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MARCH 31, 1998 |
AS REVISED | PROSPECTUS
OCTOBER 1, 1998 |
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J.P. MORGAN INSTITUTIONAL
INTERNATIONAL EQUITY FUND
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Seeking high total return primarily from
stocks outside the United States
This prospectus contains essential information for anyone investing in the fund.
Please read it carefully and keep it for reference.
Shares in the fund are not bank deposits and are not guaranteed or insured by
any bank, government entity, or the FDIC.
As with all mutual funds, the fact that these shares are registered with the
Securities and Exchange Commission does not mean that the commission approves
them 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
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CONTENTS
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<S> <C> <C>
3 | INTERNATIONAL EQUITY MANAGEMENT APPROACH
International equity investment process ....................................3
4 | J.P. MORGAN INSTITUTIONAL INTERNATIONAL EQUITY FUND
Fund description ...........................................................4
The fund's goal, investment approach,
risks, expenses, performance, and Investor expenses ..........................................................4
financial highlights
Performance ................................................................5
Financial highlights .......................................................5
6 | YOUR INVESTMENT
Investing through a financial professional .................................6
Investing in the J.P. Morgan Institutional
International Equity 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 risk and the fund's
business operations Management and administration ..............................................9
Risk and reward elements ..................................................10
FOR MORE INFORMATION ...............................................back cover
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INTRODUCTION
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J.P. MORGAN INSTITUTIONAL INTERNATIONAL EQUITY FUND
This fund invests primarily in stocks and other equity securities of companies
outside the U.S. through a master portfolio (another fund with the same goal).
As a shareholder, you should anticipate risks and rewards beyond those of a
typical U.S. stock fund.
WHO MAY WANT TO INVEST
The fund is designed for investors who:
o are pursuing a long-term goal
o want to add a non-U.S. investment with growth potential to further
diversify a portfolio
o want a fund that seeks to consistently outperform the markets in which it
invests
The fund is not designed for investors who:
o are uncomfortable with the risks of international investing
o are looking for a less aggressive stock investment
o require regular income or stability of principal
o are pursuing a short-term goal or investing emergency reserves
J.P. MORGAN
Known for its commitment to proprietary research and its disciplined investment
strategies, J.P. Morgan is the asset management choice for many of the world's
most respected corporations, financial institutions, governments, and
individuals. Today, J.P. Morgan employs over 300 analysts and portfolio managers
around the world and has more than $275 billion in assets under management,
including assets managed by the fund's advisor, J.P. Morgan Investment
Management Inc.
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Before you invest
Investors considering the fund should
understand that:
o The value of the fund's shares will
fluctuate over time. You could lose
money if you sell when the fund's
share price is lower than when you
invested.
o There is no assurance that the fund
will meet its investment goals.
o Future returns will not necessarily
resemble past performance.
o Foreign stocks are generally riskier
than their domestic counterparts. You
should be prepared to ride out
periods of underperformance.
o The fund does not represent a
complete investment program.
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2 |
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INTERNATIONAL EQUITY MANAGEMENT APPROACH
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The J.P. Morgan Institutional
International Equity Fund invests
primarily in stocks of companies outside
the U.S.
The fund's investment philosophy,
developed by its advisor, focuses on
allocating assets by country, selecting
stocks and managing currency exposure.
The fund largely avoids using sector or
market-timing strategies. Under normal
market conditions, the fund will remain
fully invested.
INTERNATIONAL EQUITY INVESTMENT PROCESS
Through its extensive global equity
research and analytical systems, J.P.
Morgan seeks to generate an information
advantage. Using fundamental analysis as
well as macro-economic models, J.P.
Morgan develops proprietary research on
countries, companies, and currencies. In
these processes, the analysts focus on a
relatively long period rather than on
near-term expectations alone. The team
of analysts dedicated to international
equities includes more than 90 members
around the world, with an average of
nearly ten years of experience.
In managing the fund, J.P. Morgan
employs a three-step process that
combines country allocation, fundamental
research for identifying portfolio
securities, and currency management
decisions:
[GRAPHIC] Country allocation J.P. Morgan takes an
in-depth look at the relative valuations
J.P. Morgan uses top-down analysis and economic prospects of different
in determining which countries countries, ranking the attractiveness of
to emphasize their markets. Using these rankings, a
team of strategists establishes a
country allocation for the fund.
Stock selection Various models are used
[GRAPHIC] to quantify J.P. Morgan's fundamental
stock research, producing a ranking of
Stocks in each industry are ranked companies in each industry group
with the help of models, then according to their relative value. The
selected for investment fund's management team then buys and
sells stocks, using the research and
valuation rankings as well as its
assessment of other factors, including:
o catalysts that could trigger a
change in a stock's price
o change potential reward compared
to potential risk
o temporary mispricings caused by
[GRAPHIC] market overreactions
J.P. Morgan may adjust currency
exposure to seek to manage risks Currency management The fund has access
and enhance returns to J.P. Morgan's currency specialists in
determining the extent and nature of its
exposure to various foreign currencies.
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INTERNATIONAL EQUITY MANAGEMENT APPROACH | 3
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J.P. MORGAN INSTITUTIONAL
INTERNATIONAL EQUITY FUND | TICKER SYMBOL: JNUSX
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REGISTRANT: J.P. MORGAN INSTITUTIONAL FUNDS
(J.P. MORGAN INSTITUTIONAL INTERNATIONAL
EQUITY FUND)
[GRAPHIC] GOAL
The fund's goal is to provide high total return from a portfolio of foreign
company equity securities. This goal can be changed without shareholder
approval.
[GRAPHIC] INVESTMENT APPROACH
The fund invests primarily in equity securities from developed countries
included in the Morgan Stanley Capital International Europe, Australasia, and
Far East Index (EAFE), which is the fund's benchmark. The fund typically does
not invest in U.S. companies.
The fund's industry weightings generally approximate those of the EAFE Index,
although it does not seek to mirror the index in its choice of individual
securities, and may overweight or underweight countries relative to the EAFE
Index. In choosing stocks, the fund emphasizes those that are ranked as
undervalued according to J.P. Morgan's proprietary research, while
underweighting or avoiding those that appear overvalued. The fund makes its
currency management decisions as described on pages 3 and 10.
[GRAPHIC] POTENTIAL RISKS AND REWARDS
The value of your investment in the fund will fluctuate in response to
movements in international stock markets and currency exchange rates. Fund
performance will also depend on the effectiveness of J.P. Morgan's research and
the management team's stock picking and currency management decisions.
In general, international investing involves higher risks than investing in U.S.
markets but offers attractive potential rewards and opportunities for
diversification. Foreign markets tend to be more volatile than those of the
U.S., and changes in currency exchange rates could reduce or increase market
performance. To the extent that the fund hedges its currency exposure into the
U.S. dollar, it may reduce the effects of currency fluctuations which could
protect the fund from losses but could also reduce opportunities for gains. The
fund may also hedge from one foreign currency to another which could result in
gains or losses.
By emphasizing undervalued stocks, the fund has the potential to outperform the
EAFE Index. At the same time, the fund seeks to limit its volatility to that of
the index.
The fund's investments and their main risks, as well as fund strategies, are
described in more detail on page 10.
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages over $275
billion, including approximately $8 billion using international equity
strategies.
The portfolio management team is led by Paul A. Quinsee, managing director, who
joined the team in April of 1993 and has been at J.P. Morgan since 1992, and by
Nigel F. Emmett, vice president, who has been on the team since joining J.P.
Morgan in August of 1997. Previously, Mr. Emmett was an assistant manager at
Brown Brothers Harriman and Co. and a portfolio manager at Gartmore Investment
Management.
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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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<S> <C>
Management fees (actual) 0.60
Marketing (12b-1) fees none
Other expenses 0.33
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Total operating expenses 0.93
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Expense example
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The example below uses the same assumptions as other fund prospectuses: $1,000
initial investment, 5% annual total return, expenses unchanged, all shares sold
at the end of each time period. The example is for comparison only; the fund's
actual return and expenses will be different.
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1 yr. 3 yrs. 5 yrs. 10 yrs.
<S> <C> <C> <C> <C>
Your cost($) 9 30 51 114
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4 | J.P. MORGAN INSTITUTIONAL INTERNATIONAL EQUITY 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./2/ Since Inception/2/
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J.P. Morgan Institutional International Equity Fund (after expenses) 1.46 9.42 4.57
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EAFE Index/3/ (no expenses) 1.78 11.39 5.09
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[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
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Year-by-year total return (%) Shows changes in returns by calendar year
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1991 1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C>
J.P. Morgan Institutional International Equity Fund 10.58 (10.77) 24.37 6.00 7.96 8.48 1.46
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EAFE Index /3/ 12.13 (12.17) 32.56 7.78 11.21 6.05 1.78
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FINANCIAL HIGHLIGHTS
==================================
Per-share data For fiscal periods ended October 31
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1993 1994 1995 1996 1997
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Net asset value, beginning of period ($) 10.00 10.20 10.83 10.44 11.43
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Income from investment operations:
Net investment income ($) -- 0.06 0.06 0.12 0.17
Net realized and unrealized gain (loss)
on investment and foreign currency ($) 0.20 0.57 (0.33) 1.17 0.24
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Total from investment operations ($) 0.20 0.63 (0.27) 1.29 0.41
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Less distributions to shareholders from:
Net investment income ($) -- -- -- (0.24) (0.25)
Net realized gain ($) -- -- (0.12) (0.06) (0.20)
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Total distributions ($) -- -- (0.12) (0.30) (0.45)
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Net asset value, end of period ($) 10.20 10.83 10.44 11.43 11.39
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==================================
Ratios and supplemental data
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Total return (%) 2.00(4) 6.18 (2.46) 12.54 3.71
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Net assets, end of period ($ thousands) --(5) 213,119 467,511 726,864 614,659
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Ratios to average net assets:
Expenses (%) --(6) 1.00 0.92 0.95 0.93
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Net investment income (%) --(6) 0.95 1.24 1.24 1.32
Decrease reflected in expense ratio due
to expense reimbursement (%) 2.50(6) 0.16 0.02 0.01 --
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The Financial Highlights above have been audited by PricewaterhouseCoopers LLP, the fund's independent accountants.
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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 fees and expenses in the table are expressed as a
percentage of the fund's average net assets. Total operating expenses may
vary, but in any event will not exceed 1.00% of the fund's average daily
net assets. The Advisor has agreed to reimburse the fund for ordinary
expenses over 1.00% but there is no guarantee that such reimbursement will
continue beyond 2/28/99.
2 The fund commenced operations on 10/4/93. Except in Financial Highlights,
returns reflect performance of the J.P. Morgan International Equity Fund (a
separate feeder fund investing in the same master portfolio) from 6/1/90
through 10/3/93. This data is based on historical earnings and is not
intended to indicate future performance.
3 The EAFE Index is an unmanaged index used to track the average performance
of over 900 securities listed on the stock exchanges of countries in
Europe, Australasia and the Far East.
4 Not annualized.
5 Net assets at 10/31/93 were $204.
6 Annualized.
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J.P. MORGAN INSTITUTIONAL INTERNATIONAL EQUITY 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 $1,000,000 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.
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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 hours and NAV calculations The fund's regular business days and hours
are the same as those of the New York Stock Exchange (NYSE). The fund calculates
its net asset value per share (NAV) every business day as of the close of
trading on the NYSE (normally 4:00 p.m. eastern time). The fund's securities are
typically priced using market quotes or pricing services. When these methods are
not available or do not represent a security's value at the time of pricing, the
security is valued in accordance with the fund's fair valuation procedures.
Timing of orders Orders to buy or sell shares are executed at the next
NAV calculated after the order has been accepted. Orders are accepted until the
close of trading on the NYSE every business day and are executed the same day,
at that day's NAV. The fund has the right to suspend redemption of shares and to
postpone payment of proceeds for up to seven days or as permitted by law.
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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, generally the day following execution. When
you sell shares, proceeds are generally available the day following execution
and will be forwarded according to your instructions.
When you sell shares that you recently purchased by check, your order will be
executed at the next NAV but the proceeds will not be available until your check
clears. This may take up to 15 days.
Statements and reports The fund sends monthly account statements as well as
confirmations after each purchase or sale of shares (except reinvestments).
Every six months, the fund sends out an annual or semi-annual report containing
information on the fund's holdings and a discussion of recent and anticipated
market conditions and fund performance.
Accounts with below-minimum balances If your account balance falls below the
minimum for 30 days as a result of selling shares (and not because of
performance), the fund reserves the right to request that you buy more shares or
close your account. If your account balance is still below the minimum 60 days
after notification, the fund reserves the right to close out your account and
send the proceeds to the address of record.
DIVIDENDS AND DISTRIBUTIONS
The fund typically pays income dividends and makes capital gains distributions,
if any, once a year. The fund may declare an additional income dividend in a
given year, depending on its tax situation. However, the fund may also make
fewer payments in a given year, depending on its investment results. Dividends
and distributions consist of substantially all of the fund's net investment
income and realized capital gains.
Dividends and distributions are reinvested in additional fund shares.
Alternatively, you may instruct your financial professional or J.P. Morgan Funds
Services to have them sent to you by check, credited to a separate account, or
invested in another J.P. Morgan Institutional Fund.
TAX CONSIDERATIONS
In general, selling shares, exchanging shares, and receiving distributions
(whether reinvested or taken in cash) are all taxable events. These transactions
typically create the following tax liabilities for taxable accounts:
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Transaction Tax status
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<S> <C>
Income dividends Ordinary income
Short-term capital gains Ordinary income
distributions
Long-term capital gains Capital gains
distributions
Sales or exchanges of shares Capital gains or losses
owned for more than one year
Sales or exchanges of shares Gains are treated as ordinary
owned for one year or less income; losses are subject
to special rules
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</TABLE>
Because long-term capital gains distributions are taxable as capital gains
regardless of how long you have owned your shares, you may want to avoid making
a substantial investment when the fund is about to declare a long-term capital
gains distribution.
Every January, the fund issues tax information on its distributions for the
previous year.
Any investor for whom the fund does not have a valid taxpayer identification
number will be subject to backup withholding for taxes.
The tax considerations described in this section do not apply to tax-deferred
accounts or other non-taxable entities.
Because each investor's tax circumstances are unique, please consult your tax
professional about your fund investment.
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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 full or
fractional vote for each dollar or fraction of a dollar invested.
The fund and its master portfolio expect to maintain consistent goals, but if
they do not, the fund will withdraw from the master portfolio, receiving its
assets either in cash or securities. The fund's trustees would then consider
whether the fund should hire its own investment adviser, invest in a different
master portfolio, or take other action.
MANAGEMENT AND ADMINISTRATION
The fund and its master portfolio are governed by the same trustees. The
trustees are responsible for overseeing all business activities. The trustees
are assisted by Pierpont Group, Inc., which they own and operate on a cost
basis; costs are shared by all funds governed by these trustees. Funds
Distributor, Inc., as co-administrator, along with J.P. Morgan, provides fund
officers. J.P. Morgan, as co-administrator, oversees the fund's other service
providers.
J.P. Morgan, subject to the expense reimbursements described earlier in this
prospectus, receives the following fees for investment advisory and other
services:
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<S> <C>
Advisory services 0.60% of the master
portfolio's average net assets
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Administrative services Master portfolio's and fund's
(fee shared with Funds pro-rata portions of 0.09% of
Distributor, Inc.) the first $7 billion in
J.P. Morgan-advised portfolios,
plus 0.04% of average net
assets over $7 billion
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Shareholder services 0.10% of the fund's average
net assets
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</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.
Year 2000 Fund operations and shareholders could be adversely affected if the
computer systems used by J.P. Morgan, the fund's other service providers and
other entities with computer systems linked to the fund do not properly process
and calculate January 1, 2000 and after date-related information. J.P. Morgan is
working to avoid these problems and to obtain assurances from other service
providers that they are taking similar steps. However, it is not certain that
these actions will be sufficient to prevent these date-related problems from
adversely impacting fund operations and shareholders. In addition, to the extent
that operations of issuers of securities held by the fund are impaired by
date-related problems or prices of securities decline as a result of real or
perceived date-related problems of issuers held by the fund or generally, the
net asset value of the fund will decline.
The Euro Effective January 1, 1999 the euro, a single multinational currency,
will replace the national currencies of certain countries in the Economic
Monetary Union (EMU).
J.P. Morgan has identified the following potential risks to the fund, after the
conversion:The risk that the valuation of assets is not properly converted from
the national currency to euro; currency risk resulting from increased volatility
in exchange rates between EMU countries and non-participating countries; the
inability of any of the fund, it's service providers and the issuers of the
fund's portfolio securities to make information technology updates timely; and
the potential unenforceability of contracts. There have been recent laws and
regulations designed to ensure the continuity of contracts, however there is a
risk that the valuation of contracts will be negatively impacted after the
conversion. J.P. Morgan is working to avoid these problems and to obtain
assurances from other service providers that they are taking similar steps.
However, it is not certain that these actions will be sufficient to prevent
problems associated with the conversion from adversely impacting fund operations
and shareholders.
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FUND DETAILS | 9
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RISK AND REWARD ELEMENTS
This table identifies the main elements that make up the fund's overall risk and
reward characteristics (described on page 4). It also outlines the fund's
policies toward various investments, including those that are designed to help
the fund manage risk.
<TABLE>
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Potential risks Potential rewards Policies to balance risk and reward
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<S> <C> <C>
Foreign and other market conditions
o The fund's share price and o Stocks have generally outperformed o Under normal circumstances the fund
performance will fluctuate in more stable investments (such as plans to remain fully invested,
response to stock market movements bonds and cash equivalents) over with at least 65% in stocks; stock
the long term investments may include convertible
o The fund could lose money because securities, preferred stocks,
of foreign government actions, o Foreign investments, which depository receipts (such as ADRs
political instability, or lack of represent a major portion of the and EDRs), trust or partnership
adequate and/or accurate world's securities, offer interests, warrants, rights, and
information attractive potential performance investment company securities
and opportunities for
o Adverse market conditions may from diversification o The fund seeks to limit risk and
time to time cause the fund to take enhance performance through active
temporary defensive positions that management, country allocation and
are inconsistent with its principal diversification
investment strategies and may
hinder the fund from achieving its o During severe market downturns, the
investment objective fund has the option of investing up
to 100% of assets in investment-grade
short-term securities
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Management choices
o The fund could underperform its o The fund could outperform its o J.P. Morgan focuses its active
benchmark due to its securities benchmark due to these same choices management on securities selection,
choices and other management decisions the area where it believes its
commitment to research can most
enhance returns
- ------------------------------------------------------------------------------------------------------------------------------------
Foreign currencies
o Currency exchange rate movements o Favorable exchange rate movements o The fund manages the currency
could reduce gains or create losses could generate gains or reduce exposure of its foreign investments
losses relative to its benchmark, and may
hedge a portion of its foreign
currency exposure into the U.S.
dollar from time to time (see also
"Derivatives")
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
|
10 | FUND DETAILS
|
<PAGE>
================================================================================
<TABLE>
<CAPTION>
====================================================================================================================================
Potential risks Potential rewards Policies to balance risk and reward
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Derivatives
o Derivatives such as futures, o Hedges that correlate well with o The fund uses derivatives, such as
options, swaps, and forward foreign underlying positions can reduce or futures, options, swaps, and
currency contracts(1) that are used eliminate losses at low cost forward foreign currency contracts
for hedging the portfolio or for hedging and for risk management
specific securities may not fully o The fund could make money and (i.e., to establish or adjust
offset the underlying positions and protect against losses if the exposure to particular securities,
this could result in losses to the investment analysis proves correct markets or currencies); risk
fund that would not have otherwise management may include management
occurred o Derivatives that involve leverage of the fund's exposure relative to
could generate substantial gains at its benchmark
o Derivatives used for risk low cost
management may not have the o The fund only establishes hedges
intended effects and may result in that it expects will be highly
losses or missed opportunities correlated with underlying
positions
o The counterparty to a derivatives
contract could default o While the fund may use derivatives
that incidentally involve leverage,
o Derivatives that involve leverage it does not use them for the
could magnify losses specific purpose of leveraging its
portfolio
o Certain types of derivatives
involve costs to the fund which can
reduce returns
- ------------------------------------------------------------------------------------------------------------------------------------
Illiquid holdings
o The fund could have difficulty o These holdings may offer more o The fund may not invest more than
valuing these holdings precisely attractive yields or potential 15% of net assets in illiquid
growth than comparable widely holdings
o The fund could be unable to sell traded securities
these holdings at the time or price o To maintain adequate liquidity, the
it desired fund may hold investment-grade
short-term securities (including
repurchase agreements) and, for
temporary or extraordinary
purposes, may borrow from banks up
to 33 1/3% of the value of its total
assets
- ------------------------------------------------------------------------------------------------------------------------------------
When-issued and delayed
delivery securities
o When the fund buys securities o The fund can take advantage of o The fund uses segregated accounts
before issue or for delayed attractive transaction to offset leverage risk
delivery, it could be exposed to opportunities
leverage risk if it does not use
segregated accounts
- ------------------------------------------------------------------------------------------------------------------------------------
Short-term trading
o Increased trading could raise the o The fund could realize gains in a o The fund anticipates that its
fund's brokerage and related costs short period of time portfolio turnover rate will not
exceed 100%
o Increased short-term capital gains o The fund could protect against
distributions could raise losses if a stock is overvalued and o The fund generally avoids
shareholders' income tax liability its value later falls short-term trading, except to take
advantage of attractive or
unexpected opportunities or to meet
demands generated by shareholder
activity
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1 A futures contract is an agreement to buy or sell a set quantity of an
underlying instrument at a future date, or to make or receive a cash
payment based on changes in the value of a securities index. An option is
the right to buy or sell a set quantity of an underlying instrument at a
predetermined price. A swap is a privately negotiated agreement to exchange
one stream of payments for another. A forward foreign currency contract is
an obligation to buy or sell a given currency on a future date and at a set
price.
|
FUND DETAILS | 11
|
<PAGE>
================================================================================
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|
12 |
|
<PAGE>
================================================================================
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|
| 13
|
<PAGE>
================================================================================
FOR MORE INFORMATION
================================================================================
For investors who want more information on the fund, the following documents are
available free upon request:
Annual/Semi-annual Reports Contain financial statements, performance data,
information on portfolio holdings, and a written analysis of market conditions
and fund performance for the fund's most recently completed fiscal year or
half-year.
Statement of Additional Information (SAI) Provides a fuller technical and legal
description of the fund's policies, investment restrictions, and business
structure. This prospectus incorporates the fund's SAI by reference.
Copies of the current versions of these documents, along with other information
about the fund, may be obtained by contacting:
J.P. Morgan Institutional International Equity Fund
J.P. Morgan Funds Services
522 Fifth Avenue
New York, NY 10036
Telephone: 1-800-766-7722
Hearing impaired: 1-888-468-4015
Email: [email protected]
Text-only versions of these documents and this prospectus are available, upon
payment of a duplicating fee, from the Public Reference Room of the Securities
and Exchange Commission in Washington, D.C. (1-800-SEC-0330) and may be viewed
on-screen or downloaded from the SEC's Internet site at http://www.sec.gov. The
fund's investment company and 1933 Act registration numbers are 811-07342 and
033-54642.
J.P. MORGAN INSTITUTIONAL FUNDS AND THE MORGAN TRADITION
The J.P. Morgan Institutional Funds combine a heritage of integrity and
financial leadership with comprehensive, sophisticated analysis and management
techniques. Drawing on J.P. Morgan's extensive experience and depth as an
investment manager, the J.P. Morgan Institutional Funds offer a broad array of
distinctive opportunities for mutual fund investors.
[LOGO] JPMorgan
================================================================================
J.P. Morgan Institutional Funds
Advisor Distributor
J.P. Morgan Investment Management Inc. Funds Distributor, Inc.
522 Fifth Avenue 60 State Street
New York, NY 10036 Boston, MA 02109
1-800-766-7722 1-800-221-7930
PROS375-9810
- ------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
MARCH 31, 1998 |
AS REVISED | PROSPECTUS
OCTOBER 1, 1998 |
================================================================================
J.P. MORGAN INSTITUTIONAL
INTERNATIONAL OPPORTUNITIES FUND
========================================
Seeking high total return primarily from
stocks outside the United States
This prospectus contains essential information for anyone investing in the fund.
Please read it carefully and keep it for reference.
Shares in the fund are not bank deposits and are not guaranteed or insured by
any bank, government entity, or the FDIC.
As with all mutual funds, the fact that these shares are registered with the
Securities and Exchange Commission does not mean that the commission approves
them 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>
3 | INTERNATIONAL EQUITY MANAGEMENT APPROACH
International equity investment process ..................................................3
4 | J.P. MORGAN INSTITUTIONAL INTERNATIONAL OPPORTUNITIES 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 Investing through a financial professional ...............................................6
Institutional International
Opportunities 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 risk and the fund's Master/feeder structure ..................................................................9
business operations
Management and administration ............................................................9
Risk and reward elements ................................................................10
FOR MORE INFORMATION ............................................................back cover
</TABLE>
<PAGE>
INTRODUCTION
================================================================================
J.P. MORGAN INSTITUTIONAL OPPORTUNITIES FUND
This fund invests primarily in stocks and other equity securities of foreign
companies in developed and, to a lesser extent, developing markets through a
master portfolio (another fund with the same goal). As a shareholder, you should
anticipate risks and rewards beyond those of a typical U.S. stock fund.
WHO MAY WANT TO INVEST
The fund is designed for investors who:
o are pursuing a long-term goal such as retirement
o want to add a non-U.S. investment with growth potential to further
diversify a portfolio
o want a fund that seeks to consistently outperform the markets in which it
invests
The fund is not designed for investors who:
o are uncomfortable with the risks of international investing
o are looking for a less aggressive stock investment
o require regular income or stability of principal
o are pursuing a short-term goal or investing emergency reserves
J.P. Morgan
Known for its commitment to proprietary research and its disciplined investment
strategies, J.P. Morgan is the asset management choice for many of the world's
most respected corporations, financial institutions, governments, and
individuals. Today, J.P. Morgan employs over 300 analysts and portfolio managers
around the world and has more than $275 billion in assets under management,
including assets managed by the fund's advisor, J.P. Morgan Investment
Management Inc.
========================================
Before you invest
Investors considering the fund should
understand that:
o The value of the fund's shares will
fluctuate over time. You could lose
money if you sell when the fund's
share price is lower than when you
invested.
o There is no assurance that the fund
will meet its investment goals.
o Future returns will not necessarily
resemble past performance.
o Foreign stocks are generally
riskier than their domestic
counterparts. You should be
prepared to ride out periods of
underperformance.
o The fund does not represent a
complete investment program.
- ----------------------------------------
|
2 |
|
<PAGE>
INTERNATIONAL EQUITY MANAGEMENT APPROACH
================================================================================
The J.P. Morgan Institutional
International Opportunities Fund invests
primarily in stocks of foreign companies
in developed and, to a lesser extent,
developing markets.
The fund's investment philosophy,
developed by its advisor, focuses on
selecting stocks and managing currency
exposure. The fund largely avoids using
sector or market-timing strategies.
Under normal market conditions, the fund
will remain fully invested.
INTERNATIONAL EQUITY INVESTMENT PROCESS
Through its extensive global equity
research and analytical systems, J.P.
Morgan seeks to generate an information
advantage. Using fundamental analysis as
well as macro-economic models, J.P.
Morgan develops proprietary research on
companies, currencies and countries. In
these processes, the analysts focus on a
relatively long period rather than on
near-term expectations alone. The team
of analysts dedicated to international
equities includes more than 90 members
around the world, with an average of
nearly ten years of experience.
In managing the fund, J.P. Morgan
employs a process that combines
fundamental research for identifying
portfolio securities, and currency
management decisions:
[GRAPHIC] Stock selection Various models are used
to quantify J.P. Morgan's fundamental
Stocks in each industry are ranked stock research, producing a ranking of
with the help of models, then companies in each industry group
selected for investment according to their relative value. The
fund's management team then buys and
sells stocks, using the research and
valuation rankings as well as its
assessment of other factors, including:
o catalysts that could trigger a
change in a stock's price
o potential reward compared to
potential risk
o temporary mispricings caused by
market overreactions
[GRAPHIC] Currency management The fund has access
to J.P. Morgan's currency specialists in
J.P. Morgan may adjust currency determining the extent and nature of its
exposure to seek to manage risks exposure to various foreign currencies.
and enhance returns
[GRAPHIC] Country allocation The fund's country
weightings primarily result from its
J.P. Morgan monitors the fund's stock selection decisions and may differ
country weightings when selecting signficantly from the MSCI all Country
securities World Index Free (ex-U.S.).
|
INTERNATIONAL EQUITY MANAGEMENT APPROACH | 3
|
<PAGE>
J.P. MORGAN INSTITUTIONAL
INTERNATIONAL OPPORTUNITIES FUND | TICKER SYMBOL: JPIOX
================================================================================
REGISTRANT: J.P. MORGAN INSTITUTIONAL FUNDS
(J.P. MORGAN INSTITUTIONAL INTERNATIONAL
OPPORTUNITIES FUND)
[GRAPHIC] GOAL
The fund's goal is to provide high total return from a portfolio of equity
securities of foreign companies in developed and, to a lesser extent, emerging
markets. This goal can be changed without shareholder approval.
[GRAPHIC] INVESTMENT APPROACH
The fund's assets are invested primarily in companies from developed
markets other than the U.S. The fund's assets may also be invested to a limited
extent in companies from emerging markets. Developed countries include
Australia, Canada, Japan, New Zealand, the United Kingdom, and most of the
countries of western Europe; emerging markets include most other countries in
the world.
The fund focuses on stock picking, emphasizing those stocks that are ranked as
undervalued according to J.P. Morgan's proprietary research, while
underweighting or avoiding those that appear overvalued. While the fund
generally follows the process described on page 3, and its country allocations
and sector weightings may differ significantly from those of the MSCI All
Country World Index Free (ex-U.S.), which is the fund's benchmark. The fund
makes its currency management decisions as described on pages 3 and 10.
[GRAPHIC] POTENTIAL RISKS AND REWARDS
The value of your investment in the fund will fluctuate in response to
movements in international stock markets and currency exchange rates. Fund
performance will also depend on the effectiveness of J.P. Morgan's research and
the management team's stock picking and currency management decisions.
In general, international investing involves higher risks than investing in U.S.
markets but offers attractive potential rewards and opportunities for
diversification. Foreign markets tend to be more volatile than those of the
U.S., and changes in currency exchange rates could reduce or increase market
performance. These risks are higher in emerging markets. To the extent that the
fund hedges its currency exposure into the U.S. dollar, it may reduce the
effects of currency fluctuations which could protect the fund from losses but
could also reduce opportunities for gains. The fund may also hedge from one
foreign currency to another which could result in gains or losses. However, the
fund does not typically use this strategy for its emerging markets currency
exposure.
The fund's investments and their main risks, as well as fund strategies, are
described in more detail on page 10.
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages over $275
billion, including approximately $8 billion using international equity
strategies.
The portfolio management team is led by Paul A. Quinsee, managing director, who
has been on the team since the fund's inception and at J.P. Morgan since 1992,
Andrew C. Cormie, vice president, who has been an international equity portfolio
manager since 1997 and employed by J.P Morgan since 1984, and by Nigel F.
Emmett, vice president, who has been on the team since joining J.P. Morgan in
August of 1997. Previously, Mr. Emmett was an assistant manager at Brown
Brothers Harriman and Co. and a portfolio manager at Gartmore Investment
Management.
================================================================================
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 0.60
Marketing (12b-1) fees none
Other expenses(2)
(after reimbursement) 0.40
================================================================================
Total operating expenses(2)
(after reimbursement) 1.00
- --------------------------------------------------------------------------------
</TABLE>
================================================================================
Expense example
================================================================================
The example below uses the same assumptions as other fund prospectuses: $1,000
initial investment, 5% annual total return, expenses unchanged, all shares sold
at the end of each time period. The example is for comparison only; the fund's
actual return and expenses will be different.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
<S> <C> <C> <C> <C>
Your cost($) 10 32 55 122
- --------------------------------------------------------------------------------
</TABLE>
|
4 | J.P. MORGAN INSTITUTIONAL INTERNATIONAL OPPORTUNITIES FUND
|
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Performance (unaudited)
======================================
Average annual total return (%) Shows performance over time, for period ended December 31, 1997
======================================----------------------------------------------------------------------------------------------
Since inception(3)
<S> <C>
J.P. Morgan Institutional International Opportunities Fund (after expenses) 2.15
- ------------------------------------------------------------------------------------------------------------------------------------
MSCI All Country World ex-U.S. Index(4) (no expenses) 1.62
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
======================================
Total return (%) Shows changes in returns for period ended December 31, 1997
======================================----------------------------------------------------------------------------------------------
Since inception(3)
<S> <C>
J.P. Morgan Institutional International Opportunities Fund 2.15
- ------------------------------------------------------------------------------------------------------------------------------------
MSCI All Country World ex-U.S. Index(4) 1.62
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
====================================================================================================================================
FINANCIAL HIGHLIGHTS
======================================
Per-share data For fiscal period ended November 30
======================================----------------------------------------------------------------------------------------------
1997
<S> <C>
Net asset value, beginning of period ($) 10.00
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.07
Net realized and unrealized loss
on investment and foreign currency ($) (0.13)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations ($) (0.06)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period ($) 9.94
- ------------------------------------------------------------------------------------------------------------------------------------
======================================
Ratios and supplemental data
======================================----------------------------------------------------------------------------------------------
Total return (%) (0.60)(5)
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 211,229
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses (%) 0.99(6)
----------------------------------------------------------------------------------------------------------------------------------
Net investment income (%) 1.35(6)
----------------------------------------------------------------------------------------------------------------------------------
Decrease reflected in expense ratio due
to expense reimbursement (%) 0.18(6)
- ------------------------------------------------------------------------------------------------------------------------------------
The Financial Highlights above have been audited by PricewaterhouseCoopers 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 period, expressed as a percentage of the fund's average net
assets after reimbursement for ordinary expenses over 1.00%.
(2) Without reimbursement other expenses and total operating expenses would
have been 0.57% and 1.17% respectively. There is no guarantee that
reimbursement will continue beyond 3/30/99.
(3) The fund commenced operations on 2/26/97 and performance is calculated as
of 2/28/97. This data is based on historical earnings and is not intended
to indicate future performance.
(4) The MSCI All Country World ex-U.S. Index is an unmanaged index that
measures developed and emerging foreign stock market performance was the
fund's benchmark during the periods shown. (Effective 1998 the benchmark is
the MSCI All Country World Index Free (ex-U.S.)).
(5) Not annualized.
(6) Annualized.
|
J.P. MORGAN INSTITUTIONAL INTERNATIONAL OPPORTUNITIES 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 $1,000,000 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 hours and NAV calculations The fund's regular business days and hours
are the same as those of the New York Stock Exchange (NYSE). The fund calculates
its net asset value per share (NAV) every business day as of the close of
trading on the NYSE (normally 4:00 p.m. eastern time). The fund's securities are
typically priced using market quotes or pricing services. When these methods are
not available or do not represent a security's value at the time of pricing, the
security is valued in accordance with the fund's fair valuation procedures.
Timing of orders Orders to buy or sell shares are executed at the next
NAVcalculated after the order has been accepted. Orders are accepted until the
close of trading on the NYSE every business day and are executed the same day,
at that day's NAV. The fund has the right to suspend redemption of shares and to
postpone payment of proceeds for up to seven days or as permitted by law.
================================================================================
Shareholder Services Agent
J.P. Morgan Funds Services
522 Fifth Avenue
New York, NY 10036
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, generally the day following execution. When
you sell shares, proceeds are generally available the day following execution
and will be forwarded according to your instructions.
When you sell shares that you recently purchased by check, your order will be
executed at the next NAV but the proceeds will not be available until your check
clears. This may take up to 15 days.
Statements and reports The fund sends monthly account statements as well as
confirmations after each purchase or sale of shares (except reinvestments).
Every six months, the fund sends out an annual or semi-annual report containing
information on the fund's holdings and a discussion of recent and anticipated
market conditions and fund performance.
Accounts with below-minimum balances If your account balance falls below the
minimum for 30 days as a result of selling shares (and not because of
performance), the fund reserves the right to request that you buy more shares or
close your account. If your account balance is still below the minimum 60 days
after notification, the fund reserves the right to close out your account and
send the proceeds to the address of record.
DIVIDENDS AND DISTRIBUTIONS
The fund typically pays income dividends and makes capital gains distributions,
if any, once a year. The fund may declare an additional income dividend in a
given year, depending on its tax situation. However, the fund may also make
fewer payments in a given year, depending on its investment results. Dividends
and distributions consist of substantially all of the fund's net investment
income and realized capital gains.
Dividends and distributions are reinvested in additional fund shares.
Alternatively, you may instruct your financial professional or J.P. Morgan Funds
Services to have them sent to you by check, credited to a separate account, or
invested in another J.P. Morgan Institutional Fund.
TAX CONSIDERATIONS
In general, selling shares, exchanging shares, and receiving distributions
(whether reinvested or taken in cash) are all taxable events. These transactions
typically create the following tax liabilities for taxable accounts:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Transaction Tax status
- --------------------------------------------------------------------------------
<S> <C>
Income dividends Ordinary income
Short-term capital gains Ordinary income
distributions
Long-term capital gains Capital gains
distributions
Sales or exchanges of shares Capital gains or losses
owned for more than one year
Sales or exchanges of shares Gains are treated as ordinary
owned for one year or less income; losses are subject
to special rules
- --------------------------------------------------------------------------------
</TABLE>
Because long-term capital gains distributions are taxable as capital gains
regardless of how long you have owned your shares, you may want to avoid making
a substantial investment when the fund is about to declare a long-term capital
gains distribution.
Every January, the fund issues tax information on its distributions for the
previous year.
