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FEBRUARY 2, 1998 | PROSPECTUS
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J.P. MORGAN INSTITUTIONAL
PRIME MONEY MARKET FUND
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Seeking to preserve capital and to provide
income and same-day liquidity
This prospectus contains essential information for anyone investing in this
fund. Please read it carefully and keep it for reference.
Shares in this fund are not bank deposits and are not guaranteed or insured by
any bank, government entity, or the FDIC. The fund seeks to maintain a stable $1
share price, without guaranteeing that it will always be able to do so.
As with all mutual funds, the fact that these shares are registered with the
Securities and Exchange Commission does not mean that the commission approves
them as an investment or guarantees that the information in this prospectus is
correct or adequate. It is a criminal offense to state or suggest otherwise.
[LOGO]JPMorgan
Distributed by Funds Distributor, Inc.
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CONTENTS
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2 | MONEY MARKET MANAGEMENT APPROACH
Money market investment process .................................. 2
4 | J.P. MORGAN INSTITUTIONAL PRIME MONEY MARKET FUND
The fund's goal, investment approach, Fund description ................................................. 4
risks, expenses,
performance and
financial highlights
Investor expenses ................................................ 4
Performance ...................................................... 5
Financial highlights ............................................. 5
6 | YOUR INVESTMENT
Investing in the J.P. Morgan
Institutional Investing through a financial professional ....................... 6
Prime Money Market Fund
Investing through an employer-sponsored retirement plan .......... 6
Investing through an IRA or rollover IRA ......................... 6
Investing directly ............................................... 6
Opening your account ............................................. 6
Adding to your account ........................................... 6
Selling shares ................................................... 7
Account and transaction policies ................................. 7
Dividends and distributions ...................................... 8
Tax considerations ............................................... 8
9 | FUND DETAILS
Master/feeder structure .......................................... 9
More about the fund's Management and administration .................................... 9
business operations
FOR MORE INFORMATION ...................................... back cover
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INTRODUCTION
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J.P. MORGAN INSTITUTIONAL PRIME MONEY MARKET FUND
This fund invests in high-quality short-term debt securities by investing
through a master portfolio (another fund with the same goal). The fund accrues
dividends daily, pays them to shareholders monthly, and seeks to maintain a
stable $1 share price.
WHO MAY WANT TO INVEST
The fund is designed for investors who:
o want an investment that strives to preserve capital
o want regular income from a high quality portfolio
o want a highly liquid investment
o are looking for an interim investment
o are pursuing a short-term goal
The fund is NOT designed for investors who:
o are investing for long-term growth
o are investing for high income
o require the added security of the FDIC insurance
J.P. MORGAN
Known for its commitment to proprietary research and its disciplined investment
strategies, J.P. Morgan is the asset 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 approximately $250 billion in assets under management,
including assets managed by the fund's advisor, Morgan Guaranty Trust Company of
New York.
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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 goals
o Future returns will not necessarily
resemble past performance
o The fund does not represent a
complete investment program
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MONEY MARKET MANAGEMENT APPROACH
The J.P. Morgan Institutional Prime Money Market Fund invests exclusively in
high-quality short-term debt obligations.
The fund's investment philosophy, developed by its advisor, emphasizes
investment quality through in-depth research of short-term securities and their
issuers. This allows the fund to focus on maximizing current income without
compromising share price stability.
MONEY MARKET INVESTMENT PROCESS
In researching short-term securities, J.P. Morgan's credit analysts enhance the
data furnished by rating agencies by drawing on the insights of J.P. Morgan's
fixed income trading specialists and equity analysts. Only securities highly
rated by independent rating agencies as well as J.P. Morgan's proprietary
ratings system are considered for investment.
In managing the fund, J.P. Morgan employs a three-step process:
[GRAPHIC] MATURITY DETERMINATION Based on analysis of a
range of factors, including current yields,
J.P. Morgan uses a disciplined economic forecasts, and anticipated fiscal
process to control the fund's and monetary policies, J.P. Morgan
sensitivity to interest rates establishes the desired weighted average
maturity for the fund within the permissible
90-day range. Controlling weighted average
maturity allows the fund to manage risk since
securities with shorter maturities are
typically less sensitive to interest rate
shifts than those with longer maturities.
[GRAPHIC] SECTOR ALLOCATION Analysis of the yields
available in different sectors of the
The fund invests in different short-term debt market, such as corporate,
issuers and types of bank and U.S. government obligations, allows
securities for diversification J.P. Morgan to adjust the fund's sector
and to take advantage of yield allocation, with the goal of enhancing
spreads current income while maintaining exposure to
different types of securities and
diversification among issuers.
[GRAPHIC] SECURITY SELECTION Based on the results of
the firm's credit research and the fund's
The fund selects its maturity determination and sector allocation,
securities as described later the portfolio managers and dedicated
in this prospectus fixed-income traders make buy and sell
decisions according to the fund's goal and
strategy.
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2 | MONEY MARKET MANAGEMENT APPROACH
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J.P. MORGAN INSTITUTIONAL PRIME
MONEY MARKET FUND | TICKER SYMBOL: JPIXX
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REGISTRANT: J.P. MORGAN INSTITUTIONAL FUNDS
(J.P. MORGAN INSTITUTIONAL PRIME MONEY MARKET FUND)
[GRAPHIC] GOAL
The fund's goal is to maximize current income while maintaining a high
level of liquidity.
[GRAPHIC] INVESTMENT APPROACH
The fund looks for investments across a broad spectrum of U.S.
dollar-denominated money market securities, typically emphasizing different
types of securities at different times in order to take advantage of changing
yield differentials. The fund's investments may include obligations issued by
the U.S. Treasury, government agencies, domestic and foreign banks and
corporations, foreign governments, repurchase agreements, as well as
asset-backed securities, taxable municipal obligations, and other money market
instruments. Some of these investments may be illiquid or purchased on a
when-issued or delayed delivery basis.
[GRAPHIC] POTENTIAL RISKS AND REWARDS
The fund's yield will vary in response to changes in interest rates. How
well the fund's yield compares to the yields of similar money market funds will
depend on the success of the investment process described on page 2.
As with all money market funds, the fund's investments are subject to various
risks, which, while generally considered to be minimal, could cause its share
price to fall below $1. For example, the issuer or guarantor of a portfolio
security or the counterparty to a contract could default on its obligation. An
unexpected rise in interest rates could also lead to a loss in share price if
the fund is near the maximum allowable average weighted maturity at the time. To
the extent that the fund invests in foreign securities, the fund could lose
money because of foreign government actions, political instability, or lack of
adequate and accurate information. Also, the fund may have difficulty valuing
its illiquid holdings and may be unable to sell them at the time or price it
desired. While these possibilities exist, the fund's investment process and
management policies are designed to minimize the likelihood and impact of these
risks. To date, through this process, the fund's share price has never deviated
from $1.
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages
approximately $250 billion, including more than $13 billion using the same
strategy as the fund.
The portfolio management team is led by Robert R. Johnson, vice president,
who has been on the team since the fund's inception and has been at J.P. Morgan
since 1988, Daniel B. Mulvey, vice president, who joined the team in January of
1995 and has been at J.P. Morgan since 1991, and by John Donohue, vice
president, who has been on the team since joining J.P. Morgan in June of 1997.
Prior to managing this fund, Mr. Donohue was an Institutional Money Market
Portfolio Manager at Goldman Sachs & Co.
MONEY MARKET FUNDS AND STABILITY
Money market funds are subject to a range of federal regulations designed
to promote stability. For example, money market funds must maintain a weighted
average maturity of no more than 90 days, and generally may not invest in any
securities with a remaining maturity of more than 13 months. Keeping the
weighted average maturity this short helps funds in their pursuit of a stable $1
share price.
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INVESTOR EXPENSES
The current expenses you should expect to pay as an investor in the fund are
shown at right. The fund has no sales, redemption, exchange, or account fees,
although some institutions may charge you a fee for shares you buy through them.
The annual fund expenses shown are deducted from fund assets prior to
performance calculations.
Footnotes for this section are shown on next page.
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Annual fund operating expenses(1)(%)
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Management fees (actual) 0.12
Marketing (12b-1) fees None
Other expenses(2)
(after reimbursement) 0.08
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Total operating expenses(2)
(after reimbursement) 0.20
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Expense example
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The example below uses the same assumptions as other fund prospectuses: $1,000
initial investment, 5% annual total return, expenses unchanged, all shares sold
at the end of each time period. The example is for comparison only; the fund's
actual return and expenses will be different.
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1 yr 3 yrs. 5 yrs. 10 yrs.
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Your cost($) 2 6 11 26
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4 | J.P. MORGAN INSTITUTIONAL PRIME MONEY MARKET FUND
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PERFORMANCE (unaudited)
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Average annual total return (%) Shows performance over time, for periods ended December 31, 1997
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1 yr. 5 yrs.3 10 yrs.3
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J.P. Morgan Institutional Prime Money Market Fund (after expenses) 5.60 4.80 5.81
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IBC's First Tier Money Fund Average(4) (after expenses) 5.04 4.36 5.45
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Year-by-year total return (%)(%) Shows changes in returns by calendar year
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1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
J.P. Morgan Institutional Prime Money Market Fund 7.38 9.13 8.04 6.07 3.67 2.87 4.15 5.98 5.41 5.60
IBC's First Tier Money Fund Average(4) 7.08 8.87 7.82 5.71 3.37 2.70 3.75 5.48 4.85 5.04
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FINANCIAL HIGHLIGHTS
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Per-share data For fiscal periods ended November 30
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1993 1994 1995 1996 1997
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Net asset value, beginning of period ($) 1.00 1.00 1.00 1.00 1.00
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Income from investment operations:
Net investment income ($) 0.0120 0.0385 0.0577 0.0529 0.0543
Net realized and unrealized gain (loss)
on investment ($) (0.0000)(5) (0.0000)(5) 0.0003 0.0001 (0.0000)(5)
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Total from investment operations ($) 0.0120 0.0385 0.0580 0.0530 0.0543
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Less distributions to shareholders from:
Net investment income ($) (0.0120) (0.0385) (0.0577) (0.0529) (0.0543)
Net realized gain ($) (0.0000)(5) -- -- (0.0003) (0.0003)
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Total distributions ($) (0.0120) (0.0385) (0.0577) (0.0532) (0.0546)
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Net asset value, end of period ($) 1.00 1.00 1.00 1.00 1.00
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Total return (%) 1.21(6) 3.92 5.93 5.46 5.59
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Ratios and supplemental data
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Net assets, end of period ($ thousands) 27,188 584,867 999,746 1,220,401 1,387,792
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Ratio to average net assets:
Expenses (%) 0.30(7) 0.21 0.20 0.20 0.20
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Net investment income (%) 2.88(7) 4.42 5.77 5.28 5.42
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Decrease reflected in expense ratio due
to expense reimbursement (%) 1.10(7) 0.31 0.15 0.11 0.09
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</TABLE>
The Financial Highlights above have been audited by Price Waterhouse LLP, the
fund's independent accountants.
1 The fund has a master/feeder structure as described on page 9. This table
shows the fund's expenses and its share of master portfolio expenses for the
current fiscal year, expressed as a percentage of the fund's average net assets
after reimbursement for ordinary expenses over 0.20%.
2 Without reimbursement, other expenses and total operating expenses are
estimated to be 0.17% and 0.29%, respectively. There is no guarantee that
reimbursement will continue beyond 3/31/99.
3 The fund commenced operations on 7/12/93. Except in Financial Highlights,
returns reflect performance of the J.P. Morgan Prime Money Market Fund (a
separate feeder fund investing in the same master portfolio) from 1/1/88
through 7/12/93. This data is based on historical earnings and is not
intended to indicate future performance.
4 Consists of the IBC/Donoghue Taxable Money Market Fund Average from
inception through November 30, 1995 and IBC's First Tier Money Fund Average
thereafter.
5 Less than $0.0001.
6 Not annualized.
7 Annualized.
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J.P. MORGAN INSTITUTIONAL PRIME MONEY MARKET FUND | 5
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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 THROUGH AN EMPLOYER-SPONSORED RETIREMENT PLAN
Your fund investments are handled through your plan. Refer to your plan
materials or contact your benefits office for information on buying, selling, or
exchanging fund shares.
INVESTING THROUGH AN IRA OR ROLLOVER IRA
Please contact a J.P. Morgan Retirement Services Specialist at 1-888-576-4472
for information on J.P. Morgan's comprehensive IRA services, including lower
minimum investments.
INVESTING DIRECTLY
Investors may establish accounts without the help of an intermediary by using
the instructions below and at right:
o Determine the amount you are investing. The minimum amount for initial
investments in the fund is $10,000,000 and for additional investments
$25,000, although these minimums may be less for some investors. For more
information on minimum investments, call 1-800-766-7722.
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 UNIVESTED..
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.
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6 | YOUR INVESTMENT
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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 DAYS AND NAV CALCULATIONS The fund's regular business days are the
same as those of the New York Stock Exchange. The fund calculates its net asset
value per share (NAV) every business day at 5:00 p.m. eastern time.
TIMING OF ORDERS Orders to buy or sell shares are executed at the next NAV
calculated after the order has been accepted. Purchase and redemption orders for
the fund must be received by 5:00 p.m. eastern time.
For the purchase to be effective and dividends to be earned on the same day,
immediately available funds must be received by 5:00 p.m. eastern time on a fund
business day. The fund has the right to suspend redemption of shares and to
postpone payment of proceeds for up to seven days or as permitted by law.
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Shareholder Services Agent
J.P. Morgan Funds Services
522 Fifth Avenue
New York, NY 10036
1-800-766-7722
Representatives are available 8:00 a.m. to 5:00 p.m. eastern
time on fund business days.
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YOUR INVESTMENT | 7
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TIMING OF SETTLEMENTS When you buy shares, you will become the owner of record
when the fund receives your payment.
Redemption orders for the fund received by 5:00 p.m. eastern time will be paid
in immediately available funds normally on the same day, according to
instructions on file.
When you sell shares that you recently purchased by check, your order will be
executed at the next NAV but the proceeds will not be available until your check
clears. This may take up to 15 days.
STATEMENTS AND REPORTS The fund sends monthly account statements as well as
confirmations after each purchase or sale of shares (except reinvestments).
Every six months, the fund sends out an annual or semi-annual report containing
information on 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
Substantially all income dividends are declared daily and paid monthly. If all
of an investor's shares are redeemed during the month, accrued but unpaid
dividends are paid with the redemption proceeds. Shares of the fund earn
dividends on the business day their purchase is effective, but not on the
business day their redemption is effective.
Dividends and distributions are 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. The transactions
below typically create the following tax liabilities:
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Transaction Tax status
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Income dividends Ordinary income
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Short-term capital gains Ordinary income
distributions
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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.
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8 | YOUR INVESTMENT
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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, provides fund officers. J.P. Morgan, as
co-administrator, oversees the fund's other service providers.
J.P. Morgan receives the following fees for investment advisory and other
services:
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Advisory services 0.20% of the first $1 billion of the
master portfolio's average net assets plus 0.10%
over $1 billion
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Administrative services Master portfolio's and fund's pro-rata portions
(fee shared with Funds of 0.09% of the first $7 billion in J.P. Morgan-
Distributor, Inc.) advised portfolios, plus 0.04% over $7 billion
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Shareholder services 0.05% of the fund's average net assets
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</TABLE>
The Advisor has voluntarily agreed to reimburse the fund so that total operating
expenses will not exceed 0.20% of average net assets of the fund. There is no
guarantee that this arrangement will continue beyond 3/31/99.
J.P. Morgan may pay fees to certain firms and professionals for providing
recordkeeping or other services in connection with investments in the fund.
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FUND DETAILS | 9
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FOR MORE INFORMATION
================================================================================
For investors who want more information on the fund, the following documents are
available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS Contain financial statements, performance data,
information on portfolio holdings, and a written analysis of market conditions
and fund performance for the fund's most recently completed fiscal year or
half-year.
STATEMENT OF ADDITIONAL INFORMATION (SAI) Provides a fuller technical and legal
description of the fund's policies, investment restrictions, and business
structure. This prospectus incorporates the SAI by reference.
Copies of the current versions of these documents may be obtained by contacting:
J.P. Morgan Institutional Prime Money Market 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 from the
Public Reference Room of the Securities and Exchange Commission in Washington,
D.C. (1-800-SEC-0330) and may be viewed on-screen or downloaded from the SEC's
Internet site at http://www.sec.gov. The fund's investment company and 1933 Act
registration numbers are 811-07342 and 033-54642.
J.P. MORGAN INSTITUTIONAL FUNDS AND THE MORGAN TRADITION
The J.P. Morgan Institutional Funds combine a heritage of integrity and
financial leadership with comprehensive, sophisticated analysis and management
techniques. Drawing on J.P. Morgan's extensive experience and depth as an
investment manager, the J.P. Morgan Institutional Funds offer a broad array of
distinctive opportunities for mutual fund investors.
[LOGO] JPMorgan
===============================================================================
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
PROS202-982
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FEBRUARY 2, 1998 | PROSPECTUS
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================================================================================
J.P. MORGAN INSTITUTIONAL
TREASURY MONEY MARKET FUND
==========================================
Seeking to preserve capital and to provide
income and same-day liquidity
This prospectus contains essential information for anyone investing in this
fund. Please read it carefully and keep it for reference.
Shares in this fund are not bank deposits and are not guaranteed or insured by
any bank, government entity, or the FDIC. The fund seeks to maintain a stable $1
share price, without guaranteeing that it will always be able to do so.
As with all mutual funds, the fact that these shares are registered with the
Securities and Exchange Commission does not mean that the commission approves
them as an investment or guarantees that the information in this prospectus is
correct or adequate. It is a criminal offense to state or suggest otherwise.
[LOGO]JPMorgan
Distributed by Funds Distributor, Inc.
<PAGE>
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CONTENTS
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2 | MONEY MARKET MANAGEMENT APPROACH
Money market investment process ............................2
4 | J.P. MORGAN INSTITUTIONAL TREASURY MONEY MARKET FUND
Fund description ...........................................4
The fund's goal, investment Investor expenses ..........................................4
approach, risks, expenses,
performance, and Performance ................................................5
financial highlights
Financial highlights .......................................5
6 | YOUR INVESTMENT
Investing through a financial professional .................6
Investing in the J.P. Morgan Investing through an employer-sponsored retirement plan ....6
Institutional Treasury
Money Market Fund Investing through an IRA or rollover IRA ...................6
Investing directly .........................................6
Opening your account .......................................6
Adding to your account .....................................6
Selling shares .............................................7
Account and transaction policies ...........................7
Dividends and distributions ................................8
Tax considerations .........................................8
9 | FUND DETAILS
More about the fund's Master/feeder structure ....................................9
business operations
Management and administration ..............................9
FOR MORE INFORMATION ..............................back cover
</TABLE>
<PAGE>
INTRODUCTION
================================================================================
J.P. MORGAN INSTITUTIONAL TREASURY MONEY MARKET FUND
This fund invests in high-quality short-term debt securities by investing
through a master portfolio (another fund with the same goal). The fund accrues
dividends daily, pays them to shareholders monthly, and seeks to maintain a
stable $1 share price.
WHO MAY WANT TO INVEST
The fund is designed for investors who:
o want an investment that strives to preserve capital
o want regular income from a high quality portfolio
o want a highly liquid investment
o are looking for an interim investment
o are pursuing a short-term goal
The fund is NOT designed for investors who:
o are investing for long-term growth
o are investing for high income
o require the added security of the FDIC insurance
J.P. MORGAN
Known for its commitment to proprietary research and its disciplined investment
strategies, J.P. Morgan is the asset 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 approximately $250 billion in assets under management,
including assets managed by the fund's advisor, Morgan Guaranty Trust Company of
New York.
=========================================
Before you invest
Investors considering the
fund should understand that:
o There is no assurance that the fund
will meet its investment goals
o Future returns will not necessarily
resemble past performance
o The fund does not represent a
complete investment program
- -----------------------------------------
|
| 1
|
<PAGE>
MONEY MARKET MANAGEMENT APPROACH
================================================================================
The J.P. Morgan Institutional Treasury Money Market Fund invests exclusively in
high-quality short-term debt obligations.
The fund's investment philosophy, developed by its advisor, emphasizes
investment quality through in-depth research of short-term securities and their
issuers. This allows the fund to focus on providing current income without
compromising share price stability.
MONEY MARKET INVESTMENT PROCESS
In managing the fund, J.P. Morgan employs a three-step process:
[GRAPHIC] MATURITY DETERMINATION Based on analysis
of a range of factors, including current
J.P. Morgan uses a disciplined yields, economic forecasts, and
process to control the fund's anticipated fiscal and monetary
sensitivity to interest rates policies, J.P. Morgan establishes the
desired weighted average maturity for
the fund within the permissible 90-day
range. Controlling weighted average
maturity allows the fund to manage risk
since securities with shorter maturities
are typically less sensitive to interest
rate shifts than those with longer
maturities.
[GRAPHIC] SECTOR ALLOCATION Analysis of the yields
available from U.S. Treasury obligations
The fund invests in U.S. Treasury and repurchase agreements, allows J.P.
obligations and repurchase Morgan to adjust the fund's sector
agreements to take advantage allocation, with the goal of enhancing
of yield spreads current income while maintaining high
liquidity.
[GRAPHIC] SECURITY SELECTION Based on the results
of the fund's maturity determination and
The fund selects its securities as sector allocation, the portfolio
described later in this prospectus managers and dedicated fixed-income
traders make buy and sell decisions
according to the fund's goal and
strategy.
|
2 | MONEY MARKET MANAGEMENT APPROACH
|
<PAGE>
================================================================================
(THIS PAGE IS INTENTIONALLY LEFT BLANK)
|
| 3
|
<PAGE>
J.P. MORGAN INSTITUTIONAL TREASURY
MONEY MARKET FUND | TICKER SYMBOL: JTMXX
================================================================================
REGISTRANT: J.P. MORGAN INSTITUTIONAL FUNDS
(J.P. MORGAN INSTITUTIONAL TREASURY MONEY MARKET FUND)
[GRAPHIC] GOAL
The fund's goal is to provide current income, maintain high liquidity, and
preserve capital.
[GRAPHIC] INVESTMENT APPROACH
The fund purchases securities that offer the highest credit quality and
provide regular income. It invests exclusively in U.S. Treasury obligations and
repurchase agreements collateralized by these obligations. Some of these
investments may be purchased on a when-issued or delayed delivery basis.
[GRAPHIC] POTENTIAL RISKS AND REWARDS
The fund's yield will vary in response to changes in interest rates. How
well the fund's yield compares to the yields of similar money market funds will
depend on the success of the investment process described on page 2.
While the fund's U.S. Treasury obligations are backed by the full faith and
credit of the federal government, investors should bear in mind that any
repurchase agreements the fund may hold do not have this guarantee (even though
they are fully collateralized by Treasuries), and that in any case government
guarantees do not extend to shares of the fund itself.
The portion of the fund's income derived from direct investments in U.S.
Treasury obligations may be exempt from state and local personal income taxes.
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages
approximately $250 billion, including more than $13 billion using the same
strategy as the fund.
The portfolio management team is led by Robert R. Johnson, vice president,
who has been on the team since the fund's inception and has been at J.P. Morgan
since 1988, Daniel B. Mulvey, vice president, who joined the team in October of
1996 and has been at J.P. Morgan since 1991, and by John Donohue, vice
president, who has been on the team since joining J.P. Morgan in June of 1997.
Prior to managing this fund, Mr. Donohue was an Institutional Money Market
Portfolio Manager at Goldman Sachs & Co.
MONEY MARKET FUNDS AND STABILITY
Money market funds are subject to a range of federal regulations designed
to promote stability. For example, money market funds must maintain a weighted
average maturity of no more than 90 days, and generally may not invest in any
securities with a remaining maturity of more than 13 months. Keeping the
weighted average maturity this short helps funds in their pursuit of a stable $1
share price.
================================================================================
INVESTOR EXPENSES
The current expenses you should expect to pay as an investor in the fund are
shown at right. The fund has no sales, redemption, exchange, or account fees,
although some institutions may charge you a fee for shares you buy through them.
The annual fund expenses shown are deducted from fund assets prior to
performance calculations.
Footnotes for this section are shown on next page.
================================================================================
Annual fund operating expenses(1) (%)
================================================================================
<TABLE>
<S> <C>
Management fees(2)
(after expense reimbursement) 0.10
Marketing (12b-1) fees None
Other expenses(2)
(after reimbursement) None
================================================================================
Total operating expenses(2)
(after reimbursement) 0.10
- --------------------------------------------------------------------------------
</TABLE>
================================================================================
Expense example
================================================================================
The example below uses the same assumptions as other fund prospectuses: $1,000
initial investment, 5% annual total return, expenses unchanged, all shares sold
at the end of each time period. The example is for comparison only; the fund's
actual return and expenses will be different.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1 yr. 3 yrs.
<S> <C> <C>
Your cost($) 1 3
- --------------------------------------------------------------------------------
</TABLE>
|
4 | J.P. MORGAN INSTITUTIONAL TREASURY MONEY MAKET FUND
|
<PAGE>
<TABLE>
==============================================================================================================================
<CAPTION>
PERFORMANCE (unaudited)
===================================
Average annual total return (%) Shows performance over time, for periods ended December 31, 1997
===================================-------------------------------------------------------------------------------------------
Since inception(3)
<S> <C>
J.P. Morgan Institutional Treasury Money Market Fund (after expenses) 2.35
- -----------------------------------------------------------------------------------------------------------------
IBC's U.S. Government & Agency Money Market Fund Average 2.00
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
[THE FOLLOWING TABLE WAS ILLUSTRATED AS A BAR CHART IN THE PRINTED MATERIAL]
<TABLE>
<CAPTION>
===================================
Total returns (%) Shows changes in returns for period ended December 31, 1997
===================================-------------------------------------------------------------------------------------------
Since inception
<S> <C>
J.P. Morgan Institutional Treasury Money Market Fund 2.35
IBC's U.S. Treasury & Repo Money Market Fund Average 2.00
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
==============================================================================================================================
FINANCIAL HIGHLIGHTS
=================================
Per-share data For fiscal period ended October 31
=================================---------------------------------------------------------------------------------------------
1997
<S> <C>
Net asset value, beginning of period ($) 1.00
- ------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.176
Net realized gain
on investment ($) 0.0000(4)
==============================================================================================================================
Total from investment operations ($) 0.0176
- ------------------------------------------------------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) 0.0176
Net realized gain ($) 0.0000(4)
==============================================================================================================================
Total distributions ($) 0.0176
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period ($) 1.00
- ------------------------------------------------------------------------------------------------------------------------------
Total return (%) 1.77(5)
- ------------------------------------------------------------------------------------------------------------------------------
=================================
Ratios and supplemental data
=================================---------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 80,924
- ------------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Expenses (%) 0.04(6)
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income (%) 5.53(6)
- ------------------------------------------------------------------------------------------------------------------------------
Decrease reflected in expense ratio due
to expense reimbursement (%) 1.06(6)
- ------------------------------------------------------------------------------------------------------------------------------
The Financial Highlights above have been audited by Price Waterhouse LLP, the fund's independent accountants.
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1 The fund has a master/feeder structure as described on page 9. This table
shows the fund's estimated expenses and its share of estimated master
portfolio expenses for the current fiscal year, expressed as a percentage
of the fund's estimated average net assets after reimbursement for ordinary
expenses over 0.10%.
2 The total operating expenses for the fund is a blended ratio which is based
on reimbursements in effect through 2/28/99 and may not necessarily
represent the actual amount incurred by a shareholder. Without
reimbursement, the advisory fee, other expenses and total operating
expenses would have been 0.20%, 0.90% and 1.10%, respectively. There is no
guarantee that reimbursement will continue beyond 2/28/99.
3 The fund commenced operations on 7/8/97; performance is calculated as of
7/31/97. This data is based on historical earnings and is not intended to
indicate future performance.
4. Less than $0.0001.
5. Not annualized.
6. Annualized.
|
J.P. MORGAN INSTITUTIONAL TREASURY MONEY MARKET FUND | 5
|
<PAGE>
YOUR INVESTMENT
================================================================================
For your convenience, the J.P. Morgan Institutional Funds offer several ways to
start and 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 THROUGH AN EMPLOYER-SPONSORED RETIREMENT PLAN
Your fund investments are handled through your plan. Refer to your plan
materials or contact your benefits office for information on buying, selling, or
exchanging fund shares.
INVESTING THROUGH AN IRA OR ROLLOVER IRA
Please contact a J.P. Morgan Retirement Services Specialist at 1-888-576-4472
for information on J.P. Morgan's comprehensive IRA services, including lower
minimum investments.
INVESTING DIRECTLY
Investors may establish accounts without the help of an intermediary by using
the instructions below and at right:
o Determine the amount you are investing. The minimum amount for initial
investments in the fund is $10,000,000 and for additional investments
$25,000, although these minimums may be less for some investors. For more
information on minimum investments, call 1-800-766-7722.
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>
================================================================================
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 DAYS AND NAV CALCULATIONS The fund's regular business days are the
same as those of the New York Stock Exchange. The fund calculates its net asset
value per share (NAV) every business day at 4:00 p.m. eastern time.
TIMING OF ORDERS Orders to buy or sell shares are executed at the next NAV
calculated after the order has been accepted. Purchase and redemption orders for
the fund must be received by 4:00 p.m. eastern time.
For the purchase to be effective and dividends to be earned on the same day,
immediately available funds must be received by 4:00 p.m. eastern time on a fund
business day. The fund has the right to suspend redemption of shares and to
postpone payment of proceeds for up to seven days or as permitted by law.
================================================================================
Shareholder Services Agent
J.P. Morgan Funds Services
522 Fifth Avenue
New York, NY 10036
1-800-766-7722
Representatives are available 8:00 a.m. to 5:00 p.m. eastern
time on fund business days.
- --------------------------------------------------------------------------------
|
YOUR INVESTMENT | 7
|
<PAGE>
================================================================================
TIMING OF SETTLEMENTS When you buy shares, you will become the owner of record
when the fund receives your payment.
Redemption orders for the fund received by 4:00 p.m.
eastern time will be paid in immediately available funds normally on the same
day, according to instructions on file.
When you sell shares that you recently purchased by check, your order will be
executed at the next NAV but the proceeds will not be available until your check
clears. This may take up to 15 days.
STATEMENTS AND REPORTS The fund sends monthly account statements as well as
confirmations after each purchase or sale of shares (except reinvestments).
Every six months, the fund sends out an annual or semi-annual report containing
information on 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
Substantially all income dividends are declared daily and paid monthly. If all
of an investor's shares are redeemed during the month, accrued but unpaid
dividends are paid with the redemption proceeds. Shares of the fund earn
dividends on the business day their purchase is effective, but not on the
business day their redemption is effective.
Dividends and distributions are 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. The transactions
below typically create the following tax liabilities:
<TABLE>
================================================================================
<S> <C>
Transaction Tax status
- --------------------------------------------------------------------------------
Income dividends Ordinary income
- --------------------------------------------------------------------------------
Short-term capital gains Ordinary income
distributions
- --------------------------------------------------------------------------------
</TABLE>
Every January, the fund issues tax information on its distributions for the
previous year.
Any investor for whom the fund does not have a valid taxpayer identification
number will be subject to backup withholding for taxes.
The tax considerations described in this section do not apply to tax-deferred
accounts or other non-taxable entities.
Because each investor's tax circumstances are unique, please consult your tax
professional about your fund investment.
|
8 | YOUR INVESTMENT
|
<PAGE>
FUND DETAILS
================================================================================
MASTER/FEEDER STRUCTURE
As noted earlier, the fund is a "feeder" fund that invests in a master
portfolio. (Except where indicated, this prospectus uses the term "the fund" to
mean the feeder fund and its master portfolio taken together.)
The master portfolio accepts investments from other feeder funds, and 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, provides fund officers. J.P. Morgan, as
co-administrator, oversees the fund's other service providers.
J.P. Morgan receives the following fees for investment advisory and other
services:
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
Advisory services 0.20% of the first $1 billion of
the master portfolio's average net assets
plus 0.10% over $1 billion
- --------------------------------------------------------------------------------
Administrative services Master portfolio's and fund's pro-
(fee shared with Funds rata portions of 0.09% of the
Distributor, Inc.) first $7 billion in J.P. Morgan-
advised portfolios, plus 0.04%
over $7 billion
- --------------------------------------------------------------------------------
Shareholder services 0.05% of the fund's average net assets
- --------------------------------------------------------------------------------
</TABLE>
The Advisor has voluntarily agreed to reimburse the fund so that total operating
expenses will not exceed the following respective percentages of average net
assets of the fund for the periods indicated below:
12/1/97 - 5/31/98 0.10%
6/1/98 - 11/30/98 0.15%
12/1/98 - 2/28/99 0.20%
There is no guarantee that this arrangement will continue beyond 2/28/99.
J.P. Morgan may pay fees to certain firms and professionals for providing
recordkeeping or other services in connection with investments in the fund.
|
FUND DETAILS | 9
|
<PAGE>
================================================================================
FOR MORE INFORMATION
================================================================================
For investors who want more information on the fund, the following documents are
available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS Contain financial statements, performance data,
information on portfolio holdings, and a written analysis of market conditions
and fund performance for the fund's most recently completed fiscal year or
half-year.
STATEMENT OF ADDITIONAL INFORMATION (SAI) Provides a fuller technical and legal
description of the fund's policies, investment restrictions, and business
structure. This prospectus incorporates the SAI by reference.
Copies of the current versions of these documents may be obtained by contacting:
J.P. Morgan Institutional Treasury Money Market 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 from the
Public Reference Room of the Securities and Exchange Commission in Washington,
D.C. (1-800-SEC-0330) and may be viewed on-screen or downloaded from the SEC's
Internet site at http://www.sec.gov. The fund's investment company and 1933 Act
registration numbers are 811-07342 and 033-54642.
J.P. MORGAN INSTITUTIONAL FUNDS AND THE MORGAN TRADITION
The J.P. Morgan Institutional Funds combine a heritage of integrity and
financial leadership with comprehensive, sophisticated analysis and management
techniques. Drawing on J.P. Morgan's extensive experience and depth as an
investment manager, the J.P. Morgan Institutional Funds offer a broad array of
distinctive opportunities for mutual fund investors.
[LOGO]JPMorgan
================================================================================
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
PROS365-982
<PAGE>
- --------------------------------------------------------------------------------
|
FEBRUARY 2, 1998 | PROSPECTUS
|
================================================================================
J.P. MORGAN INSTITUTIONAL
FEDERAL MONEY MARKET FUND
==============================================
Seeking to preserve capital and to provide
income and same-day liquidity
This prospectus contains essential information for anyone investing in this
fund. Please read it carefully and keep it for reference.
Shares in this funds are not bank deposits and are not guaranteed or insured by
any bank, government entity, or the FDIC. The fund seeks to maintain a stable $1
share price, without guaranteeing that it will always be able to do so.
As with all mutual funds, the fact that these shares are registered with the
Securities and Exchange Commission does not mean that the commission approves
them as an investment or guarantees that the information in this prospectus is
correct or adequate. It is a criminal offense to state or suggest otherwise.
Distributed by Funds Distributor, Inc. [LOGO] JPMorgan
<PAGE>
<TABLE>
<CAPTION>
CONTENTS
===============================================================================================
<S> <C> <C>
2 | MONEY MARKET MANAGEMENT APPROACH
Money market investment process ............................2
4 | J.P. MORGAN INSTITUTIONAL FEDERAL MONEY MARKET FUND
Fund description ...........................................4
The fund's goal, investment Investor expenses ..........................................4
approach, risks, expenses,
performance, and Performance ................................................5
financial highlights
Financial highlights .......................................5
6 | YOUR INVESTMENT
Investing through a financial professional .................6
Investing in the J.P. Morgan Investing through an employer-sponsored retirement plan ....6
Institutional Federal
Money Market Fund Investing through an IRA or rollover IRA ...................6
Investing directly .........................................6
Opening your account .......................................6
Adding to your account .....................................6
Selling shares .............................................7
Account and transaction policies ...........................7
Dividends and distributions ................................8
Tax considerations .........................................8
9 | FUND DETAILS
More about the fund's Master/feeder structure ....................................9
business operations
Management and administration ..............................9
FOR MORE INFORMATION ..............................back cover
</TABLE>
<PAGE>
INTRODUCTION
================================================================================
J.P. MORGAN INSTITUTIONAL FEDERAL MONEY MARKET FUND
This fund invests in high-quality short-term debt securities by investing
through a master portfolio (another fund with the same goal). The fund accrues
dividends daily, pays them to shareholders monthly, and seeks to maintain a
stable $1 share price.
WHO MAY WANT TO INVEST
The fund is designed for investors who:
o want an investment that strives to preserve capital
o want regular income from a high quality portfolio
o want a highly liquid investment
o are looking for an interim investment
o are pursuing a short-term goal
o are seeking income that is generally exempt from state and local income taxes
The fund is NOT designed for investors who:
o are investing for long-term growth
o are investing for high income
o require the added security of the FDIC insurance
J.P. MORGAN
Known for its commitment to proprietary research and its disciplined investment
strategies, J.P. Morgan is the asset 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 approximately $250 billion in assets under management,
including assets managed by the fund's advisor, Morgan Guaranty Trust Company of
New York.
========================================
Before you invest
Investors considering the fund should
understand that:
o There is no assurance that the fund
will meet its investment goals
o Future returns will not necessarily
resemble past performance
o The fund does not represent a
complete investment program
- ----------------------------------------
|
| 1
|
<PAGE>
MONEY MARKET MANAGEMENT APPROACH
================================================================================
The J.P. Morgan Institutional Federal Money
Market Fund invests exclusively in high-
quality short-term debt obligations.
The fund's investment philosophy, developed by
its advisor, emphasizes investment quality
through in-depth research of short-term
securities and their issuers. This allows the
fund to focus on providing current income
without compromising share price stability.
MONEY MARKET INVESTMENT PROCESS
In managing the fund, J.P. Morgan employs a
three-step process:
[GRAPHIC] MATURITY DETERMINATION Based on analysis of a
range of factors, including current yields,
J.P. Morgan uses a economic forecasts, and anticipated fiscal and
disciplined process to monetary policies, J.P. Morgan establishes the
control the fund's desired weighted average maturity for the fund
sensitivity to interest rates within the permissible 90-day range.
Controlling weighted average maturity allows
the fund to manage risk since securities with
shorter maturities are typically less
sensitive to interest rate shifts than those
with longer maturities.
[GRAPHIC] SECTOR ALLOCATION Analysis of the yields
available from various U.S. government agency
The fund invests in various securities and obligations of the U.S.
U.S. government agencies Treasury, allows J.P. Morgan to adjust the
and obligations of the U.S. fund's sector allocation, with the goal of
Treasury to take advantage enhancing current income while maintaining
of yield spreads high liquidity.
[GRAPHIC] SECURITY SELECTION Based on the results of the
fund's maturity determination and sector
The fund selects its allocation, the portfolio managers and
securities as described dedicated fixed-income traders make buy and
later in this prospectus sell decisions according to the fund's goal
and strategy.
|
2 | MONEY MARKET MANAGEMENT APPROACH
|
<PAGE>
================================================================================
(THIS PAGE IS INTENTIONALLY LEFT BLANK)
|
| 3
|
<PAGE>
J.P. MORGAN INSTITUTIONAL FEDERAL
MONEY MARKET FUND | TICKER SYMBOL: JPTXX
REGISTRANT: J.P. MORGAN INSTITUTIONAL FUNDS
(J.P. MORGAN INSTITUTIONAL FEDERAL MONEY MARKET FUND)
[GRAPHIC] GOAL
The fund's goal is to provide current income, maintain high liquidity, and
preserve capital.
[GRAPHIC] INVESTMENT APPROACH
The fund purchases securities that offer very high credit quality and pay
regular income that is generally free from state and local income taxes. It
invests exclusively in U.S. government agency obligations such as the Federal
Farm Credit Bank, the Tennessee Valley Authority, the Federal Home Loan Bank,
the Student Loan Marketing Association, and in obligations of the U.S. Treasury.
Some of these investments may be purchased on a when-issued or delayed delivery
basis.
[GRAPHIC] POTENTIAL RISKS AND REWARDS
The fund's yield will vary in response to changes in interest rates. How
well the fund's yield compares to the yields of similar money market funds will
depend on the success of the investment process described on page 2.
While the fund's U.S. Treasury obligations are backed by the full faith and
credit of the Government, investors should bear in mind that any agency
obligations the fund may hold do not have this guarantee, and that in any case
government guarantees do not extend to shares of the fund itself.
Most of the fund's income is generally exempt from state and local personal
income taxes and from some corporate income taxes (although not federal income
taxes). Because of this beneficial tax status, the fund's yields are generally
lower than those of taxable money market funds when compared on a pre-tax basis.
As with all money market funds, the fund's investments are subject to various
risks, which, while generally considered to be minimal, could cause its share
price to fall below $1. For example, the issuer or guarantor of a portfolio
security could default on its obligation. An unexpected rise in interest rates
could also lead to a loss in share price if the fund is near the maximum
allowable average weighted maturity at the time. However, the fund's investment
process and management policies are designed to minimize the likelihood and
impact of these risks. To date, through this process, the fund's share price has
never deviated from $1.
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages
approximately $250 billion, including more than $13 billion using the same
strategy as the fund.
The portfolio management team is led by Robert R. Johnson, vice president,
who has been on the team since the fund's inception and has been at J.P. Morgan
since 1988, Daniel B. Mulvey, vice president, who joined the team in October of
1996 and has been at J.P. Morgan since 1991, and by John Donohue, vice
president, who has been on the team since joining J.P. Morgan in June of 1997.
Prior to managing this fund, Mr. Donohue was an Institutional Money Market
Portfolio Manager at Goldman Sachs & Co.
MONEY MARKET FUNDS
AND STABILITY
Money market funds are subject to a range of federal regulations designed
to promote stability. For example, money market funds must maintain a weighted
average maturity of no more than 90 days, and generally may not invest in any
securities with a remaining maturity of more than 13 months. Keeping the
weighted average maturity this short helps funds in their pursuit of a stable $1
share price.
================================================================================
INVESTOR EXPENSES
The current expenses you should expect to pay as an investor in the fund are
shown at right. The fund has no sales, redemption, exchange, or account fees,
although some institutions may charge you a fee for shares you buy through them.
The annual fund expenses shown are deducted from fund assets prior to
performance calculations.
Footnotes for this section are shown on next page.
<TABLE>
<CAPTION>
================================================================================
Annual fund operating expenses(1) (%)
================================================================================
<S> <C>
Management fees 0.20
Marketing (12b-1) fees None
Other expenses(2)
(after reimbursement) None
- --------------------------------------------------------------------------------
Total operating expenses2
(after reimbursement) 0.20
- --------------------------------------------------------------------------------
<CAPTION>
================================================================================
Expense example
================================================================================
The example below uses the same assumptions as other fund prospectuses: $1,000
initial investment, 5% annual total return, expenses unchanged, all shares sold
at the end of each time period. The example is for comparison only; the fund's
actual return and expenses will be different.
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
<S> <C> <C> <C> <C>
Your cost($) 2 6 11 26
- --------------------------------------------------------------------------------
</TABLE>
|
4 | J.P. MORGAN INSTITUTIONAL FEDERAL MONEY MAKET fUND
|
<PAGE>
<TABLE>
====================================================================================================================================
<CAPTION>
PERFORMANCE (unaudited)
===================================
Average annual total return (%)(%) Shows performance over time, for periods ended December 31, 1997
===================================-------------------------------------------------------------------------------------------------
1 yr. 3 yrs. Since inception
<S> <C> <C> <C>
J.P. Morgan Institutional Federal Money Market Fund (after expenses)(3) 5.40 5.47 4.65
- ------------------------------------------------------------------------------------------------------------------------------------
IBC's U.S. Government & Agency Money Market Fund Average(4) (after expenses) 4.83 4.89 4.18
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[THE FOLLOWING TABLE WAS ILLUSTRATED AS A BAR CHART IN THE PRINTED MATERIAL]
<TABLE>
<CAPTION>
===================================
Year-by-year total return (%)(%) Shows changes in returns by calendar year
===================================-------------------------------------------------------------------------------------------------
1994 1995 1996 1997
<S> <C> <C> <C> <C>
J.P. Morgan Institutional Federal Money Market Fund(3) 3.98 5.79 5.22 5.40
IBC's U.S. Government & Agency Money Market Fund Average(4) 3.52 5.19 4.67 4.83
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
====================================================================================================================================
FINANCIAL HIGHLIGHTS
===================================
Per-share data For fiscal periods ended October 31
===================================------------------------------------------------------------------------------------------
1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ($) 1.00 1.00 1.00 1.00 1.00
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.0220 0.0354 0.0555 0.0508 0.0521
Net realized gain (loss)
on investment ($) 0.0000(5) (0.0000)(5) 0.0003 0.0006 0.0001
=============================================================================================================================
Total from investment operations ($) 0.0220 0.0354 0.0558 0.0514 0.0522
- -----------------------------------------------------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) (0.0220) (0.0354) (0.0555) (0.0508) (0.0521)
Net realized gain ($) -- (0.0001) -- (0.0003) (0.0007)
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions ($) (0.0220) (0.0355) (0.0555) (0.0511) (0.0528)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period ($) 1.00 1.00 1.00 1.00 1.00
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%) 2.23(6) 3.61 5.69 5.23 5.41
- -----------------------------------------------------------------------------------------------------------------------------
===================================
Ratios and supplemental data
===================================------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 25,477 80,146 145,108 109,050 137,306
- -----------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Expenses (%) 0.27(7) 0.20 0.20 0.20 0.20
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (%) 2.817(7) 3.81 5.56 5.09 5.19
- -----------------------------------------------------------------------------------------------------------------------------
Decrease reflected in expense ratio due
to expense reimbursement (%) 0.767(7) 0.47 0.31 0.26 0.26
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Financial Highlights above have been audited by Price Waterhouse LLP, the
fund's independent accountants.
- --------------------------------------------------------------------------------
1 The fund has a master/feeder structure as described on page 9. This table
shows the fund's expenses and its share of master portfolio expenses for
the past fiscal year, expressed as a percentage of the fund's average net
assets after reimbursement for ordinary expenses over 0.20%.
2 Without reimbursement, other expenses and total operating expenses would
have been 0.26% and 0.46%, respectively. There is no guarantee that
reimbursement will continue beyond 2/28/99.
3 The fund commenced operations on 1/4/93. Returns reflect performance of
the fund from 1/31/93 through 12/31/97. This data is based on historical
earnings and is not intended to indicate future performance.
4 Consists of the IBC/Donoghue U.S. Treasury & Repo Money Market Fund Average
through 12/31/95 and IBC's U.S. Government & Agency Money Market Fund
Average thereafter.
5 Less than $0.0001.
6 Not annualized.
7 Annualized.
|
J.P. MORGAN INSTITUTIONAL FEDERAL MONEY MARKET FUND | 5
|
<PAGE>
YOUR INVESTMENT
================================================================================
For your convenience, the J.P. Morgan Institutional Funds offer several ways to
start and 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 THROUGH AN EMPLOYER-SPONSORED RETIREMENT PLAN
Your fund investments are handled through your plan. Refer to your plan
materials or contact your benefits office for information on buying, selling, or
exchanging fund shares.
INVESTING THROUGH AN IRA OR ROLLOVER IRA
Please contact a J.P. Morgan Retirement Services Specialist at 1-888-576-4472
for information on J.P. Morgan's comprehensive IRA services, including lower
minimum investments.
INVESTING DIRECTLY
Investors may establish accounts without the help of an intermediary by using
the instructions below and at right:
o Determine the amount you are investing. The minimum amount for initial
investments in the fund is $10,000,000 and for additional investments
$25,000, although these minimums may be less for some investors. For more
information on minimum investments, call 1-800-766-7722.
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>
================================================================================
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 DAYS AND NAV CALCULATIONS The fund's regular business days are the
same as those of the New York Stock Exchange. The fund calculates its net asset
value per share (NAV) every business day at 4:00 p.m. eastern time.
TIMING OF ORDERS Orders to buy or sell shares are executed at the next NAV
calculated after the order has been accepted. Purchase and redemption orders for
the fund must be received by 2:00 p.m. eastern time.
For the purchase to be effective and dividends to be earned on the same day,
immediately available funds must be received by 4:00 p.m. eastern time on a fund
business day. The fund has the right to suspend redemption of shares and to
postpone payment of proceeds for up to seven days or as permitted by law.
================================================================================
Shareholder Services Agent
J.P. Morgan Funds Services
522 Fifth Avenue
New York, NY 10036
1-800-766-7722
Representatives are available 8:00 a.m. to 5:00 p.m. eastern
time on fund business days.
|
YOUR INVESTMENT | 7
|
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
TIMING OF SETTLEMENTS When you buy shares, you will become the owner of record
when the fund receives your payment.
Redemption orders for the fund received by 2:00 p.m. eastern time will be paid
in immediately available funds normally on the same day, according to
instructions on file.
When you sell shares that you recently purchased by check, your order will be
executed at the next NAV but the proceeds will not be available until your check
clears. This may take up to 15 days.
STATEMENTS AND REPORTS The fund sends monthly account statements as well as
confirmations after each purchase or sale of shares (except reinvestments).
Every six months, the fund sends out an annual or semi-annual report containing
information on 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
Substantially all income dividends are declared daily and paid monthly. If all
of an investor's shares are redeemed during the month, accrued but unpaid
dividends are paid with the redemption proceeds. Shares of the fund earn
dividends on the business day their purchase is effective, but not on the
business day their redemption is effective.
Dividends and distributions are 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. The transactions
below typically create the following tax liabilities:
<TABLE>
<CAPTION>
================================================================================
Transaction Tax status
- --------------------------------------------------------------------------------
<S> <C>
Income dividends Ordinary income
- --------------------------------------------------------------------------------
Short-term capital gains Ordinary income
distributions
- --------------------------------------------------------------------------------
</TABLE>
Every January, the fund issues tax information on its distributions for the
previous year.
Any investor for whom the fund does not have a valid taxpayer identification
number will be subject to backup withholding for taxes.
The tax considerations described in this section do not apply to tax-deferred
accounts or other non-taxable entities.
Because each investor's tax circumstances are unique, please consult your tax
professional about your fund investment.
|
8 | YOUR INVESTMENT
|
<PAGE>
FUND DETAILS
================================================================================
MASTER/FEEDER STRUCTURE
As noted earlier, the fund is a "feeder" fund that invests in a master
portfolio. (Except where indicated, this prospectus uses the term "the fund" to
mean the feeder fund and its master portfolio taken together.)
The master portfolio accepts investments from other feeder funds, and 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, provides fund officers. J.P. Morgan, as
co-administrator, oversees the fund's other service providers.
J.P. Morgan receives the following fees for investment advisory and other
services:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C>
Advisory services 0.20% of the first $1 billion of the
master portfolio's average net
assets plus 0.10% over $1 billion
- --------------------------------------------------------------------------------
Administrative services Master portfolio's and fund's pro-
(fee shared with Funds rata portions of 0.09% of the
Distributor, Inc.) first $7 billion in J.P. Morgan-
advised portfolios, plus 0.04%
over $7 billion
- --------------------------------------------------------------------------------
Shareholder services 0.05% of the fund's average net
assets
- --------------------------------------------------------------------------------
</TABLE>
The Advisor has voluntarily agreed to reimburse the fund so that total operating
expenses will not exceed 0.20% of average net assets of the fund. There is no
guarantee that this arrangement will continue beyond 2/28/99.
J.P. Morgan may pay fees to certain firms and professionals for providing
recordkeeping or other services in connection with investments in the fund.
|
FUND DETAILS | 9
|
<PAGE>
- --------------------------------------------------------------------------------
FOR MORE INFORMATION
================================================================================
For investors who want more information on the fund, the following documents are
available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS Contain financial statements, performance data,
information on portfolio holdings, and a written analysis of market conditions
and fund performance for the fund's most recently completed fiscal year or
half-year.
STATEMENT OF ADDITIONAL INFORMATION (SAI) Provides a fuller technical and legal
description of the fund's policies, investment restrictions, and business
structure. This prospectus incorporates the SAI by reference.
Copies of the current versions of these documents may be obtained by contacting:
J.P. Morgan Institutional Federal Money Market 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 from the
Public Reference Room of the Securities and Exchange Commission in Washington,
D.C. (1-800-SEC-0330) and may be viewed on-screen or downloaded from the SEC's
Internet site at http://www.sec.gov. The fund's investment company and 1933 Act
registration numbers are 811-07342 and 033-54642.
J.P. MORGAN INSTITUTIONAL FUNDS AND THE MORGAN TRADITION
The J.P. Morgan Institutional Funds combine a heritage of integrity and
financial leadership with comprehensive, sophisticated analysis and management
techniques. Drawing on J.P. Morgan's extensive experience and depth as an
investment manager, the J.P. Morgan Institutional Funds offer a broad array of
distinctive opportunities for mutual fund investors.
[LOGO] JPMorgan
================================================================================
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
PROS373-982
<PAGE>
J.P. MORGAN INSTITUTIONAL FUNDS
J.P. MORGAN INSTITUTIONAL PRIME MONEY MARKET FUND
J.P. MORGAN INSTITUTIONAL TREASURY MONEY MARKET FUND
J.P. MORGAN INSTITUTIONAL FEDERAL MONEY MARKET FUND
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 2, 1998
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT CONTAINS
ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS
DATED FEBRUARY 2, 1998 FOR THE FUND OR FUNDS LISTED ABOVE, AS SUPPLEMENTED FROM
TIME TO TIME, WHICH MAY BE OBTAINED UPON REQUEST FROM FUNDS DISTRIBUTOR, INC.,
ATTENTION: J.P. MORGAN INSTITUTIONAL FUNDS (800) 221-7930.
<PAGE>
<TABLE>
Table of Contents
<CAPTION>
<S> <C>
PAGE
General...........................................................................................................1
Investment Objectives and Policies................................................................................1
Investment Restrictions..........................................................................................9
Trustees and Officers............................................................................................14
Investment Advisor...............................................................................................18
Distributor......................................................................................................21
Co-Administrator.................................................................................................21
Services Agent...................................................................................................22
Custodian and Transfer Agent.....................................................................................23
Shareholder Servicing............................................................................................24
Financial Professionals..........................................................................................25
Independent Accountants..........................................................................................25
Expenses.........................................................................................................25
Purchase of Shares...............................................................................................26
Redemption of Shares.............................................................................................26
Exchange of Shares...............................................................................................27
Dividends and Distributions......................................................................................28
Net Asset Value..................................................................................................28
Performance Data.................................................................................................29
Portfolio Transactions...........................................................................................30
Massachusetts Trust..............................................................................................31
Description of Shares............................................................................................32
Special Information Concerning
Investment Structure.............................................................................................34
Taxes............................................................................................................35
Additional Information...........................................................................................38
Appendix A - Description of Security Ratings....................................................................A-1
</TABLE>
<PAGE>
GENERAL
This Statement of Additional Information relates only to the J.P.
Morgan Institutional Prime Money Market Fund, the J.P. Morgan Institutional
Treasury Money Market Fund and the J.P. Morgan Institutional Federal Money
Market Fund (each, a "Fund" and collectively, the "Funds"). Each Fund is a
series of shares of beneficial interest of the J.P. Morgan Institutional Funds,
an open-end management investment company formed as a Massachusetts business
trust (the "Trust"). In addition to the Funds, the Trust consists of other
series representing separate investment funds (each a "J.P. Morgan Institutional
Fund"). The other J.P. Morgan Institutional Funds are covered by separate
Statements of Additional Information.
This Statement of Additional Information describes the financial
history, investment objective and policies, management and operation of each of
the Funds and provides additional information with respect to the Funds and
should be read in conjunction with the relevant Fund's current Prospectus (the
"Prospectus"). Capitalized terms not otherwise defined herein have the meanings
accorded to them in the Prospectus. The Trust's executive offices are located at
60 State Street, Suite 1300, Boston, Massachusetts 02109.
Unlike other mutual funds which directly acquire and manage their own
portfolio of securities, each Fund seeks to achieve its investment objective by
investing all of its investable assets in a corresponding Master Portfolio (the
"Portfolio"), a corresponding open-end management investment company having the
same investment objective as the Fund. Each Fund invests in a Portfolio through
a two-tier master-feeder investment fund structure. See "Special Information
Concerning Investment Structure."
Each Portfolio is advised by Morgan Guaranty Trust Company of New York
("Morgan" or the "Advisor").
Investments in a Fund are not deposits or obligations of, or guaranteed
or endorsed by, Morgan or any other bank. Shares of a Fund are not federally
insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board,
or any other governmental agency. An investment in a Fund is subject to risk
that may cause the value of the investment to fluctuate, and when the investment
is redeemed, the value may be higher or lower than the amount originally
invested by the investor.
INVESTMENT OBJECTIVES AND POLICIES
The following discussion supplements the information regarding the
investment objective of each Fund and the policies to be employed to achieve the
objective by each Portfolio as set forth herein and in the applicable
Prospectus. Since the investment characteristics and experiences of each Fund
correspond directly with those of its corresponding Portfolio, the discussion in
this Statement of Additional Information focuses on the investments and
investment policies of each Portfolio. Accordingly, references below to a
Portfolio also include the corresponding Fund; similarly, references to a Fund
also include the corresponding Portfolio unless the context requires otherwise.
J.P. MORGAN INSTITUTIONAL PRIME MONEY MARKET FUND (the "Prime Money
Market Fund") is designed for investors who seek to preserve capital and earn
current income from a portfolio of high quality money market instruments. The
Prime Money Market Fund's investment objective is to maximize current income
and maintain a high level of liquidity. The Prime Money Market Fund attempts
to achieve this objective by investing all of its investable assets in
The Prime Money Market Portfolio (the "Portfolio"), a diversified open-end
management investment company having the same investment objective as the Prime
Money Market Fund.
<PAGE>
The Portfolio seeks to achieve its investment objective by maintaining a
dollar-weighted average portfolio maturity of not more than 90 days and by
investing in U.S. dollar denominated securities described in this Statement of
Additional Information that meet certain rating criteria, present minimal credit
risk and have effective maturities of not more than thirteen months. The
Portfolio's ability to achieve maximum current income is affected by its high
quality standards. See "Quality and Diversification Requirements."
J.P. MORGAN INSTITUTIONAL TREASURY MONEY MARKET FUND (the "Treasury Money
Market Fund") is designed for investors who seek to preserve capital and earn
current income from a portfolio of high quality money market instruments. The
Treasury Money Market Fund's investment objective is to provide current income,
maintain a high level of liquidity and preserve capital. The Treasury Money
Market Fund attempts to accomplish this objective by investing all of its
investable assets in The Treasury Money Market Portfolio (the "Portfolio"), a
diversified open-end management investment company having the same investment
objective as the Treasury Money Market Fund.
The Portfolio attempts to achieve its investment objective by
maintaining a dollar-weighted average portfolio maturity of not more than 90
days and by investing in U.S. Treasury securities and related repurchase
agreement transactions as described in this Statement of Additional
Information that have effective maturities of not more than thirteen
months. See "Quality and Diversification Requirements."
J.P. MORGAN INSTITUTIONAL FEDERAL MONEY MARKET FUND (the "Federal Money
Market Fund") is designed for investors who seek to preserve capital and earn
current income from a portfolio of high quality money market instruments. The
Federal Money Market Fund's investment objective is to provide current income,
maintain a high level of liquidity and preserve capital. The Federal Money
Market Fund attempts to accomplish this objective by investing all of its
investable assets in The Federal Money Market Portfolio (the "Portfolio"), a
diversified open-end management investment company having the same investment
objective as the Federal Money Market Fund.
The Portfolio attempts to achieve its investment objective by
maintaining a dollar-weighted average portfolio maturity of not more than 90
days and by investing in U.S. Treasury securities and in obligations of certain
U.S. Government agencies, as described in this Statement of Additional
Information that have effective maturities of not more than thirteen
months. See "Quality and Diversification Requirements."
MONEY MARKET INSTRUMENTS
A description of the various types of money market instruments that may be
purchased by the Funds appears below. Also see "Quality and Diversification
Requirements."
U.S. TREASURY SECURITIES. Each of the Funds may invest in direct
obligations of the U.S. Treasury, including Treasury bills, notes and bonds, all
of which are backed as to principal and interest payments by the full faith and
credit of the United States.
<PAGE>
ADDITIONAL U.S. GOVERNMENT OBLIGATIONS. Each of the Funds (other than
the Treasury Money Market Fund) may invest in obligations issued or guaranteed
by U.S. Government agencies or instrumentalities. These obligations may or may
not be backed by the "full faith and credit" of the United States. Securities
which are backed by the full faith and credit of the United States include
obligations of the Government National Mortgage Association, the Farmers Home
Administration, and the Export-Import Bank. In the case of securities not backed
by the full faith and credit of the United States, each Fund must look
principally to the federal agency issuing or guaranteeing the obligation for
ultimate repayment and may not be able to assert a claim against the United
States itself in the event the agency or instrumentality does not meet its
commitments. Securities in which each Fund may invest that are not backed by the
full faith and credit of the United States include, but are not limited to: (i)
obligations of the Tennessee Valley Authority, the Federal Home Loan Mortgage
Corporation, the Federal Home Loan Banks and the U.S. Postal Service, each of
which has the right to borrow from the U.S. Treasury to meet its obligations;
(ii) securities issued by the Federal National Mortgage Association, which are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; and (iii) obligations of the Federal Farm Credit System
and the Student Loan Marketing Association, each of whose obligations may be
satisfied only by the individual credits of the issuing agency.
FOREIGN GOVERNMENT OBLIGATIONS. The Prime Money Market Fund, subject to
its applicable investment policies, may also invest in short-term obligations of
foreign sovereign governments or of their agencies, instrumentalities,
authorities or political subdivisions. See "Foreign Investments." These
securities must be denominated in the U.S. dollar.
BANK OBLIGATIONS. The Prime Money Market Fund, unless otherwise noted
in the Prospectus or below, may invest in negotiable certificates of deposit,
time deposits and bankers' acceptances of (i) banks, savings and loan
associations and savings banks which have more than $2 billion in total assets
and are organized under the laws of the United States or any state, (ii) foreign
branches of these banks or of foreign banks of equivalent size (Euros) and (iii)
U.S. branches of foreign banks of equivalent size (Yankees). The Prime Money
Market Fund will not invest in obligations for which the Advisor, or any of its
affiliated persons, is the ultimate obligor or accepting bank. The Prime Money
Market Fund, may also invest in obligations of international banking
institutions designated or supported by national governments to promote economic
reconstruction, development or trade between nations (e.g., the European
Investment Bank, the Inter-American Development Bank, or the World Bank).
COMMERCIAL PAPER. The Prime Money Market Fund may invest in commercial
paper, including master demand obligations. Master demand obligations are
obligations that provide for a periodic adjustment in the interest rate paid and
permit daily changes in the amount borrowed. Master demand obligations are
governed by agreements between the issuer and Morgan Guaranty Trust Company of
New York acting as agent, for no additional fee, in its capacity as investment
advisor to the Portfolio and as fiduciary for other clients for whom it
exercises investment discretion. The monies loaned to the borrower come from
accounts managed by the Advisor or its affiliates, pursuant to arrangements with
such accounts. Interest and principal payments are credited to such accounts.
The Advisor, acting as a fiduciary on behalf of its clients, has the right to
increase or decrease the amount provided to the borrower under an obligation.
The borrower has the right to pay without penalty all or any part of the
principal amount then outstanding on an obligation together with interest to the
date of payment. Since these
<PAGE>
obligations typically provide that the interest rate is tied to the Federal
Reserve commercial paper composite rate, the rate on master demand obligations
is subject to change. Repayment of a master demand obligation to participating
accounts depends on the ability of the borrower to pay the accrued interest and
principal of the obligation on demand which is continuously monitored by the
Advisor. Since master demand obligations typically are not rated by credit
rating agencies, the Prime Money Market Fund may invest in such unrated
obligations only if at the time of an investment the obligation is determined by
the Advisor to have a credit quality which satisfies the Prime Money Market
Fund's quality restrictions. See "Quality and Diversification Requirements."
Although there is no secondary market for master demand obligations, such
obligations are considered by the Prime Money Market Fund to be liquid because
they are payable upon demand. The Prime Money Market Fund does not have any
specific percentage limitation on investments in master demand obligations. It
is possible that the issuer of a master demand obligation could be a client of
Morgan to whom Morgan, in its capacity as a commercial bank, has made a loan.
ASSET-BACKED SECURITIES. The Prime Money Market Fund may also invest in
securities generally referred to as asset-backed securities, which directly or
indirectly represent a participation interest in, or are secured by and payable
from, a stream of payments generated by particular assets, such as motor vehicle
or credit card receivables or other asset-backed securities collateralized by
such assets. Asset-backed securities provide periodic payments that generally
consist of both interest and principal payments. Consequently, the life of an
asset-backed security varies with the prepayment experience of the underlying
obligations. Payments of principle and interest may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution unaffiliated with the entities issuing the securities. The
asset-backed securities in which a 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 are related to limited interests in
applicable collateral. For example, credit card debt receivables are generally
unsecured and the debtors are entitled to the protection of a number of state
and federal consumer credit laws, many of which give such debtors the right to
set off certain amounts on credit card debt thereby reducing the balance due.
Additionally, if the letter of credit is exhausted, holders of asset-backed
securities may also experience delays in payments or losses if the full amounts
due on underlying sales contracts are not realized. Because asset-backed
securities are relatively new, the market experience in these securities is
limited and the market's ability to sustain liquidity through all phases of the
market cycle has not been tested.
REPURCHASE AGREEMENTS. Each of the Funds may enter into repurchase
agreements with brokers, dealers or banks that meet the credit guidelines
approved by the Funds' Trustees. In a repurchase agreement, a Fund buys a
security from a seller that has agreed to repurchase the same security at a
mutually agreed upon date and price. The resale price normally is in excess of
the purchase price, reflecting an agreed upon interest rate. This interest rate
is effective for the period of time the Fund is invested in the agreement and is
not related to the coupon rate on the underlying security. A repurchase
agreement may also be viewed as a fully collateralized loan of money by a Fund
to the seller. The period of these repurchase agreements will usually be short,
from overnight to one week, and at no time will any Fund invest in repurchase
agreements for more than 397 days. The securities which are subject to
repurchase agreements, however, may have maturity dates in excess of 397 days
from the effective date of the repurchase agreement. The Treasury Money Market
Fund will only enter into repurchase agreements
<PAGE>
involving U.S. Treasury securities. The Federal Money Market Fund may only
enter into repurchase agreements involving U.S. Treasury securities and
Permitted Agency Securities. The Funds will always receive securities as
collateral whose market value is, and during the entire term of the agreement
remains, at least equal to 100% of the dollar amount invested by the Funds in
each agreement plus accrued interest, and the Funds will make payment for such
securities only upon physical delivery or upon evidence of book entry transfer
to the account of the Custodian. Each Fund will be fully collateralized within
the meaning of paragraph (a)(4) of Rule 2a-7 under the Investment Company Act of
1940, as amended (the "1940 Act"). If the seller defaults, a Fund might incur a
loss if the value of the collateral securing the repurchase agreement declines
and might incur disposition costs in connection with liquidating the collateral.
In addition, if bankruptcy proceedings are commenced with respect to the seller
of the security, realization upon disposal of the collateral by a Fund may be
delayed or limited.
The Prime Money Market Fund may make investments in other debt
securities with remaining effective maturities of not more than thirteen months,
including, without limitation, corporate and foreign bonds and other obligations
described in the Prospectus or this Statement of Additional Information.
FOREIGN INVESTMENTS
The Prime Money Market Fund may invest in certain foreign securities.
