET-CHANGE-FROM-OPS> 35,758
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,442
<DISTRIBUTIONS-OF-GAINS> 27,769
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 30,204
<NUMBER-OF-SHARES-REDEEMED> 36,792
<SHARES-REINVESTED> 26,373
<NET-CHANGE-IN-ASSETS> 26,332
<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> 293
<AVERAGE-NET-ASSETS> 350,767
<PER-SHARE-NAV-BEGIN> 15.66
<PER-SHARE-NII> 0.07
<PER-SHARE-GAIN-APPREC> 1.64
<PER-SHARE-DIVIDEND> 0.07
<PER-SHARE-DISTRIBUTIONS> 1.37
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.93
<EXPENSE-RATIO> 0.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE REPORT ON FORM
N-SAR DATED NOVEMBER 30, 1997 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> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 369630
<INVESTMENTS-AT-VALUE> 442150
<RECEIVABLES> 26
<ASSETS-OTHER> 26
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 442202
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 99
<TOTAL-LIABILITIES> 99
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 330780
<SHARES-COMMON-STOCK> 28389
<SHARES-COMMON-PRIOR> 28511
<ACCUMULATED-NII-CURRENT> 1326
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 37477
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 72520
<NET-ASSETS> 442103
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 1597
<EXPENSES-NET> 272
<NET-INVESTMENT-INCOME> 1325
<REALIZED-GAINS-CURRENT> 41074
<APPREC-INCREASE-CURRENT> 23206
<NET-CHANGE-FROM-OPS> 65605
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 551
<DISTRIBUTIONS-OF-GAINS> 21466
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 49897
<NUMBER-OF-SHARES-REDEEMED> 60703
<SHARES-REINVESTED> 7524
<NET-CHANGE-IN-ASSETS> 40306
<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> 374
<AVERAGE-NET-ASSETS> 444433
<PER-SHARE-NAV-BEGIN> 14.09
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> 2.20
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .77
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.57
<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 DECEMBER 31, 1997 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> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 286964
<RECEIVABLES> 48
<ASSETS-OTHER> 8
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 287020
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1578
<TOTAL-LIABILITIES> 1578
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 240717
<SHARES-COMMON-STOCK> 22115
<SHARES-COMMON-PRIOR> 17731
<ACCUMULATED-NII-CURRENT> 160
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 608
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 43957
<NET-ASSETS> 285442
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 4194
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 4194
<REALIZED-GAINS-CURRENT> 6507
<APPREC-INCREASE-CURRENT> 4946
<NET-CHANGE-FROM-OPS> 15647
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 7956
<DISTRIBUTIONS-OF-GAINS> 1715
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3334
<NUMBER-OF-SHARES-REDEEMED> 733
<SHARES-REINVESTED> 1783
<NET-CHANGE-IN-ASSETS> 47993
<ACCUMULATED-NII-PRIOR> 3923
<ACCUMULATED-GAINS-PRIOR> 11252
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1173
<AVERAGE-NET-ASSETS> 259790
<PER-SHARE-NAV-BEGIN> 13.39
<PER-SHARE-NII> .19
<PER-SHARE-GAIN-APPREC> .62
<PER-SHARE-DIVIDEND> .40
<PER-SHARE-DISTRIBUTIONS> .89
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.91
<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 DECEMBER 31, 1997 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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 10152
<RECEIVABLES> 8
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 34
<TOTAL-ASSETS> 10194
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 20
<TOTAL-LIABILITIES> 20
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11477
<SHARES-COMMON-STOCK> 810
<SHARES-COMMON-PRIOR> 565
<ACCUMULATED-NII-CURRENT> 0000
<OVERDISTRIBUTION-NII> 4
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 1593
<ACCUM-APPREC-OR-DEPREC> 294
<NET-ASSETS> 10174
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 165
<EXPENSES-NET> 10
<NET-INVESTMENT-INCOME> 155
<REALIZED-GAINS-CURRENT> 2287
<APPREC-INCREASE-CURRENT> (473)
<NET-CHANGE-FROM-OPS> 1969
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 129
<DISTRIBUTIONS-OF-GAINS> 1040
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 384
<NUMBER-OF-SHARES-REDEEMED> 139
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 3642
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 58
<OVERDISTRIB-NII-PRIOR> (4)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 79
<AVERAGE-NET-ASSETS> 9835
<PER-SHARE-NAV-BEGIN> 11.56
<PER-SHARE-NII> 0.21
<PER-SHARE-GAIN-APPREC> 2.34
<PER-SHARE-DIVIDEND> (0.17)
<PER-SHARE-DISTRIBUTIONS> (1.38)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.56
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE REPORT ON
FORM N-SAR DATED DECEMBER 31, 1997 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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 1879
<RECEIVABLES> 9
<ASSETS-OTHER> 6