Any investor for whom the fund does not have a valid taxpayer identification
number will be subject to backup withholding for taxes.
The tax considerations described in this section do not apply to tax-deferred
accounts or other non-taxable entities.
Because each investor's tax circumstances are unique, please consult your tax
professional about your fund investment.
|
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 full or
fractional vote for each dollar or fraction of a dollar invested.
The fund and its master portfolio expect to maintain consistent goals, but if
they do not, the fund will withdraw from the master portfolio, receiving its
assets either in cash or securities. The fund's trustees would then consider
whether the fund should hire its own investment adviser, invest in a different
master portfolio, or take other action.
MANAGEMENT AND ADMINISTRATION
The fund and its master portfolio are governed by the same trustees. The
trustees are responsible for overseeing all business activities. The trustees
are assisted by Pierpont Group, Inc., which they own and operate on a cost
basis; costs are shared by all funds governed by these trustees. Funds
Distributor, Inc., as co-administrator, along with J.P. Morgan, provides fund
officers. J.P. Morgan, as co-administrator, oversees the fund's other service
providers.
J.P. Morgan, subject to the expense reimbursements described earlier in this
prospectus, receives the following fees for investment advisory and other
services:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C>
Advisory services 0.60% of the master portfolio's
average net assets
- --------------------------------------------------------------------------------
Administrative services Master portfolio's and fund's pro-
(fee shared with Funds rata portions of 0.09% of the
Distributor, Inc.) first $7 billion in J.P. Morgan-
advised portfolios, plus 0.04%
of average net assets over
$7 billion
- --------------------------------------------------------------------------------
Shareholder services 0.10% of the fund's average
net assets
- --------------------------------------------------------------------------------
</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.
Year 2000 Fund operations and shareholders could be adversely affected if the
computer systems used by J.P. Morgan, the fund's other service providers and
other entities with computer systems linked to the fund do not properly process
and calculate January 1, 2000 and after date-related information. J.P. Morgan is
working to avoid these problems and to obtain assurances from other service
providers that they are taking similar steps. However, it is not certain that
these actions will be sufficient to prevent these date-related problems from
adversely impacting fund operations and shareholders. In addition, to the extent
that operations of issuers of securities held by the fund are impaired by
date-related problems or prices of securities decline as a result of real or
perceived date-related problems of issuers held by the fund or generally, the
net asset value of the fund will decline.
The Euro Effective January 1, 1999 the euro, a single multinational currency,
will replace the national currencies of certain countries in the Economic
Monetary Union (EMU).
J.P. Morgan has identified the following potential risks to the International
Equity Fund, after the conversion: The risk that the valuation of assets is not
properly converted from the national currency to euro; currency risk resulting
from increased volatility in exchange rates between EMU countries and
non-participating countries; the inability of any of the fund, it's service
providers and the issuers of the fund's portfolio securities to make information
technology updates timely; and the potential unenforceability of contracts.
There have been recent laws and regulations designed to ensure the continuity of
contracts, however there is a risk that the valuation of contracts will be
negatively impacted after the conversion. J.P. Morgan is working to avoid these
problems and to obtain assurances from other service providers that they are
taking similar steps. However, it is not certain that these actions will be
sufficient to prevent problems associated with the conversion from adversely
impacting fund operations and shareholders.
|
FUND DETAILS | 9
|
<PAGE>
================================================================================
RISK AND REWARD ELEMENTS
This table identifies the main elements that make up the fund's overall risk and
reward characteristics (described on page 4). It also outlines the fund's
policies toward various investments, including those that are designed to help
the fund manage risk.
<TABLE>
<CAPTION>
====================================================================================================================================
Potential risks Potential rewards Policies to balance risk and reward
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Foreign and other market conditions
o The fund's share price and o Stocks have generally outperformed o Under normal circumstances the fund
performance will fluctuate in more stable investments (such as plans to remain fully invested,
response to stock market movements bonds and cash equivalents) over with at least 65% in stocks; stock
the long term investments may include convertible
o The fund could lose money because securities, preferred stocks,
of foreign government actions, o Foreign investments, which depository receipts (such as ADRs
political instability, or lack of represent a major portion of the and EDRs), trust or partnership
adequate and/or accurate world's securities, offer interests, warrants, rights, and
information attractive potential performance investment company securities
and opportunities for
o Investment risks tend to be higher diversification o The fund seeks to limit risk and
in emerging markets. These markets enhance performance through active
also present higher liquidity and o Emerging markets can offer higher management, country allocation and
valuation risks returns diversification
o Adverse market conditions may from o During severe market downturns, the
time to time cause the fund to take fund has the option of investing up
temporary defensive positions that to 100% of assets in
are inconsistent with its principal investment-grade short-term
investment strategies and may securities
hinder the fund from achieving its
investment objective
- ------------------------------------------------------------------------------------------------------------------------------------
Management choices
o The fund could underperform its o The fund could outperform its o J.P. Morgan focuses its active
benchmark due to its securities benchmark due to these same choices management on securities selection,
choices and other management decisions the area where it believes its
commitment to research can most
enhance returns
- ------------------------------------------------------------------------------------------------------------------------------------
Foreign currencies
o Currency exchange rate movements o Favorable exchange rate movements o The fund manages the currency
could reduce gains or create losses could generate gains or reduce exposure of its foreign investments
losses relative to its benchmark, and may
o Currency risks tend to be higher in hedge a portion of its foreign
emerging markets currency exposure into the U.S.
dollar from time to time (see also
"Derivatives")
o The fund does not typically hedge
its emerging markets currency
exposure
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
|
10 | FUND DETAILS
|
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Potential risks Potential rewards Policies to balance risk and reward
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Derivatives
o Derivatives such as futures, o Hedges that correlate well with o The fund uses derivatives, such as
options, swaps, and forward foreign underlying positions can reduce or futures, options, swaps, and
currency contracts(1) that are used eliminate losses at low cost forward foreign currency contracts,
for hedging the portfolio or for hedging and for risk management
specific securities may not fully o The fund could make money and (i.e., to establish or adjust
offset the underlying positions and protect against losses if the exposure to particular securities,
this could result in losses to the investment analysis proves correct markets or currencies); risk
fund that would not have otherwise management may include management
occurred o Derivatives that involve leverage of the fund's exposure relative to
could generate substantial gains at its benchmark
o Derivatives used for risk low cost
management may not have the o The fund only establishes hedges
intended effects and may result in that it expects will be highly
losses or missed opportunities correlated with underlying
positions
o The counterparty to a derivatives
contract could default o While the fund may use derivatives
that incidentally involve leverage,
o Derivatives that involve leverage it does not use them for the
could magnify losses specific purpose of leveraging its
portfolio
o Certain types of derivatives
involve costs to the fund which can
reduce returns
- ------------------------------------------------------------------------------------------------------------------------------------
Illiquid holdings
o The fund could have difficulty o These holdings may offer more o The fund may not invest more than
valuing these holdings precisely attractive yields or potential 15% of net assets in illiquid
growth than comparable widely holdings
o The fund could be unable to sell traded securities
these holdings at the time or price o To maintain adequate liquidity, the
it desires fund may hold investment-grade
short-term securities (including
repurchase agreements) and, for
temporary or extraordinary
purposes, may borrow from banks up
to 33 1/3% of the value of its
assets
- ------------------------------------------------------------------------------------------------------------------------------------
When-issued and delayed
delivery securities
o When the fund buys securities o The fund can take advantage of o The fund uses segregated accounts
before issue or for delayed attractive transaction to offset leverage risk
delivery, it could be exposed to opportunities
leverage risk if it does not use
segregated accounts
- ------------------------------------------------------------------------------------------------------------------------------------
Short-term trading
o Increased trading could raise the o The fund could realize gains in a o The fund anticipates that its
fund's brokerage and related costs short period of time portfolio turnover rate will not
exceed 100%
o Increased short-term capital gains o The fund could protect against
distributions could raise losses if a stock is overvalued and o The fund generally avoids
shareholders' income tax liability its value later falls short-term trading, except to take
advantage of attractive or
unexpected opportunities or to meet
demands generated by shareholder
activity
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) A futures contract is an agreement to buy or sell a set quantity of an
underlying instrument at a future date, or to make or receive a cash
payment based on changes in the value of a securities index. An option is
the right to buy or sell a set quantity of an underlying instrument at a
predetermined price. A swap is a privately negotiated agreement to exchange
one stream of payments for another. A forward foreign currency contract is
an obligation to buy or sell a given currency on a future date and at a set
price.
|
FUND DETAILS | 11
|
<PAGE>
================================================================================
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|
12 |
|
<PAGE>
================================================================================
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|
| 13
|
<PAGE>
================================================================================
FOR MORE INFORMATION
================================================================================
For investors who want more information on the fund, the following documents are
available free upon request:
Annual/Semi-annual Reports Contain financial statements, performance data,
information on portfolio holdings, and a written analysis of market conditions
and fund performance for the fund's most recently completed fiscal year or
half-year.
Statement of Additional Information (SAI) Provides a fuller technical and legal
description of the fund's policies, investment restrictions, and business
structure. This prospectus incorporates the fund's SAI by reference.
Copies of the current versions of these documents, along with other information
about the fund, may be obtained by contacting:
J.P. Morgan Institutional International Opportunities Fund
J.P. Morgan Funds Services
522 Fifth Avenue
New York, NY 10036
Telephone: 1-800-766-7722
Hearing impaired: 1-888-468-4015
Email: [email protected]
Text-only versions of these documents and this prospectus are available, upon
payment of a duplicating fee, from the Public Reference Room of the Securities
and Exchange Commission in Washington, D.C. (1-800-SEC-0330) and may be viewed
on-screen or downloaded from the SEC's Internet site at http://www.sec.gov. The
fund's investment company and 1933 Act registration numbers are 811-07342 and
033-54642.
J.P. MORGAN INSTITUTIONAL FUNDS AND THE MORGAN TRADITION
The J.P. Morgan Institutional Funds combine a heritage of integrity and
financial leadership with comprehensive, sophisticated analysis and management
techniques. Drawing on J.P. Morgan's extensive experience and depth as an
investment manager, the J.P. Morgan Institutional Funds offer a broad array of
distinctive opportunities for mutual fund investors.
[LOGO] JPMorgan
================================================================================
J.P. Morgan Institutional Funds
Advisor Distributor
J.P. Morgan Investment Management Inc. Funds Distributor, Inc.
522 Fifth Avenue 60 State Street
New York, NY 10036 Boston, MA 02109
1-800-766-7722 1-800-221-7930
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MARCH 31, 1998 |
AS REVISED | PROSPECTUS
OCTOBER 1, 1998 |
================================================================================
J.P. MORGAN INSTITUTIONAL
EMERGING MARKETS EQUITY FUND
========================================
Seeking high total return primarily from
stocks outside the United States
This prospectus contains essential information for anyone investing in the fund.
Please read it carefully and keep it for reference.
Shares in the fund are not bank deposits and are not guaranteed or insured by
any bank, government entity, or the FDIC.
As with all mutual funds, the fact that these shares are registered with the
Securities and Exchange Commission does not mean that the commission approves
them 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>
================================================================================
<PAGE>
CONTENTS
<TABLE>
====================================================================================================================================
<S> <C> <C>
3 | INTERNATIONAL EQUITY MANAGEMENT APPROACH
International equity investment process ..................................................3
4 | J.P. MORGAN INSTITUTIONAL EMERGING MARKETS EQUITY 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 Investing through a financial professional ...............................................6
Institutional Emerging Markets
Equity 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 risk and the fund's Master/Feeder structure ..................................................................9
business operations
Management and administration ............................................................9
Risk and reward elements ................................................................10
FOR MORE INFORMATION ............................................................back cover
</TABLE>
<PAGE>
INTRODUCTION
================================================================================
J.P. MORGAN INSTITUTIONAL EMERGING MARKETS EQUITY FUND
This fund invests primarily in stocks and other equity securities of companies
in emerging markets through a master portfolio (another fund with the same
goal). As a shareholder, you should anticipate risks and rewards beyond those of
a typical U.S. stock fund.
WHO MAY WANT TO INVEST
The fund is designed for investors who:
. are pursuing a long-term goal
. want to add a non-U.S. investment with growth potential to further
diversify a portfolio
. want a fund that seeks to consistently outperform the markets in which it
invests
The fund is not designed for investors who:
. are uncomfortable with the risks of international investing
. are looking for a less aggressive stock investment
. require regular income or stability of principal
. are pursuing a short-term goal or investing emergency reserves
J.P. MORGAN
Known for its commitment to proprietary research and its disciplined investment
strategies, J.P. Morgan is the asset management choice for many of the world's
most respected corporations, financial institutions, governments, and
individuals. Today, J.P. Morgan employs over 300 analysts and portfolio managers
around the world and has more than $275 billion in assets under management,
including assets managed by the fund's advisor, J.P. Morgan Investment
Management Inc.
========================================
Before you invest
Investors considering the fund should
understand that:
. The value of the fund's shares will
fluctuate over time. You could lose
money if you sell when the fund's
share price is lower than when you
invested.
. There is no assurance that the fund
will meet its investment goals.
. Future returns will not necessarily
resemble past performance.
. Foreign stocks are generally
riskier than their domestic
counterparts. You should be
prepared to ride out periods of
underperformance.
. The fund does not represent a
complete investment program.
- ----------------------------------------
|
2 |
|
<PAGE>
INTERNATIONAL EQUITY MANAGEMENT APPROACH
================================================================================
The J.P. Morgan Institutional Emerging
Markets Equity Fund invests primarily in
stocks of companies in emerging markets.
The fund's investment philosophy,
developed by its advisor, focuses on
allocating assets by country, selecting
stocks and managing currency exposure.
The fund largely avoids using sector or
market-timing strategies. Under normal
market conditions, the fund will remain
fully invested.
INTERNATIONAL EQUITY INVESTMENT PROCESS
Through its extensive global equity
research and analytical systems, J.P.
Morgan seeks to generate an information
advantage. Using fundamental analysis as
well as macro-economic models, J.P.
Morgan develops proprietary research on
countries, companies, and currencies. In
these processes, the analysts focus on a
relatively long period rather than on
near-term expectations alone. The team
of analysts dedicated to international
equities includes more than 90 members
around the world, with an average of
nearly ten years of experience.
In managing the fund, J.P. Morgan
employs a three-step process that
combines country allocation, fundamental
research for identifying portfolio
securities, and currency management
decisions:
[GRAPHIC] Country allocation J.P. Morgan takes an
in-depth look at the relative valuations
J.P. Morgan uses top-down analysis and economic prospects of different
in determining which countries countries, ranking the attractiveness of
to emphasize their markets. Using these rankings, a
team of strategists establishes a
country allocation for the fund.
[GRAPHIC] Stock selection Various models are used
to quantify J.P. Morgan's fundamental
Stocks in each industry are ranked stock research, producing a ranking of
with the help of models, then companies in each industry group
selected for investment according to their relative value. The
fund's management team then buys and
sells stocks, using the research and
valuation rankings as well as its
assessment of other factors, including:
. catalysts that could trigger a
change in a stock's price
. potential reward compared to
potential risk
. temporary mispricings caused by
market overreactions
[GRAPHIC] Currency management The fund has access
to J.P. Morgan's currency specialists in
J.P. Morgan may adjust currency determining the extent and nature of its
exposure to seek to manage risks exposure to various foreign currencies.
and enhance returns The fund typically maintains full
currency exposure to those markets in
which it invests.
|
INTERNATIONAL EQUITY MANAGEMENT APPROACH | 3
|
<PAGE>
J.P. MORGAN INSTITUTIONAL
EMERGING MARKETS EQUITY FUND | TICKER SYMBOL: JMIEX
================================================================================
REGISTRANT: J.P. MORGAN INSTITUTIONAL FUNDS
(J.P. MORGAN INSTITUTIONAL EMERGING MARKETS
EQUITY FUND)
[GRAPHIC] GOAL
The fund's goal is to provide high total return from a portfolio of equity
securities from emerging markets issuers. This goal can be changed without
shareholder approval.
[GRAPHIC] INVESTMENT APPROACH
The fund invests primarily in equity securities from countries whose
economies or stock markets are less developed. This designation currently
includes most countries in the world except Australia, Canada, Japan, New
Zealand, the United Kingdom, the U.S., and most of the countries of western
Europe.
The fund makes its country allocation decisions as described on page 3 and may
overweight or underweight countries relative to its benchmark, the Morgan
Stanley Capital International (MSCI) Emerging Markets Free Index. The fund
emphasizes stocks that are ranked as undervalued, while underweighting or
avoiding stocks that appear overvalued. The fund typically maintains full
currency exposure to those markets in which it invests. However, the fund may
from time to time hedge a portion of its foreign currency exposure into the U.S.
dollar.
[GRAPHIC] POTENTIAL RISKS AND REWARDS
The value of your investment in the fund will fluctuate in response to
movements in international stock markets and currency exchange rates. Fund
performance will also depend on the effectiveness of J.P. Morgan's research and
the management team's country allocation and stock picking decisions.
In general, international investing involves higher risks than investing in U.S.
markets but offers attractive potential rewards and opportunities for
diversification. Because emerging markets carry higher risks than developed
markets, the fund's performance is likely to be more volatile than that of many
other international equity funds. To the extent that the fund hedges its
currency exposure into the U.S. dollar, it may reduce the effects of currency
fluctuations which could protect the fund from losses but could also reduce
opportunities for gains.
By emphasizing undervalued stocks, the fund has the potential to produce returns
that exceed those of the fund's benchmark. At the same time, the fund seeks to
limit its volatility to that of the benchmark.
The fund's investments and their main risks, as well as fund strategies, are
described in more detail on page 10.
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages over $275
billion, including more than $2 billion using the same strategy as this fund.
The management team is led by Douglas Dooley, managing director, who has been at
J.P. Morgan since 1979, Satyen Mehta, vice president, who has been at J.P.
Morgan since 1984, both whom have been on the team since the fund's inception
and by Leigh Wasson, vice president, who has been at J.P. Morgan since 1987. Ms.
Wasson joined the team in March of 1997.
================================================================================
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) 1.00
Marketing (12b-1) fees none
Other expenses(2)
(after reimbursement) 0.45
================================================================================
Total operating expenses(2)
(after reimbursement) 1.45
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
================================================================================
Expense example
================================================================================
The example below uses the same assumptions as other fund prospectuses: $1,000
initial investment, 5% annual total return, expenses unchanged, all shares sold
at the end of each time period. The example is for comparison only; the fund's
actual return and expenses will be different.
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
<S> <C> <C> <C> <C>
Your cost($) 15 46 79 174
- --------------------------------------------------------------------------------
</TABLE>
|
4 | J.P. MORGAN INSTITUTIONAL EMERGING MARKETS EQUITY 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(3)
<S> <C> <C> <C>
J.P. Morgan Institutional Emerging Markets Equity Fund (after expenses) (7.71) (3.19) (0.80)
- ------------------------------------------------------------------------------------------------------------------------------------
MSCI Emerging Markets Free Index(4) (no expenses) (11.56) (5.62) (0.07)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[THE FOLLOWING TABLE WAS REPRESENTED BY 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 Emerging Markets Equity Fund (7.19) (9.68) (8.84) (7.71)
- ------------------------------------------------------------------------------------------------------------------------------------
MSCI Emerging Markets Free Index(4) (0.53) (10.40) (6.08) (11.56)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
====================================================================================================================================
FINANCIAL HIGHLIGHTS
=====================================
Per-share data For fiscal periods ended October 31
=====================================-----------------------------------------------------------------------------------------------
1994 1995 1996 1997
<S> <C> <C> <C> <C>
Net asset value, beginning of period ($) 10.00 12.47 9.71 10.27
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) ($) 0.04 0.08 0.08 0.11
Net realized and unrealized gain (loss)
on investment and foreign currency ($) 2.43 (2.66) 0.56 (0.43)
====================================================================================================================================
Total from investment operations ($) 2.47 (2.58) 0.64 (0.32)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) -- (0.05) (0.08) (0.09)
Net realized gain ($) -- (0.13) -- --
====================================================================================================================================
Total distributions ($) -- (0.18) (0.08) (0.09)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period ($) 12.47 9.71 10.27 9.86
- ------------------------------------------------------------------------------------------------------------------------------------
=====================================
Ratios and supplemental data
=====================================-----------------------------------------------------------------------------------------------
Total return (%) 24.70(5) (20.81) 6.64 (3.15)
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 146,667 186,023 293,594 306,381
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses (%) 1.46(6) 1.43 1.41 1.37
----------------------------------------------------------------------------------------------------------------------------------
Net investment income (%) 0.61(6) 0.96 0.96 0.95
----------------------------------------------------------------------------------------------------------------------------------
Decrease reflected in expense ratio due
to expense reimbursement (%) 0.16(6) 0.01 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
The Financial Highlights above have been audited by PricewaterhouseCoopers LLP, the fund's independent accountants.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The fund has a master/feeder structure as described on page 9. Due to the
reorganization of the offshore feeder fund, the master portfolio received a
substantial redemption request on January 23, 1998. Therefore, 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. The expense table has been
restated to reflect current expenses and a new voluntary expense limit of
1.45%.
(2) Without reimbursement, other expenses and total operating expenses for the
current fiscal year are estimated to be 0.48% and 1.48%, respectively. The
Advisor has agreed to reimburse the fund for ordinary expenses over 1.45%
until further notice.
(3) The fund commenced operations on 11/15/93. Except in Financial Highlights,
returns reflect perfromance of the fund from 11/30/93 through 12/31/97.
This data is based on historical earnings and is not intended to indicate
future performance.
(4) The Emerging Markets Benchmark is composed of the International Finance
Corporation (IFC) Global Index through December 31, 1994, IFC investable
Index (excluding South Africa after April 1, 1995) from January 1, 1995
through December 31, 1995, and the MSCI Emerging Markets Free Index
thereafter. The indices are unmanaged portfolios which measure emerging
market equity performance.
(5) Not annualized.
(6) Annualized.
|
J.P. MORGAN INSTITUTIONAL EMERGING MARKETS EQUITY 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:
. Determine the amount you are investing. The minimum amount for initial
investments in the fund is $1,000,000 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.
. 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.
. 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
. Mail your completed application to the Shareholder Services Agent.
. 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.
. 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
. Make out a check for the investment amount payable to J.P. Morgan
Institutional Funds.
. Mail the check with your completed application to the Shareholder Services
Agent.
By exchange
. Call the Shareholder Services Agent to effect an exchange.
ADDING TO YOUR ACCOUNT
By wire
. Call the Shareholder Services Agent to place a purchase order. Funds that
are wired without a purchase order will be returned uninvested.
. Once you have placed your purchase order, instruct your bank to wire the
amount of your investment as described above.
By check
. Make out a check for the investment amount payable to J.P. Morgan
Institutional Funds.
. 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
. Call the Shareholder Services Agent to effect an exchange.
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6 | YOUR INVESTMENT
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<PAGE>
================================================================================
SELLING SHARES
By phone--wire payment
. 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.
. 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
. 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
. 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.
. Indicate whether you want the proceeds sent by check or by wire.
. Make sure the letter is signed by an authorized party. The Shareholder
Services Agent may require additional information, such as a signature
guarantee.
. Mail the letter to the Shareholder Services Agent.
By exchange
. Call the Shareholder Services Agent to effect an exchange.
ACCOUNT AND TRANSACTION POLICIES
Telephone orders The fund accepts telephone orders from all shareholders. To
guard against fraud, the fund requires shareholders to use a PIN and may record
telephone orders or take other reasonable precautions. However, if the fund does
take such steps to ensure the authenticity of an order, you may bear any loss if
the order later proves fraudulent.
Exchanges You may exchange shares in this fund for shares in any other J.P.
Morgan Institutional or J.P. Morgan mutual fund at no charge (subject to the
securities laws of your state). When making exchanges, it is important to
observe any applicable minimums. Keep in mind that for tax purposes an exchange
is considered a sale.
The fund may alter, limit, or suspend its exchange policy at any time.
Business hours and NAV calculations The fund's regular business days and hours
are the same as those of the New York Stock Exchange (NYSE). The fund calculates
its net asset value per share (NAV) every business day as of the close of
trading on the NYSE(normally 4:00 p.m. eastern time). The fund's securities are
typically priced using market quotes or pricing services. When these methods are
not available or do not represent a security's value at the time of pricing, the
security is valued in accordance with the fund's fair valuation procedures.
Timing of orders Orders to buy or sell shares are executed at the next
NAV calculated after the order has been accepted. Orders are accepted until the
close of trading on the NYSE every business day and are executed the same day,
at that day's NAV. The fund has the right to suspend redemption of shares and to
postpone payment of proceeds for up to seven days or as permitted by law.
================================================================================
Shareholder Services Agent
J.P. Morgan Funds Services
522 Fifth Avenue
New York, NY 10036
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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<PAGE>
================================================================================
Timing of settlements When you buy shares, you will become the owner of record
when the fund receives your payment, generally the day following execution. When
you sell shares, proceeds are generally available the day following execution
and will be forwarded according to your instructions.
When you sell shares that you recently purchased by check, your order will be
executed at the next NAV but the proceeds will not be available until your check
clears. This may take up to 15 days.
Statements and reports The fund sends monthly account statements as well as
confirmations after each purchase or sale of shares (except reinvestments).
Every six months, the fund sends out an annual or semi-annual report containing
information on the fund's holdings and a discussion of recent and anticipated
market conditions and fund performance.
Accounts with below-minimum balances If your account balance falls below the
minimum for 30 days as a result of selling shares (and not because of
performance), the fund reserves the right to request that you buy more shares or
close your account. If your account balance is still below the minimum 60 days
after notification, the fund reserves the right to close out your account and
send the proceeds to the address of record.
DIVIDENDS AND DISTRIBUTIONS
The fund typically pays income dividends and makes capital gains distributions,
if any, once a year. The fund may declare an additional income dividend in a
given year, depending on its tax situation. However, the fund may also make
fewer payments in a given year, depending on its investment results. Dividends
and distributions consist of substantially all of the fund's net investment
income and realized capital gains.
Dividends and distributions are reinvested in additional fund shares.
Alternatively, you may instruct your financial professional or J.P. Morgan Funds
Services to have them sent to you by check, credited to a separate account, or
invested in another J.P. Morgan Institutional Fund.
TAX CONSIDERATIONS
In general, selling shares, exchanging shares, and receiving distributions
(whether reinvested or taken in cash) are all taxable events. These transactions
typically create the following tax liabilities for taxable accounts:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Transaction Tax status
- --------------------------------------------------------------------------------
<S> <C>
Income dividends Ordinary income
Short-term capital gains Ordinary income
distributions
Long-term capital gains Capital gains
distributions
Sales or exchanges of shares Capital gains or losses
owned for more than one year
Sales or exchanges of shares Gains are treated as ordinary
owned for one year or less income; losses are subject
to special rules
- --------------------------------------------------------------------------------
</TABLE>
Because long-term capital gains distributions are taxable as capital gains
regardless of how long you have owned your shares, you may want to avoid making
a substantial investment when the fund is about to declare a long-term capital
gains distribution.
Every January, the fund issues tax information on its distributions for the
previous year.
Any investor for whom the fund does not have a valid taxpayer identification
number will be subject to backup withholding for taxes.
The tax considerations described in this section do not apply to tax-deferred
accounts or other non-taxable entities.
Because each investor's tax circumstances are unique, please consult your tax
professional about your fund investment.
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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 full or
fractional vote for each dollar or fraction of a dollar invested.
The fund and its master portfolio expect to maintain consistent goals, but if
they do not, the fund will withdraw from the master portfolio, receiving its
assets either in cash or securities. The fund's trustees would then consider
whether the fund should hire its own investment adviser, invest in a different
master portfolio, or take other action.
MANAGEMENT AND ADMINISTRATION
The fund and its master portfolio are governed by the same trustees. The
trustees are responsible for overseeing all business activities. The trustees
are assisted by Pierpont Group, Inc., which they own and operate on a cost
basis; costs are shared by all funds governed by these trustees. Funds
Distributor, Inc., as co-administrator, along with J.P. Morgan, provides fund
officers. J.P. Morgan, as co-administrator, oversees the fund's other service
providers.
J.P. Morgan, subject to the expense reimbursements described earlier in this
prospectus, receives the following fees for investment advisory and other
services:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C>
Advisory services 1.00% of the master portfolio's
average net assets
- --------------------------------------------------------------------------------
Administrative services Master portfolio's and fund's pro-
(fee shared with Funds rata portions of 0.09% of the
Distributor, Inc.) first $7 billion in J.P. Morgan-
advised portfolios, plus 0.04%
of average net assets over
$7 billion
- --------------------------------------------------------------------------------
Shareholder services 0.10% of the fund's average
net assets
- --------------------------------------------------------------------------------
</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.
Year 2000 Fund operations and shareholders could be adversely affected if the
computer systems used by J.P. Morgan, the fund's other service providers and
other entities with computer systems linked to the fund do not properly process
and calculate January 1, 2000 and after date-related information. J.P. Morgan is
working to avoid these problems and to obtain assurances from other service
providers that they are taking similar steps. However, it is not certain that
these actions will be sufficient to prevent these date-related problems from
adversely impacting fund operations and shareholders. In addition, to the extent
that operations of issuers of securities held by the fund are impaired by
date-related problems or prices of securities decline as a result of real or
perceived date-related problems of issuers held by the fund or generally, the
net asset value of the fund will decline.
|
FUND DETAILS | 9
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<PAGE>
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RISK AND REWARD ELEMENTS
This table identifies the main elements that make up the fund's overall risk and
reward characteristics (described on page 4). It also outlines the fund's
policies toward various investments, including those that are designed to help
the fund manage risk.
<TABLE>
<CAPTION>
====================================================================================================================================
Potential risks Potential rewards Policies to balance risk and reward
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Foreign and other market conditions
. The fund's share price and . Stocks have generally outperformed . Under normal circumstances the fund
performance will fluctuate in more stable investments (such as plans to remain fully invested,
response to stock market movements bonds and cash equivalents) over with at least 65% in stocks; stock
the long term investments may include convertible
. The fund could lose money because securities, preferred stocks,
of foreign government actions, . Foreign investments, which depository receipts (such as ADRs
political instability, or lack of represent a major portion of the and EDRs), trust or partnership
adequate and/or accurate world's securities, offer interests, warrants, rights, and
information attractive potential performance investment company securities
and opportunities for
. Investment risks tend to be higher diversification . The fund seeks to limit risk and
in emerging markets. These markets enhance performance through active
also present higher liquidity and . Emerging markets can offer higher management, country allocation and
valuation risks returns diversification
. Adverse market conditions may from . During severe market downturns, the
time to time cause the fund to take fund has the option of investing up
temporary defensive positions that to 100% of assets in investment-grade
are inconsistent with its principal short-term securities
investment strategies and may
hinder the fund from achieving its
investment objective
- ------------------------------------------------------------------------------------------------------------------------------------
Management choices
. The fund could underperform its . The fund could outperform its . J.P. Morgan focuses its active
benchmark due to its securities benchmark due to these same choices management on securities selection,
choices and other management decisions the area where it believes its
commitment to research can most
enhance returns
- ------------------------------------------------------------------------------------------------------------------------------------
Foreign currencies
. Currency exchange rate movements . Favorable exchange rate movements . The fund manages the currency
could reduce gains or create losses could generate gains or reduce exposure of its foreign investments
losses relative to its benchmark, and may
. Currency risks tend to be higher in hedge a portion of its foreign
emerging markets currency exposure into the U.S.
dollar from time to time (see also
"Derivatives")
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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10 | FUND DETAILS
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<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
====================================================================================================================================
Potential risks Potential rewards Policies to balance risk and reward
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Derivatives
. Derivatives such as futures, . Hedges that correlate well with . The fund uses derivatives, such as
options, swaps, and forward foreign underlying positions can reduce or futures, options, swaps, and
currency contracts(1) that are used eliminate losses at low cost forward foreign currency contracts,
for hedging the portfolio or for hedging and for risk management
specific securities may not fully . The fund could make money and (i.e., to establish or adjust
offset the underlying positions and protect against losses if the exposure to particular securities,
this could result in losses to the investment analysis proves correct markets or currencies); risk
fund that would not have otherwise management may include management
occurred . Derivatives that involve leverage of the fund's exposure relative to
could generate substantial gains at its benchmark
. Derivatives used for risk low cost
management may not have the . The fund only establishes hedges
intended effects and may result in that it expects will be highly
losses or missed opportunities correlated with underlying
positions
. The counterparty to a derivatives
contract could default . While the fund may use derivatives
that incidentally involve leverage,
. Derivatives that involve leverage it does not use them for the
could magnify losses specific purpose of leveraging its
portfolio
. Certain types of derivatives
involve costs to the fund which can
reduce returns
- ------------------------------------------------------------------------------------------------------------------------------------
Illiquid holdings
. The fund could have difficulty . These holdings may offer more . The fund may not invest more than
valuing these holdings precisely attractive yields or potential 15% of net assets in illiquid
growth than comparable widely holdings
. The fund could be unable to sell traded securities
these holdings at the time or price . To maintain adequate liquidity, the
it desired fund may hold investment-grade
short-term securities (including
repurchase agreements) and, for
temporary or extraordinary
purposes, may borrow from banks up
to 33 1/3% of the value of its
assets
- ------------------------------------------------------------------------------------------------------------------------------------
When-issued and delayed
delivery securities
. When the fund buys securities . The fund can take advantage of . The fund uses segregated accounts
before issue or for delayed attractive transaction to offset leverage risk
delivery, it could be exposed to opportunities
leverage risk if it does not use
segregated accounts
- ------------------------------------------------------------------------------------------------------------------------------------
Short-term trading
. Increased trading could raise the . The fund could realize gains in a . The fund anticipates that its
fund's brokerage and related costs short period of time portfolio turnover rate will not
exceed 100%
. Increased short-term capital gains . The fund could protect against
distributions could raise losses if a stock is overvalued and . The fund generally avoids
shareholders' income tax liability its value later falls short-term trading, except to take
advantage of attractive or
unexpected opportunities or to meet
demands generated by shareholder
activity
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) A futures contract is an agreement to buy or sell a set quantity of an
underlying instrument at a future date, or to make or receive a cash
payment based on changes in the value of a securities index. An option is
the right to buy or sell a set quantity of an underlying instrument at a
predetermined price. A swap is a privately negotiated agreement to exchange
one stream of payments for another. A forward foreign currency contract is
an obligation to buy or sell a given currency on a future date and at a set
price.
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| 13
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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 fund's SAI by reference.
Copies of the current versions of these documents, along with other information
about the fund, may be obtained by contacting:
J.P. Morgan Institutional Emerging Markets Equity Fund
J.P. Morgan Funds Services
522 Fifth Avenue
New York, NY 10036
Telephone: 1-800-766-7722
Hearing impaired: 1-888-468-4015
Email: [email protected]
Text-only versions of these documents and this prospectus are available, upon
payment of a duplicating fee, from the Public Reference Room of the Securities
and Exchange Commission in Washington, D.C. (1-800-SEC-0330) and may be viewed
on-screen or downloaded from the SEC's Internet site at http://www.sec.gov. The
fund's investment company and 1933 Act registration numbers are 811-07342 and
033-54642.
J.P. MORGAN INSTITUTIONAL FUNDS AND THE MORGAN TRADITION
The J.P. Morgan Institutional Funds combine a heritage of integrity and
financial leadership with comprehensive, sophisticated analysis and management
techniques. Drawing on J.P. Morgan's extensive experience and depth as an
investment manager, the J.P. Morgan Institutional Funds offer a broad array of
distinctive opportunities for mutual fund investors.
[LOGO] JPMorgan
================================================================================
J.P. Morgan Institutional Funds
Advisor Distributor
J.P. Morgan Investment Management Inc. Funds Distributor, Inc.
522 Fifth Avenue 60 State Street
New York, NY 10036 Boston, MA 02109
1-800-766-7722 1-800-221-7930
PROS389-9810
- ----------------------------------------------------------------------------
J.P. MORGAN INSTITUTIONAL FUNDS
J.P. MORGAN INSTITUTIONAL INTERNATIONAL EQUITY FUND
J.P. MORGAN INSTITUTIONAL EMERGING MARKETS EQUITY FUND
J.P. MORGAN INSTITUTIONAL INTERNATIONAL OPPORTUNITIES FUND
STATEMENT OF ADDITIONAL INFORMATION
MARCH 31, 1998
AS REVISED
OCTOBER 1, 1998
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT CONTAINS
ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS
DATED MARCH 31, 1998, AS REVISED, OCTOBER 1, 1998 FOR THE FUNDS LISTED ABOVE, AS
SUPPLEMENTED FROM TIME TO TIME. ADDITIONALLY, THIS STATEMENT OF ADDITIONAL
INFORMATION INCORPORATES BY REFERENCE THE FINANCIAL STATEMENTS INCLUDED IN THE
SHAREHOLDER REPORTS RELATING TO THE FUNDS LISTED ABOVE. THE PROSPECTUS AND THESE
FINANCIAL STATEMENTS, INCLUDING THE AUDITOR'S REPORT THEREON, ARE AVAILABLE,
WITHOUT CHARGE UPON REQUEST FROM FUNDS DISTRIBUTOR, INC., ATTENTION: J.P. MORGAN
INSTITUTIONAL FUNDS (800)221-7930.