All investments must be U.S. dollar-denominated. Investment in securities of
foreign issuers and in obligations of foreign branches of domestic banks
involves somewhat different investment risks from those affecting securities of
U.S. domestic issuers. There may be limited publicly available information with
respect to foreign issuers, and foreign issuers are not generally subject to
uniform accounting, auditing and financial standards and requirements comparable
to those applicable to domestic companies. Any foreign commercial paper must not
be subject to foreign withholding tax at the time of purchase.
Investors should realize that the value of the Fund's investments in
foreign securities may be adversely affected by changes in political or social
conditions, diplomatic relations, confiscatory taxation, expropriation,
nationalization, limitation on the removal of funds or assets, or imposition of
(or change in) exchange control or tax regulations in those foreign countries.
In addition, changes in government administrations or economic or monetary
policies in the United States or abroad could result in appreciation or
depreciation of portfolio securities and could favorably or unfavorably affect
the Fund's operations. Furthermore, the economies of individual foreign nations
may differ from the U.S. economy, whether favorably or unfavorably, in areas
such as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position; it may
also be more difficult to obtain and enforce a judgment against a foreign
issuer. Any foreign investments made by the Fund must be made in compliance with
U.S. and foreign currency restrictions and tax laws restricting the amounts and
types of foreign investments.
ADDITIONAL INVESTMENTS
MUNICIPAL BONDS. The Prime Money Market Fund may invest in
municipal bonds issued by or on behalf of states, territories and possessions of
the United States and the District of Columbia and their political subdivisions,
agencies, authorities and instrumentalities. The Prime Money Market Fund
may also invest in municipal notes of various types,
<PAGE>
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. These municipal bonds and notes will be
taxable securities; income generated from these investments will be subject to
federal, state and local taxes.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. Each of the Funds may
purchase securities on a when-issued or delayed delivery basis. For example,
delivery of and payment for these securities can take place a month or more
after the date of the purchase commitment. The purchase price and the interest
rate payable, if any, on the securities are fixed on the purchase commitment
date or at the time the settlement date is fixed. The value of such securities
is subject to market fluctuation and for money market instruments and other
fixed income securities, no interest accrues to a Fund until settlement takes
place. At the time a Fund makes the commitment to purchase securities on a
when-issued or delayed delivery basis, it will record the transaction, reflect
the value each day of such securities in determining its net asset value and, if
applicable, calculate the maturity for the purposes of average maturity from
that date. At the time of settlement a when-issued security may be valued at
less than the purchase price. To facilitate such acquisitions, each Fund will
maintain with the Custodian a segregated account with liquid assets, consisting
of cash, U.S. Government securities or other appropriate securities, in an
amount at least equal to such commitments. On delivery dates for such
transactions, each Fund will meet its obligations from maturities or sales of
the securities held in the segregated account and/or from cash flow. If a Fund
chooses to dispose of the right to acquire a when-issued security prior to its
acquisition, it could, as with the disposition of any other portfolio
obligation, incur a gain or loss due to market fluctuation. It is the current
policy of each Fund (except the Treasury Money Market Fund) not to enter into
when-issued commitments exceeding in the aggregate 15% of the market value of
the Fund's total assets, less liabilities other than the obligations created by
when-issued commitments.
INVESTMENT COMPANY SECURITIES. Securities of other investment companies
may be acquired by each of the Funds and their corresponding Portfolios to the
extent permitted under the 1940 Act. These limits require that, as determined
immediately after a purchase is made, (i) not more than 5% of the value of a
Fund's total assets will be invested in the securities of any one investment
company, (ii) not more than 10% of the value of its total assets will be
invested in the aggregate in securities of investment companies as a group, and
(iii) not more than 3% of the outstanding voting stock of any one investment
company will be owned by a Fund, provided however, that a Fund may invest all of
its investable assets in an open-end investment company that has the same
investment objective as the Fund (its corresponding Portfolio). As a shareholder
of another investment company, a Fund or Portfolio would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund or Portfolio bears directly in connection with its
own operations.
REVERSE REPURCHASE AGREEMENTS. Each of the Funds may enter into reverse
repurchase agreements. In a reverse repurchase agreement, a Fund sells a
security and agrees to repurchase the same security at a mutually agreed upon
date and price. The Treasury Money Market Fund will only enter into reverse
repurchase agreements involving Treasury securities. For purposes of the 1940
Act a reverse repurchase agreement is also considered as the borrowing of money
by the Fund and, therefore, a form of leverage. The Funds will invest
<PAGE>
the proceeds of borrowings under reverse repurchase agreements. In
addition, a Fund will enter into a reverse repurchase agreement only when the
interest income to be earned from the investment of the proceeds is greater than
the interest expense of the transaction. A Fund will not invest the proceeds of
a reverse repurchase agreement for a period which exceeds the duration of the
reverse repurchase agreement. Each Fund will establish and maintain with the
Custodian a separate account with a segregated portfolio of securities in an
amount at least equal to its purchase obligations under its reverse repurchase
agreements. If interest rates rise during the term of a reverse repurchase
agreement, entering into the reverse repurchase agreement may have a negative
impact on a Fund's ability to maintain a net asset value of $1.00 per share. See
"Investment Restrictions" for each Fund's limitations on reverse repurchase
agreements and bank borrowings.
LOANS OF PORTFOLIO SECURITIES. Subject to applicable investment
restrictions, each Fund is permitted to lend its securities in an amount up to
33 1/3% of the value of the Fund's net assets. Each of the Funds may lend its
securities if such loans are secured continuously by cash or equivalent
collateral or by a letter of credit in favor of the Fund at least equal at all
times to 100% of the market value of the securities loaned, plus accrued
interest. While such securities are on loan, the borrower will pay the Fund any
income accruing thereon. Loans will be subject to termination by the Funds in
the normal settlement time, generally three business days after notice, or by
the borrower on one day's notice. Borrowed securities must be returned when the
loan is terminated. Any gain or loss in the market price of the borrowed
securities which occurs during the term of the loan inures to a Fund and its
respective investors. The Funds may pay reasonable finders' and custodial fees
in connection with a loan. In addition, a Fund will consider all facts and
circumstances including the creditworthiness of the borrowing financial
institution, and no Fund will make any loans in excess of one year. Loans of
portfolio securities may be considered extensions of credit by the Funds. The
risks to each Fund with respect to borrowers of its portfolio securities are
similar to the risks to each Fund with respect to sellers in repurchase
agreement transactions. See "Repurchase Agreements". The Funds will not lend
their securities to any officer, Trustee, Director, employee or other affiliate
of the Funds, the Advisor or the Distributor, unless otherwise permitted by
applicable law.
ILLIQUID INVESTMENTS, PRIVATELY PLACED AND CERTAIN UNREGISTERED
SECURITIES. The Funds, except the Treasury Money Market Fund, may invest in
privately placed, restricted, Rule 144A or other unregistered securities. No
Fund may acquire any illiquid holdings if, as a result thereof, more than
10% of a Fund's net assets would be in illiquid investments. Subject to this
fundamental policy limitation (Prime Money Market Fund only), the Portfolios 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 Portfolios. The price the Portfolios pay for illiquid holdings 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 holdings will
reflect any limitations on their liquidity.
The Funds 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.
<PAGE>
As to illiquid investments, a Fund is subject to a risk that should the
Fund decide to sell them when a ready buyer is not available at a price the Fund
deems representative of their value, the value of the Fund's net assets could be
adversely affected. Where an illiquid security must be registered under the
1933 Act, before it may be sold, a Fund may be obligated to pay all or part of
the registration expenses, and a considerable period may elapse between the time
of the decision to sell and the time the Fund may be permitted to sell a
security under an effective registration statement. If, during such a period,
adverse market conditions were to develop, a Fund might obtain a less favorable
price than prevailed when it decided to sell.
SYNTHETIC INSTRUMENTS. The Prime Money Market Fund may invest in
certain synthetic instruments. Such instruments generally involve the deposit of
asset-backed securities in a trust arrangement and the issuance of certificates
evidencing interests in the trust. The certificates are generally sold in
private placements in reliance on Rule 144A. The Advisor will review the
structure of Synthetic instruments to identify credit and liquidity risks and
will monitor those risks. See "Illiquid Investments, Privately Placed and
Certain Unregistered Securities".
QUALITY AND DIVERSIFICATION REQUIREMENTS
Each of the Funds intends to meet the diversification requirements of
the 1940 Act. To meet these requirements, 75% of the assets of each Fund are
subject to the following fundamental limitations: (1) the Fund may not invest
more than 5% of its total assets in the securities of any one issuer, except
obligations of the U.S. Government, its agencies and instrumentalities, and (2)
the Fund may not own more than 10% of the outstanding voting securities of any
one issuer. As for the other 25% of the Fund's assets not subject to the
limitation described above, there is no limitation on investment of these assets
under the 1940 Act, so that all of such assets may be invested in securities of
any one issuer. Investments not subject to the limitations described above could
involve an increased risk to a Fund should an issuer, or a state or its related
entities, be unable to make interest or principal payments or should the market
value of such securities decline.
At the time any of the Funds invest in any taxable commercial paper,
master demand obligation, bank obligation or repurchase agreement, the issuer
must have outstanding debt rated A or higher by Moody's or Standard & Poor's,
the issuer's parent corporation, if any, must have outstanding commercial paper
rated Prime-1 by Moody's or A-1 by Standard & Poor's, or if no such ratings are
available, the investment must be of comparable quality in Morgan's opinion.
PRIME MONEY MARKET FUND. In order to maintain a stable net asset value,
the Prime Money Market Fund will (i) with respect to 75% of the Fund's assets,
limit its investment in the securities (other than U.S. Government securities)
of any one issuer to no more than 5% of its assets, measured at the time of
purchase, except for investments held for not more than three business days
(subject, however, to the investment restriction No. 4 set forth under
"Investment Restrictions" below); and (ii) limit investments to securities that
present minimal credit risks and securities (other than U.S. Government
securities) that are rated within the highest short-term rating category by at
least two nationally recognized statistical rating organizations ("NRSROs") or
by the only NRSRO that has rated the security. Securities which originally had a
maturity of over one year are subject to more complicated, but generally similar
rating requirements. A description of illustrative credit ratings is set forth
in "Appendix A." The Fund may also
<PAGE>
purchase unrated securities that are of comparable quality to the rated
securities described above. Additionally, if the issuer of a particular security
has issued other securities of comparable priority and security and which have
been rated in accordance with (ii) above, that security will be deemed to have
the same rating as such other rated securities.
In addition, the Board of Trustees has adopted procedures which (i)
require the Board of Trustees to approve or ratify purchases by the Fund of
securities (other than U.S. Government securities) that are unrated; (ii)
require the Fund to maintain a dollar-weighted average portfolio maturity of not
more than 90 days and to invest only in securities with a remaining maturity of
not more than thirteen months; and (iii) require the Fund, in the event of
certain downgradings of or defaults on portfolio holdings, to dispose of the
holding, subject in certain circumstances to a finding by the Trustees that
disposing of the holding would not be in the Fund's best interest.
TREASURY MONEY MARKET FUND. In order to maintain a stable net asset value,
the Treasury Money Market Fund will limit its investments to direct obligations
of the U.S. Treasury, including Treasury bills, notes and bonds, and related
repurchase agreement transactions, each having a remaining maturity of not more
than thirteen months at the time of purchase and will maintain a dollar-weighted
average portfolio maturity of not more than 90 days.
FEDERAL MONEY MARKET FUND. In order to maintain a stable net asset value,
the Federal Money Market Fund will limit its investments to direct obligations
of the U.S. Treasury, including Treasury bills, notes and bonds, and certain
U.S. Government agency securities with remaining maturities of not more than
thirteen months at the time of purchase and will maintain a dollar-weighted
average portfolio maturity of not more than 90 days.
INVESTMENT RESTRICTIONS
The investment restrictions of each Fund and its corresponding
Portfolio are identical, unless otherwise specified. Accordingly, references
below to a Fund also include the Fund's corresponding Portfolio unless the
context requires otherwise; similarly, references to a Portfolio also include
its corresponding Fund unless the context requires otherwise.
The investment restrictions below have been adopted by the Trust with
respect to each Fund and by each corresponding Portfolio. Except where otherwise
noted, these investment restrictions are "fundamental" policies which, under the
1940 Act, may not be changed without the vote of a majority of the outstanding
voting securities of the Fund or Portfolio, as the case may be. A "majority of
the outstanding voting securities" is defined in the 1940 Act as the lesser of
(a) 67% or more of the voting securities present at a meeting if the holders of
more than 50% of the outstanding voting securities are present or represented by
proxy, or (b) more than 50% of the outstanding voting securities. The percentage
limitations contained in the restrictions below apply at the time of the
purchase of securities. Whenever a Fund is requested to vote on a change in the
fundamental investment restrictions of its corresponding Portfolio, the Trust
will hold a meeting of Fund shareholders and will cast its votes as instructed
by the Fund's shareholders.
<PAGE>
The PRIME MONEY MARKET FUND and its corresponding PORTFOLIO may not:
1. Acquire any illiquid securities, such as repurchase agreements with more than
seven days to maturity or fixed time deposits with a duration of over seven
calendar days, if as a result thereof, more than 10% of the Fund's net assets
would be in investments which are illiquid;
2. Enter into reverse repurchase agreements exceeding in the aggregate one-third
of the market value of the Fund's total assets, less liabilities other than
obligations created by reverse repurchase agreements;
3. Borrow money, except from banks for extraordinary or emergency purposes and
then only in amounts not to exceed 10% of the value of the Fund's total assets,
taken at cost, at the time of such borrowing. Mortgage, pledge, or hypothecate
any assets except in connection with any such borrowing and in amounts not to
exceed 10% of the value of the Fund's net assets at the time of such borrowing.
The Fund will not purchase securities while borrowings exceed 5% of the Fund's
total assets; provided, however, that the Fund may increase its interest in an
open-end management investment company with the same investment objective and
restrictions as the Fund while such borrowings are outstanding. This borrowing
provision is included to facilitate the orderly sale of portfolio securities,
for example, in the event of abnormally heavy redemption requests, and is not
for investment purposes and shall not apply to reverse repurchase agreements;
4. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in securities or other obligations of any one such
issuer; provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with the same
investment objective and restrictions as the Fund. This limitation shall not
apply to issues of the U.S. Government, its agencies or instrumentalities and to
permitted investments of up to 25% of the Fund's total assets;
5. Purchase the securities or other obligations of issuers conducting their
principal business activity in the same industry if, immediately after such
purchase, the value of its investment in such industry would exceed 25% of the
value of the Fund's total assets; provided, however, that the Fund may invest
all or part of its investable assets in an open-end management investment
company with the same investment objective and restrictions as the Fund. For
purposes of industry concentration, there is no percentage limitation with
respect to investments in U.S. Government securities, negotiable certificates of
deposit, time deposits, and bankers' acceptances of U.S. branches of U.S. banks;
6. Make loans, except through purchasing or holding debt obligations, or
entering into repurchase agreements, or loans of portfolio securities in
accordance with the Fund's investment objective and policies (see "Investment
Objectives and Policies");
7. Purchase or sell puts, calls, straddles, spreads, or any combination thereof,
real estate, commodities, or commodity contracts or interests in oil, gas, or
mineral exploration or development programs. However, the Fund may purchase
bonds or commercial paper issued by companies which invest in real estate or
interests therein including real estate investment trusts;
<PAGE>
8. Purchase securities on margin, make short sales of securities, or maintain a
short position, provided that this restriction shall not be deemed to be
applicable to the purchase or sale of when-issued securities or of securities
for delivery at a future date;
9. Acquire securities of other investment companies, except as permitted by the
1940 Act;
10. Act as an underwriter of securities; or
11. Issue senior securities, except as may otherwise be permitted by the
foregoing investment restrictions or under the 1940 Act or any rule,
order or interpretation thereunder.
The TREASURY MONEY MARKET FUND and its corresponding PORTFOLIO may not:
1. Enter into reverse repurchase agreements which together with any other
borrowing exceed in the aggregate one-third of the market value of the
Fund's or the Portfolio's total assets, less liabilities other than the
obligations created by reverse repurchase agreements;
2. Borrow money, except in amounts not to exceed one third of the Fund's
total assets (including the amount borrowed) less liabilities (other
than borrowings) (i) from banks for temporary or short-term purposes or
for the clearance of transactions, (ii) in connection with the
redemption of Fund shares or to finance failed settlements of portfolio
trades without immediately liquidating portfolio securities or other
assets, (iii) in order to fulfill commitments or plans to purchase
additional securities pending the anticipated sale of other portfolio
securities or assets and (iv) pursuant to reverse repurchase agreements
entered into by the Fund.1
3. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the
Fund's or the Portfolio's total assets would be invested in securities
or other obligations of any one such issuer; provided, however, that
the Fund may invest all or part of its investable assets in an open-end
management investment company with the same investment objective and
restrictions as the Fund. This limitation also shall not apply to
issues of the U.S. Government and repurchase agreements related
thereto;
4. Purchase the securities or other obligations of issuers conducting
their principal business activity in the same industry if, immediately
after such purchase, the value of its investment in such industry would
exceed 25% of the value of the Fund's or the Portfolio's total assets;
provided, however, that the Fund may invest all or part of its assets
in an open-end management investment company with the same investment
objective and restrictions as the Fund. For purposes of industry
concentration, there is no percentage limitation with respect to
investments in U.S. Government securities and repurchase agreements
related thereto;
- --------
1Although the Fund is permitted to fulfill plans to purchase additional
securities pending the anticipated sale of other portfolio securities or assets,
the Fund has no current intention of engaging in this form of leverage.
<PAGE>
5. Make loans, except through purchasing or holding debt obligations,
repurchase agreements, or loans of portfolio securities in accordance
with the Fund's or the Portfolio's investment objective and policies
(see "Investment Objectives and Policies");
6. Purchase or sell puts, calls, straddles, spreads, or any combination thereof,
real estate, commodities, or commodity contracts or interests in oil, gas, or
mineral exploration or development programs;
7. Purchase securities on margin, make short sales of securities, or
maintain a short position, provided that this restriction shall not be
deemed to be applicable to the purchase or sale of when-issued
securities or of securities for delivery at a future date;
8. Acquire securities of other investment companies, except as permitted
by the 1940 Act or in connection with a merger, consolidation,
reorganization, acquisition of assets or an offer of exchange;
provided, however, that nothing in this investment restriction shall
prevent the Trust from investing all or part of the Fund's assets in an
open-end management investment company with the same investment
objective and restrictions as the Fund;
9. Act as an underwriter of securities; or
10. Issue senior securities, except as may otherwise be permitted by the
foregoing investment restrictions or under the 1940 Act or any rule,
order or interpretation thereunder.
The FEDERAL MONEY MARKET FUND and its corresponding PORTFOLIO may not:
1. Enter into reverse repurchase agreements which together with any other
borrowing exceeds in the aggregate one-third of the market value of the
Fund's or the Portfolio's total assets, less liabilities other than the
obligations created by reverse repurchase agreements;
2. Borrow money (not including reverse repurchase agreements), except from banks
for temporary or extraordinary or emergency purposes and then only in amounts up
to 10% of the value of the Fund's or the Portfolio's total assets, taken at cost
at the time of such borrowing (and provided that such borrowings and reverse
repurchase agreements do not exceed in the aggregate one-third of the market
value of the Fund's and the Portfolio's total assets less liabilities other than
the obligations represented by the bank borrowings and reverse repurchase
agreements). Mortgage, pledge, or hypothecate any assets except in connection
with any such borrowing and in amounts up to 10% of the value of the Fund's or
the Portfolio's net assets at the time of such borrowing. The Fund or the
Portfolio will not purchase securities while borrowings exceed 5% of the Fund's
or the Portfolio's total assets, respectively; provided, however, that the Fund
may increase its interest in an open-end management investment company with the
same investment objective and restrictions as the Fund while such borrowings are
outstanding. This borrowing provision is included to facilitate the orderly sale
of portfolio securities, for example, in the event of abnormally heavy
redemption requests, and is not for investment purposes;
3. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the
Fund's or the Portfolio's total assets would be invested in securities
or other obligations of any one such issuer; provided, however, that
the Fund may
<PAGE>
invest all or part of its investable assets in an open-end
management investment company with the same investment objective and
restrictions as the Fund. This limitation also shall not apply to
issues of the U.S. Government and repurchase agreements related
thereto;
4. Purchase the securities or other obligations of issuers conducting
their principal business activity in the same industry if, immediately
after such purchase, the value of its investment in such industry would
exceed 25% of the value of the Fund's or the Portfolio's total assets;
provided, however, that the Fund may invest all or part of its assets
in an open-end management investment company with the same investment
objective and restrictions as the Fund. For purposes of industry
concentration, there is no percentage limitation with respect to
investments in U.S. Government securities and repurchase agreements
related thereto;
5. Make loans, except through purchasing or holding debt obligations,
repurchase agreements, or loans of portfolio securities in accordance
with the Fund's or the Portfolio's investment objective and policies
(see "Investment Objectives and Policies");
6. Purchase or sell puts, calls, straddles, spreads, or any combination thereof,
real estate, commodities, or commodity contracts or interests in oil, gas, or
mineral exploration or development programs;
7. Purchase securities on margin, make short sales of securities, or
maintain a short position, provided that this restriction shall not be
deemed to be applicable to the purchase or sale of when-issued
securities or of securities for delivery at a future date;
8. Acquire securities of other investment companies, except as permitted
by the 1940 Act or in connection with a merger, consolidation,
reorganization, acquisition of assets or an offer of exchange;
provided, however, that nothing in this investment restriction shall
prevent the Trust from investing all or part of the Fund's assets in an
open-end management investment company with the same investment
objective and restrictions as the Fund;
9. Act as an underwriter of securities; or
10. Issue senior securities, except as may otherwise be permitted by the
foregoing investment restrictions or under the 1940 Act or any rule,
order or interpretation thereunder.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS - PRIME MONEY MARKET FUND. The
investment restriction described below is not a fundamental policy of the Prime
Money Market Fund or its corresponding Portfolio and may be changed by their
respective Trustees. This non-fundamental investment policy requires that the
Prime Money Market Fund and its corresponding Portfolio may not:
(i) enter into reverse repurchase agreements or borrow money, except from
banks for extraordinary or emergency purposes, if such obligations
exceed in the aggregate one-third of the market value of the Fund's
total assets, less liabilities other than obligations created by
reverse repurchase agreements and borrowings.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS - TREASURY MONEY MARKET FUND
AND FEDERAL MONEY MARKET FUND. The investment restriction described below is not
a fundamental policy of these Funds or their corresponding Portfolios and may
<PAGE>
be
changed by their respective Trustees. This non-fundamental investment policy
requires that each such Fund may not:
(i) acquire any illiquid securities, such as repurchase agreements with
more than seven days to maturity or fixed time deposits with a duration
of over seven calendar days, if as a result thereof, more than 10% of
the Fund's net assets would be in investments that are illiquid.
Notwithstanding any other fundamental or non-fundamental investment
restriction or policy, each Fund reserves the right, without the approval of
shareholders, to invest all of its assets in the securities of a single open-end
registered investment company with substantially the same investment objective,
restrictions and policies as the Fund.
There will be no violation of any investment restriction if that
restriction is complied with at the time the relevant action is taken
notwithstanding a later change in market value of an investment, in net or total
assets, in the securities rating of the investment, or any other later change.
For purposes of fundamental investment restrictions regarding industry
concentration, the Advisor may classify issuers by industry in accordance with
classifications set forth in the DIRECTORY OF COMPANIES FILING ANNUAL REPORTS
WITH THE SECURITIES AND EXCHANGE COMMISSION or other sources. In the absence of
such classification or if the Advisor determines in good faith based on its own
information that the economic characteristics affecting a particular issuer make
it more appropriately considered to be engaged in a different industry, the
Advisor may classify accordingly. For instance, personal credit finance
companies and business credit finance companies are deemed to be separate
industries and wholly owned finance companies are considered to be in the
industry of their parents if their activities are primarily related to financing
the activities of their parents.
TRUSTEES AND OFFICERS
TRUSTEES
The Trustees of the Trust, who are also the Trustees of each of the
Portfolios, their business addresses, principal occupations during the past five
years and dates of birth are set forth below.
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, TX 78746, and his date of birth is January 1, 1932.
WILLIAM G. BURNS--Trustee; Retired, Former Vice Chairman and Chief
Financial Officer, NYNEX. His address is 2200 Alaqua Drive, Longwood, FL 32779,
and his date of birth is November 2, 1932.
ARTHUR C. ESCHENLAUER--Trustee; Retired; Former Senior Vice President,
Morgan Guaranty Trust Company of New York. His address is 14 Alta Vista Drive,
RD #2, Princeton, NJ 08540, and his date of birth is May 23, 1934.
<PAGE>
MATTHEW HEALEY2--Trustee, Chairman and Chief Executive Officer;
Chairman, Pierpont Group, Inc., since prior to 1992. His address is Pine Tree
Club Estates, 10286 Saint Andrews Road, Boynton Beach, FL 33436, and his date of
birth is August 23, 1937.
MICHAEL P. MALLARDI--Trustee; Retired; Prior to April 1996, Senior Vice
President, Capital Cities/ABC, Inc. and President, Broadcast Group. His address
is 10 Charnwood Drive, Suffern, NY 10910, and his date of birth is March 17,
1934.
The Trustees of the Trust are the same as the Trustees of each of the
Portfolios. In accordance with applicable state requirements, a majority of the
disinterested Trustees have adopted written procedures reasonably appropriate to
deal with potential conflicts of interest arising from the fact that the same
individuals are Trustees of the Trust, each of the Portfolios and the J.P.
Morgan Funds up to and including creating a separate board of trustees.
Each Trustee is currently paid an annual fee of $75,000 for serving as
Trustee of the Trust, each of the Master Portfolios (as defined below), the J.P.
Morgan Funds and J.P. Morgan Series Trust and is reimbursed for expenses
incurred in connection with service as a Trustee. The Trustees may hold various
other directorships unrelated to these funds.
Trustee compensation expenses paid by the Trust for the calendar year ended
December 31, 1997 are set forth below.
<TABLE>
<CAPTION>
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
- --------------------------------------------------- ------------------------------ -------------------------------------------
- --------------------------------------------------- ------------------------------ -------------------------------------------
<S> <C> <C>
Frederick S. Addy, Trustee $ 11,772.77 $ 75,000
- --------------------------------------------------- ------------------------------ -------------------------------------------
- --------------------------------------------------- ------------------------------ -------------------------------------------
William G. Burns, Trustee $ 11,786.38 $ 75,000
- --------------------------------------------------- ------------------------------ -------------------------------------------
- --------------------------------------------------- ------------------------------ -------------------------------------------
Arthur C. Eschenlauer, Trustee $ 11,786.38 $ 75,000
- --------------------------------------------------- ------------------------------ -------------------------------------------
- --------------------------------------------------- ------------------------------ -------------------------------------------
Matthew Healey, Trustee(**), $ 11,786.38 $ 75,000
Chairman and Chief Executive
Officer
- --------------------------------------------------- ------------------------------ -------------------------------------------
- --------------------------------------------------- ------------------------------ -------------------------------------------
Michael P. Mallardi, Trustee $ 11,786.38 $ 75,000
- --------------------------------------------------- ------------------------------ -------------------------------------------
</TABLE>
(*) Includes the Portfolio and 21 other portfolios (collectively, the
"Master Portfolios") for which Morgan acts as investment advisor.
(**) During 1997, Pierpont Group, Inc. paid Mr. Healey, in his role as
Chairman of Pierpont Group, Inc., compensation in the amount of $147,500,
contributed $22,100 to a defined contribution plan on his behalf and paid
$20,500 in insurance premiums for his benefit.
2Mr. Healey is an "interested person" of the Trust, the Advisor and each
Portfolio as that term is defined in the 1940 Act.
<PAGE>
(***) No investment company within the fund complex has a pension or
retirement plan. Currently there are 18 investment companies (15 investment
companies comprising the Master Portfolios, the J.P. Morgan Funds, the Trust and
J.P. Morgan Series Trust) in the fund complex.
The Trustees, in addition to reviewing actions of the Trust's and the
Portfolios' various service providers, decide upon matters of general policy.
Each of the Portfolios and the Trust has entered into a Fund Services Agreement
with Pierpont Group, Inc. to assist the Trustees in exercising their overall
supervisory responsibilities over the affairs of the Portfolios and the Trust.
Pierpont Group, Inc. was organized in July 1989 to provide services for The
Pierpont Family of Funds, and the Trustees are the equal and sole shareholders
of Pierpont Group, Inc. The Trust and the Portfolios have agreed to pay Pierpont
Group, Inc. a fee in an amount representing its reasonable costs in performing
these services to the Trust, the Portfolios and certain other registered
investment companies subject to similar agreements with Pierpont Group, Inc.
These costs are periodically reviewed by the Trustees. The principal offices of
Pierpont Group, Inc. are located at 461 Fifth Avenue, New York, New York 10017.
The aggregate fees paid to Pierpont Group, Inc. by each Fund and its
corresponding Portfolio during the indicated fiscal periods are set forth below:
PRIME MONEY MARKET FUND -- For the fiscal years ended November 30, 1995, 1996
and 1997: $54,502, $48,339 and $43,684. THE PRIME MONEY MARKET PORTFOLIO -- For
the fiscal years ended November 30, 1995, 1996 and 1997: $261,045, $157,428 and
$143,027.
TREASURY MONEY MARKET FUND -- For the period July 8, 1997 (commencement of
operations) through October 31, 1997: $543. THE TREASURY MONEY MARKET PORTFOLIO
- -- For the period July 7, 1997 (commencement of operations) through October 31,
1997: $800.
FEDERAL MONEY MARKET FUND -- For the fiscal years ended October 31, 1995, 1996
and 1997: $8,445, $6,320 and $3,750. THE FEDERAL MONEY MARKET PORTFOLIO -- For
the fiscal years ended October 31, 1995, 1996 and 1997: $22,791, $16,144 and
$12,004.
OFFICERS
The Trust's and Portfolios' executive officers (listed below), other
than the Chief Executive Officer, are provided and compensated by Funds
Distributor, Inc. ("FDI"), a wholly owned indirect subsidiary of Boston
Institutional Group, Inc. The officers conduct and supervise the business
operations of the Trust and the Portfolios. The Trust and the Portfolios have no
employees.
The officers of the Trust and the Portfolios, their principal occupations
during the past five years and dates of birth are set forth below. Unless
otherwise specified, each officer holds the same position with the Trust and
each Portfolio. The business address of each of the officers unless otherwise
noted is Funds Distributor, Inc., 60 State Street, Suite 1300, Boston,
Massachusetts 02109.
MATTHEW HEALEY; Chief Executive Officer; Chairman, Pierpont Group,
since prior to 1993. His address is Pine Tree Club Estates, 10286 Saint Andrews
Road, Boynton Beach, FL 33436. His date of birth is August 23, 1937.
<PAGE>
MARIE E. CONNOLLY; Vice President and Assistant Treasurer. President,
Chief Executive Officer, Chief Compliance Officer and Director of FDI and
Premier Mutual Fund Services, Inc., an affiliate of FDI ("Premier Mutual") and
an officer of certain investment companies advised or administered by the
Dreyfus Corporation ("Dreyfus") or its affiliates. From December 1991 to July
1994, she was President and Chief Compliance Officer of FDI. Her date of birth
is August 1, 1957.
DOUGLAS C. CONROY; Vice President and Assistant Treasurer. Assistant Vice
President and Manager of Treasury Services and Administration of FDI and an
officer of certain investment companies advised or administered by Dreyfus or
its affiliates. Prior to April 1997, Mr. Conroy was Supervisor of Treasury
Services and Administration of FDI. From April 1993 to January 1995, Mr. Conroy
was a Senior Fund Accountant for Investors Bank & Trust Company. Prior to March
1993, Mr. Conroy was employed as a fund accountant at The Boston Company, Inc.
His date of birth is March 31, 1969.
JACQUELINE HENNING; Assistant Secretary and Assistant Treasurer of The
Prime Money Market Portfolio only. Managing Director, State Street Cayman Trust
Company, Ltd. since October 1994. Prior to October 1994, Mrs. Henning was head
of mutual funds at Morgan Grenfell in Cayman and for five years was Managing
Director of Bank of Nova Scotia Trust Company (Cayman) Limited from September
1988 to September 1993. Address: P.O. Box 2508 GT, Elizabethan Square, 2nd
Floor, Shedden Road, George Town, Grand Cayman, Cayman Islands. Her date of
birth is March 24, 1942.
RICHARD W. INGRAM; President and Treasurer. Executive Vice President and
Director of Client Services and Treasury Administration of FDI, Senior Vice
President of Premier Mutual and an officer of RCM Capital Funds, Inc., RCM
Equity Funds, Inc. (together "RCM"), Waterhouse Investors Cash Management Fund,
Inc. ("Waterhouse") and certain investment companies advised or administered by
Dreyfus or Harris Trust and Savings Bank ("Harris") or their respective
affiliates. Prior to April 1997, Mr. Ingram was Senior Vice President and
Director of Client Services and Treasury Administration of FDI. From March 1994
to November 1995, Mr. Ingram was Vice President and Division Manager of First
Data Investor Services Group, Inc. From 1989 to 1994, Mr. Ingram was Vice
President, Assistant Treasurer and Tax Director - Mutual Funds of The Boston
Company, Inc. His date of birth is September 15, 1955.
KAREN JACOPPO-WOOD; Vice President and Assistant Secretary. Assistant Vice
President of FDI and an officer of RCM, Waterhouse and Harris or their
respective affiliates. From June 1994 to January 1996, Ms. Jacoppo-Wood was a
Manager, SEC Registration, Scudder, Stevens & Clark, Inc. From 1988 to May 1994,
Ms. Jacoppo-Wood was a senior paralegal at The Boston Company Advisors, Inc.
("TBCA"). Her date of birth is December 29, 1966.
CHRISTOPHER J. KELLEY; Vice President and Assistant Secretary. Vice
President and Associate General Counsel of FDI and Premier Mutual and an officer
of Waterhouse and certain investment companies advised or administered by Harris
or its affiliates. From April 1994 to July 1996, Mr. Kelley was Assistant
Counsel at Forum Financial Group. From 1992 to 1994, Mr. Kelley was employed by
Putnam Investments in legal and compliance capacities. Prior to September 1992,
Mr. Kelley was enrolled at Boston College Law School and received his JD in May
1992. His date of birth is December 24, 1964.
LENORE J. MCCABE; Assistant Secretary and Assistant Treasurer of The Prime
Money Market Portfolio only. Assistant Vice President, State Street Bank and
Trust Company since November 1994. Assigned as Operations Manager, State Street
Cayman Trust Company, Ltd. since February 1995. Prior to
<PAGE>
November, 1994,
employed by Boston Financial Data Services, Inc. as Control Group Manager.
Address: P.O. Box 2508 GT, Elizabethan Square, 2nd Floor, Shedden Road, George
Town, Grand Cayman, Cayman Islands. Her date of birth is May 31, 1961.
MARY A. NELSON; Vice President and Assistant Treasurer. Vice President
and Manager of Treasury Services and Administration of FDI and Premier Mutual,
an officer of RCM, Waterhouse and certain investment companies advised or
administered by Dreyfus or Harris or their respective affiliates. From 1989 to
1994, Ms. Nelson was an Assistant Vice President and Client Manager for The
Boston Company, Inc. Her date of birth is April 22, 1964.
MICHAEL S. PETRUCELLI; Vice President and Assistant Secretary. Senior Vice
President and Director of Strategic Client Initiatives for FDI since December
1996. From December 1989 through November 1996, Mr. Petrucelli was employed with
GE Investments where he held various financial, business development and
compliance positions. He also served as Treasurer of the GE Funds and as
Director of GE Investment Services. Address: 200 Park Avenue, New York, New York
10166. His date of birth is May 18, 1961.
JOSEPH F. TOWER III; Vice President and Assistant Treasurer. Executive Vice
President, Treasurer and Chief Financial Officer, Chief Administrative Officer
and Director of FDI. Senior Vice President, Treasurer and Chief Financial
Officer, Chief Administrative Officer and Director of Premier Mutual and an
officer of Waterhouse and certain investment companies advised or administered
by Dreyfus or its affiliates. Prior to April 1997, Mr. Tower was Senior Vice
President, Treasurer and Chief Financial Officer, Chief Administrative Officer
and Director of FDI. From July 1988 to November 1993, Mr. Tower was Financial
Manager of The Boston Company, Inc. His date of birth is June 13, 1962.
INVESTMENT ADVISOR
The Funds have not retained the services of an investment adviser
because each Fund seeks to achieve its investment objective by investing all of
its investable assets in a corresponding Portfolio. Subject to the supervision
of the Portfolio's Trustees, Morgan makes each Portfolio's day-to-day investment
decisions, arranges for the execution of portfolio transactions and generally
manages the Portfolio's investments. The Advisor, a wholly owned subsidiary of
J.P. Morgan & Co. Incorporated ("J.P. Morgan"), a bank holding company organized
under the laws of the State of Delaware. The Advisor, whose principal offices
are at 60 Wall Street, New York, New York 10260, is a New York trust company
which conducts a general banking and trust business. The Advisor is subject to
regulation by the New York State Banking Department and is a member bank of the
Federal Reserve System. Through offices in New York City and abroad, the Advisor
offers a wide range of services, primarily to governmental, institutional,
corporate and high net worth individual customers in the United States and
throughout the world.
J.P. Morgan, through the Advisor and other subsidiaries, acts as
investment advisor to individuals, governments, corporations, employee benefit
plans, mutual funds and other institutional investors with combined assets under
management of approximately $250 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.
<PAGE>
The basis of the Advisor's investment process is fundamental investment
research as the firm believes that fundamentals should determine an asset's
value over the long term. J.P. Morgan currently employs over 100 full time
research analysts, among the largest research staffs in the money management
industry, in its investment management divisions located in New York, London,
Tokyo, Frankfurt, Melbourne and Singapore to cover companies, industries and
countries on site. In addition, the investment management divisions employ
approximately 300 capital market researchers, portfolio managers and traders.
The Advisor's fixed income investment process is based on analysis of real
rates, sector diversification and quantitative and credit analysis.
The investment advisory services the Advisor provides to the Portfolios
are not exclusive under the terms of the Advisory Agreements. The Advisor is
free to and does render similar investment advisory services to others. The
Advisor serves as investment advisor to personal investors and other investment
companies and acts as fiduciary for trusts, estates and employee benefit plans.
Certain of the assets of trusts and estates under management are invested in
common trust funds for which the Advisor serves as trustee. The accounts which
are managed or advised by the Advisor have varying investment objectives and the
Advisor invests assets of such accounts in investments substantially similar to,
or the same as, those which are expected to constitute the principal investments
of the Portfolios. Such accounts are supervised by officers and employees of the
Advisor who may also be acting in similar capacities for the Portfolios. See
"Portfolio Transactions."
Sector weightings are generally similar to a benchmark with the
emphasis on security selection as the method to achieve investment performance
superior to the benchmark. The benchmarks for the Portfolios in which the Funds
invest are currently: The Prime Money Market Portfolio--IBC's First Tier Money
Fund Average; The Treasury Money Market Portfolio--IBC's Treasury and Repo Money
Fund Average; and The Federal Money Market Portfolio--IBC's U.S. Government and
Agency Money Fund Average.
J.P. Morgan Investment Management Inc., also a wholly owned subsidiary
of J.P. Morgan, is a registered investment adviser under the Investment Advisers
Act of 1940, as amended, which manages employee benefit funds of corporations,
labor unions and state and local governments and the accounts of other
institutional investors, including investment companies. Certain of the assets
of employee benefit accounts under its management are invested in commingled
pension trust funds for which the Advisor serves as trustee. J.P. Morgan
Investment Management Inc. advises the Advisor on investment of the commingled
pension trust funds.
The Portfolios are managed by officers of the Advisor who, in acting for
their customers, including the Portfolios, do not discuss their investment
decisions with any personnel of J.P. Morgan or any personnel of other divisions
of the Advisor or with any of its affiliated persons, with the exception of J.P.
Morgan Investment Management Inc. and certain other investment management
affiliates of J.P. Morgan.
As compensation for the services rendered and related expenses such as
salaries of advisory personnel borne by the Advisor under the Investment
Advisory Agreements, the Portfolio corresponding to each Fund has agreed to pay
the Advisor a fee, which is computed daily and may be paid monthly, equal to the
annual rates of 0.20% of each Portfolio's average daily net assets up to $1
billion and 0.10% of each Portfolio's average daily net assets in excess of $1
billion.
<PAGE>
The table below sets forth for each Portfolio listed the advisory fees
paid to the Advisor for the fiscal periods indicated. See the Prospectus and
below for applicable expense limitations.
THE PRIME MONEY MARKET PORTFOLIO -- For the fiscal years ended
November 30, 1995, 1996 and 1997: $3,913,479, $4,503,793 and $5,063,662.
THE TREASURY MONEY MARKET PORTFOLIO -- For the period July 7, 1997
(commencement of operations) through October 31, 1997: $49,123.
THE FEDERAL MONEY MARKET PORTFOLIO -- For the fiscal years ended
October 31, 1995, 1996 and 1997: $492,941, $653,326 and $659,707.
The Investment Advisory Agreements provide that they will continue in
effect for a period of two years after execution only if specifically approved
thereafter annually in the same manner as the Distribution Agreement. See
"Distributor" below. Each of the Investment Advisory Agreements will terminate
automatically if assigned and is terminable at any time without penalty by a
vote of a majority of the Portfolio's Trustees, or by a vote of the holders of a
majority of the Portfolio's outstanding voting securities, on 60 days' written
notice to the Advisor and by the Advisor on 90 days' written notice to the
Portfolio. See "Additional Information."
The Glass-Steagall Act and other applicable laws generally prohibit
banks such as the Advisor from engaging in the business of underwriting or
distributing securities, and the Board of Governors of the Federal Reserve
System has issued an interpretation to the effect that under these laws a bank
holding company registered under the federal Bank Holding Company Act or certain
subsidiaries thereof may not sponsor, organize, or control a registered open-end
investment company continuously engaged in the issuance of its shares, such as
the Trust. The interpretation does not prohibit a holding company or a
subsidiary thereof from acting as investment advisor and custodian to such an
investment company. The Advisor believes that it may perform the services for
the Portfolios contemplated by the Advisory Agreements without violation of the
Glass-Steagall Act or other applicable banking laws or regulations. State laws
on this issue may differ from the interpretation of relevant federal law, and
banks and financial institutions may be required to register as dealers pursuant
to state securities laws. However, it is possible that future changes in either
federal or state statutes and regulations concerning the permissible activities
of banks or trust companies, as well as further judicial or administrative
decisions and interpretations of present and future statutes and regulations,
might prevent the Advisor from continuing to perform such services for the
Portfolios.
If the Advisor were prohibited from acting as investment advisor to any
Portfolio, it is expected that the Trustees of the Portfolio would recommend to
investors that they approve the Portfolio's entering into a new investment
advisory agreement with another qualified investment advisor selected by the
Trustees.
Under separate agreements, Morgan also provides certain financial, fund
accounting and administrative services to the Trust and the Portfolios and
shareholder services for the Trust. See "Services Agent" and "Shareholder
Servicing" below.
<PAGE>
DISTRIBUTOR
FDI serves as the Trust's exclusive Distributor and holds itself
available to receive purchase orders for each of the Fund's shares. In that
capacity, FDI has been granted the right, as agent of the Trust, to solicit and
accept orders for the purchase of each of the Fund's shares in accordance with
the terms of the Distribution Agreement between the Trust and FDI. Under the
terms of the Distribution Agreement between FDI and the Trust, FDI receives no
compensation in its capacity as the Trust's distributor. FDI is a wholly owned
indirect subsidiary of Boston Institutional Group, Inc. FDI also serves as
exclusive placement agent for the Portfolio. FDI currently provides
administration and distribution services for a number of other investment
companies.
The Distribution Agreement shall continue in effect with respect to
each of the Funds for a period of two years after execution only if it is
approved at least annually thereafter (i) by a vote of the holders of a majority
of the Fund's outstanding shares or by its Trustees and (ii) by a vote of a
majority of the Trustees of the Trust who are not "interested persons" (as
defined by the 1940 Act) of the parties to the Distribution Agreement, cast in
person at a meeting called for the purpose of voting on such approval (see
"Trustees and Officers"). The Distribution Agreement will terminate
automatically if assigned by either party thereto and is terminable at any time
without penalty by a vote of a majority of the Trustees of the Trust, a vote of
a majority of the Trustees who are not "interested persons" of the Trust, or by
a vote of the holders of a majority of the Fund's outstanding shares as defined
under "Additional Information," in any case without payment of any penalty on 60
days' written notice to the other party. The principal offices of FDI are
located at 60 State Street, Suite 1300, Boston, Massachusetts 02109.
CO-ADMINISTRATOR
Under Co-Administration Agreements with the Trust and the Portfolios
dated August 1, 1996, FDI also serves as the Trust's and the Portfolios'
Co-Administrator. The Co-Administration Agreements may be renewed or amended by
the respective Trustees without a shareholder vote. The Co-Administration
Agreements are terminable at any time without penalty by a vote of a majority of
the Trustees of the Trust or the Portfolios, as applicable, on not more than 60
days' written notice nor less than 30 days' written notice to the other party.
The Co-Administrator may subcontract for the performance of its obligations,
provided, however, that unless the Trust or the Portfolios, as applicable,
expressly agrees in writing, the Co-Administrator shall be fully responsible for
the acts and omissions of any subcontractor as it would for its own acts or
omissions. See "Services Agent" below.
FDI (i) provides office space, equipment and clerical personnel for
maintaining the organization and books and records of the Trust and the
Portfolio; (ii) provides officers for the Trust and the Portfolio; (iii)
prepares and files documents required for notification of state securities
administrators; (iv) reviews and files marketing and sales literature; (v) files
Portfolio regulatory documents and mails Portfolio communications to Trustees
and investors; and (vi) maintains related books and records.
For its services under the Co-Administration Agreements, each Fund and
Portfolio has agreed to pay FDI fees equal to its allocable share of an annual
complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The amount
allocable to each Fund or Portfolio is based on the ratio of its net assets to
the aggregate net assets of the Trust, the Master Portfolios and certain other
investment companies subject to similar agreements with FDI.
<PAGE>
The table below sets forth for each Fund listed and its corresponding
Portfolio the administrative fees paid to FDI for the fiscal periods indicated.
See the Prospectus and below for applicable expense limitations.
PRIME MONEY MARKET FUND --For the period August 1, 1996 through November 30,
1996 and the fiscal year ended November 30, 1997: $15,195 and $38,699. THE PRIME
MONEY MARKET PORTFOLIO -- For the period August 1, 1996 through November 30,
1996 and the fiscal year ended November 30, 1997: $33,012 and
$96,662.
TREASURY MONEY MARKET FUND -- For the period July 8, 1997 (commencement of
operations) through October 31, 1997: $437. THE TREASURY MONEY MARKET PORTFOLIO
- -- For the period July 7, 1997 (commencement of operations) through October 31,
1997: $406.
FEDERAL MONEY MARKET FUND -- For the period August 1, 1996 through October 31,
1996 and the fiscal year ended October 31, 1997: $945 and $3,405. THE FEDERAL
MONEY MARKET PORTFOLIO -- For the period August 1, 1996 through October 31, 1996
and the fiscal year ended October 31, 1997: $1,663 and $6,218.
The table below sets forth for each Fund listed (except the Treasury
Money Market Fund) and its corresponding Portfolio the administrative fees paid
to Signature Broker-Dealer Services, Inc. (which provided distribution and
administrative services to the Trust and placement agent and administrative
services to the Portfolios prior to August 1, 1996) for the fiscal periods
indicated. See the Prospectus and below for applicable expense limitations.
PRIME MONEY MARKET FUND -- For the fiscal year ended November 30, 1995 and the
period December 1, 1995 through July 31, 1996: $161,341 and $97,980. THE PRIME
MONEY MARKET PORTFOLIO -- For the fiscal year ended November 30, 1995 and the
period December 1, 1995 through July 31, 1996: $176,717 and $272,989.
FEDERAL MONEY MARKET FUND -- For the fiscal year ended October 31, 1995 and the
period November 1, 1995 through July 31, 1996: $23,920 and $15,525. THE FEDERAL
MONEY MARKET PORTFOLIO -- For the fiscal year ended October 31, 1995 and the
period November 1, 1995 through July 31, 1996: $17,480 and $28,623.
SERVICES AGENT
The Trust, on behalf of each Fund, and the Portfolios have entered into
Administrative Services Agreements (the "Services Agreements") with Morgan
pursuant to which Morgan is responsible for certain administrative and related
services provided to each Fund and its corresponding Portfolio. The Services
Agreements may be terminated at any time, without penalty, by the Trustees or
Morgan, in each case on not more than 60 days' nor less than 30 days' written
notice to the other party.
Under the Services Agreements, each of the Funds and the Portfolios has
agreed to pay Morgan fees equal to its allocable share of an annual complex-wide
charge. This charge is calculated daily based on the aggregate net assets of the
Master Portfolios and J.P. Morgan Series Trust in accordance with the following
annual schedule: 0.09% on the first $7 billion of their aggregate average daily
net assets and 0.04% of their aggregate average daily
<PAGE>
net assets in excess of $7
billion, less the complex-wide fees payable to FDI. The portion of this charge
payable by each Fund and Portfolio is determined by the proportionate share that
its net assets bear to the total net assets of the Trust, the Master Portfolios,
the other investors in the Master Portfolios for which Morgan provides similar
services and J.P. Morgan Series Trust.
Under prior administrative services agreements in effect from December
29, 1995 through July 31, 1996, with Morgan, each Fund's corresponding Portfolio
(except the Treasury Money Market Portfolio) paid Morgan a fee equal to its
proportionate share of an annual complex-wide charge. This charge was calculated
daily based on the aggregate net assets of the Master Portfolios in accordance
with the following schedule: 0.06% of the first $7 billion of the Master
Portfolios' aggregate average daily net assets, and 0.03% of the Master
Portfolios' aggregate average daily net assets in excess of $7 billion.
Prior to December 29, 1995, the Trust and each Portfolio (except The
Treasury Money Market Portfolio) had entered into Financial and Fund Accounting
Services Agreements with Morgan, the provisions of which included certain of the
activities described above and, prior to September 1, 1995, also included
reimbursement of usual and customary expenses. The table below sets forth for
each Fund listed and its corresponding Portfolio the fees paid to Morgan, net of
fee waivers and reimbursements, as Services Agent. See the Prospectus and below
for applicable expense limitations.
PRIME MONEY MARKET FUND --For the fiscal years ended November 30, 1995, 1996 and
1997: $(967,889)*, $(945,013)* and $386,048. THE PRIME MONEY MARKET PORTFOLIO --
For the fiscal years ended November 30, 1995, 1996 and 1997: $373,077, $891,730
and $1,256,131.
TREASURY MONEY MARKET FUND -- For the period July 8, 1997 (commencement of
operations) through October 31, 1997: $4,761. THE TREASURY MONEY MARKET
PORTFOLIO -- For the period July 7, 1997 (commencement of operations) through
October 31, 1997: $7,289.
FEDERAL MONEY MARKET FUND -- For the fiscal years ended October 31, 1995, 1996
and 1997: $(236,058)*, $(198,465)* and $33,554.
THE FEDERAL MONEY MARKET PORTFOLIO -- For the fiscal years ended October 31,
1995, 1996 and 1997: $(146,180)*, $(165,137)* and $101,963.
- -----------------------------------
* Indicates a reimbursement by Morgan for expenses in excess of its fees
under the prior administrative services agreements. No fees were paid
for the fiscal period.
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02110, serves as the Trust's and each Portfolio's
custodian and fund accounting agent and each Fund's transfer and dividend
disbursing agent. Pursuant to the Custodian Contracts, State Street is
responsible for maintaining the books of account and records of portfolio
transactions and holding portfolio securities and cash. The Custodian maintains
portfolio transaction records. As transfer agent and dividend disbursing agent,
State Street is responsible for maintaining account records detailing the
ownership of Fund shares and for crediting income, capital gains and other
changes in share ownership to shareholder accounts.
<PAGE>
SHAREHOLDER SERVICING
The Trust on behalf of each of the Funds has entered into a Shareholder
Servicing Agreement with Morgan pursuant to which Morgan acts as shareholder
servicing agent for its customers and for other Fund investors who are customers
of a Financial Professional. Under this agreement, Morgan is responsible for
performing shareholder account, administrative and servicing functions, which
include but are not limited to, answering inquiries regarding account status and
history, the manner in which purchases and redemptions of Fund shares may be
effected, and certain other matters pertaining to a Fund; assisting customers in
designating and changing dividend options, account designations and addresses;
providing necessary personnel and facilities to coordinate the establishment and
maintenance of shareholder accounts and records with the Funds' transfer agent;
transmitting purchase and redemption orders to the Funds' transfer agent and
arranging for the wiring or other transfer of funds to and from customer
accounts in connection with orders to purchase or redeem Fund shares; verifying
purchase and redemption orders, transfers among and changes in accounts;
informing the Distributor of the gross amount of purchase orders for Fund
shares; monitoring the activities of the Funds' transfer agent; and providing
other related services.
Under the Shareholder Servicing Agreement, each Fund has agreed to pay
Morgan for these services a fee at the annual rate (expressed as a percentage of
the average daily net asset values of Fund shares owned by or for shareholders
for whom Morgan is acting as shareholder servicing agent) of 0.05%. Morgan acts
as shareholder servicing agent for all shareholders.
The table below sets forth for each Fund listed the shareholder
servicing fees paid by each Fund to Morgan, net of fee waivers and
reimbursements, for the fiscal periods indicated. See the Prospectus and below
for applicable expense limitations.
PRIME MONEY MARKET FUND -- For the fiscal years ended November 30, 1995, 1996
and 1997: $697,914, $600,276 and $625,222.
TREASURY MONEY MARKET FUND -- For the period July 8, 1997
(commencement of operations) through October 31, 1997: $8,000.
FEDERAL MONEY MARKET FUND -- For the fiscal years ended October 31, 1995,
1996 and 1997: $101,100, $75,343 and $54,403.
As discussed under "Investment Advisor," the Glass-Steagall Act and
other applicable laws and regulations limit the activities of bank holding
companies and certain of their subsidiaries in connection with registered
open-end investment companies. The activities of Morgan in acting as shareholder
servicing agent for Fund shareholders under the Shareholder Servicing Agreement
and providing administrative services to the Funds and the Portfolios under the
Services Agreements and in acting as Advisor to the Portfolios under the
Investment Advisory Agreements, may raise issues under these laws. However,
Morgan believes that it may properly perform these services and the other
activities described in the Prospectus without violation of the Glass-Steagall
Act or other applicable banking laws or regulations.
If Morgan were prohibited from providing any of the services under the
Shareholder Servicing Agreement and the Services Agreements, the Trustees would
seek an alternative provider of such services. In such event, changes in the
operation of the Funds or the Portfolios might occur and a shareholder might no
longer be able to avail himself or herself of any services then being provided
to shareholders by Morgan.
<PAGE>
The Funds may be sold to or through financial intermediaries who are
customers of Morgan ("financial professionals"), including financial
institutions and broker-dealers, that may be paid fees by Morgan or its
affiliates for services provided to their clients that invest in the Funds. See
"Financial Professionals" below. Organizations that provide recordkeeping or
other services to certain employee benefit or retirement plans that include the
Funds as an investment alternative may also be paid a fee.
FINANCIAL PROFESSIONALS
The services provided by financial professionals may include
establishing and maintaining shareholder accounts, processing purchase and
redemption transactions, arranging for bank wires, performing shareholder
subaccounting, answering client inquiries regarding the Trust, assisting clients
in changing dividend options, account designations and addresses, providing
periodic statements showing the client's account balance and integrating these
statements with those of other transactions and balances in the client's other
accounts serviced by the financial professional, transmitting proxy statements,
periodic reports, updated prospectuses and other communications to shareholders
and, with respect to meetings of shareholders, collecting, tabulating and
forwarding executed proxies and obtaining such other information and performing
such other services as Morgan or the financial professional's clients may
reasonably request and agree upon with the financial professional.
Although there is no sales charge levied directly by the Fund,
financial professionals may establish their own terms and conditions for
providing their services and may charge investors a transaction-based or other
fee for their services. Such charges may vary among financial professionals but
in all cases will be retained by the financial professional and not remitted to
the Fund or Morgan.
INDEPENDENT ACCOUNTANTS
The independent accountants of the Trust and the Portfolios are Price
Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036. Price
Waterhouse LLP conducts an annual audit of the financial statements of each of
the Funds and the Portfolios, assists in the preparation and/or review of each
of the Fund's and the Portfolio's federal and state income tax returns and
consults with the Funds and the Portfolios as to matters of accounting and
federal and state income taxation.
EXPENSES
In addition to the fees payable to Pierpont Group, Inc., Morgan and FDI
under various agreements discussed under "Trustees and Officers," "Investment
Advisor," "Co-Administrator and Distributor," "Services Agent" and "Shareholder
Servicing" above, the Funds and the Portfolios are responsible for usual and
customary expenses associated with their respective operations. Such expenses
include organization expenses, legal fees, accounting expenses, insurance costs,
the compensation and expenses of the Trustees, costs associated with their
registration under federal securities laws, and extraordinary expenses
applicable to the Funds or the Portfolios. For the Funds, such expenses also
include transfer, registrar and dividend disbursing costs, the expenses of
printing and mailing reports, notices and proxy statements to Fund shareholders,
and filing fees under state securities laws. For the Portfolios, such expenses
also include custodian fees. Under fee arrangements prior to September 1, 1995,
Morgan as Services Agent was
<PAGE>
responsible for reimbursements to the Trust and
certain Portfolios and the usual and customary expenses described above
(excluding organization and extraordinary expenses, custodian fees and brokerage
expenses). For additional information regarding waivers or expense subsidies,
see the Prospectus.
PURCHASE OF SHARES
METHOD OF PURCHASE. Investors may open accounts with the Fund only
through the Distributor. All purchase transactions in Fund accounts are
processed by Morgan as shareholder servicing agent and the Fund is authorized to
accept any instructions relating to a Fund account from Morgan as shareholder
servicing agent for the customer. All purchase orders must be accepted by the
Distributor. Prospective investors who are not already customers of Morgan may
apply to become customers of Morgan for the sole purpose of Fund transactions.
There are no charges associated with becoming a Morgan customer for this
purpose. Morgan reserves the right to determine the customers that it will
accept, and the Trust reserves the right to determine the purchase orders that
it will accept.
References in the Prospectus and this Statement of Additional
Information to customers of Morgan or a financial professional include customers
of their affiliates and references to transactions by customers with Morgan or a
financial professional include transactions with their affiliates. Only Fund
investors who are using the services of a financial institution acting as
shareholder servicing agent pursuant to an agreement with the Trust on behalf of
a Fund may make transactions in shares of a Fund.
Each Fund may, at its own option, accept securities in payment for
shares. The securities delivered in such a transaction are valued by the method
described in "Net Asset Value" as of the day the Fund receives the securities.
This is a taxable transaction to the shareholder. Securities may be accepted in
payment for shares only if they are, in the judgment of Morgan, appropriate
investments for the Fund's corresponding Portfolio. In addition, securities
accepted in payment for shares must: (i) meet the investment objective and
policies of the acquiring Fund's corresponding Portfolio; (ii) be acquired by
the applicable Fund for investment and not for resale (other than for resale to
the Fund's corresponding Portfolio); and (iii) be liquid securities which are
not restricted as to transfer either by law or liquidity of market. Each Fund
reserves the right to accept or reject at its own option any and all securities
offered in payment for its shares.
Prospective investors may purchase shares with the assistance of a
Financial Professional, and the Financial Professional may charge the investor a
fee for this service and other services it provides to its customers.
REDEMPTION OF SHARES
Investors may redeem shares as described in the Prospectus.
Shareholders redeeming shares of the Funds should be aware that the Funds
attempt to maintain a stable net asset value of $1.00 per share; however, there
can be no assurance that they will be able to continue to do so, and in that
case the net asset value of the Fund's shares might deviate from $1.00 per
share. Accordingly, a redemption request might result in payment of a dollar
amount which differs from the number of shares redeemed. See "Net Asset Value"
below.
<PAGE>
If the Trust on behalf of a Fund and its corresponding Portfolio
determine that it would be detrimental to the best interest of the remaining
shareholders of a Fund to make payment wholly or partly in cash, payment of the
redemption price may be made in whole or in part by a distribution in kind of
securities from the Portfolio, in lieu of cash, in conformity with the
applicable rule of the SEC. If shares are redeemed in kind, the redeeming
shareholder might incur transaction costs in converting the assets into cash.
The method of valuing portfolio securities is described under "Net Asset Value,"
and such valuation will be made as of the same time the redemption price is
determined. The Trust on behalf of the Treasury Money Market and Federal Money
Market Funds and their corresponding Portfolios have elected to be governed by
Rule 18f-1 under the 1940 Act pursuant to which such Funds and their
corresponding Portfolios are obligated to redeem shares solely in cash up to the
lesser of $250,000 or one percent of the net asset value of such Fund during any
90-day period for any one shareholder. The Trust will redeem Fund shares in kind
only if it has received a redemption in kind from the corresponding Portfolio
and therefore shareholders of the Fund that receive redemptions in kind will
receive securities of the Portfolio. The Portfolios have advised the Trust that
the Portfolios will not redeem in kind except in circumstances in which a Fund
is permitted to redeem in kind.
FURTHER REDEMPTION INFORMATION. Investors should be aware that
redemptions from a Fund may not be processed if a redemption request is not
submitted in proper form. To be in proper form, the Fund must have received the
shareholder's taxpayer identification number and address. In addition, if a
shareholder sends a check for the purchase of fund shares and shares are
purchased before the check has cleared, the transmittal of redemption proceeds
from the shares will occur upon clearance of the check which may take up to 15
days. The Trust, on behalf of a Fund, and the Portfolios reserve the right to
suspend the right of redemption and to postpone the date of payment upon
redemption as follows: (i) for up to seven days, (ii) during periods when the
New York Stock Exchange is closed for other than weekends and holidays or when
trading on such Exchange is restricted as determined by the SEC by rule or
regulation, (iii) during periods in which an emergency, as determined by the
SEC, exists that causes disposal by the Portfolio of, or evaluation of the net
asset value of, its portfolio securities to be unreasonable or impracticable, or
(iv) for such other periods as the SEC may permit.
EXCHANGE OF SHARES
An investor may exchange shares from any Fund into shares of any other
J.P. Morgan Institutional Fund or J.P. Morgan mutual fund, without charge. An
exchange may be made so long as after the exchange the investor has shares, in
each fund in which he or she remains an investor, with a value of at least that
fund's minimum investment amount. Shareholders should read the prospectus of the
fund into which they are exchanging and may only exchange between fund accounts
that are registered in the same name, address and taxpayer identification
number. Shares are exchanged on the basis of relative net asset value per share.
Exchanges are in effect redemptions from one fund and purchases of another fund
and the usual purchase and redemption procedures and requirements are applicable
to exchanges. Shareholders subject to federal income tax who exchange shares in
one fund for shares in another fund may recognize capital gain or loss for
federal income tax purposes. Shares of the Fund to be acquired are purchased for
settlement when the proceeds from redemption become available. The Trust
reserves the right to discontinue, alter or limit the exchange privilege at any
time.
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
Each 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
Each of the Funds computes its net asset value once daily on Monday
through Friday as described in the Prospectus. The net asset value will not be
computed on the day the following legal holidays are observed: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Columbus Day, Veteran's Day, Thanksgiving Day, and
Christmas Day. In the event that trading in the money markets is scheduled to
end earlier than the close of the New York Stock Exchange in observance of these
holidays, the Funds and their corresponding Portfolios would expect to close for
purchases and redemptions an hour in advance of the end of trading in the money
markets. The Funds and the Portfolios may also close for purchases and
redemptions at such other times as may be determined by the Board of Trustees to
the extent permitted by applicable law. On any business day when the Public
Securities Association ("PSA") recommends that the securities market close
early, the Funds reserve the right to cease accepting purchase and redemption
orders for same business day credit at the time PSA recommends that the
securities market close. On days the Funds close early, purchase and redemption
orders received after the PSA-recommended closing time will be credited the next
business day. The days on which net asset value is determined are the Funds'
business days.
The net asset value of each Fund is equal to the value of the Fund's
investment in its corresponding Portfolio (which is equal to the Fund's pro rata
share of the total investment of the Fund and of any other investors in the
Portfolio less the Fund's pro rata share of the Portfolio's liabilities) less
the Fund's liabilities. The following is a discussion of the procedures used by
the Portfolios corresponding to each Fund in valuing their assets.
The Portfolios' portfolio securities are valued by the amortized cost
method. The purpose of this method of calculation is to attempt to maintain a
constant net asset value per share of the Fund of $1.00. No assurances can be
given that this goal can be attained. The amortized cost method of valuation
values a security at its cost at the time of purchase and thereafter assumes a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the instrument. If a
difference of more than 1/2 of 1% occurs between valuation based on the
amortized cost method and valuation based on market value, the Trustees will
take steps necessary to reduce such deviation, such as changing a Fund's
dividend policy, shortening the average portfolio maturity, realizing gains or
losses, or reducing the number of outstanding Fund shares. Any reduction of
outstanding shares will be effected by having each shareholder contribute to a
Fund's capital the necessary shares on a pro rata basis. Each shareholder will
be deemed to have agreed to such contribution in these circumstances by his
investment in the Funds. See "Taxes."
<PAGE>
PERFORMANCE DATA
From time to time, the Funds may quote performance in terms of yield,
actual distributions, total return or capital appreciation in reports, sales
literature and advertisements published by the Trust. Current performance
information for the Funds may be obtained by calling the number provided on the
cover page of this Statement of Additional Information. See the Prospectus.
YIELD QUOTATIONS. As required by regulations of the SEC, current yield
for the Funds is computed by determining the net change exclusive of capital
changes in the value of a hypothetical pre-existing account having a balance of
one share at the beginning of a seven-day calendar period, dividing the net
change in account value of the account at the beginning of the period, and
multiplying the return over the seven-day period by 365/7. For purposes of the
calculation, net change in account value reflects the value of additional shares
purchased with dividends from the original share and dividends declared on both
the original share and any such additional shares, but does not reflect realized
gains or losses or unrealized appreciation or depreciation. Effective yield for
each Fund is computed by annualizing the seven-day return with all dividends
reinvested in additional Fund shares.
Below is set forth historical yield information for the periods
indicated:
PRIME MONEY MARKET FUND (12/31/97): 7-day current yield: 5.74%; 7-day
effective yield: 5.91%.
TREASURY MONEY MARKET FUND (12/31/97): 7-day current yield: 5.61%; 7-day
effective yield: 5.77%.
FEDERAL MONEY MARKET FUND (12/31/97): 7-day current yield: 5.49%;
7-day effective yield: 5.64%.
TOTAL RETURN QUOTATIONS. Historical performance information for the Prime
Money Market Fund will be that of its corresponding predecessor J.P. Morgan Fund
and will be presented in accordance with applicable SEC staff interpretations.
The applicable financial information in the registration statement for the J.P.
Morgan Funds (Registration Nos. 033-54632 and 811-07340) is incorporated herein
by reference.
Below is set forth historical return information for each Fund or its
predecessor for the periods indicated:
PRIME MONEY MARKET FUND (12/31/97): Average annual total return, 1 year:
5.60%; average annual total return, 5 years: 4.80%; average annual total return,
10 years: 5.81%; aggregate total return, 1 year: 5.60%; aggregate total return,
5 years: 26.39%; aggregate total return, 10 years: 75.97%.