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1894
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 21
<TOTAL-LIABILITIES> 21
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3721
<SHARES-COMMON-STOCK> 305
<SHARES-COMMON-PRIOR> 173
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (34)
<ACCUMULATED-NET-GAINS> (1219)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (595)
<NET-ASSETS> 1873
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 9
<EXPENSES-NET> 7
<NET-INVESTMENT-INCOME> 2
<REALIZED-GAINS-CURRENT> (1054)
<APPREC-INCREASE-CURRENT> 34
<NET-CHANGE-FROM-OPS> (1018)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 697
<NUMBER-OF-SHARES-REDEEMED> 565
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 371
<ACCUMULATED-NII-PRIOR> (9)
<ACCUMULATED-GAINS-PRIOR> (192)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 80
<AVERAGE-NET-ASSETS> 4181
<PER-SHARE-NAV-BEGIN> 8.67
<PER-SHARE-NII> .03
<PER-SHARE-GAIN-APPREC> (2.56)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 6.14
<EXPENSE-RATIO> 1.00
<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 NOVEMBER 30, 1997 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> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 169612
<RECEIVABLES> 72
<ASSETS-OTHER> 11
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 169695
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 52
<TOTAL-LIABILITIES> 52
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 157927
<SHARES-COMMON-STOCK> 13077
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 701
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1417
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 9598
<NET-ASSETS> 169643
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 701
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 701
<REALIZED-GAINS-CURRENT> 1739
<APPREC-INCREASE-CURRENT> 6484
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (192)
<DISTRIBUTIONS-OF-GAINS> (177)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8939
<NUMBER-OF-SHARES-REDEEMED> (227)
<SHARES-REINVESTED> 29
<NET-CHANGE-IN-ASSETS> 119917
<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> 110
<AVERAGE-NET-ASSETS> 98947
<PER-SHARE-NAV-BEGIN> 11.47
<PER-SHARE-NII> .04
<PER-SHARE-GAIN-APPREC> 1.52
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> (0.03)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.97
<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 NOVEMBER 30, 1997 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> 12-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 211053
<RECEIVABLES> 49
<ASSETS-OTHER> 269
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 211371
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 142
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 220218
<SHARES-COMMON-STOCK> 21257
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 1906
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3579)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (7315)
<NET-ASSETS> 211229
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 1699
<EXPENSES-NET> 115
<NET-INVESTMENT-INCOME> 1584
<REALIZED-GAINS-CURRENT> (3259)
<APPREC-INCREASE-CURRENT> (7315)
<NET-CHANGE-FROM-OPS> (8990)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 22719
<NUMBER-OF-SHARES-REDEEMED> 1462
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 211229
<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> 300
<AVERAGE-NET-ASSETS> 154490
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .07
<PER-SHARE-GAIN-APPREC> (0.13)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.94
<EXPENSE-RATIO> .99
<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> APR-30-1998
<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> APR-30-1998
<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 NOVEMBER 30, 1997 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> 2-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 395
<RECEIVABLES> 32
<ASSETS-OTHER> 10
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 438
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 53
<TOTAL-LIABILITIES> 53
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 384
<SHARES-COMMON-STOCK> 384
<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> 384
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7
<OTHER-INCOME> 0
<EXPENSES-NET> 1
<NET-INVESTMENT-INCOME> 6
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 6
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 6
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3952
<NUMBER-OF-SHARES-REDEEMED> 3568
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 384
<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> 0
<AVERAGE-NET-ASSETS> 1145
<PER-SHARE-NAV-BEGIN> 1
<PER-SHARE-NII> .006
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .006
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1
<EXPENSE-RATIO> .450
<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-31-1997
<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-31-1997
<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>