<PAGE>
Table of Contents
Page
General . . . . . . . . . . . . . . . . . . . 1
Investment Objective and Policies . . . . . . 1
Investment Restrictions . . . . . . . . . . . 17
Trustees . . . . . . . . . . . . . . . . . . . 19
Officers . . . . . . . . . . . . . . . . . . . 21
Investment Advisor . . . . . . . . . . . . . . 23
Distributor . . . . . . . . . . . . . . . . . 25
Co-Administrator . . . . . . . . . . . . . . . 26
Services Agent . . . . . . . . . . . . . . . . 27
Custodian and Transfer Agent . . . . . . . . . 28
Shareholder Servicing . . . . . . . . . . . . 29
Financial Professionals . . . . . . . . . . . 30
Independent Accountants . . . . . . . . . . . 30
Expenses . . . . . . . . . . . . . . . . . . . 30
Purchase of Shares . . . . . . . . . . . . . . 31
Redemption of Shares . . . . . . . . . . . . . 32
Exchange of Shares . . . . . . . . . . . . . . 32
Dividends and Distributions . . . . . . . . . 33
Net Asset Value . . . . . . . . . . . . . . . 33
Performance Data . . . . . . . . . . . . . . . 34
Portfolio Transactions . . . . . . . . . . . . 35
Massachusetts Trust . . . . . . . . . . . . . 37
Description of Shares . . . . . . . . . . . . 38
Special Information Concerning
Investment Structure . . . . . . . . . . . . . 40
Taxes . . . . . . . . . . . . . . . . . . . . 41
Additional Information . . . . . . . . . . . 46
Appendix A - Description of Securities
Ratings . . . . . . . . . . . . . . . . . . . A-1
<PAGE>
GENERAL
This Statement of Additional Information relates only to the J.P. Morgan
Institutional International Equity Fund, the J.P. Morgan Institutional Emerging
Markets Equity Fund and the J.P. Morgan Institutional International
Opportunities Fund (the "Funds"). The Funds are 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 objectives and policies, management and operation of each of
the Funds in order to enable investors to select the Fund or Funds which best
suit their needs. The J.P. Morgan Institutional Funds operate through a two-tier
master-feeder investment fund structure.
This Statement of Additional Information provides additional
information with respect to the Funds and should be read in conjunction with the
relevant Fund's current Prospectus (the "Prospectus"). Capitalized terms not
otherwise defined herein have the meanings accorded to them in the Prospectus.
The Funds' 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 Funds seek to achieve their investment objectives
by investing all of their investable assets in separate Master Portfolios (each
a "Portfolio"), a corresponding diversified open-end management investment
company having the same investment objective as the corresponding Fund. Each
Fund invests in a Portfolio through a two-tier master-feeder investment fund
structure. See "Special Information Concerning Investment Structure."
The Portfolio is advised by J.P. Morgan Investment Management Inc. ("JPMIM"
or the "Advisor").
Investments in the Funds are not deposits or obligations of, or
guaranteed or endorsed by, Morgan Guaranty Trust Company of New York,
("Morgan"), an affiliate of the Advisor or any other bank. Shares of the Funds
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 OBJECTIVE AND POLICIES
The J.P. Morgan Institutional International Equity Fund (the
"International Equity Fund") is designed for investors with a long term
investment horizon who want to diversify their portfolios by investing in an
actively managed portfolio of non-U.S. securities that seeks to outperform the
Morgan Stanley Capital International ("MSCI") Europe, Australasia and Far East
Index (the "EAFE Index"). The Fund's investment objective is to provide high
total return from a portfolio of equity securities of foreign corporations. The
Fund attempts to achieve its investment objective by investing all of its
investable assets in The International Equity Portfolio (the "Portfolio"), a
diversified open-end management investment company having the same investment
objective as the International Equity Fund.
The Portfolio seeks to achieve its investment objective by investing
primarily in the equity securities of foreign corporations. Equity securities
consist of common stocks and other securities with equity characteristics such
as preferred stocks, depository receipts, warrants, rights, convertible
securities, trust or limited partnership interests and equity participations
(collectively, "Equity Securities". Under normal circumstances, the Portfolio
expects to invest at least 65% of its total assets in such securities. The
Portfolio does not intend to invest in U.S. securities (other than money market
instruments), except temporarily, when extraordinary circumstances prevailing at
the same time in a significant number of developed foreign countries render
investments in such countries inadvisable.
Investment Process for the International Equity Portfolio
Country allocation: JPMIM's country allocation decision begins with a
forecast of equity risk premiums, which provide a valuation signal by measuring
the relative attractiveness of stocks. Using a proprietary approach, JPMIM
calculates this risk premium for each of the nations in the Portfolio's
universe, determines the extent of its deviation -- if any -- from its
historical norm, and then ranks countries according to the size of those
deviations. Countries with high (low) rankings are overweighted (underweighted)
in comparisons to the EAFE Index to reflect the above-average (below-average)
attractiveness of their stock markets. In determining weightings, JPMIM analyzes
a variety of qualitative factors as well -- including the liquidity, earnings
momentum and interest rate climate of the market at hand. These qualitative
assessments can change the magnitude but not the direction of the country
allocations called for by the risk premium forecast. JPMIM places limits on the
total size of the Portfolio's country over- and under-weightings relative to the
EAFE Index.
Stock selection: JPMIM's more than 90 international equity analysts,
each an industry and country specialist with an average of nearly ten years of
experience, forecast normalized earnings and dividend payouts for roughly 1,200
non-U.S. companies -- taking a long-term perspective rather than the short time
frame common to consensus estimates. These forecasts are converted into
comparable expected returns by a dividend discount model, and then companies are
ranked from most to least attractive by industry and country. A diversified
portfolio is constructed using disciplined buy and sell rules. The portfolio
manager's objective is to concentrate the purchases in the stocks deemed most
undervalued, and to keep sector weightings close to those of the EAFE Index, the
Fund's benchmark. Once a stock falls into the bottom half of the rankings, it
generally becomes a candidate for sale. Where available, warrants and
convertibles may be purchased instead of common stock if they are deemed a more
attractive means of investing in an undervalued company.
Currency management: Currency is actively managed, in conjunction with
country and stock allocation, with the goal of protecting and possibly enhancing
the Fund's return. JPMIM's currency decisions are supported by a proprietary
tactical model which forecasts currency movements based on an analysis of four
fundamental factors -- trade balance trends, purchasing power parity, real
short-term interest differentials and real bond yields -- plus a technical
factor designed to improve the timing of transactions. Combining the output of
this model with a subjective assessment of economic, political and market
factors, JPMIM's currency specialists recommend currency strategies that are
implemented in conjunction with the Portfolio's investment strategy.
The J.P. Morgan Institutional Emerging Markets Equity Fund (the
"Emerging Markets Equity Fund") is designed for investors with a long term
investment horizon who want exposure to the rapidly growing emerging markets.
The Emerging Markets Equity Fund's investment objective is to achieve a high
total return from a portfolio of equity securities of companies in emerging
markets. The Fund attempts to achieve its investment objective by investing all
of its investable assets in The Emerging Markets Equity Portfolio (the
"Portfolio"), a diversified open-end management investment company having the
same investment objective as the Emerging Markets Equity Fund.
The Portfolio seeks to achieve its investment objective by investing
primarily in Equity Securities of emerging markets issuers. Under normal
circumstances, the Portfolio expects to invest at least 65% of its total assets
in such securities. The Portfolio does not intend to invest in U.S. securities
(other than money market instruments), except temporarily, when extraordinary
circumstances prevailing at the same time in a significant number of emerging
markets countries render investments in such countries inadvisable.
Investment Process for the Emerging Markets Equity Portfolio
Country allocation: JPMIM's country allocation decision begins with a
forecast of the expected return of each market in the Portfolio's universe.
These expected returns are calculated using a proprietary valuation method that
is forward looking in nature rather than based on historical data. JPMIM then
evaluates these expected returns from two different perspectives: first, it
identifies those countries that have high real expected returns relative to
their own history and other nations in their universe. Second, it identifies
those countries that it expects will provide high returns relative to their
currency risk. Countries that rank highly on one or both of these scores are
overweighted relative to the Fund's benchmark, the MSCI Emerging Markets Free
Index, while those that rank poorly are underweighted.
Stock selection: JPMIM's 23 emerging markets equity analysts -- each an
industry specialist -- monitor a universe of approximately 325 companies in
these countries, developing forecasts of earnings and cash flows for the most
attractive among them. Companies are ranked from most to least attractive based
on this research, and then a diversified portfolio is constructed using
disciplined buy and sell rules. The portfolio manager's objective is to
concentrate the Portfolio's holdings in the stocks deemed most undervalued, and
to keep sector weightings relatively close to those of the index. Stocks are
generally held until they fall into the bottom half of JPMIM's rankings.
J.P. Morgan Institutional International Opportunities Fund (the
"International Opportunities Fund") is designed for long-term investors who want
to invest in an actively managed portfolio of common stocks and other equity
securities of non-U.S. companies, including companies located in emerging
markets. The International Opportunities Fund's investment objective is to
provide high total return from a portfolio of equity securities of foreign
companies in developed and, to a lesser extent, developing markets. The Fund
attempts to achieve its investment objective by investing all of its investable
assets in The International Opportunities Portfolio (the "Portfolio"), a
diversified open-end management investment company having the same investment
objective as the International Opportunities Fund.
The Portfolio invests primarily in Equity Securities of non-U.S.
issuers in developed and developing countries. Under normal circumstances, the
Portfolio expects to invest at least 65% of its total assets in such securities.
The Portfolio does not intend to invest in U.S. securities (other than money
market instruments), except temporarily, when extraordinary circumstances
prevailing at the same time in a significant number of foreign countries render
investments in such countries inadvisable.
Investment Process for The International Opportunities Portfolio
Stock selection: JPMIM's approximately 90 international equity analysts
and 23 emerging markets equity analysts, each an industry and country
specialist, forecast normalized earnings, dividend payouts and cash flows for
roughly 1,200 non-U.S. companies -- taking a long-term perspective rather than
the short time frame common to consensus estimates. These forecasts are
converted into comparable expected returns by a dividend discount model, and
then companies are ranked from most to least attractive by industry. A
diversified portfolio is constructed using disciplined buy and sell rules. The
portfolio manager's objective is to concentrate the Portfolio's purchases in the
stocks deemed most undervalued. Stocks generally become a candidate for sale
when they fall into the bottom half of JPMIM's rankings. Where available,
warrants and convertibles may be purchased instead of common stock if they are
deemed a more attractive means of investing in an undervalued company.
Currency management: JPMIM actively manages the currency exposure of
the Portfolio's investments in developed countries, in conjunction with country
and stock allocation, with the goal of protecting and possibly enhancing the
Fund's return. JPMIM's currency decisions are supported by a proprietary
tactical model which forecasts currency movements based on an analysis of four
fundamental factors -- trade balance trends, purchasing power parity, real
short-term interest differentials and real bond yields -- plus a technical
factor designed to improve the timing of transactions. Combining the output of
this model with a subjective assessment of economic, political and market
factors, Morgan's currency specialists recommend currency strategies that are
implemented in conjunction with the Portfolio's investment strategy.
Country allocation (developed countries): The Portfolio's country
weightings primarily result from its stock selection decisions and may vary
significantly from the MSCI All Country World Index Free (ex-U.S.), the
Portfolio's benchmark.
Equity Investments
The Portfolios for each of the Funds invest primarily in Equity
Securities. The Equity Securities in which the Funds invest include those listed
on any domestic or foreign securities exchange or traded in the over-the-counter
(OTC) market as well as certain restricted or unlisted securities.
Equity Securities. The Equity Securities in which the Funds may invest may
or may not pay dividends and may or may not carry voting rights. Common stock
occupies the most junior position in a company's capital structure.
The convertible securities in which the Funds may invest include any
debt securities or preferred stock which may be converted into common stock or
which carry the right to purchase common stock. Convertible securities entitle
the holder to exchange the securities for a specified number of shares of common
stock, usually of the same company, at specified prices within a certain period
of time.
The terms of any convertible security determine its ranking in a
company's capital structure. In the case of subordinated convertible debentures,
the holders' claims on assets and earnings are subordinated to the claims of
other creditors, and are senior to the claims of preferred and common
shareholders. In the case of convertible preferred stock, the holders' claims on
assets and earnings are subordinated to the claims of all creditors and are
senior to the claims of common shareholders.
Common Stock Warrants
The Funds may invest in common stock warrants that entitle the holder
to buy common stock from the issuer of the warrant at a specific price (the
strike price) for a specific period of time. The market price of warrants may be
substantially lower than the current market price of the underlying common
stock, yet warrants are subject to similar price fluctuations. As a result,
warrants may be more volatile investments than the underlying common stock.
Warrants generally do not entitle the holder to dividends or voting
rights with respect to the underlying common stock and do not represent any
rights in the assets of the issuer company. A warrant will expire worthless if
it is not exercised on or prior to the expiration date.
Foreign Investments
The Funds make substantial investments in foreign countries. Investors
should realize that the value of the Funds' 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 Funds'
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 Funds must be made in compliance with U.S. and foreign
currency restrictions and tax laws restricting the amounts and types of foreign
investments.
Generally, investment in securities of foreign issuers involves
somewhat different investment risks from those affecting securities of U.S.
domestic issuers. There may be limited publicly available information with
respect to foreign issuers, and foreign issuers are not generally subject to
uniform accounting, auditing and financial standards and requirements comparable
to those applicable to domestic companies. Dividends and interest paid by
foreign issuers may be subject to withholding and other foreign taxes which may
decrease the net return on foreign investments as compared to dividends and
interest paid to the Portfolio by domestic companies.
In addition, while the volume of transactions effected on foreign stock
exchanges has increased in recent years, in most cases it remains appreciably
below that of domestic security exchanges. Accordingly, a Portfolio's foreign
investments may be less liquid and their prices may be more volatile than
comparable investments in securities of U.S. companies. Moreover, the settlement
periods for foreign securities, which are often longer than those for securities
of U.S. issuers, may affect portfolio liquidity. In buying and selling
securities on foreign exchanges, purchasers normally pay fixed commissions that
are generally higher than the negotiated commissions charged in the United
States. In addition, there is generally less government supervision and
regulation of securities exchanges, brokers and issuers located in foreign
countries than in the United States.
Foreign investments may be made directly in securities of foreign
issuers or in the form of American Depositary Receipts ("ADRs"), European
Depositary Receipts ("EDRs") and Global Depositary Receipts ("GDRs") or other
similar securities of foreign issuers. ADRs are securities, typically issued by
a U.S. financial institution (a "depositary"), that evidence ownership interests
in a security or a pool of securities issued by a foreign issuer and deposited
with the depositary. ADRs include American Depositary Shares and New York
Shares. EDRs are receipts issued by a European financial institution. GDRs,
which are sometimes referred to as Continental Depositary Receipts ("CDRs"), are
securities, typically issued by a non-U.S. financial institution, that evidence
ownership interests in a security or a pool of securities issued by either a
U.S. or foreign issuer. ADRs, EDRs, GDRs and CDRs may be available for
investment through "sponsored" or "unsponsored" facilities. A sponsored facility
is established jointly by the issuer of the security underlying the receipt and
a depositary, whereas an unsponsored facility may be established by a depositary
without participation by the issuer of the receipt's underlying security.
Holders of an unsponsored depositary receipt generally bear all costs
of the unsponsored facility. The depositary of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited security or to pass through to the
holders of the receipts voting rights with respect to the deposited securities.
Since investments in foreign securities may involve foreign currencies,
the value of a Fund's assets as measured in U.S. dollars may be affected
favorably or unfavorably by changes in currency rates and in exchange control
regulations, including currency blockage. The Funds may enter into forward
commitments for the purchase or sale of foreign currencies in connection with
the settlement of foreign securities transactions or to manage the Funds'
currency exposure related to foreign investments.
The Funds may also invest in countries with emerging economies or
securities markets. Political and economic structures in many of such countries
may be undergoing significant evolution and rapid development, and such
countries may lack the social, political and economic stability characteristic
of more developed countries. Certain of such countries may have in the past
failed to recognize private property rights and have at times nationalized or
expropriated the assets of private companies. As a result, the risks described
above, including the risks of nationalization or expropriation of assets, may be
heightened. In addition, unanticipated political or social developments may
affect the values of the Funds investments in those countries and the
availability to such Fund of additional investments in those countries. The
small size and inexperience of the securities markets in certain of such
countries and the limited volume of trading in securities in those countries may
make the Funds investments in such countries illiquid and more volatile than
investments in more developed countries, and such Fund may be required to
establish special custodial or other arrangements before making certain
investments in those countries. There may be little financial or accounting
information available with respect to issuers located in certain of such
countries, and it may be difficult as a result to assess the value or prospects
of an investment in such issuers.
Foreign Currency Exchange Transactions. Because the Portfolios buy and
sell securities and receive interest and dividends in currencies other than the
U.S. dollar, the Portfolios may enter from time to time into foreign currency
exchange transactions. The Portfolios either enter into these transactions on a
spot (i.e., cash) basis at the spot rate prevailing in the foreign currency
exchange market, or use forward contracts to purchase or sell foreign
currencies. The cost of a Portfolio's spot currency exchange transactions is
generally the difference between the bid and offer spot rate of the currency
being purchased or sold.
A forward foreign currency exchange contract is an obligation by a
Portfolio to purchase or sell a specific currency at a future date, which may be
any fixed number of days from the date of the contract. Forward foreign currency
exchange contracts establish an exchange rate at a future date. These contracts
are derivative instruments, as their value derives from the spot exchange rates
of the currencies underlying the contracts. These contracts are entered into in
the interbank market directly between currency traders (usually large commercial
banks) and their customers. A forward foreign currency exchange contract
generally has no deposit requirement, and is traded at a net price without
commission. Neither spot transactions nor forward foreign currency exchange
contracts eliminate fluctuations in the prices of the Portfolio's securities or
in foreign exchange rates, or prevent loss if the prices of these securities
should decline.
The Portfolios may enter into forward foreign currency exchange
contracts in connection with settlements of securities transactions and other
anticipated payments or receipts. In addition, from time to time, the Advisor
may reduce a Portfolio's foreign currency exposure by entering into forward
foreign currency exchange contracts to sell a foreign currency in exchange for
the U.S. dollar. The Portfolios may also enter into forward foreign currency
exchange contracts to adjust their currency exposure relative to their
benchmarks. Forward foreign currency exchange contracts may involve the purchase
or sale of a foreign currency in exchange for U.S.
dollars or may involve two foreign currencies.
Although these transactions are intended to minimize the risk of loss
due to a decline in the value of the hedged currency, at the same time they
limit any potential gain that might be realized should the value of the hedged
currency increase. In addition, forward contracts that convert a foreign
currency into another foreign currency will cause the Portfolio to assume the
risk of fluctuations in the value of the currency purchased vis a vis the hedged
currency and the U.S. dollar. The precise matching of the forward contract
amounts and the value of the securities involved will not generally be possible
because the future value of such securities in foreign currencies will change as
a consequence of market movements in the value of such securities between the
date the forward contract is entered into and the date it matures. The
projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly uncertain.
Money Market Instruments
Although the Funds intend under normal circumstances and to the extent
practicable, to be fully invested in Equity Securities, each Fund may invest in
money market instruments to the extent consistent with its investment objective
and policies. The Funds may make money market investments pending other
investment or settlement, for liquidity or in adverse market conditions. 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 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
Bank 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. Each of the Funds, subject to its
applicable investment policies, may also invest in short-term obligations of
foreign sovereign governments or of their agencies, instrumentalities,
authorities or political subdivisions. These securities may be denominated in
the U.S. dollar or in another currency. See "Foreign Investments."
Bank Obligations. Each of the Funds 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 Funds will not invest in obligations for which the Advisor, or
any of its affiliated persons, is the ultimate obligor or accepting bank. Each
of the Funds may also invest in international banking institutions designated or
supported by national governments to promote economic reconstruction,
development or trade between nations (e.g., the European Investment Bank, the
Inter-American Development Bank, or the World Bank).
Commercial Paper. Each of the Funds 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 acting as agent, for no additional fee.
The monies loaned to the borrower come from accounts managed by Morgan or its
affiliates, pursuant to arrangements with such accounts. Interest and principal
payments are credited to such accounts. Morgan has the right to increase or
decrease the amount provided to the borrower under an obligation. The borrower
has the right to pay without penalty all or any part of the principal amount
then outstanding on an obligation together with interest to the date of payment.
Since these obligations typically provide that the interest rate is tied to the
Federal Reserve commercial paper composite rate, the rate on master demand
obligations is subject to change. Repayment of a master demand obligation to
participating accounts depends on the ability of the borrower to pay the accrued
interest and principal of the obligation on demand which is continuously
monitored by the Morgan. Since master demand obligations typically are not rated
by credit rating agencies, the Funds may invest in such unrated obligations only
if at the time of an investment the obligation is determined by the Advisor to
have a credit quality which satisfies the Fund's quality restrictions. See
"Quality and Diversification Requirements." Although there is no secondary
market for master demand obligations, such obligations are considered by the
Funds to be liquid because they are payable upon demand. The Funds do not have
any specific percentage limitation on investments in master demand obligations.
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. Each of the Funds may enter into repurchase
agreements with brokers, dealers or banks that meet the credit guidelines
approved by the Funds' Trustees. In a repurchase agreement, a Fund buys a
security from a seller that has agreed to repurchase the same security at a
mutually agreed upon date and price. The resale price normally is in excess of
the purchase price, reflecting an agreed upon interest rate. This interest rate
is effective for the period of time the Fund is invested in the agreement and is
not related to the coupon rate on the underlying security. A repurchase
agreement may also be viewed as a fully collateralized loan of money by a Fund
to the seller. The period of these repurchase agreements will usually be short,
from overnight to one week, and at no time will the Funds invest in repurchase
agreements for more than thirteen months. The securities which are subject to
repurchase agreements, however, may have maturity dates in excess of thirteen
months from the effective date of the repurchase agreement. The 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. If the seller
defaults, a Fund might incur a loss if the value of the collateral securing the
repurchase agreement declines and might incur disposition costs in connection
with liquidating the collateral. In addition, if bankruptcy proceedings are
commenced with respect to the seller of the security, realization upon disposal
of the collateral by a Fund may be delayed or limited.
Each of the Funds may make investments in other debt securities with
remaining effective maturities of not more than thirteen months, including
without limitation corporate and foreign bonds, asset-backed securities and
other obligations described in this Statement of Additional Information.
Additional Investments
When-Issued and Delayed Delivery Securities. Each of the Portfolios 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 Portfolio until settlement
takes place. At the time a Portfolio makes the commitment to purchase securities
on a when-issued or delayed delivery basis, it will record the transaction,
reflect the value each day of such securities in determining its net asset value
and calculate the maturity for the purposes of average maturity from that date.
At the time of settlement a when-issued security may be valued at less than the
purchase price. To facilitate such acquisitions, each Portfolio 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
Portfolio will meet its obligations from maturities or sales of the securities
held in the segregated account and/or from cash flow. If a Portfolio chooses to
dispose of the right to acquire a when-issued security prior to its acquisition,
it could, as with the disposition of any other portfolio obligation, incur a
gain or loss due to market fluctuation. Also, a Fund may be disadvantaged if the
other party to the transaction defaults. It is the current policy of each
Portfolio not to enter into when-issued commitments exceeding in the aggregate
15% of the market value of the Portfolio's total assets, less liabilities other
than the obligations created by when-issued commitments.
Investment Company Securities. Securities of other investment companies
may be acquired by each of the Funds and their corresponding Portfolio to the
extent permitted under the 1940 Act or any order pursuant thereto. These limits
currently require that, as determined immediately after a purchase is made,
(i)not more than 5% of the value of 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 Portfolios may enter into
reverse repurchase agreements. In a reverse repurchase agreement, a Portfolio
sells a security and agrees to repurchase the same security at a mutually agreed
upon date and price reflecting the interest rate effective for the term of the
agreement. For purposes of the 1940 Act a reverse repurchase agreement is also
considered as the borrowing of money by a Portfolio and, therefore, a form of
leverage. Leverage may cause any gains or losses for a Fund to be magnified. The
Portfolio will invest the proceeds of borrowings under reverse repurchase
agreements. In addition, a Portfolio will enter into a reverse repurchase
agreement only when the interest income to be earned from the investment of the
proceeds is greater than the interest expense of the transaction. Investors
should keep in mind that the counterparty to a contract could default on its
obligation. No Portfolio will invest the proceeds of a reverse repurchase
agreement for a period which exceeds the duration of the reverse repurchase
agreement. Each Portfolio will establish and maintain with the Custodian a
separate account with a segregated portfolio of securities in an amount at least
equal to its purchase obligations under its reverse repurchase agreements. See
"Investment Restrictions" for each Portfolio's limitations on reverse repurchase
agreements and bank borrowings.
Loans of Portfolio Securities. Each of the Portfolios may lend its
securities if such loans are secured continuously by cash or equivalent
collateral or by a letter of credit in favor of the Portfolio at least equal at
all times to 100% of the market value of the securities loaned, plus accrued
interest. While such securities are on loan, the borrower will pay the Portfolio
any income accruing thereon. Loans will be subject to termination by the
Portfolio in the normal settlement time, generally three business days after
notice, or by the borrower on one day's notice. Borrowed securities must be
returned when the loan is terminated. Any gain or loss in the market price of
the borrowed securities which occurs during the term of the loan inures to a
Portfolio and its respective investors. The Portfolios may pay reasonable
finders' and custodial fees in connection with a loan. In addition, a Portfolio
will consider all facts and circumstances before entering into such an
agreement, including the creditworthiness of the borrowing financial
institution, and no Portfolio will make any loans in excess of one year. The
Portfolios will not lend their securities to any officer, Trustee, Director,
employee or other affiliate of the Portfolios, the Advisor or the Distributor,
unless otherwise permitted by applicable law.
Privately Placed and Certain Unregistered Securities. A Portfolio may
not acquire any illiquid holdings if, as a result thereof, more than 15% of the
Portfolio's net assets would be in illiquid investments. Subject to this
non-fundamental policy limitation, the Portfolios may acquire investments that
are illiquid or have limited liquidity, such as private placements or
investments that are not registered under 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 a Portfolio. The price a Portfolio pays for illiquid securities
or receives upon resale may be lower than the price paid or received for similar
securities with a more liquid market. Accordingly the valuation of these
securities will reflect any limitations on their liquidity.
The Portfolios 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 Portfolio is subject to a risk that
should the Portfolio decide to sell them when a ready buyer is not available at
a price the Portfolio deems representative of their value, the value of the
Portfolio's net assets could be adversely affected. Where an illiquid security
must be registered under the 1933 Act, before it may be sold, a Portfolio may be
obligated to pay all or part of the registration expenses, and a considerable
period may elapse between the time of the decision to sell and the time the
Portfolio may be permitted to sell a holding under an effective registration
statement. If, during such a period, adverse market conditions were to develop,
a Portfolio might obtain a less favorable price than prevailed when it decided
to sell.
Quality and Diversification Requirements
Each of the Funds intends to meet the diversification requirements of
the 1940 Act. Current 1940 Act diversification requirements require that with
respect to 75% of the assets of the Fund: (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.
The Funds will also comply with the diversification requirements imposed by
the Internal Revenue Code of 1986, as amended (the "Code"), for qualification as
a regulated investment company. See "Taxes."
The Funds may invest in convertible debt securities, for which there
are no specific quality requirements. In addition, at the time a Fund invests in
any commercial paper, bank obligation or repurchase agreement, the issuer must
have outstanding debt rated A or higher by Moody's or Standard & Poor's, the
issuer's parent corporation, if any, must have outstanding commercial paper
rated Prime-1 by Moody's or A-1 by Standard & Poor's, or if no such ratings are
available, the investment must be of comparable quality in the Advisor's
opinion. At the time a Fund invests in any other short-term debt securities,
they must be rated A or higher by Moody's or Standard & Poor's, or if unrated,
the investment must be of comparable quality in the Advisor's opinion.
In determining suitability of investment in a particular unrated
security, the Advisor takes into consideration asset and debt service coverage,
the purpose of the financing, history of the issuer, existence of other rated
securities of the issuer, and other relevant conditions, such as comparability
to other issuers.
Options and Futures Transactions
Exchange Traded and OTC Options. All options purchased or sold by the
Portfolios will be traded on a securities exchange or will be purchased or sold
by securities dealers (OTC options) that meet creditworthiness standards
approved by the Portfolios' Board of Trustees. While exchange-traded options are
obligations of the Options Clearing Corporation, in the case of OTC options, a
Portfolio relies on the dealer from which it purchased the option to perform if
the option is exercised. Thus, when a Portfolio purchases an OTC option, it
relies on the dealer from which it purchased the option to make or take delivery
of the underlying securities. Failure by the dealer to do so would result in the
loss of the premium paid by the Portfolio as well as loss of the expected
benefit of the transaction.
Provided that a Portfolio has arrangements with certain qualified
dealers who agree that the Portfolio may repurchase any option it writes for a
maximum price to be calculated by a predetermined formula, a Portfolio may treat
the underlying securities used to cover written OTC options as liquid. In these
cases, the OTC option itself would only be considered illiquid to the extent
that the maximum repurchase price under the formula exceeds the intrinsic value
of the option.
Futures Contracts and Options on Futures Contracts. The Portfolios may
purchase or sell (write) futures contracts and may purchase and sell (write) put
and call options, including put and call options on futures contracts. Futures
contracts obligate the buyer to take and the seller to make delivery at a future
date of a specified quantity of a financial instrument or an amount of cash
based on the value of a securities index. Currently, futures contracts are
available on various types of fixed income securities, including but not limited
to U.S. Treasury bonds, notes and bills, Eurodollar certificates of deposit and
on indexes of fixed income securities and indexes of equity securities.
Unlike a futures contract, which requires the parties to buy and sell a
security or make a cash settlement payment based on changes in a financial
instrument or securities index on an agreed date, an option on a futures
contract entitles its holder to decide on or before a future date whether to
enter into such a contract. If the holder decides not to exercise its option,
the holder may close out the option position by entering into an offsetting
transaction or may decide to let the option expire and forfeit the premium
thereon. The purchaser of an option on a futures contract pays a premium for the
option but makes no initial margin payments or daily payments of cash in the
nature of "variation" margin payments to reflect the change in the value of the
underlying contract as does a purchaser or seller of a futures contract.
The seller of an option on a futures contract receives the premium paid
by the purchaser and may be required to pay initial margin. Amounts equal to the
initial margin and any additional collateral required on any options on futures
contracts sold by a Portfolio are paid by the Portfolio into a segregated
account, in the name of the Futures Commission Merchant, as required by the 1940
Act and the SEC's interpretations thereunder.
Combined Positions. The Portfolios may purchase and write options in
combination with each other, or in combination with futures or forward
contracts, to adjust the risk and return characteristics of the overall
position. For example, a Portfolio may purchase a put option and write a call
option on the same underlying instrument, in order to construct a combined
position whose risk and return characteristics are similar to selling a futures
contract. Another possible combined position would involve writing a call option
at one strike price and buying a call option at a lower price, in order to
reduce the risk of the written call option in the event of a substantial price
increase. Because combined options positions involve multiple trades, they
result in higher transaction costs and may be more difficult to open and close
out.
Correlation of Price Changes. Because there are a limited number of
types of exchange-traded options and futures contracts, it is likely that the
standardized options and futures contracts available will not match a
Portfolio's current or anticipated investments exactly. A Portfolio may invest
in options and futures contracts based on securities with different issuers,
maturities, or other characteristics from the securities in which it typically
invests, which involves a risk that the options or futures position will not
track the performance of the Portfolio's other investments.
Options and futures contracts prices can also diverge from the prices
of their underlying instruments, even if the underlying instruments match the
Portfolio's investments well. Options and futures contracts prices are affected
by such factors as current and anticipated short term interest rates, changes in
volatility of the underlying instrument, and the time remaining until expiration
of the contract, which may not affect security prices the same way. Imperfect
correlation may also result from differing levels of demand in the options and
futures markets and the securities markets, from structural differences in how
options and futures and securities are traded, or from imposition of daily price
fluctuation limits or trading halts. A Portfolio may purchase or sell options
and futures contracts with a greater or lesser value than the securities it
wishes to hedge or intends to purchase in order to attempt to compensate for
differences in volatility between the contract and the securities, although this
may not be successful in all cases. If price changes in a Portfolio's options or
futures positions are poorly correlated with its other investments, the
positions may fail to produce anticipated gains or result in losses that are not
offset by gains in other investments.
Liquidity of Options and Futures Contracts. There is no assurance a
liquid market will exist for any particular option or futures contract at any
particular time even if the contract is traded on an exchange. In addition,
exchanges may establish daily price fluctuation limits for options and futures
contracts and may halt trading if a contract's price moves up or down more than
the limit in a given day. On volatile trading days when the price fluctuation
limit is reached or a trading halt is imposed, it may be impossible for a
Portfolio to enter into new positions or close out existing positions. If the
market for a contract is not liquid because of price fluctuation limits or
otherwise, it could prevent prompt liquidation of unfavorable positions, and
could potentially require a Portfolio to continue to hold a position until
delivery or expiration regardless of changes in its value. As a result, the
Portfolio's access to other assets held to cover its options or futures
positions could also be impaired. (See "Exchange Traded and OTC Options" above
for a discussion of the liquidity of options not traded on an exchange.)
Position Limits. Futures exchanges can limit the number of futures and
options on futures contracts that can be held or controlled by an entity. If an
adequate exemption cannot be obtained, a Portfolio or the Advisor may be
required to reduce the size of its futures and options positions or may not be
able to trade a certain futures or options contract in order to avoid exceeding
such limits.
Asset Coverage for Futures Contracts and Options Positions. The
Portfolios intend to comply with Section 4.5 of the regulations under the
Commodity Exchange Act, which limits the extent to which the Portfolio can
commit assets to initial margin deposits and option premiums. In addition, the
Portfolios will comply with guidelines established by the SEC with respect to
coverage of options and futures contracts by mutual funds, and if the guidelines
so require, will set aside appropriate liquid assets in a segregated custodial
account in the amount prescribed. Securities held in a segregated account cannot
be sold while the futures contract or option is outstanding, unless they are
replaced with other suitable assets. As a result, there is a possibility that
segregation of a large percentage of the Portfolio's assets could impede
portfolio management or the Portfolio's ability to meet redemption requests or
other current obligations.
Swaps and Related Swap Products
Each of the Funds may engage in swap transactions, including, but not
limited to, interest rate, currency, securities index, basket, specific security
and commodity swaps, interest rate caps, floors and collars and options on
interest rate swaps (collectively defined as "swap transactions").
Each Fund may enter into swap transactions for any legal purpose
consistent with its investment objective and policies, such as for the purpose
of attempting to obtain or preserve a particular return or spread at a lower
cost than obtaining that return or spread through purchases and/or sales of
instruments in cash markets, to protect against currency fluctuations, as a
duration management technique, to protect against any increase in the price of
securities a Fund anticipates purchasing at a later date, or to gain exposure to
certain markets in the most economical way possible. A Fund will not sell
interest rate caps, floors or collars if it does not own securities with coupons
which provide the interest that a Fund may be required to pay.
Swap agreements are two-party contracts entered into primarily by
institutional counterparties for periods ranging from a few weeks to several
years. In a standard swap transaction, two parties agree to exchange the returns
(or differentials in rates of return) that would be earned or realized on
specified notional investments or instruments. The gross returns to be exchanged
or "swapped" between the parties are calculated by reference to a "notional
amount," i.e., the return on or increase in value of a particular dollar amount
invested at a particular interest rate, in a particular foreign currency or
commodity, or in a "basket" of securities representing a particular index. The
purchaser of an interest rate cap or floor, upon payment of a fee, has the right
to receive payments (and the seller of the cap is obligated to make payments) to
the extent a specified interest rate exceeds (in the case of a cap) or is less
than (in the case of a floor) a specified level over a specified period of time
or at specified dates. The purchaser of an interest rate collar, upon payment of
a fee, has the right to receive payments (and the seller of the collar is
obligated to make payments) to the extent that a specified interest rate falls
outside an agreed upon range over a specified period of time or at specified
dates. The purchaser of an option on an interest rate swap, upon payment of a
fee (either at the time of purchase or in the form of higher payments or lower
receipts within an interest rate swap transaction) has the right, but not the
obligation, to initiate a new swap transaction of a pre-specified notional
amount with pre-specified terms with the seller of the option as the
counterparty.
The "notional amount" of a swap transaction is the agreed upon basis
for calculating the payments that the parties have agreed to exchange. For
example, one swap counterparty may agree to pay a floating rate of interest
(e.g., 3 month LIBOR) calculated based on a $10 million notional amount on a
quarterly basis in exchange for receipt of payments calculated based on the same
notional amount and a fixed rate of interest on a semi-annual basis. In the
event a Fund is obligated to make payments more frequently than it receives
payments from the other party, it will incur incremental credit exposure to that
swap counterparty. This risk may be mitigated somewhat by the use of swap
agreements which call for a net payment to be made by the party with the larger
payment obligation when the obligations of the parties fall due on the same
date. Under most swap agreements entered into by a Fund, payments by the parties
will be exchanged on a "net basis", and a Fund will receive or pay, as the case
may be, only the net amount of the two payments.
The amount of a Fund's potential gain or loss on any swap transaction
is not subject to any fixed limit. Nor is there any fixed limit on a Fund's
potential loss if it sells a cap or collar. If the Fund buys a cap, floor or
collar, however, the Fund's potential loss is limited to the amount of the fee
that it has paid. When measured against the initial amount of cash required to
initiate the transaction, which is typically zero in the case of most
conventional swap transactions, swaps, caps, floors and collars tend to be more
volatile than many other types of instruments.
The use of swap transactions, caps, floors and collars involves
investment techniques and risks which are different from those associated with
portfolio security transactions. If the Advisor is incorrect in its forecasts of
market values, interest rates, and other applicable factors, the investment
performance of a Fund will be less favorable than if these techniques had not
been used. These instruments are typically not traded on exchanges. Accordingly,
there is a risk that the other party to certain of these instruments will not
perform its obligations to a Fund or that a Fund may be unable to enter into
offsetting positions to terminate its exposure or liquidate its position under
certain of these instruments when it wishes to do so. Such occurrences could
result in losses to a Fund.
The Advisor will, however, consider such risks and will enter into
swap and other derivatives transactions only when it believes that the risks are
not unreasonable.