TREASURY MONEY MARKET FUND (12/31/97): Average annual total return, 1 year:
N/A; average annual total return, 5 years: N/A; average annual total return,
commencement of operations to period end: 2.72%; aggregate total return, 1 year:
N/A; aggregate total return, 5 years: N/A; aggregate total return, commencement
of operations to period end: 2.72%.
<PAGE>
FEDERAL MONEY MARKET FUND (12/31/97): Average annual total return, 1 year:
5.40%; average annual total return, 5 years: N/A; average annual total return,
commencement of operations to period end3: 4.62%; aggregate total return, 1
year: 5.40%; aggregate total return, 5 years: N/A; aggregate total return,
commencement of operations to period end3: 25.30%.
Aggregate total returns, reflecting the cumulative percentage change
over a measuring period, may also be calculated.
GENERAL. A Fund's performance will vary from time to time depending
upon market conditions, the composition of its corresponding Portfolio, and its
operating expenses. Consequently, any given performance quotation should not be
considered representative of a Fund's performance for any specified period in
the future. In addition, because performance will fluctuate, it may not provide
a basis for comparing an investment in a Fund with certain bank deposits or
other investments that pay a fixed yield or return for a stated period of time.
Comparative performance information may be used from time to time in
advertising the Funds' shares, including appropriate market indices including
the benchmarks indicated under "Investment Advisor" above or data from Lipper
Analytical Services, Inc., Micropal, Inc., Ibbotson Associates, Morningstar
Inc., the Dow Jones Industrial Average and other industry publications.
PORTFOLIO TRANSACTIONS
The Advisor places orders for all Portfolios for all purchases and sales of
portfolio securities, enters into repurchase agreements, and may enter into
reverse repurchase agreements and execute loans of portfolio securities on
behalf of all the Portfolios. See "Investment Objectives and Policies."
Fixed income and debt securities are generally traded at a net price
with dealers acting as principal for their own accounts without a stated
commission. The price of the security usually includes profit to the dealers. In
underwritten offerings, securities are purchased at a fixed price which includes
an amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount. On occasion, certain securities may be
purchased directly from an issuer, in which case no commissions or discounts are
paid.
Portfolio transactions for the Portfolios will be undertaken principally to
accomplish a Portfolio's objective in relation to expected movements in the
general level of interest rates. The Portfolios may engage in short-term trading
consistent with their objectives. See "Investment Objectives and Policies."
In connection with portfolio transactions for the Portfolios, the
Advisor intends to seek best execution on a competitive basis for both purchases
and sales of securities.
The Portfolios have a policy of investing only in securities with
maturities of not more than thirteen months, which will result in high portfolio
turnovers. Since brokerage commissions are not normally paid on investments
which the Portfolios make, turnover resulting from such investments should not
adversely affect the net asset value or net income of the Portfolios.
3 J.P. Morgan Institutional Federal Money Market Fund commenced operations
on January 4, 1993.
<PAGE>
Subject to the overriding objective of obtaining best execution of
orders, the Advisor may allocate a portion of a Portfolio's brokerage
transactions to affiliates of the Advisor. In order for affiliates of the
Advisor to effect any portfolio transactions for a Portfolio, the commissions,
fees or other remuneration received by such affiliates must be reasonable and
fair compared to the commissions, fees, or other remuneration paid to other
brokers in connection with comparable transactions involving similar securities
being purchased or sold on a securities exchange during a comparable period of
time. Furthermore, the Trustees of each Portfolio, including a majority of the
Trustees who are not "interested persons," have adopted procedures which are
reasonably designed to provide that any commissions, fees, or other remuneration
paid to such affiliates are consistent with the foregoing standard.
Portfolio securities will not be purchased from or through or sold to
or through the Co-Administrator, the Distributor or the Advisor or any other
"affiliated person" (as defined in the 1940 Act) of the Co-Administrator,
Distributor or Advisor when such entities are acting as principals, except to
the extent permitted by law. In addition, the Portfolios will not purchase
securities during the existence of any underwriting group relating thereto of
which the Advisor or an affiliate of the Advisor is a member, except to the
extent permitted by law.
On those occasions when the Advisor deems the purchase or sale of a
security to be in the best interests of a Portfolio as well as other customers
including other Portfolios, the Advisor to the extent permitted by applicable
laws and regulations, may, but is not obligated to, aggregate the securities to
be sold or purchased for a Portfolio with those to be sold or purchased for
other customers in order to obtain best execution, including lower brokerage
commissions if appropriate. In such event, allocation of the securities so
purchased or sold as well as any expenses incurred in the transaction will be
made by the Advisor in the manner it considers to be most equitable and
consistent with its fiduciary obligations to a Portfolio. In some instances,
this procedure might adversely affect a Portfolio.
MASSACHUSETTS TRUST
The Trust is a trust fund of the type commonly known as a
"Massachusetts business trust" of which each Fund is a separate and distinct
series. A copy of the Declaration of Trust for the Trust is on file in the
office of the Secretary of The Commonwealth of Massachusetts. The Declaration of
Trust and the By-Laws of the Trust are designed to make the Trust similar in
most respects to a Massachusetts business corporation. The principal distinction
between the two forms concerns shareholder liability described below.
Effective January 9, 1997, the name of The Treasury Money Market
Portfolio was changed to The Federal Money Market Portfolio. Effective May 12,
1997, the name of The Money Market Portfolio was changed to The Prime Money
Market Portfolio. Effective January 1, 1998, the name of the Trust was changed
from "The JPM Institutional Funds" to "J.P. Morgan Institutional Funds," and
each Fund's name changed accordingly.
Under Massachusetts law, shareholders of such a trust may, under
certain circumstances, be held personally liable as partners for the obligations
of the trust which is not the case for a corporation. However, the Trust's
Declaration of Trust provides that the shareholders shall not be subject to any
personal liability for the acts or obligations of any Fund and that every
written agreement, obligation, instrument or undertaking made on behalf of any
Fund shall contain a provision to the effect that the shareholders are not
personally liable thereunder.
<PAGE>
No personal liability will attach to the shareholders under any
undertaking containing such provision when adequate notice of such provision is
given, except possibly in a few jurisdictions. With respect to all types of
claims in the latter jurisdictions, (i) tort claims, (ii) contract claims where
the provision referred to is omitted from the undertaking, (iii) claims for
taxes, and (iv) certain statutory liabilities in other jurisdictions, a
shareholder may be held personally liable to the extent that claims are not
satisfied by a Fund. However, upon payment of such liability, the shareholder
will be entitled to reimbursement from the general assets of a Fund. The
Trustees intend to conduct the operations of the Trust in such a way so as to
avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the Funds.
The Trust's Declaration of Trust further provides that the name of the
Trust refers to the Trustees collectively as Trustees, not as individuals or
personally, that no Trustee, officer, employee or agent of a Fund is liable to a
Fund or to a shareholder, and that no Trustee, officer, employee, or agent is
liable to any third persons in connection with the affairs of a Fund, except as
such liability may arise from his or its own bad faith, willful misfeasance,
gross negligence or reckless disregard of his or its duties to such third
persons. It also provides that all third persons shall look solely to Fund
property for satisfaction of claims arising in connection with the affairs of a
Fund. With the exceptions stated, the Trust's Declaration of Trust provides that
a Trustee, officer, employee, or agent is entitled to be indemnified against all
liability in connection with the affairs of a Fund.
The Trust shall continue without limitation of time subject to the
provisions in the Declaration of Trust concerning termination by action of the
shareholders or by action of the Trustees upon notice to the shareholders.
DESCRIPTION OF SHARES
The Trust is an open-end management investment company organized as a
Massachusetts business trust in which each Fund represents a separate series of
shares of beneficial interest. See "Massachusetts Trust."
The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares ($0.001 par value) of one or more series
and classes within any series and to divide or combine the shares (of any
series, if applicable) without changing the proportionate beneficial interest of
each shareholder in a Fund (or in the assets of other series, if applicable).
Each share represents an equal proportional interest in a Fund with each other
share. Upon liquidation of a Fund, holders are entitled to share pro rata in the
net assets of a Fund available for distribution to such shareholders. See
"Massachusetts Trust." Shares of a Fund have no preemptive or conversion rights
and are fully paid and nonassessable. The rights of redemption and exchange are
described in the Prospectus and elsewhere in this Statement of Additional
Information.
The shareholders of the Trust are entitled to a full vote for each full
share held and to a fractional vote for each fractional share. Subject to the
1940 Act, the Trustees themselves have the power to alter the number and the
terms of office of the Trustees, to lengthen their own terms, or to make their
terms of unlimited duration subject to certain removal procedures, and appoint
their own successors, PROVIDED, HOWEVER, that immediately after such appointment
the requisite majority of the Trustees have been elected by the shareholders of
the Trust. The voting rights of shareholders are not cumulative so that holders
of more than 50% of the shares voting can, if they
<PAGE>
choose, elect all Trustees
being selected while the shareholders of the remaining shares would be unable to
elect any Trustees. It is the intention of the Trust not to hold meetings of
shareholders annually. The Trustees may call meetings of shareholders for action
by shareholder vote as may be required by either the 1940 Act or the Trust's
Declaration of Trust.
Shareholders of the Trust have the right, upon the declaration in
writing or vote of more than two-thirds of its outstanding shares, to remove a
Trustee. The Trustees will call a meeting of shareholders to vote on removal of
a Trustee upon the written request of the record holders of 10% of the Trust's
shares. In addition, whenever ten or more shareholders of record who have been
such for at least six months preceding the date of application, and who hold in
the aggregate either shares having a net asset value of at least $25,000 or at
least 1% of the Trust's outstanding shares, whichever is less, shall apply to
the Trustees in writing, stating that they wish to communicate with other
shareholders with a view to obtaining signatures to request a meeting for the
purpose of voting upon the question of removal of any Trustee or Trustees and
accompanied by a form of communication and request which they wish to transmit,
the Trustees shall within five business days after receipt of such application
either: (1) afford to such applicants access to a list of the names and
addresses of all shareholders as recorded on the books of the Trust; or (2)
inform such applicants as to the approximate number of shareholders of record,
and the approximate cost of mailing to them the proposed communication and form
of request. If the Trustees elect to follow the latter course, the Trustees,
upon the written request of such applicants, accompanied by a tender of the
material to be mailed and of the reasonable expenses of mailing, shall, with
reasonable promptness, mail such material to all shareholders of record at their
addresses as recorded on the books, unless within five business days after such
tender the Trustees shall mail to such applicants and file with the SEC,
together with a copy of the material to be mailed, a written statement signed by
at least a majority of the Trustees to the effect that in their opinion either
such material contains untrue statements of fact or omits to state facts
necessary to make the statements contained therein not misleading, or would be
in violation of applicable law, and specifying the basis of such opinion. After
opportunity for hearing upon the objections specified in the written statements
filed, the SEC may, and if demanded by the Trustees or by such applicants shall,
enter an order either sustaining one or more of such objections or refusing to
sustain any of them. If the SEC shall enter an order refusing to sustain any of
such objections, or if, after the entry of an order sustaining one or more of
such objections, the SEC shall find, after notice and opportunity for hearing,
that all objections so sustained have been met, and shall enter an order so
declaring, the Trustees shall mail copies of such material to all shareholders
with reasonable promptness after the entry of such order and the renewal of such
tender.
The Trustees have authorized the issuance and sale to the public of
shares of 25 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
<PAGE>
additional series or class, and all assets in which such consideration is
invested, would belong to that series or class, subject only to the rights of
creditors of the Trust and would be subject to the liabilities related thereto.
Shareholders of any additional series or class will approve the adoption of any
management contract or distribution plan relating to such series or class and of
any changes in the investment policies related thereto, to the extent required
by the 1940 Act.
For information relating to mandatory redemption of Fund shares or
their redemption at the option of the Trust under certain circumstances, see the
Prospectus.
As of January 2, 1998, the following owned of record, or to the
knowledge of management, beneficially owned more than 5% of the outstanding
shares of:
Prime Money Market Fund: Morgan as Agent for Unilever United States
(5.46%), Citibank-Private Bank (18.13%), AT&T Communications Services
International Inc. (6.68%), AOS Holding Company (6.39%), COSTCO Wholesale Corp.
(5.69%); and Pacific Gas & Electric Company (7.81%).
Treasury Money Market Fund: Morgan as Agent for Jamesway Corp. (5.18%),
Peapod Inc. (18.16%), Hare & Co. (42.32%), The First National Bank in Sioux
Falls (12.23%); and Food Research Corp. (11.43%).
Federal Money Market Fund: Morgan as Agent for R. and L. Schaps (22.52%),
Morgan as Agent for C.C. Mashek (5.62%), Estee Lauder Inc. (18.71%) and M.M.
Mora (8.03%).
SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE
Unlike other mutual funds which directly acquire and manage their own
portfolio of securities, each Fund is an open-end management investment company
which seeks to achieve its investment objective by investing all of its
investable assets in a corresponding Portfolio, a separate registered investment
company with the same investment objective as the Fund. Generally, when a 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 a Fund, a 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) 521-5411.
The Trust may withdraw the investment of a Fund from a Portfolio at any
time if the Board of Trustees of the Trust determines that it is in the best
interests of the Fund to do so. Upon any such withdrawal, the Board of Trustees
would consider what action might be taken, including the investment of all the
assets of the Fund in another pooled investment entity having the same
investment objective and restrictions as the Fund or the retaining of an
<PAGE>
investment adviser to manage the Fund's assets in accordance with the
investment policies with respect to the Portfolio described above and in each
Fund's prospectus.
Certain changes in a Portfolio's investment objective, policies or
restrictions, or a failure by a 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 a 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 a 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 effect on the outcome of such matters.
TAXES
The following discussion of tax consequences is based on U.S. federal
tax laws in effect on the date of this Prospectus. These laws and regulations
are subject to change by legislative or administrative action.
Each Fund intends to qualify as a regulated investment company under
Subchapter M of the Code. As a regulated investment company, a Fund must, among
other things, (a) derive at least 90% of its gross income from dividends,
interest, payments with respect to loans of stock and securities, gains from the
sale or other disposition of stock, securities or foreign currency and other
income (including but not limited to gains from options, futures, and forward
contracts) derived with respect to its business of investing in such stock,
securities or foreign currency; and (b) diversify its holdings so that, at the
end of each quarter of its taxable year, (i) at least 50% of the value of the
Fund's total assets is represented by cash, cash items, U.S. Government
securities, securities of other regulated investment companies, and other
securities limited, in respect of any one issuer, to an amount not greater than
5% of the Fund's total assets, and 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its total assets is
invested in the securities of any one issuer
<PAGE>
(other than U.S. Government
securities or securities of other regulated investment companies). As a
regulated investment company, a Fund (as opposed to its shareholders) will not
be subject to federal income taxes on the net investment income and capital gain
that it distributes to its shareholders, provided that at least 90% of its net
investment income and realized net short-term capital gain in excess of net
long-term capital loss for the taxable year is distributed in accordance with
the Code's timing requirements.
Under the Code, a Fund will be subject to a 4% excise tax on a portion
of its undistributed taxable income and capital gains if it fails to meet
certain distribution requirements by the end of the calendar year. Each Fund
intends to make distributions in a timely manner and accordingly does not expect
to be subject to the excise tax.
For federal income tax purposes, dividends that are declared by a Fund
in October, November or December as of a record date in such month and actually
paid in January of the following year will be treated as if they were paid on
December 31 of the year declared. Therefore, such dividends will be taxable to a
shareholder in the year declared rather than the year paid.
Distributions of net investment income and realized net short-term
capital gain in excess of net long-term capital loss (other than exempt interest
dividends) are generally taxable to shareholders of the Funds as ordinary income
whether such distributions are taken in cash or reinvested in additional shares.
Distributions to corporate shareholders of the Funds are not eligible for the
dividends received deduction. Distributions of net long-term capital gain (i.e.,
net long-term capital gain in excess of net short-term capital loss) are taxable
to shareholders of a Fund as long-term capital gain, regardless of whether such
distributions are taken in cash or reinvested in additional shares and
regardless of how long a shareholder has held shares in the Fund. As a result of
the enactment of the Taxpayer Relief Act of 1997 (the "Act"), long-term capital
gain of an individual is generally subject to a maximum rate of 28% in respect
of a capital asset held directly by such individual for more than one year but
not more than eighteen months, and the maximum rate is reduced to 20% in respect
of a capital asset held in excess of 18 months. The Act authorizes the Treasury
department to promulgate regulations that would apply these rules in the case of
long-term capital gain distributions made by the Fund. The Treasury Department
has indicated that, under such regulations, individual shareholders will be
taxed at a minimum rate of 28% in respect of capital gains distributions
designated as 28% rate gain distributions and will be taxed at a maximum rate of
20% in respect of capital gains distributions designated as 20% rate gain
distributions, regardless of how long such shareholders have held their shares
in the Fund. Additionally, any loss realized on a redemption or exchange of
shares of a Fund will be disallowed to the extent the shares disposed of are
replaced within a period of 61 days beginning 30 days before such disposition,
such as pursuant to reinvestment of a dividend in shares of the Fund.
To maintain a constant $1.00 per share net asset value, the Trustees of
the Trust may direct that the number of outstanding shares be reduced pro rata.
If this adjustment is made, it will reflect the lower market value of portfolio
securities and not realized losses. The adjustment may result in a shareholder
having more dividend income than net income in his account for a period. When
the number of outstanding shares of a Fund is reduced, the shareholder's basis
in the shares of the Fund may be adjusted to reflect the difference between
taxable income and net dividends actually distributed. This difference may be
realized as a capital loss when the shares are liquidated. Subject to certain
limited exceptions, capital losses cannot be used to offset ordinary income. See
"Net Asset Value."
<PAGE>
Gains or losses on sales of portfolio securities will be treated as
long-term capital gains or losses if the securities have been held for more than
one year except in certain cases where a put is acquired or a call option is
written thereon or straddle rules are otherwise applicable. Other gains or
losses on the sale of securities will be short-term capital gains or losses.
Gains and losses on the sale, lapse or other termination of options on
securities will be treated as gains and losses from the sale of securities.
Except as described below, if an option written by a Portfolio lapses or is
terminated through a closing transaction, such as a repurchase by the Portfolio
of the option from its holder, the Portfolio will realize a short-term capital
gain or loss, depending on whether the premium income is greater or less than
the amount paid by the Portfolio in the closing transaction. If securities are
purchased by a Portfolio pursuant to the exercise of a put option written by it,
the Portfolio will subtract the premium received from its cost basis in the
securities purchased.
Any distribution of net investment income or capital gains will have
the effect of reducing the net asset value of Fund shares held by a shareholder
by the same amount as the distribution. If the net asset value of the shares is
reduced below a shareholder's cost as a result of such a distribution, the
distribution, although constituting a return of capital to the shareholder, will
be taxable as described above.
Any gain or loss realized on the redemption or exchange of Fund shares
by a shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held for more than one year, and
otherwise as short-term capital gain or loss. However, any loss realized by a
shareholder upon the redemption or exchange of shares in the Fund held for six
months or less 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.
FOREIGN SHAREHOLDERS. Dividends of net investment income and
distributions of realized net short-term gain in excess of net long-term loss to
a shareholder who, as to the United States, is a nonresident alien individual,
fiduciary of a foreign trust or estate, foreign corporation or foreign
partnership (a "foreign shareholder") will be subject to U.S. withholding tax at
the rate of 30% (or lower treaty rate) unless the dividends are effectively
connected with a U.S. trade or business of the shareholder, in which case the
dividends will be subject to tax on a net income basis at the graduated rates
applicable to U.S. individuals or domestic corporations. Distributions treated
as long term capital gains to foreign shareholders will not be subject to U.S.
tax unless the distributions are effectively connected with the shareholder's
trade or business in the United States or, in the case of a shareholder who is a
nonresident alien individual, the shareholder was present in the United States
for more than 182 days during the taxable year and certain other conditions are
met.
In the case of a foreign shareholder who is a nonresident alien
individual or foreign entity, a Fund may be required to withhold U.S. federal
income tax as "backup withholding" at the rate of 31% from distributions treated
as long-term capital gains and from the proceeds of redemptions, exchanges or
other dispositions of Fund shares unless IRS Form W-8 is provided. Transfers by
gift of shares of a Fund by a foreign shareholder who is a nonresident alien
individual will not be subject to U.S. federal gift tax, but the value of shares
of the Fund held by such a shareholder at his or her death will be includible in
his or her gross estate for U.S. federal estate tax purposes.
<PAGE>
STATE AND LOCAL TAXES. Each Fund may be subject to state or local taxes
in jurisdictions in which the Fund is deemed to be doing business. In addition,
the treatment of a Fund and its shareholders in those states which have income
tax laws might differ from treatment under the federal income tax laws.
Shareholders should consult their own tax advisors with respect to any state or
local taxes.
OTHER TAXATION. The Trust is organized as a Massachusetts business
trust and, under current law, neither the Trust nor any Fund is liable for any
income or franchise tax in The Commonwealth of Massachusetts, provided that each
Fund continues to qualify as a regulated investment company under Subchapter M
of the Code. The Portfolios are organized as New York trusts. The Portfolios are
not subject to any federal income taxation or income or franchise tax in the
State of New York or The Commonwealth of Massachusetts. The investment by a Fund
in its corresponding Portfolio does not cause the Fund to be liable for any
income or franchise tax in the State of New York.
ADDITIONAL INFORMATION
As used in this Statement of Additional Information and the Prospectus,
the term "majority of the outstanding voting securities" means the vote of (i)
67% or more of the Fund's shares or the Portfolio's outstanding voting
securities present at a meeting, if the holders of more than 50% of the Fund's
outstanding shares or the Portfolio's outstanding voting securities are present
or represented by proxy, or (ii) more than 50% of the Fund's outstanding shares
or the Portfolio's outstanding voting securities, whichever is less.
Telephone calls to the Funds, Morgan or Financial Professionals as
shareholder servicing agent may be tape recorded. With respect to the securities
offered hereby, this Statement of Additional Information and the Prospectus do
not contain all the information included in the Trust's Registration Statement
filed with the SEC under the 1933 Act and the Trust's and the Portfolios'
Registration Statements filed under the 1940 Act. Pursuant to the rules and
regulations of the SEC, certain portions have been omitted. The Registration
Statements including the exhibits filed therewith may be examined at the office
of the SEC in Washington D.C.
Statements contained in this Statement of Additional Information and
the Prospectus concerning the contents of any contract or other document are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the applicable
Registration Statements.
Each such statement is qualified in all respects by such reference.
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in the
Prospectus and this Statement of Additional Information, in connection with the
offer contained therein and, if given or made, such other information or
representations must not be relied upon as having been authorized by any of the
Trust, the Funds or the Distributor. The Prospectus and this Statement of
Additional Information do not constitute an offer by any Fund or by the
Distributor to sell or solicit any offer to buy any of the securities offered
hereby in any jurisdiction to any person to whom it is unlawful for the Fund or
the Distributor to make such offer in such jurisdictions.
<PAGE>
FINANCIAL STATEMENTS
The following financial statements and the report thereon of Price
Waterhouse LLP of each Fund are incorporated herein by reference from their
respective annual report filings made with the SEC pursuant to Section 30(b) of
the 1940 Act and Rule 30b2-1 thereunder. Any of the following financial reports
are available without charge upon request by calling JP Morgan Funds Services at
(800) 766-7722. Each Fund's financial statements include the financial
statements of the Fund's corresponding Portfolio.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------- ----------------------------------------------------------
<S> <C>
Date of Annual Report; Date Annual Report Filed; and
Name of Fund Accession Number
- ---------------------------------------------------------------------- ----------------------------------------------------------
- ---------------------------------------------------------------------- ----------------------------------------------------------
J.P. Morgan Institutional Prime Money Market Fund 11/30/97
02/03/98
0001047469-98-003138
- ---------------------------------------------------------------------- ----------------------------------------------------------
- ---------------------------------------------------------------------- ----------------------------------------------------------
J.P. Morgan Institutional Treasury Money Market Fund 10/31/97
01/09/98
0001047469-97-000567
- ---------------------------------------------------------------------- ----------------------------------------------------------
- ---------------------------------------------------------------------- ----------------------------------------------------------
J.P. Morgan Institutional Federal Money Market Fund 10/31/97
12/30/97
0001047469-97-009109
- ---------------------------------------------------------------------- ----------------------------------------------------------
</TABLE>
<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.
COMMERCIAL PAPER, INCLUDING TAX EXEMPT
A - Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined with
the designations 1, 2, and 3 to indicate the relative degree of safety.
A-1 - This designation indicates that the degree of safety regarding timely
payment is very strong.
SHORT-TERM TAX-EXEMPT NOTES
SP-1 - The short-term tax-exempt note rating of SP-1 is the highest
rating assigned by Standard & Poor's and has a very strong or
strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics are
given a "plus" (+) designation.
SP-2 - The short-term tax-exempt note rating of SP-2 has a satisfactory
capacity to pay principal and interest.
MOODY'S
CORPORATE AND MUNICIPAL BONDS
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
<PAGE>
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
COMMERCIAL PAPER, INCLUDING TAX EXEMPT
Prime-1 - Issuers rated Prime-1 (or related supporting institutions) have
a superior capacity for repayment of short-term promissory
obligations. Prime-1 repayment capacity will normally be
evidenced by the following characteristics:
-Leading market positions in well established industries.
-High rates of return on funds employed.
-Conservative capitalization structures with moderate reliance on debt
and ample asset protection.
-Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
-Well established access to a range of financial markets and assured
sources of alternate liquidity.
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>
- --------------------------------------------------------------------------------
FEBRUARY 2, 1998 | PROSPECTUS
================================================================================
J.P. MORGAN INSTITUTIONAL
TAX EXEMPT MONEY MARKET FUND
==========================================
Seeking to preserve capital and to provide
income and same-day liquidity
This prospectus contains essential information for anyone investing in this
fund. Please read it carefully and keep it for reference.
Shares in this fund are not bank deposits and are not guaranteed or insured by
any bank, government entity, or the FDIC. The fund seeks to maintain a stable $1
share price, without guaranteeing that it will always be able to do so.
As with all mutual funds, the fact that these shares are registered with the
Securities and Exchange Commission does not mean that the commission approves
them as an investment or guarantees that the information in this prospectus is
correct or adequate. It is a criminal offense to state or suggest otherwise.
[LOGO]JPMorgan
Distributed by Funds Distributor, Inc.
<PAGE>
<TABLE>
<CAPTION>
CONTENTS
====================================================================================================================================
<S> <C> <C>
2 | MONEY MARKET MANAGEMENT APPROACH
Money market investment process ................................. 2
4 | J.P. MORGAN INSTITUTIONAL TAX EXEMPT MONEY MARKET FUND
The fund's goal, investment approach, Fund description ................................................ 4
risks, expenses, performance, and
financial highlights Investor expenses ............................................... 4
Performance ..................................................... 5
Financial highlights ............................................ 5
6 | YOUR INVESTMENT
Investing in the J.P. Morgan Institutional Investing through a financial professional ...................... 6
Tax Exempt Money Market Fund
Investing through an employer-sponsored retirement plan ......... 6
Investing through an IRA or rollover IRA ........................ 6
Investing directly .............................................. 6
Opening your account ............................................ 6
Adding to your account .......................................... 6
Selling shares .................................................. 7
Account and transaction policies ................................ 7
Dividends and distributions ..................................... 8
Tax considerations .............................................. 8
9 | FUND DETAILS
More about the fund's Master/feeder structure ......................................... 9
business operations
Management and administration ................................... 9
FOR MORE INFORMATION ..................................... back cover
</TABLE>
<PAGE>
INTRODUCTION
================================================================================
J.P. MORGAN INSTITUTIONAL TAX EXEMPT MONEY MARKET FUND
This fund invests in high-quality short-term debt securities by investing
through a master portfolio (another fund with the same goal). The fund accrues
dividends daily, pays them to shareholders monthly, and seeks to maintain a
stable $1 share price.
WHO MAY WANT TO INVEST
The fund is designed for investors who:
o want an investment that strives to preserve capital
o want regular income from a high quality portfolio
o want a highly liquid investment
o are looking for an interim investment
o are pursuing a short-term goal
o are seeking income that is exempt from federal income tax
The fund is not designed for investors who:
o are investing for long-term growth
o are investing for high income
o require the added security of the FDIC insurance
o are investing through an IRA or other tax-advantaged retirement plan
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 approximately $250 billion in assets under management,
including assets managed by the fund's advisor, Morgan Guaranty Trust Company of
New York.
=======================================
Before you invest
Investors considering
the fund should understand that:
o There is no assurance that the fund
will meet its investment goals
o Future returns will not necessarily
resemble past performance
o The fund does not represent a
complete investment program
- ---------------------------------------
|
| 1
|
<PAGE>
MONEY MARKET MANAGEMENT APPROACH
================================================================================
The J.P. Morgan Institutional Tax Exempt
Money Market Fund invests exclusively in
high-quality short-term debt obligations.
The fund's investment philosophy, developed
by its advisor, emphasizes investment quality
through in-depth research of short-term
securities and their issuers. This allows the
fund to focus on providing high current
income without compromising share price
stability.
MONEY MARKET INVESTMENT PROCESS
In researching short-term securities, J.P.
Morgan's credit analysts enhance the data
furnished by rating agencies by drawing on
the insights of J.P. Morgan's fixed income
trading specialists and equity analysts. Only
securities highly rated by independent rating
agencies as well as J.P. Morgan's proprietary
ratings system are considered for investment.
In managing the fund, J.P. Morgan employs a
three-step process:
[GRAPHIC] MATURITY DETERMINATION Based on analysis of a
range of factors, including current yields,
J.P. Morgan uses a disciplined economic forecasts, and anticipated fiscal
process to control the fund's and monetary policies, J.P. Morgan
sensitivity to interest rates establishes the desired weighted average
maturity for the fund within the permissible
90-day range. Controlling weighted average
maturity allows the fund to manage risk,
since securities with shorter maturities are
typically less sensitive to interest rate
shifts than those with longer maturities.
[GRAPHIC] SECTOR ALLOCATION Analysis of the yields
available in different sectors of the
The fund invests across municipal debt market, such as government
different sectors for obligations and revenue bonds, allows J.P.
diversification and to take Morgan to adjust the fund's sector
advantage of yield spreads allocation, with the goal of enhancing
current income while also maintaining
diversification across permissible sectors.
[GRAPHIC] SECURITY SELECTION Based on the results of
the firm's credit research and the fund's
The fund selects its maturity determination and sector allocation,
securities as described later the portfolio managers and dedicated
in this prospectus fixed-income traders make buy and
sell decisions according to the fund's goal
and strategy.
|
2 | MONEY MARKET MANAGEMENT APPROACH
|
<PAGE>
================================================================================
(THIS PAGE IS INTENTIONALLY LEFT BLANK)
|
| 3
|
<PAGE>
J.P. MORGAN INSTITUTIONAL TAX EXEMPT
MONEY MARKET FUND | TICKER SYMBOL: JPEXX
================================================================================
REGISTRANT: J.P. MORGAN INSTITUTIONAL FUNDS
(J.P. MORGAN INSTITUTIONAL TAX EXEMPT MONEY MARKET FUND)
[GRAPHIC] GOAL
The fund's goal is to provide high current income that is exempt from
federal income tax and to maintain high liquidity.
[GRAPHIC]INVESTMENT APPROACH
The fund invests primarily in high quality municipal obligations whose
income is exempt from federal income taxes. The fund's municipal obligations
must fall into the highest short-term rating category (top two highest
categories for New York State obligations) or be of equivalent quality. The fund
may also invest in certain structured municipal obligations, and in certain
securities whose income is subject to the alternative minimum tax (AMT). In
order to maintain liquidity while being fully invested, the fund may buy
securities with puts that allow the fund to liquidate the securities on short
notice. Some of the fund's securities may be purchased on a when-issued or
delayed delivery basis.
[GRAPHIC] POTENTIAL RISKS AND REWARDS
The fund's yield will vary in response to changes in interest rates. How
well the fund's yield compares to the yields of similar money market funds will
depend on the success of the investment process described on page 2.
As with all money market funds, the fund's investments are subject to various
risks, which, while generally considered to be minimal, could cause its share
price to fall below $1. For example, the issuer or guarantor of a portfolio
security or the counterparty to a contract could default on its obligation. An
unexpected rise in interest rates could also lead to a loss in share price if
the fund is near the maximum allowable average weighted maturity at the time.
However, the fund's investment process and management policies are designed to
minimize the likelihood and impact of these risks. To date, through this
process, the fund's share price has never deviated from $1.
Most of the fund's income is exempt from federal income taxes. A small portion
may be exempt from state or local income taxes.
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages
approximately $250 billion, including more than $13 billion using the same
strategy as the fund.
The portfolio management team is led by Daniel B. Mulvey, vice president, who
has been on the team since August of 1995 and has been at J.P. Morgan since
1991, and by Richard W. Oswald, vice president, who has been on the team since
joining J.P. Morgan in October of 1996. Prior to managing this fund, Mr. Oswald
served as Treasurer of CBS and President of its finance unit.
MONEY MARKET FUNDS AND STABILITY
Money market funds are subject to a range of federal regulations designed to
promote stability. For example, money market funds must maintain a weighted
average maturity of no more than 90 days, and generally may not invest in any
securities with a remaining maturity of more than 13 months. Keeping the
weighted average maturity this short helps funds in their pursuit of a stable $1
share price.
================================================================================
INVESTOR EXPENSES
The current expenses you should expect to pay as an investor in the fund are
shown at right. The fund has no sales, redemption, exchange, or account fees,
although some institutions may charge you a fee for shares you buy through them.
The annual fund expenses shown are deducted from fund assets prior to
performance calculations.
Footnotes for this section are shown on next page.
<TABLE>
<CAPTION>
================================================================================
Annual fund operating expenses(1)(%)
================================================================================
<S> <C>
Management fees (actual) 0.18
Marketing (12b-1) fees None
Other expenses(2)
(after waiver and reimbursement) 0.06
================================================================================
Total operating expenses(2)
(after reimbursement) 0.24
- --------------------------------------------------------------------------------
<CAPTION>
================================================================================
Expense example
================================================================================
The example below uses the same assumptions as other fund prospectuses: $1,000
initial investment, 5% annual total return, expenses unchanged, all shares sold
at the end of each time period. The example is for comparison only; the fund's
actual return and expenses will be different.
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
<S> <C> <C> <C> <C>
Your cost($) 2 8 14 31
- --------------------------------------------------------------------------------
</TABLE>
|
4 | J.P. MORGAN INSTITUTIONAL TAX EXEMPT MONEY MARKET FUND
|
<PAGE>
PERFORMANCE (unaudited)
<TABLE>
<CAPTION>
==================================
Average annual total return (%) Shows performance over time, for periods ended December 31, 1997
===================================-------------------------------------------------------------------------------------------------
1 yr. 5 yrs.(3) 10 yrs.(3)
<S> <C> <C> <C>
J.P. Morgan Institutional Tax Exempt Money Market Fund (after expenses) 3.46 3.03 3.85
- ------------------------------------------------------------------------------------------------------------------------------------
IBC's Tax Exempt Money Fund Average(4) (after expenses) 3.09 2.72 3.65
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[THE FOLLOWING TABLE WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL].]
<TABLE>
<CAPTION>
=================================
Year-by-year total return (%) Shows changes in returns by calendar year
=================================---------------------------------------------------------------------------------------------------
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
J.P. Morgan Institutional Tax Exempt Money Market Fund(3) 4.93 6.11 5.58 4.16 2.71 2.10 2.66 3.68 3.24 3.46
IBC's Tax Exempt Money Fund Average(4) 4.80 5.91 5.49 4.17 2.56 1.93 2.34 3.34 2.93 3.09
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
====================================================================================================================================
FINANCIAL HIGHLIGHTS
====================================
Per-share data For fiscal periods ended August 31
====================================------------------------------------------------------------------------------------------------
1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ($) 1.00 1.00 1.00 1.00 1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.0040 0.0228 0.0352 0.0331 0.0330
Net realized loss on investment ($) (0.0000)(5) (0.0000)(5) (0.0002) (0.0000)(5) (0.0000)(5)
====================================================================================================================================
Total from investment operations ($) 0.0040 0.0228 0.0350 0.0331 0.0330
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) (0.0040) (0.0228) (0.0352) (0.0331) (0.0330)
Net realized gain ($) -- (0.0000)(5) -- -- --
====================================================================================================================================
Total distributions ($) (0.0040) (0.0228) (0.0352) (0.0331) (0.0330)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period ($) 1.00 1.00 1.00 1.00 1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Total return (%) 0.40(6) 2.30 3.57 3.36 3.35
====================================
Ratios and supplemental data
====================================------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 35,004 46,083 100,142 163,569 290,943
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Expenses (%) 0.357 0.35 0.35 0.35 0.29
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (%) 2.25(7) 2.34 3.49 3.28 3.29
- ------------------------------------------------------------------------------------------------------------------------------------
Decrease reflected in expense ratio due
to expense reimbursement/waiver (%) 1.08(7) 0.65 0.15 0.07 0.10
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Financial Highlights above have been audited by Price Waterhouse LLP, the
fund's independent accountants.
1 The fund has a master/feeder structure as described on page 9. This table
shows the fund's expenses and its share of master portfolio expenses for
the past fiscal year. The expense table has been restated to reflect
current expenses/waivers/reimbursements. The fees and expenses in the table
are expressed as a percentage of the fund's average net assets, and assume
that the current arrangements were in effect throughout the fiscal year.
Total operating expenses may vary but in any event will not exceed 0.35% of
the fund's average daily net assets through 12/31/98.
2 Morgan has agreed to waive and/or reimburse all fund expenses (except for
those allocated to the fund by the master portfolio, and extraordinary
expenses) through 12/31/98. Without such waiver and reimbursement, other
expenses and total operating expenses would have been 0.21% and 0.39%,
respectively. There is no guarantee that this arrangement will continue
beyond 12/31/98.
3 The fund commenced operations on 7/12/93. Except in Financial Highlights,
returns reflect performance of the J.P. Morgan Tax Exempt Money Market Fund
(a separate feeder fund investing in the same master portfolio) from 1/1/88
through 7/12/93. This data is based on historical earnings and is not
intended to indicate future performance.
4 IBC's Tax Exempt Money Fund Average is an average of all major tax free
money market fund returns.
5 Less than $0.0001.
6 Not annualized.
7 Annualized.
|
J.P. MORGAN INSTITUTIONAL TAX EXEMPT MONEY MARKET FUND | 5
|
<PAGE>
YOUR INVESTMENT
================================================================================
For your convenience, the J.P. Morgan Institutional Funds offer several ways to
start and 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 THROUGH AN EMPLOYER-SPONSORED RETIREMENT PLAN
Your fund investments are handled through your plan. Refer to your plan
materials or contact your benefits office for information on buying, selling, or
exchanging fund shares.
INVESTING THROUGH AN IRA OR ROLLOVER IRA
Please contact a J.P. Morgan Retirement Services Specialist at 1-888-576-4472
for information on J.P. Morgan's comprehensive IRA services, including lower
minimum investments.
INVESTING DIRECTLY
Investors may establish accounts without the help of an intermediary by using
the instructions below and at right:
o Determine the amount you are investing. The minimum amount for initial
investments in the fund is $10,000,000 and for additional investments
$25,000, although these minimums may be less for some investors. For more
information on minimum investments, call 1-800-766-7722.
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>
================================================================================
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 DAYS AND NAV CALCULATIONS The fund's regular business days are the same
as those of the New York Stock Exchange. The fund calculates its net asset value
per share (NAV) every business day at 4:00 p.m. eastern time.
TIMING OF ORDERS Orders to buy or sell shares are executed at the next NAV
calculated after the order has been accepted. Purchase and redemption orders for
the fund must be received by 12:00 noon eastern time.
For the purchase to be effective and dividends to be earned on the same day,
immediately available funds must be received by 4:00 p.m. eastern time on a fund
business day. The fund has the right to suspend redemption of shares and to
postpone payment of proceeds for up to seven days or as permitted by law.
================================================================================
Shareholder Services Agent
J.P. Morgan Funds Services
522 Fifth Avenue
New York, NY 10036
1-800-766-7722
Representatives are available 8:00 a.m. to 5:00 p.m. eastern
time on fund business days.
|
YOUR INVESTMENT | 7
|
<PAGE>
TIMING OF SETTLEMENTS When you buy shares, you will become the owner of record
when the fund receives your payment.
Redemption orders for the fund received by 12:00 noon eastern time will be paid
in immediately available funds normally on the same day, according to
instructions on file.
When you sell shares that you recently purchased by check, your order will be
executed at the next NAV but the proceeds will not be available until your check
clears. This may take up to 15 days.
STATEMENTS AND REPORTS The fund sends monthly account statements as well as
confirmations after each purchase or sale of shares (except reinvestments).
Every six months, the fund sends out an annual or semi-annual report containing
information on 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
Substantially all income dividends are declared daily and paid monthly. If all
of an investor's shares are redeemed during the month, accrued but unpaid
dividends are paid with the redemption proceeds. Shares of the fund earn
dividends on the business day their purchase is effective, but not on the
business day their redemption is effective.
Dividends and distributions are 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. The transactions
below typically create the following tax liabilities:
<TABLE>
<CAPTION>
================================================================================
Transaction Tax status
- --------------------------------------------------------------------------------
<S> <C>
Income dividends Exempt from federal
income taxes
- --------------------------------------------------------------------------------
Short-term capital gains Ordinary income
distributions
- --------------------------------------------------------------------------------
</TABLE>
Every January, the fund issues tax information on its distributions for the
previous year.
Any investor for whom the fund does not have a valid taxpayer identification
number will be subject to backup withholding for taxes.
The tax considerations described in this section do not apply to tax-deferred
accounts or other non-taxable entities.
Because each investor's tax circumstances are unique, please consult your tax
professional about your fund investment.
|
8 | YOUR INVESTMENT
|
<PAGE>
FUND DETAILS
================================================================================
MASTER/FEEDER STRUCTURE
As noted earlier, the fund is a "feeder" fund that invests in a master
portfolio. (Except where indicated, this prospectus uses the term "the fund" to
mean the feeder fund and its master portfolio taken together.)
The master portfolio accepts investments from other feeder funds, and 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, provides fund officers. J.P. Morgan, as
co-administrator, oversees the fund's other service providers.
J.P. Morgan receives the following fees for investment
advisory and other services:
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
Advisory services 0.20% of the first $1 billion of the master
portfolio's average net assets plus 0.10% over
$1 billion
- --------------------------------------------------------------------------------
Administrative services Master portfolio's and fund's pro- rata portions
(fee shared with Funds of 0.09% of the first $7 billion in J.P. Morgan-
Distributor, Inc.) advised portfolios, plus 0.04% over $7 billion
- --------------------------------------------------------------------------------
Shareholder services 0.05% of the fund's average net assets
- --------------------------------------------------------------------------------
</TABLE>
The Advisor has voluntarily agreed to waive and or reimburse all fund expenses
(except for those allocated to the fund by the master portfolio, and
extraordinary expenses) so that total operating expenses will not exceed 0.35%
of average net assets of the fund. There is no guarantee that this arrangement
will continue beyond 12/31/98.
J.P. Morgan may pay fees to certain firms and professionals for providing
recordkeeping or other services in connection with investments in the fund.
|
FUND DETAILS | 9
|
<PAGE>
- --------------------------------------------------------------------------------
FOR MORE INFORMATION
================================================================================
For investors who want more information on the fund, the following documents are
available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS Contain financial statements, performance data,
information on portfolio holdings, and a written analysis of market conditions
and fund performance for the fund's most recently completed fiscal year or
half-year.
STATEMENT OF ADDITIONAL INFORMATION (SAI) Provides a fuller technical and legal
description of the fund's policies, investment restrictions, and business
structure. This prospectus incorporates the SAI by reference.
Copies of the current versions of these documents may be obtained by contacting:
J.P. Morgan Institutional Tax Exempt Money Market 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 from the
Public Reference Room of the Securities and Exchange Commission in Washington,
D.C. (1-800-SEC-0330) and may be viewed on-screen or downloaded from the SEC's
Internet site at http://www.sec.gov. The fund's investment company and 1933 Act
registration numbers are 811-07342 and 033-54642.
J.P. MORGAN INSTITUTIONAL FUNDS AND THE MORGAN TRADITION
The J.P. Morgan Institutional Funds combine a heritage of integrity and
financial leadership with comprehensive, sophisticated analysis and management
techniques. Drawing on J.P. Morgan's extensive experience and depth as an
investment manager, the J.P. Morgan Institutional Funds offer a broad array of
distinctive opportunities for mutual fund investors.
[LOGO]JPMorgan
================================================================================
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
PROS381-982
<PAGE>
J.P. MORGAN INSTITUTIONAL FUNDS
J.P. MORGAN INSTITUTIONAL TAX EXEMPT MONEY MARKET FUND
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 2, 1998
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT CONTAINS
ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS
DATED FEBRUARY 2, 1998 FOR THE FUND LISTED ABOVE, AS SUPPLEMENTED FROM TIME TO
TIME, WHICH MAY BE OBTAINED UPON REQUEST FROM FUNDS DISTRIBUTOR, INC.,
ATTENTION: J.P. MORGAN INSTITUTIONAL FUNDS (800) 221-7930.
i:\dsfndlgl\institut\0298.pea\temmsai.wpf
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
<S> <C>
PAGE
General...........................................................................................................1
Investment Objective and Policies.................................................................................1
Investment Restrictions..........................................................................................12
Trustees and Officers............................................................................................15
Investment Advisor...............................................................................................18
Distributor......................................................................................................21
Co-Administrator.................................................................................................21
Services Agent...................................................................................................22
Custodian and Transfer Agent.....................................................................................23
Shareholder Servicing............................................................................................24
Financial Professionals..........................................................................................25
Independent Accountants..........................................................................................25
Expenses.........................................................................................................26
Purchase of Shares...............................................................................................26
Redemption of Shares.............................................................................................27
Exchange of Shares...............................................................................................28
Dividends and Distributions......................................................................................28
Net Asset Value..................................................................................................28
Performance Data.................................................................................................29
Portfolio Transactions...........................................................................................30
Massachusetts Trust..............................................................................................32
Description of Shares............................................................................................33
Special Information Concerning
Investment Structure.............................................................................................35
Taxes............................................................................................................36
Additional Information...........................................................................................39
Appendix A - Description of Security Ratings....................................................................A-1
</TABLE>
i:\dsfndlgl\institut\0298.pea\temmsai.wpf
<PAGE>
GENERAL
This Statement of Additional Information relates only to the J.P.
Morgan Institutional Tax Exempt Money Market Fund (the "Fund"). The Fund is a
series of shares of beneficial interest of the J.P. Morgan Institutional Funds,
an open-end management investment company formed as a Massachusetts business
trust (the "Trust"). In addition to the Fund, the Trust consists of other series
representing separate investment funds (each a "J.P. Morgan Institutional
Fund"). The other J.P. Morgan Institutional Funds are covered by separate
Statements of Additional Information.
This Statement of Additional Information describes the financial
history, investment objective and policies, management and operation of the Fund
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 Trust's executive offices are located at 60 State
Street, Suite 1300, Boston, Massachusetts 02109.
Unlike other mutual funds which directly acquire and manage their own
portfolio of securities, the Fund seeks to achieve its investment objective by
investing all of its investable assets in a corresponding Master Portfolio (the
"Portfolio"), an open-end management investment company having the same
investment objective as the Fund. The Fund invests in the Portfolio through a
two-tier master-feeder investment fund structure. See "Special Information
Concerning Investment Structure."
The Portfolio is advised by Morgan Guaranty Trust Company of New York
("Morgan" or the "Advisor").
Investments in the Fund are not deposits or obligations of, or
guaranteed or endorsed by, Morgan or any other bank. Shares of the Fund are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other governmental agency. An investment in the Fund is
subject to risk that may cause the value of the investment to fluctuate, and
when the investment is redeemed, the value may be higher or lower than the
amount originally invested by the investor.
INVESTMENT OBJECTIVE AND POLICIES
The following discussion supplements the information regarding the
investment objective of the Fund and the policies to be employed to achieve the
objective by the Portfolio as set forth herein and in the Prospectus. Since the
investment characteristics and experiences of the Fund correspond directly with
those of the Portfolio, the discussion in this Statement of Additional
Information focuses on the investments and investment policies of the Portfolio.
Accordingly, references below to the Portfolio also include the Fund; similarly,
references to the Fund also include the Portfolio unless the context requires
otherwise.
The Fund is designed for investors who seek to preserve capital and
earn current income from a portfolio of high quality money market instruments.
i:\dsfndlgl\institut\0298.pea\temmsai.wpf
1
<PAGE>
The Fund's investment objective is to provide a high level of current income
that is exempt from federal income tax and maintain a high level of liquidity.
See "Taxes." The Fund attempts to achieve this objective by investing all of its
investable assets in The Tax Exempt Money Market Portfolio (the "Portfolio"), a
diversified open-end management investment company having the same investment
objective as the Fund.
The Portfolio attempts to achieve its investment objective by
maintaining a dollar-weighted average portfolio maturity of not more than 90
days and by investing in U.S. dollar-denominated securities described in this
Statement of Additional Information that meet certain rating criteria, present
minimal credit risks, have effective maturities of not more than thirteen months
and earn interest wholly exempt from federal income tax in the opinion of bond
counsel for the issuer. The Portfolio generally will not invest in taxable
securities, although it may temporarily invest up to 20% of total assets in such
securities in abnormal market conditions, for defensive purposes only, if, in
the judgment of the Advisor, tax exempt securities satisfying the Fund's
investment objective may not be purchased. For purposes of this calculation,
obligations that generate income that may be treated as a preference item for
purposes of the alternative minimum tax shall not be considered taxable
securities. See "Quality and Diversification Requirements." Interest on these
securities may be subject to state and local taxes. For more detailed
information regarding tax matters, including the applicability of the
alternative minimum tax, see "Taxes."
MONEY MARKET INSTRUMENTS
A description of the various types of money market instruments that may be
purchased by the Fund appears below. Also see "Quality and Diversification
Requirements."
TAX EXEMPT OBLIGATIONS
The Fund may invest in tax exempt obligations to the extent consistent with
the Fund's investment objective and policies. A description of the various types
of tax exempt obligations which may be purchased by the Fund appears below. See
"Quality and Diversification Requirements."
MUNICIPAL BONDS. Municipal bonds are debt obligations issued by the
states, territories and possessions of the United States and the District of
Columbia, by their political subdivisions and by duly constituted authorities
and corporations. For example, states, territories, possessions and
municipalities may issue municipal bonds to raise funds for various public
purposes such as airports, housing, hospitals, mass transportation, schools,
water and sewer works. They may also issue municipal bonds to refund
outstanding obligations and to meet general operating expenses. Public
authorities issue municipal bonds to obtain funding for privately operated
facilities, such as housing and pollution control facilities, for industrial
facilities or for water supply, gas, electricity or waste disposal facilities.
Municipal bonds may be general obligation or revenue bonds. General
obligation bonds are secured by the issuer's pledge of its full faith, credit
and taxing power for the payment of principal and interest. Revenue bonds are
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payable from revenues derived from particular facilities, from the proceeds of
a special excise tax or from other specific revenue sources. They are not
generally payable from the general taxing power of a municipality.
MUNICIPAL NOTES. Municipal notes are subdivided into three categories of
short-term obligations: municipal notes, municipal commercial paper and
municipal demand obligations.
Municipal notes are short-term obligations with a maturity at the
time of issuance ranging from six months to five years. The principal types of
municipal notes include tax anticipation notes, bond anticipation notes,
revenue anticipation notes, grant anticipation notes and project notes. Notes
sold in anticipation of collection of taxes, a bond sale, or receipt of other
revenues are usually general obligations of the issuing municipality or
agency.
Municipal commercial paper typically consists of very short-term
unsecured negotiable promissory notes that are sold to meet seasonal working
capital or interim construction financing needs of a municipality or agency.
While these obligations are intended to be paid from general revenues or
refinanced with long-term debt, they frequently are backed by letters of
credit, lending agreements, note repurchase agreements or other credit
facility agreements offered by banks or institutions.
Municipal demand obligations are subdivided into two types: variable rate
demand notes and master demand obligations.
Variable rate demand notes are tax exempt municipal obligations or
participation interests that provide for a periodic adjustment in the interest
rate paid on the notes. They permit the holder to demand payment of the notes,
or to demand purchase of the notes at a purchase price equal to the unpaid
principal balance, plus accrued interest either directly by the issuer or by
drawing on a bank letter of credit or guaranty issued with respect to such
note. The issuer of the municipal obligation may have a corresponding right to
prepay at its discretion the outstanding principal of the note plus accrued
interest upon notice comparable to that required for the holder to demand
payment. The variable rate demand notes in which the Fund may invest are
payable, or are subject to purchase, on demand usually on notice of seven
calendar days or less. The terms of the notes provide that interest rates are
adjustable at intervals ranging from daily to six months, and the adjustments
are based upon the prime rate of a bank or other appropriate interest rate
index specified in the respective notes. Variable rate demand notes are valued
at amortized cost; no value is assigned to the right of the Fund to receive
the par value of the obligation upon demand or notice.
Master demand obligations are tax exempt municipal obligations that
provide for a periodic adjustment in the interest rate paid and permit daily
changes in the amount borrowed. The interest on such obligations is, in the
opinion of counsel for the borrower, excluded from gross income for federal
income tax purposes. For a description of the attributes of master demand
obligations, see "Money Market Instruments" above. Although there is no
secondary market for master demand obligations, such obligations are
considered
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by the Fund to be liquid because they are payable upon demand. The Fund has no
specific percentage limitations on investments in master demand obligations.
The Fund may purchase securities of the type described above if they
have effective maturities within thirteen months. As required by regulation of
the Securities and Exchange Commission (the "SEC"), this means that on the
date of acquisition the final stated maturity (or if called for redemption,
the redemption date) must be within thirteen months or the maturity must be
deemed to be no more than thirteen months because of a maturity shortening
mechanism, such as a variable interest rate, coupled with a conditional or
unconditional right to resell the investment to the issuer or a third party.
See "Variable Rate Demand Notes" and "Puts." A substantial portion of the
Fund's portfolio is subject to maturity shortening mechanisms consisting of
variable interest rates coupled with unconditional rights to resell the
securities to the issuers either directly or by drawing on a domestic or
foreign bank letter of credit or other credit support arrangement. See
"Foreign Investments."
PUTS. The Fund may purchase without limit municipal bonds or notes
together with the right to resell the bonds or notes to the seller at an
agreed price or yield within a specified period prior to the maturity date of
the bonds or notes. Such a right to resell is commonly known as a "put." The
aggregate price for bonds or notes with puts may be higher than the price for
bonds or notes without puts. Consistent with the Fund's investment objective
and subject to the supervision of the Trustees, the purpose of this practice
is to permit the Fund to be fully invested in tax exempt securities while
preserving the necessary liquidity to purchase securities on a when-issued
basis, to meet unusually large redemptions, and to purchase at a later date
securities other than those subject to the put. The principal risk of puts is
that the writer of the put may default on its obligation to repurchase. The
Advisor will monitor each writer's ability to meet its obligations under puts.
Puts may be exercised prior to the expiration date in order to fund
obligations to purchase other securities or to meet redemption requests. These
obligations may arise during periods in which proceeds from sales of Fund
shares and from recent sales of portfolio securities are insufficient to meet
obligations or when the funds available are otherwise allocated for
investment. In addition, puts may be exercised prior to the expiration date in
order to take advantage of alternative investment opportunities or in the
event the Advisor revises its evaluation of the creditworthiness of the issuer
of the underlying security. In determining whether to exercise puts prior to
their expiration date and in selecting which puts to exercise, the Advisor
considers the amount of cash available to the Fund, the expiration dates of
the available puts, any future commitments for securities purchases,
alternative investment opportunities, the desirability of retaining the
underlying securities in the Fund's portfolio and the yield, quality and
maturity dates of the underlying securities.
The Fund values any municipal bonds and notes which are subject to
puts at amortized cost. No value is assigned to the put. The cost of any such
put is carried as an unrealized loss from the time of purchase until it is
exercised or expires. The Board of Trustees would, in connection with the
determination
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of the value of a put, consider, among other factors, the creditworthiness of
the writer of the put, the duration of the put, the dates on which or the
periods during which the put may be exercised and the applicable rules and
regulations of the SEC.
Since the value of the put is partly dependent on the ability of the
put writer to meet its obligation to repurchase, the Fund's policy is to enter
into put transactions only with municipal securities dealers who are approved
by the Advisor. Each dealer will be approved on its own merits, and it is the
Fund's general policy to enter into put transactions only with those dealers
which are determined to present minimal credit risks. In connection with such
determination, the Trustees will review regularly the Advisor's list of
approved dealers, taking into consideration, among other things, the ratings,
if available, of their equity and debt securities, their reputation in the
municipal securities markets, their net worth, their efficiency in
consummating transactions and any collateral arrangements, such as letters of
credit, securing the puts written by them. Commercial bank dealers normally
will be members of the Federal Reserve System, and other dealers will be
members of the National Association of Securities Dealers, Inc. or members of
a national securities exchange. The Trustees have directed the Advisor not to
enter into put transactions with any dealer which in the judgment of the
Advisor becomes more than a minimal credit risk. In the event that a dealer
should default on its obligation to repurchase an underlying security, the
Fund is unable to predict whether all or any portion of any loss sustained
could subsequently be recovered from such dealer.
The Trust has been advised by counsel that the Fund will be
considered the owner of the securities subject to the puts so that the
interest on the securities is tax exempt income to the Fund. Such advice of
counsel is based on certain assumptions concerning the terms of the puts and
the attendant circumstances.
TAXABLE INVESTMENTS
The Portfolio attempts to invest its assets in tax exempt municipal
securities; however the Portfolio is permitted to invest up to 20% of the
value of its total assets in securities, the interest income on which may be
subject to federal, state or local income taxes. The Portfolio may make
taxable investments pending investment of proceeds from sales of its interests
or portfolio securities, pending settlement of purchases of portfolio
securities, to maintain liquidity or when it is advisable in Morgan's opinion
because of adverse market conditions. The Portfolio will invest in taxable
securities only if there are no tax exempt securities available for purchase
or if the after tax yield from an investment in taxable securities exceeds the
yield on available tax exempt securities. The taxable investments permitted
for the Portfolio include obligations of the U.S. Government and its agencies
and instrumentalities, bank obligations, commercial paper and repurchase
agreements.
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.
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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
System and the Student Loan Marketing Association, each of whose obligations
may be satisfied only by the individual credits of the issuing agency.
BANK OBLIGATIONS. The Fund, unless otherwise noted in the Prospectus
or below, may invest in negotiable certificates of deposit, time deposits and
bankers' acceptances of (i) banks, savings and loan associations and savings
banks which have more than $2 billion in total assets and are organized under
the laws of the United States or any state, (ii) foreign branches of these
banks or of foreign banks of equivalent size (Euros) and (iii) U.S. branches
of foreign banks of equivalent size (Yankees). The Fund may not invest in
obligations of foreign branches of foreign banks. The Fund will not invest in
obligations for which the Advisor, or any of its affiliated persons, is the
ultimate obligor or accepting bank.
COMMERCIAL PAPER. The Fund may invest in commercial paper, including
master demand obligations. Master demand obligations are obligations that
provide for a periodic adjustment in the interest rate paid and permit daily
changes in the amount borrowed. Master demand obligations are governed by
agreements between the issuer and Morgan Guaranty Trust Company of New York
acting as agent, for no additional fee, in its capacity as investment advisor
to the Portfolio and as fiduciary for other clients for whom it exercises
investment discretion. The monies loaned to the borrower come from accounts
managed by the Advisor or its affiliates, pursuant to arrangements with such
accounts. Interest and principal payments are credited to such accounts. The
Advisor, acting as a fiduciary on behalf of its clients, has the right to
increase or decrease the amount provided to the borrower under an obligation.
The borrower has the right to pay without penalty all or any part of the
principal amount then outstanding on an obligation together with interest to
the date of payment. Since these obligations typically provide that the
interest rate is tied to the Federal Reserve commercial paper composite rate,
the rate on master demand obligations is subject to change. Repayment of a
master demand
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obligation to participating accounts depends on the ability of the borrower to
pay the accrued interest and principal of the obligation on demand which is
continuously monitored by the Advisor. Since master demand obligations
typically are not rated by credit rating agencies, the Fund may invest in such
unrated obligations only if at the time of an investment the obligation is
determined by the Advisor to have a credit quality which satisfies the Fund's
quality restrictions. See "Quality and Diversification Requirements." Although
there is no secondary market for master demand obligations, such obligations
are considered by the Fund to be liquid because they are payable upon demand.
The Fund does not have any specific percentage limitation on investments in
master demand obligations. It is possible that the issuer of a master demand
obligation could be a client of Morgan to whom Morgan, in its capacity as a
commercial bank, has made a loan.
REPURCHASE AGREEMENTS. The Fund, unless otherwise noted in the
Prospectus or below, may enter into repurchase agreements with brokers,
dealers or banks that meet the credit guidelines approved by the Fund's
Trustees. In a repurchase agreement, the Fund buys a security from a seller
that has agreed to repurchase the same security at a mutually agreed upon date
and price. The resale price normally is in excess of the purchase price,
reflecting an agreed upon interest rate. This interest rate is effective for
the period of time the Fund is invested in the agreement and is not related to
the coupon rate on the underlying security. A repurchase agreement may also be
viewed as a fully collateralized loan of money by the Fund to the seller. The
period of these repurchase agreements will usually be short, from overnight to
one week, and at no time will the Fund invest in repurchase agreements for
more than 397 days. The securities which are subject to repurchase agreements,
however, may have maturity dates in excess of 397 days from the effective date
of the repurchase agreement. The Fund will always receive securities as
collateral whose market value is, and during the entire term of the agreement
remains, at least equal to 100% of the dollar amount invested by the Fund in
the agreement plus accrued interest, and the Fund will make payment for such
securities only upon physical delivery or upon evidence of book entry transfer
to the account of the Custodian. The Fund will be fully collateralized within
the meaning of paragraph (a)(4) of Rule 2a-7 under the Investment Company Act
of 1940, as amended (the "1940 Act"). If the seller defaults, the Fund might
incur a loss if the value of the collateral securing the repurchase agreement
declines and might incur disposition costs in connection with liquidating the
collateral. In addition, if bankruptcy proceedings are commenced with respect
to the seller of the security, realization upon disposal of the collateral by
the Fund may be delayed or limited.
The Fund may make investments in other debt securities with remaining
effective maturities of not more than thirteen months, including without
limitation corporate bonds, and other obligations described in the Prospectus
or this Statement of Additional Information.
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
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date of the purchase commitment. The purchase price and the interest rate
payable, if any, on the securities are fixed on the purchase commitment date
or at the time the settlement date is fixed. The value of such securities is
subject to market fluctuation and for money market instruments and other fixed
income securities no interest accrues to the Fund until settlement takes
place. At the time the Fund makes the commitment to purchase securities on a
when-issued or delayed delivery basis, it will record the transaction, reflect
the value each day of such securities in determining its net asset value and,
if applicable, calculate the maturity for the purposes of average maturity
from that date. At the time of settlement a when-issued security may be valued
at less than the purchase price. To facilitate such acquisitions, the Fund
will maintain with the Custodian a segregated account with liquid assets,
consisting of cash, U.S. Government securities or other appropriate
securities, in an amount at least equal to such commitments. On delivery dates
for such transactions, the Fund will meet its obligations from maturities or
sales of the securities held in the segregated account and/or from cash flow.
If the Fund chooses to dispose of the right to acquire a when-issued security
prior to its acquisition, it could, as with the disposition of any other
portfolio obligation, incur a gain or loss due to market fluctuation. It is
the current policy of the Fund not to enter into when-issued commitments
exceeding in the aggregate 15% of the market value of the Fund's total assets,
less liabilities other than the obligations created by when-issued
commitments.
INVESTMENT COMPANY SECURITIES. Securities of other investment
companies may be acquired by the Fund and Portfolio to the extent permitted
under the 1940 Act. These limits require that, as determined immediately after
a purchase is made, (i) not more than 5% of the value of the Fund's total
assets will be invested in the securities of any one investment company, (ii)
not more than 10% of the value of its total assets will be invested in the
aggregate in securities of investment companies as a group, and (iii) not more
than 3% of the outstanding voting stock of any one investment company will be
owned by the Fund, provided however, that the Fund may invest all of its
investable assets in an open-end investment company that has the same
investment objective as the Fund (its corresponding Portfolio). As a
shareholder of another investment company, the Fund or Portfolio would bear,
along with other shareholders, its pro rata portion of the other investment
company's expenses, including advisory fees. These expenses would be in
addition to the advisory and other expenses that the Fund or Portfolio bears
directly in connection with its own operations.
REVERSE REPURCHASE AGREEMENTS. The Fund, unless otherwise noted in
the Prospectus or below, may enter into reverse repurchase agreements. In a
reverse repurchase agreement, the Fund sells a security and agrees to
repurchase the same security at a mutually agreed upon date and price. For
purposes of the 1940 Act a reverse repurchase agreement is also considered as
the borrowing of money by the Fund and, therefore, a form of leverage. The
Fund will invest the proceeds of borrowings under reverse repurchase
agreements. In addition, the Fund will enter into a reverse repurchase
agreement only when the interest income to be earned from the investment of
the proceeds is greater than the interest expense of the transaction. The Fund
will not invest the proceeds of a reverse repurchase agreement for a period
which exceeds the duration of the reverse repurchase agreement. The Fund will
establish and maintain with the
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Custodian a separate account with a segregated portfolio of securities in an
amount at least equal to its purchase obligations under its reverse repurchase
agreements. If interest rates rise during the term of a reverse repurchase
agreement, entering into the reverse repurchase agreement may have a negative
impact on the Fund's ability to maintain a net asset value of $1.00 per share.
See "Investment Restrictions" for the Fund's limitations on reverse repurchase
agreements and bank borrowings.
LOANS OF PORTFOLIO SECURITIES. Subject to applicable investment
restrictions, the Fund is permitted to lend its securities in an amount up to
33 1/3% of the value of the Fund's net 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. Loans
of portfolio securities may be considered extensions of credit by the Fund.
The risks to the Fund with respect to borrowers of its portfolio securities
are similar to the risks to the Fund with respect to sellers in repurchase
agreement transactions. See "Repurchase Agreements". 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 CERTAIN UNREGISTERED
SECURITIES. The Fund may invest in privately placed, restricted, Rule 144A or
other unregistered securities. The Fund may not acquire any illiquid
holdings if, as a result thereof, more than 10% of the Fund's net assets
would be in illiquid investments. Subject to this non-fundamental policy
limitation, the Portfolio may acquire investments that are illiquid or have
limited liquidity, such as private placements or investments that are not
registered under the Securities Act of 1933, as amended (the "1933 Act") and
cannot be offered for public sale in the United States without first being
registered under the 1933 Act. An illiquid investment is any investment that
cannot be disposed of within seven days in the normal course of business at
approximately the amount at which it is valued by the Portfolio. The price the
Portfolio pays for illiquid holdings 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 holdings 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
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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
obligated to pay all or part of the registration expenses, and a considerable
period may elapse between the time of the decision to sell and the time the
Fund may be permitted to sell a security under an effective registration
statement. If, during such a period, adverse market conditions were to
develop, the Fund might obtain a less favorable price than prevailed when it
decided to sell.