Each Fund will maintain cash or liquid assets in a segregated account
with its custodian in an amount sufficient at all times to cover its current
obligations under its swap transactions, caps, floors and collars. If a Fund
enters into a swap agreement on a net basis, it will segregate assets with a
daily value at least equal to the excess, if any, of a Fund's accrued
obligations under the swap agreement over the accrued amount a Fund is entitled
to receive under the agreement. If a Fund enters into a swap agreement on other
than a net basis, or sells a cap, floor or collar, it will segregate assets with
a daily value at least equal to the full amount of a Fund's accrued obligations
under the agreement.
Each Fund will not enter into any swap transaction, cap, floor, or
collar, unless the counterparty to the transaction is deemed creditworthy by the
Advisor. If a counterparty defaults, a Fund may have contractual remedies
pursuant to the agreements related to the transaction. The swap markets in which
many types of swap transactions are traded have grown substantially in recent
years, with a large number of banks and investment banking firms acting both as
principals and as agents utilizing standardized swap documentation. As a result,
the markets for certain types of swaps (e.g., interest rate swaps) have become
relatively liquid. The markets for some types of caps, floors and collars are
less liquid.
The liquidity of swap transactions, caps, floors and collars will be as
set forth in guidelines established by the Advisor and approved by the Trustees
which are based on various factors, including (1) the availability of dealer
quotations and the estimated transaction volume for the instrument, (2) the
number of dealers and end users for the instrument in the marketplace, (3) the
level of market making by dealers in the type of instrument, (4) the nature of
the instrument (including any right of a party to terminate it on demand) and
(5) the nature of the marketplace for trades (including the ability to assign or
offset a Fund's rights and obligations relating to the instrument). Such
determination will govern whether the instrument will be deemed within the 15%
restriction on investments in securities that are not readily marketable.
During the term of a swap, cap, floor or collar, changes in the value
of the instrument are recognized as unrealized gains or losses by marking to
market to reflect the market value of the instrument. When the instrument is
terminated, a Fund will record a realized gain or loss equal to the difference,
if any, between the proceeds from (or cost of) the closing transaction and a
Fund's basis in the contract.
The federal income tax treatment with respect to swap transactions,
caps, floors, and collars may impose limitations on the extent to which a Fund
may engage in such transactions.
Risk Management
The Portfolios may employ non-hedging risk management techniques.
Examples of risk management strategies include synthetically altering a
portfolio's exposure to the equity markets of particular countries by purchasing
futures contracts on the stock indices of those countries to increase exposure
to their equity markets. Such non-hedging risk management techniques are not
speculative, but because they involve leverage include, as do all leveraged
transactions, the possibility of losses as well as gains that are greater than
if these techniques involved the purchase and sale of the securities themselves
rather than their synthetic derivatives.
Portfolio Turnover
The table below sets forth the portfolio turnover rates for the
Portfolios corresponding to the Funds. A rate of 100% indicates that the
equivalent of all of the Portfolio's assets have been sold and reinvested in a
year. High portfolio turnover may result in the realization of substantial net
capital gains or losses. To the extent net short term capital gains are
realized, any distributions resulting from such gains are considered ordinary
income for federal income tax purposes. See "Taxes" below.
The International Equity Portfolio (International Equity Fund) For the
fiscal year ended October 31, 1995: 59%. For the fiscal year ended October 31,
1996: 57%. For the fiscal year ended October 31, 1997: 67%.
The Emerging Markets Equity Portfolio (Emerging Markets Equity Fund) For
the fiscal year ended October 31, 1995: 41%. For the fiscal year ended October
31, 1996: 31%. For the fiscal year ended October 31, 1997: 55%.
The International Opportunities Portfolio (International Equity Fund) For the
period February 26, 1997 (commencement of operations) through November 30, 1997:
72%.
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 security holders 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.
Unless Sections 8(b)(1) and 13(a) of the 1940 Act or any SEC or SEC
staff interpretations thereof, are amended or modified, each Fund and its
corresponding Portfolio:
1. May not make any investment inconsistent with the Fund's classification as a
diversified investment company under the Investment Company Act of 1940.
2. May not purchase any security which would cause the Fund to concentrate its
investments in the securities of issuers primarily engaged in any particular
industry except as permitted by the SEC;
3. May not issue senior securities, except as permitted under the Investment
Company Act of 1940 or any rule, order or interpretation thereunder;
4. May not borrow money, except to the extent permitted by applicable law;
5. May not underwrite securities of other issuers, except to the extent that the
Fund, in disposing of portfolio securities, may be deemed an underwriter within
the meaning of the 1933 Act;
6. May not purchase or sell real estate, except that, to the extent permitted by
applicable law, the Fund may (a) invest in securities or other instruments
directly or indirectly secured by real estate, and (b) invest in securities or
other instruments issued by issuers that invest in real estate;
7. May not purchase or sell commodities or commodity contracts unless acquired
as a result of ownership of securities or other instruments issued by persons
that purchase or sell commodities or commodities contracts; but this shall not
prevent the Fund from purchasing, selling and entering into financial futures
contracts (including futures contracts on indices of securities, interest rates
and currencies), options on financial futures contracts (including futures
contracts on indices of securities, interest rates and currencies), warrants,
swaps, forward contracts, foreign currency spot and forward contracts or other
derivative instruments that are not related to physical commodities; and
8. May make loans to other persons, in accordance with the Fund's investment
objective and policies and to the extent permitted by applicable law.
Non-Fundamental Investment Restrictions. The investment restrictions
described below are not fundamental policies of the Funds and their
corresponding Portfolios and may be changed by their Trustees. These
non-fundamental investment policies require that the Funds and their
corresponding Portfolios:
(i) May not acquire any illiquid securities, such as repurchase agreements with
more than seven days to maturity or fixed time deposits with a duration of over
seven calendar days, if as a result thereof, more than 15% of the market value
of the Fund's net assets would be in investments which are illiquid;
(ii) May not purchase securities on margin, make short sales of securities, or
maintain a short position, provided that this restriction shall not be deemed to
be applicable to the purchase or sale of when-issued or delayed delivery
securities, or to short sales that are covered in accordance with SEC rules; and
(iii) May not acquire securities of other investment companies, except as
permitted by the 1940 Act or any order pursuant thereto.
There will be no violation of any investment restriction if that
restriction is complied with at the time the relevant action is taken
notwithstanding a later change in market value of an investment, in net or total
assets, in the securities rating of the investment, or any other later change.
For purposes of fundamental investment restrictions regarding industry
concentration, JPMIM may classify issuers by industry in accordance with
classifications set forth in the Directory of Companies Filing Annual Reports
With The Securities and Exchange Commission or other sources. In the absence of
such classification or if JPMIM determines in good faith based on its own
information that the economic characteristics affecting a particular issuer make
it more appropriately considered to be engaged in a different industry, JPMIM
may classify an issuer accordingly. For instance, personal credit finance
companies and business credit finance companies are deemed to be separate
industries and wholly owned finance companies are considered to be in the
industry of their parents if their activities are primarily related to financing
the activities of their parents.
TRUSTEES
The Trustees of the Trust, who are also the Trustees of each of the
Portfolios and the other Master Portfolios, as defined below, their business
addresses, principal occupations during the past five years and dates of birth
are set forth below.
Frederick S. Addy -- Trustee; Retired; Prior to April 1994, Executive
Vice President and Chief Financial Officer, Amoco Corporation. His address is
5300 Arbutus Cove, Austin, Texas 78746, and his date of birth is January 1,
1932.
William G. Burns -- Trustee; Retired; Former Vice Chairman and Chief
Financial Officer, NYNEX. His address is 2200 Alaqua Drive, Longwood, Florida
32779, and his date of birth is November 2, 1932.
Arthur C. Eschenlauer -- Trustee; Retired; Former Senior Vice
President, Morgan Guaranty Trust Company of New York. His address is 14 Alta
Vista Drive, RD #2, Princeton, New Jersey 08540, and his date of birth is May
23, 1934.
Matthew Healey (*) -- Trustee; Chairman and Chief Executive Officer;
Chairman, Pierpont Group, Inc. ("Pierpont Group") since prior to 1993. His
address is Pine Tree Club Estates, 10286 Saint Andrews Road, Boynton Beach,
Florida 33436, and his date of birth is August 23, 1937.
Michael P. Mallardi -- Trustee; Retired; Prior to April 1996, Senior Vice
President, Capital Cities/ABC, Inc. and President, Broadcast Group. His address
is 10 Charnwood Drive, Suffern, New York 10910, and his date of birth is March
17, 1934.
The Trustees of the Trust are the same as the Trustees of each of the
Portfolios. 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 (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 these
funds.
- ----------------------
* Mr. Healey is an "interested person" (as defined in the 1940 Act) of the
Trust. Mr. Healey is also an "interested person" (as defined in the 1940 Act) of
the advisor due to his son's affiliation with JPMIM.
Trustee compensation expenses paid by the Trust for the calendar year
ended December 31, 1997 are set forth below.
- -------------------------------------------------- ------------------------
TOTAL TRUSTEE COMPENSATION
AGGREGATE TRUSTEE ACCRUED BY THE MASTER
COMPENSATION PORTFOLIOS(*), J.P. MORGAN
PAID BY THE TRUST FUNDS, J.P. MORGAN SERIES
DURING 1997 TRUST AND THE TRUST 1997(**)
NAME OF TRUSTEE
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Frederick S. Addy, Trustee $11,772.77 $72,500
- --------------------------------------------------------------------
- --------------------------------------------------------------------
William G. Burns, Trustee $11,786.38 $72,500
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Arthur C. Eschenlauer, Trustee $11,786.38 $72,500
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Matthew Healey, Trustee (***) $11,786.38 $72,500
Chairman and Chief Executive
Officer
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Michael P. Mallardi, Trustee $11,786.38 $72,500
- --------------------------------------------------------------------
- --------------------------------------------------- ----------------
- --------------------------------------------- -------------------------
(*) Includes the Portfolios and 17 other portfolios (collectively, the "Master
Portfolios") for which JPMIM acts as investment adviser.
(**) No investment company within the fund complex has a pension or retirement
plan. Currently there are 18 investment companies (15 investment companies
comprising the Master Portfolios, J.P. Morgan Funds, the Trust and J.P. Morgan
Series Trust) in the fund complex.
(***) During 1997, Pierpont Group, Inc. paid Mr. Healey, in his role as
Chairman of Pierpont Group, Inc., compensation in the amount of $147,500,
contributed $22,100 to a defined contribution plan on his behalf and paid
$20,500 in insurance premiums for his benefit.
The Trustees decide upon general policies and are responsible for
overseeing the Trust's and Portfolio's business affairs. 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 J.P. Morgan
Family of Funds (formerly "The Pierpont Family of Funds"), and the Trustees are
the equal and sole shareholders of Pierpont Group, Inc. The Trust and the
Portfolios have agreed to pay Pierpont Group, Inc. a fee in an amount
representing its reasonable costs in performing these services. These costs are
periodically reviewed by the Trustees. The principal offices of Pierpont Group,
Inc. are located at 461 Fifth Avenue, New York, New York 10017.
The aggregate fees paid to Pierpont Group, Inc. by each Fund and its
corresponding Portfolio during the indicated fiscal periods are set forth below:
International Equity Fund -- For the fiscal year ended October 31, 1995:
$30,279. For the fiscal year ended October 31, 1996: $29,774. For the fiscal
year ended October 31, 1997: $25,727.
International Equity Portfolio -- For the fiscal year ended October 31,
1995: $48,442. For the fiscal year ended October 31, 1996: $39,391. For the
fiscal year ended October 31, 1997: $32,439.
Emerging Markets Equity Fund -- For the fiscal year ended October 31, 1995:
$14,527. For the fiscal year ended October 31, 1996: $11,374. For the fiscal
year ended October 31, 1997: $13,144.
Emerging Markets Equity Portfolio -- For the fiscal year ended October 31,
1995: $53,162. For the fiscal year ended October 31, 1996: $36,851. For the
fiscal year ended October 31, 1997: $34,045.
International Opportunities Fund -- For the period February 26, 1997
(commencement of operations) through November 30, 1997: $3,978.
International Opportunities Portfolio -- For the period February 26, 1997
(commencement of operations) through November 30, 1997: $5,110.
OFFICERS
The Trust's and Portfolios' executive officers (listed below), other than the
Chief Executive Officer and the officers who are employees of the Advisor, are
provided and compensated by Funds Distributor, Inc. ("FDI"), a wholly owned
indirect subsidiary of Boston Institutional Group, Inc. The officers conduct and
supervise the business operations of the Trust and the 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, the Portfolio
and the other Master Portfolios. The business address of each of the officers
unless otherwise noted is Funds Distributor, Inc., 60 State Street, Suite 1300,
Boston, Massachusetts 02109.
MATTHEW HEALEY; Chief Executive Officer; Chairman, Pierpont Group,
since prior to 1993. His address is Pine Tree Club Estates, 10286 Saint Andrews
Road, Boynton Beach, Florida 33436. His date of birth is August 23, 1937.
MARGARET W. CHAMBERS; Vice President and Secretary. Senior Vice President
and General Counsel of FDI since April, 1998. From August 1996 to March 1998,
Ms. Chambers was Vice President and Assistant General Counsel for Loomis, Sayles
& Company, L.P. From January 1986 to July 1996, she was an associate with the
law firm of Ropes & Gray. Her date of birth is October 12, 1959.
MARIE E. CONNOLLY; Vice President and Assistant Treasurer. President,
Chief Executive Officer, Chief Compliance Officer and Director of FDI, Premier
Mutual Fund Services, Inc., an affiliate of FDI ("Premier Mutual") and an
officer of certain investment companies distributed or administered by FDI.
Prior to July 1994, she was President and Chief Compliance Officer of FDI. Her
date of birth is August 1, 1957.
DOUGLAS C. CONROY; Vice President and Assistant Treasurer. Assistant Vice
President and Assistant Department Manager of Treasury Services and
Administration of FDI and an officer of certain investment companies distributed
or administered by FDI. Prior to April 1997, Mr. Conroy was Supervisor of
Treasury Services and Administration of FDI. From April 1993 to January 1995,
Mr. Conroy was a Senior Fund Accountant for Investors Bank & Trust Company. His
date of birth is March 31, 1969.
JACQUELINE HENNING; Assistant Secretary and Assistant Treasurer of the
Portfolio only. Managing Director, State Street Cayman Trust Company, Ltd. since
October 1994. Prior to October 1994, Mrs. Henning was head of mutual funds at
Morgan Grenfell in Cayman and was Managing Director of Bank of Nova Scotia Trust
Company (Cayman) Limited prior to September 1993. Address: P.O. Box 2508 GT,
Elizabethan Square, 2nd Floor, Shedden Road, George Town, Grand Cayman, Cayman
Islands, BWI. Her date of birth is March 24, 1942.
KAREN JACOPPO-WOOD; Vice President and Assistant Secretary. Vice President
and Senior Counsel of FDI and an officer of certain investment companies
distributed or administered by FDI. From June 1994 to January 1996, Ms.
Jacoppo-Wood was a Manager of SEC Registration at Scudder, Stevens & Clark, Inc.
Prior to May 1994, Ms. Jacoppo-Wood was a senior paralegal at The Boston Company
Advisors, Inc. ("TBCA"). Her date of birth is December 29, 1966.
CHRISTOPHER J. KELLEY; Vice President and Assistant Secretary. Vice
President and Senior Associate General Counsel of FDI and Premier Mutual and an
officer of certain investment companies distributed or administered by FDI. From
April 1994 to July 1996, Mr. Kelley was Assistant Counsel at Forum Financial
Group. Prior to April 1994, Mr. Kelley was employed by Putnam Investments in
legal and compliance capacities. His date of birth is December 24, 1964.
KATHLEEN K. MORRISEY. Vice President and Assistant Secretary. Vice
President and Assistant Secretary of FDI. Manager of Treasury Services
Administration and an officer of certain investment companies advised or
administered by Montgomery Asset Management, L.P. and Dresdner RCM Global
Investors, Inc., and their respective affiliates. From July 1994 to November
1995, Ms. Morrisey was a Fund Accountant II for Investors Bank & Trust Company.
Prior to July 1994 she was a Finance student at Stonehill College in North
Easton, Massachusetts. Her date of birth is July 5, 1972.
MARY A. NELSON; Vice President and Assistant Treasurer. Vice President and
Manager of Treasury Services and Administration of FDI and Premier Mutual and an
officer of certain investment companies distributed or administered by FDI.
Prior to August 1994, Ms. Nelson was an Assistant Vice President and Client
Manager for The Boston Company, Inc. Her date of birth is April 22, 1964.
MARY JO PACE; Assistant Treasurer. Vice President, Morgan Guaranty Trust
Company of New York. Ms. Pace serves in the Funds Administration group as a
Manager for the Budgeting and Expense Processing Group. Prior to September 1995,
Ms. Pace served as a Fund Administrator for Morgan Guaranty Trust Company of New
York. Her address is 60 Wall Street, New York, New York 10260. Her date of birth
is March 13, 1966.
MICHAEL S. PETRUCELLI; Vice President and Assistant Secretary. Senior Vice
President and Director of Strategic Client Initiatives for FDI since December
1996. From December 1989 through November 1996, Mr. Petrucelli was employed with
GE Investments where he held various financial, business development and
compliance positions. He also served as Treasurer of the GE Funds and as
Director of GE Investment Services. Address: 200 Park Avenue, New York, New
York, 10166. His date of birth is May 18, 1961.
STEPHANIE D. PIERCE; Vice President and Assistant Secretary. Vice President
and Client Development Manager for FDI since April 1998. From April 1997 to
March 1998, Ms. Pierce was employed by Citibank, NA as an officer of Citibank
and Relationship Manager on the Business and Professional Banking team handling
over 22,000 clients. Address: 200 Park Avenue, New York, New York 10166. Her
date of birth is August 18, 1968.
GEORGE A. RIO; President and Treasurer. Executive Vice President and Client
Service Director of FDI since April 1998. From June 1995 to March 1998, Mr. Rio
was Senior Vice President and Senior Key Account Manager for Putnam Mutual
Funds. From May 1994 to June 1995, Mr. Rio was Director of Business Development
for First Data Corporation. From September 1983 to May 1994, Mr. Rio was Senior
Vice President & Manager of Client Services and Director of Internal Audit at
The Boston Company. His date of birth is January 2, 1955.
CHRISTINE ROTUNDO; Assistant Treasurer. Vice President, Morgan Guaranty
Trust Company of New York. Ms. Rotundo serves in the Funds Administration group
as a Manager of the Tax Group and is responsible for U.S. mutual fund tax
matters. Prior to September 1995, Ms. Rotundo served as a Senior Tax Manager in
the Investment Company Services Group of Deloitte & Touche LLP. Her address is
60 Wall Street, New York, New York 10260. Her date of birth is September 26,
1965.
INVESTMENT ADVISOR
The 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, the Advisor makes each Portfolio's day-to-day
investment decisions, arranges for the execution of portfolio transactions and
generally manages the Portfolio's investments. Prior to October 1, 1998, Morgan
was each Portfolio's investment advisor. JPMIM, a wholly owned subsidiary of
J.P. Morgan & Co. Incorporated ("J.P. Morgan"), is a registered investment
adviser under the Investment Advisers Act of 1940, as amended, manages employee
benefit funds of corporations, labor unions and state and local governments and
the accounts of other institutional investors, including investment companies.
Certain of the assets of employee benefit accounts under its management are
invested in commingled pension trust funds for which Morgan serves as trustee.
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 $275 billion.
J.P. Morgan has a long history of service as adviser, underwriter and
lender to an extensive roster of major companies and as a financial advisor to
national governments. The firm, through its predecessor firms, has been in
business for over a century and has been managing investments since 1913.
The basis of the Advisor's investment process is fundamental investment
research as the firm believes that fundamentals should determine an asset's
value over the long term. J.P. Morgan currently employs over 100 full time
research analysts, among the largest research staffs in the money management
industry, in its investment management divisions located in New York, London,
Tokyo, Frankfurt, and Singapore to cover companies, industries and countries on
site. In addition, the investment management divisions employ approximately 300
capital market researchers, portfolio managers and traders.
The 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 benchmark for the Portfolios in which the Funds
invest are currently: The International Equity Portfolio -- EAFE; The Emerging
Markets Equity Portfolio -- MSCI Emerging Markets Free Index; The International
Opportunities Portfolio -- MSCI All Country World Index Free (ex-U.S.).
Morgan, also a wholly owned subsidiary of J.P. Morgan, is a bank
holding company organized under the laws of the State of Delaware. Morgan, whose
principal offices are at 60 Wall Street, New York, New York 10260, is a New York
trust company which conducts a general banking and trust business. Morgan is
subject to regulation by the New York State Banking Department and is a member
bank of the Federal Reserve System. Through offices in New York City and abroad,
Morgan offers a wide range of services, primarily to governmental,
institutional, corporate and high net worth individual customers in the United
States and throughout the world.
The 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
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 each Portfolio's average daily net assets shown below.
International Equity: .60%
Emerging Markets Equity: 1.00%
International Opportunities: .60%
The table below sets forth for each Fund listed the advisory fees paid by
its corresponding Portfolio to Morgan, each Portfolio's investment advisor prior
to October 1, 1998 for the fiscal period indicated. See the Funds financial
statements which are incorporated herein by reference.
International Equity Portfolio -- For the fiscal year ended October 31,
1995: $3,174,965. For the fiscal year ended October 31, 1996: $5,007,993. For
the fiscal year ended October 31, 1997: $5,305,885.
Emerging Markets Equity Portfolio -- For the fiscal year ended October 31,
1995: $5,713,506. For the fiscal year ended October 31, 1996 : $7,825,873. For
the fiscal year ended October 31, 1997: $9,422,758.
International Opportunities Portfolio -- For the period February 26, 1997
(commencement of operations) through November 30, 1997: $904,113.
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, administrative and shareholder 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 other
investment companies subject to similar agreements with FDI.
The table below sets forth for each Fund and its corresponding
Portfolio the administrative fees paid to FDI for the fiscal periods indicated.
International Equity Fund -- For the period August 1, 1996 through October
31, 1996: $6,625. For the fiscal year ended October 31, 1997: $22,259.
International Equity Portfolio -- For the period August 1, 1996 through
October 31, 1996: $6,212. For the fiscal year ended October 31, 1997: $21,379.
Emerging Markets Equity Fund -- For the period August 1, 1996 through
October 31, 1996 : $2,593. For the fiscal year ended October 31, 1997: $11,473.
Emerging Markets Equity Portfolio -- For the period August 1, 1996 through
October 31, 1996: $5,719. For the fiscal year ended October 31, 1997: $22,642.
International Opportunities Fund -- For the period from February 26, 1997
(commencement of operations) to November 30, 1997: $3,398.
International Opportunities Portfolio -- For the period from February 26, 1997
(commencement of operations) to November 30, 1997: $3,446.
The table below sets forth for each Fund listed 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.
International Equity Fund -- For the fiscal year ended October 31, 1994:
$37,065. For the fiscal year ended October 31, 1995: $83,762. For the period
November 1, 1995 through July 31, 1996: $68,651.
International Equity Portfolio -- For the fiscal year ended October 31,
1994: $22,024. For the fiscal year ended October 31, 1995: $31,500. For the
period November 1, 1995 through July 31, 1996: $70,197.
Emerging Markets Equity Fund -- For the period November 15, 1993
(commencement of operations) through October 31, 1994: $22,572. For the fiscal
year ended October 31, 1995: $42,329. For the period November 1, 1995 through
July 31, 1996: $27,031.
The Emerging Markets Equity Portfolio -- For the period November 15, 1993
(commencement of operations) through October 31, 1994: $30,828. For the fiscal
year ended October 31, 1995: $35,189. For the period November 1, 1995 through
July 31, 1996: $66,251.
SERVICES AGENT
The Trust, on behalf of each Fund, and each Fund's corresponding
Portfolio have entered into Administrative Services Agreements (the "Services
Agreements") with Morgan effective December 29, 1995, as amended August 1, 1996
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, Morgan provides certain administrative
and related services to the Fund and the Portfolio, including services related
to tax compliance, preparation of financial statements, calculation of
performance data, oversight of service providers and certain regulatory and
Board of Trustee matters.
Under the amended Services Agreements, the Funds and the Portfolios
have agreed to pay Morgan fees equal to its allocable share of an annual
complex-wide charge. This charge is calculated daily based on the aggregate net
assets of the Master Portfolios and J.P. Morgan Series Trust in accordance with
the following annual schedule: 0.09% of the first $7 billion of their aggregate
average daily net assets and 0.04% of their aggregate average daily net assets
in excess of $7 billion, less the complex-wide fees payable to FDI. The portion
of this charge payable by 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 administrative services agreements in effect from December 29,
1995 through July 31, 1996, with Morgan, each Fund and its corresponding
Portfolio paid Morgan a fee equal to its proportionate share of an annual
complex-wide charge. This charge was calculated daily based on the aggregate net
assets of the Master Portfolios in accordance with the following schedule: 0.06%
of the first $7 billion of the Master Portfolios' aggregate average daily net
assets, and 0.03% of the Master Portfolios' average daily net assets in excess
of $7 billion. Prior to December 29, 1995, the Trust and each Portfolio 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 and its corresponding Portfolio the
fees paid to Morgan, net of applicable fee waivers and reimbursements, as
Services Agent.
International Equity Fund -- For the fiscal year ended October 31, 1995:
$(63,230)*. For the fiscal year ended October 31, 1996: $114,261. For the fiscal
year ended October 31, 1997: $217,946.
International Equity Portfolio -- For the fiscal year ended October 31,
1995: $349,443. For the fiscal year ended October 31, 1996: $196,299. For the
fiscal year ended October 31, 1997: $274,750.
Emerging Markets Equity Fund -- For the fiscal year ended October 31, 1995:
$(26,975)*. For the fiscal year ended October 31, 1996: $57,566. For the fiscal
year ended October 31, 1997: $113,255.
Emerging Markets Equity Portfolio -- For the fiscal year ended October 31,
1995: $337,050. For the fiscal year ended October 31, 1996: $183,498. For the
fiscal year ended October 31, 1997: $292,269.
International Opportunities Fund -- For the period February 26, 1997
(commencement of operations) through November 30, 1997: $35,840.
International Opportunities Portfolio -- For the period February 26, 1997
(commencement of operations) through November 30, 1997: $46,055.
- ------------------------------------
(*) 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 each of the
Portfolio's custodian and fund accounting agent and each Fund 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 Fund 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. In the case of foreign assets held outside the United States, the
Custodian employs various subcustodians who were approved by the Trustees of the
Portfolios in accordance with the regulations of the SEC. The custodian
maintains portfolio transaction records. As transfer agent and dividend
disbursing agent, State Street is responsible for maintaining account records
detailing the ownership of Fund shares and for crediting income, capital gains
and other changes in share ownership to shareholder accounts.
SHAREHOLDER SERVICING
The Trust on behalf of 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; and providing other related services.
Under the Shareholder Servicing Agreement, each Fund has agreed to pay
Morgan for these services a fee at the following annual rate of 0.10% (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).
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.
International Equity Fund -- For the fiscal year ended October 31, 1995:
$168,565. For the fiscal year ended October 31, 1996: $596,245. For the fiscal
year ended October 31, 1997: $701,585. Emerging Markets Equity Fund -- For the
fiscal year ended October 31, 1995: $79,381. For the fiscal year ended October
31, 1996: $229,764. For the fiscal year ended October 31, 1997: $365,202.
International Opportunities Fund -- For the period from February 26, 1997
(commencement of operations) to November 30, 1997: $117,243.
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 the activities of JPMIM in acting as Advisor to the
Portfolios under the Investment Advisory Agreements may raise issues under these
laws. However, JPMIM and Morgan believe that it may properly perform these
services and the other activities described herein without violation of the
Glass-Steagall Act or other applicable banking laws or regulations.
If Morgan were prohibited from providing any of the services under the
Shareholder Servicing Agreement and the Services Agreements, the Trustees would
seek an alternative provider of such services. In such event, changes in the
operation of the 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.
The Funds may be sold to or through financial intermediaries who are
customers of J.P. Morgan ("financial professionals"), including financial
institutions and broker-dealers, that may be paid fees by J.P. Morgan or its
affiliates for services provided to their clients that invest in the 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 a Fund, financial
professionals may establish their own terms and conditions for providing their
services and may charge investors a transaction-based or other fee for their
services. Such charges may vary among financial professionals but in all cases
will be retained by the financial professional and not be remitted to the Fund
or J.P. Morgan.
Each Fund has authorized one or more brokers to accept purchase and
redemption orders on its behalf. Such brokers are authorized to designate other
intermediaries to accept purchase and redemption orders on a Fund's behalf. A
Fund will be deemed to have received a purchase or redemption order when an
authorized broker or, if applicable, a broker's authorized designee, accepts the
order. These orders will be priced at the Fund's net asset value next calculated
after they are so accepted.
INDEPENDENT ACCOUNTANTS
The independent accountants of the Trust and the Portfolios are
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York
10036. PricewaterhouseCoopers 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 Fund's and 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., JPMIM, Morgan and
FDI under various agreements discussed under "Trustees and Officers,"
"Investment Advisor," "Co-Administrator", "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 and audit
expenses, insurance costs, the compensation and expenses of the Trustees,
registration fees 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 applicable registration fees under foreign securities laws,
custodian fees and brokerage expenses. Under fee arrangements prior to September
1, 1995, Morgan as Services Agent was responsible for reimbursements to the
Trust and certain Portfolios and the usual and customary expenses described
above (excluding organization and extraordinary expenses, custodian fees and
brokerage expenses).
PURCHASE OF SHARES
Method of Purchase. Investors may open accounts with a 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 the Advisor, appropriate
investments for the Fund's corresponding Portfolio. In addition, securities
accepted in payment for shares must: (i) meet the investment objective and
policies of 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); (iii) be liquid securities which are not
restricted as to transfer either by law or liquidity of market; and (iv) if
stock, have a value which is readily ascertainable as evidenced by a listing on
a stock exchange, OTC market or by readily available market quotations from a
dealer in such securities. 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 establish its own
minimums and charge the investor a fee for this service and other services it
provides to its customers. Morgan may pay fees to financial professionals for
services in connection with fund investments. See "Financial Professionals"
above.
REDEMPTION OF SHARES
If the Trust on behalf of a Fund and its corresponding Portfolio
determine that it would be detrimental to the best interest of the remaining
shareholders of a Fund to make payment wholly or partly in cash, payment of the
redemption price may be made in whole or in part by a distribution in kind of
securities from the Portfolio, in lieu of cash, in conformity with the
applicable rule of the SEC. If shares are redeemed in kind, the redeeming
shareholder might incur transaction costs in converting the assets into cash.
The method of valuing portfolio securities is described under "Net Asset Value,"
and such valuation will be made as of the same time the redemption price is
determined. The Trust on behalf of all of the Funds and their corresponding
Portfolios have elected to be governed by Rule 18f-1 under the 1940 Act pursuant
to which the 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 the Fund during any 90 day period for any one shareholder. The
Trust will redeem Fund shares in kind only if it has received a redemption in
kind from the corresponding Portfolio and therefore shareholders of the Fund
that receive redemptions in kind will receive securities of the Portfolio. The
Portfolios have advised the Trust that the Portfolios will not redeem in kind
except in circumstances in which a Fund is permitted to redeem in kind.
Further Redemption Information. 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 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.
For information regarding redemption orders placed through a financial
professional, please see "Financial Professionals" above.
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 Fund without charge. An exchange
may be made so long as after the exchange the investor has shares, in each fund
in which he or she remains an investor, with a value of at least that fund's
minimum investment amount. Shareholders should read the prospectus of the fund
into which they are exchanging and may only exchange between fund accounts that
are registered in the same name, address and taxpayer identification number.
Shares are exchanged on the basis of relative net asset value per share.
Exchanges are in effect redemptions from one fund and purchases of another fund
and the usual purchase and redemption procedures and requirements are applicable
to exchanges. Shareholders subject to federal income tax who exchange shares in
one fund for shares in another fund may recognize capital gain or loss for
federal income tax purposes. Shares of the Fund to be acquired are purchased for
settlement when the proceeds from redemption become available. In the case of
investors in certain states, state securities laws may restrict the availability
of the exchange privilege. The Trust reserves the right to discontinue, alter or
limit the exchange privilege at any time.
DIVIDENDS AND DISTRIBUTIONS
Each Fund declares and pays dividends and distributions as described
under "Dividends and Distributions" in the Prospectus.
Dividends and capital gains distributions paid by a Fund are
automatically reinvested in additional shares of the Fund unless the shareholder
has elected to have them paid in cash. Dividends and distributions to be paid in
cash are credited to the shareholder's account at Morgan or at his financial
professional or, in the case of certain Morgan customers, are mailed by check in
accordance with the customer's instructions. The Funds reserve the right to
discontinue, alter or limit the automatic reinvestment privilege at any time.
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 at the time in the Prospectus. The net asset value will not be
computed on the day the following legal holidays are observed: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. 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. 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 value of investments listed on a domestic securities exchange, is
based on the last sale prices on such exchange. In the absence of recorded
sales, investments are valued at the average of readily available closing bid
and asked prices on such exchange. Securities listed on a foreign exchange are
valued at the last quoted sale prices on such exchange. Unlisted securities are
valued at the average of the quoted bid and asked prices in the OTC market. The
value of each security for which readily available market quotations exist is
based on a decision as to the broadest and most representative market for such
security. For purposes of calculating net asset value, all assets and
liabilities initially expressed in foreign currencies will be converted into
U.S.
dollars at the prevailing currency exchange rate on the valuation date.
Securities or other assets for which market quotations are not readily
available (including certain restricted and illiquid securities) are valued at
fair value in accordance with procedures established by and under the general
supervision and responsibility of the Trustees. Such procedures include the use
of independent pricing services which use prices based upon yields or prices of
securities of comparable quality, coupon, maturity and type; indications as to
values from dealers; and general market conditions. Short-term investments which
mature in 60 days or less are valued at amortized cost if their original
maturity was 60 days or less, or by amortizing their value on the 61st day prior
to maturity, if their original maturity when acquired by the Portfolio was more
than 60 days, unless this is determined not to represent fair value by the
Trustees.
Trading in securities on most foreign exchanges and OTC markets is
normally completed before the close of trading of the New York Stock Exchange
(normally 4:00 p.m.) and may also take place on days on which the New York Stock
Exchange is closed. If events materially affecting the value of securities occur
between the time when the exchange on which they are traded closes and the time
when a Portfolio's net asset value is calculated, such securities will be valued
at fair value in accordance with procedures established by and under the general
supervision of the Trustees.
PERFORMANCE DATA
From time to time, the Funds may quote performance in terms of actual
distributions, average annual and aggregate annual total returns or capital
appreciation in reports, sales literature and advertisements published by the
Trust. Shareholders may obtain current performance information by calling the
number provided on the cover page of this Statement of Additional Information.
Composite performance information shown in the prospectus has been
calculated in accordance with Performance Presentation Standards of the
Association for Investment Management and Research ("AIMR").
Total Return Quotations. As required by regulations of the SEC, the
average annual total return of the Funds for a period is computed by assuming a
hypothetical initial payment of $1,000. It is then assumed that all of the
dividends and distributions by the Fund over the period are reinvested. It is
then assumed that at the end of the period, the entire amount is redeemed. The
annualized total return is then calculated by determining the annual rate
required for the initial payment to grow to the amount which would have been
received upon redemption.
Aggregate total returns, reflecting the cumulative percentage change
over a measuring period, may also be calculated.
Historical performance information for any period prior to the
establishment of a Fund will be that of its corresponding predecessor J.P.
Morgan fund and will be presented in accordance with applicable SEC staff
interpretations.
Below is set forth historical return information for the Funds or their
predecessors for the periods indicated:
International Equity Fund: 12/31/97: Average annual total return, 1 year:
1.46%; average annual total return, 5 years: 9.42%; average annual total return,
commencement of operations to period end1: 4.57%; aggregate total return, 1
year: 1.46%; aggregate total return, 5 years: 56.84%; aggregate total return,
commencement of operations to period end1: 40.43%.
Emerging Markets Equity Fund: 12/31/97: Average annual total return, 1
year: 7.71%; average annual total return, 5 years: N/A; average annual total
return, commencement of operations to period end2: 0.29%; aggregate total
return, 1 year: 7.71%; aggregate total return, 5 years: N/A; aggregate total
return, commencement of operations(*) to period end2: 1.20%.
International Opportunities 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 end3: 1.74%; aggregate total
return, 1 year: N/A; aggregate total return, 5 years: N/A; aggregate total
return, commencement of operations to period end3: 1.74%.
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.
- -------------------------- 1 J.P. Morgan International Equity Fund commenced
operations on June 1, 1990 2 J.P. Morgan Emerging Markets Equity Fund commenced
operations on November 15, 1993. 3 J.P. Morgan International Opportunities Fund
commenced operations on February 26, 1997.
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.
From time to time, the funds may, in addition to any other permissible
information, include the following types of information in advertisements,
supplemental sales literature and reports to shareholders: (1) discussions of
general economic or financial principles (such as the effects of compounding and
the benefits of dollar-cost averaging); (2) discussions of general economic
trends; (3) presentations of statistical data to supplement such discussions;
(4) descriptions of past or anticipated portfolio holdings for one or more of
the funds; (5) descriptions of investment strategies for one or more of the
funds; (6) descriptions or comparisons of various savings and investment
products (including, but not limited to, qualified retirement plans and
individual stocks and bonds), which may or may not include the funds; (7)
comparisons of investment products (including the funds) with relevant markets
or industry indices or other appropriate benchmarks; (8) discussions of fund
rankings or ratings by recognized rating organizations; and (9) discussions of
various statistical methods quantifying the fund's volatility relative to its
benchmark or to past performance, including risk adjusted measures. The funds
may also include calculations, such as hypothetical compounding examples, which
describe hypothetical investment results in such communications. Such
performance examples will be based on an express set of assumptions and are not
indicative of the performance of any of the funds.