SYNTHETIC INSTRUMENTS. The Fund may invest in certain synthetic
variable rate instruments. 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 part 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 Portfolio will be that of holding the long-term bond, which may require
the disposition of the bond which could be at a loss. In the case of some
types of instruments credit enhancement is not provided, and if certain
events, which may include (a) default in the payment of principal or interest
on the underlying bond, (b) downgrading of the bond below investment grade or
(c) a loss of the bond's tax exempt status, occur, then (i) the put will
terminate, (ii) the risk to the Fund will be that of holding a long-term bond,
and (iii) the disposition of the bond may be required which could be at a
loss.
QUALITY AND DIVERSIFICATION REQUIREMENTS
The Fund intends to meet the diversification requirements of the 1940
Act. To meet these requirements, 75% of the assets of the Fund are subject to
the following fundamental limitations: (1) the Fund may not invest more than
5% of its total assets in the securities of any one issuer, except obligations
of the U.S. Government, its agencies and instrumentalities, and (2) the Fund
may not own more than 10% of the outstanding voting securities of any one
issuer. As for the other 25% of the Fund's assets not subject to the
limitation described above, there is no limitation on investment of these
assets under the 1940 Act, so that all of such assets may be invested in
securities of any one issuer. Investments not subject to the limitations
described above could involve an increased risk to the Fund should an issuer,
or a state or its related entities, be unable to make interest or principal
payments or should the market value of such securities decline.
At the time the Fund invests in any taxable commercial paper, master
demand obligation, bank obligation or repurchase agreement, the issuer must
have outstanding debt rated A or higher by Moody's or Standard & Poor's, the
issuer's
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parent corporation, if any, must have outstanding commercial paper rated
Prime-1 by Moody's or A-1 by Standard & Poor's, or if no such ratings are
available, the investment must be of comparable quality in Morgan's opinion.
For purposes of diversification and concentration under the 1940 Act,
identification of the issuer of municipal bonds or notes depends on the terms
and conditions of the obligation. If the assets and revenues of an agency,
authority, instrumentality or other political subdivision are separate from
those of the government creating the subdivision and the obligation is backed
only by the assets and revenues of the subdivision, such subdivision is
regarded as the sole issuer. Similarly, in the case of an industrial
development revenue bond or pollution control revenue bond, if the bond is
backed only by the assets and revenues of the nongovernmental user, the
nongovernmental user is regarded as the sole issuer. If in either case the
creating government or another entity guarantees an obligation, the guaranty
is regarded as a separate security and treated as an issue of such guarantor.
Since securities issued or guaranteed by states or municipalities are not
voting securities, there is no limitation on the percentage of a single
issuer's securities which the Fund may own so long as it does not invest more
than 5% of its total assets that are subject to the diversification limitation
in the securities of such issuer, except obligations issued or guaranteed by
the U.S. Government. Consequently, the Fund may invest in a greater percentage
of the outstanding securities of a single issuer than would an investment
company which invests in voting securities. See "Investment Restrictions."
In order to attain its objective of maintaining a stable net asset
value, the Fund will limit its investments to securities that present minimal
credit risks and securities (other than New York State municipal notes) that
are rated within the highest rating assigned to short-term debt securities
(or, in the case of New York State municipal notes, within one of the two
highest ratings assigned to short-term debt securities) by at least two NRSROs
or by the only NRSRO that has rated the security. Securities which originally
had a maturity of over one year are subject to more complicated, but generally
similar rating requirements. The Fund may also purchase unrated securities
that are of comparable quality to the rated securities described above.
Additionally, if the issuer of a particular security has issued other
securities of comparable priority and security and which have been rated in
accordance with the criteria described above that security will be deemed to
have the same rating as such other rated securities.
In addition, the Board of Trustees has adopted procedures which (i)
require the Fund to maintain a dollar-weighted average portfolio maturity of
not more than 90 days and to invest only in securities with a remaining
maturity of not more than thirteen months and (ii) require the Fund, in the
event of certain downgrading of or defaults on portfolio holdings, to dispose
of the holding, subject in certain circumstances to a finding by the Trustees
that disposing of the holding would not be in the Fund's best interest.
The credit quality of variable rate demand notes and other municipal
obligations is frequently enhanced by various credit support arrangements with
domestic or foreign financial institutions, such as letters of credit,
guarantees and insurance, and these arrangements are considered when
investment
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quality is evaluated. The rating of credit-enhanced municipal obligations by a
NRSRO may be based primarily or exclusively on the credit support arrangement.
INVESTMENT RESTRICTIONS
The investment restrictions of the Fund and Portfolio are identical,
unless otherwise specified. Accordingly, references below to the Fund also
include the Portfolio unless the context requires otherwise; similarly,
references to the Portfolio also include the Fund unless the context requires
otherwise.
The investment restrictions below have been adopted by the Trust,
with respect to the Fund, and by the Portfolio. Except where otherwise noted,
these investment restrictions are "fundamental" policies which, under the 1940
Act, may not be changed without the vote of a majority of the outstanding
voting securities of the Fund or Portfolio, as the case may be. A "majority of
the outstanding voting securities" is defined in the 1940 Act as the lesser of
(a) 67% or more of the voting securities present at a meeting if the holders
of more than 50% of the outstanding voting securities are present or
represented by proxy, or (b) more than 50% of the outstanding voting
securities. The percentage limitations contained in the restrictions below
apply at the time of the purchase of securities. Whenever the Fund is
requested to vote on a change in the fundamental investment restrictions of
the Portfolio, the Trust will hold a meeting of Fund shareholders and will
cast its votes as instructed by the Fund's shareholders.
The Fund and Portfolio may not:
1. Borrow money, except from banks for temporary, extraordinary or
emergency purposes and then only in amounts up to 10% of the value of
the Fund's total assets, taken at cost at the time of such borrowing;
or mortgage, pledge or hypothecate any assets except in connection with
any such borrowing in amounts up to 10% of the value of the Fund's net
assets at the time of such borrowing. The Fund will not purchase
securities while borrowings exceed 5% of the Fund's total assets,
provided, however, that the Fund may increase its interest in an
open-end management investment company with the same investment
objective and restrictions as the Fund's while such borrowings are
outstanding. This borrowing provision, for example, facilitates the
orderly sale of portfolio securities in the event of abnormally heavy
redemption requests or in the event of redemption requests during
periods of tight market supply. This provision is not for leveraging
purposes;
2. Invest more than 25% of its total assets in securities of
governmental units located in any one state, territory, or possession
of the United States. The Fund may invest more then 25% of its total
assets in industrial development and pollution control obligations
whether or not
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the users of facilities financed by such obligations are in the same
industry;1
3. Purchase industrial revenue bonds if, as a result of such purchase,
more than 5% of total Fund assets would be invested in industrial
revenue bonds where payment of principal and interest are the
responsibility of companies with fewer than three years of operating
history;
4. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the
Fund's total assets would be invested in securities or other
obligations of any one such issuer, provided, however, that the Fund
may invest all or part of its investable assets in an open-end
management investment company with the same investment objective and
restrictions as the Fund's. Each state and each political subdivision,
agency or instrumentality of such state and each multi-state agency of
which such state is a member will be a separate issuer if the security
is backed only by the assets and revenues of that issuer. If the
security is guaranteed by another entity, the guarantor will be deemed
to be the issuer. This limitation shall not apply to securities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities
or to permitted investments of up to 25% of the Fund's total assets;2
5. Make loans, except through the purchase or holding of debt obligations,
repurchase agreements, or loans of portfolio securities in accordance with the
Fund's investment objective and policies (see "Investment Objectives and
Policies");
6. Purchase or sell puts, calls, straddles, spreads, or any combination
thereof except to the extent that securities subject to a demand
obligation, stand-by commitments and puts may be purchased (see
"Investment Objectives and Policies"); real estate; commodities;
commodity contracts; or interests in oil, gas, or mineral exploration
or development programs. However, the Fund may purchase municipal
bonds, notes or commercial paper secured by interests in real estate;
- --------
1Pursuant to an interpretation of the staff of the SEC, the Fund may
not invest more than 25% of its assets in industrial development bonds
in projects of similar type or in the same state. The Fund shall comply
with this interpretation until such time as it may be modified by the
staff of the SEC.
2For purposes of interpretation of Investment Restriction No. 4
"guaranteed by another entity" includes credit substitutions, such as
letters of credit or insurance, unless the Advisor determines that the
security meets the Fund's credit standards without regard to the credit
substitution.
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7. Purchase securities on margin, make short sales of securities, or
maintain a short position, provided that this restriction shall not be
deemed to be applicable to the purchase or sale of when-issued
securities or of securities for delayed delivery;
8. Acquire securities of other investment companies, except as permitted by
the 1940 Act;
9. Act as an underwriter of securities; or
10. Issue senior securities, except as may otherwise be permitted by
the foregoing investment restrictions or under the 1940 Act or any
rule, order or interpretation thereunder.
NON-FUNDAMENTAL INVESTMENT RESTRICTION. The investment restriction
described below is not a fundamental policy of the Fund or Portfolio and may be
changed by their respective Trustees. This non-fundamental investment policy
requires that the Fund may not:
(i) acquire any illiquid securities, such as repurchase agreements with
more than seven days to maturity or fixed time deposits with a duration
of over seven calendar days, if as a result thereof, more than 10% of
the Fund's net assets would be in investments that are illiquid.
Notwithstanding any other fundamental or non-fundamental investment
restriction or policy, the Fund reserves the right, without the approval of
shareholders, to invest all of its assets in the securities of a single open-end
registered investment company with substantially the same investment objective,
restrictions and policies as the Fund.
There will be no violation of any investment restriction if that
restriction is complied with at the time the relevant action is taken
notwithstanding a later change in market value of an investment, in net or total
assets, in the securities rating of the investment, or any other later change.
For purposes of fundamental investment restrictions regarding industry
concentration, the Advisor may classify issuers by industry in accordance with
classifications set forth in the DIRECTORY OF COMPANIES FILING ANNUAL REPORTS
WITH THE SECURITIES AND EXCHANGE COMMISSION or other sources. In the absence of
such classification or if the Advisor determines in good faith based on its own
information that the economic characteristics affecting a particular issuer make
it more appropriately considered to be engaged in a different industry, the
Advisor may classify an issuer accordingly. For instance, personal credit
finance companies and business credit finance companies are deemed to be
separate industries and wholly owned finance companies are considered to be in
the industry of their parents if their activities are primarily related to
financing the activities of their parents.
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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, TX 78746, and his date of birth is January 1, 1932.
WILLIAM G. BURNS--Trustee; Retired, Former Vice Chairman and Chief
Financial Officer, NYNEX. His address is 2200 Alaqua Drive, Longwood, FL 32779,
and his date of birth is November 2, 1932.
ARTHUR C. ESCHENLAUER--Trustee; Retired; Former Senior Vice President,
Morgan Guaranty Trust Company of New York. His address is 14 Alta Vista Drive,
RD #2, Princeton, NJ 08540, and his date of birth is May 23, 1934.
MATTHEW HEALEY3--Trustee, Chairman and Chief Executive Officer;
Chairman, Pierpont Group, Inc., since prior to 1992. His address is Pine Tree
Club Estates, 10286 Saint Andrews Road, Boynton Beach, FL 33436, and his date of
birth is August 23, 1937.
MICHAEL P. MALLARDI--Trustee; Retired; Prior to April 1996, Senior Vice
President, Capital Cities/ABC, Inc. and President, Broadcast Group. His address
is 10 Charnwood Drive, Suffern, NY 10910, and his date of birth is March 17,
1934.
The Trustees of the Trust are the same as the Trustees of the
Portfolio. In accordance with applicable state requirements, a majority
of the disinterested Trustees have adopted written procedures
reasonably appropriate to deal with potential conflicts of interest
arising from the fact that the same individuals are Trustees of the
Trust, the Portfolio and the J.P. Morgan Funds up to and including
creating a separate board of trustees.
Each Trustee is currently paid an annual fee of $75,000
(adjusted as of April 1, 1997) for serving as Trustee of the Trust,
each of the Master Portfolios (as defined below), the J.P. Morgan Funds
and J.P. Morgan Series Trust and is reimbursed for expenses incurred in
connection with service as a Trustee. The Trustees may hold various
other directorships unrelated to the Fund.
-------- 3Mr. Healey is an "interested person" of the Trust, the Advisor
and the Portfolio as that term is defined in the 1940 Act.
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Trustee compensation expenses paid by the Trust for the
calendar year ended December 31, 1997 are set forth below.
<TABLE>
<CAPTION>
TOTAL TRUSTEE
AGGREGATE COMPENSATION ACCRUED BY
TRUSTEE THE MASTER PORTFOLIOS(*),
COMPENSATION J.P. MORGAN FUNDS, J.P.
PAID BY THE MORGAN SERIES TRUST AND
TRUST DURING THE TRUST DURING
NAME OF TRUSTEE 1997 1997(***)
--------------- ------------- ---------
<S> <C> <C>
Frederick S. Addy, Trustee $11,772.77 $75,000
William G. Burns, Trustee $11,786.38 $75,000
Arthur C. Eschenlauer, Trustee $11,786.38 $75,000
Matthew Healey, Trustee (**) $11,786.38 $75,000
Chairman and Chief Executive
Officer
Michael P. Mallardi, Trustee $11,786.38 $75,000
</TABLE>
(*) Includes the Portfolio and 21 other portfolios (collectively, the
"Master Portfolios") for which Morgan acts as investment advisor.
(*) Includes the Portfolio and 21 other portfolios (collectively, the
"Master Portfolios") for which Morgan acts as investment advisor.
(**) During 1997, Pierpont Group, Inc. paid Mr. Healey, in his role as
Chairman of Pierpont Group, Inc., compensation in the amount of $147,500,
contributed $22,100 to a defined contribution plan on his behalf and paid
$20,500 in insurance premiums for his benefit.
(***) No investment company within the fund complex has a pension or
retirement plan. Currently there are 18 investment companies (15
investment companies comprising the Master Portfolios, the J.P. Morgan
Funds, the Trust and J.P. Morgan Series Trust) in the fund complex.
The Trustees, in addition to reviewing actions of the Trust's and the
Portfolio's various service providers, decide upon matters of general policy.
The Portfolio and the Trust have entered into a Fund Services Agreement with
Pierpont Group, Inc. to assist the Trustees in exercising their overall
supervisory responsibilities over the affairs of the Portfolio and the Trust.
Pierpont Group, Inc. was organized in July 1989 to provide services for The
Pierpont Family of Funds, and the Trustees are the equal and sole shareholders
of Pierpont Group, Inc. The Trust and the Portfolio have agreed to pay Pierpont
Group, Inc. a fee in an amount representing its reasonable costs in performing
these services to the Trust, the Portfolio and certain other registered
investment companies subject to similar agreements with Pierpont Group, Inc.
These costs are periodically reviewed by the Trustees. The principal offices of
Pierpont Group, Inc. are located at 461 Fifth Avenue, New York, New York 10017.
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The aggregate fees paid to Pierpont Group, Inc. by the Fund and the
Portfolio during the indicated fiscal years are set forth below:
FUND -- For the fiscal years ended August 31, 1995, 1996 and 1997: $8,400,
$8,391 and $6,074. PORTFOLIO -- For the fiscal years ended August 31, 1995, 1996
and 1997: $110,325, $62,310 and $43,285.
OFFICERS
The Trust's and Portfolio's executive officers (listed below), other
than the Chief Executive Officer, are provided and compensated by Funds
Distributor, Inc. ("FDI"), a wholly owned indirect subsidiary of Boston
Institutional Group, Inc. The officers conduct and supervise the business
operations of the Trust and the Portfolio. The Trust and the Portfolio have no
employees.
The officers of the Trust and the Portfolio, their principal
occupations during the past five years and dates of birth are set forth below.
Unless otherwise specified, each officer holds the same position with the Trust
and the Portfolio. The business address of each of the officers unless otherwise
noted is Funds Distributor, Inc., 60 State Street, Suite 1300, Boston,
Massachusetts
02109.
MATTHEW HEALEY; Chief Executive Officer; Chairman, Pierpont Group,
since prior to 1993. His address is Pine Tree Club Estates, 10286 Saint Andrews
Road, Boynton Beach, FL 33436. His date of birth is August 23, 1937.
MARIE E. CONNOLLY; Vice President and Assistant Treasurer. President,
Chief Executive Officer, Chief Compliance Officer and Director of FDI and
Premier Mutual Fund Services, Inc., an affiliate of FDI ("Premier Mutual") and
an officer of certain investment companies advised or administered by the
Dreyfus Corporation ("Dreyfus") or its affiliates. From December 1991 to July
1994, she was President and Chief Compliance Officer of FDI. Her date of birth
is August 1, 1957.
DOUGLAS C. CONROY; Vice President and Assistant Treasurer. Assistant
Vice President and Manager of Treasury Services and Administration of FDI and
an officer of certain investment companies advised or administered by Dreyfus
or its affiliates. Prior to April 1997, Mr. Conroy was Supervisor of Treasury
Services and Administration of FDI. From April 1993 to January 1995, Mr.
Conroy was a Senior Fund Accountant for Investors Bank & Trust Company. Prior
to March 1993, Mr. Conroy was employed as a fund accountant at The Boston
Company, Inc. His date of birth is March 31, 1969.
RICHARD W. INGRAM; President and Treasurer. Executive Vice President and
Director of Client Services and Treasury Administration of FDI, Senior Vice
President of Premier Mutual and an officer of RCM Capital Funds, Inc., RCM
Equity Funds, Inc. (together "RCM"), Waterhouse Investors Cash Management Fund,
Inc. ("Waterhouse") and certain investment companies advised or administered by
Dreyfus or Harris Trust and Savings Bank ("Harris") or their respective
affiliates. Prior to April 1997, Mr. Ingram was Senior Vice President and
Director of Client Services and Treasury Administration of FDI. From March 1994
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<PAGE>
to November 1995, Mr. Ingram was Vice President and Division Manager of First
Data Investor Services Group, Inc. From 1989 to 1994, Mr. Ingram was Vice
President, Assistant Treasurer and Tax Director - Mutual Funds of The Boston
Company, Inc. His date of birth is September 15, 1955.
KAREN JACOPPO-WOOD; Vice President and Assistant Secretary. Assistant Vice
President of FDI and an officer of RCM, Waterhouse and Harris or their
respective affiliates. From June 1994 to January 1996, Ms. Jacoppo-Wood was a
Manager, SEC Registration, Scudder, Stevens & Clark, Inc. From 1988 to May 1994,
Ms. Jacoppo- Wood was a senior paralegal at The Boston Company Advisors, Inc.
("TBCA"). Her date of birth is December 29, 1966.
CHRISTOPHER J. KELLEY; Vice President and Assistant Secretary. Vice
President and Associate General Counsel of FDI and Premier Mutual and an officer
of Waterhouse and certain investment companies advised or administered by Harris
or its affiliates. From April 1994 to July 1996, Mr. Kelley was Assistant
Counsel at Forum Financial Group. From 1992 to 1994, Mr. Kelley was employed by
Putnam Investments in legal and compliance capacities. Prior to September 1992,
Mr. Kelley was enrolled at Boston College Law School and received his JD in May
1992. His date of birth is December 24, 1964.
MARY A. NELSON; Vice President and Assistant Treasurer. Vice President
and Manager of Treasury Services and Administration of FDI and Premier Mutual,
an officer of RCM, Waterhouse and certain investment companies advised or
administered by Dreyfus or Harris or their respective affiliates. From 1989 to
1994, Ms. Nelson was an Assistant Vice President and Client Manager for The
Boston Company, Inc. Her date of birth is April 22, 1964.
MICHAEL S. PETRUCELLI; Vice President and Assistant Secretary. Senior Vice
President and Director of Strategic Client Initiatives for FDI since December
1996. From December 1989 through November 1996, Mr. Petrucelli was employed with
GE Investments where he held various financial, business development and
compliance positions. He also served as Treasurer of the GE Funds and as
Director of GE Investment Services. Address: 200 Park Avenue, New York, New York
10166. His date of birth is May 18, 1961.
JOSEPH F. TOWER III; Vice President and Assistant Treasurer. Executive Vice
President, Treasurer and Chief Financial Officer, Chief Administrative Officer
and Director of FDI. Senior Vice President, Treasurer and Chief Financial
Officer, Chief Administrative Officer and Director of Premier Mutual and an
officer of Waterhouse and certain investment companies advised or administered
by Dreyfus or its affiliates. Prior to April 1997, Mr. Tower was Senior Vice
President, Treasurer and Chief Financial Officer, Chief Administrative Officer
and Director of FDI. From July 1988 to November 1993, Mr. Tower was Financial
Manager of The Boston Company, Inc. His date of birth is June 13, 1962.
INVESTMENT ADVISOR
The Fund has not retained the services of an investment adviser because
the Fund seeks to achieve its investment objective by investing all of its
investable assets in the Portfolio. Subject to the supervision of the
Portfolio's Trustees,
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Morgan makes the Portfolio's day-to-day investment decisions, arranges for the
execution of portfolio transactions and generally manages the Portfolio's
investments. The Advisor, a wholly owned subsidiary of J.P. Morgan & Co.
Incorporated ("J.P. Morgan"), a bank holding company organized under the laws of
the State of Delaware. The Advisor, whose principal offices are at 60 Wall
Street, New York, New York 10260, is a New York trust company which conducts a
general banking and trust business. The Advisor is subject to regulation by the
New York State Banking Department and is a member bank of the Federal Reserve
System. Through offices in New York City and abroad, the Advisor offers a wide
range of services, primarily to governmental, institutional, corporate and high
net worth individual customers in the United States and throughout the world.
J.P. Morgan, through the Advisor and other subsidiaries, acts as
investment advisor to individuals, governments, corporations, employee benefit
plans, mutual funds and other institutional investors with combined assets under
management of approximately $250 billion.
J.P. Morgan has a long history of service as adviser, underwriter and
lender to an extensive roster of major companies and as a financial advisor to
national governments. The firm, through its predecessor firms, has been in
business for over a century and has been managing investments since 1913.
The basis of the Advisor's investment process is fundamental investment
research as the firm believes that fundamentals should determine an asset's
value over the long term. J.P. Morgan currently employs over 100 full time
research analysts, among the largest research staffs in the money management
industry, in its investment management divisions located in New York, London,
Tokyo, Frankfurt, Melbourne and Singapore to cover companies, industries and
countries on site. In addition, the investment management divisions employ
approximately 300 capital market researchers, portfolio managers and traders.
The Advisor's fixed income investment process is based on analysis of real
rates, sector diversification and quantitative and credit analysis.
The investment advisory services the Advisor provides to the Portfolio
are not exclusive under the terms of the Advisory Agreement. The Advisor is free
to and does render similar investment advisory services to others. The Advisor
serves as investment advisor to personal investors and other investment
companies and acts as fiduciary for trusts, estates and employee benefit plans.
Certain of the assets of trusts and estates under management are invested in
common trust funds for which the Advisor serves as trustee. The accounts which
are managed or advised by the Advisor have varying investment objectives and the
Advisor invests assets of such accounts in investments substantially similar to,
or the same as, those which are expected to constitute the principal investments
of the Portfolio. Such accounts are supervised by officers and employees of the
Advisor who may also be acting in similar capacities for the Portfolio. See
"Portfolio Transactions."
Sector weightings are generally similar to a benchmark with the
emphasis on security selection as the method to achieve investment performance
superior to the benchmark. The benchmark for the Portfolio in which the Fund
invests is currently IBC's Tax Exempt Money Fund Average.
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J.P. Morgan Investment Management Inc., also a wholly owned subsidiary
of J.P. Morgan, is a registered investment adviser under the Investment Advisers
Act of 1940, as amended, which manages employee benefit funds of corporations,
labor unions and state and local governments and the accounts of other
institutional investors, including investment companies. Certain of the assets
of employee benefit accounts under its management are invested in commingled
pension trust funds for which the Advisor serves as trustee. J.P. Morgan
Investment Management Inc. advises the Advisor on investment of the commingled
pension trust funds.
The Portfolio is managed by officers of the Advisor who, in acting for
their customers, including the Portfolio, do not discuss their investment
decisions with any personnel of J.P. Morgan or any personnel of other divisions
of the Advisor or with any of its affiliated persons, with the exception of J.P.
Morgan Investment Management Inc. and certain other investment management
affiliates of J.P. Morgan.
As compensation for the services rendered and related expenses such as
salaries of advisory personnel borne by the Advisor under the Investment
Advisory Agreement, the Portfolio has agreed to pay the Advisor a fee, which is
computed daily and may be paid monthly, equal to the annual rate of 0.20% of the
Portfolio's average daily net assets up to $1 billion and 0.10% of the
Portfolio's average daily net assets in excess of $1 billion.
The Portfolio paid the following advisory fees to the Advisor for the
fiscal years ended August 31, 1995, 1996 and 1997: $2,150,291, $2,154,248 and
$2,267,159. See the Prospectus and below for applicable expense limitations.
The Investment Advisory Agreement provides that it will continue in
effect for a period of two years after execution only if specifically approved
thereafter annually in the same manner as the Distribution Agreement. See
"Distributor" below. The Investment Advisory Agreement will terminate
automatically if assigned and is terminable at any time without penalty by a
vote of a majority of the Portfolio's Trustees, or by a vote of the holders of a
majority of the Portfolio's outstanding voting securities, on 60 days' written
notice to the Advisor and by the Advisor on 90 days' written notice to the
Portfolio. See "Additional Information."
The Glass-Steagall Act and other applicable laws generally prohibit
banks such as the Advisor from engaging in the business of underwriting or
distributing securities, and the Board of Governors of the Federal Reserve
System has issued an interpretation to the effect that under these laws a bank
holding company registered under the federal Bank Holding Company Act or certain
subsidiaries thereof may not sponsor, organize, or control a registered open-end
investment company continuously engaged in the issuance of its shares, such as
the Trust. The interpretation does not prohibit a holding company or a
subsidiary thereof from acting as investment advisor and custodian to such an
investment company. The Advisor believes that it may perform the services for
the Portfolio contemplated by the Advisory Agreement without violation of the
Glass-Steagall Act or other applicable banking laws or regulations. State laws
on this issue 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
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<PAGE>
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. FDI is a wholly owned indirect
subsidiary of Boston Institutional Group, Inc. FDI also serves as exclusive
placement agent for the Portfolio. FDI currently provides administration and
distribution services for a number of other investment companies.
The Distribution Agreement shall continue in effect with respect to the
Fund for a period of two years after execution only if it is approved at least
annually thereafter (i) by a vote of the holders of a majority of the Fund's
outstanding shares or by its Trustees and (ii) by a vote of a majority of the
Trustees of the Trust who are not "interested persons" (as defined by the 1940
Act) of the parties to the Distribution Agreement, cast in person at a meeting
called for the purpose of voting on such approval (see "Trustees and Officers").
The Distribution Agreement will terminate automatically if assigned by either
party thereto and is terminable at any time without penalty by a vote of a
majority of the Trustees of the Trust, a vote of a majority of the Trustees who
are not "interested persons" of the Trust, or by a vote of the holders of a
majority of the Fund's outstanding shares as defined under "Additional
Information," in any case without payment of any penalty on 60 days' written
notice to the other party. The principal offices of FDI are located at 60 State
Street, Suite 1300, Boston, Massachusetts 02109.
CO-ADMINISTRATOR
Under Co-Administration Agreements with the Trust and the Portfolio
dated August 1, 1996, FDI also serves as the Trust's and the Portfolio's
Co-Administrator. The Co-Administration Agreements may be renewed or amended by
the respective Trustees without a shareholder vote. The Co-Administration
Agreements are terminable at any time without penalty by a vote of a majority of
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<PAGE>
the Trustees of the Trust or the Portfolio, as applicable, on not more than 60
days' written notice nor less than 30 days' written notice to the other party.
The Co-Administrator may subcontract for the performance of its obligations,
provided, however, that unless the Trust or the Portfolio, as applicable,
expressly agrees in writing, the Co-Administrator shall be fully responsible for
the acts and omissions of any subcontractor as it would for its own acts or
omissions. See "Services Agent" below.
FDI (i) provides office space, equipment and clerical personnel for
maintaining the organization and books and records of the Trust and the
Portfolio; (ii) provides officers for the Trust and the Portfolio; (iii)
prepares and files documents required for notification of state securities
administrators; (iv) reviews and files marketing and sales literature; (v) files
Portfolio regulatory documents and mails Portfolio communications to Trustees
and investors; and (vi) maintains related books and records.
For its services under the Co-Administration Agreements, the Fund and
Portfolio have agreed to pay FDI fees equal to its allocable share of an annual
complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The amount
allocable to the Fund or Portfolio is based on the ratio of its net assets to
the aggregate net assets of the Trust, the Master Portfolios and certain other
investment companies subject to similar agreements with FDI.
The table below sets forth for the Fund and the Portfolio the
administrative fees paid to FDI for the fiscal periods indicated. See the
Prospectus and below for applicable expense limitations.
FUND -- For the period August 1, 1996 through August 31, 1996 and the fiscal
year ended August 31, 1997: $525 and $6,410.
PORTFOLIO -- For the period August 1, 1996 through August 31, 1996 and the
fiscal year ended August 31, 1997: $2,284 and $25,082.
The table below sets forth for the Fund and the Portfolio the
administrative fees paid to Signature Broker-Dealer Services, Inc. (which
provided distribution and administrative services to the Trust and placement
agent and administrative services to the Portfolio prior to August 1, 1996) for
the fiscal periods indicated. See the Prospectus and below for applicable
expense limitations.
FUND -- For the fiscal year ended August 31, 1995 and the period September 1,
1995 through July 31, 1996: $22,290 and $23,755.
PORTFOLIO -- For the fiscal year ended August 31, 1995 and the period September
1, 1995 through July 31, 1996: $72,729 and $110,848.
SERVICES AGENT
The Trust, on behalf of the Fund, and the Portfolio have entered into
Administrative Services Agreements (the "Services Agreements") with Morgan
pursuant to which Morgan is responsible for certain administrative and related
services provided to the Fund and Portfolio. The Services Agreements may be
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terminated at any time, without penalty, by the Trustees or Morgan, in each case
on not more than 60 days' nor less than 30 days' written notice to the other
party.
Under the Services Agreements, the Fund and the Portfolio have agreed
to pay Morgan fees equal to its allocable share of an annual complex-wide
charge. This charge is calculated daily based on the aggregate net assets of the
Master Portfolios and J.P. Morgan Series Trust in accordance with the following
annual schedule: 0.09% on the first $7 billion of their aggregate average daily
net assets and 0.04% of their aggregate average daily net assets in excess of $7
billion, less the complex-wide fees payable to FDI. The portion of this charge
payable by the Fund and Portfolio is determined by the proportionate share that
its net assets bear to the total net assets of the Trust, the Master Portfolios,
the other investors in the Master Portfolios for which Morgan provides similar
services and J.P. Morgan Series Trust.
Under prior administrative services agreements in effect from December
29, 1995 through July 31, 1996 with Morgan, the Portfolio paid Morgan a fee
equal to its proportionate share of an annual complex-wide charge. This charge
was calculated daily based on the aggregate net assets of the Master Portfolios
in accordance with the following schedule: 0.06% of the first $7 billion of the
Master Portfolios' aggregate average daily net assets, and 0.03% of the Master
Portfolios' aggregate average daily net assets in excess of $7 billion. Prior to
December 29, 1995, the Trust and the Portfolio had entered into Financial and
Fund Accounting Services Agreements with Morgan, the provisions of which
included certain of the activities described above and, prior to September 1,
1995, also included reimbursement of usual and customary expenses.
The table below sets forth for the Fund and the Portfolio the fees paid
to Morgan, net of fee waivers and reimbursements, as Services Agent. See the
Prospectus and below for applicable expense limitations.
FUND -- For the fiscal years ended August 31, 1995, 1996 and 1997: $(56,396)*,
$30,085 and $60,316.
PORTFOLIO -- For the fiscal years ended August 31, 1995, 1996 and 1997:
$169,754, $205,419 and $397,340.
- ------------------------------------
(*) Indicates a reimbursement by Morgan for expenses in excess of its fees
under the Services Agreements. No fees were paid for the fiscal period.
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02110, serves as the Trust's and the Portfolio's
custodian and fund accounting agent and the Fund's transfer and dividend
disbursing agent. Pursuant to the Custodian Contracts, State Street is
responsible for maintaining the books of account and records of portfolio
transactions and holding portfolio securities and cash. In addition, the
Custodian has entered into subcustodian agreements on behalf of the Portfolio
with Bankers Trust Company for the purpose of holding TENR Notes and with Bank
of New York and Chemical Bank, N.A. for the
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purpose of holding certain variable rate demand notes. The Custodian maintains
portfolio transaction records. As transfer agent and dividend disbursing agent,
State Street is responsible for maintaining account records detailing the
ownership of Fund shares and for crediting income, capital gains and other
changes in share ownership to shareholder accounts.
SHAREHOLDER SERVICING
The Trust on behalf of the Fund has entered into a Shareholder
Servicing Agreement with Morgan pursuant to which Morgan acts as shareholder
servicing agent for its customers and for other Fund investors who are customers
of a Financial Professional. Under this agreement, Morgan is responsible for
performing shareholder account, administrative and servicing functions, which
include but are not limited to, answering inquiries regarding account status and
history, the manner in which purchases and redemptions of Fund shares may be
effected, and certain other matters pertaining to the Fund; assisting customers
in designating and changing dividend options, account designations and
addresses; providing necessary personnel and facilities to coordinate the
establishment and maintenance of shareholder accounts and records with the
Fund's transfer agent; transmitting purchase and redemption orders to the Fund's
transfer agent and arranging for the wiring or other transfer of funds to and
from customer accounts in connection with orders to purchase or redeem Fund
shares; verifying purchase and redemption orders, transfers among and changes in
accounts; informing the Distributor of the gross amount of purchase orders for
Fund shares; monitoring the activities of the Fund's transfer agent; and
providing other related services.
Under the Shareholder Servicing Agreement, the Fund has agreed to pay
Morgan for these services a fee at the annual rate (expressed as a percentage of
the average daily net asset value of Fund shares owned by or for shareholders
for whom Morgan is acting as shareholder servicing agent) of 0.05%. Morgan acts
as shareholder servicing agent for all shareholders. See the Prospectus and
below for applicable expense limitations.
The table below sets forth for the Fund listed the shareholder
servicing fees paid by the Fund to Morgan, net of fee waivers and
reimbursements, for the fiscal periods indicated. See "Expenses" in the
Prospectus and below for applicable expense limitations.
The shareholder servicing fees paid by the Fund to Morgan, net of fee
waivers and reimbursements, for the fiscal years ended August 31, 1995, 1996,
and 1997 were as follows: $96,667, $103,262 and $97,098, of which $50,458 was
waived for the period February 10, 1997 through August 31, 1997.
As discussed under "Investment Advisor," the Glass-Steagall Act and
other applicable laws and regulations limit the activities of bank holding
companies and certain of their subsidiaries in connection with registered
open-end investment companies. The activities of Morgan in acting as shareholder
servicing agent for Fund shareholders under the Shareholder Servicing Agreement
and providing administrative services to the Fund and the Portfolio under the
Services Agreements and in acting as Advisor to the Portfolio under the
Investment Advisory Agreement may raise issues under these laws. However, Morgan
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believes that it may properly perform these services and the other activities
described in the Prospectus without violation of the Glass-Steagall Act or other
applicable banking laws or regulations.
If Morgan were prohibited from providing any of the services under the
Shareholder Servicing Agreement and the Services Agreements, the Trustees would
seek an alternative provider of such services. In such event, changes in the
operation of the Fund or the Portfolio might occur and a shareholder might no
longer be able to avail himself or herself of any services then being provided
to shareholders by Morgan.
The Fund may be sold to or through financial intermediaries who are
customers of Morgan ("financial professionals"), including financial
institutions and broker-dealers, that may be paid fees by Morgan or its
affiliates for services provided to their clients that invest in the Fund. See
"Financial Professionals" below. Organizations that provide recordkeeping or
other services to certain employee benefit or retirement plans that include the
Fund as an investment alternative may also be paid a fee.
FINANCIAL PROFESSIONALS
The services provided by financial professionals may include
establishing and maintaining shareholder accounts, processing purchase and
redemption transactions, arranging for bank wires, performing shareholder
subaccounting, answering client inquiries regarding the Trust, assisting clients
in changing dividend options, account designations and addresses, providing
periodic statements showing the client's account balance and integrating these
statements with those of other transactions and balances in the client's other
accounts serviced by the financial professional, transmitting proxy statements,
periodic reports, updated prospectuses and other communications to shareholders
and, with respect to meetings of shareholders, collecting, tabulating and
forwarding executed proxies and obtaining such other information and performing
such other services as Morgan or the financial professional's clients may
reasonably request and agree upon with the financial professional.
Although there is no sales charge levied directly by the Fund,
financial professionals may establish their own terms and conditions for
providing their services and may charge investors a transaction-based or other
fee for their services. Such charges may vary among financial professionals but
in all cases will be retained by the financial professional and not remitted to
the Fund or Morgan.
INDEPENDENT ACCOUNTANTS
The independent accountants of the Trust and the Portfolio are Price
Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036. Price
Waterhouse LLP conducts an annual audit of the financial statements of the Fund
and the Portfolio, assists in the preparation and/or review of the Fund's and
the Portfolio's federal and state income tax returns and consults with the Fund
and the Portfolio as to matters of accounting and federal and state income
taxation.
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EXPENSES
In addition to the fees payable to Pierpont Group, Inc., Morgan and FDI
under various agreements discussed under "Trustees and Officers," "Investment
Advisor," "Co-Administrator and Distributor," "Services Agent" and "Shareholder
Servicing" above, the Fund and the Portfolio are responsible for usual and
customary expenses associated with their respective operations. Such expenses
include organization expenses, legal fees, accounting expenses, insurance costs,
the compensation and expenses of the Trustees, costs associated with their
registration under federal securities laws, and extraordinary expenses
applicable to the Fund or the Portfolio. For the Fund, such expenses also
include transfer, registrar and dividend disbursing costs, the expenses of
printing and mailing reports, notices and proxy statements to Fund shareholders,
and filing fees under state securities laws. For the Portfolio, such expenses
also include custodian fees. Under fee arrangements prior to September 1, 1995,
Morgan as Services Agent was responsible for reimbursements to the Trust and the
Portfolio and the usual and customary expenses described above (excluding
organization and extraordinary expenses, custodian fees and brokerage expenses).
For additional information regarding waivers or expense subsidies, see the
Prospectus.
PURCHASE OF SHARES
METHOD OF PURCHASE. Investors may open accounts with the Fund only
through the Distributor. All purchase transactions in Fund accounts are
processed by Morgan as shareholder servicing agent and the Fund is authorized to
accept any instructions relating to a Fund account from Morgan as shareholder
servicing agent for the customer. All purchase orders must be accepted by the
Distributor. Prospective investors who are not already customers of Morgan may
apply to become customers of Morgan for the sole purpose of Fund transactions.
There are no charges associated with becoming a Morgan customer for this
purpose. Morgan reserves the right to determine the customers that it will
accept, and the Trust reserves the right to determine the purchase orders that
it will accept.
References in the Prospectus and this Statement of Additional
Information to customers of Morgan or a financial professional include customers
of their affiliates and references to transactions by customers with Morgan or a
Financial Professional include transactions with their affiliates. Only Fund
investors who are using the services of a financial institution acting as
shareholder servicing agent pursuant to an agreement with the Trust on behalf of
the Fund may make transactions in shares of the Fund.
The Fund may, at its own option, accept securities in payment for
shares. The securities delivered in such a transaction are valued by the method
described in "Net Asset Value" as of the day the Fund receives the securities.
This is a taxable transaction to the shareholder. Securities may be accepted in
payment for shares only if they are, in the judgment of Morgan, appropriate
investments for the Portfolio. In addition, securities accepted in payment for
shares must: (i) meet the investment objective and policies of the Portfolio;
(ii) be acquired by the Fund for investment and not for resale (other than for
resale to the Portfolio); and (iii) be liquid securities which are not
restricted as to transfer either by law or liquidity of market. The Fund
reserves the right to
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accept or reject at its own option any and all securities offered in payment for
its shares.
Prospective investors may purchase shares with the assistance of a a
Financial Professional, and the Financial Professional may charge the investor a
fee for this service and other services it provides to its customers.
REDEMPTION OF SHARES
Investors may redeem shares as described in the Prospectus.
Shareholders redeeming shares of the Fund should be aware that the Fund attempts
to maintain a stable net asset value of $1.00 per share; however, there can be
no assurance that it will be able to continue to do so, and in that case the net
asset value of the Fund's shares might deviate from $1.00 per share.
Accordingly, a redemption request might result in payment of a dollar amount
which differs from the number of shares redeemed. See "Net Asset Value" below.
If the Trust, on behalf of the Fund, and the Portfolio determine that
it would be detrimental to the best interest of the remaining shareholders of
the Fund to make payment wholly or partly in cash, payment of the redemption
price may be made in whole or in part by a distribution in kind of securities
from the Portfolio, in lieu of cash, in conformity with the applicable rule of
the SEC. If shares are redeemed in kind, the redeeming shareholder might incur
transaction costs in converting the assets into cash. The method of valuing
portfolio securities is described under "Net Asset Value," and such valuation
will be made as of the same time the redemption price is determined. The Trust,
on behalf of the Fund, has elected to be governed by Rule 18f-1 under the 1940
Act pursuant to which the Portfolio is obligated to redeem shares solely in cash
up to the lesser of $250,000 or one percent of the net asset value of the Fund
during any 90-day period for any one shareholder. The Trust will redeem Fund
shares in kind only if it has received a redemption in kind from the Portfolio
and therefore shareholders of the Fund that receive redemptions in kind will
receive securities of the Portfolio. The Portfolio has advised the Trust that
the Portfolio will not redeem in kind except in circumstances in which the Fund
is permitted to redeem in kind.
FURTHER REDEMPTION INFORMATION. Investors should be aware that
redemptions from the Fund may not be processed if a redemption request is not
submitted in proper form. To be in proper form, the Fund must have received the
shareholder's taxpayer identification number and address. In addition, if a
shareholder sends a check for the purchase of fund shares and shares are
purchased before the check has cleared, the transmittal of redemption proceeds
from the shares will occur upon clearance of the check which may take up to 15
days. The Trust, on behalf of the Fund, and the Portfolio reserve the right to
suspend the right of redemption and to postpone the date of payment upon
redemption as follows: (i) for up to seven days, (ii) during periods when the
New York Stock Exchange is closed for other than weekends and holidays or when
trading on such Exchange is restricted as determined by the SEC by rule or
regulation, (iii) during periods in which an emergency, as determined by the
SEC, exists that causes disposal by the Portfolio of, or evaluation of the net
asset value of, its portfolio securities to be unreasonable or impracticable, or
(iv) for such other periods as the SEC may permit.
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EXCHANGE OF SHARES
An investor may exchange shares from the Fund into shares of any other
J.P. Morgan Institutional or J.P. Morgan mutual fund, without charge. An
exchange may be made so long as after the exchange the investor has shares, in
each fund in which he or she remains an investor, with a value of at least that
fund's minimum investment amount. Shareholders should read the prospectus of the
fund into which they are exchanging and may only exchange between fund accounts
that are registered in the same name, address and taxpayer identification
number. Shares are exchanged on the basis of relative net asset value per share.
Exchanges are in effect redemptions from one fund and purchases of another fund
and the usual purchase and redemption procedures and requirements are applicable
to exchanges. Shareholders subject to federal income tax who exchange shares in
one fund for shares in another fund may recognize capital gain or loss for
federal income tax purposes. Shares of the Fund to be acquired are purchased for
settlement when the proceeds from redemption become available. 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 as described in the Prospectus. The net asset value will not be computed
on the day the following legal holidays are observed: New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day, and Christmas Day.
In the event that trading in the money markets is scheduled to end earlier than
the close of the New York Stock Exchange in observance of these holidays, the
Fund and Portfolio would expect to close for purchases and redemptions an hour
in advance of the end of trading in the money markets. The Fund and the
Portfolio may also close for purchases and redemptions at such other times as
may be determined by the Board of Trustees to the extent permitted by applicable
law. On any business day when the Public Securities Association ("PSA")
recommends that the securities market close early, the Fund reserves the right
to cease accepting purchase and redemption orders for same business day credit
at the time PSA recommends that the securities market close. On days the Fund
closes early, purchase and redemption orders received after the PSA-recommended
closing time will be credited the next business day. The days on which net asset
value is determined are the Fund's business days.
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The net asset value of the Fund is equal to the value of the Fund's
investment in the Portfolio (which is equal to the Fund's pro rata share of the
total investment of the Fund and of any other investors in the Portfolio less
the Fund's pro rata share of the Portfolio's liabilities) less the Fund's
liabilities. The following is a discussion of the procedures used by the
Portfolio in valuing its assets.
The Portfolio's portfolio securities are valued by the amortized cost
method. The purpose of this method of calculation is to attempt to maintain a
constant net asset value per share of the Fund of $1.00. No assurances can be
given that this goal can be attained. The amortized cost method of valuation
values a security at its cost at the time of purchase and thereafter assumes a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the instrument. If a
difference of more than 1/2 of 1% occurs between valuation based on the
amortized cost method and valuation based on market value, the Trustees will
take steps necessary to reduce such deviation, such as changing the Fund's
dividend policy, shortening the average portfolio maturity, realizing gains or
losses, or reducing the number of outstanding Fund shares. Any reduction of
outstanding shares will be effected by having each shareholder contribute to the
Fund's capital the necessary shares on a pro rata basis. Each shareholder will
be deemed to have agreed to such contribution in these circumstances by his
investment in the Fund.
See "Taxes."
PERFORMANCE DATA
From time to time, the Fund may quote performance in terms of yield,
actual distributions, total return or capital appreciation in reports, sales
literature and advertisements published by the Trust. Current performance
information for the Fund may be obtained by calling the number provided on the
cover page of this Statement of Additional Information.
YIELD QUOTATIONS. As required by regulations of the SEC, current yield
for the Fund is computed by determining the net change exclusive of capital
changes in the value of a hypothetical pre-existing account having a balance of
one share at the beginning of a seven-day calendar period, dividing the net
change in account value of the account at the beginning of the period, and
multiplying the return over the seven-day period by 365/7. For purposes of the
calculation, net change in account value reflects the value of additional shares
purchased with dividends from the original share and dividends declared on both
the original share and any such additional shares, but does not reflect realized
gains or losses or unrealized appreciation or depreciation. Effective yield for
the Fund is computed by annualizing the seven-day return with all dividends
reinvested in additional Fund shares. The tax equivalent yield is computed by
first computing the yield as discussed above. Then the portion of the yield
attributable to securities the income of which was exempt for federal income tax
purposes is determined. This portion of the yield is then divided by one minus
the stated assumed federal income tax rate for individuals and then added to the
portion of the yield that is not attributable to securities, the income of which
was tax exempt.
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Historical yield information for the period ended December 31, 1997 is as
follows: 7-day current yield: 3.76%; 7-day tax equivalent yield at 39.6% tax
rate: 6.23%; 7-day effective yield: 3.83%.
TOTAL RETURN QUOTATIONS. Historical performance information for the periods
prior to the establishment of the Fund will be that of its corresponding
predecessor J.P. Morgan fund and will be presented in accordance with applicable
SEC Staff interpretations. The applicable financial information in the
registration statement for the J.P. Morgan Funds (Registration Nos. 033-54632
and 811-07340) is incorporated herein by reference.
Historical return information for the Fund's predecessor for the period
ended December 31, 1997 is as follows: Average annual total return, 1 year:
3.46%; Average annual total return, 5 years: 2.89%; average annual total return,
10 years: 3.78%; aggregate total return, 1 year: 3.46%; aggregate total return,
5 years: 15.28%; aggregate total return, 10 years: 44.98%.
Aggregate total returns, reflecting the cumulative percentage change
over a measuring period, may also be calculated.
GENERAL. The Fund's performance will vary from time to time depending
upon market conditions, the composition of the Portfolio, and its operating
expenses. Consequently, any given performance quotation should not be considered
representative of the Fund's performance for any specified period in the future.
In addition, because performance will fluctuate, it may not provide a basis for
comparing an investment in the Fund with certain bank deposits or other
investments that pay a fixed yield or return for a stated period of time.
Comparative performance information may be used from time to time in
advertising the Fund's shares, including appropriate market indices including
the benchmarks indicated under "Investment Advisor" above or data from Lipper
Analytical Services, Inc., Micropal, Inc., Ibbotson Associates, Morningstar
Inc., the Dow Jones Industrial Average and other industry publications.
PORTFOLIO TRANSACTIONS
The Advisor places orders for the Portfolio for all purchases and sales of
portfolio securities, enters into repurchase agreements, and may enter into
reverse repurchase agreements and execute loans of portfolio securities on
behalf of the Portfolio. See "Investment Objectives and Policies."
Fixed income and debt securities and municipal bonds and notes are
generally traded at a net price with dealers acting as principal for their own
accounts without a stated commission. The price of the security usually includes
profit to the dealers. In underwritten offerings, securities are purchased at a
fixed price which includes an amount of compensation to the underwriter,
generally referred to as the underwriter's concession or discount. On occasion,
certain securities may be purchased directly from an issuer, in which case no
commissions or discounts are paid.
Portfolio transactions for the Portfolio will be undertaken principally
to accomplish the Portfolio's objective in relation to expected movements in the
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general level of interest rates. The Portfolio may engage in short-term trading
consistent with its objective. See "Investment Objective and Policies --
Portfolio Turnover." The Portfolio will not seek profits through short-term
trading, but the Portfolio may dispose of any portfolio security prior to its
maturity if it believes such disposition is appropriate even if this action
realizes profits or losses.
In connection with portfolio transactions for the Portfolio, the
Advisor intends to seek best execution on a competitive basis for both purchases
and sales of securities.
The Portfolio has a policy of investing only in securities with
maturities of not more than thirteen months, which will result in high portfolio
turnover. Since brokerage commissions are not normally paid on investments which
the Portfolio makes, turnover resulting from such investments should not
adversely affect the net asset value or net income of the Portfolio.
Subject to the overriding objective of obtaining 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 during the existence of any underwriting group relating thereto of
which the Advisor or an affiliate of the Advisor is a member, except to the
extent permitted by law.
On those occasions when the Advisor deems the purchase or sale of a
security to be in the best interests of the Portfolio as well as other customers
including other Portfolios, the Advisor to the extent permitted by applicable
laws and regulations, may, but is not obligated to, aggregate the securities to
be sold or purchased for the Portfolio with those to be sold or purchased for
other customers in order to obtain best execution, including lower brokerage
commissions if appropriate. In such event, allocation of the securities so
purchased or sold as well as any expenses incurred in the transaction will be
made by the Advisor in the manner it considers to be most equitable and
consistent with its fiduciary obligations to the Portfolio. In some instances,
this procedure might adversely affect the Portfolio.
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MASSACHUSETTS TRUST
The Trust is a trust fund of the type commonly known as a
"Massachusetts business trust" of which the Fund is a separate and distinct
series. A copy of the Declaration of Trust for the Trust is on file in the
office of the Secretary of The Commonwealth of Massachusetts. The Declaration of
Trust and the By-Laws of the Trust are designed to make the Trust similar in
most respects to a Massachusetts business corporation. The principal distinction
between the two forms concerns shareholder liability described below.
Effective January 1, 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
shareholder may be held personally liable to the extent that claims are not
satisfied by the Fund. However, upon payment of such liability, the shareholder
will be entitled to reimbursement from the general assets of the Fund. The
Trustees intend to conduct the operations of the Trust in such a way so as to
avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the Fund.
The Trust's Declaration of Trust further provides that the name of the
Trust refers to the Trustees collectively as Trustees, not as individuals or
personally, that no Trustee, officer, employee or agent of the Fund is liable to
the Fund or to a shareholder, and that no Trustee, officer, employee, or agent
is liable to any third persons in connection with the affairs of the Fund,
except as such liability may arise from his or its own bad faith, willful
misfeasance, gross negligence or reckless disregard of his or its duties to such
third persons. It also provides that all third persons shall look solely to Fund
property for satisfaction of claims arising in connection with the affairs of
the Fund. With the exceptions stated, the Trust's Declaration of Trust provides
that a Trustee, officer, employee, or agent is entitled to be indemnified
against all liability in connection with the affairs of the Fund.
The Trust shall continue without limitation of time subject to the
provisions in the Declaration of Trust concerning termination by action of the
shareholders or by action of the Trustees upon notice to the shareholders.
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DESCRIPTION OF SHARES
The Trust is an open-end management investment company organized as a
Massachusetts business trust in which the Fund represents a separate series of
shares of beneficial interest. See "Massachusetts Trust."
The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares ($0.001 par value) of one or more series
and classes within any series and to divide or combine the shares (of any
series, if applicable) without changing the proportionate beneficial interest of
each shareholder in the Fund (or in the assets of other series, if applicable).
Each share represents an equal proportional interest in the Fund with each other
share. Upon liquidation of the Fund, holders are entitled to share pro rata in
the net assets of the Fund available for distribution to such shareholders. See
"Massachusetts Trust." Shares of the Fund have no preemptive or conversion
rights and are fully paid and nonassessable. The rights of redemption and
exchange are described in the Prospectus and elsewhere in this Statement of
Additional Information.
The shareholders of the Trust are entitled to a full vote for each full
share held and to a fractional vote for each fractional share. Subject to the
1940 Act, the Trustees themselves have the power to alter the number and the
terms of office of the Trustees, to lengthen their own terms, or to make their
terms of unlimited duration subject to certain removal procedures, and appoint
their own successors, PROVIDED, HOWEVER, that immediately after such appointment
the requisite majority of the Trustees have been elected by the shareholders of
the Trust. The voting rights of shareholders are not cumulative so that holders
of more than 50% of the shares voting can, if they choose, elect all Trustees
being selected while the shareholders of the remaining shares would be unable to
elect any Trustees. It is the intention of the Trust not to hold meetings of
shareholders annually. The Trustees may call meetings of shareholders for action
by shareholder vote as may be required by either the 1940 Act or the Trust's
Declaration of Trust.
Shareholders of the Trust have the right, upon the declaration in
writing or vote of more than two-thirds of its outstanding shares, to remove a
Trustee. The Trustees will call a meeting of shareholders to vote on removal of
a Trustee upon the written request of the record holders of 10% of the Trust's
shares. In addition, whenever ten or more shareholders of record who have been
such for at least six months preceding the date of application, and who hold in
the aggregate either shares having a net asset value of at least $25,000 or at
least 1% of the Trust's outstanding shares, whichever is less, shall apply to
the Trustees in writing, stating that they wish to communicate with other
shareholders with a view to obtaining signatures to request a meeting for the
purpose of voting upon the question of removal of any Trustee or Trustees and
accompanied by a form of communication and request which they wish to transmit,
the Trustees shall within five business days after receipt of such application
either: (1) afford to such applicants access to a list of the names and
addresses of all shareholders as recorded on the books of the Trust; or (2)
inform such applicants as to the approximate number of shareholders of record,
and the approximate cost of mailing to them the proposed communication and form
of request. If the Trustees elect to follow the latter course, the Trustees,
upon the written request of such
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<PAGE>
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 25 series of the Trust. The Trustees have no current intention to
create any classes within the initial series or any subsequent series. The
Trustees may, however, authorize the issuance of shares of additional series and
the creation of classes of shares within any series with such preferences,
privileges, limitations and voting and dividend rights as the Trustees may
determine. The proceeds from the issuance of any additional series would be
invested in separate, independently managed portfolios with distinct investment
objectives, policies and restrictions, and share purchase, redemption and net
asset valuation procedures. Any additional classes would be used to distinguish
among the rights of different categories of shareholders, as might be required
by future regulations or other unforeseen circumstances. All consideration
received by the Trust for shares of any additional series or class, and all
assets in which such consideration is invested, would belong to that series or
class, subject only to the rights of creditors of the Trust and would be subject
to the liabilities related thereto. Shareholders of any additional series or
class will approve the adoption of any management contract or distribution plan
relating to such series or class and of any changes in the investment policies
related thereto, to the extent required by the 1940 Act.
For information relating to mandatory redemption of Fund shares or
their redemption at the option of the Trust under certain circumstances, see the
Prospectus.
As of January 2, 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 for Harriet F (17.34%), Morgan as
Agent for Jeffrey S. Dickson (6.37%), Mariah Carey-Rye Songs (7.07%), Morgan as
Agent for Susan R. Wexner (10.58%).
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<PAGE>
SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE
Unlike other mutual funds which directly acquire and manage their own
portfolio of securities, the Fund is an open-end management investment company
which seeks to achieve its investment objective by investing all of its
investable assets in the Portfolio, a separate registered investment company
with the same investment objective as the Fund. Generally, when a 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 of all the
assets of the Fund in another pooled investment entity having the same
investment objective and restrictions as the Fund or the retaining of an
investment adviser to manage the Fund's assets in accordance with the investment
policies 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
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<PAGE>
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 effect on the outcome of such matters.
TAXES
The following discussion of tax consequences is based on U.S. federal
tax laws in effect on the date of this Prospectus. These laws and regulations
are subject to change by legislative or administrative action.
The Fund intends to continue to qualify as a regulated investment company under
Subchapter M of the Code. As a regulated investment company, the Fund must,
among other things, (a) derive at least 90% of its gross income from dividends,
interest, payments with respect to loans of stock and securities, gains from the
sale or other disposition of stock, securities or foreign currency and other
income (including but not limited to gains from options, futures, and forward
contracts) derived with respect to its business of investing in such stock,
securities or foreign currency; and (b) diversify its holdings so that, at the
end of each quarter of its taxable year, (i) at least 50% of the value of the
Fund's total assets is represented by cash, cash items, U.S. Government
securities, securities of other regulated investment companies, and other
securities limited, in respect of any one issuer, to an amount not greater than
5% of the Fund's total assets, and 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its total assets is
invested in the securities of any one issuer (other than U.S. Government
securities or securities of other regulated investment companies). As a
regulated investment company, the Fund (as opposed to its shareholders) will not
be subject to federal income taxes on the net investment income and capital gain
that it distributes to its shareholders, provided that at least 90% of its net
investment income and realized net short-term capital gain in excess of net
long-term capital loss for the taxable year is distributed in accordance with
the Code's timing requirements.
Under the Code, the Fund will be subject to a 4% excise tax on a
portion of its undistributed taxable income and capital gains if it fails to
meet certain distribution requirements by the end of the calendar year. The Fund
intends to make distributions in a timely manner and accordingly does not expect
to be subject to the excise tax.
For federal income tax purposes, dividends that are declared by the
Fund in October, November or December as of a record date in such month and
actually paid in January of the following year will be treated as if they were
paid on December 31 of the year declared. Therefore, such dividends will be
taxable to a shareholder in the year declared rather than the year paid.
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The Fund intends to qualify to pay exempt-interest dividends to its
shareholders by having, at the close of each quarter of its taxable year, at
least 50% of the value of its total assets consist of tax exempt securities. An
exempt-interest dividend is that part of dividend distributions made by the Fund
which is properly designated as consisting of interest received by the Fund on
tax exempt securities. Shareholders will not incur any federal income tax on the
amount of exempt-interest dividends received by them from the Fund, other than
the alternative minimum tax under certain circumstances. In view of the Fund's
investment policies, it is expected that a substantial portion of all dividends
will be exempt-interest dividends, although the Fund may from time to time
realize and distribute net short-term capital gains and may invest limited
amounts in taxable securities under certain circumstances.
Distributions of net investment income and realized net short-term
capital gain in excess of net long-term capital loss (other than exempt interest
dividends) are generally taxable to shareholders of the Fund as ordinary income
whether such distributions are taken in cash or reinvested in additional shares.
Distributions to corporate shareholders of the Fund are not eligible for the
dividends received deduction. Distributions of net long-term capital gain (i.e.,
net long-term capital gain in excess of net short-term capital loss) are taxable
to shareholders of the Fund as long-term capital gain, regardless of whether
such distributions are taken in cash or reinvested in additional shares and
regardless of how long a shareholder has held shares in the Fund. As a result of
the enactment of the Taxpayer Relief Act of 1997 (the "Act"), long-term capital
gain of an individual is generally subject to a maximum rate of 28% in respect
of a capital asset held directly by such individual for more than one year but
not more than eighteen months, and the maximum rate is reduced to 20% in respect
of a capital asset held in excess of 18 months. The Act authorizes the Treasury
department to promulgate regulations that would apply these rules in the case of
long-term capital gain distributions made by the Fund. The Treasury Department
has indicated that, under such regulations, individual shareholders will be
taxed at a minimum rate of 28% in respect of capital gains distributions
designated as 28% rate gain distributions and will be taxed at a maximum rate of
20% in respect of capital gains distributions designated as 20% rate gain
distributions, regardless of how long such shareholders have held their shares
in the Fund. Additionally, any loss realized on a redemption or exchange of
shares of the Fund will be disallowed to the extent the shares disposed of are
replaced within a period of 61 days beginning 30 days before such disposition,
such as pursuant to reinvestment of a dividend in shares of the Fund.
To maintain a constant $1.00 per share net asset value, the Trustees of
the Trust may direct that the number of outstanding shares be reduced pro rata.
If this adjustment is made, it will reflect the lower market value of portfolio
securities and not realized losses. The adjustment may result in a shareholder
having more dividend income than net income in his account for a period. When
the number of outstanding shares of the Fund is reduced, the shareholder's basis
in the shares of the Fund may be adjusted to reflect the difference between
taxable income and net dividends actually distributed. This difference may be
realized as a capital loss when the shares are liquidated. Subject to certain
limited exceptions, capital losses cannot be used to offset ordinary income. See
"Net Asset Value."
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Gains or losses on sales of portfolio securities will be treated as
long-term capital gains or losses if the securities have been held for more than
one year except in certain cases where a put is acquired or a call option is
written thereon or straddle rules are otherwise applicable. Other gains or
losses on the sale of securities will be short-term capital gains or losses.
Gains and losses on the sale, lapse or other termination of options on
securities will be treated as gains and losses from the sale of securities.
Except as described below, if an option written by the Portfolio lapses or is
terminated through a closing transaction, such as a repurchase by the Portfolio
of the option from its holder, the Portfolio will realize a short-term capital
gain or loss, depending on whether the premium income is greater or less than
the amount paid by the Portfolio in the closing transaction. If securities are
purchased by the Portfolio pursuant to the exercise of a put option written by
it, the Portfolio will subtract the premium received from its cost basis in the
securities purchased.
Any distribution of net investment income or capital gains will have
the effect of reducing the net asset value of Fund shares held by a shareholder
by the same amount as the distribution. If the net asset value of the shares is
reduced below a shareholder's cost as a result of such a distribution, the
distribution, although constituting a return of capital to the shareholder, will
be taxable as described above.
Any gain or loss realized on the redemption or exchange of Fund shares
by a shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held for more than one year, and
otherwise as short-term capital gain or loss. However, any loss realized by a
shareholder upon the redemption or exchange of shares in the Fund held for six
months or less 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.
FOREIGN SHAREHOLDERS. Dividends of net investment income and
distributions of realized net short-term gain in excess of net long-term loss to
a shareholder who, as to the United States, is a nonresident alien individual,
fiduciary of a foreign trust or estate, foreign corporation or foreign
partnership (a "foreign shareholder") will be subject to U.S. withholding tax at
the rate of 30% (or lower treaty rate) unless the dividends are effectively
connected with a U.S. trade or business of the shareholder, in which case the
dividends will be subject to tax on a net income basis at the graduated rates
applicable to U.S. individuals or domestic corporations. Distributions treated
as long term capital gains to foreign shareholders will not be subject to U.S.
tax unless the distributions are effectively connected with the shareholder's
trade or business in the United States or, in the case of a shareholder who is a
nonresident alien individual, the shareholder was present in the United States
for more than 182 days during the taxable year and certain other conditions are
met.
In the case of a foreign shareholder who is a nonresident alien
individual or foreign entity, the Fund may be required to withhold U.S. federal
income tax as "backup withholding" at the rate of 31% from distributions treated
as long-term capital gains and from the proceeds of redemptions, exchanges or
other
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<PAGE>
dispositions of Fund shares unless IRS Form W-8 is provided. Transfers by gift
of shares of the Fund by a foreign shareholder who is a nonresident alien
individual will not be subject to U.S. federal gift tax, but the value of shares
of the Fund held by such a shareholder at his or her death will be includible in
his or her gross estate for U.S. federal estate tax purposes.
STATE AND LOCAL TAXES. The Fund may be subject to state or local taxes
in jurisdictions in which the Fund is deemed to be doing business. In addition,
the treatment of the Fund and its shareholders in those states which have income
tax laws might differ from treatment under the federal income tax laws.
Shareholders should consult their own tax advisors with respect to any state or
local taxes.
OTHER TAXATION. The Trust is organized as a Massachusetts business
trust and, under current law, neither the Trust nor the Fund is liable for any
income or franchise tax in The Commonwealth of Massachusetts, provided that the
Fund continues to qualify as a regulated investment company under Subchapter M
of the Code. The Portfolio is organized as a New York trust. The Portfolio is
not subject to any federal income taxation or income or franchise tax in the
State of New York or The Commonwealth of Massachusetts. The investment by the
Fund in the Portfolio does not cause the Fund to be liable for any income or
franchise tax in the State of New York.
ADDITIONAL INFORMATION
As used in this Statement of Additional Information and the Prospectus,
the term "majority of the outstanding voting securities" means the vote of (i)
67% or more of the Fund's shares or the Portfolio's outstanding voting
securities present at a meeting, if the holders of more than 50% of the Fund's
outstanding shares or the Portfolio's outstanding voting securities are present
or represented by proxy, or (ii) more than 50% of the Fund's outstanding shares
or the Portfolio's outstanding voting securities, whichever is less.
Telephone calls to the Fund, Morgan or Financial Professionals as
shareholder servicing agent may be tape recorded. With respect to the securities
offered hereby, this Statement of Additional Information and the Prospectus do
not contain all the information included in the Trust's Registration Statement
filed with the SEC under the 1933 Act and the Trust's and the Portfolio's
Registration Statements filed under the 1940 Act. Pursuant to the rules and
regulations of the SEC, certain portions have been omitted. The Registration
Statements including the exhibits filed therewith may be examined at the office
of the SEC in Washington D.C.
Statements contained in this Statement of Additional Information and
the Prospectus concerning the contents of any contract or other document are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the applicable
Registration Statements. Each such statement is qualified in all respects by
such reference.
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in the
Prospectus and this Statement of Additional Information, in connection with the
offer contained therein and, if given or made, such other information or
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<PAGE>
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.
FINANCIAL STATEMENTS
The following financial statements and the report thereon of Price
Waterhouse LLP of the Fund are incorporated herein by reference from its annual
report filing made with the SEC pursuant to Section 30(b) of the 1940 Act and
Rule 30b2-1 thereunder. The following financial report is available without
charge upon request by calling J.P. Morgan Funds Services at (800) 766-7722. The
Fund's financial statements include the financial statements of the Portfolio.
<TABLE>
<CAPTION>
Date of Annual Report; Date Annual
Name of Fund Report Filed; and Accession Number
- ----------------------------------------------------- ------------------------------------------------------------
<S> <C>
08/31/97
J.P. Morgan Institutional Tax 10/30/97
Exempt Money Market Fund 0001047469-97-002081
- ----------------------------------------------------- ------------------------------------------------------------
</TABLE>
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<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 it 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.
COMMERCIAL PAPER, INCLUDING TAX EXEMPT
A - Issues assigned this highest rating are regarded as having
the greatest capacity for timely payment. Issues in this
category are further refined with the designations 1, 2, and 3
to indicate the relative degree of safety.
A-1 - This designation indicates that the degree of safety
regarding timely payment is very strong.
SHORT-TERM TAX-EXEMPT NOTES
SP-1 - The short-term tax-exempt note rating of SP-1 is the
highest rating assigned by Standard & Poor's and has a very
strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety
characteristics are given a "plus" (+) designation.
SP-2 - The short-term tax-exempt note rating of SP-2 has a
satisfactory capacity to pay principal and interest.
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Appendix-1
<PAGE>
MOODY'S
CORPORATE AND MUNICIPAL BONDS
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality
by all standards. Together with the Aaa group they comprise
what are generally known as high grade bonds. They are rated
lower than the best bonds because margins of protection may
not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may
be other elements present which make the long term risks
appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest
are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
COMMERCIAL PAPER, INCLUDING TAX EXEMPT
Prime-1 - Issuers rated Prime-1 (or related supporting
institutions) have a superior capacity for repayment of
short-term promissory obligations. Prime-1 repayment capacity
will normally be evidenced by the following characteristics:
- Leading market positions in well established industries.
- High rates of return on funds employed.
- Conservative capitalization structures with moderate reliance on
debt and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
- Well established access to a range of financial markets and assured
sources of alternate liquidity.
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Appendix-2
<PAGE>
SHORT-TERM TAX EXEMPT NOTES
MIG-1 - The short-term tax-exempt note rating MIG-1 is the
highest rating assigned by Moody's for notes judged to be the
best quality. Notes with this rating enjoy strong protection
from established cash flows of funds for their servicing or
from established and broad-based access to the market for
refinancing, or both.
MIG-2 - MIG-2 rated notes are of high quality but with margins
of protection not as large as MIG-1.
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Appendix-3
<PAGE>
================================================================================
|
FEBRUARY 2, 1998 | PROSPECTUS
|
================================================================================
J.P. MORGAN INSTITUTIONAL SERVICE
TAX EXEMPT MONEY MARKET FUND
==========================================
Seeking to preserve capital and to provide
income and same-day liquidity
This prospectus contains essential information for anyone investing in this
fund. Please read it carefully and keep it for reference.
Shares in this fund are not bank deposits and are not guaranteed or insured by
any bank, government entity, or the FDIC. The fund seeks to maintain a stable $1
share price, without guaranteeing that it will always be able to do so.
As with all mutual funds, the fact that these shares are registered with the
Securities and Exchange Commission does not mean that the commission approves
them as an investment or guarantees that the information in this prospectus is
correct or adequate. It is a criminal offense to state or suggest otherwise.
[LOGO]JPMorgan
Distributed by Funds Distributor, Inc.
<PAGE>
<TABLE>
<CAPTION>
CONTENTS
===============================================================================================
<S> <C> <C>
2 | MONEY MARKET MANAGEMENT APPROACH
Money market investment process ............................2
4 | J.P. MORGAN INSTITUTIONAL SERVICE TAX EXEMPT MONEY
MARKET FUND
Fund description ...........................................4
The fund's goal, investment Investor expenses ..........................................4
approach, risks, expenses
and performance Performance ................................................5
6 | YOUR INVESTMENT
Investing through a financial professional .................6
Investing in the J.P. Morgan Investing through an employer-sponsored retirement plan ....6
Institutional Service Tax
Exempt Money Market Fund Investing through an IRA or rollover IRA ...................6
Investing directly .........................................6
Opening your account .......................................6
Adding to your account .....................................6
Selling shares .............................................7
Account and transaction policies ...........................7
Dividends and distributions ................................8
Tax considerations .........................................8
9 | FUND DETAILS
More about the fund's Master/feeder structure ....................................9
business operations
Management and administration ..............................9
FOR MORE INFORMATION ..............................back cover
</TABLE>
<PAGE>
INTRODUCTION
================================================================================
J.P. MORGAN INSTITUTIONAL SERVICE TAX EXEMPT MONEY MARKET FUND
This fund invests in high-quality short-term debt securities by investing
through a master portfolio (another fund with the same goal). The fund accrues
dividends daily, pays them to shareholders monthly, and seeks to maintain a
stable $1 share price.
WHO MAY WANT TO INVEST
The fund is designed for investors who:
o want an investment that strives to preserve capital
o want regular income from a high quality portfolio
o want a highly liquid investment
o are looking for an interim investment
o are pursuing a short-term goal
o are seeking income that is exempt from federal income tax
The fund is NOT designed for investors who:
o are investing for long-term growth
o are investing for high income
o require the added security of the FDIC insurance
o are investing through an IRA or other tax-advantaged retirement plan
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 approximately $250 billion in assets under management,
including assets managed by the fund's advisor, Morgan Guaranty Trust Company of
New York.
=========================================
Before you invest
Investors considering the fund should
understand that:
o There is no assurance that the fund
will meet its investment goals
o Future returns will not necessarily
resemble past performance
o The fund does not represent a
complete investment program
- -----------------------------------------
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<PAGE>
MONEY MARKET MANAGEMENT APPROACH
================================================================================
The J.P. Morgan Institutional Service Tax Exempt Money Market Fund invests
exclusively in high-quality short-term debt obligations.
The fund's investment philosophy, developed by its advisor, emphasizes
investment quality through in-depth research of short-term securities and their
issuers. This allows the fund to focus on providing high current income without
compromising share price stability.
MONEY MARKET INVESTMENT PROCESS
In researching short-term securities, J.P. Morgan's credit analysts enhance the
data furnished by rating agencies by drawing on the insights of J.P. Morgan's
fixed income trading specialists and equity analysts. Only securities highly
rated by independent rating agencies as well as J.P. Morgan's proprietary
ratings system are considered for investment.
In managing the fund, J.P. Morgan employs a three-step process:
[GRAPHIC] MATURITY DETERMINATION Based on analysis
of a range of factors, including current
J.P. Morgan uses a disciplined yields, economic forecasts, and
process to control the fund's anticipated fiscal and monetary
sensitivity to interest rates policies, J.P. Morgan establishes the
desired weighted average maturity for
the fund within the permissible 90-day
range. Controlling weighted average
maturity allows the fund to manage risk
since securities with shorter maturities
are typically less sensitive to interest
rate shifts than those with longer
maturities.
[GRAPHIC] SECTOR ALLOCATION Analysis of the yields
available in different sectors of the
The fund invests across different municipal debt market, such as
sectors for diversification and to government obligations and revenue
take advantage of yield spreads bonds, allows J.P. Morgan to adjust the
fund's sector allocation, with the goal
of enhancing current income while also
maintaining diversification across
permissible sectors.
[GRAPHIC] SECURITY SELECTION Based on the results
of the firm's credit research and the
The fund selects its securities as fund's maturity determination and sector
described later in this prospectus allocation, the portfolio managers and
dedicated fixed-income traders
make buy and sell decisions according to
the fund's goal and strategy.
|
2 | MONEY MARKET MANAGEMENT APPROACH
|
<PAGE>
================================================================================
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J.P. MORGAN INSTITUTIONAL SERVICE
TAX EXEMPT MONEY MARKET FUND
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Registrant: J.P. Morgan Institutional Funds
(J.P. Morgan Institutional Service
Tax Exempt Money Market Fund)
[GRAPHIC] GOAL
The fund's goal is to provide high current income that is exempt from
federal income tax and to maintain high liquidity.
[GRAPHIC] INVESTMENT APPROACH
The fund invests primarily in high quality municipal obligations whose
income is exempt from federal income taxes. The fund's municipal obligations
must fall into the highest short-term rating category (top two highest
categories for New York State obligations) or be of equivalent quality. The fund
may also invest in certain structured municipal obligations, and in certain
securities whose income is subject to the alternative minimum tax (AMT). In
order to maintain liquidity while being fully invested, the fund may buy
securities with puts that allow the fund to liquidate the securities on short
notice. Some of the fund's securities may be purchased on a when-issued or
delayed delivery basis.
[GRAPHIC] POTENTIAL RISKS AND REWARDS
The fund's yield will vary in response to changes in interest rates. How
well the fund's yield compares to the yields of similar money market funds will
depend on the success of the investment process described on page 2.
As with all money market funds, the fund's investments are subject to various
risks, which, while generally considered to be minimal, could cause its share
price to fall below $1. For example, the issuer or guarantor of a portfolio
security or the counterparty to a contract could default on its obligation. An
unexpected rise in interest rates could also lead to a loss in share price if
the fund is near the maximum allowable average weighted maturity at the time.
However, the fund's investment process and management policies are designed to
minimize the likelihood and impact of these risks. To date, through this
process, the fund's share price has never deviated from $1.
Most of the fund's income is exempt from federal income taxes. A small portion
may be exempt from state or local income taxes.
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages
approximately $250 billion, including more than $13 billion using the same
strategy as the fund.
The portfolio management team is led by Daniel B. Mulvey, vice president, who
has been on the team since August of 1995 and has been at J.P. Morgan since
1991, and by Richard W. Oswald, vice president, who has been on the team since
joining J.P. Morgan in October of 1996. Prior to managing this fund, Mr. Oswald
served as Treasurer of CBS and President of its finance unit.
MONEY MARKET FUNDS AND STABILITY
Money market funds are subject to a range of federal regulations designed
to promote stability. For example, money market funds must maintain a weighted
average maturity of no more than 90 days, and generally may not invest in any
securities with a remaining maturity of more than 13 months. Keeping the
weighted average maturity this short helps funds in their pursuit of a stable $1
share price.
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INVESTOR EXPENSES
The current expenses you should expect to pay as an investor in the fund are
shown at right. The fund has no sales, redemption, exchange, or account fees,
although some institutions may charge you a fee for shares you buy through them.
The annual fund expenses shown are deducted from fund assets prior to
performance calculations.
Footnotes for this section are shown on next page.
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Annual fund operating expenses(1) (%)
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<TABLE>
<S> <C>
Management fees (actual) 0.30
Marketing (12b-1) fees None
Other expenses(2)
(after waiver and reimbursement) 0.05
Service fees(3) 0.25
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Total operating expenses(2)
(after reimbursement) 0.60
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</TABLE>
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Expense example
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The example below uses the same assumptions as other fund prospectuses: $1,000
initial investment, 5% annual total return, expenses unchanged, all shares sold
at the end of each time period. The example is for comparison only; the fund's
actual return and expenses will be different.
<TABLE>
<CAPTION>
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1 yr. 3 yrs.
<S> <C> <C>
Your cost($) 6 19
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</TABLE>
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4 | J.P. MORGAN INSTITUTIONAL SERVICE TAX EXEMPT MONEY MARKET FUND
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<TABLE>
<CAPTION>
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PERFORMANCE (unaudited)
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Average annual total return (%) Shows performance over time, for periods ended December 31, 1997
===================================-------------------------------------------------------------------------------------------
1 yr. 5 yrs. 10 yrs.
<S> <C> <C> <C>
J.P. Morgan Institutional Service Tax Exempt Money Market Fund(4) 3.26 2.89 3.78
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IBC's Tax Exempt Money Market Fund Averages(5) (after expenses) 3.09 2.72 3.65
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</TABLE>
<TABLE>
<CAPTION>
===================================
Year-by-year total return (%) Shows changes in returns by calendar year
===================================-------------------------------------------------------------------------------------------
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
J.P. Morgan Institutional Service Tax Exempt
Money Market Fund(4) 4.93 6.11 5.58 4.16 2.71 2.04 2.50 3.52 3.12 3.26
IBC's Tax Exempt Money Market Fund Averages(5) 4.80 5.91 5.49 4.17 2.56 1.93 2.34 3.34 2.93 3.09
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</TABLE>
1 The fund has a master/feeder structure as described on page 9. This table
shows the fund's estimated expenses and its share of master portfolio
expenses for the past fiscal year. Total operating expenses may vary but in
any event will not exceed 0.60%of the fund's average net assets through
12/31/98.
2 Without such waiver and reimbursement, other expenses and total operating
expenses would have been 0.10% and 0.65%, respectively. There is no
guarantee that this arrangement will continue beyond 12/31/98.
3 Service Organizations may charge other fees to their customers who are the
beneficial owners of shares in connection with their customers' accounts.
Such fees, if any, may affect the return such customers realize with
respect to their investments.
4 The fund commenced operations on 11/4/97. Returns reflect performance of
the J.P. Morgan Tax Exempt Money Market Fund (a separate feeder fund
investing in the same master portfolio) from 1/1/88 through 11/4/97. These
returns reflect lower operating expenses than the fund's. Also, these
returns may be higher than the fund's would have been had it existed during
the same periods. This data is based on historical earnings and is not
intended to indicate future performance.
5 IBC's Tax Exempt Money Market Fund Average is an average of all major tax
free money market fund returns.
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J.P. MORGAN INSTITUTIONAL SERVICE TAX EXEMPT MONEY MARKET FUND | 5
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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 SERVICE ORGANIZATION
Prospective investors may purchase shares of the fund with the assistance of a
service organization. Your service organization is paid by the fund to assist
you in establishing your fund account, executing transactions, and monitoring
your investment. If your fund investment is not held in the name of your service
organization and you prefer to place a transaction order yourself, please use
the instructions for investing directly.
INVESTING THROUGH AN EMPLOYER-SPONSORED RETIREMENT PLAN
Your fund investments are handled through your plan. Refer to your plan
materials or contact your benefits office for information on buying, selling, or
exchanging fund shares.
INVESTING THROUGH AN IRA OR ROLLOVER IRA
Please contact a J.P. Morgan Retirement Services Specialist at 1-888-576-4472
for information on J.P. Morgan's comprehensive IRA services, including lower
minimum investments.
INVESTING DIRECTLY
Investors may establish accounts without the help of an intermediary by using
the instructions below and at right:
o Determine the amount you are investing. The minimum amount for initial
investments in the fund is $10,000,000 and for additional investments
$25,000, although these minimums may be less for some investors. A service
organization may impose a minimum amount for initial and subsequent
investments in the fund and may establish other requirements such as a
minimum account balance. Customers should contact their service
organization for further information concerning such requirements and
charges. For more information on minimum investments, call 1-800-766-7722.
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 below.
For answers to any questions, please speak with a J.P. Morgan Funds Services
Representative at 1-800-766-7722.
OPENING YOUR ACCOUNT
By wire
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.
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6 | YOUR INVESTMENT
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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.
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 DAYS AND NAV CALCULATIONS The fund's regular business days are the same
as those of the New York Stock Exchange. The fund calculates its net asset value
per share (NAV) every business day at 4:00 p.m. eastern time.
TIMING OF ORDERS Orders to buy or sell shares are executed at the next NAV
calculated after the order has been accepted. Purchase and redemption orders for
the fund must be received by 12:00 noon eastern time.
For the purchase to be effective and dividends to be earned on the same day,
immediately available funds must be received by 4:00 p.m. eastern time on a fund
business day. The fund has the right to suspend redemption of shares and to
postpone payment of proceeds for up to seven days or as permitted by law.
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Shareholder Services Agent
J.P. Morgan Funds Services
522 Fifth Avenue
New York, NY 10036
1-800-766-7722
Representatives are available 8:00 a.m. to 5:00 p.m. eastern
time on fund business days.
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YOUR INVESTMENT | 7
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TIMING OF SETTLEMENTS When you buy shares, you will become the owner of record
when the fund receives your payment.
Redemption orders for the fund received by 12:00 noon eastern time will be paid
in immediately available funds normally on the same day, according to
instructions on file.
When you sell shares that you recently purchased by check, your order will be
executed at the next NAV but the proceeds will not be available until your check
clears. This may take up to 15 days.
STATEMENTS AND REPORTS The fund sends monthly account statements as well as
confirmations after each purchase or sale of shares (except reinvestments).
Every six months, the fund sends out an annual or semi-annual report containing
information on 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
Substantially all income dividends are declared daily and paid monthly. If all
of an investor's shares are redeemed during the month, accrued but unpaid
dividends are paid with the redemption proceeds. Shares of the fund earn
dividends on the business day their purchase is effective, but not on the
business day their redemption is effective.
Dividends and distributions are 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. The transactions
below typically create the following tax liabilities:
<TABLE>
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<S> <C>
Transaction Tax status
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Income dividends Exempt from federal
income taxes
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Short-term capital gains Ordinary income
distributions
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</TABLE>
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.
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8 | YOUR INVESTMENT
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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, provides fund officers. J.P. Morgan, as
co-administrator, oversees the fund's other service providers.
J.P. Morgan receives the following fees for investment advisory and other
services:
<TABLE>
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<S> <C>
Advisory services 0.20% of the first $1 billion of
the master portfolio's average net assets
plus 0.10% over $1 billion
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Administrative services Master portfolio's and fund's pro-
(fee shared with Funds rata portions of 0.09% of the
Distributor, Inc.) first $7 billion in J.P. Morgan-
advised portfolios, plus 0.04%
over $7 billion
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Shareholder services 0.05% of the fund's average
net assets
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</TABLE>
The fund has a service plan which allows it to pay service organizations up to
0.25% of the average net assets of the shares held in the name of the service
organization (0.20% where J.P. Morgan acts as a service organization).
The Advisor has voluntarily agreed to reimburse the fund so that total operating
expenses will not exceed 0.60% of average net assets of the fund. There is no
guarantee that this arrangement will continue beyond 12/31/98.
J.P. Morgan may pay fees to certain firms and professionals for providing
recordkeeping or other services in connection with investments in the fund.
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FUND DETAILS | 9
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FOR MORE INFORMATION
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For investors who want more information on the fund, the following documents are
available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS Contain financial statements, performance data,
information on portfolio holdings, and a written analysis of market conditions
and fund performance for the fund's most recently completed fiscal year or
half-year.
STATEMENT OF ADDITIONAL INFORMATION (SAI) Provides a fuller technical and legal
description of the fund's policies, investment restrictions, and business
structure. This prospectus incorporates the SAI by reference.
Copies of the current versions of these documents may be obtained by contacting:
J.P. Morgan Institutional Service Tax Exempt Money Market 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 from the
Public Reference Room of the Securities and Exchange Commission in Washington,
D.C. (1-800-SEC-0330) and may be viewed on-screen or downloaded from the SEC's
Internet site at http://www.sec.gov. The fund's investment company and 1933 Act
registration numbers are 811-07342 and 033-54642.
J.P. MORGAN INSTITUTIONAL FUNDS AND THE MORGAN TRADITION
The J.P. Morgan Institutional Funds combine a heritage of integrity and
financial leadership with comprehensive, sophisticated analysis and management
techniques. Drawing on J.P. Morgan's extensive experience and depth as an
investment manager, the J.P. Morgan Institutional Funds offer a broad array of
distinctive opportunities for mutual fund investors.
[LOGO]JPMorgan
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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
PROS368-982
<PAGE>
J.P. MORGAN INSTITUTIONAL FUNDS
J.P. MORGAN INSTITUTIONAL SERVICE TAX EXEMPT MONEY MARKET FUND
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 2, 1998
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT CONTAINS
ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS
DATED FEBRUARY 2, 1998 FOR THE FUND LISTED ABOVE, AS SUPPLEMENTED FROM TIME TO
TIME, WHICH MAY BE OBTAINED UPON REQUEST FROM FUNDS DISTRIBUTOR, INC.,
ATTENTION:
J.P. MORGAN INSTITUTIONAL FUNDS (800) 221-7930.
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Table of Contents
PAGE
General.......................................................................1
Investment Objective and Policies.............................................1
Investment Restrictions......................................................12
Trustees and Officers........................................................15
Investment Advisor.......................................................... 18
Distributor..................................................................21
Co-Administrator.............................................................21
Services Agent...............................................................22
Custodian and Transfer Agent.................................................23
Shareholder Servicing........................................................24
Service Organization.........................................................26
Independent Accountants......................................................27
Expenses.....................................................................27
Purchase of Shares...........................................................27
Redemption of Shares.........................................................28
Exchange of Shares...........................................................29
Dividends and Distributions..................................................29
Net Asset Value..............................................................30
Performance Data.............................................................31
Portfolio Transactions.......................................................32
Massachusetts Trust..........................................................33
Description of Shares........................................................34
Special Information Concerning
Investment Structure.........................................................36
Taxes........................................................................38
Additional Information.......................................................41
Appendix A - Description of Security Ratings.........................Appendix-1
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GENERAL
This Statement of Additional Information relates only to the J.P.
Morgan Institutional Service Tax Exempt Money Market Fund (the "Fund"). The Fund
is a series of shares of beneficial interest of the J.P. Morgan Institutional
Funds, an open-end management investment company formed as a Massachusetts
business trust (the "Trust"). In addition to the Fund, the Trust consists of
other series representing separate investment funds (each a "J.P. Morgan
Institutional Fund"). The other J.P. Morgan Institutional Funds are covered by
separate Statements of Additional Information.
This Statement of Additional Information describes the financial
history, investment objective and policies, management and operation of the Fund
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 Trust's executive offices are located at 60 State
Street, Suite 1300, Boston, Massachusetts 02109.
Unlike other mutual funds which directly acquire and manage their own
portfolio of securities, the Fund seeks to achieve its investment objective by
investing all of its investable assets in a corresponding Master Portfolio (the
"Portfolio"), an open-end management investment company having the same
investment objective as the Fund. The Fund invests in the Portfolio through a
two-tier master-feeder investment fund structure. See "Special Information
Concerning Investment Structure."
The Portfolio is advised by Morgan Guaranty Trust Company of New York
("Morgan" or the "Advisor").
Investments in the Fund are not deposits or obligations of, or
guaranteed or endorsed by, Morgan or any other bank. Shares of the Fund are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other governmental agency. An investment in the Fund is
subject to risk that may cause the value of the investment to fluctuate, and
when the investment is redeemed, the value may be higher or lower than the
amount originally invested by the investor.
INVESTMENT OBJECTIVE AND POLICIES
The following discussion supplements the information regarding the
investment objective of the Fund and the policies to be employed to achieve the
objective by the Portfolio as set forth herein and in the Prospectus. Since the
investment characteristics and experiences of the Fund correspond directly with
those of the Portfolio, the discussion in this Statement of Additional
Information focuses on the investments and investment policies of the Portfolio.
Accordingly, references below to the Portfolio also include the Fund; similarly,
references to the Fund also include the Portfolio unless the context requires
otherwise.
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The Fund is designed for investors who seek to preserve capital and earn
current income from a portfolio of high quality money market instruments. The
Fund's investment objective is to provide a high level of current income that is
exempt from federal income tax and maintain a high level of liquidity. See
"Taxes." The Fund attempts to achieve this objective by investing all of its
investable assets in The Tax Exempt Money Market Portfolio (the "Portfolio"), a
diversified open-end management investment company having the same investment
objective as the Fund.
The Portfolio attempts to achieve its investment objective by
maintaining a dollar-weighted average portfolio maturity of not more than 90
days and by investing in U.S. dollar-denominated securities described in this
Statement of Additional Information that meet certain rating criteria, present
minimal credit risks, have effective maturities of not more than thirteen months
and earn interest wholly exempt from federal income tax in the opinion of bond
counsel for the issuer. The Portfolio generally will not invest in taxable
securities, although it may temporarily invest up to 20% of total assets in such
securities in abnormal market conditions, for defensive purposes only, if, in
the judgment of the Advisor, tax exempt securities satisfying the Fund's
investment objective may not be purchased. For purposes of this calculation,
obligations that generate income that may be treated as a preference item for
purposes of the alternative minimum tax shall not be considered taxable
securities. See "Quality and Diversification Requirements." Interest on these
securities may be subject to state and local taxes. For more detailed
information regarding tax matters, including the applicability of the
alternative minimum tax, see "Taxes."
MONEY MARKET INSTRUMENTS
A description of the various types of money market instruments that may be
purchased by the Fund appears below. Also see "Quality and Diversification
Requirements."
TAX EXEMPT OBLIGATIONS
The Fund may invest in tax exempt obligations to the extent consistent with
the Fund's investment objective and policies. A description of the various types
of tax exempt obligations which may be purchased by the Fund appears below. See
"Quality and Diversification Requirements."
MUNICIPAL BONDS. Municipal bonds are debt obligations issued by the
states, territories and possessions of the United States and the District of
Columbia, by their political subdivisions and by duly constituted authorities
and corporations. For example, states, territories, possessions and
municipalities may issue municipal bonds to raise funds for various public
purposes such as airports, housing, hospitals, mass transportation, schools,
water and sewer works. They may also issue municipal bonds to refund
outstanding obligations and to meet general operating expenses. Public
authorities issue municipal bonds to obtain funding for privately operated
facilities, such as housing and pollution control facilities, for industrial
facilities or for water supply, gas, electricity or waste disposal facilities.
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<PAGE>
Municipal bonds may be general obligation or revenue bonds. General
obligation bonds are secured by the issuer's pledge of its full faith, credit
and taxing power for the payment of principal and interest. Revenue bonds are
payable from revenues derived from particular facilities, from the proceeds of
a special excise tax or from other specific revenue sources. They are not
generally payable from the general taxing power of a municipality.
MUNICIPAL NOTES. Municipal notes are subdivided into three categories of
short-term obligations: municipal notes, municipal commercial paper and
municipal demand obligations.
Municipal notes are short-term obligations with a maturity at the
time of issuance ranging from six months to five years. The principal types of
municipal notes include tax anticipation notes, bond anticipation notes,
revenue anticipation notes, grant anticipation notes and project notes. Notes
sold in anticipation of collection of taxes, a bond sale, or receipt of other
revenues are usually general obligations of the issuing municipality or
agency.
Municipal commercial paper typically consists of very short-term
unsecured negotiable promissory notes that are sold to meet seasonal working
capital or interim construction financing needs of a municipality or agency.
While these obligations are intended to be paid from general revenues or
refinanced with long-term debt, they 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
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opinion of counsel for the borrower, excluded from gross income for federal
income tax purposes. For a description of the attributes of master demand
obligations, see "Money Market Instruments" above. Although there is no
secondary market for master demand obligations, such obligations are
considered by the Fund to be liquid because they are payable upon demand. The
Fund has no specific percentage limitations on investments in master demand
obligations.
The Fund may purchase securities of the type described above if they
have effective maturities within thirteen months. As required by regulation of
the Securities and Exchange Commission (the "SEC"), this means that on the
date of acquisition the final stated maturity (or if called for redemption,
the redemption date) must be within thirteen months or the maturity must be
deemed to be no more than 397 days because of a maturity shortening mechanism,
such as a variable interest rate, coupled with a conditional or unconditional
right to resell the investment to the issuer or a third party. See "Variable
Rate Demand Notes" and "Puts." A substantial portion of the Fund's portfolio
is subject to maturity shortening mechanisms consisting of variable interest
rates coupled with unconditional rights to resell the securities to the
issuers either directly or by drawing on a domestic or foreign bank letter of
credit or other credit support arrangement. See "Foreign Investments."
PUTS. The Fund may purchase without limit municipal bonds or notes
together with the right to resell the bonds or notes to the seller at an
agreed price or yield within a specified period prior to the maturity date of
the bonds or notes. Such a right to resell is commonly known as a "put." The
aggregate price for bonds or notes with puts may be higher than the price for
bonds or notes without puts. Consistent with the Fund's investment objective
and subject to the supervision of the Trustees, the purpose of this practice
is to permit the Fund to be fully invested in tax exempt securities while
preserving the necessary liquidity to purchase securities on a when-issued
basis, to meet unusually large redemptions, and to purchase at a later date
securities other than those subject to the put. The principal risk of puts is
that the writer of the put may default on its obligation to repurchase. The
Advisor will monitor each writer's ability to meet its obligations under puts.
Puts may be exercised prior to the expiration date in order to fund
obligations to purchase other securities or to meet redemption requests. These
obligations may arise during periods in which proceeds from sales of Fund
shares and from recent sales of portfolio securities are insufficient to meet
obligations or when the funds available are otherwise allocated for
investment. In addition, puts may be exercised prior to the expiration date in
order to take advantage of alternative investment opportunities or in the
event the Advisor revises its evaluation of the creditworthiness of the issuer
of the underlying security. In determining whether to exercise puts prior to
their expiration date and in selecting which puts to exercise, the Advisor
considers the amount of cash available to the Fund, the expiration dates of
the available puts, any future commitments for securities purchases,
alternative investment opportunities, the desirability of retaining the
underlying securities in the Fund's portfolio and the yield, quality and
maturity dates of the underlying securities.
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The Fund values any municipal bonds and notes which are subject to
puts at amortized cost. No value is assigned to the put. The cost of any such
put is carried as an unrealized loss from the time of purchase until it is
exercised or expires. The Board of Trustees would, in connection with the
determination of the value of a put, consider, among other factors, the
creditworthiness of the writer of the put, the duration of the put, the dates
on which or the periods during which the put may be exercised and the
applicable rules and regulations of the SEC.
Since the value of the put is partly dependent on the ability of the
put writer to meet its obligation to repurchase, the Fund's policy is to enter
into put transactions only with municipal securities dealers who are approved
by the Advisor. Each dealer will be approved on its own merits, and it is the
Fund's general policy to enter into put transactions only with those dealers
which are determined to present minimal credit risks. In connection with such
determination, the Trustees will review regularly the Advisor's list of
approved dealers, taking into consideration, among other things, the ratings,
if available, of their equity and debt securities, their reputation in the
municipal securities markets, their net worth, their efficiency in
consummating transactions and any collateral arrangements, such as letters of
credit, securing the puts written by them. Commercial bank dealers normally
will be members of the Federal Reserve System, and other dealers will be
members of the National Association of Securities Dealers, Inc. or members of
a national securities exchange. The Trustees have directed the Advisor not to
enter into put transactions with any dealer which in the judgment of the
Advisor becomes more than a minimal credit risk. In the event that a dealer
should default on its obligation to repurchase an underlying security, the
Fund is unable to predict whether all or any portion of any loss sustained
could subsequently be recovered from such dealer.
The Trust has been advised by counsel that the Fund will be
considered the owner of the securities subject to the puts so that the
interest on the securities is tax exempt income to the Fund. Such advice of
counsel is based on certain assumptions concerning the terms of the puts and
the attendant circumstances.
TAXABLE INVESTMENTS
The Portfolio attempts to invest its assets in tax exempt municipal
securities; however the Portfolio is permitted to invest up to 20% of the
value of its total assets in securities, the interest income on which may be
subject to federal, state or local income taxes. The Portfolio may make
taxable investments pending investment of proceeds from sales of its interests
or portfolio securities, pending settlement of purchases of portfolio
securities, to maintain liquidity or when it is advisable in Morgan's opinion
because of adverse market conditions. The Portfolio will invest in taxable
securities only if there are no tax exempt securities available for purchase
or if the after tax yield from an investment in taxable securities exceeds the
yield on available tax exempt securities. The taxable investments permitted
for the Portfolio
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include obligations of the U.S. Government and its agencies and
instrumentalities, bank obligations, commercial paper and repurchase agreements.
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
System and the Student Loan Marketing Association, each of whose obligations
may be satisfied only by the individual credits of the issuing agency.
BANK OBLIGATIONS. The Fund, unless otherwise noted in the Prospectus
or below, may invest in negotiable certificates of deposit, time deposits and
bankers' acceptances of (i) banks, savings and loan associations and savings
banks which have more than $2 billion in total assets and are organized under
the laws of the United States or any state, (ii) foreign branches of these
banks or of foreign banks of equivalent size (Euros) and (iii) U.S. branches
of foreign banks of equivalent size (Yankees). The Fund may not invest in
obligations of foreign branches of foreign banks. The Fund will not invest in
obligations for which the Advisor, or any of its affiliated persons, is the
ultimate obligor or accepting bank.
COMMERCIAL PAPER. The Fund may invest in commercial paper, including
master demand obligations. Master demand obligations are obligations that
provide for a periodic adjustment in the interest rate paid and permit daily
changes in the amount borrowed. Master demand obligations are governed by
agreements between the issuer and Morgan Guaranty Trust Company of New York
acting as agent, for no additional fee, in its capacity as investment advisor
to the Portfolio and as fiduciary for other clients for whom it exercises
investment discretion. The monies loaned to the borrower come from accounts
managed by the Advisor or its affiliates, pursuant to arrangements with such
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accounts. Interest and principal payments are credited to such accounts. The
Advisor, acting as a fiduciary on behalf of its clients, has the right to
increase or decrease the amount provided to the borrower under an obligation.
The borrower has the right to pay without penalty all or any part of the
principal amount then outstanding on an obligation together with interest to
the date of payment. Since these obligations typically provide that the
interest rate is tied to the Federal Reserve commercial paper composite rate,
the rate on master demand obligations is subject to change. Repayment of a
master demand obligation to participating accounts depends on the ability of
the borrower to pay the accrued interest and principal of the obligation on
demand which is continuously monitored by the Advisor. Since master demand
obligations typically are not rated by credit rating agencies, the Fund may
invest in such unrated obligations only if at the time of an investment the
obligation is determined by the Advisor to have a credit quality which
satisfies the Fund's quality restrictions. See "Quality and Diversification
Requirements." Although there is no secondary market for master demand
obligations, such obligations are considered by the Fund to be liquid because
they are payable upon demand. The Fund does not have any specific percentage
limitation on investments in master demand obligations. It is possible that
the issuer of a master demand obligation could be a client of Morgan to whom
Morgan, in its capacity as a commercial bank, has made a loan.
REPURCHASE AGREEMENTS. The Fund, unless otherwise noted in the
Prospectus or below, may enter into repurchase agreements with brokers,
dealers or banks that meet the credit guidelines approved by the Fund's
Trustees. In a repurchase agreement, the Fund buys a security from a seller
that has agreed to repurchase the same security at a mutually agreed upon date
and price. The resale price normally is in excess of the purchase price,
reflecting an agreed upon interest rate. This interest rate is effective for
the period of time the Fund is invested in the agreement and is not related to
the coupon rate on the underlying security. A repurchase agreement may also be
viewed as a fully collateralized loan of money by the Fund to the seller. The
period of these repurchase agreements will usually be short, from overnight to
one week, and at no time will the Fund invest in repurchase agreements for
more than 397 days. The securities which are subject to repurchase agreements,
however, may have maturity dates in excess of 397 days from the effective date
of the repurchase agreement. The Fund will always receive securities as
collateral whose market value is, and during the entire term of the agreement
remains, at least equal to 100% of the dollar amount invested by the Fund in
the agreement plus accrued interest, and the Fund will make payment for such
securities only upon physical delivery or upon evidence of book entry transfer
to the account of the Custodian. The Fund will be fully collateralized within
the meaning of paragraph (a)(4) of Rule 2a-7 under the Investment Company Act
of 1940, as amended (the "1940 Act"). If the seller defaults, the Fund might
incur a loss if the value of the collateral securing the repurchase agreement
declines and might incur disposition costs in connection with liquidating the
collateral. In addition, if bankruptcy proceedings are commenced with respect
to the seller of the security, realization upon disposal of the collateral by
the Fund may be delayed or limited.
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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 the Prospectus
or this Statement of Additional Information.
ADDITIONAL INVESTMENTS
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Fund may purchase
securities on a when-issued or delayed delivery basis. For example, delivery
of and payment for these securities can take place a month or more after the
date of the purchase commitment. The purchase price and the interest rate
payable, if any, on the securities are fixed on the purchase commitment date
or at the time the settlement date is fixed. The value of such securities is
subject to market fluctuation and for money market instruments and other fixed
income securities no interest accrues to the Fund until settlement takes
place. At the time the Fund makes the commitment to purchase securities on a
when-issued or delayed delivery basis, it will record the transaction, reflect
the value each day of such securities in determining its net asset value and,
if applicable, calculate the maturity for the purposes of average maturity
from that date. At the time of settlement a when-issued security may be valued
at less than the purchase price. To facilitate such acquisitions, the Fund
will maintain with the Custodian a segregated account with liquid assets,
consisting of cash, U.S. Government securities or other appropriate
securities, in an amount at least equal to such commitments. On delivery dates
for such transactions, the Fund will meet its obligations from maturities or
sales of the securities held in the segregated account and/or from cash flow.
If the Fund chooses to dispose of the right to acquire a when-issued security
prior to its acquisition, it could, as with the disposition of any other
portfolio obligation, incur a gain or loss due to market fluctuation. It is
the current policy of the Fund not to enter into when-issued commitments
exceeding in the aggregate 15% of the market value of the Fund's total assets,
less liabilities other than the obligations created by when-issued
commitments.
INVESTMENT COMPANY SECURITIES. Securities of other investment
companies may be acquired by the Fund and Portfolio to the extent permitted
under the 1940 Act. These limits require that, as determined immediately after
a purchase is made, (i) not more than 5% of the value of the Fund's total
assets will be invested in the securities of any one investment company, (ii)
not more than 10% of the value of its total assets will be invested in the
aggregate in securities of investment companies as a group, and (iii) not more
than 3% of the outstanding voting stock of any one investment company will be
owned by the Fund, provided however, that the Fund may invest all of its
investable assets in an open-end investment company that has the same
investment objective as the Fund (its corresponding Portfolio). As a
shareholder of another investment company, the Fund or Portfolio would bear,
along with other shareholders, its pro rata portion of the other investment
company's expenses, including advisory fees. These expenses would be in
addition to the advisory and other expenses that the Fund or Portfolio bears
directly in connection with its own operations.
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REVERSE REPURCHASE AGREEMENTS. The Fund, unless otherwise noted in
the Prospectus or below, may enter into reverse repurchase agreements. In a
reverse repurchase agreement, the Fund sells a security and agrees to
repurchase the same security at a mutually agreed upon date and price. For
purposes of the 1940 Act a reverse repurchase agreement is also considered as
the borrowing of money by the Fund and, therefore, a form of leverage. The
Fund will invest the proceeds of borrowings under reverse repurchase
agreements. In addition, the Fund will enter into a reverse repurchase
agreement only when the interest income to be earned from the investment of
the proceeds is greater than the interest expense of the transaction. The Fund
will not invest the proceeds of a reverse repurchase agreement for a period
which exceeds the duration of the reverse repurchase agreement. The Fund will
establish and maintain with the Custodian a separate account with a segregated
portfolio of securities in an amount at least equal to its purchase
obligations under its reverse repurchase agreements. If interest rates rise
during the term of a reverse repurchase agreement, entering into the reverse
repurchase agreement may have a negative impact on the Fund's ability to
maintain a net asset value of $1.00 per share. See "Investment Restrictions"
for the Fund's limitations on reverse repurchase agreements and bank
borrowings.
LOANS OF PORTFOLIO SECURITIES. Subject to applicable investment
restrictions, the Fund is permitted to lend its securities in an amount up to
33 1/3% of the value of the Fund's net 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. Loans
of portfolio securities may be considered extensions of credit by the Fund.
The risks to the Fund with respect to borrowers of its portfolio securities
are similar to the risks to the Fund with respect to sellers in repurchase
agreement transactions. See "Repurchase Agreements". 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 CERTAIN UNREGISTERED
SECURITIES. The Fund may invest in privately placed, restricted, Rule 144A or
other unregistered securities. The Fund may not acquire any illiquid
holdings if, as a result thereof, more than 10% of the Fund's net assets
would be in illiquid investments. Subject to this non-fundamental policy
limitation, the Portfolio may acquire investments that are illiquid or have
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limited liquidity, such as private placements or investments that are not
registered under the Securities Act of 1933, as amended (the "1933 Act") and
cannot be offered for public sale in the United States without first being
registered under the 1933 Act. An illiquid investment is any investment that
cannot be disposed of within seven days in the normal course of business at
approximately the amount at which it is valued by the Portfolio. The price the
Portfolio pays for illiquid holdings 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 holdings 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
obligated to pay all or part of the registration expenses, and a considerable
period may elapse between the time of the decision to sell and the time the
Fund may be permitted to sell a security under an effective registration
statement. If, during such a period, adverse market conditions were to
develop, the Fund might obtain a less favorable price than prevailed when it
decided to sell.
SYNTHETIC INSTRUMENTS. The Fund may invest in certain synthetic
variable rate instruments. 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 part 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 Portfolio will be that of holding the long-term bond, which may require
the disposition of the bond which could be at a loss. In the case of some
types of instruments credit enhancement is not provided, and if certain
events, which may include (a) default in the payment of principal or interest
on the underlying bond, (b) downgrading of the bond below investment grade or
(c) a loss of the bond's tax exempt status, occur, then (i) the put will
terminate, (ii) the risk to the Fund will be that of holding a long-term bond,
and (iii) the disposition of the bond may be required which could be at a
loss.
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QUALITY AND DIVERSIFICATION REQUIREMENTS
The Fund intends to meet the diversification requirements of the 1940
Act. To meet these requirements, 75% of the assets of the Fund are subject to
the following fundamental limitations: (1) the Fund may not invest more than
5% of its total assets in the securities of any one issuer, except obligations
of the U.S. Government, its agencies and instrumentalities, and (2) the Fund
may not own more than 10% of the outstanding voting securities of any one
issuer. As for the other 25% of the Fund's assets not subject to the
limitation described above, there is no limitation on investment of these
assets under the 1940 Act, so that all of such assets may be invested in
securities of any one issuer. Investments not subject to the limitations
described above could involve an increased risk to the Fund should an issuer,
or a state or its related entities, be unable to make interest or principal
payments or should the market value of such securities decline.
At the time the Fund invests in any taxable commercial paper, master
demand obligation, bank obligation or repurchase agreement, the issuer must
have outstanding debt rated A or higher by Moody's or Standard & Poor's, the
issuer's parent corporation, if any, must have outstanding commercial paper
rated Prime-1 by Moody's or A-1 by Standard & Poor's, or if no such ratings
are available, the investment must be of comparable quality in Morgan's
opinion.
For purposes of diversification and concentration under the 1940 Act,
identification of the issuer of municipal bonds or notes depends on the terms
and conditions of the obligation. If the assets and revenues of an agency,
authority, instrumentality or other political subdivision are separate from
those of the government creating the subdivision and the obligation is backed
only by the assets and revenues of the subdivision, such subdivision is
regarded as the sole issuer. Similarly, in the case of an industrial
development revenue bond or pollution control revenue bond, if the bond is
backed only by the assets and revenues of the nongovernmental user, the
nongovernmental user is regarded as the sole issuer. If in either case the
creating government or another entity guarantees an obligation, the guaranty
is regarded as a separate security and treated as an issue of such guarantor.
Since securities issued or guaranteed by states or municipalities are not
voting securities, there is no limitation on the percentage of a single
issuer's securities which the Fund may own so long as it does not invest more
than 5% of its total assets that are subject to the diversification limitation
in the securities of such issuer, except obligations issued or guaranteed by
the U.S. Government. Consequently, the Fund may invest in a greater percentage
of the outstanding securities of a single issuer than would an investment
company which invests in voting securities. See "Investment Restrictions."
In order to attain its objective of maintaining a stable net asset
value, the Fund will limit its investments to securities that present minimal
credit risks and securities (other than New York State municipal notes) that
are rated within the highest rating assigned to short-term debt securities
(or, in the case of New York State municipal notes, within one of the two
highest ratings assigned to short-term debt securities) by at least two NRSROs
or by the only
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NRSRO that has rated the security. Securities which originally had a maturity
of over one year are subject to more complicated, but generally similar rating
requirements. The Fund may also purchase unrated securities that are of
comparable quality to the rated securities described above. Additionally, if
the issuer of a particular security has issued other securities of comparable
priority and security and which have been rated in accordance with the
criteria described above that security will be deemed to have the same rating
as such other rated securities.
In addition, the Board of Trustees has adopted procedures which (i)
require the Fund to maintain a dollar-weighted average portfolio maturity of
not more than 90 days and to invest only in securities with a remaining
maturity of not more than thirteen months and (ii) require the Fund, in the
event of certain downgrading of or defaults on portfolio holdings, to dispose
of the holding, subject in certain circumstances to a finding by the Trustees
that disposing of the holding would not be in the Fund's best interest.
The credit quality of variable rate demand notes and other municipal
obligations is frequently enhanced by various credit support arrangements with
domestic or foreign financial institutions, such as letters of credit,
guarantees and insurance, and these arrangements are considered when
investment quality is evaluated. The rating of credit-enhanced municipal
obligations by a NRSRO may be based primarily or exclusively on the credit
support arrangement.
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.
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The Fund and Portfolio may not:
1. Borrow money, except from banks for temporary, extraordinary or
emergency purposes and then only in amounts up to 10% of the value of
the Fund's total assets, taken at cost at the time of such borrowing;
or mortgage, pledge or hypothecate any assets except in connection with
any such borrowing in amounts up to 10% of the value of the Fund's net
assets at the time of such borrowing. The Fund will not purchase
securities while borrowings exceed 5% of the Fund's total assets,
provided, however, that the Fund may increase its interest in an
open-end management investment company with the same investment
objective and restrictions as the Fund's while such borrowings are
outstanding. This borrowing provision, for example, facilitates the
orderly sale of portfolio securities in the event of abnormally heavy
redemption requests or in the event of redemption requests during
periods of tight market supply. This provision is not for leveraging
purposes;
2. Invest more than 25% of its total assets in securities of
governmental units located in any one state, territory, or possession
of the United States. The Fund may invest more then 25% of its total
assets in industrial development and pollution control obligations
whether or not the users of facilities financed by such obligations are
in the same industry;1
3. Purchase industrial revenue bonds if, as a result of such purchase,
more than 5% of total Fund assets would be invested in industrial
revenue bonds where payment of principal and interest are the
responsibility of companies with fewer than three years of operating
history;
4. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the
Fund's total assets would be invested in securities or other
obligations of any one such issuer, provided, however, that the Fund
may invest all or part of its investable assets in an open-end
management investment company with the same investment objective and
restrictions as the Fund's. Each state and each political subdivision,
agency or instrumentality of such state and each multi-state agency of
which such state is a member will be a separate issuer if the security
is backed only by the assets and revenues of that issuer. If the
security is guaranteed by another entity, the guarantor will be deemed
to be the issuer. This limitation shall not apply to securities issued
or guaranteed by the U.S. Government, its
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1Pursuant to an interpretation of the staff of the SEC, the Fund may
not invest more than 25% of its assets in industrial development bonds
in projects of similar type or in the same state. The Fund shall comply
with this interpretation until such time as it may be modified by the
staff of the SEC.
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agencies or instrumentalities or to permitted investments of up to 25% of
the Fund's total assets;2
5. Make loans, except through the purchase or holding of debt
obligations, repurchase agreements, or loans of portfolio securities
in accordance with the Fund's investment objective and policies
(see "Investment Objectives and Policies");
6. Purchase or sell puts, calls, straddles, spreads, or any combination
thereof except to the extent that securities subject to a demand
obligation, stand-by commitments and puts may be purchased (see
"Investment Objectives and Policies"); real estate; commodities;
commodity contracts; or interests in oil, gas, or mineral exploration
or development programs. However, the Fund may purchase municipal
bonds, notes or commercial paper secured by interests in real estate;
7. Purchase securities on margin, make short sales of securities, or
maintain a short position, provided that this restriction shall not be
deemed to be applicable to the purchase or sale of when-issued
securities or of securities for delayed delivery;
8. Acquire securities of other investment companies, except as
permitted by the 1940 Act;
9. Act as an underwriter of securities; or
10. Issue senior securities, except as may otherwise be permitted by
the foregoing investment restrictions or under the 1940 Act or any
rule, order or interpretation thereunder.
NON-FUNDAMENTAL INVESTMENT RESTRICTION. The investment restriction
described below is not a fundamental policy of the Fund or Portfolio and may be
changed by their respective Trustees. This non-fundamental investment policy
requires that the Fund may not:
(i) acquire any illiquid securities, such as repurchase agreements with
more than seven days to maturity or fixed time deposits with a duration
of over seven calendar days, if as a result thereof, more than 10% of
the Fund's net assets would be in investments that are illiquid.
- --------
2For purposes of interpretation of Investment Restriction No. 4
"guaranteed by another entity" includes credit substitutions, such as
letters of credit or insurance, unless the Advisor determines that the
security meets the Fund's credit standards without regard to the credit
substitution.
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<PAGE>
Notwithstanding any other fundamental or non-fundamental investment
restriction or policy, the Fund reserves the right, without the approval of
shareholders, to invest all of its assets in the securities of a single open-end
registered investment company with substantially the same investment objective,
restrictions and policies as the Fund.
There will be no violation of any investment restriction if that
restriction is complied with at the time the relevant action is taken
notwithstanding a later change in market value of an investment, in net or total
assets, in the securities rating of the investment, or any other later change.
For purposes of fundamental investment restrictions regarding industry
concentration, the Advisor may classify issuers by industry in accordance with
classifications set forth in the DIRECTORY OF COMPANIES FILING ANNUAL REPORTS
WITH THE SECURITIES AND EXCHANGE COMMISSION or other sources. In the absence of
such classification or if the Advisor determines in good faith based on its own
information that the economic characteristics affecting a particular issuer make
it more appropriately considered to be engaged in a different industry, the
Advisor may classify an issuer accordingly. For instance, personal credit
finance companies and business credit finance companies are deemed to be
separate industries and wholly owned finance companies are considered to be in
the industry of their parents if their activities are primarily related to
financing the activities of their parents.
TRUSTEES AND OFFICERS
TRUSTEES
The Trustees of the Trust, who are also the Trustees of the Portfolio,
their business addresses, principal occupations during the past five years and
dates of birth are set forth below.
FREDERICK S. ADDY--Trustee; Retired; Prior to April 1994, Executive Vice
President and Chief Financial Officer, Amoco Corporation. His address is 5300
Arbutus Cove, Austin, TX 78746, and his date of birth is January 1, 1932.
WILLIAM G. BURNS--Trustee; Retired, Former Vice Chairman and Chief
Financial Officer, NYNEX. His address is 2200 Alaqua Drive, Longwood, FL 32779,
and his date of birth is November 2, 1932.
ARTHUR C. ESCHENLAUER--Trustee; Retired; Former Senior Vice President,
Morgan Guaranty Trust Company of New York. His address is 14 Alta Vista Drive,
RD #2, Princeton, NJ 08540, and his date of birth is May 23, 1934.
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<PAGE>
MATTHEW HEALEY3--Trustee, Chairman and Chief Executive Officer;
Chairman, Pierpont Group, Inc., since prior to 1992. His address is Pine Tree
Club Estates, 10286 Saint Andrews Road, Boynton Beach, FL 33436, and his date of
birth is August 23, 1937.
MICHAEL P. MALLARDI--Trustee; Retired; Prior to April 1996, Senior Vice
President, Capital Cities/ABC, Inc. and President, Broadcast Group. His address
is 10 Charnwood Drive, Suffern, NY 10910, and his date of birth is March 17,
1934.
The Trustees of the Trust are the same as the Trustees of the
Portfolio. In accordance with applicable state requirements, a majority
of the disinterested Trustees have adopted written procedures
reasonably appropriate to deal with potential conflicts of interest
arising from the fact that the same individuals are Trustees of the
Trust, the Portfolio and the J.P. Morgan Funds up to and including
creating a separate board of trustees.
Each Trustee is currently paid an annual fee of $75,000 for
serving as Trustee of the Trust, each of the Master Portfolios (as
defined below), the J.P. Morgan Funds and J.P. Morgan Series Trust and
is reimbursed for expenses incurred in connection with service as a
Trustee. The Trustees may hold various other directorships unrelated to
the Fund.
Trustee compensation expenses paid by the Trust for the calendar year ended
December 31, 1997 are set forth below.
- --------
3Mr. Healey is an "interested person" of the Trust, the Advisor and the
Portfolio as that term is defined in the 1940 Act.
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<PAGE>
<TABLE>
<CAPTION>
TOTAL TRUSTEE
AGGREGATE COMPENSATION ACCRUED BY
TRUSTEE THE MASTER PORTFOLIOS(*),
COMPENSATION J.P. MORGAN INSTITUTIONAL
PAID BY THE FUNDS, J.P. MORGAN SERIES
TRUST DURING TRUST AND THE TRUST
NAME OF TRUSTEE 1997 DURING 1997(***)
--------------- ------------- ----------------
<S> <C> <C>
Frederick S. Addy, Trustee $11,772.77 $75,000
William G. Burns, Trustee $11,786.38 $75,000
Arthur C. Eschenlauer, Trustee $11,786.38 $75,000
Matthew Healey, Trustee (**) $11,786.38 $75,000
Chairman and Chief Executive
Officer
Michael P. Mallardi, Trustee $11,786.38 $75,000
</TABLE>
(*) Includes the Portfolio and 21 other portfolios (collectively, the
"Master Portfolios") for which Morgan acts as investment advisor.
(**) During 1997, Pierpont Group, Inc. paid Mr. Healey, in his role as
Chairman of Pierpont Group, Inc., compensation in the amount of $147,500,
contributed $22,100 to a defined contribution plan on his behalf and paid
$20,500 in insurance premiums for his benefit.
(***) No investment company within the fund complex has a pension or
retirement plan. Currently there are 18 investment companies (15
investment companies comprising the Master Portfolios, the J.P. Morgan
Funds, the Trust and J.P. Morgan Series Trust) in the fund complex.
The Trustees, in addition to reviewing actions of the Trust's and the
Portfolio's various service providers, decide upon matters of general policy.
The Portfolio and the Trust have entered into a Fund Services Agreement with
Pierpont Group, Inc. to assist the Trustees in exercising their overall
supervisory responsibilities over the affairs of the Portfolio and the Trust.
Pierpont Group, Inc. was organized in July 1989 to provide services for The
Pierpont Family of Funds, and the Trustees are the equal and sole shareholders
of Pierpont Group, Inc. The Trust and the Portfolio have agreed to pay Pierpont
Group, Inc. a fee in an amount representing its reasonable costs in performing
these services to the Trust, the Portfolio and certain other registered
investment companies subject to similar agreements with Pierpont Group, Inc.
These costs are periodically reviewed by the Trustees. The principal offices of
Pierpont Group, Inc. are located at 461 Fifth Avenue, New York, New York 10017.
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<PAGE>
The aggregate fees paid to Pierpont Group, Inc. by the Portfolio during
the indicated fiscal years are set forth below:
PORTFOLIO -- For the fiscal years ended August 31, 1995, 1996 and 1997:
$110,325, $62,310 and $43,285.
OFFICERS
The Trust's and Portfolio's executive officers (listed below), other
than the Chief Executive Officer, are provided and compensated by Funds
Distributor, Inc. ("FDI"), a wholly owned indirect subsidiary of Boston
Institutional Group, Inc. The officers conduct and supervise the business
operations of the Trust and the Portfolio. The Trust and the Portfolio have no
employees.
The officers of the Trust and the Portfolio, their principal
occupations during the past five years and dates of birth are set forth below.
Unless otherwise specified, each officer holds the same position with the Trust
and the Portfolio. The business address of each of the officers unless otherwise
noted is Funds Distributor, Inc., 60 State Street, Suite 1300, Boston,
Massachusetts
02109.
MATTHEW HEALEY; Chief Executive Officer; Chairman, Pierpont Group,
since prior to 1993. His address is Pine Tree Club Estates, 10286 Saint Andrews
Road, Boynton Beach, FL 33436. His date of birth is August 23, 1937.
MARIE E. CONNOLLY; Vice President and Assistant Treasurer. President,
Chief Executive Officer, Chief Compliance Officer and Director of FDI and
Premier Mutual Fund Services, Inc., an affiliate of FDI ("Premier Mutual") and
an officer of certain investment companies advised or administered by the
Dreyfus Corporation ("Dreyfus") or its affiliates. From December 1991 to July
1994, she was President and Chief Compliance Officer of FDI. Her date of birth
is August 1, 1957.
DOUGLAS C. CONROY; Vice President and Assistant Treasurer. Assistant Vice
President and Manager of Treasury Services and Administration of FDI and an
officer of certain investment companies advised or administered by Dreyfus or
its affiliates. Prior to April 1997, Mr. Conroy was Supervisor of Treasury
Services and Administration of FDI. From April 1993 to January 1995, Mr. Conroy
was a Senior Fund Accountant for Investors Bank & Trust Company. Prior to March
1993, Mr. Conroy was employed as a fund accountant at The Boston Company, Inc.
His date of birth is March 31, 1969.
RICHARD W. INGRAM; President and Treasurer. Executive Vice President and
Director of Client Services and Treasury Administration of FDI, Senior Vice
President of Premier Mutual and an officer of RCM Capital Funds, Inc., RCM
Equity Funds, Inc. (together "RCM"), Waterhouse Investors Cash Management Fund,
Inc. ("Waterhouse") and certain investment companies advised or administered by
Dreyfus or Harris Trust and Savings Bank ("Harris") or their respective
affiliates. Prior to April 1997, Mr. Ingram was Senior Vice President and
Director of Client Services and Treasury Administration of FDI. From March 1994
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18
<PAGE>
to November 1995, Mr. Ingram was Vice President and Division Manager of First
Data Investor Services Group, Inc. From 1989 to 1994, Mr. Ingram was Vice
President, Assistant Treasurer and Tax Director - Mutual Funds of The Boston
Company, Inc. His date of birth is September 15, 1955.
KAREN JACOPPO-WOOD; Vice President and Assistant Secretary. Assistant
Vice President of FDI and an officer of RCM, Waterhouse and Harris or their
respective affiliates. From June 1994 to January 1996, Ms. Jacoppo-Wood was
a Manager, SEC Registration, Scudder, Stevens & Clark, Inc. From 1988 to May
1994, Ms. Jacoppo-Wood was a senior paralegal at The Boston Company Advisors,
Inc. ("TBCA"). Her date of birth is December 29, 1966.
CHRISTOPHER J. KELLEY; Vice President and Assistant Secretary. Vice
President and Associate General Counsel of FDI and Premier Mutual and an officer
of Waterhouse and certain investment companies advised or administered by Harris
or its affiliates. From April 1994 to July 1996, Mr. Kelley was Assistant
Counsel at Forum Financial Group. From 1992 to 1994, Mr. Kelley was employed by
Putnam Investments in legal and compliance capacities. Prior to September 1992,
Mr. Kelley was enrolled at Boston College Law School and received his JD in May
1992. His date of birth is December 24, 1964.
MARY A. NELSON; Vice President and Assistant Treasurer. Vice President
and Manager of Treasury Services and Administration of FDI and Premier Mutual,
an officer of RCM, Waterhouse and certain investment companies advised or
administered by Dreyfus or Harris or their respective affiliates. From 1989 to
1994, Ms. Nelson was an Assistant Vice President and Client Manager for The
Boston Company, Inc. Her date of birth is April 22, 1964.
MICHAEL S. PETRUCELLI; Vice President and Assistant Secretary. Senior Vice
President and Director of Strategic Client Initiatives for FDI since December
1996. From December 1989 through November 1996, Mr. Petrucelli was employed with
GE Investments where he held various financial, business development and
compliance positions. He also served as Treasurer of the GE Funds and as
Director of GE Investment Services. Address: 200 Park Avenue, New York, New York
10166. His date of birth is May 18, 1961.
JOSEPH F. TOWER III; Vice President and Assistant Treasurer. Executive Vice
President, Treasurer and Chief Financial Officer, Chief Administrative Officer
and Director of FDI. Senior Vice President, Treasurer and Chief Financial
Officer, Chief Administrative Officer and Director of Premier Mutual and an
officer of Waterhouse and certain investment companies advised or administered
by Dreyfus or its affiliates. Prior to April 1997, Mr. Tower was Senior Vice
President, Treasurer and Chief Financial Officer, Chief Administrative Officer
and Director of FDI. From July 1988 to November 1993, Mr. Tower was Financial
Manager of The Boston Company, Inc. His date of birth is June 13, 1962.
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<PAGE>
INVESTMENT ADVISOR
The Fund has not retained the services of an investment adviser because
the Fund seeks to achieve its investment objective by investing all of its
investable assets in the Portfolio. Subject to the supervision of the
Portfolio's Trustees, Morgan makes the Portfolio's day-to-day investment
decisions, arranges for the execution of portfolio transactions and generally
manages the Portfolio's investments. The Advisor, a wholly owned subsidiary of
J.P. Morgan & Co. Incorporated ("J.P. Morgan"), a bank holding company organized
under the laws of the State of Delaware. The Advisor, whose principal offices
are at 60 Wall Street, New York, New York 10260, is a New York trust company
which conducts a general banking and trust business. The Advisor is subject to
regulation by the New York State Banking Department and is a member bank of the
Federal Reserve System. Through offices in New York City and abroad, the Advisor
offers a wide range of services, primarily to governmental, institutional,
corporate and high net worth individual customers in the United States and
throughout the world.
J.P. Morgan, through the Advisor and other subsidiaries, acts as
investment advisor to individuals, governments, corporations, employee benefit
plans, mutual funds and other institutional investors with combined assets under
management of approximately $250 billion.
J.P. Morgan has a long history of service as adviser, underwriter and
lender to an extensive roster of major companies and as a financial advisor to
national governments. The firm, through its predecessor firms, has been in
business for over a century and has been managing investments since 1913.
The basis of the Advisor's investment process is fundamental investment
research as the firm believes that fundamentals should determine an asset's
value over the long term. J.P. Morgan currently employs over 100 full time
research analysts, among the largest research staffs in the money management
industry, in its investment management divisions located in New York, London,
Tokyo, Frankfurt, Melbourne and Singapore to cover companies, industries and
countries on site. In addition, the investment management divisions employ
approximately 300 capital market researchers, portfolio managers and traders.
The Advisor's fixed income investment process is based on analysis of real
rates, sector diversification and quantitative and credit analysis.
The investment advisory services the Advisor provides to the Portfolio
are not exclusive under the terms of the Advisory Agreement. The Advisor is free
to and does render similar investment advisory services to others. The Advisor
serves as investment advisor to personal investors and other investment
companies and acts as fiduciary for trusts, estates and employee benefit plans.
Certain of the assets of trusts and estates under management are invested in
common trust funds for which the Advisor serves as trustee. The accounts which
are managed or advised by the Advisor have varying investment objectives and the
Advisor invests assets of such accounts in investments substantially similar to,
or the same as, those which are expected to constitute the principal investments
of the Portfolio. Such accounts are supervised by officers and employees of the
Advisor
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<PAGE>
who may also be acting in similar capacities for the Portfolio. See "Portfolio
Transactions."
Sector weightings are generally similar to a benchmark with the
emphasis on security selection as the method to achieve investment performance
superior to the benchmark. The benchmark for the Portfolio in which the Fund
invests is currently IBC's Tax Exempt Money Fund Average.
J.P. Morgan Investment Management Inc., also a wholly owned subsidiary
of J.P. Morgan, is a registered investment adviser under the Investment Advisers
Act of 1940, as amended, which manages employee benefit funds of corporations,
labor unions and state and local governments and the accounts of other
institutional investors, including investment companies. Certain of the assets
of employee benefit accounts under its management are invested in commingled
pension trust funds for which the Advisor serves as trustee. J.P. Morgan
Investment Management Inc. advises the Advisor on investment of the commingled
pension trust funds.
The Portfolio is managed by officers of the Advisor who, in acting for
their customers, including the Portfolio, do not discuss their investment
decisions with any personnel of J.P. Morgan or any personnel of other divisions
of the Advisor or with any of its affiliated persons, with the exception of J.P.
Morgan Investment Management Inc. and certain other investment management
affiliates of J.P. Morgan.
As compensation for the services rendered and related expenses such as
salaries of advisory personnel borne by the Advisor under the Investment
Advisory Agreement, the Portfolio has agreed to pay the Advisor a fee, which is
computed daily and may be paid monthly, equal to the annual rate of 0.20% of the
Portfolio's average daily net assets up to $1 billion and 0.10% of the
Portfolio's average daily net assets in excess of $1 billion.
The Portfolio paid the following advisory fees to the Advisor for the
fiscal years ended August 31, 1995, 1996 and 1997: $2,150,291, $2,154,248 and
$2,267,159. See the Prospectus and below for applicable expense limitations.
The Investment Advisory Agreement provides that it will continue in
effect for a period of two years after execution only if specifically approved
thereafter annually in the same manner as the Distribution Agreement. See
"Distributor" below. The Investment Advisory Agreement will terminate
automatically if assigned and is terminable at any time without penalty by a
vote of a majority of the Portfolio's Trustees, or by a vote of the holders of a
majority of the Portfolio's outstanding voting securities, on 60 days' written
notice to the Advisor and by the Advisor on 90 days' written notice to the
Portfolio. See "Additional Information."
The Glass-Steagall Act and other applicable laws generally prohibit
banks such as the Advisor from engaging in the business of underwriting or
distributing securities, and the Board of Governors of the Federal Reserve
System has issued an interpretation to the effect that under these laws a bank
holding company registered under the federal Bank Holding Company Act or certain
subsidiaries
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<PAGE>
thereof may not sponsor, organize, or control a registered open-end investment
company continuously engaged in the issuance of its shares, such as the Trust.
The interpretation does not prohibit a holding company or a subsidiary thereof
from acting as investment advisor and custodian to such an investment company.
The Advisor believes that it may perform the services for the Portfolio
contemplated by the Advisory Agreement without violation of the Glass-Steagall
Act or other applicable banking laws or regulations. State laws on this issue
may differ from the interpretation of relevant federal law, and banks and
financial institutions may be required to register as dealers pursuant to state
securities laws. However, it is possible that future changes in either federal
or state statutes and regulations concerning the permissible activities of banks
or trust companies, as well as further judicial or administrative decisions and
interpretations of present and future statutes and regulations, might prevent
the Advisor from continuing to perform such services for the Portfolio.
If the Advisor were prohibited from acting as investment advisor to the
Portfolio, it is expected that the Trustees of the Portfolio would recommend to
investors that they approve the Portfolio's entering into a new investment
advisory agreement with another qualified investment advisor selected by the
Trustees.
Under separate agreements, Morgan also provides certain financial, fund
accounting and administrative services to the Trust and the Portfolio and
shareholder services for the Trust. See "Services Agent" and "Shareholder
Servicing" below.
DISTRIBUTOR
FDI serves as the Trust's exclusive Distributor and holds itself
available to receive purchase orders for the Fund's shares. In that capacity,
FDI has been granted the right, as agent of the Trust, to solicit and accept
orders for the purchase of the Fund's shares in accordance with the terms of the
Distribution Agreement between the Trust and FDI. Under the terms of the
Distribution Agreement between FDI and the Trust, FDI receives no compensation
in its capacity as the Trust's distributor. FDI is a wholly owned indirect
subsidiary of Boston Institutional Group, Inc. FDI also serves as exclusive
placement agent for the Portfolio. FDI currently provides administration and
distribution services for a number of other investment companies.
The Distribution Agreement shall continue in effect with respect to the
Fund for a period of two years after execution only if it is approved at least
annually thereafter (i) by a vote of the holders of a majority of the Fund's
outstanding shares or by its Trustees and (ii) by a vote of a majority of the
Trustees of the Trust who are not "interested persons" (as defined by the 1940
Act) of the parties to the Distribution Agreement, cast in person at a meeting
called for the purpose of voting on such approval (see "Trustees and Officers").
The Distribution Agreement will terminate automatically if assigned by either
party thereto and is terminable at any time without penalty by a vote of a
majority of the Trustees of the Trust, a vote of a majority of the Trustees who
are not "interested persons" of the Trust, or by a vote of the holders of a
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<PAGE>
majority of the Fund's outstanding shares as defined under "Additional
Information," in any case without payment of any penalty on 60 days' written
notice to the other party. The principal offices of FDI are located at 60 State
Street, Suite 1300, Boston, Massachusetts 02109.
CO-ADMINISTRATOR
Under Co-Administration Agreements with the Trust and the Portfolio
dated August 1, 1996, FDI also serves as the Trust's and the Portfolio's
Co-Administrator. The Co-Administration Agreements may be renewed or amended by
the respective Trustees without a shareholder vote. The Co-Administration
Agreements are terminable at any time without penalty by a vote of a majority of
the Trustees of the Trust or the Portfolio, as applicable, on not more than 60
days' written notice nor less than 30 days' written notice to the other party.
The Co-Administrator may subcontract for the performance of its obligations,
provided, however, that unless the Trust or the Portfolio, as applicable,
expressly agrees in writing, the Co-Administrator shall be fully responsible for
the acts and omissions of any subcontractor as it would for its own acts or
omissions. See "Services Agent" below.