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 Portfolios. See "Investment Objectives and Policies."
Portfolio transactions for a Portfolio will be undertaken principally
to accomplish the 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, the overriding objective is
to obtain the best execution of purchase and sales orders.
In selecting a broker, the Advisor considers a number of factors
including: the price per unit of the security; the broker's reliability for
prompt, accurate confirmations and on-time delivery of securities; the firm's
financial condition; as well as the commissions charged. A broker may be paid a
brokerage commission in excess of that which another broker might have charged
for effecting the same transaction if, after considering the foregoing factors,
the Advisor decides that the broker chosen will provide the best execution. The
Advisor monitors the reasonableness of the brokerage commissions paid in light
of the execution received. The Trustees of each Portfolio review regularly the
reasonableness of commissions and other transaction costs incurred by the
Portfolios in light of facts and circumstances deemed relevant from time to
time, and, in that connection, will receive reports from the Advisor and
published data concerning transaction costs incurred by institutional investors
generally. Research services provided by brokers to which the Advisor has
allocated brokerage business in the past include economic statistics and
forecasting services, industry and company analyses, portfolio strategy
services, quantitative data, and consulting services from economists and
political analysts. Research services furnished by brokers are used for the
benefit of all the Advisor's clients and not solely or necessarily for the
benefit of an individual Portfolio. The Advisor believes that the value of
research services received is not determinable and does not significantly reduce
its expenses. The Portfolios do not reduce their fee to the Advisor by any
amount that might be attributable to the value of such services.
The Portfolios or their predecessors corresponding to the International
Equity, Emerging Markets Equity, and International Opportunities Funds paid the
following brokerage commissions for the indicated fiscal periods:
International Equity (October): 1997: $2,008,842; 1996: $2,303,648; 1995:
$1,691,642.
Emerging Markets Equity (October): 1997: $ 2,855,850; 1996: $1,840,532; 1995:
$1,475,147.
International Opportunities (For the period February 26, 1997 (commencement of
operations) through November 30, 1997): $ 1,027,285.
The increases in brokerage commissions reflected above were due to
increased portfolio activity and an increase in net investments by investors in
a Portfolio or its predecessor.
Subject to the overriding objective of obtaining the 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.
If a Portfolio that writes options effects a closing purchase
transaction with respect to an option written by it, normally such transaction
will be executed by the same broker-dealer who executed the sale of the option.
The writing of options by a Portfolio will be subject to limitations established
by each of the exchanges governing the maximum number of options in each class
which may be written by a single investor or group of investors acting in
concert, regardless of whether the options are written on the same or different
exchanges or are held or written in one or more accounts or through one or more
brokers. The number of options which a Portfolio may write may be affected by
options written by the Advisor for other investment advisory clients. An
exchange may order the liquidation of positions found to be in excess of these
limits, and it may impose certain other sanctions.
MASSACHUSETTS TRUST
The Trust is a trust fund of the type commonly known as a
"Massachusetts business trust" of which 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 1, 1998, the name of the Trust was changed from "The
JPM Institutional Funds" to "J.P. Morgan Institutional Funds". Effective January
1, 1998, the name of the funds were changed from "The JPM Institutional
International Equity Fund" to the "J.P. Morgan Institutional International
Equity Fund", "The JPM Institutional Emerging Markets Equity Fund" to the "J.P.
Morgan Institutional Emerging Markets Equity Fund" and the "JPM Institutional
International Opportunities Fund" to the "J.P. Morgan Institutional
International Opportunities Fund".
Under Massachusetts law, shareholders of such a trust may, under
certain circumstances, be held personally liable as partners for the obligations
of the trust which is not the case for a corporation. However, the Trust's
Declaration of Trust provides that the shareholders shall not be subject to any
personal liability for the acts or obligations of any Fund and that every
written agreement, obligation, instrument or undertaking made on behalf of any
Fund shall contain a provision to the effect that the shareholders are not
personally liable thereunder.
No personal liability will attach to the shareholders under any
undertaking containing such provision when adequate notice of such provision is
given, except possibly in a few jurisdictions. With respect to all types of
claims in the latter jurisdictions, (i) tort claims, (ii) contract claims where
the provision referred to is omitted from the undertaking, (iii) claims for
taxes, and (iv) certain statutory liabilities in other jurisdictions, a
shareholder may be held personally liable to the extent that claims are not
satisfied by the Fund. However, upon payment of such liability, the shareholder
will be entitled to reimbursement from the general assets of the Fund. The
Trustees intend to conduct the operations of the Trust in such a way so as to
avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the Funds.
The Trust's Declaration of Trust further provides that the name of the
Trust refers to the Trustees collectively as Trustees, not as individuals or
personally, that no Trustee, officer, employee or agent of a Fund is liable to a
Fund or to a shareholder, and that no Trustee, officer, employee, or agent is
liable to any third persons in connection with the affairs of a Fund, except as
such liability may arise from his or its own bad faith, willful misfeasance,
gross negligence or reckless disregard of his or its duties to such third
persons. It also provides that all third persons shall look solely to Fund
property for satisfaction of claims arising in connection with the affairs of a
Fund. With the exceptions stated, the Trust's Declaration of Trust provides that
a Trustee, officer, employee, or agent is entitled to be indemnified against all
liability in connection with the affairs of a Fund.
The Trust shall continue without limitation of time subject to the
provisions in the Declaration of Trust concerning termination by action of the
shareholders or by action of the Trustees upon notice to the shareholders.
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). To
date shares of 23 series are currently available for sale to the public. Each
share represents an equal proportional interest in a Fund with each other share.
Upon liquidation of 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 non-assessable. 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 one vote for each dollar
of net asset value (or a proportionate fractional vote in respect of a
fractional dollar amount), on matters on which shares of the Fund shall be
entitled to vote. Subject to the 1940 Act, the Trustees themselves have the
power to alter the number and the terms of office of the Trustees, to lengthen
their own terms, or to make their terms of unlimited duration subject to certain
removal procedures, and appoint their own successors, provided, however, that
immediately after such appointment the requisite majority of the Trustees have
been elected by the shareholders of the Trust. The voting rights of shareholders
are not cumulative so that holders of more than 50% of the shares voting can, if
they choose, elect all Trustees being selected while the shareholders of the
remaining shares would be unable to elect any Trustees. It is the intention of
the Trust not to hold meetings of shareholders annually. The Trustees may call
meetings of shareholders for action by shareholder vote as may be required by
either the 1940 Act or the Trust's Declaration of Trust.
Shareholders of the Trust have the right, upon the declaration in
writing or vote of more than two-thirds of its outstanding shares, to remove a
Trustee. The Trustees will call a meeting of shareholders to vote on removal of
a Trustee upon the written request of the record holders of 10% of the Trust's
shares. In addition, whenever ten or more shareholders of record who have been
such for at least six months preceding the date of application, and who hold in
the aggregate either shares having a net asset value of at least $25,000 or at
least 1% of the Trust's outstanding shares, whichever is less, shall apply to
the Trustees in writing, stating that they wish to communicate with other
shareholders with a view to obtaining signatures to request a meeting for the
purpose of voting upon the question of removal of any Trustee or Trustees and
accompanied by a form of communication and request which they wish to transmit,
the Trustees shall within five business days after receipt of such application
either: (1) afford to such applicants access to a list of the names and
addresses of all shareholders as recorded on the books of the Trust; or (2)
inform such applicants as to the approximate number of shareholders of record,
and the approximate cost of mailing to them the proposed communication and form
of request. If the Trustees elect to follow the latter course, the Trustees,
upon the written request of such applicants, accompanied by a tender of the
material to be mailed and of the reasonable expenses of mailing, shall, with
reasonable promptness, mail such material to all shareholders of record at their
addresses as recorded on the books, unless within five business days after such
tender the Trustees shall mail to such applicants and file with the SEC,
together with a copy of the material to be mailed, a written statement signed by
at least a majority of the Trustees to the effect that in their opinion either
such material contains untrue statements of fact or omits to state facts
necessary to make the statements contained therein not misleading, or would be
in violation of applicable law, and specifying the basis of such opinion. After
opportunity for hearing upon the objections specified in the written statements
filed, the SEC may, and if demanded by the Trustees or by such applicants shall,
enter an order either sustaining one or more of such objections or refusing to
sustain any of them. If the SEC shall enter an order refusing to sustain any of
such objections, or if, after the entry of an order sustaining one or more of
such objections, the SEC shall find, after notice and opportunity for hearing,
that all objections so sustained have been met, and shall enter an order so
declaring, the Trustees shall mail copies of such material to all shareholders
with reasonable promptness after the entry of such order and the renewal of such
tender.
The Trustees have no current intention to create any classes within the
initial series or any subsequent series. The Trustees may, however, authorize
the issuance of shares of additional series and the creation of classes of
shares within any series with such preferences, privileges, limitations and
voting and dividend rights as the Trustees may determine. The proceeds from the
issuance of any additional series would be invested in separate, independently
managed portfolios with distinct investment objectives, policies and
restrictions, and share purchase, redemption and net asset valuation procedures.
Any additional classes would be used to distinguish among the rights of
different categories of shareholders, as might be required by future regulations
or other unforeseen circumstances. All consideration received by the Trust for
shares of any additional series or class, and all assets in which such
consideration is invested, would belong to that series or class, subject only to
the rights of creditors of the Trust and would be subject to the liabilities
related thereto. Shareholders of any additional series or class will approve the
adoption of any management contract or distribution plan relating to such series
or class and of any changes in the investment policies related thereto, to the
extent required by the 1940 Act.
For information relating to mandatory redemption of Fund shares or
their redemption at the option of the Trust under certain circumstances, see
"Redemption of Shares".
As of March 2, 1998, the following owned of record or, to the knowledge
of management, beneficially owned more than 5% of the outstanding shares of:
International Equity Fund: Blue Cross Shield of North Carolina as agent for
Steven Cherrier (8.29%)
Emerging Markets Equity Fund: JPMIM as agent for Carnegie Corp of NY
(9.21%); JPMIM as Agent for Alfred P Sloan Foundation (8.74%); Lincoln National
Life Insurance Co. (6.21%); JPMIM as agent for Ameritech Union Werfare Benefit
TR (5.58%); Charles Schwab & Co. Inc. Special Custody Account for Benefit of
Customers (5.64%); Batrus & Co. (5.29%)
International Opportunities Fund: MGT Co. of New York as Agent for Sarah
Lutz Trust (7.16%); J.P. Morgan Delaware as agent for Diversified Growth Fund
(6.96%); J.P. Morgan Delaware as agent for JMD Delaware Inc. Trustee for Micky
(5.00%)
The address of each owner listed above is c/o Morgan, 522 Fifth Avenue,
New York, New York 10036. As of the date of this Statement of Additional
Information, the officers and Trustees as a group owned less than 1% of the
shares of each Fund.
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 Master Portfolio, a separate registered
investment company with the same investment objective and policies 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 for each dollar of net asset value (or a proportionate
fractional vote in respect of a fractional dollar amount), on matters on which
shares of the Fund shall be entitled to vote.
In addition to selling a beneficial interest to 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) 766-7722.
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 in accordance with the investment policies
described below with respect to the Portfolio.
Certain changes in a Portfolio's fundamental investment policies or
restrictions, or a failure by a Fund's shareholders to approve such change in
the Portfolio's investment restrictions, may require withdrawal of the Fund's
interest in the Portfolio. Any such withdrawal could result in a distribution in
kind of portfolio securities (as opposed to a cash distribution) from the
Portfolio which may or may not be readily marketable. The distribution in kind
may result in the Fund having a less diversified portfolio of investments or
adversely affect the Fund's liquidity, and the Fund could incur brokerage, tax
or other charges in converting the securities to cash. Notwithstanding the
above, there are other means for meeting shareholder redemption requests, such
as borrowing.
Smaller funds investing in 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
Each Fund intends to qualify and remain qualified 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 fiscal quarter of its taxable year, (i) at
least 50% of the value of the Fund's total assets is represented by cash, cash
items, U.S. Government securities, investments in other regulated investment
companies, and other securities limited, in respect of any one issuer, to an
amount not greater than 5% of the Fund's total assets, and 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its total assets is invested in the securities of any one issuer (other
than U.S. Government securities or securities of other regulated investment
companies).
As a regulated investment company, a Fund (as opposed to its
shareholders) will not be subject to federal income taxes on the net investment
income and capital gains that it distributes to its shareholders, provided that
at least 90% of its net investment income and realized net short-term capital
gains in excess of net long-term capital losses for the taxable year is
distributed in accordance with the Code's timing requirements.
Under the Code, 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 generally will be
taxable to a shareholder in the year declared rather than the year paid.
Distributions of net investment income, certain foreign currency gains,
and realized net short-term capital gain in excess of net long-term capital
losses are generally taxable to shareholders of the Funds as ordinary income
whether such distributions are taken in cash or reinvested in additional shares.
If dividend payments exceed income earned by a Fund, the over distribution would
be considered a return of capital rather than a dividend payment. The Funds
intend to pay dividends in such a manner so as to minimize the possibility of a
return of capital. 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 a Fund. The Treasury department has
indicated that, under such regulations, individual shareholders will be taxed at
a maximum 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 they have held their shares in a Fund. No
loss will be allowed on the redemption or exchange of shares of a Fund if,
within a period beginning 30 days before the date of such redemption or exchange
and ending 30 days after such date, the shareholder acquires (such as through
dividend reinvestment) securities that are substantially identical to shares of
the Fund. The International Opportunities Fund had a capital loss carryforward
at November 30, 1997 of approximately $30,000 which will expire in the year
2005. No capital gains distribution is expected to be paid to shareholders until
future gains have been realized in excess of such carryforward.
Gains or losses on sales of portfolio securities will be treated as
long-term capital gains or losses if the securities have been held for more than
one year except in certain cases where, if applicable, a put is acquired or a
call option is written thereon or the straddle rules described below are
otherwise applicable. Other gains or losses on the sale of securities will be
short-term capital gains or losses. Gains and losses on the sale, lapse or other
termination of options on securities will be treated as gains and losses from
the sale of securities. If an option written by 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. Investors should thus consider the consequences
of purchasing shares in a Fund shortly before the Fund declares a sizable
dividend distribution.
Any gain or loss realized on the redemption or exchange of Fund shares
by a shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held for more than one year, and
otherwise as short-term capital gain or loss. As noted above, long-term capital
gain of an individual holder is subject to a maximum tax rate of 28% in respect
of shares held for more than one year. The maximum rate is reduced to 20% in
respect of shares held for more than 18 months. 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. In addition, no loss will be allowed on the redemption or exchange
of shares of the Fund, if within a period beginning 30 days before the date of
such redemption or exchange and ending 30 days after such date, the shareholder
acquires (such as through dividend reinvestment) securities that are
substantially identical to shares of the Fund.
Under the Code, gains or losses attributable to disposition of foreign
currency or to certain foreign currency contracts, or to fluctuations in
exchange rates between the time a Portfolio accrues income or receivables or
expenses or other liabilities denominated in a foreign currency and the time a
Portfolio actually collects such income or pays such liabilities, are generally
treated as ordinary income or ordinary loss. Similarly, gains or losses on the
disposition of debt securities held by a Portfolio, if any, denominated in
foreign currency, to the extent attributable to fluctuations in exchange rates
between the acquisition and disposition dates are also treated as ordinary
income or loss.
Forward currency contracts, options and futures contracts entered into
by a Portfolio may create "straddles" for U.S. federal income tax purposes and
this may affect the character and timing of gains or losses realized by the
Portfolio on forward currency contracts, options and futures contracts or on the
underlying securities.
Certain options, futures and foreign currency contracts held by a
Portfolio at the end of each taxable year will be required to be "marked to
market" for federal income tax purposes -- i.e., treated as having been sold at
market value. For options and futures contracts, 60% of any gain or loss
recognized on these deemed sales and on actual dispositions will be treated as
long-term capital gain or loss, and the remainder will be treated as short-term
capital gain or loss regardless of how long the Portfolio has held such options
or futures. However, gain or loss recognized on certain foreign currency
contracts will be treated as ordinary income or loss.
The Funds may invest in Equity Securities of foreign issuers. If a
Portfolio purchases shares in certain foreign corporations (referred to as
passive foreign investment companies ("PFICs") under the Code), the
corresponding fund may be subject to federal income tax on a portion of an
"excess distribution" from such foreign corporation, including any gain from the
disposition of such shares, even though a portion of such income may have to be
distributed as a taxable dividend by the Fund to its shareholders. In addition,
certain interest charges may be imposed on a Fund as a result of such
distributions. Alternatively, a Fund may in some cases be permitted to include
each year in its income and distribute to shareholders a pro rata portion of the
foreign investment fund's income, whether or not distributed to the Fund.
For taxable years of the Portfolios beginning after 1997, the
Portfolios will be permitted to "mark to market" any marketable stock held by a
Portfolio in a PFIC. If a Portfolio made such an election, the corresponding
Fund would include in income each year an amount equal to its share of the
excess, if any, of the fair market value of the PFIC stock as of the close of
the taxable year over the adjusted basis of such stock. The Fund would be
allowed a deduction for its share of the excess, if any, of the adjusted basis
of the PFIC stock over its fair market value as of the close of the taxable
year, but only to the extent of any net mark-to-market gains with respect to the
stock included by the Fund for prior taxable years.
Foreign Shareholders. Dividends of net investment income and
distributions of realized net short-term gain in excess of net long-term loss to
a shareholder who, as to the United States, is a nonresident alien individual,
fiduciary of a foreign trust or estate, foreign corporation or foreign
partnership (a "foreign shareholder") will be subject to U.S. withholding tax at
the rate of 30% (or lower treaty rate) unless the dividends are effectively
connected with a U.S. trade or business of the shareholder, in which case the
dividends will be subject to tax on a net income basis at the graduated rates
applicable to U.S. individuals or domestic corporations. Distributions treated
as long term capital gains to foreign shareholders will not be subject to U.S.
tax unless the distributions are effectively connected with the shareholder's
trade or business in the United States or, in the case of a shareholder who is a
nonresident alien individual, the shareholder was present in the United States
for more than 182 days during the taxable year and certain other conditions are
met.
If a correct and certified taxpayer identification number is not on
file, the Fund is required, subject to certain exemptions, to withhold 31% of
certain payments made or distributions declared to non-corporate shareholders.
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.
Foreign Taxes. It is expected that the Funds may be subject to foreign
withholding taxes or other foreign taxes with respect to income (possibly
including, in some cases, capital gains) received from sources within foreign
countries. So long as more than 50% in value of the total assets of a Fund
(including its share of the assets of the corresponding Portfolio) at the close
of any taxable year consists of stock or securities of foreign corporations, the
Fund may elect to treat any foreign income taxes deemed paid by it as paid
directly by its shareholders. A Fund will make such an election only if it deems
it to be in the best interest of its shareholders. A Fund will notify its
shareholders in writing each year if it makes the election and of the amount of
foreign income taxes, if any, to be treated as paid by the shareholders and the
amount of foreign taxes, if any, for which shareholders of the Fund will not be
eligible to claim a foreign tax credit because the holding period requirements
(described below) have not been satisfied. If a Fund makes the election, each
shareholder will be required to include in his income (in addition to the
dividends and distributions he receives) his proportionate share of the amount
of foreign income taxes deemed paid by the Fund and will be entitled to claim
either a credit (subject to the limitations discussed below) or, if he itemizes
deductions, a deduction for his share of the foreign income taxes in computing
federal income tax liability. (No deduction will be permitted in computing an
individual's alternative minimum tax liability.) Effective for dividends paid
after September 5, 1997, shareholders of a Fund will not be eligible to claim a
foreign tax credit with respect to taxes paid by the Fund (notwithstanding that
the Fund elects to treat the foreign taxes deemed paid by it as paid directly by
its shareholders) unless certain holding period requirements are met. A
shareholder who is a nonresident alien individual or a foreign corporation may
be subject to U.S. withholding tax on the income resulting from the election
described in this paragraph, but may not be able to claim a credit or deduction
against such U.S. tax for the foreign taxes treated as having been paid by such
shareholder. A tax-exempt shareholder will not ordinarily benefit from this
election. Shareholders who choose to utilize a credit (rather than a deduction)
for foreign taxes will be subject to the limitation that the credit may not
exceed the shareholder's U.S. tax (determined without regard to the availability
of the credit) attributable to his or her total foreign source taxable income.
For this purpose, the portion of dividends and distributions paid by a Fund from
its foreign source net investment income will be treated as foreign source
income. A Fund's gains and losses from the sale of securities will generally be
treated as derived from U.S. sources, however, and certain foreign currency
gains and losses likewise will be treated as derived from U.S. sources. The
limitation on the foreign tax credit is applied separately to foreign source
"passive income," such as the portion of dividends received from the Fund which
qualifies as foreign source income. In addition, the foreign tax credit is
allowed to offset only 90% of the alternative minimum tax imposed on
corporations and individuals. Because of these limitations, if the election is
made, shareholders may nevertheless be unable to claim a credit for the full
amount of their proportionate shares of the foreign income taxes paid by a Fund.
Effective for taxable years of a shareholder beginning after December 31, 1997,
individual shareholders of the Fund with $300 or less of creditable foreign
taxes ($600 in the case of an individual shareholder filing jointly) may elect
to be exempt from the foreign tax credit limitation rules described above (other
than the 90% limitation applicable for purposes of the alternative minimum tax),
provided that all of such individual shareholder's foreign source income is
"qualified passive income" (which generally includes interest, dividends, rents,
royalties and certain other types of income) and further provided that all of
such foreign source income is shown on one or more payee statements furnished to
the shareholder. Shareholders making this election will not be permitted to
carry over any excess foreign taxes to or from a tax year to which such an
election applies.
State and Local Taxes. 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, J.P. Morgan or a Financial Professional
as shareholder servicing agent may be tape recorded. With respect to the
securities offered hereby, this Statement of Additional Information and the
Prospectus do not contain all the information included in the Trust's
registration statement filed with the SEC under the 1933 Act and the 1940 Act
and the 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.
The Year 2000 Initiative
With the new millennium rapidly approaching, organizations are
examining their computer systems to ensure they are year 2000 compliant. The
issue, in simple terms, is that many existing computer systems use only two
numbers to identify a year in the date field with the assumption that the first
two digits are always 19. As the century is implied in the date, on January 1,
2000, computers that are not year 2000 compliant will assume the year is 1900.
Systems that calculate, compare, or sort using the incorrect date will cause
erroneous results, ranging from system malfunctions to incorrect or incomplete
transaction processing. If not remedied, potential risks include business
interruption or shutdown, financial loss, reputation loss, and/or legal
liability.
J.P. Morgan has undertaken a firmwide initiative to address the year
2000 issue and has developed a comprehensive plan to prepare, as appropriate,
its computer systems. Each business line has taken responsibility for
identifying and fixing the problem within its own area of operation and for
addressing all interdependencies. A multidisciplinary team of internal and
external experts supports the business teams by providing direction and firmwide
coordination. Working together, the business and multidisciplinary teams have
completed a thorough education and awareness initiative and a global inventory
and assessment of J.P. Morgan's technology and application portfolio to
understand the scope of the year 2000 impact at J.P. Morgan. J.P. Morgan
presently is renovating and testing these technologies and applications in
partnership with external consulting and software development organizations, as
well as with year 2000 tool providers. J.P. Morgan is on target with its plan to
substantially complete renovation, testing, and validation of its key systems by
year-end 1998 and to participate in industry-wide testing (or streetwide
testing) in 1999. J.P. Morgan is also working with key external parties,
including clients, counterparties, vendors, exchanges, depositories, utilities,
suppliers, agents and regulatory agencies, to stem the potential risks the year
2000 problem poses to J.P. Morgan and to the global financial community.
Costs associated with efforts to prepare J.P. Morgan's systems for the
year 2000 approximated $95 million in 1997. In 1998, J.P. Morgan will continue
its efforts to prepare its systems for the year 2000. The total cost to become
year-2000 compliant is estimated at $250 million, for internal systems
renovation and testing, testing equipment, and both internal and external
resources working on the project. Remaining costs will be incurred primarily in
1998. The costs associated with J.P. Morgan becoming year-2000 compliant will be
borne by J.P. Morgan and not the Fund nor the Portfolio.
The Euro
Effective January 1, 1999 the euro, a single multinational currency, will
replace the national currencies of certain countries in the Economic Monetary
Union (EMU). Conversion rates among EMU countries will be fixed on December 31,
1998, however, existing currencies will still be used through July 1, 2002.
During this transition period, transactions may be settled in either euro or
existing currencies, but financial markets and payment systems are expected to
use the euro exclusively. Beginning January 1, 1999, J.P. Morgan intends to
conduct and settle all fund transactions, where appropriate, in the euro.
J.P. Morgan has identified the following potential risks to the Funds,
after the conversion: The risk that valuation of assets are not properly
redenominated; currency risk resulting from increased volatility in exchange
rates between EMU countries and non-participating countries; the inability any
of the Funds, their service providers and the issuers of the Funds' portfolio
securities to make information technology updates timely; and the potential
unenforceability of contracts. There have been recent laws and regulations
designed to ensure the continuity of contracts, however there is a risk that the
valuation of contracts will be negatively impacted after the Funds' conversion.
J.P. Morgan is working to avoid these problems and to obtain assurances from
other service providers that they are taking similar steps. However, it is not
certain that these actions will be sufficient to prevent problems associated
with the conversion from adversely impacting fund operations and shareholders.
The I.R.S has concluded that euro conversion will not cause a U.S.
taxpayer to realize gain or loss to the extent taxpayer's rights and obligations
are altered solely by reason of the conversion.
<PAGE>
FINANCIAL STATEMENTS
The following financial statements and the reports thereon of
PricewaterhouseCoopers LLP of the International Equity, Emerging Markets Equity
and International Opportunities Funds are incorporated herein by reference to
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 Annual Report; Date
Annual Report Filed; and
Accession Number
Name of Fund
- ------------------------------------------------- -----------------------------
- ------------------------------------------------- -----------------------------
J.P. Morgan Institutional International Equity 10/31/97;
Fund 12/31/97
0001047469-97-009226
- ------------------------------------------------- -----------------------------
- ------------------------------------------------- -----------------------------
J.P. Morgan Institutional Emerging Markets 10/31/97;
Equity Fund 12/31/97;
0001047469-97-009259
- ------------------------------------------------- -----------------------------
- ------------------------------------------------- -----------------------------
J.P. Morgan Institutional International 11/30/97;
Opportunities Fund 1/26/98;
0001047469-98-002293
- ------------------------------------------------- -----------------------------
<PAGE>
APPENDIX A
Description of Security Ratings
STANDARD & POOR'S
Corporate and Municipal Bonds
AAA - Debt rated AAA have the highest ratings assigned by Standard & Poor's to a
debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA - Debt rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in a small degree.
A - Debt rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB - Debt rated BBB are regarded as having an adequate capacity to pay interest
and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.
BB - Debt rated BB are regarded as having less near-term vulnerability to
default than other speculative issues. However, they face major ongoing
uncertainties or exposure to adverse business, financial or economic conditions
which could lead to inadequate capacity to meet timely interest and principal
payments.
B - An obligation rated B is more vulnerable to nonpayment than obligations
rated BB, but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
CCC - An obligation rated CCC is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
CC - An obligation rated CC is currently highly vulnerable to nonpayment.
C - The C rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments on this obligation
are being continued.
Commercial Paper, including Tax Exempt
A -- Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined with
the designations 1, 2, and 3 to indicate the relative degree of safety.
A-1 -- This designation indicates that the degree of safety regarding timely
payment is very strong.
Short-Term Tax-Exempt Notes
SP-1 -- The short-term tax-exempt note rating of SP-1 is the highest rating
assigned by Standard & Poor's and has a very strong or strong capacity to pay
principal and interest. Those issues determined to possess overwhelming safety
characteristics are given a "plus" (+) designation.
SP-2 - The short-term tax-exempt note rating of SP-2 has a satisfactory capacity
to pay principal and interest.
MOODY'S
Corporate and Municipal Bonds
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
<PAGE>
C - Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Commercial Paper, including Tax Exempt
Prime-1 - Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
- - Leading market positions in well established industries.
- - High rates of return on funds employed.
- - Conservative capitalization structures with moderate reliance on debt and
ample asset protection. - Broad margins in earnings coverage of fixed financial
charges and high internal cash generation. - Well established access to a range
of financial markets and assured sources of alternate liquidity.
Short-Term Tax Exempt Notes
MIG-1 - The short-term tax-exempt note rating MIG-1 is the highest rating
assigned by Moody's for notes judged to be the best quality. Notes with this
rating enjoy strong protection from established cash flows of funds for their
servicing or from established and broad-based access to the market for
refinancing, or both.
MIG-2 - MIG-2 rated notes are of high quality but with margins of protection not
as large as MIG-1.
- -----------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
MARCH 31, 1998 |
AS REVISED | PROSPECTUS
OCTOBER 1, 1998 |
================================================================================
J.P. MORGAN INSTITUTIONAL
EUROPEAN EQUITY FUND
========================================
Seeking high total return primarily from
stocks outside the United States
This prospectus contains essential information for anyone investing in the fund.
Please read it carefully and keep it for reference.
Shares in the fund are not bank deposits and are not guaranteed or insured by
any bank, government entity, or the FDIC.
As with all mutual funds, the fact that these shares are registered with the
Securities and Exchange Commission does not mean that the commission approves
them 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>
================================================================================
<PAGE>
CONTENTS
<TABLE>
====================================================================================================================================
<S> <C> <C>
3 | INTERNATIONAL EQUITY MANAGEMENT APPROACH
International equity investment process ..................................................3
4 | J.P. MORGAN INSTITUTIONAL EUROPEAN EQUITY 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 Investing through a financial professional ...............................................6
Institutional European
Equity 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 risk and the fund's Master/Feeder structure ..................................................................9
business operations
Management and administration ............................................................9
Risk and reward elements ................................................................10
FOR MORE INFORMATION ............................................................back cover
</TABLE>
<PAGE>
INTRODUCTION
================================================================================
J.P. MORGAN INSTITUTIONAL EUROPEAN EQUITY FUND
This fund invests primarily in stocks and other equity securities of European
companies through a master portfolio (another fund with the same goal). As a
shareholder, you should anticipate risks and rewards beyond those of a typical
U.S. stock fund.
WHO MAY WANT TO INVEST
The fund is designed for investors who:
o are pursuing a long-term goal
o want to add a non-U.S. investment with growth potential to further
diversify a portfolio
o want a fund that seeks to consistently outperform the markets in which it
invests
The fund is not designed for investors who:
o are uncomfortable with the risks of international investing
o are looking for a less aggressive stock investment
o require regular income or stability of principal
o are pursuing a short-term goal or investing emergency reserves
J.P. MORGAN
Known for its commitment to proprietary research and its disciplined investment
strategies, J.P. Morgan is the asset management choice for many of the world's
most respected corporations, financial institutions, governments, and
individuals. Today, J.P. Morgan employs over 300 analysts and portfolio managers
around the world and has more than $275 billion in assets under management,
including assets managed by the fund's advisor, J.P. Morgan Investment
Management Inc.
========================================
Before you invest
Investors considering the fund should
understand that:
o The value of the fund's shares will
fluctuate over time. You could lose
money if you sell when the fund's
share price is lower than when you
invested.
o There is no assurance that the fund
will meet its investment goals.
o Future returns will not necessarily
resemble past performance.
o Foreign stocks are generally
riskier than their domestic
counterparts. You should be
prepared to ride out periods of
underperformance.
o The fund does not represent a
complete investment program.
- ----------------------------------------
|
2 |
|
<PAGE>
INTERNATIONAL EQUITY MANAGEMENT APPROACH
================================================================================
The J.P. Morgan Institutional European
Equity Fund invests primarily in stocks
of companies in Europe.
The fund's investment philosophy,
developed by its advisor, focuses on
allocating assets by country (where
relevant), selecting stocks and managing
currency exposure. The fund largely
avoids using sector or market-timing
strategies. Under normal market
conditions, the fund will remain fully
invested.
INTERNATIONAL EQUITY INVESTMENT PROCESS
Through its extensive global equity
research and analytical systems, J.P.
Morgan seeks to generate an information
advantage. Using fundamental analysis as
well as macro-economic models, J.P.
Morgan develops proprietary research on
countries, companies, and currencies. In
these processes, the analysts focus on a
relatively long period rather than on
near-term expectations alone. The team
of analysts dedicated to international
equities includes more than 90 members
around the world, with an average of
nearly ten years of experience.
In managing the fund, J.P. Morgan
employs a three-step process that
combines country allocation, fundamental
research for identifying portfolio
securities, and currency management
decisions:
[GRAPHIC] Country allocation The fund's country
weightings primarily result from its
J.P. Morgan determines the stock selection decisions and may differ
appropriate allocation among significantly from the MSCI Europe
European countries. Index. In addition, J.P. Morgan makes
active allocations to certain countries.
[GRAPHIC] Stock selection Various models are used
to quantify J.P. Morgan's fundamental
Stocks in each industry are ranked stock research, producing a ranking of
with the help of models, then companies in each industry group
selected for investment according to their relative value. The
fund's management team then buys and
sells stocks, using the research and
valuation rankings as well as its
assessment of other factors, including:
o catalysts that could trigger a
change in a stock's price
o potential reward compared to
potential risk
o temporary mispricings caused by
market overreactions
[GRAPHIC] Currency management The fund has access
to J.P. Morgan's currency specialists in
J.P. Morgan may adjust currency determining the extent and nature of its
exposure to seek to manage risks exposure to various foreign currencies.
and enhance returns
|
INTERNATIONAL EQUITY MANAGEMENT APPROACH | 3
|
<PAGE>
J.P. MORGAN INSTITUTIONAL
EUROPEAN EQUITY FUND |
================================================================================
REGISTRANT: J.P. MORGAN INSTITUTIONAL FUNDS
(J.P. MORGAN INSTITUTIONAL EUROPEAN EQUITY FUND)
[GRAPHIC] GOAL
The fund's goal is to provide high total return from a portfolio of
European company equity securities. This goal can be changed without shareholder
approval.
[GRAPHIC] INVESTMENT APPROACH
The fund invests primarily in equity securities from the 14 countries
included in the Morgan Stanley Capital International (MSCI) Europe Index, which
is the fund's benchmark. The fund typically does not invest in U.S. companies.
The fund focuses on stock picking, emphasizing those stocks that are ranked as
undervalued according to J.P. Morgan's proprietary research, while
underweighting or avoiding those that appear overvalued. The fund generally
keeps its industry weightings similar to those of the MSCI Europe Index,
although it does not seek to mirror the index in its choice of individual
securities. The fund makes its country allocation and currency management
decisions as described on pages 3 and 10.
[GRAPHIC] POTENTIAL RISKS AND REWARDS
The value of your investment in the fund will fluctuate in response to
movements in European stock markets and currency exchange rates. Fund
performance will also depend on the effectiveness of J.P. Morgan's research and
the management team's stock picking and currency management decisions.
In general, international investing involves higher risks than investing in U.S.
markets but offers attractive potential rewards and opportunities for
diversification. Foreign markets tend to be more volatile than those of the
U.S., and changes in currency exchange rates could reduce or increase market
performance. To the extent that the fund hedges its currency exposure into the
U.S. dollar, it may reduce the effects of currency fluctuations which could
protect the fund from losses but could also reduce opportunities for gains. The
fund may also hedge from one foreign currency to another which could result in
gains or losses.
By emphasizing undervalued stocks, the fund has the potential to outperform the
MSCI Europe Index. At the same time, the fund seeks to limit its volatility to
that of the index.
The fund's investments and their main risks, as well as fund strategies, are
described in more detail on page 10.
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages over $275
billion, including more than $5 billion using the same strategy as this fund.
The portfolio management team is led by Paul A. Quinsee, managing director, who
has been at J.P. Morgan since 1992, and by Nigel F. Emmett, vice president, who
has been on the team since February of 1998. Mr. Emmett has been at J.P. Morgan
since August of 1997. Previously, Mr. Emmett was an assistant manager at Brown
Brothers Harriman and Co. and a portfolio manager at Gartmore Investment
Management.
================================================================================
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) 0.65
Marketing (12b-1) fees none
Other expenses(2)
(after reimbursement) 0.35
================================================================================
Total operating expenses(2)
(after reimbursement) 1.00
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
================================================================================
Expense example
================================================================================
The example below uses the same assumptions as other fund prospectuses: $1,000
initial investment, 5% annual total return, expenses unchanged, all shares sold
at the end of each time period. The example is for comparison only; the fund's
actual return and expenses will be different.
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
<S> <C> <C> <C> <C>
Your cost($) 10 32 55 122
- --------------------------------------------------------------------------------
</TABLE>
|
4 | J.P. MORGAN INSTITUTIONAL EUROPEAN EQUITY FUND
|
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
PERFORMANCE (unaudited)
=================================
Average annual total return (%) Shows performance over time, for periods ended December 31, 1997
=================================---------------------------------------------------------------------------------------------------
1 yr. Since Inception/3/
<S> <C> <C>
J.P. Morgan Institutional European Equity Fund (after expenses) 22.27 21.89
- ------------------------------------------------------------------------------------------------------------------------------------
MSCI Europe Index/4/(no expenses) 23.80 22.98
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
=================================
Total return (%) Shows changes in returns by calendar year
=================================---------------------------------------------------------------------------------------------------
1997
<S> <C>
J.P. Morgan Institutional European Equity Fund 22.27
- ------------------------------------------------------------------------------------------------------------------------------------
MSCI Europe Index/4/ 23.80
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
====================================================================================================================================
FINANCIAL HIGHLIGHTS
===============================
Per-share data For fiscal periods ended December 31
=================================---------------------------------------------------------------------------------------------------
1996 1997
<S> <C> <C>
Net asset value, beginning of period($) 10.00 11.56
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income($) 0.12 0.21
Net realized and unrealized gain
on investment and foreign currency($) 1.59 2.34
====================================================================================================================================
Total from investment operations($) 1.71 2.55
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income($) (0.10) (0.17)
Net realized gains($) (0.05) (1.38)
====================================================================================================================================
Total distributions($) (0.15) (1.55)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period($) 11.56 12.56
- ------------------------------------------------------------------------------------------------------------------------------------
===============================
Ratios and supplemental data
=================================---------------------------------------------------------------------------------------------------
Total return(%) 17.10(5) 22.27
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 6,532 10,174
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses(%) 1.00(6) 1.00
----------------------------------------------------------------------------------------------------------------------------------
Net investment income (%) 1.68(6) 1.57
----------------------------------------------------------------------------------------------------------------------------------
Decrease reflected in expense ratio due
to expense reimbursement(%) 1.50(7) 1.08
- ------------------------------------------------------------------------------------------------------------------------------------
The Financial Highlights above have been audited by PricewaterhouseCoopers 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 and reflecting reimbursement for ordinary expenses over 1.00%.