FDI (i) provides office space, equipment and clerical personnel for
maintaining the organization and books and records of the Trust and the
Portfolio; (ii) provides officers for the Trust and the Portfolio; (iii)
prepares and files documents required for notification of state securities
administrators; (iv) reviews and files marketing and sales literature; (v) files
Portfolio regulatory documents and mails Portfolio communications to Trustees
and investors; and (vi) maintains related books and records.
For its services under the Co-Administration Agreements, the Fund and
Portfolio have agreed to pay FDI fees equal to its allocable share of an annual
complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The amount
allocable to the Fund or Portfolio is based on the ratio of its net assets to
the aggregate net assets of the Trust, the Master Portfolios and certain other
investment companies subject to similar agreements with FDI.
The Portfolio paid the following administrative fees to FDI for the
fiscal the period August 31, 1996 and the fiscal year ended August 31, 1997:
$2,284 and $25,082. See the Prospectus and below for applicable expense
limitations.
The Portfolio paid the following administrative fees to Signature
Broker- Dealer Services, Inc. (which provided distribution and administrative
services to the Trust and placement agent and administrative services to the
Portfolio prior to August 1, 1996) for the fiscal years ended August 31, 1995
and the period September 1, 1995 through July 31, 1996: $72,729 and $110,848.
See the Prospectus and below for applicable expense limitations.
SERVICES AGENT
The Trust, on behalf of the Fund, and the Portfolio have entered into
Administrative Services Agreements (the "Services Agreements") with Morgan
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<PAGE>
pursuant to which Morgan is responsible for certain administrative and related
services provided to the Fund and Portfolio. The Services Agreements may be
terminated at any time, without penalty, by the Trustees or Morgan, in each case
on not more than 60 days' nor less than 30 days' written notice to the other
party.
Under the Services Agreements, the Fund and the Portfolio have agreed
to pay Morgan fees equal to its allocable share of an annual complex-wide
charge. This charge is calculated daily based on the aggregate net assets of the
Master Portfolios and J.P. Morgan Series Trust in accordance with the following
annual schedule: 0.09% on the first $7 billion of their aggregate average daily
net assets and 0.04% of their aggregate average daily net assets in excess of $7
billion, less the complex-wide fees payable to FDI. The portion of this charge
payable by the Fund and Portfolio is determined by the proportionate share that
its net assets bear to the total net assets of the Trust, the Master Portfolios,
the other investors in the Master Portfolios for which Morgan provides similar
services and J.P. Morgan Series Trust.
Under prior administrative services agreements in effect from December
29, 1995 through July 31, 1996 with Morgan, the Portfolio paid Morgan a fee
equal to its proportionate share of an annual complex-wide charge. This charge
was calculated daily based on the aggregate net assets of the Master Portfolios
in accordance with the following schedule: 0.06% of the first $7 billion of the
Master Portfolios' aggregate average daily net assets, and 0.03% of the Master
Portfolios' aggregate average daily net assets in excess of $7 billion. Prior to
December 29, 1995, the Trust and the Portfolio had entered into Financial and
Fund Accounting Services Agreements with Morgan, the provisions of which
included certain of the activities described above and, prior to September 1,
1995, also included reimbursement of usual and customary expenses.
The Portfolio paid the following fees paid to Morgan, net of fee
waivers and reimbursements, as Services Agent for the fiscal years ended August
31, 1995, 1996 and 1997: $169,754, $205,419 and $397,340. See the Prospectus and
below for applicable expense limitations.
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02110, serves as the Trust's and the Portfolio's
custodian and fund accounting agent and the Fund's transfer and dividend
disbursing agent. Pursuant to the Custodian Contracts, State Street is
responsible for maintaining the books of account and records of portfolio
transactions and holding portfolio securities and cash. In addition, the
Custodian has entered into subcustodian agreements on behalf of the Portfolio
with Bankers Trust Company for the purpose of holding TENR Notes and with Bank
of New York and Chemical Bank, N.A. for the purpose of holding certain variable
rate demand notes. The Custodian maintains portfolio transaction records. As
transfer agent and dividend disbursing agent, State Street is responsible for
maintaining account records detailing the ownership of Fund shares and for
crediting income, capital gains and other changes in share ownership to
shareholder accounts.
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<PAGE>
SHAREHOLDER SERVICING
The Trust on behalf of the Fund has entered into a Shareholder
Servicing Agreement with Morgan pursuant to which Morgan acts as shareholder
servicing agent for its customers and for other Fund investors who are customers
of a Service Organization. Under this agreement, Morgan is responsible for
performing shareholder account, administrative and servicing functions, which
include but are not limited to, answering inquiries regarding account status and
history, the manner in which purchases and redemptions of Fund shares may be
effected, and certain other matters pertaining to the Fund; assisting customers
in designating and changing dividend options, account designations and
addresses; providing necessary personnel and facilities to coordinate the
establishment and maintenance of shareholder accounts and records with the
Fund's transfer agent; transmitting purchase and redemption orders to the Fund's
transfer agent and arranging for the wiring or other transfer of funds to and
from customer accounts in connection with orders to purchase or redeem Fund
shares; verifying purchase and redemption orders, transfers among and changes in
accounts; informing the Distributor of the gross amount of purchase orders for
Fund shares; monitoring the activities of the Fund's transfer agent; and
providing other related services.
Under the Shareholder Servicing Agreement, the Fund has agreed to pay
Morgan for these services a fee at the annual rate (expressed as a percentage of
the average daily net asset value of Fund shares owned by or for shareholders
for whom Morgan is acting as shareholder servicing agent) of 0.05%. Morgan acts
as shareholder servicing agent for all shareholders. See the Prospectus and
below for applicable expense limitations.
As discussed under "Investment Advisor," the Glass-Steagall Act and
other applicable laws and regulations limit the activities of bank holding
companies and certain of their subsidiaries in connection with registered
open-end investment companies. The activities of Morgan in acting as shareholder
servicing agent for Fund shareholders under the Shareholder Servicing Agreement
and providing administrative services to the Fund and the Portfolio under the
Services Agreements and in acting as Advisor to the Portfolio under the
Investment Advisory Agreement may raise issues under these laws. However, Morgan
believes that it may properly perform these services and the other activities
described in the Prospectus without violation of the Glass-Steagall Act or other
applicable banking laws or regulations.
If Morgan were prohibited from providing any of the services under the
Shareholder Servicing Agreement and the Services Agreements, the Trustees would
seek an alternative provider of such services. In such event, changes in the
operation of the Fund or the Portfolio might occur and a shareholder might no
longer be able to avail himself or herself of any services then being provided
to shareholders by Morgan.
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<PAGE>
SERVICE ORGANIZATION
The Trust, on behalf of the Fund, has adopted a service plan (the
"Plan") with respect to the shares which authorizes the Fund to compensate
Service Organizations for providing certain account administration and other
services to their customers who are beneficial owners of such shares. Pursuant
to the Plan, the Trust, on behalf of the Fund, enters into agreements with
Service Organizations which purchase shares on behalf of their customers
("Service Agreements"). Under such Service Agreements, the Service Organizations
may: (a) act, directly or through an agent, as the sole shareholder of record
and nominee for all customers, (b) maintain or assist in maintaining account
records for each customer who beneficially owns shares, and (c) process or
assist in processing customer orders to purchase, redeem and exchange shares,
and handle or assist in handling the transmission of funds representing the
customers' purchase price or redemption proceeds. As compensation for such
services, the Trust on behalf of the Fund pays each Service Organization a
service fee in an amount up to 0.25% (on an annualized basis) of the average
daily net assets of the shares of the Fund attributable to or held in the name
of such Service Organization for its customers (0.20% where J.P. Morgan acts as
a service organization).
Conflicts of interest restrictions (including the Employee Retirement
Income Security Act of 1974) may apply to a Service Organization's receipt of
compensation paid by the Trust in connection with the investment of fiduciary
funds in shares. Service Organizations, including banks regulated by the
Comptroller of the Currency, the Federal Reserve Board or the Federal Deposit
Insurance Corporation, and investment advisers and other money managers subject
to the jurisdiction of the Securities and Exchange Commission, the Department of
Labor or state securities commissions, are urged to consult legal advisers
before investing fiduciary assets in shares. In addition, under some state
securities laws, banks and other financial institutions purchasing shares on
behalf of their customers may be required to register as dealers.
The Trustees of the Trust, including a majority of Trustees who are not
interested persons of the Trust and who have no direct or indirect financial
interest in the operation of such Plan or the related Service Agreements,
initially voted to approve the Plan and Service Agreements at a meeting called
for the purpose of voting on such Plan and Service Agreements on April 9, 1997.
The Plan was approved by the initial shareholders of each Fund on June 3, 1997,
remains in effect until July 10, 1998 and will continue in effect thereafter
only if such continuance is specifically approved annually by a vote of the
Trustees in the manner described above. The Plan may not be amended to increase
materially the amount to be spent for the services described therein without
approval of the shareholders of the Fund, and all material amendments of the
Plan must also be approved by the Trustees in the manner described above. The
Plan may be terminated at any time by a majority of the Trustees as described
above or by vote of a majority of the outstanding shares of the Fund. The
Service Agreements may be terminated at any time, without payment of any
penalty, by vote of a majority of the disinterested Trustees as described above
or by a vote of a majority of the outstanding shares of the Fund on not more
than 60 days' written notice to any other party to the Service Agreements. The
Service
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Agreements shall terminate automatically if assigned. So long as the Plans are
in effect, the selection and nomination of those Trustees who are not interested
persons shall be determined by the non-interested members of the Board of
Trustees. The Trustees have determined that, in their judgment, there is a
reasonable likelihood that the Plan will benefit the Funds and Fund
shareholders. In the Trustees' quarterly review of the Plan and Service
Agreements, they will consider their continued appropriateness and the level of
compensation provided therein.
INDEPENDENT ACCOUNTANTS
The independent accountants of the Trust and the Portfolio are Price
Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036. Price
Waterhouse LLP conducts an annual audit of the financial statements of the Fund
and the Portfolio, assists in the preparation and/or review of the Fund's and
the Portfolio's federal and state income tax returns and consults with the Fund
and the Portfolio as to matters of accounting and federal and state income
taxation.
EXPENSES
In addition to the fees payable to Pierpont Group, Inc., Morgan and FDI
under various agreements discussed under "Trustees and Officers," "Investment
Advisor," "Co-Administrator and Distributor," "Services Agent" and "Shareholder
Servicing" above, the Fund and the Portfolio are responsible for usual and
customary expenses associated with their respective operations. Such expenses
include organization expenses, legal fees, accounting expenses, insurance costs,
the compensation and expenses of the Trustees, costs associated with their
registration under federal securities laws, and extraordinary expenses
applicable to the Fund or the Portfolio. For the Fund, such expenses also
include transfer, registrar and dividend disbursing costs, the expenses of
printing and mailing reports, notices and proxy statements to Fund shareholders,
and filing fees under state securities laws. For the Portfolio, such expenses
also include custodian fees and brokerage expenses. Under fee arrangements prior
to September 1, 1995, Morgan as Services Agent was responsible for
reimbursements to the Trust and the Portfolio and the usual and customary
expenses described above (excluding organization and extraordinary expenses,
custodian fees and brokerage expenses). For additional information regarding
waivers or expense subsidies, see the Prospectus.
PURCHASE OF SHARES
METHOD OF PURCHASE. Investors may open accounts with the Fund only through
the Distributor. All purchase transactions in Fund accounts are processed by
Morgan as shareholder servicing agent and the Fund is authorized to accept any
instructions relating to a Fund account from Morgan as shareholder servicing
agent for the customer. All purchase orders must be accepted by the Distributor.
Prospective investors who are not already customers of Morgan may apply to
become customers of Morgan for the sole purpose of Fund transactions. There are
no charges associated with becoming a Morgan customer for this purpose. Morgan
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reserves the right to determine the customers that it will accept, and the Trust
reserves the right to determine the purchase orders that it will accept.
References in the Prospectus and this Statement of Additional
Information to customers of Morgan or a Service Organization include customers
of their affiliates and references to transactions by customers with Morgan or a
Service Organization include transactions with their affiliates. Only Fund
investors who are using the services of a financial institution acting as
shareholder servicing agent pursuant to an agreement with the Trust on behalf of
the Fund may make transactions in shares of the Fund.
The Fund may, at its own option, accept securities in payment for
shares. The securities delivered in such a transaction are valued by the method
described in "Net Asset Value" as of the day the Fund receives the securities.
This is a taxable transaction to the shareholder. Securities may be accepted in
payment for shares only if they are, in the judgment of Morgan, appropriate
investments for the Portfolio. In addition, securities accepted in payment for
shares must: (i) meet the investment objective and policies of the Portfolio;
(ii) be acquired by the Fund for investment and not for resale (other than for
resale to the Portfolio); and (iii) be liquid securities which are not
restricted as to transfer either by law or liquidity of market. The Fund
reserves the right to accept or reject at its own option any and all securities
offered in payment for its shares.
Prospective investors may purchase shares with the assistance of a
Service Organization, and the Service Organization may charge the investor a fee
for this service and other services it provides to its customers.
REDEMPTION OF SHARES
Investors may redeem shares as described in the Prospectus.
Shareholders redeeming shares of the Fund should be aware that the Fund attempts
to maintain a stable net asset value of $1.00 per share; however, there can be
no assurance that it will be able to continue to do so, and in that case the net
asset value of the Fund's shares might deviate from $1.00 per share.
Accordingly, a redemption request might result in payment of a dollar amount
which differs from the number of shares redeemed. See "Net Asset Value" below.
If the Trust, on behalf of the Fund, and the Portfolio determine that
it would be detrimental to the best interest of the remaining shareholders of
the Fund to make payment wholly or partly in cash, payment of the redemption
price may be made in whole or in part by a distribution in kind of securities
from the Portfolio, in lieu of cash, in conformity with the applicable rule of
the SEC. If shares are redeemed in kind, the redeeming shareholder might incur
transaction costs in converting the assets into cash. The method of valuing
portfolio securities is described under "Net Asset Value," and such valuation
will be made as of the same time the redemption price is determined. The Trust,
on behalf of the Fund, has elected to be governed by Rule 18f-1 under the 1940
Act pursuant to which the Portfolio is obligated to redeem shares solely in cash
up to the lesser of $250,000 or one percent of the net asset value of the Fund
during any
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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. Investors should be aware that
redemptions from the Fund may not be processed if a redemption request is not
submitted in proper form. To be in proper form, the Fund must have received the
shareholder's taxpayer identification number and address. In addition, if a
shareholder sends a check for the purchase of fund shares and shares are
purchased before the check has cleared, the transmittal of redemption proceeds
from the shares will occur upon clearance of the check which may take up to 15
days. The Trust, on behalf of the Fund, and the Portfolio reserve the right to
suspend the right of redemption and to postpone the date of payment upon
redemption as follows: (i) for up to seven days, (ii) during periods when the
New York Stock Exchange is closed for other than weekends and holidays or when
trading on such Exchange is restricted as determined by the SEC by rule or
regulation, (iii) during periods in which an emergency, as determined by the
SEC, exists that causes disposal by the Portfolio of, or evaluation of the net
asset value of, its portfolio securities to be unreasonable or impracticable, or
(iv) for such other periods as the SEC may permit.
EXCHANGE OF SHARES
An investor may exchange shares from the Fund into shares of any other
J.P. Morgan Institutional or J.P. Morgan mutual fund, without charge. An
exchange may be made so long as after the exchange the investor has shares, in
each fund in which he or she remains an investor, with a value of at least that
fund's minimum investment amount. Shareholders should read the prospectus of the
fund into which they are exchanging and may only exchange between fund accounts
that are registered in the same name, address and taxpayer identification
number. Shares are exchanged on the basis of relative net asset value per share.
Exchanges are in effect redemptions from one fund and purchases of another fund
and the usual purchase and redemption procedures and requirements are applicable
to exchanges. Shareholders subject to federal income tax who exchange shares in
one fund for shares in another fund may recognize capital gain or loss for
federal income tax purposes. Shares of the Fund to be acquired are purchased for
settlement when the proceeds from redemption become available. 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
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distribution option will automatically be converted to having all dividend and
other distributions reinvested in additional shares. No interest will accrue on
amounts represented by uncashed distribution or redemption checks.
NET ASSET VALUE
The Fund computes its net asset value once daily on Monday through
Friday as described in the Prospectus. The net asset value will not be computed
on the day the following legal holidays are observed: New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day, and Christmas Day.
In the event that trading in the money markets is scheduled to end earlier than
the close of the New York Stock Exchange in observance of these holidays, the
Fund and Portfolio would expect to close for purchases and redemptions an hour
in advance of the end of trading in the money markets. The Fund and the
Portfolio may also close for purchases and redemptions at such other times as
may be determined by the Board of Trustees to the extent permitted by applicable
law. On any business day when the Public Securities Association ("PSA")
recommends that the securities market close early, the Fund reserves the right
to cease accepting purchase and redemption orders for same business day credit
at the time PSA recommends that the securities market close. On days the Fund
closes early, purchase and redemption orders received after the PSA-recommended
closing time will be credited the next business day. The days on which net asset
value is determined are the Fund's business days.
The net asset value of the Fund is equal to the value of the Fund's
investment in the Portfolio (which is equal to the Fund's pro rata share of the
total investment of the Fund and of any other investors in the Portfolio less
the Fund's pro rata share of the Portfolio's liabilities) less the Fund's
liabilities. The following is a discussion of the procedures used by the
Portfolio in valuing its assets.
The Portfolio's portfolio securities are valued by the amortized cost
method. The purpose of this method of calculation is to attempt to maintain a
constant net asset value per share of the Fund of $1.00. No assurances can be
given that this goal can be attained. The amortized cost method of valuation
values a security at its cost at the time of purchase and thereafter assumes a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the instrument. If a
difference of more than 1/2 of 1% occurs between valuation based on the
amortized cost method and valuation based on market value, the Trustees will
take steps necessary to reduce such deviation, such as changing the Fund's
dividend policy, shortening the average portfolio maturity, realizing gains or
losses, or reducing the number of outstanding Fund shares. Any reduction of
outstanding shares will be effected by having each shareholder contribute to the
Fund's capital the necessary shares on a pro rata basis. Each shareholder will
be deemed to have agreed to such contribution in these circumstances by his
investment in the Fund.
See "Taxes."
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PERFORMANCE DATA
From time to time, the Fund may quote performance in terms of yield,
actual distributions, total return or capital appreciation in reports, sales
literature and advertisements published by the Trust. Current performance
information for the Fund may be obtained by calling the number provided on the
cover page of this Statement of Additional Information.
YIELD QUOTATIONS. As required by regulations of the SEC, current yield
for the Fund is computed by determining the net change exclusive of capital
changes in the value of a hypothetical pre-existing account having a balance of
one share at the beginning of a seven-day calendar period, dividing the net
change in account value of the account at the beginning of the period, and
multiplying the return over the seven-day period by 365/7. For purposes of the
calculation, net change in account value reflects the value of additional shares
purchased with dividends from the original share and dividends declared on both
the original share and any such additional shares, but does not reflect realized
gains or losses or unrealized appreciation or depreciation. Effective yield for
the Fund is computed by annualizing the seven-day return with all dividends
reinvested in additional Fund shares. The tax equivalent yield is computed by
first computing the yield as discussed above. Then the portion of the yield
attributable to securities the income of which was exempt for federal income tax
purposes is determined. This portion of the yield is then divided by one minus
the stated assumed federal income tax rate for individuals and then added to the
portion of the yield that is not attributable to securities, the income of which
was tax exempt.
Below is set forth historical yield information for the periods
indicated:
The historical yield information of the Fund for the period ended December
31, 1997 is as follows: 7-day current yield: 3.74%; 7-day tax equivalent yield
at 39.6% tax rate: 6.18%; 7-day effective yield: 3.80%.
TOTAL RETURN QUOTATIONS. Historical performance information for periods
prior to the establishment of the Fund will be that of its related series of the
J.P. Morgan Funds and will be presented in accordance with applicable SEC staff
interpretations. The applicable financial information in the registration
statement for the J.P. Morgan Funds (Registration Nos. 033-54632 and 811-07340)
is incorporated herein by reference.
The historical performance information shown below may reflect
operating expenses which were lower than those of the Fund. These returns may be
higher than would have occurred if an investment had been made during the
periods indicated in the J.P. Morgan Institutional Service Tax Exempt Money
Market Fund.
Historical return information for the Fund's related series of the J.P.
Morgan Funds for the period ended December 31, 1997 is as follows: Average
annual total return, 1 year: 3.25%; Average annual total return, 5 years:
2.88%; average annual total return, 10 years: 3.78%; aggregate total return,
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1 year: 3.25%; aggregate total return, 5 years: 15.28%; aggregate total return,
10 years: 44.97%.
Aggregate total returns, reflecting the cumulative percentage change
over a measuring period, may also be calculated.
GENERAL. The Fund's performance will vary from time to time depending
upon market conditions, the composition of the Portfolio, and its operating
expenses. Consequently, any given performance quotation should not be considered
representative of the Fund's performance for any specified period in the future.
In addition, because performance will fluctuate, it may not provide a basis for
comparing an investment in the Fund with certain bank deposits or other
investments that pay a fixed yield or return for a stated period of time.
Comparative performance information may be used from time to time in
advertising the Fund's shares, including appropriate market indices including
the benchmarks indicated under "Investment Advisor" above or data from Lipper
Analytical Services, Inc., Micropal, Inc., Ibbotson Associates, Morningstar
Inc., the Dow Jones Industrial Average and other industry publications.
PORTFOLIO TRANSACTIONS
The Advisor places orders for the Portfolio for all purchases and sales of
portfolio securities, enters into repurchase agreements, and may enter into
reverse repurchase agreements and execute loans of portfolio securities on
behalf of the Portfolio. See "Investment Objectives and Policies."
Fixed income and debt securities and municipal bonds and notes are
generally traded at a net price with dealers acting as principal for their own
accounts without a stated commission. The price of the security usually includes
profit to the dealers. In underwritten offerings, securities are purchased at a
fixed price which includes an amount of compensation to the underwriter,
generally referred to as the underwriter's concession or discount. On occasion,
certain securities may be purchased directly from an issuer, in which case no
commissions or discounts are paid.
Portfolio transactions for the Portfolio will be undertaken principally
to accomplish the Portfolio's objective in relation to expected movements in the
general level of interest rates. The Portfolio may engage in short-term trading
consistent with its objective. See "Investment Objective and Policies --
Portfolio Turnover." The Portfolio will not seek profits through short-term
trading, but the Portfolio may dispose of any portfolio security prior to its
maturity if it believes such disposition is appropriate even if this action
realizes profits or losses.
In connection with portfolio transactions for the Portfolio, the
Advisor intends to seek the best price and execution on a competitive basis for
both purchases and sales of securities.
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The Portfolio has a policy of investing only in securities with
maturities of not more than thirteen months, which will result in high portfolio
turnover. Since brokerage commissions are not normally paid on investments which
the Portfolio makes, turnover resulting from such investments should not
adversely affect the net asset value or net income of the Portfolio.
Subject to the overriding objective of obtaining the best possible
execution of orders, the Advisor may allocate a portion of the Portfolio's
brokerage transactions to affiliates of the Advisor. In order for affiliates of
the Advisor to effect any portfolio transactions for the Portfolio, the
commissions, fees or other remuneration received by such affiliates must be
reasonable and fair compared to the commissions, fees, or other remuneration
paid to other brokers in connection with comparable transactions involving
similar securities being purchased or sold on a securities exchange during a
comparable period of time. Furthermore, the Trustees of the Portfolio, including
a majority of the Trustees who are not "interested persons," have adopted
procedures which are reasonably designed to provide that any commissions, fees,
or other remuneration paid to such affiliates are consistent with the foregoing
standard.
Portfolio securities will not be purchased from or through or sold to
or through the Co-Administrator, the Distributor or the Advisor or any other
"affiliated person" (as defined in the 1940 Act) of the Co-Administrator,
Distributor or Advisor when such entities are acting as principals, except to
the extent permitted by law. In addition, the Portfolio will not purchase
securities during the existence of any underwriting group relating thereto of
which the Advisor or an affiliate of the Advisor is a member, except to the
extent permitted by law.
On those occasions when the Advisor deems the purchase or sale of a
security to be in the best interests of the Portfolio as well as other customers
including other Portfolios, the Advisor to the extent permitted by applicable
laws and regulations, may, but is not obligated to, aggregate the securities to
be sold or purchased for the Portfolio with those to be sold or purchased for
other customers in order to obtain best execution, including lower brokerage
commissions if appropriate. In such event, allocation of the securities so
purchased or sold as well as any expenses incurred in the transaction will be
made by the Advisor in the manner it considers to be most equitable and
consistent with its fiduciary obligations to the Portfolio. In some instances,
this procedure might adversely affect the Portfolio.
MASSACHUSETTS TRUST
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.
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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
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
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classes within any series and to divide or combine the shares (of any series, if
applicable) without changing the proportionate beneficial interest of each
shareholder in the Fund (or in the assets of other series, if applicable). Each
share represents an equal proportional interest in the Fund with each other
share. Upon liquidation of the Fund, holders are entitled to share pro rata in
the net assets of the Fund available for distribution to such shareholders. See
"Massachusetts Trust." Shares of the Fund have no preemptive or conversion
rights and are fully paid and nonassessable. The rights of redemption and
exchange are described in the Prospectus and elsewhere in this Statement of
Additional Information.
The shareholders of the Trust are entitled to a full vote for each full
share held and to a fractional vote for each fractional share. Subject to the
1940 Act, the Trustees themselves have the power to alter the number and the
terms of office of the Trustees, to lengthen their own terms, or to make their
terms of unlimited duration subject to certain removal procedures, and appoint
their own successors, PROVIDED, HOWEVER, that immediately after such appointment
the requisite majority of the Trustees have been elected by the shareholders of
the Trust. The voting rights of shareholders are not cumulative so that holders
of more than 50% of the shares voting can, if they choose, elect all Trustees
being selected while the shareholders of the remaining shares would be unable to
elect any Trustees. It is the intention of the Trust not to hold meetings of
shareholders annually. The Trustees may call meetings of shareholders for action
by shareholder vote as may be required by either the 1940 Act or the Trust's
Declaration of Trust.
Shareholders of the Trust have the right, upon the declaration in
writing or vote of more than two-thirds of its outstanding shares, to remove a
Trustee. The Trustees will call a meeting of shareholders to vote on removal of
a Trustee upon the written request of the record holders of 10% of the Trust's
shares. In addition, whenever ten or more shareholders of record who have been
such for at least six months preceding the date of application, and who hold in
the aggregate either shares having a net asset value of at least $25,000 or at
least 1% of the Trust's outstanding shares, whichever is less, shall apply to
the Trustees in writing, stating that they wish to communicate with other
shareholders with a view to obtaining signatures to request a meeting for the
purpose of voting upon the question of removal of any Trustee or Trustees and
accompanied by a form of communication and request which they wish to transmit,
the Trustees shall within five business days after receipt of such application
either: (1) afford to such applicants access to a list of the names and
addresses of all shareholders as recorded on the books of the Trust; or (2)
inform such applicants as to the approximate number of shareholders of record,
and the approximate cost of mailing to them the proposed communication and form
of request. If the Trustees elect to follow the latter course, the Trustees,
upon the written request of such applicants, accompanied by a tender of the
material to be mailed and of the reasonable expenses of mailing, shall, with
reasonable promptness, mail such material to all shareholders of record at their
addresses as recorded on the books, unless within five business days after such
tender the Trustees shall mail to such applicants and file with the SEC,
together with a copy of the material to be mailed, a written statement signed by
at least a majority of the Trustees
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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 25 series of the Trust. The Trustees have no current intention to
create any classes within the initial series or any subsequent series. The
Trustees may, however, authorize the issuance of shares of additional series and
the creation of classes of shares within any series with such preferences,
privileges, limitations and voting and dividend rights as the Trustees may
determine. The proceeds from the issuance of any additional series would be
invested in separate, independently managed portfolios with distinct investment
objectives, policies and restrictions, and share purchase, redemption and net
asset valuation procedures. Any additional classes would be used to distinguish
among the rights of different categories of shareholders, as might be required
by future regulations or other unforeseen circumstances. All consideration
received by the Trust for shares of any additional series or class, and all
assets in which such consideration is invested, would belong to that series or
class, subject only to the rights of creditors of the Trust and would be subject
to the liabilities related thereto. Shareholders of any additional series or
class will approve the adoption of any management contract or distribution plan
relating to such series or class and of any changes in the investment policies
related thereto, to the extent required by the 1940 Act.
For information relating to mandatory redemption of Fund shares or
their redemption at the option of the Trust under certain circumstances, see the
Prospectus.
As of January 2, 1998, the following owned of record, or to the knowledge
of management, beneficially owned more than 5% of the outstanding shares of the
Fund: Hare & Co. (99.98%).
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 the Portfolio, a separate registered investment company
with the same investment objective as the Fund. Generally, when a Master
Portfolio seeks a vote to change its investment objective, its feeder fund(s)
will hold a
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36
<PAGE>
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 of all the
assets of the Fund in another pooled investment entity having the same
investment objective and restrictions as the Fund or the retaining of an
investment adviser to manage the Fund's assets in accordance with the investment
policies 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.
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<PAGE>
The Trust will vote the shares held by Fund shareholders who do not give voting
instructions in the same proportion as the shares of Fund shareholders who do
give voting instructions. Shareholders of the Fund who do not vote will have no
effect on the outcome of such matters.
TAXES
The following discussion of tax consequences is based on U.S. federal
tax laws in effect on the date of this Prospectus. These laws and regulations
are subject to change by legislative or administrative action.
The Fund intends to continue to qualify as a regulated investment company under
Subchapter M of the Code. As a regulated investment company, the Fund must,
among other things, (a) derive at least 90% of its gross income from dividends,
interest, payments with respect to loans of stock and securities, gains from the
sale or other disposition of stock, securities or foreign currency and other
income (including but not limited to gains from options, futures, and forward
contracts) derived with respect to its business of investing in such stock,
securities or foreign currency; and (b) diversify its holdings so that, at the
end of each quarter of its taxable year, (i) at least 50% of the value of the
Fund's total assets is represented by cash, cash items, U.S. Government
securities, securities of other regulated investment companies, and other
securities limited, in respect of any one issuer, to an amount not greater than
5% of the Fund's total assets, and 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its total assets is
invested in the securities of any one issuer (other than U.S. Government
securities or securities of other regulated investment companies). As a
regulated investment company, the Fund (as opposed to its shareholders) will not
be subject to federal income taxes on the net investment income and capital gain
that it distributes to its shareholders, provided that at least 90% of its net
investment income and realized net short-term capital gain in excess of net
long-term capital loss for the taxable year is distributed in accordance with
the Code's timing requirements.
Under the Code, the Fund will be subject to a 4% excise tax on a
portion of its undistributed taxable income and capital gains if it fails to
meet certain distribution requirements by the end of the calendar year. The Fund
intends to make distributions in a timely manner and accordingly does not expect
to be subject to the excise tax.
For federal income tax purposes, dividends that are declared by the
Fund in October, November or December as of a record date in such month and
actually paid in January of the following year will be treated as if they were
paid on December 31 of the year declared. Therefore, such dividends will be
taxable to a shareholder in the year declared rather than the year paid.
The Fund intends to qualify to pay exempt-interest dividends to its
shareholders by having, at the close of each quarter of its taxable year, at
least 50% of the value of its total assets consist of tax exempt securities. An
exempt-interest dividend is that part of dividend distributions made by the Fund
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<PAGE>
which is properly designated as consisting of interest received by the Fund on
tax exempt securities. Shareholders will not incur any federal income tax on the
amount of exempt-interest dividends received by them from the Fund, other than
the alternative minimum tax under certain circumstances. In view of the Fund's
investment policies, it is expected that a substantial portion of all dividends
will be exempt-interest dividends, although the Fund may from time to time
realize and distribute net short-term capital gains and may invest limited
amounts in taxable securities under certain circumstances.
Distributions of net investment income and realized net short-term
capital gain in excess of net long-term capital loss (other than exempt interest
dividends) are generally taxable to shareholders of the Fund as ordinary income
whether such distributions are taken in cash or reinvested in additional shares.
Distributions to corporate shareholders of the Fund are not eligible for the
dividends received deduction. Distributions of net long-term capital gain (i.e.,
net long-term capital gain in excess of net short-term capital loss) are taxable
to shareholders of the Fund as long-term capital gain, regardless of whether
such distributions are taken in cash or reinvested in additional shares and
regardless of how long a shareholder has held shares in the Fund. As a result of
the enactment of the Taxpayer Relief Act of 1997 (the "Act"), long-term capital
gain of an individual is generally subject to a maximum rate of 28% in respect
of a capital asset held directly by such individual for more than one year but
not more than eighteen months, and the maximum rate is reduced to 20% in respect
of a capital asset held in excess of 18 months. The Act authorizes the Treasury
department to promulgate regulations that would apply these rules in the case of
long-term capital gain distributions made by the Fund. The Treasury Department
has indicated that, under such regulations, individual shareholders will be
taxed at a minimum rate of 28% in respect of capital gains distributions
designated as 28% rate gain distributions and will be taxed at a maximum rate of
20% in respect of capital gains distributions designated as 20% rate gain
distributions, regardless of how long such shareholders have held their shares
in the Fund. Additionally, any loss realized on a redemption or exchange of
shares of the Fund will be disallowed to the extent the shares disposed of are
replaced within a period of 61 days beginning 30 days before such disposition,
such as pursuant to reinvestment of a dividend in shares of the Fund.
To maintain a constant $1.00 per share net asset value, the Trustees of
the Trust may direct that the number of outstanding shares be reduced pro rata.
If this adjustment is made, it will reflect the lower market value of portfolio
securities and not realized losses. The adjustment may result in a shareholder
having more dividend income than net income in his account for a period. When
the number of outstanding shares of the Fund is reduced, the shareholder's basis
in the shares of the Fund may be adjusted to reflect the difference between
taxable income and net dividends actually distributed. This difference may be
realized as a capital loss when the shares are liquidated. Subject to certain
limited exceptions, capital losses cannot be used to offset ordinary income. See
"Net Asset Value."
Gains or losses on sales of portfolio securities will be treated as
long-term capital gains or losses if the securities have been held for more than
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<PAGE>
one year except in certain cases where a put is acquired or a call option is
written thereon or straddle rules are otherwise applicable. Other gains or
losses on the sale of securities will be short-term capital gains or losses.
Gains and losses on the sale, lapse or other termination of options on
securities will be treated as gains and losses from the sale of securities.
Except as described below, if an option written by the Portfolio lapses or is
terminated through a closing transaction, such as a repurchase by the Portfolio
of the option from its holder, the Portfolio will realize a short-term capital
gain or loss, depending on whether the premium income is greater or less than
the amount paid by the Portfolio in the closing transaction. If securities are
purchased by the Portfolio pursuant to the exercise of a put option written by
it, the Portfolio will subtract the premium received from its cost basis in the
securities purchased.
Any distribution of net investment income or capital gains will have
the effect of reducing the net asset value of Fund shares held by a shareholder
by the same amount as the distribution. If the net asset value of the shares is
reduced below a shareholder's cost as a result of such a distribution, the
distribution, although constituting a return of capital to the shareholder, will
be taxable as described above.
Any gain or loss realized on the redemption or exchange of Fund shares
by a shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held for more than one year, and
otherwise as short-term capital gain or loss. However, any loss realized by a
shareholder upon the redemption or exchange of shares in the Fund held for six
months or less 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.
FOREIGN SHAREHOLDERS. Dividends of net investment income and
distributions of realized net short-term gain in excess of net long-term loss to
a shareholder who, as to the United States, is a nonresident alien individual,
fiduciary of a foreign trust or estate, foreign corporation or foreign
partnership (a "foreign shareholder") will be subject to U.S. withholding tax at
the rate of 30% (or lower treaty rate) unless the dividends are effectively
connected with a U.S. trade or business of the shareholder, in which case the
dividends will be subject to tax on a net income basis at the graduated rates
applicable to U.S. individuals or domestic corporations. Distributions treated
as long term capital gains to foreign shareholders will not be subject to U.S.
tax unless the distributions are effectively connected with the shareholder's
trade or business in the United States or, in the case of a shareholder who is a
nonresident alien individual, the shareholder was present in the United States
for more than 182 days during the taxable year and certain other conditions are
met.
In the case of a foreign shareholder who is a nonresident alien
individual or foreign entity, the Fund may be required to withhold U.S. federal
income tax as "backup withholding" at the rate of 31% from distributions treated
as long-term capital gains and from the proceeds of redemptions, exchanges or
other dispositions of Fund shares unless IRS Form W-8 is provided. Transfers by
gift
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<PAGE>
of shares of the Fund by a foreign shareholder who is a nonresident alien
individual will not be subject to U.S. federal gift tax, but the value of shares
of the Fund held by such a shareholder at his or her death will be includible in
his or her gross estate for U.S. federal estate tax purposes.
STATE AND LOCAL TAXES. The Fund may be subject to state or local taxes
in jurisdictions in which the Fund is deemed to be doing business. In addition,
the treatment of the Fund and its shareholders in those states which have income
tax laws might differ from treatment under the federal income tax laws.
Shareholders should consult their own tax advisors with respect to any state or
local taxes.
OTHER TAXATION. The Trust is organized as a Massachusetts business
trust and, under current law, neither the Trust nor the Fund is liable for any
income or franchise tax in The Commonwealth of Massachusetts, provided that the
Fund continues to qualify as a regulated investment company under Subchapter M
of the Code. The Portfolio is organized as a New York trust. The Portfolio is
not subject to any federal income taxation or income or franchise tax in the
State of New York or The Commonwealth of Massachusetts. The investment by the
Fund in the Portfolio does not cause the Fund to be liable for any income or
franchise tax in the State of New York.
ADDITIONAL INFORMATION
As used in this Statement of Additional Information and the Prospectus,
the term "majority of the outstanding voting securities" means the vote of (i)
67% or more of the Fund's shares or the Portfolio's outstanding voting
securities present at a meeting, if the holders of more than 50% of the Fund's
outstanding shares or the Portfolio's outstanding voting securities are present
or represented by proxy, or (ii) more than 50% of the Fund's outstanding shares
or the Portfolio's outstanding voting securities, whichever is less.
Telephone calls to the Fund, Morgan or Service Organizations as
shareholder servicing agent may be tape recorded. With respect to the securities
offered hereby, this Statement of Additional Information and the Prospectus do
not contain all the information included in the Trust's Registration Statement
filed with the SEC under the 1933 Act and the Trust's and the Portfolio's
Registration Statements filed under the 1940 Act. Pursuant to the rules and
regulations of the SEC, certain portions have been omitted. The Registration
Statements including the exhibits filed therewith may be examined at the office
of the SEC in Washington D.C.
Statements contained in this Statement of Additional Information and
the Prospectus concerning the contents of any contract or other document are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the applicable
Registration Statements. Each such statement is qualified in all respects by
such reference.
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in the
Prospectus and this Statement of Additional Information, in connection with the
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<PAGE>
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.
FINANCIAL STATEMENTS
The following financial statements and the report thereon of Price
Waterhouse LLP of the Portfolio are incorporated herein by reference from its
annual report filing made with the SEC pursuant to Section 30(b) of the 1940 Act
and Rule 30b2-1 thereunder. The following financial report is available without
charge upon request by calling J.P. Morgan Funds Services at (800) 766-7722.
Date of Annual Report; Date Annual
Name of Portfolio Report Filed; and Accession Number
- ------------------------------------------ -------------------------------------
The Tax Exempt Money Market Portfolio 08/31/97
10/30/97
0001047469-97-002084
- ------------------------------------------ -------------------------------------
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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 it 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.
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.
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Appendix-1
<PAGE>
SP-2 - The short-term tax-exempt note rating of SP-2 has a
satisfactory capacity to pay principal and interest.
MOODY'S
CORPORATE AND MUNICIPAL BONDS
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality
by all standards. Together with the Aaa group they comprise
what are generally known as high grade bonds. They are rated
lower than the best bonds because margins of protection may
not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may
be other elements present which make the long term risks
appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest
are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
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Appendix-2
<PAGE>
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.
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Appendix-3
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|
FEBRUARY 2, 1998 | PROSPECTUS
|
================================================================================
J.P. MORGAN INSTITUTIONAL SERVICE
PRIME MONEY MARKET FUND
==========================================
Seeking to preserve capital and to provide
income and same-day liquidity
This prospectus contains essential information for anyone investing in this
fund. Please read it carefully and keep it for reference.
Shares in this fund are not bank deposits and are not guaranteed or insured by
any bank, government entity, or the FDIC. The fund seeks to maintain a stable $1
share price, without guaranteeing that it will always be able to do so.
As with all mutual funds, the fact that these shares are registered with the
Securities and Exchange Commission does not mean that the commission approves
them as an investment or guarantees that the information in this prospectus is
correct or adequate. It is a criminal offense to state or suggest otherwise.
[LOGO]JPMorgan
Distributed by Funds Distributor, Inc.
<PAGE>
<TABLE>
<CAPTION>
CONTENTS
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<S> <C>
2 | MONEY MARKET MANAGEMENT APPROACH
Money market investment process .................................. 2
4 | J.P. MORGAN INSTITUTIONAL SERVICE PRIME MONEY MARKET FUND
The fund's goal, investment approach, Fund description ................................................. 4
risks, expenses, and
financial highlights Investor expenses ................................................ 4
Performance ...................................................... 5
Financial highlights ............................................. 5
6 | YOUR INVESTMENT
Investing through a service organization ......................... 6
Investing in the J.P. Morgan
Institutional Service Investing through an employer-sponsored retirement plan .......... 6
Prime Money Market Fund
Investing through an IRA or rollover IRA ......................... 6
Investing directly ............................................... 6
Opening your account ............................................. 6
Adding to your account ........................................... 6
Selling shares ................................................... 7
Account and transaction policies ................................. 7
Dividends and distributions ...................................... 8
Tax considerations ............................................... 8
9 | FUND DETAILS
Master/feeder structure .......................................... 9
More about the fund's
business operations Management and administration .................................... 9
FOR MORE INFORMATION ...................................... back cover
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INTRODUCTION
================================================================================
J.P. MORGAN INSTITUTIONAL SERVICE PRIME MONEY MARKET FUND
This fund invests in high-quality short-term debt securities by investing
through a master portfolio (another fund with the same goal). The fund accrues
dividends daily, pays them to shareholders monthly, and seeks to maintain a
stable $1 share price.
WHO MAY WANT TO INVEST
The fund is designed for investors who:
o want an investment that strives to preserve capital
o want regular income from a high quality portfolio
o want a highly liquid investment
o are looking for an interim investment
o are pursuing a short-term goal
The fund is NOT designed for investors who:
o are investing for long-term growth
o are investing for high income
o require the added security of the FDIC insurance
J.P. MORGAN
Known for its commitment to proprietary research and its disciplined investment
strategies, J.P. Morgan is the asset 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 approximately $250 billion in assets under management,
including assets managed by the fund's advisor, Morgan Guaranty Trust Company of
New York.
========================================
Before you invest
Investors considering the fund should
understand that:
o There is no assurance that the fund
will meet its investment goals
o Future returns will not necessarily
resemble past performance
o The fund does not represent a
complete investment program
- ----------------------------------------
|
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<PAGE>
MONEY MARKET MANAGEMENT APPROACH
================================================================================
The J.P. Morgan Institutional Service Prime Money Market Fund invests
exclusively in high-quality short-term debt obligations.
The fund's investment philosophy, developed by its advisor, emphasizes
investment quality through in-depth research of short-term securities and their
issuers. This allows the fund to focus on maximizing current income without
compromising share price stability.
MONEY MARKET INVESTMENT PROCESS
In researching short-term securities, J.P. Morgan's credit analysts enhance the
data furnished by rating agencies by drawing on the insights of J.P. Morgan's
fixed income trading specialists and equity analysts. Only securities highly
rated by independent rating agencies as well as J.P. Morgan's proprietary
ratings system are considered for investment.
In managing the fund, J.P. Morgan employs a three-step process:
[GRAPHIC] MATURITY DETERMINATION Based on analysis of a
range of factors, including current yields,
J.P. Morgan uses a disciplined economic forecasts, and anticipated fiscal and
process to control the fund's monetary policies, J.P. Morgan establishes the
sensitivity to interest rates desired weighted average maturity for the fund
within the permissible 90-day range.
Controlling weighted average maturity allows
the fund to manage risk since securities with
shorter maturities are typically less
sensitive to interest rate shifts than those
with longer maturities.
[GRAPHIC] SECTOR ALLOCATION Analysis of the yields
available in different sectors of the
The fund invests in different short-term debt market, such as corporate,
issuers and types of bank and U.S. government obligations, allows
securities for diversification J.P. Morgan to adjust the fund's sector
and to take advantage of yield allocation, with the goal of enhancing current
spreads income while maintaining exposure to different
types of securities and diversification among
issuers.
[GRAPHIC] SECURITY SELECTION Based on the results of the
firm's credit research and the fund's maturity
The fund selects its determination and sector allocation, the
securities as described later portfolio managers and dedicated fixed-income
in this prospectus traders make buy and sell decisions according
to the fund's goal and strategy.
|
2 | MONEY MARKET MANAGEMENT APPROACH
|
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J.P. MORGAN INSTITUTIONAL SERVICE PRIME MONEY MARKET FUND
================================================================================
REGISTRANT: J.P. MORGAN INSTITUTIONAL FUNDS
(J.P. MORGAN INSTITUTIONAL SERVICE PRIME MONEY MARKET FUND)
[GRAPHIC] GOAL
The fund's goal is to maximize current income while maintaining a high
level of liquidity.
[GRAPHIC] INVESTMENT APPROACH
The fund looks for investments across a broad spectrum of U.S.
dollar-denominated money market securities, typically emphasizing different
types of securities at different times in order to take advantage of changing
yield differentials. The fund's investments may include obligations issued by
the U.S. Treasury, government agencies, domestic and foreign banks and
corporations, foreign governments, repurchase agreements, as well as
asset-backed securities, taxable municipal obligations, and other money market
instruments. Some of these investments may be illiquid or purchased on a
when-issued or delayed delivery basis.
[GRAPHIC] POTENTIAL RISKS AND REWARDS
The fund's yield will vary in response to changes in interest rates. How
well the fund's yield compares to the yields of similar money market funds will
depend on the success of the investment process described on page 2.
As with all money market funds, the fund's investments are subject to various
risks, which, while generally considered to be minimal, could cause its share
price to fall below $1. For example, the issuer or guarantor of a portfolio
security or the counterparty to a contract could default on its obligation. An
unexpected rise in interest rates could also lead to a loss in share price if
the fund is near the maximum allowable average weighted maturity at the time. To
the extent that the fund invests in foreign securities, the fund could lose
money because of foreign government actions, political instability, or lack of
adequate and accurate information. Also, the fund may have difficulty valuing
its illiquid holdings and may be unable to sell them at the time or price it
desired. While these possibilities exist, the fund's investment process and
management policies are designed to minimize the likelihood and impact of these
risks. To date, through this process, the fund's share price has never deviated
from $1.
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages
approximately $250 billion, including more than $13 billion using the same
strategy as the fund.
The portfolio management team is led by Robert R. Johnson, vice president,
who has been on the team since the fund's inception and has been at J.P. Morgan
since 1988, Daniel B. Mulvey, vice president, who joined the team in January of
1995 and has been at J.P. Morgan since 1991, and by John Donohue, vice
president, who has been on the team since joining J.P. Morgan in June of 1997.
Prior to managing this fund, Mr. Donohue was an Institutional Money Market
Portfolio Manager at Goldman Sachs & Co.
MONEY MARKET FUNDS AND STABILITY
Money market funds are subject to a range of federal regulations designed
to promote stability. For example, money market funds must maintain a weighted
average maturity of no more than 90 days, and generally may not invest in any
securities with a remaining maturity of more than 13 months. Keeping the
weighted average maturity this short helps funds in their pursuit of a stable $1
share price.
================================================================================
INVESTOR EXPENSES
The current expenses you should expect to pay as an investor in the fund are
shown at right. The fund has no sales, redemption, exchange, or account fees,
although some institutions may charge you a fee for shares you buy through them.
The annual fund expenses shown are deducted from fund assets prior to
performance calculations.
Footnotes for this section are shown on next page.
================================================================================
Annual fund operating expenses(1) (%)
================================================================================
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<S> <C>
Management fees (actual) 0.12
Marketing (12b-1) fees None
Other expenses(2)
(after reimbursement) 0.08
Service fees(3) 0.25
================================================================================
Total operating expenses(2)
(after reimbursement) 0.45
- --------------------------------------------------------------------------------
</TABLE>
================================================================================
Expense example
================================================================================
The example below uses the same assumptions as other fund prospectuses: $1,000
initial investment, 5% annual total return, expenses unchanged, all shares sold
at the end of each time period. The example is for comparison only; the fund's
actual return and expenses will be different.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1 yr. 3 yrs.
<S> <C> <C>
Your cost($) 5 14
- --------------------------------------------------------------------------------
</TABLE>
|
4 | J.P. MORGAN INSTITUTIONAL SERVICE PRIME MONEY MARKET FUND
|
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
PERFORMANCE (unaudited)
==================================
Average annual total return (%) Shows performance over time, for periods ended December 31, 1997
==================================--------------------------------------------------------------------------------------------------
1 yr. 5 yrs. 10 yrs.
<S> <C> <C> <C>
J.P. Morgan Institutional Service Prime Money Market Fund(4) (after expenses) 5.41 4.63 5.73
- ------------------------------------------------------------------------------------------------------------------------------------
IBC's First Tier Money Fund Average(5) (after expenses) 5.04 4.36 5.45
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
==================================
Year-by-year total return (%) Shows changes in returns by calendar year
==================================--------------------------------------------------------------------------------------------------
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
J.P. Morgan Institutional Service 7.38 9.13 8.04 6.07 3.67 2.83 3.95 5.79 5.21 5.41
Prime Money Market Fund(4)
IBC's First Tier Money Fund Average(5) 7.08 8.87 7.82 5.71 3.37 2.70 3.75 5.48 4.85 5.04
</TABLE>
<TABLE>
<CAPTION>
====================================================================================================================================
FINANCIAL HIGHLIGHTS
==================================
Per-share data For fiscal periods ended November 30
==================================--------------------------------------------------------------------------------------------------
1997
<S> <C>
Net asset value, beginning of period ($) 1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.0057
Net realized loss
on investment ($) (0.0000)(6)
====================================================================================================================================
Total from investment operations ($) 0.0057
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) (0.0057)
Net realized gain ($) --
====================================================================================================================================
Total distributions ($) (0.0057)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period ($) 1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Total return (%) 0.57(7)
- ------------------------------------------------------------------------------------------------------------------------------------
==================================
Ratios and supplemental data
==================================--------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 384
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Expenses (%) 0.45(8)
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (%) 5.28(8)
- ------------------------------------------------------------------------------------------------------------------------------------
Decrease reflected in expense ratio due
to expense reimbursement(8) (%) 35.10(8)(9)
- ------------------------------------------------------------------------------------------------------------------------------------
The Financial Highlights above have been audited by Price Waterhouse LLP, the fund's independent accountants.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1 The fund has a master/feeder structure as described on page 9. This table
shows the fund's expenses and its share of master portfolio expenses for
the past fiscal year, expressed as a percentage of the fund's average
net assets after reimbursement for ordinary expenses over 0.45%.
2 Without reimbursement, other expenses and total operating expenses would
have been 35.18% and 35.55%, respectively. There is no guarantee that
reimbursement will continue beyond 3/31/99.
3 Service Organizations may charge other fees to their customers who are the
beneficial owners of shares in connection with their customers' accounts.
Such fees, if any, may affect the return such customers realize with
respect to their investments.
4 The fund commenced operations on 10/23/97. Except in Financial Highlights,
returns reflect performance of the J.P. Morgan Prime Money Market Fund (a
separate feeder fund investing in the same master portfolio) from 1/1/88
through 10/23/97. These returns reflect lower operating expenses than the
fund's. Also, these returns may be higher than the fund's would have been
had it existed during the same periods. This data is based on historical
earnings and is not intended to indicate future performance.
5 Consists of the IBC/Donoghue Taxable Money Market Fund Average from
inception through November 30, 1995 and IBC's First Tier Money Fund Average
thereafter.
6 Less than $0.0001.
7 Not annualized.
8 Annualized.
9 Not representative of ongoing reimbursement ratio since period covers less
than two months.
|
J.P. MORGAN INSTITUTIONAL SERVICE PRIME MONEY MARKET FUND | 5
|
<PAGE>
YOUR INVESTMENT
================================================================================
For your convenience, the J.P. Morgan Institutional Funds offer several ways to
start and add to fund investments.
INVESTING THROUGH A SERVICE ORGANIZATION
Prospective investors may purchase shares of the fund with the assistance of a
service organization. Your service organization is paid by the fund to assist
you in establishing your fund account, executing transactions, and monitoring
your investment. If your fund investment is not held in the name of your service
organization and you prefer to place a transaction order yourself, please use
the instructions for investing directly.
INVESTING THROUGH AN EMPLOYER-SPONSORED
RETIREMENT PLAN
Your fund investments are handled through your plan. Refer to your plan
materials or contact your benefits office for information on buying, selling, or
exchanging fund shares.
INVESTING THROUGH AN IRA OR ROLLOVER IRA
Please contact a J.P. Morgan Retirement Services Specialist at 1-888-576-4472
for information on J.P. Morgan's comprehensive IRA services, including lower
minimum investments.
INVESTING DIRECTLY
Investors may establish accounts without the help of an intermediary by using
the instructions below and at right:
o Determine the amount you are investing. The minimum amount for initial
investments in the fund is $10,000,000 and for additional investments
$25,000, although these minimums may be less for some investors. A service
organization may impose a minimum amount for initial and subsequent
investments in the fund and may establish other requirements such as a
minimum account balance. Customers should contact their service
organization for further information concerning such requirements and
charges. For more information on minimum investments, call 1-800-766-7722.
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 below.
For answers to any questions, please speak with a J.P. Morgan Funds Services
Representative at 1-800-766-7722.
OPENING YOUR ACCOUNT
By wire
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.
|
6 | YOUR INVESTMENT
|
<PAGE>
================================================================================
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.
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 DAYS AND NAV CALCULATIONS The fund's regular business days are the same
as those of the New York Stock Exchange. The fund calculates its net asset value
per share (NAV) every business day at 5:00 p.m. eastern time.
TIMING OF ORDERS Orders to buy or sell shares are executed at the next NAV
calculated after the order has been accepted. Purchase and redemption orders for
the fund must be received by 5:00 p.m. eastern time.
For the purchase to be effective and dividends to be earned on the same day,
immediately available funds must be received by 5:00 p.m. eastern time on a fund
business day. The fund has the right to suspend redemption of shares and to
postpone payment of proceeds for up to seven days or as permitted by law.
================================================================================
Shareholder Services Agent
J.P. Morgan Funds Services
522 Fifth Avenue
New York, NY 10036
1-800-766-7722
Representatives are available 8:00 a.m. to 5:00 p.m. eastern
time on fund business days.
|
YOUR INVESTMENT | 7
|
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
TIMING OF SETTLEMENTS When you buy shares, you will become the owner of record
when the fund receives your payment.
Redemption orders for the fund received by 5:00 p.m.
eastern time will be paid in immediately available funds normally on the same
day, according to instructions on file.
When you sell shares that you recently purchased by check, your order will be
executed at the next NAV but the proceeds will not be available until your check
clears. This may take up to 15 days.
STATEMENTS AND REPORTS The fund sends monthly account statements as well as
confirmations after each purchase or sale of shares (except reinvestments).
Every six months, the fund sends out an annual or semi-annual report containing
information on 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
Substantially all income dividends are declared daily and paid monthly. If all
of an investor's shares are redeemed during the month, accrued but unpaid
dividends are paid with the redemption proceeds. Shares of the fund earn
dividends on the business day their purchase is effective, but not on the
business day their redemption is effective.
Dividends and distributions are 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. The transactions
below typically create the following tax liabilities:
<TABLE>
================================================================================
<S> <C>
Transaction Tax status
- --------------------------------------------------------------------------------
Income dividends Ordinary income
- --------------------------------------------------------------------------------
Short-term capital gains Ordinary income
distributions
- --------------------------------------------------------------------------------
</TABLE>
Every January, the fund issues tax information on its distributions for the
previous year.
Any investor for whom the fund does not have a valid taxpayer identification
number will be subject to backup withholding for taxes.
The tax considerations described in this section do not apply to tax-deferred
accounts or other non-taxable entities.
Because each investor's tax circumstances are unique, please consult your tax
professional about your fund investment.
|
8 | YOUR INVESTMENT
|
<PAGE>
FUND DETAILS
================================================================================
MASTER/FEEDER STRUCTURE
As noted earlier, the fund is a "feeder" fund that invests in a master
portfolio. (Except where indicated, this prospectus uses the term "the fund" to
mean the feeder fund and its master portfolio taken together.)
The master portfolio accepts investments from other feeder funds, and 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 feeder fund will hold a shareholder meeting and cast its vote
proportionately, as instructed by its shareholders. Fund shareholders are
entitled to one vote per fund share.
The fund and its master portfolio expect to maintain consistent goals, but if
they do not, the fund will withdraw from the master portfolio, receiving its
assets either in cash or securities. The fund's trustees would then consider
whether the fund should hire its own investment adviser, invest in a different
master portfolio, or take other action.
MANAGEMENT AND ADMINISTRATION
The fund and its master portfolio are governed by the same trustees. The
trustees are responsible for overseeing all business activities. The trustees
are assisted by Pierpont Group, Inc., which they own and operate on a cost
basis; costs are shared by all funds governed by these trustees. Funds
Distributor, Inc., as co-administrator, provides fund officers. J.P. Morgan, as
co-administrator, oversees the fund's other service providers.
J.P. Morgan receives the following fees for investment
advisory and other services:
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
Advisory services 0.20% of the first $1 billion of
the master portfolio's average net assets
plus 0.10% over $1 billion
- --------------------------------------------------------------------------------
Administrative services Master portfolio's and fund's pro-
(fee shared with Funds rata portions of 0.09% of the
Distributor, Inc.) first $7 billion in J.P. Morgan-
advised portfolios, plus 0.04%
over $7 billion
- --------------------------------------------------------------------------------
Shareholder services 0.05% of the fund's average
net assets
- --------------------------------------------------------------------------------
</TABLE>
The fund has a service plan which allows it to pay service organizations up to
0.25% of the average net assets of the shares held in the name of the service
organization (0.20% where J.P. Morgan acts as a service organization).
The Advisor has voluntarily agreed to reimburse the fund so that total operating
expenses will not exceed 0.45% of average net assets of the fund. There is no
guarantee that this arrangement will continue beyond 3/31/99.
J.P. Morgan may pay fees to certain firms and professionals for providing
recordkeeping or other services in connection with investments in the fund.
|
FUND DETAILS | 9
|
<PAGE>
- --------------------------------------------------------------------------------
FOR MORE INFORMATION
================================================================================
For investors who want more information on the fund, the following documents are
available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS Contain financial statements, performance data,
information on portfolio holdings, and a written analysis of market conditions
and fund performance for the fund's most recently completed fiscal year or
half-year.
STATEMENT OF ADDITIONAL INFORMATION (SAI) Provides a fuller technical and legal
description of the fund's policies, investment restrictions, and business
structure. This prospectus incorporates the SAI by reference.
Copies of the current versions of these documents may be obtained by contacting:
J.P. Morgan Institutional Service Prime Money Market 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 from the
Public Reference Room of the Securities and Exchange Commission in Washington,
D.C. (1-800-SEC-0330) and may be viewed on-screen or downloaded from the SEC's
Internet site at http://www.sec.gov. The fund's investment company and 1933 Act
registration numbers are 811-07342 and 033-54642.
J.P. MORGAN INSTITUTIONAL FUNDS AND THE MORGAN TRADITION
The J.P. Morgan Institutional Funds combine a heritage of integrity and
financial leadership with comprehensive, sophisticated analysis and management
techniques. Drawing on J.P. Morgan's extensive experience and depth as an
investment manager, the J.P. Morgan Institutional Funds offer a broad array of
distinctive opportunities for mutual fund investors.
[LOGO]JPMorgan
================================================================================
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
PROS366-982
<PAGE>
================================================================================
|
FEBRUARY 2, 1998 | PROSPECTUS
|
================================================================================
J.P. MORGAN INSTITUTIONAL SERVICE
TREASURY MONEY MARKET FUND
==========================================
Seeking to preserve capital and to provide
income and same-day liquidity
This prospectus contains essential information for anyone investing in this
fund. Please read it carefully and keep it for reference.
Shares in this fund are not bank deposits and are not guaranteed or insured by
any bank, government entity, or the FDIC. The fund seeks to maintain a stable $1
share price, without guaranteeing that it will always be able to do so.
As with all mutual funds, the fact that these shares are registered with the
Securities and Exchange Commission does not mean that the commission approves
them as an investment or guarantees that the information in this prospectus is
correct or adequate. It is a criminal offense to state or suggest otherwise.
[LOGO]JPMorgan
Distributed by Funds Distributor, Inc.
<PAGE>
<TABLE>
<CAPTION>
CONTENTS
=====================================================================================================================
<S> <C> <C>
2 | MONEY MARKET MANAGEMENT APPROACH
Money market investment process .................................. 2
4 | J.P. MORGAN INSTITUTIONAL SERVICE TREASURY MONEY MARKET FUND
The fund's goal, investment approach, Fund description ................................................. 4
risks, expenses, performance, and
financial highlights Investor expenses ................................................ 4
Performance ...................................................... 5
Financial highlights ............................................. 5
6 | YOUR INVESTMENT
Investing through a service organization ......................... 6
Investing in the J.P. Morgan
Institutional Service Investing through an employer-sponsored retirement plan .......... 6
Treasury Money Market Fund
Investing through an IRA or rollover IRA ......................... 6
Investing directly ............................................... 6
Opening your account ............................................. 6
Adding to your account ........................................... 6
Selling shares ................................................... 7
Account and transaction policies ................................. 7
Dividends and distributions ...................................... 8
Tax considerations ............................................... 8
9 | FUND DETAILS
Master/feeder structure .......................................... 9
More about the fund's
business operations Management and administration .................................... 9
FOR MORE INFORMATION .......................................back cover
</TABLE>
<PAGE>
INTRODUCTION
================================================================================
J.P. MORGAN INSTITUTIONAL SERVICE TREASURY MONEY MARKET FUND
This fund invests in high-quality short-term debt securities by investing
through a master portfolio (another fund with the same goal). The fund accrues
dividends daily, pays them to shareholders monthly, and seeks to maintain a
stable $1 share price.
WHO MAY WANT TO INVEST
The fund is designed for investors who:
o want an investment that strives to preserve capital
o want regular income from a high quality portfolio
o want a highly liquid investment
o are looking for an interim investment
o are pursuing a short-term goal
The fund is NOT designed for investors who:
o are investing for long-term growth
o are investing for high income
o require the added security of the FDIC insurance
J.P. MORGAN
Known for its commitment to proprietary research and its disciplined investment
strategies, J.P. Morgan is the asset 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 approximately $250 billion in assets under management,
including assets managed by the fund's advisor, Morgan Guaranty Trust Company of
New York.
========================================
Before you invest
Investors considering the
fund should understand that:
o There is no assurance that the fund
will meet its investment goals
o Future returns will not necessarily
resemble past performance
o The fund does not represent a
complete investment program
- ----------------------------------------
|
| 1
|
<PAGE>
MONEY MARKET MANAGEMENT APPROACH
================================================================================
The J.P. Morgan Institutional Service Treasury Money Market Fund invests
exclusively in high-quality short-term debt obligations.
The fund's investment philosophy, developed by its advisor, emphasizes
investment quality through in-depth research of short-term securities and their
issuers. This allows the fund to focus on providing current income without
compromising share price stability.
MONEY MARKET INVESTMENT PROCESS
In managing the fund, J.P. Morgan employs a three-step process:
[GRAPHIC] MATURITY DETERMINATION Based on analysis of a
range of factors, including current yields,
J.P. Morgan uses a disciplined economic forecasts, and anticipated fiscal
process to control the fund's and monetary policies, J.P. Morgan
sensitivity to interest rates establishes the desired weighted average
maturity for the fund within the permissible
90-day range. Controlling weighted average
maturity allows the fund to manage risk since
securities with shorter maturities are
typically less sensitive to interest rate
shifts than those with longer maturities.
[GRAPHIC] SECTOR ALLOCATION Analysis of the yields
available from U.S. Treasury obligations and
The fund invests in U.S Treasury repurchase agreements, allows J.P. Morgan to
obligations and repurchase adjust the fund's sector allocation, with the
agreements to take advantage of goal of enhancing current income while
yield spreads maintaining high liquidity.
[GRAPHIC] SECURITY SELECTION Based on the results of
the fund's maturity determination and sector
The fund selects its securities allocation, the portfolio managers and
as described later in this dedicated fixed-income traders make buy and
prospectus sell decisions according to the fund's goal
and strategy.
|
2 | MONEY MARKET MANAGEMENT APPROACH
|
<PAGE>
================================================================================
(THIS PAGE IS INTENTIONALLY LEFT BLANK)
|
| 3
|
<PAGE>
J.P. MORGAN INSTITUTIONAL SERVICE
TREASURY MONEY MARKET FUND | TICKER SYMBOL: JPMXX
================================================================================
REGISTRANT: J.P. MORGAN INSTITUTIONAL FUNDS
(J.P. MORGAN INSTITUTIONAL SERVICE TREASURY MONEY MARKET FUND)
[GRAPHIC] GOAL
The fund's goal is to provide current income, maintain high liquidity, and
preserve capital.
[GRAPHIC] INVESTMENT APPROACH
The fund purchases securities that offer the highest credit quality and
provide regular income. It invests exclusively in U.S. Treasury obligations and
repurchase agreements collateralized by these obligations. Some of these
investments may be purchased on a when-issued or delayed delivery basis.
[GRAPHIC] POTENTIAL RISKS AND REWARDS
The fund's yield will vary in response to changes in interest rates. How
well the fund's yield compares to the yields of similar money market funds will
depend on the success of the investment process described on page 2.
While the fund's U.S. Treasury obligations are backed by the full faith and
credit of the federal government, investors should bear in mind that any
repurchase agreements the fund may hold do not have this guarantee (even though
they are fully collateralized by Treasuries), and that in any case, government
guarantees do not extend to shares of the fund itself.
The portion of the fund's income derived from direct investments in U.S.
Treasury obligations may be exempt from state and local personal income taxes.
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages
approximately $250 billion, including more than $13 billion using the same
strategy as the fund.
The portfolio management team is led by Robert R. Johnson, vice president,
who has been on the team since the fund's inception and has been at J.P. Morgan
since 1988, Daniel B. Mulvey, vice president, who joined the team in January of
1995 and has been at J.P. Morgan since 1991, and by John Donohue, vice
president, who has been on the team since joining J.P. Morgan in June of 1997.
Prior to managing this fund, Mr. Donohue was an Institutional Money Market
Portfolio Manager at Goldman Sachs & Co.
MONEY MARKET FUNDS AND STABILITY
Money market funds are subject to a range of federal regulations designed
to promote stability. For example, money market funds must maintain a weighted
average maturity of no more than 90 days, and generally may not invest in any
securities with a remaining maturity of more than 13 months. Keeping the
weighted average maturity this short helps funds in their pursuit of a stable $1
share price.
================================================================================
INVESTOR EXPENSES
The current expenses you should expect to pay as an investor in the fund are
shown at right. The fund has no sales, redemption, exchange, or account fees,
although some institutions may charge you a fee for shares you buy through them.
The annual fund expenses shown are deducted from fund assets prior to
performance calculations.
Footnotes for this section are shown on next page.
<TABLE>
<CAPTION>
================================================================================
Annual fund operating expenses(1) (%)
================================================================================
<S> <C>
Management fees(2)
(after expense reimbursement) 0.10
Marketing (12b-1) fees None
Other expenses(2)
(after reimbursement) None
Service fees(3) 0.25
================================================================================
Total operating expenses(2)
(after reimbursement) 0.35
- --------------------------------------------------------------------------------
</TABLE>
================================================================================
Expense example
================================================================================
The example below uses the same assumptions as other fund prospectuses: $1,000
initial investment, 5% annual total return, expenses unchanged, all shares sold
at the end of each time period. The example is for comparison only; the fund's
actual return and expenses will be different.
<TABLE>
- --------------------------------------------------------------------------------
1 yr. 3 yrs.
<S> <C> <C>
Your cost($) 4 11
- --------------------------------------------------------------------------------
</TABLE>
|
4 | J.P. MORGAN INSTITUTIONAL SERVICE TREASURY MONEY MARKET FUND
|
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
PERFORMANCE (unaudited)
=================================
Average annual total return (%) Shows performance over time, for period ended December 31, 1997
=================================---------------------------------------------------------------------------------------------------
Since inception(4)
<S> <C>
J.P. Morgan Institutional Service Treasury Money Market Fund (after expenses) 2.24
- ------------------------------------------------------------------------------------------------------------------------------------
IBC's U.S. Treasury & Repo Money Fund Average 2.00
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
=================================
Year-by-year total return (%) Shows changes in returns by calendar year
=================================---------------------------------------------------------------------------------------------------
Since inception
<S> <C>
J.P. Morgan Institutional Service Treasury Money Market Fund 2.24
IBC's U.S. Treasury & Repo Money Fund Average 2.00
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
====================================================================================================================================
FINANCIAL HIGHLIGHTS
=================================
Per-share data For fiscal period ended October 31
=================================---------------------------------------------------------------------------------------------------
1997
<S> <C>
Net asset value, beginning of period ($) 1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.0169
Net realized gain on investment ($) 0.0000(5)
====================================================================================================================================
Total from investment operations ($) 0.0169
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) 0.0169
Net realized gain ($) 0.0000(5)
====================================================================================================================================
Total distributions ($) 0.0169
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period ($) 1.00
Total return (%) 1.71(6)
- ------------------------------------------------------------------------------------------------------------------------------------
=================================
Ratios and supplemental data
=================================---------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 35,983
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Expenses (%) 0.28(7)
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (%) 5.29(7)
- ------------------------------------------------------------------------------------------------------------------------------------
Decrease reflected in expense ratio due
to expense reimbursement (%) 1.43(7)
- ------------------------------------------------------------------------------------------------------------------------------------
The Financial Highlights above have been audited by Price Waterhouse LLP, the fund's independent accountants.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1 The fund has a master/feeder structure as described on page 9. This table
shows the fund's estimated expenses and its estimated share of master
portfolio expenses for the current fiscal year, expressed as a percentage
of the fund's estimated average net assets after reimbursement for ordinary
expenses over 0.35%.
2 The total operating expenses for the fund is a blended ratio which is based
on reimbursements in effect through 2/28/99, and may not necessarily
represent the actual amount incurred by a shareholder. Without
reimbursement, the advisory fee, other expenses and total operating
expenses would have been 0.20%, 1.51% and 1.71%, respectively. There is no
guarantee that reimbursement will continue beyond 2/28/99.
3 Service Organizations may charge other fees to their customers who are the
beneficial owners of shares in connection with their customers' accounts.
Such fees, if any, may affect the return such customers realize with
respect to their investments.
4 The fund commenced operations on 7/7/97 and performance is calculated as of
7/31/97. This data is based on historical earnings and is not intended to
indicate future performance.
5. Less than $0.0001.
6. Not annualized.
7. Annualized.
|
J.P. MORGAN INSTITUTIONAL SERVICE TREASURY MONEY MARKET FUND | 5
|
<PAGE>
YOUR INVESTMENT
================================================================================
For your convenience, the J.P. Morgan Institutional Funds offer several ways to
start and add to fund investments.
INVESTING THROUGH A SERVICE ORGANIZATION
Prospective investors may purchase shares of the fund with the assistance of a
service organization. Your service organization is paid by the fund to assist
you in establishing your fund account, executing transactions, and monitoring
your investment. If your fund investment is not held in the name of your service
organization and you prefer to place a transaction order yourself, please use
the instructions for investing directly.
INVESTING THROUGH AN EMPLOYER-SPONSORED RETIREMENT PLAN
Your fund investments are handled through your plan. Refer to your plan
materials or contact your benefits office for information on buying, selling, or
exchanging fund shares.
INVESTING THROUGH AN IRA OR ROLLOVER IRA
Please contact a J.P. Morgan Retirement Services Specialist at 1-888-576-4472
for information on J.P. Morgan's comprehensive IRA services, including lower
minimum investments.
INVESTING DIRECTLY
Investors may establish accounts without the help of an intermediary by using
the instructions below and at right:
o Determine the amount you are investing. The minimum amount for initial
investments in the fund is $10,000,000 and for additional investments
$25,000, although these minimums may be less for some investors. A service
organization may impose a minimum amount for initial and subsequent
investments in the fund and may establish other requirements such as a
minimum account balance. Customers should contact their service
organization for further information concerning such requirements and
charges. For more information on minimum investments, call 1-800-766-7722.
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 below.
For answers to any questions, please speak with a J.P. Morgan Funds Services
Representative at 1-800-766-7722.
OPENING YOUR ACCOUNT
By wire
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.
|
6 | YOUR INVESTMENT
|
<PAGE>
================================================================================
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.
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 DAYS AND NAV CALCULATIONS The fund's regular business days are the same
as those of the New York Stock Exchange. The fund calculates its net asset value
per share (NAV) every business day at 4:00 p.m. eastern time.
TIMING OF ORDERS Orders to buy or sell shares are executed at the next NAV
calculated after the order has been accepted. Purchase and redemption orders for
the fund must be received by 4:00 p.m. eastern time.
For the purchase to be effective and dividends to be earned on the same day,
immediately available funds must be received by 4:00 p.m. eastern time on a fund
business day. The fund has the right to suspend redemption of shares and to
postpone payment of proceeds for up to seven days or as permitted by law.
================================================================================
Shareholder Services Agent
J.P. Morgan Funds Services
522 Fifth Avenue
New York, NY 10036
1-800-766-7722
Representatives are available 8:00 a.m. to 5:00 p.m. eastern
time on fund business days.
|
YOUR INVESTMENT | 7
|
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
TIMING OF SETTLEMENTS When you buy shares, you will become the owner of record
when the fund receives your payment.
Redemption orders for the fund received by 4:00 p.m. eastern time will be paid
in immediately available funds normally on the same day, according to
instructions on file.
When you sell shares that you recently purchased by check, your order will be
executed at the next NAV but the proceeds will not be available until your check
clears. This may take up to 15 days.
STATEMENTS AND REPORTS The fund sends monthly account statements as well as
confirmations after each purchase or sale of shares (except reinvestments).
Every six months, the fund sends out an annual or semi-annual report containing
information on 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
Substantially all income dividends are declared daily and paid monthly. If all
of an investor's shares are redeemed during the month, accrued but unpaid
dividends are paid with the redemption proceeds. Shares of the fund earn
dividends on the business day their purchase is effective, but not on the
business day their redemption is effective.
Dividends and distributions are 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. The transactions
below typically create the following tax liabilities:
<TABLE>
<CAPTION>
================================================================================
<S> <C>
Transaction Tax status
- --------------------------------------------------------------------------------
Income dividends Ordinary income
- --------------------------------------------------------------------------------
Short-term capital gains Ordinary income
distributions
- --------------------------------------------------------------------------------
</TABLE>
Every January, the fund issues tax information on its distributions for the
previous year.
Any investor for whom the fund does not have a valid taxpayer identification
number will be subject to backup withholding for taxes.
The tax considerations described in this section do not apply to tax-deferred
accounts or other non-taxable entities.
Because each investor's tax circumstances are unique, please consult your tax
professional about your fund investment.
|
8 | YOUR INVESTMENT
|
<PAGE>
FUND DETAILS
================================================================================
MASTER/FEEDER STRUCTURE
As noted earlier, the fund is a "feeder" fund that invests in a master
portfolio. (Except where indicated, this prospectus uses the term "the fund" to
mean the feeder fund and its master portfolio taken together.)
The master portfolio accepts investments from other feeder funds, and 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, provides fund officers. J.P. Morgan, as
co-administrator, oversees the fund's other service providers.
J.P. Morgan receives the following fees for investment advisory and other
services:
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
Advisory services 0.20% of the first $1 billion of the master
portfolio's average net assets plus 0.10% over
$1 billion
- --------------------------------------------------------------------------------
Administrative services Master portfolio's and fund's pro-rata portions
(fee shared with Funds of 0.09% of the first $7 billion in J.P. Morgan-
Distributor, Inc.) advised portfolios, plus 0.04% over $7 billion
- --------------------------------------------------------------------------------
Shareholder services 0.05% of the fund's average net assets
- --------------------------------------------------------------------------------
</TABLE>
The fund has a service plan which allows it to pay service organizations up to
0.25% of the average net assets of the shares held in the name of the service
organization (0.20% where J.P. Morgan acts as a service organization).
The Advisor has voluntarily agreed to reimburse the fund so that total operating
expenses will not exceed the following respective percentages of average net
assets of the fund for the periods indicated below:
<TABLE>
<S> <C>
12/1/97 - 5/31/98 0.35%
6/1/98 - 11/30/98 0.40%
12/1/98 - 2/28/99 0.45%
</TABLE>
J.P. Morgan may pay fees to certain firms and professionals for providing
recordkeeping or other services in connection with investments in the fund.
|
FUND DETAILS | 9
|
<PAGE>
- --------------------------------------------------------------------------------
FOR MORE INFORMATION
================================================================================
For investors who want more information on the fund, the following documents are
available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS Contain financial statements, performance data,
information on portfolio holdings, and a written analysis of market conditions
and fund performance for the fund's most recently completed fiscal year or
half-year.
STATEMENT OF ADDITIONAL INFORMATION (SAI) Provides a fuller technical and legal
description of the fund's policies, investment restrictions, and business
structure. This prospectus incorporates the SAI by reference.
Copies of the current versions of these documents may be obtained by contacting:
J.P. Morgan Institutional Service Treasury Money Market 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 from the
Public Reference Room of the Securities and Exchange Commission in Washington,
D.C. (1-800-SEC-0330) and may be viewed on-screen or downloaded from the SEC's
Internet site at http://www.sec.gov. The fund's investment company and 1933 Act
registration numbers are 811-07342 and 033-54642.
J.P. MORGAN INSTITUTIONAL FUNDS AND THE MORGAN TRADITION
The J.P. Morgan Institutional Funds combine a heritage of integrity and
financial leadership with comprehensive, sophisticated analysis and management
techniques. Drawing on J.P. Morgan's extensive experience and depth as an
investment manager, the J.P. Morgan Institutional Funds offer a broad array of
distinctive opportunities for mutual fund investors.
[LOGO] JPMorgan
===============================================================================
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
PROS369-982
<PAGE>
================================================================================
|
FEBRUARY 2, 1998 | PROSPECTUS
|
================================================================================
J.P. MORGAN INSTITUTIONAL SERVICE
FEDERAL MONEY MARKET FUND
==========================================
Seeking to preserve capital and to provide
income and same-day liquidity
This prospectus contains essential information for anyone investing in this
fund. Please read it carefully and keep it for reference.
Shares in this fund are not bank deposits and are not guaranteed or insured by
any bank, government entity, or the FDIC. The fund seeks to maintain a stable $1
share price, without guaranteeing that it will always be able to do so.
As with all mutual funds, the fact that these shares are registered with the
Securities and Exchange Commission does not mean that the commission approves
them as an investment or guarantees that the information in this prospectus is
correct or adequate. It is a criminal offense to state or suggest otherwise.
[LOGO]JPMorgan
Distributed by Funds Distributor, Inc.
<PAGE>
<TABLE>
<CAPTION>
CONTENTS
=====================================================================================================================
<S> <C>
2 | MONEY MARKET MANAGEMENT APPROACH
Money market investment process .................................. 2
4 | J.P. MORGAN INSTITUTIONAL SERVICE FEDERAL MONEY MARKET FUND
The fund's goal, investment approach, Fund description ................................................. 4
risks, expenses, and
performance Investor expenses ................................................ 4
Performance ...................................................... 5
6 | YOUR INVESTMENT
Investing through a service organization ......................... 6
Investing in the J.P. Morgan
Institutional Service Investing through an employer-sponsored retirement plan .......... 6
Federal Money Market Fund
Investing through an IRA or rollover IRA ......................... 6
Investing directly ............................................... 6
Opening your account ............................................. 6
Adding to your account ........................................... 6
Selling shares ................................................... 7
Account and transaction policies ................................. 7
Dividends and distributions ...................................... 8
Tax considerations ............................................... 8
9 | FUND DETAILS
Master/feeder structure .......................................... 9
More about the fund's
business operations Management and administration .................................... 9
FOR MORE INFORMATION ...................................... back cover
</TABLE>
<PAGE>
INTRODUCTION
================================================================================
J.P. MORGAN INSTITUTIONAL SERVICE FEDERAL MONEY MARKET FUND
This fund invests in high-quality short-term debt securities by investing
through a master portfolio (another fund with the same goal). The fund accrues
dividends daily, pays them to shareholders monthly, and seeks to maintain a
stable $1 share price.
WHO MAY WANT TO INVEST
The fund is designed for investors who:
o want an investment that strives to preserve capital
o want regular income from a high quality portfolio
o want a highly liquid investment
o are looking for an interim investment
o are pursuing a short-term goal
o are seeking income that is generally exempt from state and local income
taxes
The fund is NOT designed for investors who:
o are investing for long-term growth
o are investing for high income
o require the added security of the FDIC insurance
J.P. MORGAN
Known for its commitment to proprietary research and its disciplined investment
strategies, J.P. Morgan is the asset 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 approximately $250 billion in assets under management,
including assets managed by the fund's advisor, Morgan Guaranty Trust Company of
New York.
========================================
Before you invest
Investors considering the fund should
understand that:
o There is no assurance that the fund
will meet its investment goals
o Future returns will not necessarily
resemble past performance
o The fund does not represent a
complete investment program
- ----------------------------------------
|
| 1
|
<PAGE>
MONEY MARKET MANAGEMENT APPROACH
================================================================================
The J.P. Morgan Institutional Service Federal
Money Market Fund invests exclusively in
high-quality short-term debt obligations.
The fund's investment philosophy, developed by
its advisor, emphasizes investment quality
through in-depth research of short-term
securities and their issuers. This allows the
fund to focus on providing current income
without compromising share price stability.
MONEY MARKET INVESTMENT PROCESS
In managing the fund, J.P. Morgan employs a
three-step process:
[GRAPHIC] MATURITY DETERMINATION Based on analysis of a
range of factors, including current yields,
J.P. Morgan uses a disciplined economic forecasts, and anticipated fiscal and
process to control the fund's monetary policies, J.P. Morgan establishes the
sensitivity to interest rates desired weighted average maturity for the fund
within the permissible 90-day range.
Controlling weighted average maturity allows
the fund to manage risk since securities with
shorter maturities are typically less
sensitive to interest rate shifts than those
with longer maturities.
[GRAPHIC] SECTOR ALLOCATION Analysis of the yields
available from various U.S government agency
The fund invests in various securities and obligations of the U.S.
U.S. government agencies and Treasury, allows J.P. Morgan to adjust the
obligations of the U.S. fund's sector allocation, with the goal of
Treasury to take advantage enhancing current income while maintaining
of yield spreads high liquidity.
[GRAPHIC] SECURITY SELECTION Based on the results of the
fund's maturity determination and sector
The fund selects its allocation, the portfolio managers and
securities as described later dedicated fixed-income traders make buy and
in this prospectus sell decisions according to the fund's goal
and strategy.
|
2 | MONEY MARKET MANAGEMENT APPROACH
|
<PAGE>
================================================================================
(THIS PAGE IS INTENTIONALLY LEFT BLANK)
|
| 3
|
<PAGE>
J.P. MORGAN INSTITUTIONAL SERVICE
FEDERAL MONEY MARKET FUND
================================================================================
REGISTRANT: J.P. MORGAN INSTITUTIONAL FUNDS
(J.P. MORGAN INSTITUTIONAL SERVICE FEDERAL MONEY MARKET FUND)
[GRAPHIC] GOAL
The fund's goal is to provide current income, maintain high liquidity, and
preserve capital.
[GRAPHIC] INVESTMENT APPROACH
The fund purchases securities that offer very high credit quality and pay
regular income that is generally free from state and local income taxes. It
invests exclusively in U.S. government agency obligations such as the Federal
Farm Credit Bank, the Tennessee Valley Authority, the Federal Home Loan Bank,
the Student Loan Marketing Association, and in obligations of the U.S. Treasury.
Some of these investments may be purchased on a when-issued or delayed delivery
basis.
[GRAPHIC] POTENTIAL RISKS AND REWARDS
The fund's yield will vary in response to changes in interest rates. How
well the fund's yield compares to the yields of similar money market funds will
depend on the success of the investment process described on page 2.
While the fund's U.S. Treasury obligations are backed by the full faith and
credit of the Government, investors should bear in mind that any agency
obligations the fund may hold do not have this guarantee, and that in any case
government guarantees do not extend to shares of the fund itself.
Most of the fund's income is generally exempt from state and local personal
income taxes and from some corporate income taxes (although not federal income
taxes). Because of this beneficial tax status, the fund's yields are generally
lower than those of taxable money market funds when compared on a pre-tax basis.
As with all money market funds, the fund's investments are subject to various
risks, which, while generally considered to be minimal, could cause its share
price to fall below $1. For example, the issuer or guarantor of a portfolio
security could default on its obligation. An unexpected rise in interest rates
could also lead to a loss in share price if the fund is near the maximum
allowable average weighted maturity at the time. However, the fund's investment
process and management policies are designed to minimize the likelihood and
impact of these risks. To date, through this process, the fund's share price has
never deviated from $1.
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages
approximately $250 billion, including more than $13 billion using the same
strategy as the fund.
The portfolio management team is led by Robert R. Johnson, vice president,
who has been on the team since the fund's inception and has been at J.P. Morgan
since 1988, Daniel B. Mulvey, vice president, who joined the team in January of
1995 and has been at J.P. Morgan since 1991, and by John Donohue, vice
president, who has been on the team since joining J.P. Morgan in June of 1997.
Prior to managing this fund, Mr. Donohue was an Institutional Money Market
Portfolio Manager at Goldman Sachs & Co.
MONEY MARKET FUNDS AND STABILITY
Money market funds are subject to a range of federal regulations designed
to promote stability. For example, money market funds must maintain a weighted
average maturity of no more than 90 days, and generally may not invest in any
securities with a remaining maturity of more than 13 months. Keeping the
weighted average maturity this short helps funds in their pursuit of a stable $1
share price.
================================================================================
INVESTOR EXPENSES
The current expenses you should expect to pay as an investor in the fund are
shown at right. The fund has no sales, redemption, exchange, or account fees,
although some institutions may charge you a fee for shares you buy through them.
The annual fund expenses shown are deducted from fund assets prior to
performance calculations.
Footnotes for this section are shown on next page.
================================================================================
Annual fund operating expenses(1) (%)
================================================================================
<TABLE>
<S> <C>
Management fees 0.20
Marketing (12b-1) fees None
Other expenses(2)
(after reimbursement) None
Service fees(3) 0.25
================================================================================
Total operating expenses(2)
(after reimbursement) 0.45
- --------------------------------------------------------------------------------
</TABLE>
================================================================================
Expense example
================================================================================
The example below uses the same assumptions as other fund prospectuses: $1,000
initial investment, 5% annual total return, expenses unchanged, all shares sold
at the end of each time period. The example is for comparison only; the fund's
actual return and expenses will be different.
<TABLE>
- --------------------------------------------------------------------------------
<CAPTION>
1 yr. 3 yrs.
<S> <C> <C>
Your cost($) 5 14
- --------------------------------------------------------------------------------
</TABLE>
|
4 | J.P. MORGAN INSTITUTIONAL SERVICE FEDERAL MONEY MARKET FUND
|
<PAGE>
<TABLE>
====================================================================================================================================
<CAPTION>
PERFORMANCE (unaudited)
==================================
Average annual total return (%) Shows performance over time, for periods ended December 31, 1997
==================================--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 yr. 3 yrs. Since inception
J.P. Morgan Institutional Service Federal Money Market Fund(4) 5.18 5.25 4.45
- ------------------------------------------------------------------------------------------------------------------------------------
IBC's U.S. Government & Agency Money Market Fund Average(5) (after expenses) 4.83 4.89 4.18
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[THE FOLLOWING TABLE WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]
<TABLE>
<CAPTION>
==================================
Year-by-year total return (%) Shows changes in returns by calendar year
==================================-----------------------------------------------------------------------------------------------
1994 1995 1996 1997
<S> <C> <C> <C> <C>
J.P. Morgan Institutional Service Federal Money Market Fund(4) 3.78 5.59 4.99 5.18
IBC's U.S. Government & Agency Money Market Fund Average(5) 3.52 5.19 4.67 4.83
</TABLE>
1 The fund has a master/feeder structure as described on page 9. This table
shows the fund's estimated expenses and its estimated share of master
portfolio expenses for the current fiscal year, expressed as a percentage
of the fund's estimated average net assets after reimbursement for ordinary
expenses over 0.45%.
2 Without reimbursement, other expenses and total operating expenses are
estimated to have been 0.26% and 0.71%, respectively. There is no guarantee
that reimbursement will continue beyond 2/28/99.
3 Service Organizations may charge other fees to their customers who are the
beneficial owners of shares in connection with their customers' accounts.
Such fees, if any, may affect the return such customers realize with
respect to their investments.
4 The fund commenced operations on 11/6/97. Returns reflect performance of
the J.P. Morgan Federal Money Market Fund (a separate feeder fund investing
in the same master portfolio) from 1/31/93 through 11/6/97. This data is
based on historical earnings and is not intended to indicate future
performance.
5 Consists of the IBC/Donoghue U.S. Treasury & Repo Money Market Fund Average
through 12/31/95 and IBC's U.S. Government & Agency Money Market Fund
Average thereafter.
|
J.P. MORGAN INSTITUTIONAL SERVICE FEDERAL MONEY MARKET FUND | 5
|
<PAGE>
YOUR INVESTMENT
================================================================================
For your convenience, the J.P. Morgan Institutional Funds offer several ways to
start and add to fund investments.
INVESTING THROUGH A SERVICE ORGANIZATION
Prospective investors may purchase shares of the fund with the assistance of a
service organization. Your service organization is paid by the fund to assist
you in establishing your fund account, executing transactions, and monitoring
your investment. If your fund investment is not held in the name of your service
organization and you prefer to place a transaction order yourself, please use
the instructions for investing directly.
INVESTING THROUGH AN EMPLOYER-SPONSORED
RETIREMENT PLAN
Your fund investments are handled through your plan. Refer to your plan
materials or contact your benefits office for information on buying, selling, or
exchanging fund shares.
INVESTING THROUGH AN IRA OR ROLLOVER IRA
Please contact a J.P. Morgan Retirement Services Specialist at 1-888-576-4472
for information on J.P. Morgan's comprehensive IRA services, including lower
minimum investments.
INVESTING DIRECTLY
Investors may establish accounts without the help of an intermediary by using
the instructions below and at right:
o Determine the amount you are investing. The minimum amount for initial
investments in the fund is $10,000,000 and for additional investments
$25,000, although these minimums may be less for some investors. A service
organization may impose a minimum amount for initial and subsequent
investments in the fund and may establish other requirements such as a
minimum account balance. Customers should contact their service
organization for further information concerning such requirements and
charges. For more information on minimum investments, call 1-800-766-7722.
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 below.
For answers to any questions, please speak with a J.P. Morgan Funds Services
Representative at 1-800-766-7722.
OPENING YOUR ACCOUNT
By wire
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
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6 | YOUR INVESTMENT
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<PAGE>
================================================================================
Shareholder Services Agent. If you do not have an investment slip, attach a
note indicating your account number and how much you wish to invest in
which fund(s).
By exchange
o Call the Shareholder Services Agent to effect an exchange.
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 DAYS AND NAV CALCULATIONS The fund's regular business days are the same
as those of the New York Stock Exchange. The fund calculates its net asset value
per share (NAV) every business day at 4:00 p.m. eastern time.
TIMING OF ORDERS Orders to buy or sell shares are executed at the next NAV
calculated after the order has been accepted. Purchase and redemption orders for
the fund must be received by 2:00 p.m. eastern time.
For the purchase to be effective and dividends to be earned on the same day,
immediately available funds must be received by 4:00 p.m. eastern time on a fund
business day. The fund has the right to suspend redemption of shares and to
postpone payment of proceeds for up to seven days or as permitted by law.
================================================================================
Shareholder Services Agent
J.P. Morgan Funds Services
522 Fifth Avenue
New York, NY 10036
1-800-766-7722
Representatives are available 8:00 a.m. to 5:00 p.m. eastern
time on fund business days.
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YOUR INVESTMENT | 7
|
<PAGE>
================================================================================
TIMING OF SETTLEMENTS When you buy shares, you will become the owner of record
when the fund receives your payment.
Redemption orders for the fund received by 2:00 p.m. eastern time will be paid
in immediately available funds normally on the same day, according to
instructions on file.
When you sell shares that you recently purchased by check, your order will be
executed at the next NAV but the proceeds will not be available until your check
clears. This may take up to 15 days.
STATEMENTS AND REPORTS The fund sends monthly account statements as well as
confirmations after each purchase or sale of shares (except reinvestments).
Every six months, the fund sends out an annual or semi-annual report containing
information on 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
Substantially all income dividends are declared daily and paid monthly. If all
of an investor's shares are redeemed during the month, accrued but unpaid
dividends are paid with the redemption proceeds. Shares of the fund earn
dividends on the business day their purchase is effective, but not on the
business day their redemption is effective.
Dividends and distributions are 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. The transactions
below typically create the following tax liabilities:
<TABLE>
================================================================================
<S> <C>
Transaction Tax status
- --------------------------------------------------------------------------------
Income dividends Ordinary income
- --------------------------------------------------------------------------------
Short-term capital gains Ordinary income
distributions
- --------------------------------------------------------------------------------
</TABLE>
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.
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8 | YOUR INVESTMENT
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<PAGE>
FUND DETAILS
================================================================================
MASTER/FEEDER STRUCTURE
As noted earlier, the fund is a "feeder" fund that invests in a master
portfolio. (Except where indicated, this prospectus uses the term "the fund" to
mean the feeder fund and its master portfolio taken together.)
The master portfolio accepts investments from other feeder funds, and the
feeders bear the master portfolio's expenses in proportion to their assets.
However, each feeder can set its own transaction minimums, fund-specific
expenses, and other conditions. This means that one feeder could offer access to
the same master portfolio on more attractive terms, or could experience better
performance, than another feeder. Information about other feeders is available
by calling 1-800-766-7722. Generally, when the master portfolio seeks a vote,
the fund will hold a shareholder meeting and cast its vote
proportionately, as instructed by its shareholders. Fund shareholders are
entitled to one 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, provides fund officers. J.P. Morgan, as
co-administrator, oversees the fund's other service providers.
J.P. Morgan receives the following fees for investment
advisory and other services:
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
Advisory services 0.20% of the first $1 billion of
the master portfolio's average net assets
plus 0.10% over $1 billion
- --------------------------------------------------------------------------------
Administrative services Master portfolio's and fund's pro-
(fee shared with Funds rata portions of 0.09% of the
Distributor, Inc.) first $7 billion in J.P. Morgan-
advised portfolios, plus 0.04%
over $7 billion
- --------------------------------------------------------------------------------
Shareholder services 0.05% of the fund's average
net assets
- --------------------------------------------------------------------------------
</TABLE>
The fund has a service plan which allows it to pay service organizations up to
0.25% of the average net assets of the shares held in the name of the service
organization (0.20% where J.P. Morgan acts as a service organization).
The Advisor has voluntarily agreed to reimburse the fund so that total operating
expenses will not exceed 0.45% of average net assets of the fund. There is no
guarantee that this arrangement will continue beyond 2/28/99.
J.P. Morgan may pay fees to certain firms and professionals for providing
recordkeeping or other services in connection with investments in the fund.
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FUND DETAILS | 9
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<PAGE>
- --------------------------------------------------------------------------------
FOR MORE INFORMATION
================================================================================
For investors who want more information on the fund, the following documents are
available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS Contain financial statements, performance data,
information on portfolio holdings, and a written analysis of market conditions
and fund performance for the fund's most recently completed fiscal year or
half-year.
STATEMENT OF ADDITIONAL INFORMATION (SAI) Provides a fuller technical and legal
description of the fund's policies, investment restrictions, and business
structure. This prospectus incorporates the SAI by reference.
Copies of the current versions of these documents may be obtained by contacting:
J.P. Morgan Institutional Service Federal Money Market 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 from the
Public Reference Room of the Securities and Exchange Commission in Washington,
D.C. (1-800-SEC-0330) and may be viewed on-screen or downloaded from the SEC's
Internet site at http://www.sec.gov. The fund's investment company and 1933 Act
registration numbers are 811-07342 and 033-54642.
J.P. MORGAN INSTITUTIONAL FUNDS AND THE MORGAN TRADITION
The J.P. Morgan Institutional Funds combine a heritage of integrity and
financial leadership with comprehensive, sophisticated analysis and management
techniques. Drawing on J.P. Morgan's extensive experience and depth as an
investment manager, the J.P. Morgan Institutional Funds offer a broad array of
distinctive opportunities for mutual fund investors.
[LOGO]JPMorgan
================================================================================
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
PROS367-982
<PAGE>
J.P. MORGAN INSTITUTIONAL FUNDS
J.P. MORGAN INSTITUTIONAL SERVICE PRIME MONEY MARKET FUND
J.P. MORGAN INSTITUTIONAL SERVICE TREASURY MONEY MARKET FUND
J.P. MORGAN INSTITUTIONAL SERVICE FEDERAL MONEY MARKET FUND
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 2, 1998
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT CONTAINS
ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS
DATED FEBRUARY 2, 1998 FOR THE FUND OR FUNDS LISTED ABOVE, AS SUPPLEMENTED FROM
TIME TO TIME, WHICH MAY BE OBTAINED UPON REQUEST FROM FUNDS DISTRIBUTOR, INC.,
ATTENTION: J.P. MORGAN INSTITUTIONAL SERVICE FUNDS (800) 221-7930.
<PAGE>
Table of Contents
Page
General...............................................................1
Investment Objectives and Policies.........................................1
Investment Restrictions...................................................10
Trustees and Officers.....................................................16
Investment Advisor.........................................................20
Distributor.................................................................23
Co-Administrator.........................................................23
Services Agent............................................................25
Custodian and Transfer Agent..............................................26
Shareholder Servicing...................................................26
Service Organization.......................................................27
Independent Accountants..................................................28
Expenses..................................................................29
Purchase of Shares......................................................29
Redemption of Shares......................................................30
Exchange of Shares.......................................................31
Dividends and Distributions...............................................31
Net Asset Value...........................................................32
Performance Data........................................................32
Portfolio Transactions...................................................34
Massachusetts Trust........................................................36
Description of Shares.................................................37
Special Information Concerning
Investment Structure.......................................................38
Taxes....................................................................40
Additional Information...................................................44
Appendix A - Description of Security Ratings...............................A-1
<PAGE>
-38-
i:\dsfndlgl\institut\0298.pea\servsai.wpf
GENERAL
This Statement of Additional Information relates only to the J.P.
Morgan Institutional Service Prime Money Market Fund, the J.P. Morgan
Institutional Service Treasury Money Market Fund and the J.P. Morgan
Institutional Service Federal Money Market Fund (each, a "Fund" and
collectively, the "Funds"). Each Fund is a series of shares of beneficial
interest of the J.P. Morgan Institutional Funds, an open-end management
investment company formed as a Massachusetts business trust (the "Trust"). In
addition to the Funds, the Trust consists of other series representing separate
investment funds (each a "J.P. Morgan Institutional Fund"). The other J.P.
Morgan Institutional Funds are covered by separate Statements of Additional
Information.
This Statement of Additional Information describes the financial
history, investment objective and policies, management and operation of each of
the Funds and provides additional information with respect to the Funds and
should be read in conjunction with the relevant Fund's current Prospectus (the
"Prospectus"). Capitalized terms not otherwise defined herein have the meanings
accorded to them in the Prospectus. The Trust's executive offices are located at
60 State Street, Suite 1300, Boston, Massachusetts 02109.
Unlike other mutual funds which directly acquire and manage their own
portfolio of securities, each Fund seeks to achieve its investment objective by
investing all of its investable assets in a corresponding Master Portfolio (the
"Portfolio"), a corresponding open-end management investment company having the
same investment objective as the Fund. Each Fund invests in a Portfolio through
a two-tier master-feeder investment fund structure. See "Special Information
Concerning Investment Structure."
Each Portfolio is advised by Morgan Guaranty Trust Company of New York
("Morgan" or the "Advisor").
Investments in a Fund are not deposits or obligations of, or guaranteed
or endorsed by, Morgan or any other bank. Shares of a Fund are not federally
insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board,
or any other governmental agency. An investment in a Fund is subject to risk
that may cause the value of the investment to fluctuate, and when the investment
is redeemed, the value may be higher or lower than the amount originally
invested by the investor.
INVESTMENT OBJECTIVES AND POLICIES
The following discussion supplements the information regarding the
investment objective of each Fund and the policies to be employed to achieve the
objective by each Portfolio as set forth herein and in the applicable
Prospectus. Since the investment characteristics and experiences of each Fund
correspond directly with those of its corresponding Portfolio, the discussion in
this Statement of Additional Information focuses on the investments and
investment policies of each Portfolio. Accordingly, references below to a
Portfolio also include the corresponding Fund; similarly, references to a Fund
also include the corresponding Portfolio unless the context requires otherwise.
J.P. Morgan Institutional Service Prime Money Market Fund (the "Prime Money
Market Fund") is designed for investors who seek to preserve capital and earn
current income from a portfolio of high quality money market instruments. The
Prime Money Market Fund's investment objective is to maximize current income and
maintain a high level of liquidity. The Prime Money Market Fund attempts to
achieve this objective by investing all of its investable assets in The Prime
Money Market Portfolio (the "Portfolio"), a diversified open-end management
investment company having the same investment objective as the Prime Money
Market Fund.
The Portfolio seeks to achieve its investment objective by maintaining a
dollar-weighted average portfolio maturity of not more than 90 days and by
investing in U.S. dollar denominated securities described in this Statement of
Additional Information that meet certain rating criteria, present minimal credit
risk and have effective maturities of not more than thirteen months. The
Portfolio's ability to achieve maximum current income is affected by its high
quality standards. See "Quality and Diversification Requirements."
J.P. Morgan Institutional Service Treasury Money Market Fund (the "Treasury
Money Market Fund") is designed for investors who seek to preserve capital and
earn current income from a portfolio of high quality money market instruments.
The Treasury Money Market Fund's investment objective is to provide current
income, maintain a high level of liquidity and preserve capital. The Treasury
Money Market Fund attempts to accomplish this objective by investing all of its
investable assets in The Treasury Money Market Portfolio (the "Portfolio"), a
diversified open-end management investment company having the same investment
objective as the Treasury Money Market Fund.
The Portfolio attempts to achieve its investment objective by maintaining a
dollar-weighted average portfolio maturity of not more than 90 days and by
investing in U.S. Treasury securities and related repurchase agreement
transactions as described in this Statement of Additional Information that have
effective maturities of not more than thirteen months. See "Quality and
Diversification Requirements."
J.P. Morgan Institutional Service Federal Money Market Fund (the "Federal
Money Market Fund") is designed for investors who seek to preserve capital and
earn current income from a portfolio of high quality money market instruments.
The Federal Money Market Fund's investment objective is to provide current
income, maintain a high level of liquidity and preserve capital. The Federal
Money Market Fund attempts to accomplish this objective by investing all of its
investable assets in The Federal Money Market Portfolio (the "Portfolio"), a
diversified open-end management investment company having the same investment
objective as the Federal Money Market Fund.
The Portfolio attempts to achieve its investment objective by
maintaining a dollar-weighted average portfolio maturity of not more than 90
days and by investing in U.S. Treasury securities and in obligations of certain
U.S. Government agencies, as described in this Statement of
Additional Information that have effective maturities of not more than thirteen
months. See "Quality and Diversification Requirements."
Money Market Instruments
A description of the various types of money market instruments that may be
purchased by the Funds appears below. Also see "Quality and Diversification
Requirements."
U.S. Treasury Securities. Each of the Funds may invest in direct
obligations of the U.S. Treasury, including Treasury bills, notes and bonds, all
of which are backed as to principal and interest payments by the full faith and
credit of the United States.
Additional U.S. Government Obligations. Each of the Funds (other than
the Treasury Money Market Fund) may invest in obligations issued or guaranteed
by U.S. Government agencies or instrumentalities. These obligations may or may
not be backed by the "full faith and credit" of the United States. Securities
which are backed by the full faith and credit of the United States include
obligations of the Government National Mortgage Association, the Farmers Home
Administration, and the Export-Import Bank. In the case of securities not backed
by the full faith and credit of the United States, each Fund must look
principally to the federal agency issuing or guaranteeing the obligation for
ultimate repayment and may not be able to assert a claim against the United
States itself in the event the agency or instrumentality does not meet its
commitments. Securities in which each Fund may invest that are not backed by the
full faith and credit of the United States include, but are not limited to: (i)
obligations of the Tennessee Valley Authority, the Federal Home Loan Mortgage
Corporation, the Federal Home Loan Banks and the U.S. Postal Service, each of
which has the right to borrow from the U.S. Treasury to meet its obligations;
(ii) securities issued by the Federal National Mortgage Association, which are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; and (iii) obligations of the Federal Farm Credit System
and the Student Loan Marketing Association, each of whose obligations may be
satisfied only by the individual credits of the issuing agency.
Foreign Government Obligations. The Prime Money Market Fund, subject to
its applicable investment policies, may also invest in short-term obligations of
foreign sovereign governments or of their agencies, instrumentalities,
authorities or political subdivisions. These securities must be denominated in
the U.S.
dollar.
Bank Obligations. The Prime Money Market Fund, unless otherwise noted
in the Prospectus or below, may invest in negotiable certificates of deposit,
time deposits and bankers' acceptances of (i) banks, savings and loan
associations and savings banks which have more than $2 billion in total assets
and are organized under the laws of the United States or any state, (ii) foreign
branches of these banks or of foreign banks of equivalent size (Euros) and (iii)
U.S. branches of foreign banks of equivalent size (Yankees). See "Foreign
Investments." The Prime Money Market Fund will not invest in obligations for
which the Advisor, or any of its affiliated persons, is the ultimate obligor or
accepting bank. The Prime Money Market Fund may also invest in obligations of
international banking institutions designated or supported by national
governments to promote economic reconstruction, development or trade between
nations (e.g., the European Investment Bank, the Inter-American Development
Bank, or the World Bank).
Commercial Paper. The Prime Money Market Fund may invest in commercial
paper, including master demand obligations. Master demand obligations are
obligations that provide for a periodic adjustment in the interest rate paid and
permit daily changes in the amount borrowed. Master demand obligations are
governed by agreements between the issuer and Morgan Guaranty Trust Company of
New York acting as agent, for no additional fee, in its capacity as investment
advisor to the Portfolio and as fiduciary for other clients for whom it
exercises investment discretion. The monies loaned to the borrower come from
accounts managed by the Advisor or its affiliates, pursuant to arrangements with
such accounts. Interest and principal payments are credited to such accounts.
The Advisor, acting as a fiduciary on behalf of its clients, has the right to
increase or decrease the amount provided to the borrower under an obligation.
The borrower has the right to pay without penalty all or any part of the
principal amount then outstanding on an obligation together with interest to the
date of payment. Since these obligations typically provide that the interest
rate is tied to the Federal Reserve commercial paper composite rate, the rate on
master demand obligations is subject to change. Repayment of a master demand
obligation to participating accounts depends on the ability of the borrower to
pay the accrued interest and principal of the obligation on demand which is
continuously monitored by the Advisor. Since master demand obligations typically
are not rated by credit rating agencies, the Prime Money Market Fund may invest
in such unrated obligations only if at the time of an investment the obligation
is determined by the Advisor to have a credit quality which satisfies the Prime
Money Market Fund's quality restrictions. See "Quality and Diversification
Requirements." Although there is no secondary market for master demand
obligations, such obligations are considered by the Prime Money Market Fund to
be liquid because they are payable upon demand. The Prime Money Market Fund does
not have any specific percentage limitation on investments in master demand
obligations. It is possible that the issuer of a master demand obligation could
be a client of Morgan to whom Morgan, in its capacity as a commercial bank, has
made a loan.
Asset-backed Securities. The Prime Money Market Fund may also invest in
securities generally referred to as asset-backed securities, which directly or
indirectly represent a participation interest in, or are secured by and payable
from, a stream of payments generated by particular assets, such as motor vehicle
or credit card receivables or other asset-backed securities collateralized by
such assets. Asset-backed securities provide periodic payments that generally
consist of both interest and principal payments. Consequently, the life of an
asset-backed security varies with the prepayment experience of the underlying
obligations. Payments of principal and interest may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution unaffiliated with the entities issuing the securities. The
Asset-backed securities in which a 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. Because
asset-backed securities are relatively new, the market experience in these
securities is limited and the market's ability to sustain liquidity through all
phases of the market cycle has not been tested.
Repurchase Agreements. Each of the Funds may enter into repurchase
agreements with brokers, dealers or banks that meet the credit guidelines
approved by the Funds' Trustees. In a repurchase agreement, a Fund buys a
security from a seller that has agreed to repurchase the same security at a
mutually agreed upon date and price. The resale price normally is in excess of
the purchase price, reflecting an agreed upon interest rate. This interest rate
is effective for the period of time the Fund is invested in the agreement and is
not related to the coupon rate on the underlying security. A repurchase
agreement may also be viewed as a fully collateralized loan of money by a Fund
to the seller. The period of these repurchase agreements will usually be short,
from overnight to one week, and at no time will any Fund invest in repurchase
agreements for more than 397 days. The securities which are subject to
repurchase agreements, however, may have maturity dates in excess of 397 days
from the effective date of the repurchase agreement. The Treasury Money Market
Fund will only enter into repurchase agreements involving U.S. Treasury
securities. The Federal Money Market Fund may only enter into repurchase
agreements involving U.S. Treasury securities and Permitted Agency Securities.
The Funds will always receive securities as collateral whose market value is,
and during the entire term of the agreement remains, at least equal to 100% of
the dollar amount invested by the Funds in each agreement plus accrued interest,
and the Funds will make payment for such securities only upon physical delivery
or upon evidence of book entry transfer to the account of the Custodian. Each
Fund will be fully collateralized within the meaning of paragraph (a)(4) of Rule
2a-7 under the Investment Company Act of 1940, as amended (the "1940 Act"). If
the seller defaults, a Fund might incur a loss if the value of the collateral
securing the repurchase agreement declines and might incur disposition costs in
connection with liquidating the collateral. In addition, if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization upon disposal of the collateral by a Fund may be delayed or limited.
The Prime Money Market Fund may make investments in other debt
securities with remaining effective maturities of not more than thirteen months,
including, without limitation, corporate and foreign bonds and other obligations
described in the Prospectus or this Statement of Additional Information.
Foreign Investments
The Prime Money Market Fund may invest in certain foreign securities.
All investments must be U.S. dollar-denominated. Investment in securities of
foreign issuers and in obligations of foreign branches of domestic banks
involves somewhat different investment risks from those affecting securities of
U.S. domestic issuers. There may be limited publicly available information with
respect to foreign issuers, and foreign issuers are not generally subject to
uniform accounting, auditing and financial standards and requirements comparable
to those applicable to domestic companies. Any foreign commercial paper must not
be subject to foreign withholding tax at the time of purchase.
Investors should realize that the value of the Fund's investments in
foreign securities may be adversely affected by changes in political or social
conditions, diplomatic relations, confiscatory taxation, expropriation,
nationalization, limitation on the removal of funds or assets, or imposition of
(or change in) exchange control or tax regulations in those foreign countries.
In addition, changes in government administrations or economic or monetary
policies in the United States or abroad could result in appreciation or
depreciation of portfolio securities and could favorably or unfavorably affect
the Fund's operations. Furthermore, the economies of individual foreign nations
may differ from the U.S. economy, whether favorably or unfavorably, in areas
such as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position; it may
also be more difficult to obtain and enforce a judgment against a foreign
issuer. Any foreign investments made by the Fund must be made in compliance with
U.S. and foreign currency restrictions and tax laws restricting the amounts and
types of foreign investments.
Additional Investments
Municipal Bonds. The Prime Money Market Fund may invest in
municipal bonds issued by or on behalf of states, territories and possessions of
the United States and the District of Columbia and their Political subdivisions,
agencies, authorities and instrumentalities. The Prime Money Market 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. These municipal bonds and notes will be taxable securities; income
generated from these investments will be subject to federal, state and local
taxes.
When-Issued and Delayed Delivery Securities. Each of the Funds may
purchase securities on a when-issued or delayed delivery basis. For example,
delivery of and payment for these securities can take place a month or more
after the date of the purchase commitment. The purchase price and the interest
rate payable, if any, on the securities are fixed on the purchase commitment
date or at the time the settlement date is fixed. The value of such securities
is subject to market fluctuation and for money market instruments and other
fixed income securities, no interest accrues to a Fund until settlement takes
place. At the time a Fund makes the commitment to purchase securities on a
when-issued or delayed delivery basis, it will record the transaction, reflect
the value each day of such securities in determining its net asset value and, if
applicable, calculate the maturity for the purposes of average maturity from
that date. At the time of settlement a when-issued security may be valued at
less than the purchase price. To facilitate such acquisitions, each Fund will
maintain with the Custodian a segregated account with liquid assets, consisting
of cash, U.S. Government securities or other appropriate securities, in an
amount at least equal to such commitments. On delivery dates for such
transactions, each Fund will meet its obligations from maturities or sales of
the securities held in the segregated account and/or from cash flow. If a Fund
chooses to dispose of the right to acquire a when-issued security prior to its
acquisition, it could, as with the disposition of any other portfolio
obligation, incur a gain or loss due to market fluctuation. It is the current
policy of each Fund (except the Treasury Money Market Fund) not to enter into
when-issued commitments exceeding in the aggregate 15% of the market value of
the Fund's total assets, less liabilities other than the obligations created by
when-issued commitments.
Investment Company Securities. Securities of other investment companies
may be acquired by each of the Funds and their corresponding Portfolios to the
extent permitted under the 1940 Act. These limits require that, as determined
immediately after a purchase is made, (i) not more than 5% of the value of a
Fund's total assets will be invested in the securities of any one investment
company, (ii) not more than 10% of the value of its total assets will be
invested in the aggregate in securities of investment companies as a group, and
(iii) not more than 3% of the outstanding voting stock of any one investment
company will be owned by a Fund, provided however, that a Fund may invest all of
its investable assets in an open-end investment company that has the same
investment objective as the Fund (its corresponding Portfolio). As a shareholder
of another investment company, a Fund or Portfolio would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund or Portfolio bears directly in connection with its
own operations.
Reverse Repurchase Agreements. Each of the Funds may enter into reverse
repurchase agreements. In a reverse repurchase agreement, a Fund sells a
security and agrees to repurchase the same security at a mutually agreed upon
date and price. The Treasury Money Market Fund will only enter into reverse
repurchase agreements involving Treasury securities. For purposes of the 1940
Act a reverse repurchase agreement is also considered as the borrowing of money
by the Fund and, therefore, a form of leverage. The Funds will invest the
proceeds of borrowings under reverse repurchase agreements. In addition, a Fund
will enter into a reverse repurchase agreement only when the interest income to
be earned from the investment of the proceeds is greater than the interest
expense of the transaction. A Fund will not invest the proceeds of a reverse
repurchase agreement for a period which exceeds the duration of the reverse
repurchase agreement. Each Fund will establish and maintain with the Custodian a
separate account with a segregated portfolio of securities in an amount at least
equal to its purchase obligations under its reverse repurchase agreements. If
interest rates rise during the term of a reverse repurchase agreement, entering
into the reverse repurchase agreement may have a negative impact on a Fund's
ability to maintain a net asset value of $1.00 per share. See "Investment
Restrictions" for each Fund's limitations on reverse repurchase agreements and
bank borrowings.
Loans of Portfolio Securities. Subject to applicable investment
restrictions, each Fund is permitted to lend its securities in an amount up to
33 1/3% of the value of the Fund's net assets. Each of the Funds may lend its
securities if such loans are secured continuously by cash or equivalent
collateral or by a letter of credit in favor of the Fund at least equal at all
times to 100% of the market value of the securities loaned, plus accrued
interest. While such securities are on loan, the borrower will pay the Fund any
income accruing thereon. Loans will be subject to termination by the Funds in
the normal settlement time, generally three business days after notice, or by
the borrower on one day's notice. Borrowed securities must be returned when the
loan is terminated. Any gain or loss in the market price of the borrowed
securities which occurs during the term of the loan inures to a Fund and its
respective investors. The Funds may pay reasonable finders' and custodial fees
in connection with a loan. In addition, a Fund will consider all facts and
circumstances including the creditworthiness of the borrowing financial
institution, and no Fund will make any loans in excess of one year. The risks to
the Funds with respect to borrowers of its portfolio securities are similar to
the risks to each Fund with respect to sellers in repurchase agreement
transactions. See "Repurchase Agreements". The Funds will not lend their
securities to any officer, Trustee, Director, employee or other affiliate of the
Funds, the Advisor or the Distributor, unless otherwise permitted by applicable
law.
Illiquid Investments, Privately Placed and Certain Unregistered
Securities. The Funds, except the Treasury Money Market Fund, may invest in
privately placed, restricted, Rule 144A or other unregistered securities. No
Fund may acquire any illiquid holdings if, as a result thereof, more than
10% of the Fund's net assets would be in illiquid investments. Subject to this
fundamental policy limitation (Prime Money Market Fund only), the Portfolios 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 Portfolios. The price the Portfolios pay for illiquid holdings 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 holdings will
reflect any limitations on their liquidity.
The Funds 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, a Fund is subject to a risk that should the
Fund decide to sell them when a ready buyer is not available at a price the Fund
deems representative of their value, the value of the Fund's net assets could be
adversely affected. Where an illiquid security must be registered under the 1933
Act, before it may be sold, a Fund may be obligated to pay all or part of the
registration expenses, and a considerable period may elapse between the time of
the decision to sell and the time the Fund may be permitted to sell a security
under an effective registration statement. If, during such a period, adverse
market conditions were to develop, a Fund might obtain a less favorable price
than prevailed when it decided to sell.
Synthetic Instruments. The Prime Money Market Fund may invest in
certain synthetic instruments. Such instruments generally involve the deposit of
asset-backed securities in a trust arrangement and the issuance of certificates
evidencing interests in the trust. The certificates are generally sold in
private placements in reliance on Rule 144A. The Advisor will review the
structure of synthetic instruments to identify credit and liquidity risks and
will monitor those risks. See "Illiquid Investments, Privately Placed and
Certain Unregistered Securities".
Quality and Diversification Requirements
Each of the Funds intends to meet the diversification requirements of
the 1940 Act. To meet these requirements, 75% of the assets of each Fund are
subject to the following fundamental limitations: (1) the Fund may not invest
more than 5% of its total assets in the securities of any one issuer, except
obligations of the U.S. Government, its agencies and instrumentalities, and (2)
the Fund may not own more than 10% of the outstanding voting securities of any
one issuer. As for the other 25% of the Fund's assets not subject to the
limitation described above, there is no limitation on investment of these assets
under the 1940 Act, so that all of such assets may be invested in securities of
any one issuer. Investments not subject to the limitations described above could
involve an increased risk to a Fund should an issuer, or a state or its related
entities, be unable to make interest or principal payments or should the market
value of such securities decline.
At the time any of the Funds invest in any taxable commercial paper,
master demand obligation, bank obligation or repurchase agreement, the issuer
must have outstanding debt rated A or higher by Moody's or Standard & Poor's,
the issuer's parent corporation, if any, must have outstanding commercial paper
rated Prime-1 by Moody's or A-1 by Standard & Poor's, or if no such ratings are
available, the investment must be of comparable quality in Morgan's opinion.
Prime Money Market Fund. In order to maintain a stable net asset value,
the Prime Money Market Fund will (i) with respect to 75% of the Fund's assets
limit its investment in the securities (other than U.S. Government securities)
of any one issuer to no more than 5% of its assets, measured at the time of
purchase, except for investments held for not more than three business days
(subject, however, to the investment restriction No. 4 set forth under
"Investment Restrictions" below); and (ii) limit investments to securities that
present minimal credit risks and securities (other than U.S. Government
securities) that are rated within the highest short-term rating category by at
least two nationally recognized statistical rating organizations ("NRSROs") or
by the only NRSRO that has rated the security. Securities which originally had a
maturity of over one year are subject to more complicated, but generally similar
rating requirements. A description of illustrative credit ratings is set forth
in "Appendix A." The Fund may also purchase unrated securities that are of
comparable quality to the rated securities described above. Additionally, if the
issuer of a particular security has issued other securities of comparable
priority and security and which have been rated in accordance with (ii) above,
that security will be deemed to have the same rating as such other rated
securities.
In addition, the Board of Trustees has adopted procedures which (i)
require the Board of Trustees to approve or ratify purchases by the Fund of
securities (other than U.S. Government securities) that are unrated; (ii)
require the Fund to maintain a dollar-weighted average portfolio maturity of not
more than 90 days and to invest only in securities with a remaining maturity of
not more than thirteen months; and (iii) require the Fund, in the event of
certain downgradings of or defaults on portfolio holdings, to dispose of the
holding, subject in certain circumstances to a finding by the Trustees that
disposing of the holding would not be in the Fund's best interest.
Treasury Money Market Fund. In order to maintain a stable net asset value,
the Treasury Money Market Fund will limit its investments to direct obligations
of the U.S. Treasury, including Treasury bills, notes and bonds, and related
repurchase agreement transactions, each having a remaining maturity of not more
than thirteen months at the time of purchase and will maintain a dollar-weighted
average portfolio maturity of not more than 90 days.
Federal Money Market Fund. In order to maintain a stable net asset value,
the Federal Money Market Fund will limit its investments to direct obligations
of the U.S. Treasury, including Treasury bills, notes and bonds, and certain
U.S. Government agency securities with remaining maturities of not more than
thirteen months at the time of purchase and will maintain a dollar-weighted
average portfolio maturity of not more than 90 days.
INVESTMENT RESTRICTIONS
The investment restrictions of each Fund and its corresponding
Portfolio are identical, unless otherwise specified. Accordingly, references
below to a Fund also include the Fund's corresponding Portfolio unless the
context requires otherwise; similarly, references to a Portfolio also include
its corresponding Fund unless the context requires otherwise.
The investment restrictions below have been adopted by the Trust with
respect to each Fund and by each corresponding Portfolio. Except where otherwise
noted, these investment restrictions are "fundamental" policies which, under the
1940 Act, may not be changed without the vote of a majority of the outstanding
voting securities of the Fund or Portfolio, as the case may be. A "majority of
the outstanding voting securities" is defined in the 1940 Act as the lesser of
(a) 67% or more of the voting securities present at a meeting if the holders of
more than 50% of the outstanding voting securities are present or represented by
proxy, or (b) more than 50% of the outstanding voting securities. The percentage
limitations contained in the restrictions below apply at the time of the
purchase of securities. Whenever a Fund is requested to vote on a change in the
fundamental investment restrictions of its corresponding Portfolio, the Trust
will hold a meeting of Fund shareholders and will cast its votes as instructed
by the Fund's shareholders.
The Prime Money Market Fund and its corresponding Portfolio may not:
1. Acquire any illiquid securities, such as repurchase agreements with
more than seven days to maturity or fixed time deposits with a duration
of over seven calendar days, if as a result thereof, more than 10% of
the Fund's net assets would be in investments which are illiquid;
2. Enter into reverse repurchase agreements exceeding in the aggregate
one-third of the market value of the Fund's total assets, less liabilities other
than obligations created by reverse repurchase agreements;
3. Borrow money, except from banks for extraordinary or emergency purposes
and then only in amounts not to exceed 10% of the value of the Fund's total
assets, taken at cost, at the time of such borrowing. Mortgage, pledge, or
hypothecate any assets except in connection with any such borrowing and in
amounts not to exceed 10% of the value of the Fund's net assets at the time of
such borrowing. The Fund will not purchase securities while borrowings exceed 5%
of the Fund's total assets; provided, however, that the Fund may increase its
interest in an open-end management investment company with the same investment
objective and restrictions as the Fund while such borrowings are outstanding.
This borrowing provision is included to facilitate the orderly sale of portfolio
securities, for example, in the event of abnormally heavy redemption requests,
and is not for investment purposes and shall not apply to reverse repurchase
agreements;
4. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the
Fund's total assets would be invested in securities or other
obligations of any one such issuer; provided, however, that the Fund
may invest all or part of its investable assets in an open-end
management investment company with the same investment objective and
restrictions as the Fund. This limitation shall not apply to issues of
the U.S. Government, its agencies or instrumentalities and to permitted
investments of up to 25% of the Fund's total assets;
5. Purchase the securities or other obligations of issuers conducting
their principal business activity in the same industry if, immediately
after such purchase, the value of its investment in such industry would
exceed 25% of the value of the Fund's total assets; provided, however,
that the Fund may invest all or part of its investable assets in an
open-end management investment company with the same investment
objective and restrictions as the Fund. For purposes of industry
concentration, there is no percentage limitation with respect to
investments in U.S. Government securities, negotiable certificates of
deposit, time deposits, and bankers' acceptances of U.S. branches of
U.S. banks;
6. Make loans, except through purchasing or holding debt obligations, or
entering into repurchase agreements, or loans of portfolio securities
in accordance with the Fund's investment objective and policies (see
"Investment Objectives and Policies");
7. Purchase or sell puts, calls, straddles, spreads, or any combination
thereof, real estate, commodities, or commodity contracts or interests
in oil, gas, or mineral exploration or development programs. However,
the Fund may purchase bonds or commercial paper issued by companies
which invest in real estate or interests therein including real estate
investment trusts;
8. Purchase securities on margin, make short sales of securities, or
maintain a short position, provided that this restriction shall not be
deemed to be applicable to the purchase or sale of when-issued
securities or of securities for delivery at a future date;
9. Acquire securities of other investment companies, except as permitted by
the 1940 Act;
10. Act as an underwriter of securities; or
11. Issue senior securities, except as may otherwise be permitted by the
foregoing investment restrictions or under the 1940 Act or any rule,
order or interpretation thereunder.
The Treasury Money Market Fund and its corresponding Portfolio may not:
1. Enter into reverse repurchase agreements which together with any other
borrowing exceed in the aggregate one-third of the market value of the
Fund's or the Portfolio's total assets, less liabilities other than the
obligations created by reverse repurchase agreements;
2. Borrow money, except in amounts not to exceed one third of the Fund's
total assets (including the amount borrowed) less liabilities (other
than borrowings) (i) from banks for temporary or short-term purposes or
for the clearance of transactions, (ii) in connection with the
redemption of Fund shares or to finance failed settlements of portfolio
trades without immediately liquidating portfolio securities or other
assets, (iii) in order to fulfill commitments or plans to purchase
additional securities pending the anticipated sale of other portfolio
securities or assets and (iv) pursuant to reverse repurchase agreements
entered into by the Fund.1
3. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the
Fund's or the Portfolio's total assets would be invested in securities
or other obligations of any one such issuer; provided, however, that
the Fund may invest all or part of its investable assets in an open-end
management investment company with the same investment objective and
restrictions as the Fund. This limitation also shall not apply to
issues of the U.S. Government and repurchase agreements related
thereto;
4. Purchase the securities or other obligations of issuers conducting
their principal business activity in the same industry if, immediately
after such purchase, the value of its investment in such industry would
exceed 25% of the value of the Fund's or the Portfolio's total assets;
provided, however, that the Fund may invest all or part of its assets
in an open-end management investment company with the same investment
objective and restrictions as the Fund. For purposes of industry
concentration, there is no percentage limitation with respect to
investments in U.S. Government securities and repurchase agreements
related thereto;
5. Make loans, except through purchasing or holding debt obligations,
repurchase agreements, or loans of portfolio securities in accordance
with the Fund's or the Portfolio's investment objective and policies
(see "Investment Objectives and Policies");
6. Purchase or sell puts, calls, straddles, spreads, or any combination
thereof, real estate, commodities, or commodity contracts or interests in oil,
gas, or mineral exploration or development programs;
7. Purchase securities on margin, make short sales of securities, or
maintain a short position, provided that this restriction shall not be
deemed to be applicable to the purchase or sale of when-issued
securities or of securities for delivery at a future date;
8. Acquire securities of other investment companies, except as permitted
by the 1940 Act or in connection with a merger, consolidation,
reorganization, acquisition of assets or an offer of exchange;
provided, however, that nothing in this investment restriction shall
prevent the Trust from investing all or part of the Fund's assets in an
open-end management investment company with the same investment
objective and restrictions as the Fund;
9. Act as an underwriter of securities; or
10. Issue senior securities, except as may otherwise be permitted by the
foregoing investment restrictions or under the 1940 Act or any rule,
order or interpretation thereunder.
The Federal Money Market Fund and its corresponding Portfolio may not:
1. Enter into reverse repurchase agreements which together with any other
borrowing exceeds in the aggregate one-third of the market value of the
Fund's or the Portfolio's total assets, less liabilities other than the
obligations created by reverse repurchase agreements;
2. Borrow money (not including reverse repurchase agreements), except from
banks for temporary or extraordinary or emergency purposes and then only in
amounts up to 10% of the value of the Fund's or the Portfolio's total assets,
taken at cost at the time of such borrowing (and provided that such borrowings
and reverse repurchase agreements do not exceed in the aggregate one-third of
the market value of the Fund's and the Portfolio's total assets less liabilities
other than the obligations represented by the bank borrowings and reverse
repurchase agreements). Mortgage, pledge, or hypothecate any assets except in
connection with any such borrowing and in amounts up to 10% of the value of the
Fund's or the Portfolio's net assets at the time of such borrowing. The Fund or
the Portfolio will not purchase securities while borrowings exceed 5% of the
Fund's or the Portfolio's total assets, respectively; provided, however, that
the Fund may increase its interest in an open-end management investment company
with the same investment objective and restrictions as the Fund while such
borrowings are outstanding. This borrowing provision is included to facilitate
the orderly sale of portfolio securities, for example, in the event of
abnormally heavy redemption requests, and is not for investment purposes;
3. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the
Fund's or the Portfolio's total assets would be invested in securities
or other obligations of any one such issuer; provided, however, that
the Fund may invest all or part of its investable assets in an open-end
management investment company with the same investment objective and
restrictions as the Fund. This limitation also shall not apply to
issues of the U.S. Government and repurchase agreements related
thereto;
4. Purchase the securities or other obligations of issuers conducting
their principal business activity in the same industry if, immediately
after such purchase, the value of its investment in such industry would
exceed 25% of the value of the Fund's or the Portfolio's total assets;
provided, however, that the Fund may invest all or part of its assets
in an open-end management investment company with the same investment
objective and restrictions as the Fund. For purposes of industry
concentration, there is no percentage limitation with respect to
investments in U.S. Government securities and repurchase agreements
related thereto;
5. Make loans, except through purchasing or holding debt obligations,
repurchase agreements, or loans of portfolio securities in accordance
with the Fund's or the Portfolio's investment objective and policies
(see "Investment Objectives and Policies");
6. Purchase or sell puts, calls, straddles, spreads, or any combination
thereof, real estate, commodities, or commodity contracts or interests in oil,
gas, or mineral exploration or development programs;
7. Purchase securities on margin, make short sales of securities, or
maintain a short position, provided that this restriction shall not be
deemed to be applicable to the purchase or sale of when-issued
securities or of securities for delivery at a future date;
8. Acquire securities of other investment companies, except as permitted
by the 1940 Act or in connection with a merger, consolidation,
reorganization, acquisition of assets or an offer of exchange;
provided, however, that nothing in this investment restriction shall
prevent the Trust from investing all or part of the Fund's assets in an
open-end management investment company with the same investment
objective and restrictions as the Fund;
9. Act as an underwriter of securities; or
10. Issue senior securities, except as may otherwise be permitted by the
foregoing investment restrictions or under the 1940 Act or any rule,
order or interpretation thereunder.
Non-Fundamental Investment Restrictions - Prime Money Market Fund. The
investment restriction described below is not a fundamental policy of the Prime
Money Market Fund or its corresponding Portfolio and may be changed by their
respective Trustees. This non-fundamental investment policy requires that the
Prime Money Market Fund and its corresponding Portfolio may not:
(i) enter into reverse repurchase agreements or borrow money, except from
banks for extraordinary or emergency purposes, if such obligations
exceed in the aggregate one-third of the market value of the Fund's
total assets, less liabilities other than obligations created by
reverse repurchase agreements and borrowings.
Non-Fundamental Investment Restrictions - Treasury Money Market Fund
and Federal Money Market Fund. The investment restriction described below is not
a fundamental policy of these Funds or their corresponding Portfolios and may be
changed by their respective Trustees. This non-fundamental investment policy
requires that each such Fund may not:
(i) acquire any illiquid securities, such as repurchase agreements with
more than seven days to maturity or fixed time deposits with a duration
of over seven calendar days, if as a result thereof, more than 10% of
the Fund's net assets would be in investments that are illiquid.
Notwithstanding any other fundamental or non-fundamental investment
restriction or policy, each Fund reserves the right, without the approval of
shareholders, to invest all of its assets in the securities of a single open-end
registered investment company with substantially the same investment objective,
restrictions and policies as the Fund.
There will be no violation of any investment restriction if that
restriction is complied with at the time the relevant action is taken
notwithstanding a later change in market value of an investment, in net or total
assets, in the securities rating of the investment, or any other later change.
For purposes of fundamental investment restrictions regarding industry
concentration, the Advisor may classify issuers by industry in accordance with
classifications set forth in the Directory of Companies Filing Annual Reports
With The Securities and Exchange Commission or other sources. In the absence of
such classification or if the Advisor determines in good faith based on its own
information that the economic characteristics affecting a particular issuer make
it more appropriately considered to be engaged in a different industry, the
Advisor may classify accordingly. For instance, personal credit finance
companies and business credit finance companies are deemed to be separate
industries and wholly owned finance companies are considered to be in the
industry of their parents if their activities are primarily related to financing
the activities of their parents.
TRUSTEES AND OFFICERS
Trustees
The Trustees of the Trust, who are also the Trustees of each of the
Portfolios, their business addresses, principal occupations during the past five
years and dates of birth are set forth below.
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, TX 78746, and his date of birth is January 1, 1932.
WILLIAM G. BURNS--Trustee; Retired, Former Vice Chairman and Chief
Financial Officer, NYNEX. His address is 2200 Alaqua Drive, Longwood, FL 32779,
and his date of birth is November 2, 1932.
ARTHUR C. ESCHENLAUER--Trustee; Retired; Former Senior Vice President,
Morgan Guaranty Trust Company of New York. His address is 14 Alta Vista Drive,
RD #2, Princeton, NJ 08540, and his date of birth is May 23, 1934.