2 Without reimbursement, other expenses and total operating expenses would
have been 1.43% and 2.08%, respectively. There is no guarantee that
reimbursement will continue beyond 4/30/99.
3 The fund commenced operations on 2/29/96. Returns reflect performance of
the fund from 2/29/96 through 12/31/97. This data is based on historical
earnings and is not intended to indicate future performance.
4 The MSCI Europe Index is an unmanaged index comprised of more than 600
companies in 14 European countries.
5 Not annualized.
6 Annualized.
7 After consideration of then applicable state limitations.
|
J.P. MORGAN INSTITUTIONAL EUROPEAN EQUITY 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 $1,000,000 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 hours and NAV calculations The fund's regular business days and hours
are the same as those of the New York Stock Exchange (NYSE). The fund calculates
its net asset value per share (NAV) every business day as of the close of
trading on the NYSE (normally 4:00 p.m. eastern time). The fund's securities are
typically priced using market quotes or pricing services. When these methods are
not available or do not represent a security's value at the time of pricing, the
security is valued in accordance with the fund's fair valuation procedures.
Timing of orders Orders to buy or sell shares are executed at the next NAV
calculated after the order has been accepted. Orders are accepted until the
close of trading on the NYSE every business day and are executed the same day,
at that day's NAV. The fund has the right to suspend redemption of shares and to
postpone payment of proceeds for up to seven days or as permitted by law.
================================================================================
Shareholder Services Agent
J.P. Morgan Funds Services
522 Fifth Avenue
New York, NY 10036
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, generally the day following execution. When
you sell shares, proceeds are generally available the day following execution
and will be forwarded according to your instructions.
When you sell shares that you recently purchased by check, your order will be
executed at the next NAV but the proceeds will not be available until your check
clears. This may take up to 15 days.
Statements and reports The fund sends monthly account statements as well as
confirmations after each purchase or sale of shares (except reinvestments).
Every six months, the fund sends out an annual or semi-annual report containing
information on the fund's holdings and a discussion of recent and anticipated
market conditions and fund performance.
Accounts with below-minimum balances If your account balance falls below the
minimum for 30 days as a result of selling shares (and not because of
performance), the fund reserves the right to request that you buy more shares or
close your account. If your account balance is still below the minimum 60 days
after notification, the fund reserves the right to close out your account and
send the proceeds to the address of record.
DIVIDENDS AND DISTRIBUTIONS
The fund typically pays income dividends and makes capital gains distributions,
if any, once a year. The fund may declare an additional income dividend in a
given year, depending on its tax situation. However, the fund may also make
fewer payments in a given year, depending on its investment results. Dividends
and distributions consist of substantially all of the fund's net investment
income and realized capital gains.
Dividends and distributions are reinvested in additional fund shares.
Alternatively, you may instruct your financial professional or J.P. Morgan Funds
Services to have them sent to you by check, credited to a separate account, or
invested in another J.P. Morgan Institutional Fund.
TAX CONSIDERATIONS
In general, selling shares, exchanging shares, and receiving distributions
(whether reinvested or taken in cash) are all taxable events. These transactions
typically create the following tax liabilities for taxable accounts:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Transaction Tax status
- --------------------------------------------------------------------------------
<S> <C>
Income dividends Ordinary income
Short-term capital gains Ordinary income
distributions
Long-term capital gains Capital gains
distributions
Sales or exchanges of shares Capital gains or losses
owned for more than one year
Sales or exchanges of shares Gains are treated as ordinary
owned for one year or less income; losses are subject
to special rules
- --------------------------------------------------------------------------------
</TABLE>
Because long-term capital gains distributions are taxable as capital gains
regardless of how long you have owned your shares, you may want to avoid making
a substantial investment when the fund is about to declare a long-term capital
gains distribution.
Every January, the fund issues tax information on its distributions for the
previous year.
Any investor for whom the fund does not have a valid taxpayer identification
number will be subject to backup withholding for taxes.
The tax considerations described in this section do not apply to tax-deferred
accounts or other non-taxable entities.
Because each investor's tax circumstances are unique, please consult your tax
professional about your fund investment.
|
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 full or
fractional vote for each dollar or fraction of a dollar invested.
The fund and its master portfolio expect to maintain consistent goals, but if
they do not, the fund will withdraw from the master portfolio, receiving its
assets either in cash or securities. The fund's trustees would then consider
whether the fund should hire its own investment adviser, invest in a different
master portfolio, or take other action.
MANAGEMENT AND ADMINISTRATION
The fund and its master portfolio are governed by the same trustees. The
trustees are responsible for overseeing all business activities. The trustees
are assisted by Pierpont Group, Inc., which they own and operate on a cost
basis; costs are shared by all funds governed by these trustees. Funds
Distributor, Inc., as co-administrator, along with J.P. Morgan, provides fund
officers. J.P. Morgan, as co-administrator, oversees the fund's other service
providers.
J.P. Morgan, subject to the expense reimbursements described earlier in this
prospectus, receives the following fees for investment advisory and other
services:
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
Advisory services 0.65% of the master portfolio's
average net assets
- --------------------------------------------------------------------------------
Administrative services Master portfolio's and fund's pro-
(fee shared with Funds rata portions of 0.09% of the
Distributor, Inc.) first $7 billion in J.P. Morgan-
advised portfolios, plus 0.04% of
average net assets over $7 billion
- --------------------------------------------------------------------------------
Shareholder services 0.10% of the fund's average
net assets
- --------------------------------------------------------------------------------
</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.
Year 2000 Fund operations and shareholders could be adversely affected if the
computer systems used by J.P. Morgan, the fund's other service providers and
other entities with computer systems linked to the fund do not properly process
and calculate January 1, 2000 and after date-related information. J.P. Morgan is
working to avoid these problems and to obtain assurances from other service
providers that they are taking similar steps. However, it is not certain that
these actions will be sufficient to prevent these date-related problems from
adversely impacting fund operations and shareholders. In addition, to the extent
that operations of issuers of securities held by the fund are impaired by
date-related problems or prices of securities decline as a result of real or
perceived date-related problems of issuers held by the fund or generally, the
net asset value of the fund will decline.
The Euro Effective January 1, 1999 the euro, a single multinational currency,
will replace the national currencies of certain countries in the Economic
Monetary Union (EMU).
J.P. Morgan has identified the following potential risks to the fund, after the
conversion: The risk that the valuation of assets is not properly converted from
the national currency to euro; currency risk resulting from increased volatility
in exchange rates between EMU countries and non-participating countries; the
inability of any of the fund, it's service providers and the issuers of the
fund's portfolio securities to make information technology updates timely; and
the potential unenforceability of contracts. There have been recent laws and
regulations designed to ensure the continuity of contracts, however there is a
risk that the valuation of contracts will be negatively impacted after the
conversion. J.P. Morgan is working to avoid these problems and to obtain
assurances from other service providers that they are taking similar steps.
However, it is not certain that these actions will be sufficient to prevent
problems associated with the conversion from adversely impacting fund operations
and shareholders.
|
FUND DETAILS | 9
<PAGE>
================================================================================
RISK AND REWARD ELEMENTS
This table identifies the main elements that make up the fund's overall risk and
reward characteristics (described on page 4). It also outlines the fund's
policies toward various investments, including those that are designed to help
the fund manage risk.
<TABLE>
<CAPTION>
====================================================================================================================================
Potential risks Potential rewards Policies to balance risk and reward
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Foreign and other market conditions
o The fund's share price and o Stocks have generally outperformed o Under normal circumstances the fund
performance will fluctuate in more stable investments (such as plans to remain fully invested,
response to stock market movements bonds and cash equivalents) over with at least 65% in stocks; stock
the long term investments may include convertible
o The fund could lose money because securities, preferred stocks,
of foreign government actions, o Foreign investments, which depository receipts (such as ADRs
political instability, or lack of represent a major portion of the and EDRs), trust or partnership
adequate and/or accurate world's securities, offer interests, warrants, rights, and
information attractive potential performance investment company securities
and opportunities for
o Adverse market conditions may from diversification o The fund seeks to limit risk and
time to time cause the fund to take enhance performance through active
temporary defensive positions that management, country allocation and
are inconsistent with its principal diversification
investment strategies and may
hinder the fund from achieving its o During severe market downturns, the
investment objective fund has the option of investing up
to 100% of assets in investment-grade
short-term securities
- ------------------------------------------------------------------------------------------------------------------------------------
Management choices
o The fund could underperform its o The fund could outperform its o J.P. Morgan focuses its active
benchmark due to its securities benchmark due to these same choices management on securities selection,
choices and other management decisions the area where it believes its
commitment to research can most
enhance returns
- ------------------------------------------------------------------------------------------------------------------------------------
Foreign currencies
o Currency exchange rate movements o Favorable exchange rate movements o The fund manages the currency
could reduce gains or create losses could generate gains or reduce exposure of its foreign investments
losses relative to its benchmark, and may
hedge a portion of its foreign
currency exposure into the U.S.
dollar from time to time (see also
"Derivatives")
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
|
10 | FUND DETAILS
|
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Potential risks Potential rewards Policies to balance risk and reward
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Derivatives
o Derivatives such as futures, o Hedges that correlate well with o The fund uses derivatives, such as
options, swaps, and forward foreign underlying positions can reduce or futures, options, swaps, and
currency contracts(1) that are used eliminate losses at low cost forward foreign currency contracts
for hedging the portfolio or for hedging and for risk management
specific securities may not fully o The fund could make money and (i.e., to establish or adjust
offset the underlying positions and protect against losses if the exposure to particular securities,
this could result in losses to the investment analysis proves correct markets or currencies); risk
fund that would not have otherwise management may include management
occurred o Derivatives that involve leverage of the fund's exposure relative to
could generate substantial gains at its benchmark
o Derivatives used for risk low cost
management may not have the o The fund only establishes hedges
intended effects and may result in that it expects will be highly
losses or missed opportunities correlated with underlying
positions
o The counterparty to a derivatives
contract could default o While the fund may use derivatives
that incidentally involve leverage,
o Derivatives that involve leverage it does not use them for the
could magnify losses specific purpose of leveraging its
portfolio
o Certain types of derivatives
involve costs to the fund which can
reduce returns
- ------------------------------------------------------------------------------------------------------------------------------------
Illiquid holdings
o The fund could have difficulty o These holdings may offer more o The fund may not invest more than
valuing these holdings precisely attractive yields or potential 15% of net assets in illiquid
growth than comparable widely holdings
o The fund could be unable to sell traded securities
these holdings at the time or price o To maintain adequate liquidity, the
it desired fund may hold investment-grade
short-term securities (including
repurchase agreements) and, for
temporary or extraordinary
purposes, may borrow from banks up
to 33 1/3% of the value of its
total assets
- ------------------------------------------------------------------------------------------------------------------------------------
When-issued and delayed
delivery securities
o When the fund buys securities o The fund can take advantage of o The fund uses segregated accounts
before issue or for delayed attractive transaction to offset leverage risk
delivery, it could be exposed to opportunities
leverage risk if it does not use
segregated accounts
- ------------------------------------------------------------------------------------------------------------------------------------
Short-term trading
o Increased trading could raise the o The fund could realize gains in a o The fund anticipates that its
fund's brokerage and related costs short period of time portfolio turnover rate will not
exceed 100%
o Increased short-term capital gains o The fund could protect against
distributions could raise losses if a stock is overvalued and o The fund generally avoids
shareholders' income tax liability its value later falls short-term trading, except to take
advantage of attractive or
unexpected opportunities or to meet
demands generated by shareholder
activity
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1 A futures contract is an agreement to buy or sell a set quantity of an
underlying instrument at a future date, or to make or receive a cash
payment based on changes in the value of a securities index. An option is
the right to buy or sell a set quantity of an underlying instrument at a
predetermined price. A swap is a privately negotiated agreement to exchange
one stream of payments for another. A forward foreign currency contract is
an obligation to buy or sell a given currency on a future date and at a set
price.
|
FUND DETAILS | 11
|
<PAGE>
================================================================================
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|
12 |
|
<PAGE>
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|
| 13
|
<PAGE>
================================================================================
FOR MORE INFORMATION
================================================================================
For investors who want more information on the fund, the following documents are
available free upon request:
Annual/Semi-annual Reports Contain financial statements, performance data,
information on portfolio holdings, and a written analysis of market conditions
and fund performance for the fund's most recently completed fiscal year or
half-year.
Statement of Additional Information (SAI) Provides a fuller technical and legal
description of the fund's policies, investment restrictions, and business
structure. This prospectus incorporates the fund's SAI by reference.
Copies of the current versions of these documents, along with other information
about the fund, may be obtained by contacting:
J.P. Morgan Institutional European Equity Fund
J.P. Morgan Funds Services
522 Fifth Avenue
New York, NY 10036
Telephone: 1-800-766-7722
Hearing impaired: 1-888-468-4015
Email: [email protected]
Text-only versions of these documents and this prospectus are available, upon
payment of a duplicating fee, from the Public Reference Room of the Securities
and Exchange Commission in Washington, D.C. (1-800-SEC-0330) and may be viewed
on-screen or downloaded from the SEC's Internet site at http://www.sec.gov. The
fund's investment company and 1933 Act registration numbers are 811-07342 and
033-54642.
J.P. MORGAN INSTITUTIONAL FUNDS AND THE MORGAN TRADITION
The J.P. Morgan Institutional Funds combine a heritage of integrity and
financial leadership with comprehensive, sophisticated analysis and management
techniques. Drawing on J.P. Morgan's extensive experience and depth as an
investment manager, the J.P. Morgan Institutional Funds offer a broad array of
distinctive opportunities for mutual fund investors.
[LOGO] JPMorgan
================================================================================
J.P. Morgan Institutional Funds
Advisor Distributor
J.P. Morgan Investment Management Inc. Funds Distributor, Inc.
522 Fifth Avenue 60 State Street
New York, NY 10036 Boston, MA 02109
1-800-766-7722 1-800-221-7930
PROS300-9810
- -----------------------------------------------------------------------------
J.P. MORGAN INSTITUTIONAL FUNDS
J.P. MORGAN INSTITUTIONAL EUROPEAN EQUITY FUND
STATEMENT OF ADDITIONAL INFORMATION
MARCH 31, 1998
AS REVISED
OCTOBER 1, 1998
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT CONTAINS
ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS
DATED MARCH 31, 1998 AS REVISED OCTOBER 1, 1998 FOR THE FUND LISTED ABOVE, AS
SUPPLEMENTED FROM TIME TO TIME. ADDITIONALLY, THIS STATEMENT OF ADDITIONAL
INFORMATION INCORPORATES BY REFERENCE THE FINANCIAL STATEMENTS INCLUDED IN THE
SHAREHOLDER REPORTS RELATING TO THE FUND LISTED ABOVE. THE PROSPECTUS AND THESE
FINANCIAL STATEMENTS, INCLUDING THE AUDITOR'S REPORT THEREON, ARE AVAILABLE,
WITHOUT CHARGE UPON REQUEST FROM FUNDS DISTRIBUTOR, INC., ATTENTION: J.P. MORGAN
INSTITUTIONAL FUNDS (800)221-7930.
<PAGE>
Table of Contents
Page
General . . . . . . . . . . . . . . . . . . . 1
Investment Objective and Policies . . . . . . 1
Investment Restrictions . . . . . . . . . . . 14
Trustees. . . . . . . . . . . . . . . . . . .. 17
Officers . . . . . . . . . . . . . . . . . . . 19
Investment Advisor . . . . . . . . . . . . . . 21
Distributor . . . . . . . . . . . . . . . . . 23
Co-Administrator . . . . . . . . . . . . . . . 24
Services Agent . . . . . . . . . . . . . . . . 25
Custodian and Transfer Agent . . . . . . . . . 26
Shareholder Servicing . . . . . . . . . . . . 26
Financial Professionals. . . . . . . . . . . . 27
Independent Accountants . . . . . . . . . . . 27
Expenses . . . . . . . . . . . . . . . . . . . 28
Purchase of Shares . . . . . . . . . . . . . . 28
Redemption of Shares . . . . . . . . . . . . . 29
Exchange of Shares . . . . . . . . . . . . . . 29
Dividends and Distributions . . . . . . . . . 30
Net Asset Value . . . . . . . . . . . . . . . 30
Performance Data . . . . . . . . . . . . . . . 31
Portfolio Transactions . . . . . . . . . . . . 32
Organization . . . . . . . . . . . . . . . . 34
Description of Shares . . . . . . . . . . . . 35
Special Information Concerning
Investment Structure . . . . . . . . . . . . 37
Taxes . . . . . . . . . . . . . . . . . . . . 38
Additional Information . . . . . . . . . . . 43
Appendix A - Description of Securities
Ratings . . . . . . . . . . . . . . . . . . . A-1
<PAGE>
GENERAL
This Statement of Additional Information relates only to the J.P.
Morgan Institutional European Equity 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 objectives 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 separate Master Portfolio (the
"Portfolio"), a corresponding diversified open-end management investment company
having the same investment objective as the Fund. The Fund invests in the
Portfolio through a two-tier master-feeder investment fund structure. See
"Special Information Concerning Investment Structure."
The Portfolio is advised by J.P. Morgan Investment Management Inc. ("JPMIM"
or the "Advisor").
Investments in the Fund are not deposits or obligations of, or
guaranteed or endorsed by, Morgan Guaranty Trust Company of New York,
("Morgan"), an affiliate of the Advisor or any other bank. Shares of the Fund
are not federally insured by the Federal Deposit Insurance Corporation, the
Federal Reserve Board, or any other governmental agency. An investment in the
Fund is subject to risk that may cause the value of the investment to fluctuate,
and when the investment is redeemed, the value may be higher or lower than the
amount originally invested by the investor.
INVESTMENT OBJECTIVE AND POLICIES
J.P. Morgan Institutional European Equity Fund (the "Fund") is designed
for investors who want an actively managed portfolio of European equity
securities that seeks to outperform the Morgan Stanley Capital International
Europe Index which is comprised of more than 600 companies in 14 European
countries. The European Equity Fund's investment objective is to provide high
total return from a portfolio of European company stocks. The European Equity
Fund attempts to achieve its investment objective by investing all of its
investable assets in The European Equity Portfolio (the "Portfolio"), a
diversified open-end management investment company having the same investment
objective as the Fund.
The Portfolio seeks to achieve its investment objective by investing
primarily in the equity securities of European companies. Equity securities
consist of common stocks and other securities with equity characteristics such
as preferred stocks, depository receipts, warrants, rights, convertible
securities, trust or limited partnership interests and equity participations
(collectively, "Equity Securities". Under normal circumstances, the Portfolio
expects to invest at least 65% of its total assets in such securities. The
Portfolio does not intend to invest in U.S. securities (other than money market
instruments), except temporarily, when extraordinary circumstances prevailing at
the same time in a significant number of European countries render investments
in such countries inadvisable.
Investment Process for the European Equity Portfolio
Stock selection: Various models are used to quantify JPMIM's
fundamental stock research, producing a ranking of companies in each industry
group according to their relative value. The Portfolio's management team then
buys and sells stocks, using the research and valuation rankings as well as its
assessment of other factors including: catalysts that could trigger a change in
a stock's price, potential reward compared to potential risk and temporary
mispricings caused by market overreactions
Country allocation: The Portfolio's country weightings primarily result
from its stock selection decisions and may vary significantly from the MSCI
Europe Index, the Portfolio's benchmark. In addition, JPMIM makes active
allocations to certain countries. For example, currently country weightings in
continental Europe result from individual stock selection decisions. With
regards to the United Kingdom, the Advisor makes an active country allocation
decision. The Advisor, based on changing market conditions and experienced
judgment, may from time to time adjust the extent to which country weighting is
based on stock selection and active country allocation.
Equity Investments
The Fund invests primarily in Equity Securities. The Equity Securities
in which the Fund invests include those listed on any domestic or foreign
securities exchange or traded in the over-the-counter (OTC) market as well as
certain restricted or unlisted securities.
Equity Securities. The Equity Securities in which the Fund may invest may
or may not pay dividends and may or may not carry voting rights. Common stock
occupies the most junior position in a company's capital structure.
The convertible securities in which the Fund may invest include any
debt securities or preferred stock which may be converted into common stock or
which carry the right to purchase common stock. Convertible securities entitle
the holder to exchange the securities for a specified number of shares of common
stock, usually of the same company, at specified prices within a certain period
of time.
The terms of any convertible security determine its ranking in a
company's capital structure. In the case of subordinated convertible debentures,
the holders' claims on assets and earnings are subordinated to the claims of
other creditors, and are senior to the claims of preferred and common
shareholders. In the case of convertible preferred stock, the holders' claims on
assets and earnings are subordinated to the claims of all creditors and are
senior to the claims of common shareholders.
Common Stock Warrants
The Fund may invest in common stock warrants that entitle the holder to
buy common stock from the issuer of the warrant at a specific price (the strike
price) for a specific period of time. The market price of warrants may be
substantially lower than the current market price of the underlying common
stock, yet warrants are subject to similar price fluctuations. As a result,
warrants may be more volatile investments than the underlying common stock.
Warrants generally do not entitle the holder to dividends or voting
rights with respect to the underlying common stock and do not represent any
rights in the assets of the issuer company. A warrant will expire worthless if
it is not exercised on or prior to the expiration date.
Foreign Investments
The Fund invests primarily in foreign countries. 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.
Generally, investment in securities of foreign issuers involves higher
risks than investing in securities of U.S. domestic issuers. There may be
limited publicly available information with respect to foreign issuers, and
foreign issuers are not generally subject to uniform accounting, auditing and
financial standards and requirements comparable to those applicable to domestic
companies. Dividends and interest paid by foreign issuers may be subject to
withholding and other foreign taxes which may decrease the net return on foreign
investments as compared to dividends and interest paid to the Portfolio by
domestic companies.
In addition, while the volume of transactions effected on foreign stock
exchanges has increased in recent years, in most cases it remains appreciably
below that of domestic security exchanges. Accordingly, a Portfolio's foreign
investments may be less liquid and their prices may be more volatile than
comparable investments in securities of U.S. companies. Moreover, the settlement
periods for foreign securities, which are often longer than those for securities
of U.S. issuers, may affect portfolio liquidity. In buying and selling
securities on foreign exchanges, purchasers normally pay fixed commissions that
are generally higher than the negotiated commissions charged in the United
States. In addition, there is generally less government supervision and
regulation of securities exchanges, brokers and issuers located in foreign
countries than in the United States.
Foreign investments may be made directly in securities of foreign
issuers or in the form of American Depositary Receipts ("ADRs"), European
Depositary Receipts ("EDRs") and Global Depositary Receipts ("GDRs") or other
similar securities of foreign issuers. ADRs are securities, typically issued by
a U.S. financial institution (a "depositary"), that evidence ownership interests
in a security or a pool of securities issued by a foreign issuer and deposited
with the depositary. ADRs include American Depositary Shares and New York
Shares. EDRs are receipts issued by a European financial institution. GDRs,
which are sometimes referred to as Continental Depositary Receipts ("CDRs"), are
securities, typically issued by a non-U.S. financial institution, that evidence
ownership interests in a security or a pool of securities issued by either a
U.S. or foreign issuer. ADRs, EDRs, GDRs and CDRs may be available for
investment through "sponsored" or "unsponsored" facilities. A sponsored facility
is established jointly by the issuer of the security underlying the receipt and
a depositary, whereas an unsponsored facility may be established by a depositary
without participation by the issuer of the receipt's underlying security.
Holders of an unsponsored depositary receipt generally bear all costs
of the unsponsored facility. The depositary of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited security or to pass through to the
holders of the receipts voting rights with respect to the deposited securities.
Since investments in foreign securities may involve foreign currencies,
the value of a Fund's assets as measured in U.S. dollars may be affected
favorably or unfavorably by changes in currency rates and in exchange control
regulations, including currency blockage. The Fund may enter into forward
commitments for the purchase or sale of foreign currencies in connection with
the settlement of foreign securities transactions or to manage the Fund's
currency exposure related to foreign investments.
The Fund may also invest in countries with emerging economies or
securities markets. Political and economic structures in many of such countries
may be undergoing significant evolution and rapid development, and such
countries may lack the social, political and economic stability characteristic
of more developed countries. Certain of such countries may have in the past
failed to recognize private property rights and have at times nationalized or
expropriated the assets of private companies. As a result, the risks described
above, including the risks of nationalization or expropriation of assets, may be
heightened. In addition, unanticipated political or social developments may
affect the values of the Fund's investments in those countries and the
availability to such Fund of additional investments in those countries. The
small size and inexperience of the securities markets in certain of such
countries and the limited volume of trading in securities in those countries may
make the Fund's investments in such countries illiquid and more volatile than
investments in more developed countries, and the Fund may be required to
establish special custodial or other arrangements before making certain
investments in those countries. There may be little financial or accounting
information available with respect to issuers located in certain of such
countries, and it may be difficult as a result to assess the value or prospects
of an investment in such issuers.
Foreign Currency Exchange Transactions. Because the Fund buys and sells
securities and receives interest and dividends in currencies other than the U.S.
dollar, the Fund may enter from time to time into foreign currency exchange
transactions. The Fund either enters into these transactions on a spot (i.e.,
cash) basis at the spot rate prevailing in the foreign currency exchange market,
or uses forward contracts to purchase or sell foreign currencies. The cost of
the Fund's spot currency exchange transactions is generally the difference
between the bid and offer spot rate of the currency being purchased or sold.
A forward foreign currency exchange contract is an obligation by a
Portfolio to purchase or sell a specific currency at a future date, which may be
any fixed number of days from the date of the contract. Forward foreign currency
exchange contracts establish an exchange rate at a future date. These contracts
are derivative instruments, as their value derives from the spot exchange rates
of the currencies underlying the contracts. These contracts are entered into in
the interbank market directly between currency traders (usually large commercial
banks) and their customers. A forward foreign currency exchange contract
generally has no deposit requirement, and is traded at a net price without
commission. Neither spot transactions nor forward foreign currency exchange
contracts eliminate fluctuations in the prices of the Portfolio's securities or
in foreign exchange rates, or prevent loss if the prices of these securities
should decline.
The Fund may enter into forward foreign currency exchange contracts in
connection with settlements of securities transactions and other anticipated
payments or receipts. In addition, from time to time, the Advisor may reduce a
the Fund's foreign currency exposure by entering into forward foreign currency
exchange contracts to sell a foreign currency in exchange for the U.S. dollar.
The Fund may also enter into forward foreign currency exchange contracts to
adjust its currency exposure relative to its benchmarks. Forward foreign
currency exchange contracts may involve the purchase or sale of a foreign
currency in exchange for U.S. dollars or may involve two foreign currencies.
Although these transactions are intended to minimize the risk of loss
due to a decline in the value of the hedged currency, at the same time they
limit any potential gain that might be realized should the value of the hedged
currency increase. In addition, forward contracts that convert a foreign
currency into another foreign currency will cause the Portfolio to assume the
risk of fluctuations in the value of the currency purchased vis a vis the hedged
currency and the U.S. dollar. The precise matching of the forward contract
amounts and the value of the securities involved will not generally be possible
because the future value of such securities in foreign currencies will change as
a consequence of market movements in the value of such securities between the
date the forward contract is entered into and the date it matures. The
projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly uncertain.
Money Market Instruments
Although the Fund intends under normal circumstances and to the extent
practicable, to be fully invested in Equity Securities, the Fund may invest in
money market instruments to the extent consistent with its investment objective
and policies. The Fund may make money market investments pending other
investment or settlement, for liquidity or in adverse market conditions. A
description of the various types of money market instruments that may be
purchased by the Fund appears below. Also see "Quality and Diversification
Requirements."
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
Bank 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 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 may be denominated in the U.S. dollar
or in another currency. See "Foreign Investments."
Bank Obligations. The Fund may invest in negotiable certificates of
deposit, time deposits and bankers' acceptances of (i)banks, savings and loan
associations and savings banks which have more than $2 billion in total 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 will
not invest in obligations for which the Advisor, or any of its affiliated
persons, is the ultimate obligor or accepting bank. The Fund may also invest in
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 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 acting as agent for no additional fee.
The monies loaned to the borrower come from accounts managed by Morgan or its
affiliates, pursuant to arrangements with such accounts. Interest and principal
payments are credited to such accounts. Morgan, an affiliate of the Advisor, has
the right to increase or decrease the amount provided to the borrower under an
obligation. The borrower has the right to pay without penalty all or any part of
the principal amount then outstanding on an obligation together with interest to
the date of payment. Since these obligations typically provide that the interest
rate is tied to the Federal Reserve commercial paper composite rate, the rate on
master demand obligations is subject to change. Repayment of a master demand
obligation to participating accounts depends on the ability of the borrower to
pay the accrued interest and principal of the obligation on demand which is
continuously monitored by Morgan. Since master demand obligations typically are
not rated by credit rating agencies, the 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 may enter into repurchase agreements
with brokers, dealers or banks that meet the credit guidelines approved by the
Fund's Trustees. In a repurchase agreement, the Fund buys a security from a
seller that has agreed to repurchase the same security at a mutually agreed upon
date and price. The resale price normally is in excess of the purchase price,
reflecting an agreed upon interest rate. This interest rate is effective for the
period of time the Fund is invested in the agreement and is not related to the
coupon rate on the underlying security. A repurchase agreement may also be
viewed as a fully collateralized loan of money by the Fund to the seller. The
period of these repurchase agreements will usually be short, from overnight to
one week, and at no time will the Fund invest in repurchase agreements for more
than thirteen months. The securities which are subject to repurchase agreements,
however, may have maturity dates in excess of thirteen months from the effective
date of the repurchase agreement. The Fund will always receive securities as
collateral whose market value is, and during the entire term of the agreement
remains, at least equal to 100% of the dollar amount invested by the Fund in
each agreement plus accrued interest, and the Fund will make payment for such
securities only upon physical delivery or upon evidence of book entry transfer
to the account of the Custodian. 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 and foreign bonds, asset-backed securities and other
obligations described in this Statement of Additional Information.
Corporate Bonds and Other Debt Securities. The Fund may invest in bonds
and other debt securities of domestic and foreign issuers to the extent
consistent with its investment objective and policies. A description of these
investments appears below. See "Quality and Diversification Requirements." For
information on short-term investments in these securities, see "Money Market
Instruments."
Asset-backed Securities. Asset-backed securities directly or indirectly
represent a participation interest in, or are secured by and payable from, a
stream of payments generated by particular assets such as motor vehicle or
credit card receivables or other asset-backed securities collateralized by such
assets. Payments of principal and interest may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution unaffiliated with the entities issuing the securities. The
asset-backed securities in which the 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.
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 a Portfolio 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 calculate the maturity
for the purposes of average maturity from that date. At the time of settlement a
when-issued security may be valued at less than the purchase price. To
facilitate such acquisitions, the Fund will maintain with the Custodian a
segregated account with liquid assets, consisting of cash, U.S. Government
securities or other appropriate securities, in an amount at least equal to such
commitments. On delivery dates for such transactions, the Fund will meet its
obligations from maturities or sales of the securities held in the segregated
account and/or from cash flow. If the Fund chooses to dispose of the right to
acquire a when-issued security prior to its acquisition, it could, as with the
disposition of any other portfolio obligation, incur a gain or loss due to
market fluctuation. Also, the Fund may be disadvantaged if the other party to
the transaction defaults. It is the current policy of the Portfolio not to enter
into when-issued commitments exceeding in the aggregate 15% of the market value
of the Portfolio's total assets, less liabilities other than the obligations
created by when-issued commitments.
Investment Company Securities. Securities of other investment companies
may be acquired by the Fund and the Portfolio to the extent permitted under the
1940 Act or any order pursuant thereto. These limits currently require that, as
determined immediately after a purchase is made, (i)not more than 5% of the
value of 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 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. The Fund 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 reflecting the interest rate effective for the term of the
agreement. For purposes of the 1940 Act a reverse repurchase agreement is also
considered as the borrowing of money by the Fund and, therefore, a form of
leverage. Leverage may cause any gains or losses for the Fund to be magnified.
The Fund will invest the proceeds of borrowings under reverse 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. Investors should keep
in mind that the counterparty to a contract could default on its obligation. The
Fund will 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
Fund of securities in an amount at least equal to its purchase obligations under
its reverse repurchase agreements. See "Investment Restrictions" for the Fund's
limitations on reverse repurchase agreements and bank borrowings.
Loans of Portfolio Securities. The Fund may lend its securities in an
amount up to 33 1/3% of the value of its 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
before entering into such an agreement, including the creditworthiness of the
borrowing financial institution, and the Fund will not make any loans in excess
of one year. The Fund will not lend its securities to any officer, Trustee,
Director, employee or other affiliate of the Fund, the Advisor or the
Distributor, unless otherwise permitted by applicable law.
Privately Placed and Certain Unregistered Securities. The Fund may not
acquire any illiquid holdings if, as a result thereof, more than 15% of the
Fund's net assets would be in illiquid investments. Subject to this
non-fundamental policy limitation, the Fund may acquire investments that are
illiquid or have limited liquidity, such as private placements or investments
that are not registered under the 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 Fund. The price the Fund pays for illiquid securities or receives
upon resale may be lower than the price paid or received for similar securities
with a more liquid market. Accordingly the valuation of these securities will
reflect any limitations on their liquidity.
The Fund may also purchase Rule 144A securities sold to institutional
investors without registration under the 1933 Act. These securities may be
determined to be liquid in accordance with guidelines established by the Advisor
and approved by the Trustees. The Trustees will monitor the Advisor's
implementation of these guidelines on a periodic basis.
As to illiquid investments, the Fund is subject to a risk that should
it decide to sell them when a ready buyer is not available at a price it 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 holding
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.
Quality and Diversification Requirements
The Fund intends to meet the diversification requirements of the 1940
Act. Current 1940 Act diversification requirements require that with respect to
75% of the assets of the Fund:(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.
Although the Fund is not limited by the diversification requirements of
the 1940 Act, the Fund will comply with the diversification requirements imposed
by the Internal Revenue Code of 1986, as amended (the "Code"), for qualification
as a regulated investment company. See "Taxes." To meet these requirements, the
Fund must diversify its holdings so that, with respect to 50% of the Fund's
assets, no more than 5% of its assets are invested in the securities of any one
issuer other than the U.S. Government at the close of each quarter of the Fund's
taxable year. The Fund may, with respect to the remaining 50% of its assets,
invest up to 25% of its assets in the securities of any one issuer (except this
limitation does not apply to U.S. Government securities).
The Fund may invest in convertible debt securities, for which there are
no specific quality requirements. In addition, at the time a Fund invests in any
commercial paper, bank obligation or repurchase agreement, the issuer must have
outstanding debt rated A or higher by Moody's or Standard & Poor's, the issuer's
parent corporation, if any, must have outstanding commercial paper rated Prime-1
by Moody's or A-1 by Standard & Poor's, or if no such ratings are available, the
investment must be of comparable quality in the Advisor's opinion. At the time a
Fund invests in any other short-term debt securities, they must be rated A or
higher by Moody's or Standard & Poor's, or if unrated, the investment must be of
comparable quality in the Advisor's opinion.
In determining suitability of investment in a particular unrated
security, the Advisor takes into consideration asset and debt service coverage,
the purpose of the financing, history of the issuer, existence of other rated
securities of the issuer, and other relevant conditions, such as comparability
to other issuers.
Options and Futures Transactions
Exchange Traded and OTC Options. All options purchased or sold by the
Fund will be traded on a securities exchange or will be purchased or sold by
securities dealers (OTC options) that meet creditworthiness standards approved
by the Fund's Board of Trustees. While exchange-traded options are obligations
of the Options Clearing Corporation, in the case of OTC options, a Fund relies
on the dealer from which it purchased the option to perform if the option is
exercised. Thus, when the Fund purchases an OTC option, it relies on the dealer
from which it purchased the option to make or take delivery of the underlying
securities. Failure by the dealer to do so would result in the loss of the
premium paid by the Fund as well as loss of the expected benefit of the
transaction.
Provided that the Fund has arrangements with certain qualified dealers
who agree that the Fund may repurchase any option it writes for a maximum price
to be calculated by a predetermined formula, the Fund may treat the underlying
securities used to cover written OTC options as liquid. In these cases, the OTC
option itself would only be considered illiquid to the extent that the maximum
repurchase price under the formula exceeds the intrinsic value of the option.
Futures Contracts and Options on Futures Contracts. The Fund may
purchase or sell futures contracts and may purchase and sell (write) put and
call options, including put and call options on futures contracts. Futures
contracts obligate the buyer to take and the seller to make delivery at a future
date of a specified quantity of a financial instrument or an amount of cash
based on the value of a securities index.