MATTHEW HEALEY2--Trustee, Chairman and Chief Executive Officer;
Chairman, Pierpont Group, Inc., since prior to 1992. His address is Pine Tree
Club Estates, 10286 Saint Andrews Road, Boynton Beach, FL 33436, and his date of
birth is August 23, 1937.
MICHAEL P. MALLARDI--Trustee; Retired; Prior to April 1996, Senior Vice
President, Capital Cities/ABC, Inc. and President, Broadcast Group. His address
is 10 Charnwood Drive, Suffern, NY 10910, and his date of birth is March 17,
1934.
The Trustees of the Trust are the same as the Trustees of each of the
Portfolios. In accordance with applicable state requirements, a majority of the
disinterested Trustees have adopted written procedures reasonably appropriate to
deal with potential conflicts of interest arising from the fact that the same
individuals are Trustees of the Trust, each of the Portfolios and the J.P.
Morgan Funds up to and including creating a separate board of trustees.
Each Trustee is currently paid an annual fee of $75,000 for serving as
Trustee of the Trust, each of the Master Portfolios (as defined below), the J.P.
Morgan Funds and J.P. Morgan Series Trust and is reimbursed for expenses
incurred in connection with service as a Trustee. The Trustees may hold various
other directorships unrelated to these funds.
Trustee compensation expenses paid by the Trust for the calendar year ended
December 31, 1997 are set forth below.
TOTAL TRUSTEE
AGGREGATE COMPENSATION ACCRUED BY
TRUSTEE THE MASTER PORTFOLIOS(*),
COMPENSATION J.P. MORGAN INSTITUTIONAL
PAID BY THE FUNDS, J.P. MORGAN SERIES
TRUST DURING TRUST AND THE TRUST
NAME OF TRUSTEE 1997 DURING 1997(***)
- --------------- ------------- ----------------
Frederick S. Addy, Trustee $12,641.75 $75,000
William G. Burns, Trustee $12,644.75 $75,000
Arthur C. Eschenlauer,
Trustee $12,644.75 $75,000
Matthew Healey, Trustee (**)$12,644.75 $75,000
Chairman and Chief Executive
Officer
Michael P. Mallardi, Trustee $12,644.75 $75,000
(*) Includes the Portfolio and 21 other portfolios (collectively, the
"Master Portfolios") for which Morgan acts as investment advisor.
(**) During 1997, Pierpont Group, Inc. paid Mr. Healey, in his role as
Chairman of Pierpont Group, Inc., compensation in the amount of $147,500,
contributed $22,100 to a defined contribution plan on his behalf and paid
$20,500 in insurance premiums for his benefit.
(***) No investment company within the fund complex has a pension or
retirement plan. Currently there are 18 investment companies (15
investment companies comprising the Master Portfolios, the J.P. Morgan
Funds, the Trust and J.P. Morgan Series Trust) in the fund complex.
The Trustees, in addition to reviewing actions of the Trust's and the
Portfolios' various service providers, decide upon matters of general policy.
Each of the Portfolios and the Trust has entered into a Fund Services Agreement
with Pierpont Group, Inc. to assist the Trustees in exercising their overall
supervisory responsibilities over the affairs of the Portfolios and the Trust.
Pierpont Group, Inc. was organized in July 1989 to provide services for The
Pierpont Family of Funds, and the Trustees are the equal and sole shareholders
of Pierpont Group, Inc. The Trust and the Portfolios have agreed to pay Pierpont
Group, Inc. a fee in an amount representing its reasonable costs in performing
these services to the Trust, the Portfolios and certain other registered
investment companies subject to similar agreements with Pierpont Group, Inc.
These costs are periodically reviewed by the Trustees. The principal offices of
Pierpont Group, Inc. are located at 461 Fifth Avenue, New York, New York 10017.
The aggregate fees paid to Pierpont Group, Inc. by each Fund (except
the Federal Money Market Fund) and its corresponding Portfolio during the
indicated fiscal periods are set forth below:
Prime Money Market Fund -- For the period October 23, 1997 (commencement of
operations) through November 30, 1997: $ 1. The Prime Money Market Portfolio --
For the fiscal years ended November 30, 1995, 1996 and 1997: $261,045, $157,428
and $143,027.
Treasury Money Market Fund -- For the period July 7, 1997 (commencement of
operations) through October 31, 1997: $251. The Treasury Money Market Portfolio
- -- For the period July 7, 1997 (commencement of operations) through October 31,
1997: $800.
The Federal Money Market Portfolio -- For the fiscal years ended October
31, 1995, 1996 and 1997: $22,791, $16,144 and $12,004.
Officers
The Trust's and Portfolios' executive officers (listed below), other
than the Chief Executive Officer, are provided and compensated by Funds
Distributor, Inc. ("FDI"), a wholly owned indirect subsidiary of Boston
Institutional Group, Inc. The officers conduct and supervise the business
operations of the Trust and the Portfolios. The Trust and the Portfolios have no
employees.
The officers of the Trust and the Portfolios, their principal
occupations during the past five years and dates of birth are set forth below.
Unless otherwise specified, each officer holds the same position with the Trust
and each Portfolio. The business address of each of the officers unless
otherwise noted is Funds Distributor, Inc., 60 State Street, Suite 1300, Boston,
Massachusetts 02109.
MATTHEW HEALEY; Chief Executive Officer; Chairman, Pierpont Group,
since prior to 1993. His address is Pine Tree Club Estates, 10286 Saint Andrews
Road, Boynton Beach, FL 33436. His date of birth is August 23, 1937.
MARIE E. CONNOLLY; Vice President and Assistant Treasurer. President,
Chief Executive Officer, Chief Compliance Officer and Director of FDI and
Premier Mutual Fund Services, Inc., an affiliate of FDI ("Premier Mutual") and
an officer of certain investment companies advised or administered by the
Dreyfus Corporation ("Dreyfus") or its affiliates. From December 1991 to July
1994, she was President and Chief Compliance Officer of FDI. Her date of birth
is August 1, 1957.
DOUGLAS C. CONROY; Vice President and Assistant Treasurer. Assistant Vice
President and Manager of Treasury Services and Administration of FDI and an
officer of certain investment companies advised or administered by Dreyfus or
its affiliates. Prior to April 1997, Mr. Conroy was Supervisor of Treasury
Services and Administration of FDI. From April 1993 to January 1995, Mr. Conroy
was a Senior Fund Accountant for Investors Bank & Trust Company. Prior to March
1993, Mr. Conroy was employed as a fund accountant at The Boston Company, Inc.
His date of birth is March 31, 1969.
JACQUELINE HENNING; Assistant Secretary and Assistant Treasurer of The
Prime Money Market Portfolio only. Managing Director, State Street Cayman Trust
Company, Ltd. since October 1994. Prior to October 1994, Mrs. Henning was head
of mutual funds at Morgan Grenfell in Cayman and for five years was Managing
Director of Bank of Nova Scotia Trust Company (Cayman) Limited from September
1988 to September 1993. Address: P.O. Box 2508 GT, Elizabethan Square, 2nd
Floor, Shedden Road, George Town, Grand Cayman, Cayman Islands. Her date of
birth is March 24, 1942.
RICHARD W. INGRAM; President and Treasurer. Executive Vice President and
Director of Client Services and Treasury Administration of FDI, Senior Vice
President of Premier Mutual and an officer of RCM Capital Funds, Inc., RCM
Equity Funds, Inc. (together "RCM"), Waterhouse Investors Cash Management Fund,
Inc. ("Waterhouse") and certain investment companies advised or administered by
Dreyfus or Harris Trust and Savings Bank ("Harris") or their respective
affiliates. Prior to April 1997, Mr. Ingram was Senior Vice President and
Director of Client Services and Treasury Administration of FDI. From March 1994
to November 1995, Mr. Ingram was Vice President and Division Manager of First
Data Investor Services Group, Inc. From 1989 to 1994, Mr. Ingram was Vice
President, Assistant Treasurer and Tax Director - Mutual Funds of The Boston
Company, Inc. His date of birth is September 15, 1955.
KAREN JACOPPO-WOOD; Vice President and Assistant Secretary. Assistant Vice
President of FDI and an officer of RCM, Waterhouse and Harris or their
respective affiliates. From June 1994 to January 1996, Ms. Jacoppo-Wood was a
Manager, SEC Registration, Scudder, Stevens & Clark, Inc. From 1988 to May 1994,
Ms. Jacoppo-Wood was a senior paralegal at The Boston Company Advisors, Inc.
("TBCA"). Her date of birth is December 29, 1966.
CHRISTOPHER J. KELLEY; Vice President and Assistant Secretary. Vice
President and Associate General Counsel of FDI and Premier Mutual and an officer
of Waterhouse and certain investment companies advised or administered by Harris
or its affiliates. From April 1994 to July 1996, Mr. Kelley was Assistant
Counsel at Forum Financial Group. From 1992 to 1994, Mr. Kelley was employed by
Putnam Investments in legal and compliance capacities. Prior to September 1992,
Mr. Kelley was enrolled at Boston College Law School and received his JD in May
1992. His date of birth is December 24, 1964.
LENORE J. MCCABE; Assistant Secretary and Assistant Treasurer of The Prime
Money Market Portfolio only. Assistant Vice President, State Street Bank and
Trust Company since November 1994. Assigned as Operations Manager, State Street
Cayman Trust Company, Ltd. since February 1995. Prior to November, 1994,
employed by Boston Financial Data Services, Inc. as Control Group Manager.
Address: P.O. Box 2508 GT, Elizabethan Square, 2nd Floor, Shedden Road, George
Town, Grand Cayman, Cayman Islands. Her date of birth is May 31, 1961.
MARY A. NELSON; Vice President and Assistant Treasurer. Vice President
and Manager of Treasury Services and Administration of FDI and Premier Mutual,
an officer of RCM, Waterhouse and certain investment companies advised or
administered by Dreyfus or Harris or their respective affiliates. From 1989 to
1994, Ms. Nelson was an Assistant Vice President and Client Manager for The
Boston Company, Inc. Her date of birth is April 22, 1964.
MICHAEL S. PETRUCELLI; Vice President and Assistant Secretary. Senior Vice
President and Director of Strategic Client Initiatives for FDI since December
1996. From December 1989 through November 1996, Mr. Petrucelli was employed with
GE Investments where he held various financial, business development and
compliance positions. He also served as Treasurer of the GE Funds and as
Director of GE Investment Services. Address: 200 Park Avenue, New York, New York
10166. His date of birth is May 18, 1961.
JOSEPH F. TOWER III; Vice President and Assistant Treasurer. Executive Vice
President, Treasurer and Chief Financial Officer, Chief Administrative Officer
and Director of FDI. Senior Vice President, Treasurer and Chief Financial
Officer, Chief Administrative Officer and Director of Premier Mutual and an
officer of Waterhouse and certain investment companies advised or administered
by Dreyfus or its affiliates. Prior to April 1997, Mr. Tower was Senior Vice
President, Treasurer and Chief Financial Officer, Chief Administrative Officer
and Director of FDI. From July 1988 to November 1993, Mr. Tower was Financial
Manager of The Boston Company, Inc. His date of birth is June 13, 1962.
INVESTMENT ADVISOR
The Funds have not retained the services of an investment adviser
because each Fund seeks to achieve its investment objective by investing all of
its investable assets in a corresponding Portfolio. Subject to the supervision
of the Portfolio's Trustees, Morgan makes each Portfolio's day-to-day investment
decisions, arranges for the execution of portfolio transactions and generally
manages the Portfolio's investments. The Advisor, a wholly owned subsidiary of
J.P. Morgan & Co. Incorporated ("J.P. Morgan"), a bank holding company organized
under the laws of the State of Delaware. The Advisor, whose principal offices
are at 60 Wall Street, New York, New York 10260, is a New York trust company
which conducts a general banking and trust business. The Advisor is subject to
regulation by the New York State Banking Department and is a member bank of the
Federal Reserve System. Through offices in New York City and abroad, the Advisor
offers a wide range of services, primarily to governmental, institutional,
corporate and high net worth individual customers in the United States and
throughout the world.
J.P. Morgan, through the Advisor and other subsidiaries, acts as
investment advisor to individuals, governments, corporations, employee benefit
plans, mutual funds and other institutional investors with combined assets under
management of approximately $250 billion.
J.P. Morgan has a long history of service as adviser, underwriter and
lender to an extensive roster of major companies and as a financial advisor to
national governments. The firm, through its predecessor firms, has been in
business for over a century and has been managing investments since 1913.
The basis of the Advisor's investment process is fundamental investment
research as the firm believes that fundamentals should determine an asset's
value over the long term. J.P. Morgan currently employs over 100 full time
research analysts, among the largest research staffs in the money management
industry, in its investment management divisions located in New York, London,
Tokyo, Frankfurt, Melbourne and Singapore to cover companies, industries and
countries on site. In addition, the investment management divisions employ
approximately 300 capital market researchers, portfolio managers and traders.
The Advisor's fixed income investment process is based on analysis of real
rates, sector diversification and quantitative and credit analysis.
The investment advisory services the Advisor provides to the Portfolios
are not exclusive under the terms of the Advisory Agreements. The Advisor is
free to and does render similar investment advisory services to others. The
Advisor serves as investment advisor to personal investors and other investment
companies and acts as fiduciary for trusts, estates and employee benefit plans.
Certain of the assets of trusts and estates under management are invested in
common trust funds for which the Advisor serves as trustee. The accounts which
are managed or advised by the Advisor have varying investment objectives and the
Advisor invests assets of such accounts in investments substantially similar to,
or the same as, those which are expected to constitute the principal investments
of the Portfolios. Such accounts are supervised by officers and employees of the
Advisor who may also be acting in similar capacities for the Portfolios. See
"Portfolio Transactions."
Sector weightings are generally similar to a benchmark with the
emphasis on security selection as the method to achieve investment performance
superior to the benchmark. The benchmarks for the Portfolios in which the Funds
invest are currently: The Prime Money Market Portfolio--IBC's First Tier Money
Fund Average; The Treasury Money Market Portfolio--IBC's Treasury and Repo Money
Fund Average; and The Federal Money Market Portfolio--IBC's U.S. Government and
Agency Money Fund Average.
J.P. Morgan Investment Management Inc., also a wholly owned subsidiary
of J.P. Morgan, is a registered investment adviser under the Investment Advisers
Act of 1940, as amended, which manages employee benefit funds of corporations,
labor unions and state and local governments and the accounts of other
institutional investors, including investment companies. Certain of the assets
of employee benefit accounts under its management are invested in commingled
pension trust funds for which the Advisor serves as trustee. J.P. Morgan
Investment Management Inc. advises the Advisor on investment of the commingled
pension trust funds.
The Portfolios are managed by officers of the Advisor who, in acting for
their customers, including the Portfolios, do not discuss their investment
decisions with any personnel of J.P. Morgan or any personnel of other divisions
of the Advisor or with any of its affiliated persons, with the exception of J.P.
Morgan Investment Management Inc. and certain other investment management
affiliates of J.P. Morgan.
As compensation for the services rendered and related expenses such as
salaries of advisory personnel borne by the Advisor under the Investment
Advisory Agreements, the Portfolio corresponding to each Fund has agreed to pay
the Advisor a fee, which is computed daily and may be paid monthly, equal to the
annual rates of 0.20% of each Portfolio's average daily net assets up to $1
billion and 0.10% of each Portfolio's average daily net assets in excess of $1
billion.
The table below sets forth for each Portfolio listed the advisory fees
paid to the Advisor for the fiscal periods indicated. See the Prospectus and
below for applicable expense limitations.
The Prime Money Market Portfolio -- For the fiscal years ended November 30,
1995, 1996 and 1997: $3,913,479, $4,503,793 and $5,063,662.
The Treasury Money Market Portfolio -- For the period July 7, 1997
(commencement of operations) through October 31, 1997: $49,123.
The Federal Money Market Portfolio -- For the fiscal years ended October
31, 1995, 1996 and 1997: $492,941, $653,326 and $659,707.
The Investment Advisory Agreements provide that they will continue in
effect for a period of two years after execution only if specifically approved
thereafter annually in the same manner as the Distribution Agreement. See
"Distributor" below. Each of the Investment Advisory Agreements will terminate
automatically if assigned and is terminable at any time without penalty by a
vote of a majority of the Portfolio's Trustees, or by a vote of the holders of a
majority of the Portfolio's outstanding voting securities, on 60 days' written
notice to the Advisor and by the Advisor on 90 days' written notice to the
Portfolio. See "Additional Information."
The Glass-Steagall Act and other applicable laws generally prohibit
banks such as the Advisor from engaging in the business of underwriting or
distributing securities, and the Board of Governors of the Federal Reserve
System has issued an interpretation to the effect that under these laws a bank
holding company registered under the federal Bank Holding Company Act or certain
subsidiaries thereof may not sponsor, organize, or control a registered open-end
investment company continuously engaged in the issuance of its shares, such as
the Trust. The interpretation does not prohibit a holding company or a
subsidiary thereof from acting as investment advisor and custodian to such an
investment company. The Advisor believes that it may perform the services for
the Portfolios contemplated by the Advisory Agreements without violation of the
Glass-Steagall Act or other applicable banking laws or regulations. State laws
on this issue may differ from the interpretation of relevant federal law, and
banks and financial institutions may be required to register as dealers pursuant
to state securities laws. However, it is possible that future changes in either
federal or state statutes and regulations concerning the permissible activities
of banks or trust companies, as well as further judicial or administrative
decisions and interpretations of present and future statutes and regulations,
might prevent the Advisor from continuing to perform such services for the
Portfolios.
If the Advisor were prohibited from acting as investment advisor to any
Portfolio, it is expected that the Trustees of the Portfolio would recommend to
investors that they approve the Portfolio's entering into a new investment
advisory agreement with another qualified investment advisor selected by the
Trustees.
Under separate agreements, Morgan also provides certain financial, fund
accounting and administrative services to the Trust and the Portfolios and
shareholder services for the Trust. See "Services Agent" and "Shareholder
Servicing" below.
DISTRIBUTOR
FDI serves as the Trust's exclusive Distributor and holds itself
available to receive purchase orders for each of the Fund's shares. In that
capacity, FDI has been granted the right, as agent of the Trust, to solicit and
accept orders for the purchase of each of the Fund's shares in accordance with
the terms of the Distribution Agreement between the Trust and FDI. Under the
terms of the Distribution Agreement between FDI and the Trust, FDI receives no
compensation in its capacity as the Trust's distributor. FDI is a wholly owned
indirect subsidiary of Boston Institutional Group, Inc. FDI also serves as
exclusive placement agent for the Portfolio. FDI currently provides
administration and distribution services for a number of other investment
companies.
The Distribution Agreement shall continue in effect with respect to
each of the Funds for a period of two years after execution only if it is
approved at least annually thereafter (i) by a vote of the holders of a majority
of the Fund's outstanding shares or by its Trustees and (ii) by a vote of a
majority of the Trustees of the Trust who are not "interested persons" (as
defined by the 1940 Act) of the parties to the Distribution Agreement, cast in
person at a meeting called for the purpose of voting on such approval (see
"Trustees and Officers"). The Distribution Agreement will terminate
automatically if assigned by either party thereto and is terminable at any time
without penalty by a vote of a majority of the Trustees of the Trust, a vote of
a majority of the Trustees who are not "interested persons" of the Trust, or by
a vote of the holders of a majority of the Fund's outstanding shares as defined
under "Additional Information," in any case without payment of any penalty on 60
days' written notice to the other party. The principal offices of FDI are
located at 60 State Street, Suite 1300, Boston, Massachusetts 02109.
CO-ADMINISTRATOR
Under Co-Administration Agreements with the Trust and the Portfolios
dated August 1, 1996, FDI also serves as the Trust's and the Portfolios'
Co-Administrator. The Co-Administration Agreements may be renewed or amended by
the respective Trustees without a shareholder vote. The Co-Administration
Agreements are terminable at any time without penalty by a vote of a majority of
the Trustees of the Trust or the Portfolios, as applicable, on not more than 60
days' written notice nor less than 30 days' written notice to the other party.
The Co-Administrator may subcontract for the performance of its obligations,
provided, however, that unless the Trust or the Portfolios, as applicable,
expressly agrees in writing, the Co-Administrator shall be fully responsible for
the acts and omissions of any subcontractor as it would for its own acts or
omissions. See "Services Agent" below.
FDI (i) provides office space, equipment and clerical personnel for
maintaining the organization and books and records of the Trust and the
Portfolio; (ii) provides officers for the Trust and the Portfolio; (iii)
prepares and files documents required for notification of state securities
administrators; (iv) reviews and files marketing and sales literature; (v) files
Portfolio regulatory documents and mails Portfolio communications to Trustees
and investors; and (vi) maintains related books and records.
For its services under the Co-Administration Agreements, each Fund and
Portfolio has agreed to pay FDI fees equal to its allocable share of an annual
complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The amount
allocable to each Fund or Portfolio is based on the ratio of its net assets to
the aggregate net assets of the Trust, the Master Portfolios and certain other
investment companies subject to similar agreements with FDI.
The table below sets forth for each Fund listed (except the Federal
Money Market Fund) and its corresponding Portfolio the administrative fees paid
to FDI for the fiscal periods indicated. See the Prospectus and below for
applicable expense limitations.
Prime Money Market Fund -- For the period October 23, 1997 (commencement of
operations) through November 30, 1997: $ 3. The Prime Money Market Portfolio --
For the period August 1, 1996 through November 30, 1996 and the fiscal year
ended November 30, 1997: $33,012 and
$96,662.
Treasury Money Market Fund -- For the period July 7, 1997 (commencement of
operations) through October 31, 1997: $231. The Treasury Money Market Portfolio
- -- For the period July 7, 1997 (commencement of operations) through October 31,
1997: $406.
The Federal Money Market Portfolio -- For the period August 1, 1996 through
October 31, 1996 and the fiscal year ended October 31, 1997: $1,663 and $6,218.
The table below sets forth for each Portfolio listed (except the
Treasury Money Market Portfolio) the administrative fees paid to Signature
Broker-Dealer Services, Inc. (which provided distribution and administrative
services to the Trust and placement agent and administrative services to the
Portfolios prior to August 1, 1996) for the fiscal periods indicated. See the
Prospectus and below for applicable expense limitations.
The Prime Money Market Portfolio -- For the fiscal year ended November 30,
1995 and the period December 1, 1995 through July 31, 1996: $176,717 and
$272,989.
The Federal Money Market Portfolio -- For the fiscal year ended October 31,
1995 and the period November 1, 1995 through July 31, 1996: $17,480 and $28,623.
SERVICES AGENT
The Trust, on behalf of each Fund, and the Portfolios have entered into
Administrative Services Agreements (the "Services Agreements") with Morgan
pursuant to which Morgan is responsible for certain administrative and related
services provided to each Fund and its corresponding Portfolio. The Services
Agreements may be terminated at any time, without penalty, by the Trustees or
Morgan, in each case on not more than 60 days' nor less than 30 days' written
notice to the other party.
Under the Services Agreements, each of the Funds and the Portfolios has
agreed to pay Morgan fees equal to its allocable share of an annual complex-wide
charge. This charge is calculated daily based on the aggregate net assets of the
Master Portfolios and J.P. Morgan Series Trust in accordance with the following
annual schedule: 0.09% on the first $7 billion of their aggregate average daily
net assets and 0.04% of their aggregate average daily net assets in excess of $7
billion, less the complex-wide fees payable to FDI. The portion of this charge
payable by each Fund and Portfolio is determined by the proportionate share that
its net assets bear to the total net assets of the Trust, the Master Portfolios,
the other investors in the Master Portfolios for which Morgan provides similar
services and J.P. Morgan Series Trust.
Under prior administrative services agreements in effect from December
29, 1995 through July 31, 1996, with Morgan, each Fund's corresponding Portfolio
(except the Treasury Money Market Portfolio) paid Morgan a fee equal to its
proportionate share of an annual complex-wide charge. This charge was calculated
daily based on the aggregate net assets of the Master Portfolios in accordance
with the following schedule: 0.06% of the first $7 billion of the Master
Portfolios' aggregate average daily net assets, and 0.03% of the Master
Portfolios' aggregate average daily net assets in excess of $7 billion.
Prior to December 29, 1995, the Trust and each Portfolio (except The
Treasury Money Market Portfolio) had entered into Financial and Fund Accounting
Services Agreements with Morgan, the provisions of which included certain of the
activities described above and, prior to September 1, 1995, also included
reimbursement of usual and customary expenses. The table below sets forth for
each Fund listed (except the Federal Money Market Fund) and its corresponding
Portfolio the fees paid to Morgan, net of fee waivers and reimbursements, as
Services Agent. See the Prospectus and below for applicable expense limitations.
Prime Money Market Fund -- For the period October 23, 1997 (commencement of
operations) through November 30, 1997: $36. The Prime Money Market Portfolio --
For the fiscal years ended November 30, 1995, 1996 and 1997: $373,077, $891,730
and $1,256,131.
Treasury Money Market Fund -- For the period July 7, 1997 (commencement of
operations) through October 31, 1997: $2,510. The Treasury Money Market
Portfolio -- For the period July 7, 1997 (commencement of operations) through
October 31, 1997: $7,289.
The Federal Money Market Portfolio -- For the fiscal years ended October
31, 1995, 1996 and 1997: $(146,180)*, $(165,137)* and $101,963.
- ------------------------------------
(*) Indicates a reimbursement by Morgan for expenses in excess of its fees under
the prior administrative services agreements. No fees were paid for the fiscal
period.
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02110, serves as the Trust's and each Portfolio's
custodian and fund accounting agent and each Fund's transfer and dividend
disbursing agent. Pursuant to the Custodian Contracts, State Street is
responsible for maintaining the books of account and records of portfolio
transactions and holding portfolio securities and cash. The Custodian maintains
portfolio transaction records. As transfer agent and dividend disbursing agent,
State Street is responsible for maintaining account records detailing the
ownership of Fund shares and for crediting income, capital gains and other
changes in share ownership to shareholder accounts.
SHAREHOLDER SERVICING
The Trust on behalf of each of the Funds has entered into a Shareholder
Servicing Agreement with Morgan pursuant to which Morgan acts as shareholder
servicing agent for its customers and for other Fund investors who are customers
of a Service Organization. Under this agreement, Morgan is responsible for
performing shareholder account, administrative and servicing functions, which
include but are not limited to, answering inquiries regarding account status and
history, the manner in which purchases and redemptions of Fund shares may be
effected, and certain other matters pertaining to a Fund; assisting customers in
designating and changing dividend options, account designations and addresses;
providing necessary personnel and facilities to coordinate the establishment and
maintenance of shareholder accounts and records with the Funds' transfer agent;
transmitting purchase and redemption orders to the Funds' transfer agent and
arranging for the wiring or other transfer of funds to and from customer
accounts in connection with orders to purchase or redeem Fund shares; verifying
purchase and redemption orders, transfers among and changes in accounts;
informing the Distributor of the gross amount of purchase orders for Fund
shares; monitoring the activities of the Funds' transfer agent; and providing
other related services.
Under the Shareholder Servicing Agreement, each Fund has agreed to pay
Morgan for these services a fee at the annual rate (expressed as a percentage of
the average daily net asset values of Fund shares owned by or for shareholders
for whom Morgan is acting as shareholder servicing agent) of 0.05%. Morgan acts
as shareholder servicing agent for all shareholders.
The table below sets forth for each Fund listed (except the Federal
Money Market Fund) the shareholder servicing fees paid by each Fund to Morgan,
net of fee waivers and reimbursements, for the fiscal periods indicated. See the
Prospectus and below for applicable expense limitations.
Prime Money Market Fund -- For the period October 23, 1997 (commencement of
operations) through November 30, 1997: $60.
Treasury Money Market Fund -- For the period July 7, 1997 (commencement of
operations) through October 31, 1997: $5,501 .
As discussed under "Investment Advisor," the Glass-Steagall Act and
other applicable laws and regulations limit the activities of bank holding
companies and certain of their subsidiaries in connection with registered
open-end investment companies. The activities of Morgan in acting as shareholder
servicing agent for Fund shareholders under the Shareholder Servicing Agreement
and providing administrative services to the Funds and the Portfolios under the
Services Agreements and in acting as Advisor to the Portfolios under the
Investment Advisory Agreements, may raise issues under these laws. However,
Morgan believes that it may properly perform these services and the other
activities described in the Prospectus without violation of the Glass-Steagall
Act or other applicable banking laws or regulations.
If Morgan were prohibited from providing any of the services under the
Shareholder Servicing Agreement and the Services Agreements, the Trustees would
seek an alternative provider of such services. In such event, changes in the
operation of the Funds or the Portfolios might occur and a shareholder might no
longer be able to avail himself or herself of any services then being provided
to shareholders by Morgan.
SERVICE ORGANIZATION
The Trust, on behalf of each Fund, has adopted a service plan (the
"Plan") with respect to the shares which authorizes the Funds to compensate
Service Organizations for providing certain account administration and other
services to their customers who are beneficial owners of such shares. Pursuant
to the Plan, the Trust, on behalf of each Fund, enters into agreements with
Service Organizations which purchase shares on behalf of their customers
("Service Agreements"). Under such Service Agreements, the Service Organizations
may: (a) act, directly or through an agent, as the sole shareholder of record
and nominee for all customers, (b) maintain or assist in maintaining account
records for each customer who beneficially owns shares, and (c) process or
assist in processing customer orders to purchase, redeem and exchange shares,
and handle or assist in handling the transmission of funds representing the
customers' purchase price or redemption proceeds. As compensation for such
services, the Trust on behalf of each Fund pays each Service Organization a
service fee in an amount up to 0.25% (on an annualized basis) of the average
daily net assets of the shares of each Fund attributable to or held in the name
of such Service Organization for its customers (0.20% where J.P. Morgan acts as
a service organization).
Conflicts of interest restrictions (including the Employee Retirement
Income Security Act of 1974) may apply to a Service Organization's receipt of
compensation paid by the Trust in connection with the investment of fiduciary
funds in shares. Service Organizations, including banks regulated by the
Comptroller of the Currency, the Federal Reserve Board or the Federal Deposit
Insurance Corporation, and investment advisers and other money managers subject
to the jurisdiction of the Securities and Exchange Commission, the Department of
Labor or state securities commissions, are urged to consult legal advisers
before investing fiduciary assets in shares. In addition, under some state
securities laws, banks and other financial institutions purchasing shares on
behalf of their customers may be required to register as dealers.
The Trustees of the Trust, including a majority of Trustees who are not
interested persons of the Trust and who have no direct or indirect financial
interest in the operation of such Plan or the related Service Agreements,
initially voted to approve the Plan and Service Agreements at a meeting called
for the purpose of voting on such Plan and Service Agreements on April 9, 1997.
The Plan was approved by the initial shareholders of each Fund on June 3, 1997,
remains in effect until July 10, 1998 and will continue in effect thereafter
only if such continuance is specifically approved annually by a vote of the
Trustees in the manner described above. The Plan may not be amended to increase
materially the amount to be spent for the services described therein without
approval of the shareholders of the affected Fund, and all material amendments
of the Plan must also be approved by the Trustees in the manner described above.
The Plan may be terminated at any time by a majority of the Trustees as
described above or by vote of a majority of the outstanding shares of the
affected Fund. The Service Agreements may be terminated at any time, without
payment of any penalty, by vote of a majority of the disinterested Trustees as
described above or by a vote of a majority of the outstanding shares of the
affected Fund on not more than 60 days' written notice to any other party to the
Service Agreements. The Service Agreements shall terminate automatically if
assigned. So long as the Plans are in effect, the selection and nomination of
those Trustees who are not interested persons shall be determined by the
non-interested members of the Board of Trustees. The Trustees have determined
that, in their judgment, there is a reasonable likelihood that the Plan will
benefit the Funds and Fund shareholders. In the Trustees' quarterly review of
the Plan and Service Agreements, they will consider their continued
appropriateness and the level of compensation provided therein.
INDEPENDENT ACCOUNTANTS
The independent accountants of the Trust and the Portfolios are Price
Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036. Price
Waterhouse LLP conducts an annual audit of the financial statements of each of
the Funds and the Portfolios, assists in the preparation and/or review of each
of the Fund's and the Portfolio's federal and state income tax returns and
consults with the Funds and the Portfolios as to matters of accounting and
federal and state income taxation.
EXPENSES
In addition to the fees payable to Pierpont Group, Inc., Morgan, FDI
and Service Organizations under various agreements discussed under "Trustees and
Officers," "Investment Advisor," "Co-Administrator and Distributor," "Services
Agent" and "Shareholder Servicing" above, the Funds and the Portfolios are
responsible for usual and customary expenses associated with their respective
operations. Such expenses include organization expenses, legal fees, accounting
expenses, insurance costs, the compensation and expenses of the Trustees, costs
associated with their registration under federal securities laws, and
extraordinary expenses applicable to the Funds or the Portfolios. For the Funds,
such expenses also include transfer, registrar and dividend disbursing costs,
the expenses of printing and mailing reports, notices and proxy statements to
Fund shareholders, and filing fees under state securities laws. For the
Portfolios, such expenses also include custodian fees. Under fee arrangements
prior to September 1, 1995, Morgan as Services Agent was responsible for
reimbursements to the Trust and certain Portfolios and the usual and customary
expenses described above (excluding organization and extraordinary expenses,
custodian fees and brokerage expenses). For additional information regarding
waivers or expense subsidies, see the Prospectus.
PURCHASE OF SHARES
Method of Purchase. Investors may open accounts with the Fund only
through the Distributor. All purchase transactions in Fund accounts are
processed by Morgan as shareholder servicing agent and the Fund is authorized to
accept any instructions relating to a Fund account from Morgan as shareholder
servicing agent for the customer. All purchase orders must be accepted by the
Distributor. Prospective investors who are not already customers of Morgan may
apply to become customers of Morgan for the sole purpose of Fund transactions.
There are no charges associated with becoming a Morgan customer for this
purpose. Morgan reserves the right to determine the customers that it will
accept, and the Trust reserves the right to determine the purchase orders that
it will accept.
References in the Prospectus and this Statement of Additional
Information to customers of Morgan or a Service Organization include customers
of their affiliates and references to transactions by customers with Morgan or a
Service Organization include transactions with their affiliates. Only Fund
investors who are using the services of a financial institution acting as
shareholder servicing agent pursuant to an agreement with the Trust on behalf of
a Fund may make transactions in shares of a Fund.
Shares may be purchased for accounts held in the name of a Service
Organization that provides certain account administration and other services to
its customers, including acting directly or through an agent as the sole
shareholder of record, maintenance or assistance in maintaining account records
and processing orders to purchase, redeem and exchange shares. Shares of each
Fund bear the cost of service fees at the annual rate of up to 0.25% of 1% of
the average daily net assets of such shares.
It is possible that an institution or its affiliate may offer shares of
different funds which invest in the same Portfolio to its customers and thus
receive different compensation with respect to different funds. Certain aspects
of the shares may be altered, after advance notice to shareholders, if it is
deemed necessary in order to satisfy certain tax regulatory requirements.
Each Fund may, at its own option, accept securities in payment for
shares. The securities delivered in such a transaction are valued by the method
described in "Net Asset Value" as of the day the Fund receives the securities.
This is a taxable transaction to the shareholder. Securities may be accepted in
payment for shares only if they are, in the judgment of Morgan, appropriate
investments for the Fund's corresponding Portfolio. In addition, securities
accepted in payment for shares must: (i) meet the investment objective and
policies of the acquiring Fund's corresponding Portfolio; (ii) be acquired by
the applicable Fund for investment and not for resale (other than for resale to
the Fund's corresponding Portfolio); and (iii) be liquid securities which are
not restricted as to transfer either by law or liquidity of market. Each Fund
reserves the right to accept or reject at its own option any and all securities
offered in payment for its shares.
Prospective investors may purchase shares with the assistance of a
Service Organization, and the Service Organization may charge the investor a fee
for this service and other services it provides to its customers.
REDEMPTION OF SHARES
Investors may redeem shares as described in the Prospectus.
Shareholders redeeming shares of the Funds should be aware that the Funds
attempt to maintain a stable net asset value of $1.00 per share; however, there
can be no assurance that they will be able to continue to do so, and in that
case the net asset value of the Fund's shares might deviate from $1.00 per
share. Accordingly, a redemption request might result in payment of a dollar
amount which differs from the number of shares redeemed. See "Net Asset Value"
below.
If the Trust on behalf of a Fund and its corresponding Portfolio
determine that it would be detrimental to the best interest of the remaining
shareholders of a Fund to make payment wholly or partly in cash, payment of the
redemption price may be made in whole or in part by a distribution in kind of
securities from the Portfolio, in lieu of cash, in conformity with the
applicable rule of the SEC. If shares are redeemed in kind, the redeeming
shareholder might incur transaction costs in converting the assets into cash.
The method of valuing portfolio securities is described under "Net Asset Value,"
and such valuation will be made as of the same time the redemption price is
determined. The Trust on behalf of the Treasury Money Market and Federal Money
Market Funds and their corresponding Portfolios have elected to be governed by
Rule 18f-1 under the 1940 Act pursuant to which such Funds and their
corresponding Portfolios are obligated to redeem shares solely in cash up to the
lesser of $250,000 or one percent of the net asset value of such Fund during any
90-day period for any one shareholder. The Trust will redeem Fund shares in kind
only if it has received a redemption in kind from the corresponding Portfolio
and therefore shareholders of the Fund that receive redemptions in kind will
receive securities of the Portfolio. The Portfolios have advised the Trust that
the Portfolios will not redeem in kind except in circumstances in which a Fund
is permitted to redeem in kind.
Further Redemption Information. Investors should be aware that
redemptions from a Fund may not be processed if a redemption request is not
submitted in proper form. To be in proper form, the Fund must have received the
shareholder's taxpayer identification number and address. In addition, if a
shareholder sends a check for the purchase of fund shares and shares are
purchased before the check has cleared, the transmittal of redemption proceeds
from the shares will occur upon clearance of the check which may take up to 15
days. The Trust, on behalf of a Fund, and the Portfolios reserve the right to
suspend the right of redemption and to postpone the date of payment upon
redemption as follows: (i) for up to seven days, (ii) during periods when the
New York Stock Exchange is closed for other than weekends and holidays or when
trading on such Exchange is restricted as determined by the SEC by rule or
regulation, (iii) during periods in which an emergency, as determined by the
SEC, exists that causes disposal by the Portfolio of, or evaluation of the net
asset value of, its portfolio securities to be unreasonable or impracticable, or
(iv) for such other periods as the SEC may permit.
EXCHANGE OF SHARES
An investor may exchange shares from any Fund into shares of any other
J.P. Morgan Institutional or J.P. Morgan mutual fund, without charge. An
exchange may be made so long as after the exchange the investor has shares, in
each fund in which he or she remains an investor, with a value of at least that
fund's minimum investment amount. Shareholders should read the prospectus of the
fund into which they are exchanging and may only exchange between fund accounts
that are registered in the same name, address and taxpayer identification
number. Shares are exchanged on the basis of relative net asset value per share.
Exchanges are in effect redemptions from one fund and purchases of another fund
and the usual purchase and redemption procedures and requirements are applicable
to exchanges. Shareholders subject to federal income tax who exchange shares in
one fund for shares in another fund may recognize capital gain or loss for
federal income tax purposes. Shares of the Fund to be acquired are purchased for
settlement when the proceeds from redemption become available. The Trust
reserves the right to discontinue, alter or limit the exchange privilege at any
time.
DIVIDENDS AND DISTRIBUTIONS
Each Fund declares and pays dividends and distributions as described in
the Prospectus.
If a shareholder has elected to receive dividends and/or capital gain
distributions in cash and the postal or other delivery service is unable to
deliver checks to the shareholder's address of record, such shareholder's
distribution option will automatically be converted to having all dividend and
other distributions reinvested in additional shares. No interest will accrue on
amounts represented by uncashed distribution or redemption checks.
NET ASSET VALUE
Each of the Funds computes its net asset value once daily on Monday
through Friday as described in the Prospectus. The net asset value will not be
computed on the day the following legal holidays are observed: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Columbus Day, Veteran's Day, Thanksgiving Day, and
Christmas Day. In the event that trading in the money markets is scheduled to
end earlier than the close of the New York Stock Exchange in observance of these
holidays, the Funds and their corresponding Portfolios would expect to close for
purchases and redemptions an hour in advance of the end of trading in the money
markets. The Funds and the Portfolios may also close for purchases and
redemptions at such other times as may be determined by the Board of Trustees to
the extent permitted by applicable law. On any business day when the Public
Securities Association ("PSA") recommends that the securities market close
early, the Funds reserve the right to cease accepting purchase and redemption
orders for same business day credit at the time PSA recommends that the
securities market close. On days the Funds close early, purchase and redemption
orders received after the PSA-recommended closing time will be credited the next
business day. The days on which net asset value is determined are the Funds'
business days.
The net asset value of each Fund is equal to the value of the Fund's
investment in its corresponding Portfolio (which is equal to the Fund's pro rata
share of the total investment of the Fund and of any other investors in the
Portfolio less the Fund's pro rata share of the Portfolio's liabilities) less
the Fund's liabilities. The following is a discussion of the procedures used by
the Portfolios corresponding to each Fund in valuing their assets.
The Portfolios' portfolio securities are valued by the amortized cost
method. The purpose of this method of calculation is to attempt to maintain a
constant net asset value per share of the Fund of $1.00. No assurances can be
given that this goal can be attained. The amortized cost method of valuation
values a security at its cost at the time of purchase and thereafter assumes a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the instrument. If a
difference of more than 1/2 of 1% occurs between valuation based on the
amortized cost method and valuation based on market value, the Trustees will
take steps necessary to reduce such deviation, such as changing a Fund's
dividend policy, shortening the average portfolio maturity, realizing gains or
losses, or reducing the number of outstanding Fund shares. Any reduction of
outstanding shares will be effected by having each shareholder contribute to a
Fund's capital the necessary shares on a pro rata basis. Each shareholder will
be deemed to have agreed to such contribution in these circumstances by his
investment in the Funds. See "Taxes."
PERFORMANCE DATA
From time to time, the Funds may quote performance in terms of yield,
actual distributions, total return or capital appreciation in reports, sales
literature and advertisements published by the Trust. Current performance
information for the Funds may be obtained by calling the number provided on the
cover page of this Statement of Additional Information. See "Additional
Information" in the Prospectus.
Yield Quotations. As required by regulations of the SEC, current yield
for the Funds is computed by determining the net change exclusive of capital
changes in the value of a hypothetical pre-existing account having a balance of
one share at the beginning of a seven-day calendar period, dividing the net
change in account value of the account at the beginning of the period, and
multiplying the return over the seven-day period by 365/7. For purposes of the
calculation, net change in account value reflects the value of additional shares
purchased with dividends from the original share and dividends declared on both
the original share and any such additional shares, but does not reflect realized
gains or losses or unrealized appreciation or depreciation. Effective yield for
each Fund is computed by annualizing the seven-day return with all dividends
reinvested in additional Fund shares.
Below is set forth historical yield information for the periods
indicated:
Prime Money Market Fund (12/31/97): 7-day current yield: 5.52%; 7-day
effective yield: 5.67%.
Treasury Money Market Fund (12/31/97): 7-day current yield: 5.36%; 7-day
effective yield: 5.50%.
Federal Money Market Fund (12/31/97): 7-day current yield: 5.32%; 7-day
effective yield: 5.47%.
Total Return Quotations. Historical performance information for periods
prior to the establishment of the J.P. Morgan Institutional Service Prime Money
Market and J.P. Morgan Institutional Service Federal Money Market Funds will be
that of the respective related series of the J.P. Morgan Funds and will be
presented in accordance with applicable SEC staff interpretations. The
applicable financial information in the registration statement for the J.P.
Morgan Funds (Registration Nos. 033-54632 and 811-07340) is incorporated herein
by reference.
The historical performance information shown below for the Prime Money
Market and Federal Money Market Funds may reflect operating expenses which were
lower than those of the Funds. These returns may be higher than would have
occurred if an investment had been made during the periods indicated in the J.P.
Morgan Institutional Service Prime Money Market or J.P. Morgan Institutional
Service Federal Money Market Funds.
Below is set forth historical return information for each Fund or its
related series of the J.P. Morgan Funds for the periods indicated:
Prime Money Market Fund (12/31/97): Average annual total return, 1 year:
5.60%; average annual total return, 5 years: 4.56%; average annual total return,
10 years: 5.70%; aggregate total return, 1 year: 5.60%; aggregate total return,
5 years: 24.99%; aggregate total return, 10 years: 74.01%.
Treasury Money Market Fund (12/31/97): Average annual total return, 1 year:
N/A; average annual total return, 5 years: N/A; average annual total return,
commencement of operations to period end: 2.61%; aggregate total return, 1 year:
N/A; aggregate total return, 5 years: N/A; aggregate total return, commencement
of operation to period end: 2.61%.
Federal Money Market Fund (12/31/97): Average annual total return, 1 year:
5.18%; average annual total return, 5 years: N/A; average annual total return,
commencement of operations to period end3: 4.42%; aggregate total return, 1
year: 5.18%; aggregate total return, 5 years: N/A; aggregate total return,
commencement of operations to period end3: 24.06%.
Aggregate total returns, reflecting the cumulative percentage change
over a measuring period, may also be calculated.
General. A Fund's performance will vary from time to time depending
upon market conditions, the composition of its corresponding Portfolio, and its
operating expenses. Consequently, any given performance quotation should not be
considered representative of a Fund's performance for any specified period in
the future. In addition, because performance will fluctuate, it may not provide
a basis for comparing an investment in a Fund with certain bank deposits or
other investments that pay a fixed yield or return for a stated period of time.
Comparative performance information may be used from time to time in
advertising the Funds' shares, including appropriate market indices including
the benchmarks indicated under "Investment Advisor" above or data from Lipper
Analytical Services, Inc., Micropal, Inc., Ibbotson Associates, Morningstar
Inc., the Dow Jones Industrial Average and other industry publications.
PORTFOLIO TRANSACTIONS
The Advisor places orders for all Portfolios for all purchases and sales of
portfolio securities, enters into repurchase agreements, and may enter into
reverse repurchase agreements and execute loans of portfolio securities on
behalf of all the Portfolios. See "Investment Objectives and Policies."
Fixed income and debt securities are generally traded at a net price
with dealers acting as principal for their own accounts without a stated
commission. The price of the security usually includes profit to the dealers. In
underwritten offerings, securities are purchased at a fixed price which includes
an amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount. On occasion, certain securities may be
purchased directly from an issuer, in which case no commissions or discounts are
paid.
Portfolio transactions for the Portfolios will be undertaken principally to
accomplish a Portfolio's objective in relation to expected movements in the
general level of interest rates. The Portfolios may engage in short-term trading
consistent with their objectives. See "Investment Objectives and Policies --
Portfolio Turnover."
In connection with portfolio transactions for the Portfolios, the
Advisor intends to seek best execution on a competitive basis for both purchases
and sales of securities.
The Portfolios have a policy of investing only in securities with
maturities of not more than thirteen months, which will result in high portfolio
turnovers. Since brokerage commissions are not normally paid on investments
which the Portfolios make, turnover resulting from such investments should not
adversely affect the net asset value or net income of the Portfolios.
Subject to the overriding objective of obtaining best execution of
orders, the Advisor may allocate a portion of a Portfolio's brokerage
transactions to affiliates of the Advisor. In order for affiliates of the
Advisor to effect any portfolio transactions for a Portfolio, the commissions,
fees or other remuneration received by such affiliates must be reasonable and
fair compared to the commissions, fees, or other remuneration paid to other
brokers in connection with comparable transactions involving similar securities
being purchased or sold on a securities exchange during a comparable period of
time. Furthermore, the Trustees of each Portfolio, including a majority of the
Trustees who are not "interested persons," have adopted procedures which are
reasonably designed to provide that any commissions, fees, or other remuneration
paid to such affiliates are consistent with the foregoing standard.
Portfolio securities will not be purchased from or through or sold to
or through the Co-Administrator, the Distributor or the Advisor or any other
"affiliated person" (as defined in the 1940 Act) of the Co-Administrator,
Distributor or Advisor when such entities are acting as principals, except to
the extent permitted by law. In addition, the Portfolios will not purchase
securities during the existence of any underwriting group relating thereto of
which the Advisor or an affiliate of the Advisor is a member, except to the
extent permitted by law.
On those occasions when the Advisor deems the purchase or sale of a
security to be in the best interests of a Portfolio as well as other customers
including other Portfolios, the Advisor to the extent permitted by applicable
laws and regulations, may, but is not obligated to, aggregate the securities to
be sold or purchased for a Portfolio with those to be sold or purchased for
other customers in order to obtain best execution, including lower brokerage
commissions if appropriate. In such event, allocation of the securities so
purchased or sold as well as any expenses incurred in the transaction will be
made by the Advisor in the manner it considers to be most equitable and
consistent with its fiduciary obligations to a Portfolio. In some instances,
this procedure might adversely affect a Portfolio.
MASSACHUSETTS TRUST
The Trust is a trust fund of the type commonly known as a
"Massachusetts business trust" of which each Fund is a separate and distinct
series. A copy of the Declaration of Trust for the Trust is on file in the
office of the Secretary of The Commonwealth of Massachusetts. The Declaration of
Trust and the By-Laws of the Trust are designed to make the Trust similar in
most respects to a Massachusetts business corporation. The principal distinction
between the two forms concerns shareholder liability described below.
Effective January 9, 1997, the name of The Treasury Money Market
Portfolio was changed to The Federal Money Market Portfolio. Effective May 12,
1997, the name of The Money Market Portfolio was changed to The Prime Money
Market Portfolio. Effective January 1, 1998, the name of the Trust was changed
from "The JPM Institutional Funds" to "J.P. Morgan Institutional Funds," and
each Fund's name changed accordingly.
Under Massachusetts law, shareholders of such a trust may, under
certain circumstances, be held personally liable as partners for the obligations
of the trust which is not the case for a corporation. However, the Trust's
Declaration of Trust provides that the shareholders shall not be subject to any
personal liability for the acts or obligations of any Fund and that every
written agreement, obligation, instrument or undertaking made on behalf of any
Fund shall contain a provision to the effect that the shareholders are not
personally liable thereunder.
No personal liability will attach to the shareholders under any
undertaking containing such provision when adequate notice of such provision is
given, except possibly in a few jurisdictions. With respect to all types of
claims in the latter jurisdictions, (i) tort claims, (ii) contract claims where
the provision referred to is omitted from the undertaking, (iii) claims for
taxes, and (iv) certain statutory liabilities in other jurisdictions, a
shareholder may be held personally liable to the extent that claims are not
satisfied by a Fund. However, upon payment of such liability, the shareholder
will be entitled to reimbursement from the general assets of a Fund. The
Trustees intend to conduct the operations of the Trust in such a way so as to
avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the Funds.
The Trust's Declaration of Trust further provides that the name of the
Trust refers to the Trustees collectively as Trustees, not as individuals or
personally, that no Trustee, officer, employee or agent of a Fund is liable to a
Fund or to a shareholder, and that no Trustee, officer, employee, or agent is
liable to any third persons in connection with the affairs of a Fund, except as
such liability may arise from his or its own bad faith, willful misfeasance,
gross negligence or reckless disregard of his or its duties to such third
persons. It also provides that all third persons shall look solely to Fund
property for satisfaction of claims arising in connection with the affairs of a
Fund. With the exceptions stated, the Trust's Declaration of Trust provides that
a Trustee, officer, employee, or agent is entitled to be indemnified against all
liability in connection with the affairs of a Fund.
The Trust shall continue without limitation of time subject to the
provisions in the Declaration of Trust concerning termination by action of the
shareholders or by action of the Trustees upon notice to the shareholders.
DESCRIPTION OF SHARES
The Trust is an open-end management investment company organized as a
Massachusetts business trust in which each Fund represents a separate series of
shares of beneficial interest. See "Massachusetts Trust."
The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares ($0.001 par value) of one or more series
and classes within any series and to divide or combine the shares (of any
series, if applicable) without changing the proportionate beneficial interest of
each shareholder in a Fund (or in the assets of other series, if applicable).
Each share represents an equal proportional interest in a Fund with each other
share. Upon liquidation of a Fund, holders are entitled to share pro rata in the
net assets of a Fund available for distribution to such shareholders. See
"Massachusetts Trust." Shares of a Fund have no preemptive or conversion rights
and are fully paid and nonassessable. The rights of redemption and exchange are
described in the Prospectus and elsewhere in this Statement of Additional
Information.
The shareholders of the Trust are entitled to a full vote for each full
share held and to a fractional vote for each fractional share. Subject to the
1940 Act, the Trustees themselves have the power to alter the number and the
terms of office of the Trustees, to lengthen their own terms, or to make their
terms of unlimited duration subject to certain removal procedures, and appoint
their own successors, provided, however, that immediately after such appointment
the requisite majority of the Trustees have been elected by the shareholders of
the Trust. The voting rights of shareholders are not cumulative so that holders
of more than 50% of the shares voting can, if they choose, elect all Trustees
being selected while the shareholders of the remaining shares would be unable to
elect any Trustees. It is the intention of the Trust not to hold meetings of
shareholders annually. The Trustees may call meetings of shareholders for action
by shareholder vote as may be required by either the 1940 Act or the Trust's
Declaration of Trust.
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 25 series of the Trust. The Trustees have no current intention to
create any classes within the initial series or any subsequent series. The
Trustees may, however, authorize the issuance of shares of additional series and
the creation of classes of shares within any series with such preferences,
privileges, limitations and voting and dividend rights as the Trustees may
determine. The proceeds from the issuance of any additional series would be
invested in separate, independently managed portfolios with distinct investment
objectives, policies and restrictions, and share purchase, redemption and net
asset valuation procedures. Any additional classes would be used to distinguish
among the rights of different categories of shareholders, as might be required
by future regulations or other unforeseen circumstances. All consideration
received by the Trust for shares of any additional series or class, and all
assets in which such consideration is invested, would belong to that series or
class, subject only to the rights of creditors of the Trust and would be subject
to the liabilities related thereto. Shareholders of any additional series or
class will approve the adoption of any management contract or distribution plan
relating to such series or class and of any changes in the investment policies
related thereto, to the extent required by the 1940 Act.
For information relating to mandatory redemption of Fund shares or
their redemption at the option of the Trust under certain circumstances, see the
Prospectus.
As of January 2, 1998, the following owned of record, or to the
knowledge of management, beneficially owned more than 5% of the outstanding
shares of:
Prime Money Market Fund: Hare & Co. (84.80%) and Resources Trust Co. for
the Exclusive Benefit of IMS Customers (14.88).
Treasury Money Market Fund: Lee Ray & Co. (11.62%), Hare & Co. (12.21%) and
The Chicago Trust Company (76.15%).
Federal Money Market Fund: Hare & Co. (99.99%).
SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE
Unlike other mutual funds which directly acquire and manage their own
portfolio of securities, each Fund is an open-end management investment company
which seeks to achieve its investment objective by investing all of its
investable assets in a corresponding Portfolio, a separate registered investment
company with the same investment objective as the Fund. Generally, when a 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 a Fund, a 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) 521-5411.
The Trust may withdraw the investment of a Fund from a Portfolio at any
time if the Board of Trustees of the Trust determines that it is in the best
interests of the Fund to do so. Upon any such withdrawal, the Board of Trustees
would consider what action might be taken, including the investment of all the
assets of the Fund in another pooled investment entity having the same
investment objective and restrictions as the Fund or the retaining of an
investment adviser to manage the Fund's assets in accordance with the investment
policies with respect to the Portfolio described above and in each Fund's
Prospectus.
Certain changes in a Portfolio's investment objective, policies or
restrictions, or a failure by a 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 a 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 a 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 effect on the outcome of such matters.
TAXES
The following discussion of tax consequences is based on U.S. federal
tax laws in effect on the date of this Prospectus. These laws and regulations
are subject to change by legislative or administrative action.
Each Fund intends to qualify as a regulated investment company under
Subchapter M of the Code. As a regulated investment company, a Fund must, among
other things, (a) derive at least 90% of its gross income from dividends,
interest, payments with respect to loans of stock and securities, gains from the
sale or other disposition of stock, securities or foreign currency and other
income (including but not limited to gains from options, futures, and forward
contracts) derived with respect to its business of investing in such stock,
securities or foreign currency; and (b) diversify its holdings so that, at the
end of each quarter of its taxable year, (i) at least 50% of the value of the
Fund's total assets is represented by cash, cash items, U.S. Government
securities, securities of other regulated investment companies, and other
securities limited, in respect of any one issuer, to an amount not greater than
5% of the Fund's total assets, and 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its total assets is
invested in the securities of any one issuer (other than U.S. Government
securities or securities of other regulated investment companies). As a
regulated investment company, a Fund (as opposed to its shareholders) will not
be subject to federal income taxes on the net investment income and capital gain
that it distributes to its shareholders, provided that at least 90% of its net
investment income and realized net short-term capital gain in excess of net
long-term capital loss for the taxable year is distributed in accordance with
the Code's timing requirements.
Under the Code, a Fund will be subject to a 4% excise tax on a portion
of its undistributed taxable income and capital gains if it fails to meet
certain distribution requirements by the end of the calendar year. Each Fund
intends to make distributions in a timely manner and accordingly does not expect
to be subject to the excise tax.
For federal income tax purposes, dividends that are declared by a Fund
in October, November or December as of a record date in such month and actually
paid in January of the following year will be treated as if they were paid on
December 31 of the year declared. Therefore, such dividends will be taxable to a
shareholder in the year declared rather than the year paid.
Distributions of net investment income and realized net short-term
capital gain in excess of net long-term capital loss (other than exempt interest
dividends) are generally taxable to shareholders of the Funds as ordinary income
whether such distributions are taken in cash or reinvested in additional shares.
Distributions to corporate shareholders of the Funds are not eligible for the
dividends received deduction. Distributions of net long-term capital gain (i.e.,
net long-term capital gain in excess of net short-term capital loss) are taxable
to shareholders of a Fund as long-term capital gain, regardless of whether such
distributions are taken in cash or reinvested in additional shares and
regardless of how long a shareholder has held shares in the Fund. As a result of
the enactment of the Taxpayer Relief Act of 1997 (the "Act"), long-term capital
gain of an individual is generally subject to a maximum rate of 28% in respect
of a capital asset held directly by such individual for more than one year but
not more than eighteen months, and the maximum rate is reduced to 20% in respect
of a capital asset held in excess of 18 months. The Act authorizes the Treasury
department to promulgate regulations that would apply these rules in the case of
long-term capital gain distributions made by the Fund. The Treasury Department
has indicated that, under such regulations, individual shareholders will be
taxed at a minimum rate of 28% in respect of capital gains distributions
designated as 28% rate gain distributions and will be taxed at a maximum rate of
20% in respect of capital gains distributions designated as 20% rate gain
distributions, regardless of how long such shareholders have held their shares
in the Fund. Additionally, any loss realized on a redemption or exchange of
shares of a Fund will be disallowed to the extent the shares disposed of are
replaced within a period of 61 days beginning 30 days before such disposition,
such as pursuant to reinvestment of a dividend in shares of the Fund.
To maintain a constant $1.00 per share net asset value, the Trustees of
the Trust may direct that the number of outstanding shares be reduced pro rata.
If this adjustment is made, it will reflect the lower market value of portfolio
securities and not realized losses. The adjustment may result in a shareholder
having more dividend income than net income in his account for a period. When
the number of outstanding shares of a Fund is reduced, the shareholder's basis
in the shares of the Fund may be adjusted to reflect the difference between
taxable income and net dividends actually distributed. This difference may be
realized as a capital loss when the shares are liquidated. Subject to certain
limited exceptions, capital losses cannot be used to offset ordinary income. See
"Net Asset Value."
<PAGE>
Gains or losses on sales of portfolio securities will be treated as
long-term capital gains or losses if the securities have been held for more than
one year except in certain cases where a put is acquired or a call option is
written thereon or straddle rules are otherwise applicable. Other gains or
losses on the sale of securities will be short-term capital gains or losses.
Gains and losses on the sale, lapse or other termination of options on
securities will be treated as gains and losses from the sale of securities.
Except as described below, if an option written by a Portfolio lapses or is
terminated through a closing transaction, such as a repurchase by the Portfolio
of the option from its holder, the Portfolio will realize a short-term capital
gain or loss, depending on whether the premium income is greater or less than
the amount paid by the Portfolio in the closing transaction. If securities are
purchased by a Portfolio pursuant to the exercise of a put option written by it,
the Portfolio will subtract the premium received from its cost basis in the
securities purchased.
Any distribution of net investment income or capital gains will have
the effect of reducing the net asset value of Fund shares held by a shareholder
by the same amount as the distribution. If the net asset value of the shares is
reduced below a shareholder's cost as a result of such a distribution, the
distribution, although constituting a return of capital to the shareholder, will
be taxable as described above.
Any gain or loss realized on the redemption or exchange of Fund shares
by a shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held for more than one year, and
otherwise as short-term capital gain or loss. However, any loss realized by a
shareholder upon the redemption or exchange of shares in the Fund held for six
months or less 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.
Foreign Shareholders. Dividends of net investment income and
distributions of realized net short-term gain in excess of net long-term loss to
a shareholder who, as to the United States, is a nonresident alien individual,
fiduciary of a foreign trust or estate, foreign corporation or foreign
partnership (a "foreign shareholder") will be subject to U.S. withholding tax at
the rate of 30% (or lower treaty rate) unless the dividends are effectively
connected with a U.S. trade or business of the shareholder, in which case the
dividends will be subject to tax on a net income basis at the graduated rates
applicable to U.S. individuals or domestic corporations. Distributions treated
as long term capital gains to foreign shareholders will not be subject to U.S.
tax unless the distributions are effectively connected with the shareholder's
trade or business in the United States or, in the case of a shareholder who is a
nonresident alien individual, the shareholder was present in the United States
for more than 182 days during the taxable year and certain other conditions are
met.
In the case of a foreign shareholder who is a nonresident alien
individual or foreign entity, a Fund may be required to withhold U.S. federal
income tax as "backup withholding" at the rate of 31% from distributions treated
as long-term capital gains and from the proceeds of redemptions, exchanges or
other dispositions of Fund shares unless IRS Form W-8 is provided. Transfers by
gift of shares of a Fund by a foreign shareholder who is a nonresident alien
individual will not be subject to U.S. federal gift tax, but the value of shares
of the Fund held by such a shareholder at his or her death will be includible in
his or her gross estate for U.S. federal estate tax purposes.
State and Local Taxes. Each Fund may be subject to state or local taxes
in jurisdictions in which the Fund is deemed to be doing business. In addition,
the treatment of a Fund and its shareholders in those states which have income
tax laws might differ from treatment under the federal income tax laws.
Shareholders should consult their own tax advisors with respect to any state or
local taxes.
Other Taxation. The Trust is organized as a Massachusetts business
trust and, under current law, neither the Trust nor any Fund is liable for any
income or franchise tax in The Commonwealth of Massachusetts, provided that each
Fund continues to qualify as a regulated investment company under Subchapter M
of the Code. The Portfolios are organized as New York trusts. The Portfolios are
not subject to any federal income taxation or income or franchise tax in the
State of New York or The Commonwealth of Massachusetts. The investment by a Fund
in its corresponding Portfolio does not cause the Fund to be liable for any
income or franchise tax in the State of New York.
ADDITIONAL INFORMATION
As used in this Statement of Additional Information and the Prospectus,
the term "majority of the outstanding voting securities" means the vote of (i)
67% or more of the Fund's shares or the Portfolio's outstanding voting
securities present at a meeting, if the holders of more than 50% of the Fund's
outstanding shares or the Portfolio's outstanding voting securities are present
or represented by proxy, or (ii) more than 50% of the Fund's outstanding shares
or the Portfolio's outstanding voting securities, whichever is less.
Telephone calls to the Funds, Morgan or Service Organizations as
shareholder servicing agent may be tape recorded. With respect to the securities
offered hereby, this Statement of Additional Information and the Prospectus do
not contain all the information included in the Trust's Registration Statement
filed with the SEC under the 1933 Act and the Trust's and the Portfolios'
Registration Statements filed under the 1940 Act. Pursuant to the rules and
regulations of the SEC, certain portions have been omitted. The Registration
Statements including the exhibits filed therewith may be examined at the office
of the SEC in Washington D.C.
Statements contained in this Statement of Additional Information and
the Prospectus concerning the contents of any contract or other document are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the applicable
Registration Statements.
Each such statement is qualified in all respects by such reference.
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in the
Prospectus and this Statement of Additional Information, in connection with the
offer contained therein and, if given or made, such other information or
representations must not be relied upon as having been authorized by any of the
Trust, the Funds or the Distributor. The Prospectus and this Statement of
Additional Information do not constitute an offer by any Fund or by the
Distributor to sell or solicit any offer to buy any of the securities offered
hereby in any jurisdiction to any person to whom it is unlawful for the Fund or
the Distributor to make such offer in such jurisdictions.
<PAGE>
FINANCIAL STATEMENTS
The following financial statements and the report thereon of Price
Waterhouse LLP of each Fund (except the Federal Money Market Fund) are
incorporated herein by reference from their respective annual report filings
made with the SEC pursuant to Section 30(b) of the 1940 Act and Rule 30b2-1
thereunder. Any of the following financial reports are available without charge
upon request by calling JP Morgan Funds Services at (800) 766-7722. Each Fund's
financial statements include the financial statements of the Fund's
corresponding Portfolio.
Date of Semi-Annual Report; Date of Annual Report; Date
Date Semi-Annual Report Filed; Annual Report Filed; and
and Accession Number Accession Number
Name of Fund/Portfolio
J.P. Morgan Institutional Service Prime Money N/A 11/30/97
Market Fund 2/3/98
0001047469-98-003137
J.P. Morgan Institutional Service Treasury N/A 10/31/97
Money Market Fund 1/9/98
0001047469-98-000566
The Federal Money Market Portfolio N/A 10/31/97
12/24/97
0001016969-97-100
<PAGE>
A-2
i:\dsfndlgl\institut\0298.pea\servsai.wpf
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.
Commercial Paper, including Tax Exempt
A - Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined with
the designations 1, 2, and 3 to indicate the relative degree of safety.
A-1 - This designation indicates that the degree of safety regarding timely
payment is very strong.
Short-Term Tax-Exempt Notes
SP-1 - The short-term tax-exempt note rating of SP-1 is the highest
rating assigned by Standard & Poor's and has a very strong or
strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics are
given a "plus" (+) designation.
SP-2 - The short-term tax-exempt note rating of SP-2 has a satisfactory
capacity to pay principal and interest.
<PAGE>
MOODY'S
Corporate and Municipal Bonds
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Commercial Paper, including Tax Exempt
Prime-1 - Issuers rated Prime-1 (or related supporting institutions) have
a superior capacity for repayment of short-term promissory
obligations. Prime-1 repayment capacity will normally be
evidenced by the following characteristics:
- Leading market positions in well established industries. - High rates of
return on funds employed. - Conservative capitalization structures with moderate
reliance on debt and ample asset protection. - Broad margins in earnings
coverage of fixed financial charges and high internal cash generation. - Well
established access to a range of financial markets and assured sources of
alternate liquidity.
<PAGE>
Short-Term Tax Exempt Notes
MIG-1 - The short-term tax-exempt note rating MIG-1 is the highest
rating assigned by Moody's for notes judged to be the best
quality. Notes with this rating enjoy strong protection from
established cash flows of funds for their servicing or from
established and broad-based access to the market for refinancing,
or both.
MIG-2 - MIG-2 rated notes are of high quality but with margins of
protection not as large as MIG-1.