Unlike a futures contract, which requires the parties to buy and sell a
security or make a cash settlement payment based on changes in a financial
instrument or securities index on an agreed date, an option on a futures
contract entitles its holder to decide on or before a future date whether to
enter into such a contract. If the holder decides not to exercise its option,
the holder may close out the option position by entering into an offsetting
transaction or may decide to let the option expire and forfeit the premium
thereon. The purchaser of an option on a futures contract pays a premium for the
option but makes no initial margin payments or daily payments of cash in the
nature of "variation" margin payments to reflect the change in the value of the
underlying contract as does a purchaser or seller of a futures contract.
The seller of an option on a futures contract receives the premium paid
by the purchaser and may be required to pay initial margin. Amounts equal to the
initial margin and any additional collateral required on any options on futures
contracts sold by the Fund are paid by the Fund into a segregated account, in
the name of the Futures Commission Merchant, as required by the 1940 Act and the
SEC's interpretations thereunder.
Combined Positions. The Fund is permitted to purchase and write options
in combination with each other, or in combination with futures or forward
contracts, to adjust the risk and return characteristics of the overall
position. For example, the Fund may purchase a put option and write a call
option on the same underlying instrument, in order to construct a combined
position whose risk and return characteristics are similar to selling a futures
contract. Another possible combined position would involve writing a call option
at one strike price and buying a call option at a lower price, in order to
reduce the risk of the written call option in the event of a substantial price
increase. Because combined options positions involve multiple trades, they
result in higher transaction costs and may be more difficult to open and close
out.
Correlation of Price Changes. Because there are a limited number of
types of exchange-traded options and futures contracts, it is likely that the
standardized options and futures contracts available will not match the Fund's
current or anticipated investments exactly. The Fund may invest in options and
futures contracts based on securities with different issuers, maturities, or
other characteristics from the securities in which it typically invests, which
involves a risk that the options or futures position will not track the
performance of the Fund's other investments.
Options and futures contracts prices can also diverge from the prices
of their underlying instruments, even if the underlying instruments match the
Fund's investments well. Options and futures contracts prices are affected by
such factors as current and anticipated short term interest rates, changes in
volatility of the underlying instrument, and the time remaining until expiration
of the contract, which may not affect security prices the same way. Imperfect
correlation may also result from differing levels of demand in the options and
futures markets and the securities markets, from structural differences in how
options and futures and securities are traded, or from imposition of daily price
fluctuation limits or trading halts. The Fund may purchase or sell options and
futures contracts with a greater or lesser value than the securities it wishes
to hedge or intends to purchase in order to attempt to compensate for
differences in volatility between the contract and the securities, although this
may not be successful in all cases. If price changes in the Fund's options or
futures positions are poorly correlated with its other investments, the
positions may fail to produce anticipated gains or result in losses that are not
offset by gains in other investments.
Liquidity of Options and Futures Contracts. There is no assurance a
liquid market will exist for any particular option or futures contract at any
particular time even if the contract is traded on an exchange. In addition,
exchanges may establish daily price fluctuation limits for options and futures
contracts and may halt trading if a contract's price moves up or down more than
the limit in a given day. On volatile trading days when the price fluctuation
limit is reached or a trading halt is imposed, it may be impossible for the Fund
to enter into new positions or close out existing positions. If the market for a
contract is not liquid because of price fluctuation limits or otherwise, it
could prevent prompt liquidation of unfavorable positions, and could potentially
require the Fund to continue to hold a position until delivery or expiration
regardless of changes in its value. As a result, the Fund's access to other
assets held to cover its options or futures positions could also be impaired.
(See "Exchange Traded and OTC Options" above for a discussion of the liquidity
of options not traded on an exchange.)
Position Limits. Futures exchanges can limit the number of futures and
options on futures contracts that can be held or controlled by an entity. If an
adequate exemption cannot be obtained, the Fund or the Advisor may be required
to reduce the size of its futures and options positions or may not be able to
trade a certain futures or options contract in order to avoid exceeding such
limits.
Asset Coverage for Futures Contracts and Options Positions. The Fund
intends to comply with Section 4.5 of the regulations under the Commodity
Exchange Act, which limits the extent to which the Fund can commit assets to
initial margin deposits and option premiums. In addition, the Fund will comply
with guidelines established by the SEC with respect to coverage of options and
futures contracts by mutual funds, and if the guidelines so require, will set
aside appropriate liquid assets in a segregated custodial account in the amount
prescribed. Securities held in a segregated account cannot be sold while the
futures contract or option is outstanding, unless they are replaced with other
suitable assets. As a result, there is a possibility that segregation of a large
percentage of the Fund's assets could impede Fund management or the Fund's
ability to meet redemption requests or other current obligations.
Swaps and Related Swap Products
The Fund may engage in swap transactions, including, but not limited
to, interest rate, currency, securities index, basket, specific security and
commodity swaps, interest rate caps, floors and collars and options on interest
rate swaps (collectively defined as "swap transactions").
The Fund may enter into swap transactions for any legal purpose
consistent with its investment objective and policies, such as for the purpose
of attempting to obtain or preserve a particular return or spread at a lower
cost than obtaining that return or spread through purchases and/or sales of
instruments in cash markets, to protect against currency fluctuations, as a
duration management technique, to protect against any increase in the price of
securities the Fund anticipates purchasing at a later date, or to gain exposure
to certain markets in the most economical way possible. The Fund will not sell
interest rate caps, floors or collars if it does not own securities with coupons
which provide the interest that the Fund may be required to pay.
Swap agreements are two-party contracts entered into primarily by
institutional counterparties for periods ranging from a few weeks to several
years. In a standard swap transaction, two parties agree to exchange the returns
(or differentials in rates of return) that would be earned or realized on
specified notional investments or instruments. The gross returns to be exchanged
or "swapped" between the parties are calculated by reference to a "notional
amount," i.e., the return on or increase in value of a particular dollar amount
invested at a particular interest rate, in a particular foreign currency or
commodity, or in a "basket" of securities representing a particular index. The
purchaser of an interest rate cap or floor, upon payment of a fee, has the right
to receive payments (and the seller of the cap is obligated to make payments) to
the extent a specified interest rate exceeds (in the case of a cap) or is less
than (in the case of a floor) a specified level over a specified period of time
or at specified dates. The purchaser of an interest rate collar, upon payment of
a fee, has the right to receive payments (and the seller of the collar is
obligated to make payments) to the extent that a specified interest rate falls
outside an agreed upon range over a specified period of time or at specified
dates. The purchaser of an option on an interest rate swap, upon payment of a
fee (either at the time of purchase or in the form of higher payments or lower
receipts within an interest rate swap transaction) has the right, but not the
obligation, to initiate a new swap transaction of a pre-specified notional
amount with pre-specified terms with the seller of the option as the
counterparty.
The "notional amount" of a swap transaction is the agreed upon basis
for calculating the payments that the parties have agreed to exchange. For
example, one swap counterparty may agree to pay a floating rate of interest
(e.g., 3 month LIBOR) calculated based on a $10 million notional amount on a
quarterly basis in exchange for receipt of payments calculated based on the same
notional amount and a fixed rate of interest on a semi-annual basis. In the
event the Fund is obligated to make payments more frequently than it receives
payments from the other party, it will incur incremental credit exposure to that
swap counterparty. This risk may be mitigated somewhat by the use of swap
agreements which call for a net payment to be made by the party with the larger
payment obligation when the obligations of the parties fall due on the same
date. Under most swap agreements entered into by the Fund, payments by the
parties will be exchanged on a "net basis", and the Fund will receive or pay, as
the case may be, only the net amount of the two payments.
The amount of the Fund's potential gain or loss on any swap transaction
is not subject to any fixed limit. Nor is there any fixed limit on the Fund's
potential loss if it sells a cap or collar. If the Fund buys a cap, floor or
collar, however, the Fund's potential loss is limited to the amount of the fee
that it has paid. When measured against the initial amount of cash required to
initiate the transaction, which is typically zero in the case of most
conventional swap transactions, swaps, caps, floors and collars tend to be more
volatile than many other types of instruments.
The use of swap transactions, caps, floors and collars involves
investment techniques and risks which are different from those associated with
portfolio security transactions. If the Advisor is incorrect in its forecasts of
market values, interest rates, and other applicable factors, the investment
performance of the Fund will be less favorable than if these techniques had not
been used. These instruments are typically not traded on exchanges. Accordingly,
there is a risk that the other party to certain of these instruments will not
perform its obligations to the Fund or that the Fund may be unable to enter into
offsetting positions to terminate its exposure or liquidate its position under
certain of these instruments when it wishes to do so. Such occurrences could
result in losses to the Fund.
The Advisor will, however, consider such risks and will enter into
swap and other derivatives transactions only when it believes that the risks are
not unreasonable.
The Fund will maintain cash or liquid assets in a segregated account
with its custodian in an amount sufficient at all times to cover its current
obligations under its swap transactions, caps, floors and collars. If the Fund
enters into a swap agreement on a net basis, it will segregate assets with a
daily value at least equal to the excess, if any, of the Fund's accrued
obligations under the swap agreement over the accrued amount the Fund is
entitled to receive under the agreement. If the Fund enters into a swap
agreement on other than a net basis, or sells a cap, floor or collar, it will
segregate assets with a daily value at least equal to the full amount of the
Fund's accrued obligations under the agreement.
The Fund will not enter into any swap transaction, cap, floor, or
collar, unless the counterparty to the transaction is deemed creditworthy by the
Advisor. If a counterparty defaults, the Fund may have contractual remedies
pursuant to the agreements related to the transaction. The swap markets in which
many types of swap transactions are traded have grown substantially in recent
years, with a large number of banks and investment banking firms acting both as
principals and as agents utilizing standardized swap documentation. As a result,
the markets for certain types of swaps (e.g., interest rate swaps) have become
relatively liquid. The markets for some types of caps, floors and collars are
less liquid.
The liquidity of swap transactions, caps, floors and collars will be as
set forth in guidelines established by the Advisor and approved by the Trustees
which are based on various factors, including (1) the availability of dealer
quotations and the estimated transaction volume for the instrument, (2) the
number of dealers and end users for the instrument in the marketplace, (3) the
level of market making by dealers in the type of instrument, (4) the nature of
the instrument (including any right of a party to terminate it on demand) and
(5) the nature of the marketplace for trades (including the ability to assign or
offset the Fund's rights and obligations relating to the instrument). Such
determination will govern whether the instrument will be deemed within the 15%
restriction on investments in securities that are not readily marketable.
During the term of a swap, cap, floor or collar, changes in the value
of the instrument are recognized as unrealized gains or losses by marking to
market to reflect the market value of the instrument. When the instrument is
terminated, the Fund will record a realized gain or loss equal to the
difference, if any, between the proceeds from (or cost of) the closing
transaction and the Fund's basis in the contract.
The federal income tax treatment with respect to swap transactions,
caps, floors, and collars may impose limitations on the extent to which the Fund
may engage in such transactions.
Risk Management
The Fund may employ non-hedging risk management techniques. Examples of
risk management strategies include synthetically altering a portfolio's exposure
to the equity markets of particular countries by purchasing futures contracts on
the stock indices of those countries to increase exposure to their equity
markets. Such non-hedging risk management techniques are not speculative, but
because they involve leverage include, as do all leveraged transactions, the
possibility of losses as well as gains that are greater than if these techniques
involved the purchase and sale of the securities themselves rather than their
synthetic derivatives.
Portfolio Turnover
The table below sets forth the portfolio turnover rates for the
Portfolio corresponding to the Fund. A rate of 100% indicates that the
equivalent of all of the Portfolio's assets have been sold and reinvested in a
year. High portfolio turnover may result in the realization of substantial net
capital gains or losses. To the extent net short term capital gains are
realized, any distributions resulting from such gains are considered ordinary
income for federal income tax purposes. See "Taxes" below.
Portfolio -- For the period March 28, 1995 (commencement of operations)
through December 31, 1995: 36%. For the fiscal year ended December 31, 1996:
57%. For the fiscal year ended December 31, 1997: 65%.
INVESTMENT RESTRICTIONS
The investment restrictions of the Fund and the Portfolio are
identical, unless otherwise specified. Accordingly, references below to the Fund
also include the Fund's 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 security holders meeting if
the holders of more than 50% of the outstanding voting securities are present or
represented by proxy, or (b) more than 50% of the outstanding voting securities.
The percentage limitations contained in the restrictions below apply at the time
of the purchase of securities. Whenever the Fund is requested to vote on a
change in the fundamental investment restrictions of the Portfolio, the Trust
will hold a meeting of Fund shareholders and will cast its votes as instructed
by the Fund's shareholders.
Unless Sections 8(b)(1) and 13(a) of the 1940 Act or any SEC or SEC
staff interpretations thereof, are amended or modified, the Fund and its
corresponding Portfolio:
1. May not make any investment inconsistent with the Fund's classification as a
diversified investment company under the Investment Company Act of 1940.
2. May not purchase any security which would cause the Fund to concentrate its
investments in the securities of issuers primarily engaged in any particular
industry except as permitted by the SEC;
3. May not issue senior securities, except as permitted under the Investment
Company Act of 1940 or any rule, order or interpretation thereunder;
4. May not borrow money, except to the extent permitted by applicable law;
5. May not underwrite securities of other issuers, except to the extent that the
Fund, in disposing of portfolio securities, may be deemed an underwriter within
the meaning of the 1933 Act;
6. May not purchase or sell real estate, except that, to the extent permitted by
applicable law, the Fund may (a) invest in securities or other instruments
directly or indirectly secured by real estate and (b) invest in securities or
other instruments issued by issuers that invest in real estate;
7. May not purchase or sell commodities or commodity contracts unless acquired
as a result of ownership of securities or other instruments issued by persons
that purchase or sell commodities or commodities contracts; but this shall not
prevent the Fund from purchasing, selling and entering into financial futures
contracts (including futures contracts on indices of securities, interest rates
and currencies), options on financial futures contracts (including futures
contracts on indices of securities, interest rates and currencies), warrants,
swaps, forward contracts, foreign currency spot and forward contracts or other
derivative instruments that are not related to physical commodities; and
8. May make loans to other persons, in accordance with the Fund's investment
objective and policies and to the extent permitted by applicable law.
Non-Fundamental Investment Restrictions. The investment restrictions
described below are not fundamental policies of the Fund and its corresponding
Portfolio and may be changed by their Trustees. These non-fundamental investment
policies require that the Fund and its corresponding Portfolio:
(i) May not acquire any illiquid securities, such as repurchase agreements with
more than seven days to maturity or fixed time deposits with a duration of over
seven calendar days, if as a result thereof, more than 15% of the market value
of the Fund's net assets would be in investments which are illiquid;
(ii) May not purchase securities on margin, make short sales of securities, or
maintain a short position, provided that this restriction shall not be deemed to
be applicable to the purchase or sale of when-issued or delayed delivery
securities, or to short sales that are covered in accordance with SEC rules; and
(iii) May not acquire securities of other investment companies, except as
permitted by the 1940 Act or any order pursuant thereto.
There will be no violation of any investment restriction if that
restriction is complied with at the time the relevant action is taken
notwithstanding a later change in market value of an investment, in net or total
assets, in the securities rating of the investment, or any other later change.
For purposes of fundamental investment restrictions regarding industry
concentration, JPMIM may classify issuers by industry in accordance with
classifications set forth in the Directory of Companies Filing Annual Reports
With The Securities and Exchange Commission or other sources. In the absence of
such classification or if JPMIM determines in good faith based on its own
information that the economic characteristics affecting a particular issuer make
it more appropriately considered to be engaged in a different industry, JPMIM
may classify an issuer accordingly. For instance, personal credit finance
companies and business credit finance companies are deemed to be separate
industries and wholly owned finance companies are considered to be in the
industry of their parents if their activities are primarily related to financing
the activities of their parents.
TRUSTEES
The Trustees of the Trust, who are also the Trustees of the Portfolio
and the other Master Portfolios, as defined below, their business addresses,
principal occupations during the past five years and dates of birth are set
forth below.
Frederick S. Addy -- Trustee; Retired; Prior to April 1994, Executive
Vice President and Chief Financial Officer, Amoco Corporation. His address is
5300 Arbutus Cove, Austin, Texas 78746, and his date of birth is January 1,
1932.
William G. Burns -- Trustee; Retired; Former Vice Chairman and Chief
Financial Officer, NYNEX. His address is 2200 Alaqua Drive, Longwood, Florida
32779, and his date of birth is November 2, 1932.
Arthur C. Eschenlauer -- Trustee; Retired; Former Senior Vice
President, Morgan Guaranty Trust Company of New York. His address is 14 Alta
Vista Drive, RD #2, Princeton, New Jersey 08540, and his date of birth is May
23, 1934.
Matthew Healey (*) -- Trustee; Chairman and Chief Executive Officer;
Chairman, Pierpont Group, Inc. ("Pierpont Group") since prior to 1993. His
address is Pine Tree Club Estates, 10286 Saint Andrews Road, Boynton Beach,
Florida 33436, and his date of birth is August 23, 1937.
Michael P. Mallardi -- Trustee; Retired; Prior to April 1996, Senior Vice
President, Capital Cities/ABC, Inc. and President, Broadcast Group. His address
is 10 Charnwood Drive, Suffern, New York 10910, and his date of birth is March
17, 1934.
The Trustees of the Trust are the same as the Trustees of the
Portfolio. A majority of the disinterested Trustees have adopted written
procedures reasonably appropriate to deal with potential conflicts of interest
arising from the fact that the same individuals are Trustees of the Trust, the
Portfolio and the J.P.
Morgan Funds up to and including creating a separate board of trustees.
- ----------------------
* Mr. Healey is an "interested person" (as defined in the 1940 Act) of the
Trust. Mr. Healey is also an "interested person" (as defined in the 1940 Act) of
the advisor due to his son's affiliation with JPMIM.
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 these
funds.
Trustee compensation expenses paid by the Trust for the calendar year
ended December 31, 1997 are set forth below.
- -------------------------------------------------- ------------------------
TOTAL TRUSTEE COMPENSATION
AGGREGATE TRUSTEE ACCRUED BY THE MASTER
COMPENSATION PORTFOLIOS(*), J.P. MORGAN
PAID BY THE TRUST FUNDS, J.P. MORGAN SERIES
DURING 1997 TRUST AND THE TRUST 1997(**)
NAME OF TRUSTEE
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Frederick S. Addy, Trustee $11,772.77 $72,500
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
William G. Burns, Trustee $11,786.38 $72,500
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Arthur C. Eschenlauer, Trustee $11,786.38 $72,500
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Matthew Healey, Trustee (***) $11,786.38 $72,500
Chairman and Chief Executive
Officer
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Michael P. Mallardi, Trustee $11,786.38 $72,500
- ----------------------------------------------------------------------
- ----------------------------------------------------- ----------------
- --------------------------------------------- ------------------------------
(*) Includes the Portfolio and 19 other Portfolios (collectively, the "Master
Portfolios") for which JPMIM or MGT acts as investment adviser.
(**) No investment company within the fund complex has a pension or retirement
plan. Currently there are 18 investment companies (15 investment companies
comprising the Master Portfolios, J.P. Morgan Funds, the Trust and J.P. Morgan
Series Trust) in the fund complex.
(***) During 1997, Pierpont Group, Inc. paid Mr. Healey, in his role as
Chairman of Pierpont Group, Inc., compensation in the amount of $147,500,
contributed $22,100 to a defined contribution plan on his behalf and paid
$20,500 in insurance premiums for his benefit.
The Trustees decide upon general policies and are responsible for
overseeing the Trust's and Portfolio's business affairs. The Portfolio and the
Trust have entered into a Fund Services Agreement with Pierpont Group, Inc. to
assist the Trustees in exercising their overall supervisory responsibilities
over the affairs of the Portfolio and the Trust. Pierpont Group, Inc. was
organized in July 1989 to provide services for the J.P. Morgan Family of Funds
(formerly "The Pierpont Family of Funds"), and the Trustees are the equal and
sole shareholders of Pierpont Group, Inc. The Trust and the Portfolio have
agreed to pay Pierpont Group, Inc. a fee in an amount representing its
reasonable costs in performing these services. These costs are periodically
reviewed by the Trustees. The principal offices of Pierpont Group, Inc. are
located at 461 Fifth Avenue, New York, New York 10017.
The aggregate fees paid to Pierpont Group, Inc. by the Fund and the
Portfolio during the indicated fiscal periods are set forth below:
Fund -- For the period February 29, 1996 (commencement of operations)
through December 31, 1996: $153. For the fiscal year ended December 31, 1997:
$339.
Portfolio -- For the period March 28, 1995 (commencement of operations)
through December 31, 1995: $19,953. For the fiscal year ended December 31, 1996:
$25,144. For the fiscal year ended December 31, 1997: $21,837.
OFFICERS
The Trust's and Portfolio's executive officers (listed below), other
than the Chief Executive Officer and the officers who are employees of the
Advisor, are provided and compensated by Funds Distributor, Inc. ("FDI"), a
wholly owned indirect subsidiary of Boston Institutional Group, Inc. The
officers conduct and supervise the business operations of the Trust and the
Portfolio. The Trust and the Portfolio have no employees.
The officers of the Trust and the Portfolio, their principal
occupations during the past five years and dates of birth are set forth below.
Unless otherwise specified, each officer holds the same position with the Trust,
the Portfolio and the other Master Portfolios. The business address of each of
the officers unless otherwise noted is Funds Distributor, Inc., 60 State Street,
Suite 1300, Boston, Massachusetts 02109.
MATTHEW HEALEY; Chief Executive Officer; Chairman, Pierpont Group,
since prior to 1993. His address is Pine Tree Club Estates, 10286 Saint Andrews
Road, Boynton Beach, Florida 33436. His date of birth is August 23, 1937.
MARGARET W. CHAMBERS; Vice President and Secretary. Senior Vice President
and General Counsel of FDI since April, 1998. From August 1996 to March 1998,
Ms. Chambers was Vice President and Assistant General Counsel for Loomis, Sayles
& Company, L.P. From January 1986 to July 1996, she was an associate with the
law firm of Ropes & Gray. Her date of birth is October 12, 1959.
MARIE E. CONNOLLY; Vice President and Assistant Treasurer. President,
Chief Executive Officer, Chief Compliance Officer and Director of FDI, Premier
Mutual Fund Services, Inc., an affiliate of FDI ("Premier Mutual") and an
officer of certain investment companies distributed or administered by FDI.
Prior to July 1994, she was President and Chief Compliance Officer of FDI. Her
date of birth is August 1, 1957.
DOUGLAS C. CONROY; Vice President and Assistant Treasurer. Assistant Vice
President and Assistant Department Manager of Treasury Services and
Administration of FDI and an officer of certain investment companies distributed
or administered by FDI. Prior to April 1997, Mr. Conroy was Supervisor of
Treasury Services and Administration of FDI. From April 1993 to January 1995,
Mr. Conroy was a Senior Fund Accountant for Investors Bank & Trust Company. His
date of birth is March 31, 1969.
JACQUELINE HENNING; Assistant Secretary and Assistant Treasurer of the
Portfolio only. Managing Director, State Street Cayman Trust Company, Ltd. since
October 1994. Prior to October 1994, Mrs. Henning was head of mutual funds at
Morgan Grenfell in Cayman and was Managing Director of Bank of Nova Scotia Trust
Company (Cayman) Limited prior to September 1993. Address: P.O. Box 2508 GT,
Elizabethan Square, 2nd Floor, Shedden Road, George Town, Grand Cayman, Cayman
Islands, BWI. Her date of birth is March 24, 1942.
KAREN JACOPPO-WOOD; Vice President and Assistant Secretary. Vice President
and Senior Counsel of FDI and an officer of certain investment companies
distributed or administered by FDI. From June 1994 to January 1996, Ms.
Jacoppo-Wood was a Manager of SEC Registration at Scudder, Stevens & Clark, Inc.
Prior to May 1994, Ms. Jacoppo-Wood was a senior paralegal at The Boston Company
Advisors, Inc. ("TBCA"). Her date of birth is December 29, 1966.
CHRISTOPHER J. KELLEY; Vice President and Assistant Secretary. Vice
President and Senior Associate General Counsel of FDI and Premier Mutual and an
officer of certain investment companies distributed or administered by FDI. From
April 1994 to July 1996, Mr. Kelley was Assistant Counsel at Forum Financial
Group. Prior to April 1994, Mr. Kelley was employed by Putnam Investments in
legal and compliance capacities. His date of birth is December 24, 1964.
KATHLEEN K. MORRISEY. Vice President and Assistant Secretary. Vice
President and Assistant Secretary of FDI. Manager of Treasury Services
Administration and an officer of certain investment companies advised or
administered by Montgomery Asset Management, L.P. and Dresdner RCM Global
Investors, Inc., and their respective affiliates. From July 1994 to November
1995, Ms. Morrisey was a Fund Accountant II for Investors Bank & Trust Company.
Prior to July 1994 she was a Finance student at Stonehill College in North
Easton, Massachusetts. Her date of birth is July 5, 1972.
MARY A. NELSON; Vice President and Assistant Treasurer. Vice President and
Manager of Treasury Services and Administration of FDI and Premier Mutual and an
officer of certain investment companies distributed or administered by FDI.
Prior to August 1994, Ms. Nelson was an Assistant Vice President and Client
Manager for The Boston Company, Inc. Her date of birth is April 22, 1964.
MARY JO PACE; Assistant Treasurer. Vice President, Morgan Guaranty T rust
Company of New York. Ms. Pace serves in the Fund Administration group as a
Manager for the Budgeting and Expense Processing Group. Prior to September 1995,
Ms. Pace served as a Fund Administrator for Morgan Guaranty Trust Company of New
York. Her address is 60 Wall Street, New York, New York 10260. Her date of birth
is March 13, 1966.
MICHAEL S. PETRUCELLI; Vice President and Assistant Secretary. Senior Vice
President and Director of Strategic Client Initiatives for FDI since December
1996. From December 1989 through November 1996, Mr. Petrucelli was employed with
GE Investments where he held various financial, business development and
compliance positions. He also served as Treasurer of the GE Funds and as
Director of GE Investment Services. Address: 200 Park Avenue, New York, New
York, 10166. His date of birth is May 18, 1961.
STEPHANIE D. PIERCE; Vice President and Assistant Secretary. Vice President
and Client Development Manager for FDI since April 1998. From April 1997 to
March 1998, Ms. Pierce was employed by Citibank, NA as an officer of Citibank
and Relationship Manager on the Business and Professional Banking team handling
over 22,000 clients. Address: 200 Park Avenue, New York, New York 10166. Her
date of birth is August 18, 1968.
GEORGE A. RIO; President and Treasurer. Executive Vice President and Client
Service Director of FDI since April 1998. From June 1995 to March 1998, Mr. Rio
was Senior Vice President and Senior Key Account Manager for Putnam Mutual
Funds. From May 1994 to June 1995, Mr. Rio was Director of Business Development
for First Data Corporation. From September 1983 to May 1994, Mr. Rio was Senior
Vice President & Manager of Client Services and Director of Internal Audit at
The Boston Company. His date of birth is January 2, 1955.
CHRISTINE ROTUNDO; Assistant Treasurer. Vice President, Morgan Guaranty
Trust Company of New York. Ms. Rotundo serves in the Funds Administration group
as a Manager of the Tax Group and is responsible for U.S. mutual fund tax
matters. Prior to September 1995, Ms. Rotundo served as a Senior Tax Manager in
the Investment Company Services Group of Deloitte & Touche LLP. Her address is
60 Wall Street, New York, New York 10260. Her date of birth is September 26,
1965.
INVESTMENT ADVISOR
The Fund has not retained the services of an investment adviser because
it seeks to achieve its investment objective by investing all of its investable
assets in the Portfolio. Subject to the supervision of the Portfolio's Trustees,
the Advisor makes the Portfolio's day-to-day investment decisions, arranges for
the execution of portfolio transactions and generally manages the Portfolio's
investments. Prior to October 1, 1998, Morgan was the Portfolio's investment
advisor. JPMIM, a wholly owned subsidiary of J.P. Morgan & Co. Incorporated
("J.P. Morgan"), is a registered investment adviser under the Investment
Advisers Act of 1940, as amended, manages employee benefit funds of
corporations, labor unions and state and local governments and the accounts of
other institutional investors, including investment companies. Certain of the
assets of employee benefit accounts under its management are invested in
commingled pension trust funds for which Morgan serves as trustee.
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 $275 billion.
J.P. Morgan has a long history of service as adviser, underwriter and
lender to an extensive roster of major companies and as a financial advisor to
national governments. The firm, through its predecessor firms, has been in
business for over a century and has been managing investments since 1913.
The basis of the Advisor's investment process is fundamental investment
research as the firm believes that fundamentals should determine an asset's
value over the long term. J.P. Morgan currently employs over 100 full time
research analysts, among the largest research staffs in the money management
industry, in its investment management divisions located in New York, London,
Tokyo, Frankfurt and Singapore to cover companies, industries and countries on
site. In addition, the investment management divisions employ approximately 300
capital market researchers, portfolio managers and traders.
The 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 the MSCI Europe Index.
Morgan, also a wholly owned subsidiary of J.P. Morgan, is a bank
holding company organized under the laws of the State of Delaware. Morgan, whose
principal offices are at 60 Wall Street, New York, New York 10260, is a New York
trust company which conducts a general banking and trust business. Morgan is
subject to regulation by the New York State Banking Department and is a member
bank of the Federal Reserve System. Through offices in New York City and abroad,
Morgan offers a wide range of services, primarily to governmental,
institutional, corporate and high net worth individual customers in the United
States and throughout the world.
The Portfolio is managed by officers of the Advisor who, in acting for
their customers, including the Portfolio, do not discuss their investment
decisions with any personnel of J.P. Morgan or any personnel of other divisions
of the Advisor or with any of its affiliated persons, with the exception of
certain other investment management affiliates of J.P. Morgan.
As compensation for the services rendered and related expenses such as
salaries of advisory personnel borne by the Advisor under the 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 0.65% of the
Portfolio's average daily net assets.
The Portfolio paid the following advisory fees to Morgan, the Portfolio's
advisor prior to October 1, 1998 for the period from March 28, 1995
(commencement of operations) through December 31, 1995 and the fiscal years
ended December 31, 1996 and 1997: $1,675,355, $3,735,998, $3,879,040. 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 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 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
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 other
investment companies subject to similar agreements with FDI.
The table below sets forth for the Fund and the Portfolio the
administrative fees paid to FDI for the fiscal periods indicated.
Fund--For the period August 1, 1996 through December 31, 1996: $90. For the
fiscal year ended December 31, 1997: $293.
Portfolio--For the period August 1, 1996 through December 31, 1996: $7,060.
For the fiscal year ended December 31, 1997: $14,117.
The table below sets forth for the Fund and the Portfolio the
administrative fees paid to Signature Broker-Dealer Services, Inc. (which
provided distribution and administrative services to the Trust and placement
agent and administrative services to the Portfolio prior to August 1, 1996) for
the fiscal periods indicated.
Fund -- For the period February 29, 1996 (commencement of operations) through
July 31, 1996: $191.
Portfolio -- For the period March 28, 1995 (commencement of operations)
through December 31, 1995: $15,623. For the period January 1, 1996 through July
31, 1996: $38,675.
SERVICES AGENT
The Trust, on behalf of the Fund, and the Portfolio have entered into
Administrative Services Agreements (the "Services Agreements") with Morgan
effective December 29, 1995, as amended August 1, 1996 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, Morgan provides certain administrative
and related services to the Fund and the Portfolio, including services related
to tax compliance, preparation of financial statements, calculation of
performance data, oversight of service providers and certain regulatory and
Board of Trustee matters.
Under the amended Services Agreements, the Fund and the Portfolio have
agreed to pay Morgan fees equal to its allocable share of an annual complex-wide
charge. This charge is calculated daily based on the aggregate net assets of the
Master Portfolios and J.P. Morgan Series Trust in accordance with the following
annual schedule: 0.09% of the first $7 billion of their aggregate average daily
net assets and 0.04% of their aggregate average daily net assets in excess of $7
billion, less the complex-wide fees payable to FDI. The portion of this charge
payable by the Fund and Portfolio is determined by the proportionate share that
its net assets bear to the total net assets of the Trust, the Master Portfolio,
the other investors in the Master Portfolio for which Morgan provides similar
services and J.P. Morgan Series Trust.
Under administrative services agreements in effect from
December 29, 1995 through July 31, 1996, with Morgan, the Fund and 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' average daily net assets in excess of $7
billion. Prior to December 29, 1995, the Trust and each 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 applicable fee waivers and reimbursements, as Services Agent.
Fund -- For the period February 29, 1996 (commencement of operations)
through December 31, 1996: $(72,718)*. For the fiscal year ended December 31,
1997: $(65,730)*. Portfolio-- For the period March 28, 1995 (commencement of
operations) through December 31, 1995: $128,335. For the fiscal year ended
December 31, 1996: $161,993. For the fiscal year ended December 31, 1997:
$126,054.
(*) 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 Fund 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 Fund 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. In the
case of foreign assets held outside the United States, the Custodian employs
various subcustodians who were approved by the Trustees of the Portfolio in
accordance with the regulations of the SEC. The custodian maintains portfolio
transaction records. As transfer agent and dividend disbursing agent, State
Street is responsible for maintaining account records detailing the ownership of
Fund shares and for crediting income, capital gains and other changes in share
ownership to shareholder accounts.
SHAREHOLDER SERVICING
The Trust on behalf of the Fund has entered into a Shareholder
Servicing Agreement with Morgan pursuant to which Morgan acts as shareholder
servicing agent for its customers and for other Fund investors who are customers
of a financial professional. Under this agreement, Morgan is responsible for
performing shareholder account, administrative and servicing functions, which
include but are not limited to, answering inquiries regarding account status and
history, the manner in which purchases and redemptions of Fund shares may be
effected, and certain other matters pertaining to 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 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; and providing other related services.
Under the Shareholder Servicing Agreement, the Fund has agreed to pay
Morgan for these services a fee at the following annual rate of 0.10% (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).
Morgan acts as shareholder servicing agent for all shareholders.
The shareholder servicing fees paid by the Fund to Morgan for the
period February 29, 1996 (commencement of operations) through December 31, 1996
and for the fiscal year ended December 31, 1997 were $4,000 and $9,835.
As discussed under "Investment Advisor," the Glass-Steagall Act and
other applicable laws and regulations limit the activities of bank holding
companies and certain of their subsidiaries in connection with registered
open-end investment companies. The activities of Morgan in acting as shareholder
servicing agent for Fund shareholders under the Shareholder Servicing Agreement
and providing administrative services to the Fund and the Portfolio under the
Services Agreements, and the activities of JPMIM in acting as Advisor to the
Portfolio under the Investment Advisory Agreements may raise issues under these
laws. However, JPMIM and Morgan believe that they may properly perform these
services and the other activities described herein without violation of the
Glass-Steagall Act or other applicable banking laws or regulations.
If Morgan were prohibited from providing any of the services under the
Shareholder Servicing Agreement and the Services Agreements, the Trustees would
seek an alternative provider of such services. In such event, changes in the
operation of the Fund or the Portfolio might occur and a shareholder might no
longer be able to avail himself or herself of any services then being provided
to shareholders by Morgan.
The Fund may be sold to or through financial intermediaries who are
customers of J.P. Morgan ("financial professionals"), including financial
institutions and broker-dealers, that may be paid fees by J.P. Morgan or its
affiliates for services provided to their clients that invest in the Fund. See
"Financial Professionals" below. Organizations that provide recordkeeping or
other services to certain employee benefit or retirement plans that include the
Fund as an investment alternative may also be paid a fee.
FINANCIAL PROFESSIONALS
The services provided by financial professionals may include
establishing and maintaining shareholder accounts, processing purchase and
redemption transactions, arranging for bank wires, performing shareholder
subaccounting, answering client inquiries regarding the Trust, assisting clients
in changing dividend options, account designations and addresses, providing
periodic statements showing the client's account balance and integrating these
statements with those of other transactions and balances in the client's other
accounts serviced by the financial professional, transmitting proxy statements,
periodic reports, updated prospectuses and other communications to shareholders
and, with respect to meetings of shareholders, collecting, tabulating and
forwarding executed proxies and obtaining such other information and performing
such other services as Morgan or the financial professional's clients may
reasonably request and agree upon with the financial professional.
Although there is no sales charge levied directly by the Fund,
financial professionals may establish their own terms and conditions for
providing their services and may charge investors a transaction-based or other
fee for their services. Such charges may vary among financial professionals but
in all cases will be retained by the financial professional and not be remitted
to the Fund or J.P. Morgan.
The Fund has authorized one or more brokers to accept purchase and
redemption orders on its behalf. Such brokers are authorized to designate other
intermediaries to accept purchase and redemption orders on the Fund's behalf.
The Fund will be deemed to have received a purchase or redemption order when an
authorized broker or, if applicable, a broker's authorized designee, accepts the
order. These orders will be priced at the Fund's net asset value next calculated
after they are so accepted.
INDEPENDENT ACCOUNTANTS
The independent accountants of the Trust and the Portfolio is
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York
10036. PricewaterhouseCoopers LLP conducts an annual audit of the financial
statements of the Fund and the Portfolio, assists in the preparation and/or
review of the Fund's and Portfolio's federal and state income tax returns and
consults with the Fund and the Portfolio as to matters of accounting and federal
and state income taxation.
EXPENSES
In addition to the fees payable to Pierpont Group, Inc., JPMIM, Morgan and
FDI under various agreements discussed under "Trustees and Officers,"
"Investment Advisor," "Co-Administrator", Distributor," "Services Agent" and
"Shareholder Servicing" above, the Fund and the Portfolio are responsible for
usual and customary expenses associated with their respective operations. Such
expenses include organization expenses, legal fees, accounting and audit and
audit expenses, insurance costs, the compensation and expenses of the Trustees,
registration fees under federal securities laws, and extraordinary expenses
applicable to the Fund or the Portfolio. For the Fund, such expenses also
include transfer, registrar and dividend disbursing costs, the expenses of
printing and mailing reports, notices and proxy statements to Fund shareholders,
and filing fees under state securities laws. For the Portfolio, such expenses
also include applicable registration fees under foreign securities laws,
custodian fees and brokerage expenses. Under fee arrangements prior to September
1, 1995, Morgan as Services Agent was responsible for reimbursements to the
Trust and certain Portfolios and the usual and customary expenses described
above (excluding organization and extraordinary expenses, custodian fees and
brokerage expenses).
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.
The Fund may, at its own option, accept securities in payment for
shares. The securities delivered in such a transaction are valued by the method
described in "Net Asset Value" as of the day the Fund receives the securities.
This is a taxable transaction to the shareholder. Securities may be accepted in
payment for shares only if they are, in the judgment of the Advisor, appropriate
investments for the Fund's Portfolio. In addition, securities accepted in
payment for shares must: (i) meet the investment objective and policies of the
acquiring Fund's Portfolio; (ii) be acquired by the Fund for investment and not
for resale (other than for resale to the Fund's Portfolio); (iii) be liquid
securities which are not restricted as to transfer either by law or liquidity of
market; and (iv) if stock, have a value which is readily ascertainable as
evidenced by a listing on a stock exchange, OTC market or by readily available
market quotations from a dealer in such securities. The Fund reserves the right
to accept or reject at its own option any and all securities offered in payment
for its shares.
Prospective investors may purchase shares with the assistance of a
financial professional, and the financial professional may establish its own
minimums and charge the investor a fee for this service and other services it
provides to its customers. Morgan may pay fees to financial professionals for
services in connection with fund investments. See "Financial Professionals"
above.
REDEMPTION OF SHARES
If the Trust on behalf of the Fund and the Portfolio determines that it
would be detrimental to the best interest of the remaining shareholders of 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 and the Portfolio has elected to be governed by Rule 18f-1
under the 1940 Act pursuant to which the Fund and the Portfolio are obligated to
redeem shares solely in cash up to the lesser of $250,000 or one percent of the
net asset value of the Fund during any 90 day period for any one shareholder.
The Trust will redeem Fund shares in kind only if it has received a redemption
in kind from the Portfolio and therefore shareholders of the Fund that receive
redemptions in kind will receive securities of the Portfolio. The Portfolio has
advised the Trust that the Portfolio 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 the Fund may not be processed if a redemption request is not
submitted in proper form. To be in proper form, the Fund must have received the
shareholder's taxpayer identification number and address. In addition, if a
shareholder sends a check for the purchase of fund shares and shares are
purchased before the check has cleared, the transmittal of redemption proceeds
from the shares will occur upon clearance of the check which may take up to 15
days. The Trust, on behalf of the Fund, and the Portfolio reserves the right to
suspend the right of redemption and to postpone the date of payment upon
redemption as follows: (i) for up to seven days, (ii) during periods when the
New York Stock Exchange is closed for other than weekends and holidays or when
trading on such Exchange is restricted as determined by the SEC by rule or
regulation, (iii) during periods in which an emergency, as determined by the
SEC, exists that causes disposal by the Portfolio of, or evaluation of the net
asset value of, its portfolio securities to be unreasonable or impracticable, or
(iv) for such other periods as the SEC may permit.
For information regarding redemption orders placed through a financial
professional, please see "Financial Professionals" above.
EXCHANGE OF SHARES
An investor may exchange shares from the Fund into shares of any other
J.P. Morgan Institutional Fund or J.P. Morgan Fund without charge. An exchange
may be made so long as after the exchange the investor has shares, in the fund
in which he or she remains an investor, with a value of at least that fund's
minimum investment amount. Shareholders should read the prospectus of the fund
into which they are exchanging and may only exchange between fund accounts that
are registered in the same name, address and taxpayer identification number.
Shares are exchanged on the basis of relative net asset value per share.
Exchanges are in effect redemptions from one fund and purchases of another fund
and the usual purchase and redemption procedures and requirements are applicable
to exchanges. Shareholders subject to federal income tax who exchange shares in
one fund for shares in another fund may recognize capital gain or loss for
federal income tax purposes. Shares of the Fund to be acquired are purchased for
settlement when the proceeds from redemption become available. In the case of
investors in certain states, state securities laws may restrict the availability
of the exchange privilege. The Trust reserves the right to discontinue, alter or
limit the exchange privilege at any time.
DIVIDENDS AND DISTRIBUTIONS
The Fund declares and pays dividends and distributions as described
under "Dividends and Distributions" in the Prospectus.
Dividends and capital gains distributions paid by the Fund are
automatically reinvested in additional shares of the Fund unless the shareholder
has elected to have them paid in cash. Dividends and distributions to be paid in
cash are credited to the shareholder's account at Morgan or at his financial
professional or, in the case of certain Morgan customers, are mailed by check in
accordance with the customer's instructions. The Fund reserve the right to
discontinue, alter or limit the automatic reinvestment privilege at any time.
If a shareholder has elected to receive dividends and/or capital gain
distributions in cash and the postal or other delivery service is unable to
deliver checks to the shareholder's address of record, such shareholder's
distribution option will automatically be converted to having all dividend and
other distributions reinvested in additional shares. No interest will accrue on
amounts represented by uncashed distribution or redemption checks.
NET ASSET VALUE
The Fund computes its net asset value once daily on Monday through
Friday at the time stated in the Prospectus. The net asset value will not be
computed on the day the following legal holidays are observed: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. The Fund and
the Portfolio may also close for purchases and redemptions at such other times
as may be determined by the Board of Trustees to the extent permitted by
applicable law. The days on which net asset value is determined are the Fund's
business days.
The net asset value of the Fund is equal to the value of the Fund's
investment in the Portfolio (which is equal to the Fund's pro rata share of the
total investment of the Fund and of any other investors in the Portfolio less
the Fund's pro rata share of the Portfolio's liabilities) less the Fund's
liabilities. The following is a discussion of the procedures used by the
Portfolio corresponding to the Fund in valuing their assets.
The value of investments listed on a domestic securities exchange, is
based on the last sale prices on such exchange. In the absence of recorded
sales, investments are valued at the average of readily available closing bid
and asked prices on such exchange. Securities listed on a foreign exchange are
valued at the last quoted sale prices on such exchange. Unlisted securities are
valued at the average of the quoted bid and asked prices in the OTC market. The
value of each security for which readily available market quotations exist is
based on a decision as to the broadest and most representative market for such
security. For purposes of calculating net asset value, all assets and
liabilities initially expressed in foreign currencies will be converted into
U.S.
dollars at the prevailing currency exchange rate on the valuation date.
Securities or other assets for which market quotations are not readily
available (including certain restricted and illiquid securities) are valued at
fair value in accordance with procedures established by and under the general
supervision and responsibility of the Trustees. Such procedures include the use
of independent pricing services which use prices based upon yields or prices of
securities of comparable quality, coupon, maturity and type; indications as to
values from dealers; and general market conditions. Short-term investments which
mature in 60 days or less are valued at amortized cost if their original
maturity was 60 days or less, or by amortizing their value on the 61st day prior
to maturity, if their original maturity when acquired by the Portfolio was more
than 60 days, unless this is determined not to represent fair value by the
Trustees.
Trading in securities on most foreign exchanges and OTC markets is
normally completed before the close of trading of the New York Stock Exchange
(normally 4:00 p.m.) and may also take place on days on which the New York Stock
Exchange is closed. If events materially affecting the value of securities occur
between the time when the exchange on which they are traded closes and the time
when a Portfolio's net asset value is calculated, such securities will be valued
at fair value in accordance with procedures established by and under the general
supervision of the Trustees.
PERFORMANCE DATA
From time to time, the Fund may quote performance in terms of actual
distributions, average annual and aggregate total returns or capital
appreciation in reports, sales literature and advertisements published by the
Trust. Shareholders may obtain current performance information by calling the
number provided on the cover page of this Statement of Additional Information.
The Fund may make historical performance information available and may
compare its performance to other investments or relevant indexes, including the
benchmark indicated under "Investment Advisor" above or data from Lipper
Analytical Services, Inc., Micropal Inc., Morningstar Inc., Ibbotson Associates,
Standard & Poor's 500 Composite Stock Price Index, the Dow Jones Industrial
Average, the Frank Russell Index and other industry publications.
Composite performance information shown in the prospectus has been
calculated in accordance with Performance Presentation Standards of the
Association for Investment Management and Research ("AIMR").
Total Return Quotations. As required by regulations of the SEC, the
average annual total return of the Fund for a period is computed by assuming a
hypothetical initial payment of $1,000. It is then assumed that all of the
dividends and distributions by the Fund over the period are reinvested. It is
then assumed that at the end of the period, the entire amount is redeemed. The
average annual total return is then calculated by determining the annual rate
required for the initial payment to grow to the amount which would have been
received upon redemption.
Historical return information for the Fund's predecessor for the period
ended December 31, 1997 is as follows: Average annual total return, 1 year:
22.27%; average annual total return, 5 years: N/A%; average annual total return,
commencement of operations to period end1: 21.89%; aggregate total return, 1
year: 22.27%; aggregate total return, 5 years: N/A%; aggregate total return,
commencement of operations to period end1: 43.90%.
- --------------------------
1 J.P. Morgan Institutional European Equity Fund commenced operations on
February 28, 1996
Aggregate total returns, reflecting the cumulative percentage change
over a measuring period, may also be calculated.
General. The Fund's performance will vary from time to time depending
upon market conditions, the composition of its corresponding Portfolio, and its
operating expenses. Consequently, any given performance quotation should not be
considered representative of the Fund's performance for any specified period in
the future. In addition, because performance will fluctuate, it may not provide
a basis for comparing an investment in the Fund with certain bank deposits or
other investments that pay a fixed yield or return for a stated period of time.
From time to time, the Fund may, in addition to any other permissible
information, include the following types of information in advertisements,
supplemental sales literature and reports to shareholders: (1) discussions of
general economic or financial principles (such as the effects of compounding and
the benefits of dollar-cost averaging); (2) discussions of general economic
trends; (3) presentations of statistical data to supplement such discussions;
(4) descriptions of past or anticipated portfolio holdings for one or more of
the Fund; (5) descriptions of investment strategies for one or more of the Fund;
(6) descriptions or comparisons of various savings and investment products
(including, but not limited to, qualified retirement plans and individual stocks
and bonds), which may or may not include the Fund; (7) comparisons of investment
products (including the Fund) with relevant markets or industry indices or other
appropriate benchmarks; (8) discussions of Fund rankings or ratings by
recognized rating organizations; and (9) discussions of various statistical
methods quantifying the Fund's volatility relative to its benchmark or to past
performance, including risk adjusted measures. The Fund may also include
calculations, such as hypothetical compounding examples, which describe
hypothetical investment results in such communications. Such performance
examples will be based on an express set of assumptions and are not indicative
of the performance of any of the Fund.
PORTFOLIO TRANSACTIONS
The Advisor places orders for the Portfolio for all purchases and sales of
portfolio securities, enters into repurchase agreements, and may enter into
reverse repurchase agreements and execute loans of portfolio securities on
behalf of all Portfolios. See "Investment Objectives and Policies."
Portfolio transactions for a 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 their objectives. See "Investment Objectives and Policies --
Portfolio Turnover".
In connection with portfolio transactions, the overriding objective is
to obtain the best execution of purchase and sales orders.
In selecting a broker, the Advisor considers a number of factors
including: the price per unit of the security; the broker's reliability for
prompt, accurate confirmations and on-time delivery of securities; the firm's
financial condition; as well as the commissions charged. A broker may be paid a
brokerage commission in excess of that which another broker might have charged
for effecting the same transaction if, after considering the foregoing factors,
the Advisor decides that the broker chosen will provide the best execution. The
Advisor monitors the reasonableness of the brokerage commissions paid in light
of the execution received. The Trustees of the Portfolio review regularly the
reasonableness of commissions and other transaction costs incurred by the
Portfolio in light of facts and circumstances deemed relevant from time to time,
and, in that connection, will receive reports from the Advisor and published
data concerning transaction costs incurred by institutional investors generally.
Research services provided by brokers to which the Advisor has allocated
brokerage business in the past include economic statistics and forecasting
services, industry and company analyses, portfolio strategy services,
quantitative data, and consulting services from economists and political
analysts. Research services furnished by brokers are used for the benefit of all
the Advisor's clients and not solely or necessarily for the benefit of an
individual Portfolio. The Advisor believes that the value of research services
received is not determinable and does not significantly reduce its expenses. The
Portfolio does not reduce its fee to the Advisor by any amount that might be
attributable to the value of such services.
The Portfolio or its predecessors paid the following brokerage
commissions for the fiscal periods ended December 1995, 1996, and 1997:
$143,417, $1,189,817 and $1,562,672.
The increases in brokerage commissions reflected above were due to
increased portfolio activity and an increase in net investments by investors in
the Portfolio or its predecessor.
Subject to the overriding objective of obtaining the 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 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.
If the Portfolio that writes options effects a closing purchase
transaction with respect to an option written by it, normally such transaction
will be executed by the same broker-dealer who executed the sale of the option.
The writing of options by a Portfolio will be subject to limitations established
by each of the exchanges governing the maximum number of options in each class
which may be written by a single investor or group of investors acting in
concert, regardless of whether the options are written on the same or different
exchanges or are held or written in one or more accounts or through one or more
brokers. The number of options which a Portfolio may write may be affected by
options written by the Advisor for other investment advisory clients. An
exchange may order the liquidation of positions found to be in excess of these
limits, and it may impose certain other sanctions.
ORGANIZATION
The Trust was organized on November 4, 1992 as an unincorporated
business trust under Massachusetts law and is an entity commonly known as a
"Massachusetts business trust" 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 1, 1998, the name of the Trust was changed from "The
JPM Institutional Funds" to "J.P. Morgan Institutional Funds". Effective January
1, 1998, the name of the Fund was changed from "The JPM Institutional European
Equity Fund" to the "J.P. Morgan Institutional European Equity Fund".
Under Massachusetts law, shareholders of such a trust may, under
certain circumstances, be held personally liable as partners for the obligations
of the trust which is not the case for a corporation. However, the Trust's
Declaration of Trust provides that the shareholders shall not be subject to any
personal liability for the acts or obligations of any Fund and that every
written agreement, obligation, instrument or undertaking made on behalf of any
Fund shall contain a provision to the effect that the shareholders are not
personally liable thereunder.
No personal liability will attach to the shareholders under any
undertaking containing such provision when adequate notice of such provision is
given, except possibly in a few jurisdictions. With respect to all types of
claims in the latter jurisdictions, (i) tort claims, (ii) contract claims where
the provision referred to is omitted from the undertaking, (iii) claims for
taxes, and (iv) certain statutory liabilities in other jurisdictions, a
shareholder may be held personally liable to the extent that claims are not
satisfied by the Fund. However, upon payment of such liability, the shareholder
will be entitled to reimbursement from the general assets of the Fund. The
Trustees intend to conduct the operations of the Trust in such a way so as to
avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the Fund.
The Trust's Declaration of Trust further provides that the name of the
Trust refers to the Trustees collectively as Trustees, not as individuals or
personally, that no Trustee, officer, employee or agent of 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 "Organization."
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).
To date shares of 23 series are currently available for sale to the public. Each
share represents an equal proportional interest in the Fund with each other
share. Upon liquidation of the Fund, holders are entitled to share pro rata in
the net assets of the Fund available for distribution to such shareholders. See
"Organization." Shares of the Fund have no preemptive or conversion rights and
are fully paid and non-assessable. 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 one vote for each dollar
of net asset value (or a proportionate fractional vote in respect of a
fractional dollar amount), on matters on which shares of the Fund shall be
entitled to vote. Subject to the 1940 Act, the Trustees themselves have the
power to alter the number and the terms of office of the Trustees, to lengthen
their own terms, or to make their terms of unlimited duration subject to certain
removal procedures, and appoint their own successors, provided, however, that
immediately after such appointment the requisite majority of the Trustees have
been elected by the shareholders of the Trust. The voting rights of shareholders
are not cumulative so that holders of more than 50% of the shares voting can, if
they choose, elect all Trustees being selected while the shareholders of the
remaining shares would be unable to elect any Trustees. It is the intention of
the Trust not to hold meetings of shareholders annually. The Trustees may call
meetings of shareholders for action by shareholder vote as may be required by
either the 1940 Act or the Trust's Declaration of Trust.
Shareholders of the Trust have the right, upon the declaration in
writing or vote of more than two-thirds of its outstanding shares, to remove a
Trustee. The Trustees will call a meeting of shareholders to vote on removal of
a Trustee upon the written request of the record holders of 10% of the Trust's
shares. In addition, whenever ten or more shareholders of record who have been
such for at least six months preceding the date of application, and who hold in
the aggregate either shares having a net asset value of at least $25,000 or at
least 1% of the Trust's outstanding shares, whichever is less, shall apply to
the Trustees in writing, stating that they wish to communicate with other
shareholders with a view to obtaining signatures to request a meeting for the
purpose of voting upon the question of removal of any Trustee or Trustees and
accompanied by a form of communication and request which they wish to transmit,
the Trustees shall within five business days after receipt of such application
either: (1) afford to such applicants access to a list of the names and
addresses of all shareholders as recorded on the books of the Trust; or (2)
inform such applicants as to the approximate number of shareholders of record,
and the approximate cost of mailing to them the proposed communication and form
of request. If the Trustees elect to follow the latter course, the Trustees,
upon the written request of such applicants, accompanied by a tender of the
material to be mailed and of the reasonable expenses of mailing, shall, with
reasonable promptness, mail such material to all shareholders of record at their
addresses as recorded on the books, unless within five business days after such
tender the Trustees shall mail to such applicants and file with the SEC,
together with a copy of the material to be mailed, a written statement signed by
at least a majority of the Trustees to the effect that in their opinion either
such material contains untrue statements of fact or omits to state facts
necessary to make the statements contained therein not misleading, or would be
in violation of applicable law, and specifying the basis of such opinion. After
opportunity for hearing upon the objections specified in the written statements
filed, the SEC may, and if demanded by the Trustees or by such applicants shall,
enter an order either sustaining one or more of such objections or refusing to
sustain any of them. If the SEC shall enter an order refusing to sustain any of
such objections, or if, after the entry of an order sustaining one or more of
such objections, the SEC shall find, after notice and opportunity for hearing,
that all objections so sustained have been met, and shall enter an order so
declaring, the Trustees shall mail copies of such material to all shareholders
with reasonable promptness after the entry of such order and the renewal of such
tender.
The Trustees have no current intention to create any classes within the
initial series or any subsequent series. The Trustees may, 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 Portfolio 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.
The Portfolio is a series (subtrust) of The Series Portfolio, a trust
organized under the laws of the State of New York. The Series Portfolio's
Declaration of Trust provides that the Fund and other entities investing in the
Portfolio (e.g., other investment companies, insurance company separate accounts
and common and commingled trust funds) will each be liable for all obligations
of the Portfolio. However, the risk of each Fund incurring financial loss on
account of such liability is limited to circumstances in which both inadequate
insurance existed and each respective Portfolio was unable to meet its
obligations. Accordingly, the Trustees of the Trust believe that neither the
Fund nor its shareholders will be adversely affected by reason of the Fund's
investing in the Portfolio.
For information relating to mandatory redemption of Fund shares or
their redemption at the option of the Trust under certain circumstances, see
"Redemption of Shares".
As of March 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 Guaranty Trust Co. of NY as agent for C. Chan Family (36.43%); MGT
Co of NY as agent for P. Ponzek Irrevocable Trust (24.88%); Morgan Guaranty
Trust Co. of NY as agent for J.G. Clarke (9.90%); Morgan Trust Co Florida NA as
agent for J.M. Watkins (8.49%); Morgan Guaranty Trust Co. of NY as agent for B.
Price (8.11%); MGT Co of NY as agent for M.D. Palm (6.84%)
The address of each owner listed above is c/o Morgan, 522 Fifth Avenue,
New York, New York 10036. As of the date of this Statement of Additional
Information, the officers and Trustees as a group owned less than 1% of the
shares of the Fund.
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 Master Portfolio, a separate registered investment
company with the same investment objective and policies as the Fund. Generally,
when a Master Portfolio seeks a vote to change a fundamental 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 for each dollar of net asset value (or a proportionate
fractional vote in respect of a fractional dollar amount), on matters on which
shares of the Fund shall be entitled to vote.
In addition to selling a beneficial interest to the Fund, the Portfolio
may sell beneficial interests to other mutual funds or institutional investors.
Such investors will invest in the Portfolio on the same terms and conditions and
will bear a proportionate share of the Portfolio's expenses. However, the other
investors investing in the Portfolio may sell shares of their own fund using a
different pricing structure than the Fund. Such different pricing structures may
result in differences in returns experienced by investors in other funds that
invest in the Portfolio. Such differences in returns are not uncommon and are
present in other mutual fund structures. Information concerning other holders of
interests in the Portfolio is available from Morgan at (800)766-7722.
The Trust may withdraw the investment of the Fund from the Portfolio at
any time if the Board of Trustees of the Trust determines that it is in the best
interests of the Fund to do so. Upon any such withdrawal, the Board of Trustees
would consider what action might be taken, including the investment of all the
assets of the Fund in another pooled investment entity having the same
investment objective and restrictions in accordance with the investment policies
described below with respect to the Portfolio.
Certain changes in the Portfolio's fundamental investment policies or
restrictions, or a failure by a Fund's shareholders to approve such change in
the Portfolio's investment restrictions, may require withdrawal of the Fund's
interest in the Portfolio. Any such withdrawal could result in a distribution in
kind of portfolio securities (as opposed to a cash distribution) from the
Portfolio which may or may not be readily marketable. The distribution in kind
may result in the Fund having a less diversified portfolio of investments or
adversely affect the Fund's liquidity, and the Fund could incur brokerage, tax
or other charges in converting the securities to cash. Notwithstanding the
above, there are other means for meeting shareholder redemption requests, such
as borrowing.
Smaller funds investing in the Portfolio may be materially affected by
the actions of larger funds investing in the Portfolio. For example, if a large
fund withdraws from the Portfolio, the remaining funds may subsequently
experience higher pro rata operating expenses, thereby producing lower returns.
Additionally, because the Portfolio would become smaller, it may become
less diversified, resulting in potentially increased portfolio risk (however,
these possibilities also exist for traditionally structured funds which have
large or institutional investors who may withdraw from a fund). Also, funds with
a greater pro rata ownership in the Portfolio could have effective voting
control of the operations of the Portfolio. Whenever the Fund is requested to
vote on matters pertaining to the Portfolio (other than a vote by the Fund to
continue the operation of the Portfolio upon the withdrawal of another 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 Fund intends to qualify and remain qualified as a regulated
investment company under Subchapter M of the Code. As a regulated investment
company, the Fund must, among other things, (a) derive at least 90% of its gross
income from dividends, interest, payments with respect to loans of stock and
securities, gains from the sale or other disposition of stock, securities or
foreign currency and other income (including but not limited to gains from
options, futures, and forward contracts) derived with respect to its business of
investing in such stock, securities or foreign currency; and (b) diversify its
holdings so that, at the end of each fiscal quarter of its taxable year, (i) at
least 50% of the value of the Fund's total assets is represented by cash, cash
items, U.S. Government securities, investments in other regulated investment
companies, and other securities limited, in respect of any one issuer, to an
amount not greater than 5% of the Fund's total assets, and 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its total assets is invested in the securities of any one issuer (other
than U.S. Government securities or the securities of other regulated investment
companies).
As a regulated investment company, the Fund (as opposed to its
shareholders) will not be subject to federal income taxes on the net investment
income and capital gains that it distributes to its shareholders, provided that
at least 90% of its net investment income and realized net short-term capital
gains in excess of net long-term capital losses for the taxable year is
distributed in accordance with the Code's timing requirements.
Under the Code, the Fund will be subject to a 4% excise tax on a
portion of its undistributed taxable income and capital gains if it fails to
meet certain distribution requirements by the end of the calendar year. The Fund
intends to make distributions in a timely manner and accordingly does not expect
to be subject to the excise tax.
For federal income tax purposes, dividends that are declared by the
Fund in October, November or December as of a record date in such month and
actually paid in January of the following year will be treated as if they were
paid on December 31 of the year declared. Therefore, such dividends generally
will be taxable to a shareholder in the year declared rather than the year paid.
Distributions of net investment income, certain foreign currency gains,
and realized net short-term capital gain in excess of net long-term capital
losses are generally taxable to shareholders of the Fund as ordinary income
whether such distributions are taken in cash or reinvested in additional shares.
If dividend payments exceed income earned by the Fund, the over distribution
would be considered a return of capital rather than a dividend payment. The Fund
intends to pay dividends in such a manner so as to minimize the possibility of a
return of capital. Distributions of net long-term capital gains (i.e., net
long-term capital gain in excess of net short-term capital losses) 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 Treasury department has
indicated that, under forthcoming regulations, individual shareholders will be
taxed at a maximum 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 they have held their shares in a Fund. The
Japan Equity Fund had a capital loss carryforward at December 31, 1997 of
$406,725. No capital gains distribution is expected to be paid to shareholders
until future gains have been realized in excess of such carryforward.
Gains or losses on sales of portfolio securities will be treated as
long-term capital gains or losses if the securities have been held for more than
one year except in certain cases where, if applicable, a put is acquired or a
call option is written thereon or the straddle rules described below are
otherwise applicable. Other gains or losses on the sale of securities will be
short-term capital gains or losses. Gains and losses on the sale, lapse or other
termination of options on securities will be treated as gains and losses from
the sale of securities. If an option written by the Portfolio lapses or is
terminated through a closing transaction, such as a repurchase by the Portfolio
of the option from its holder, the Portfolio will realize a short-term capital
gain or loss, depending on whether the premium income is greater or less than
the amount paid by the Portfolio in the closing transaction. If securities are
purchased by 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. Investors should thus consider the consequences
of purchasing shares in a fund shortly before the fund declares a sizable
dividend distribution.
Any gain or loss realized on the redemption or exchange of Fund shares
by a shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held for more than one year, and
otherwise as short-term capital gain or loss. As noted above, long-term capital
gain of an individual holder is subject to a maximum tax rate of 28% in respect
of shares held for more than one year. The maximum rate is reduced to 20% in
respect of shares held for more than 18 months. 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. In addition, no loss will be allowed on the redemption or exchange
of shares of the Fund, if within a period beginning 30 days before the date of
such redemption or exchange and ending 30 days after such date, the shareholder
acquires (such as through dividend reinvestment) securities that are
substantially identical to shares of the Fund.
Under the Code, gains or losses attributable to disposition of foreign
currency or to certain foreign currency contracts, or to fluctuations in
exchange rates between the time the Portfolio accrues income or receivables or
expenses or other liabilities denominated in a foreign currency and the time a
Portfolio actually collects such income or pays such liabilities, are generally
treated as ordinary income or ordinary loss. Similarly, gains or losses on the
disposition of debt securities held by the Portfolio, if any, denominated in
foreign currency, to the extent attributable to fluctuations in exchange rates
between the acquisition and disposition dates are also treated as ordinary
income or loss.
The forward currency contracts, options and futures contracts entered
into by a Portfolio may create "straddles" for U.S. federal income tax purposes
and this may affect the character and timing of gains or losses realized by the
Portfolio on forward currency contracts, options and futures contracts or on the
underlying securities.
Certain options, futures and foreign currency contracts held by the
Portfolio at the end of each taxable year will be required to be "marked to
market" for federal income tax purposes -- i.e., treated as having been sold at
market value. For options and futures contracts, 60% of any gain or loss
recognized on these deemed sales and on actual dispositions will be treated as
long-term capital gain or loss, and the remainder will be treated as short-term
capital gain or loss regardless of how long the Portfolio has held such options
or futures. However, gain or loss recognized on certain foreign currency
contracts will be treated as ordinary income or loss.
The Fund may invest in Equity Securities of foreign issuers. If a
Portfolio purchases shares in certain foreign corporations (referred to as
passive foreign investment companies ("PFICs") under the Code), the
corresponding fund may be subject to federal income tax on a portion of an
"excess distribution" from such foreign corporation, including any gain from the
disposition of such shares, even though a portion of such income may have to be
distributed as a taxable dividend by the Fund to its shareholders. In addition,
certain interest charges may be imposed on the Fund as a result of such
distributions. Alternatively, the Fund may in some cases be permitted to include
each year in its income and distribute to shareholders a pro rata portion of the
foreign investment fund's income, whether or not distributed to the Fund.
For taxable years of the Portfolio beginning after 1997, the Portfolio
will be permitted to "mark to market" any marketable stock held by a Portfolio
in a PFIC. If the Portfolio made such an election, the corresponding Fund would
include in income each year an amount equal to its share of the excess, if any,
of the fair market value of the PFIC stock as of the close of the taxable year
over the adjusted basis of such stock. The Fund would be allowed a deduction for
its share of the excess, if any, of the adjusted basis of the PFIC stock over
its fair market value as of the close of the taxable year, but only to the
extent of any net mark-to-market gains with respect to the stock included by the
Fund for prior taxable years.
Foreign Shareholders. Dividends of net investment income and
distributions of realized net short-term gain in excess of net long-term loss to
a shareholder who, as to the United States, is a nonresident alien individual,
fiduciary of a foreign trust or estate, foreign corporation or foreign
partnership (a "foreign shareholder") will be subject to U.S. withholding tax at
the rate of 30% (or lower treaty rate) unless the dividends are effectively
connected with a U.S. trade or business of the shareholder, in which case the
dividends will be subject to tax on a net income basis at the graduated rates
applicable to U.S. individuals or domestic corporations. Distributions treated
as long term capital gains to foreign shareholders will not be subject to U.S.
tax unless the distributions are effectively connected with the shareholder's
trade or business in the United States or, in the case of a shareholder who is a
nonresident alien individual, the shareholder was present in the United States
for more than 182 days during the taxable year and certain other conditions are
met.
If a correct and certified taxpayer identification number is not on
file, the Fund is required, subject to certain exemptions, to withhold 31% of
certain payments made or distributions declared to non-corporate shareholders.
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.
Foreign Taxes. It is expected that the Fund may be subject to foreign
withholding taxes or other foreign taxes with respect to income (possibly
including, in some cases, capital gains) received from sources within foreign
countries. So long as more than 50% in value of the total assets of the Fund
(including its share of the assets of the corresponding Portfolio) at the close
of any taxable year consists of stock or securities of foreign corporations, the
Fund may elect to treat any foreign income taxes deemed paid by it as paid
directly by its shareholders. The Fund will make such an election only if it
deems it to be in the best interest of its shareholders. The Fund will notify
its shareholders in writing each year if it makes the election and of the amount
of foreign income taxes, if any, to be treated as paid by the shareholders and
the amount of foreign taxes, if any, for which shareholders of the Fund will not
be eligible to claim a foreign tax credit because the holding period
requirements (described below) have not been satisfied. If the Fund makes the
election, each shareholder will be required to include in his income (in
addition to the dividends and distributions he receives) his proportionate share
of the amount of foreign income taxes deemed paid by the Fund and will be
entitled to claim either a credit (subject to the limitations discussed below)
or, if he itemizes deductions, a deduction for his share of the foreign income
taxes in computing federal income tax liability. (No deduction will be permitted
in computing an individual's alternative minimum tax liability.) Effective for
dividends paid after September 5, 1997, shareholders of the Fund will not be
eligible to claim a foreign tax credit with respect to taxes paid by the Fund
(notwithstanding that the Fund elects to treat the foreign taxes deemed paid by
it as paid directly by its shareholders) unless certain holding period
requirements are met. A shareholder who is a nonresident alien individual or a
foreign corporation may be subject to U.S. withholding tax on the income
resulting from the election described in this paragraph, but may not be able to
claim a credit or deduction against such U.S. tax for the foreign taxes treated
as having been paid by such shareholder. A tax-exempt shareholder will not
ordinarily benefit from this election. Shareholders who choose to utilize a
credit (rather than a deduction) for foreign taxes will be subject to the
limitation that the credit may not exceed the shareholder's U.S. tax (determined
without regard to the availability of the credit) attributable to his or her
total foreign source taxable income. For this purpose, the portion of dividends
and distributions paid by the Fund from its foreign source net investment income
will be treated as foreign source income. The Fund's gains and losses from the
sale of securities will generally be treated as derived from U.S. sources,
however, and certain foreign currency gains and losses likewise will be treated
as derived from U.S. sources. The limitation on the foreign tax credit is
applied separately to foreign source "passive income," such as the portion of
dividends received from the Fund which qualifies as foreign source income. In
addition, the foreign tax credit is allowed to offset only 90% of the
alternative minimum tax imposed on corporations and individuals. Because of
these limitations, if the election is made, shareholders may nevertheless be
unable to claim a credit for the full amount of their proportionate shares of
the foreign income taxes paid by the Fund. Effective for taxable years of a
shareholder beginning after December 31, 1997, individual shareholders of the
Fund with $300 or less of creditable foreign taxes ($600 in the case of an
individual shareholder filing jointly) may elect to be exempt from the foreign
tax credit limitation rules described above (other than the 90% limitation
applicable for purposes of the alternative minimum tax), provided that all of
such individual shareholder's foreign source income is "qualified passive
income" (which generally includes interest, dividends, rents, royalties and
certain other types of income) and further provided that all of such foreign
source income is shown on one or more payee statements furnished to the
shareholder. Shareholders making this election will not be permitted to carry
over any excess foreign taxes to or from a tax year to which such an election
applies.
State and Local Taxes. The Fund may be subject to state or local taxes
in jurisdictions in which the Fund is deemed to be doing business. In addition,
the treatment of 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 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, J.P. Morgan or a Financial Professional as
shareholder servicing agent may be tape recorded. With respect to the securities
offered hereby, this Statement of Additional Information and the Prospectus do
not contain all the information included in the Trust's registration statement
filed with the SEC under the 1933 Act and the 1940 Act and the Portfolio's
registration statements filed under the 1940 Act. Pursuant to the rules and
regulations of the SEC, certain portions have been omitted. The registration
statements including the exhibits filed therewith may be examined at the office
of the SEC in Washington, D.C.
Statements contained in this Statement of Additional Information and
the Prospectus concerning the contents of any contract or other document are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the applicable
Registration Statements.
Each such statement is qualified in all respects by such reference.
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in the
Prospectus and this Statement of Additional Information, in connection with the
offer contained therein and, if given or made, such other information or
representations must not be relied upon as having been authorized by any of the
Trust, the Fund or the Distributor. The Prospectus and this Statement of
Additional Information do not constitute an offer by 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.
The Year 2000 Initiative
With the new millennium rapidly approaching, organizations are
examining their computer systems to ensure they are year 2000 compliant. The
issue, in simple terms, is that many existing computer systems use only two
numbers to identify a year in the date field with the assumption that the first
two digits are always 19. As the century is implied in the date, on January 1,
2000, computers that are not year 2000 compliant will assume the year is 1900.
Systems that calculate, compare, or sort using the incorrect date will cause
erroneous results, ranging from system malfunctions to incorrect or incomplete
transaction processing. If not remedied, potential risks include business
interruption or shutdown, financial loss, reputation loss, and/or legal
liability.
J.P. Morgan has undertaken a firmwide initiative to address the year
2000 issue and has developed a comprehensive plan to prepare, as appropriate,
its computer systems. Each business line has taken responsibility for
identifying and fixing the problem within its own area of operation and for
addressing all interdependencies. A multidisciplinary team of internal and
external experts supports the business teams by providing direction and firmwide
coordination. Working together, the business and multidisciplinary teams have
completed a thorough education and awareness initiative and a global inventory
and assessment of J.P. Morgan's technology and application portfolio to
understand the scope of the year 2000 impact at J.P. Morgan. J.P. Morgan
presently is renovating and testing these technologies and applications in
partnership with external consulting and software development organizations, as
well as with year 2000 tool providers. J.P. Morgan is on target with its plan to
substantially complete renovation, testing, and validation of its key systems by
year-end 1998 and to participate in industry-wide testing (or streetwide
testing) in 1999. J.P. Morgan is also working with key external parties,
including clients, counterparties, vendors, exchanges, depositories, utilities,
suppliers, agents and regulatory agencies, to stem the potential risks the year
2000 problem poses to J.P. Morgan and to the global financial community.
Costs associated with efforts to prepare J.P. Morgan's systems for the
year 2000 approximated $95 million in 1997. In 1998, J.P. Morgan will continue
its efforts to prepare its systems for the year 2000. The total cost to become
year-2000 compliant is estimated at $250 million, for internal systems
renovation and testing, testing equipment, and both internal and external
resources working on the project. Remaining costs will be incurred primarily in
1998. The costs associated with J.P. Morgan becoming year-2000 compliant will be
borne by J.P. Morgan and not the Fund nor the Portfolio.
The Euro
Effective January 1, 1999 the euro, a single multinational currency, will
replace the national currencies of certain countries in the Economic Monetary
Union (EMU). Conversion rates among EMU countries will be fixed on December 31,
1998, however, existing currencies will still be used through July 1, 2002.
During this transition period, transactions may be settled in either euro or
existing currencies, but financial markets and payment systems are expected to
use the euro exclusively. Beginning January 1, 1999, J.P. Morgan intends to
conduct and settle all fund transactions, where appropriate, in the euro.
J.P. Morgan has identified the following potential risks to the Fund,
after the conversion: The risk that valuation of assets are not properly
redenominated; currency risk resulting from increased volatility in exchange
rates between EMU countries and non-participating countries; the inability any
of the Funds, their service providers and the issuers of the Fund's portfolio
securities to make information technology updates timely; and the potential
unenforceability of contracts. There have been recent laws and regulations
designed to ensure the continuity of contracts, however there is a risk that the
valuation of contracts will be negatively impacted after the Fund's conversion.
J.P. Morgan is working to avoid these problems and to obtain assurances from
other service providers that they are taking similar steps. However, it is not
certain that these actions will be sufficient to prevent problems associated
with the conversion from adversely impacting fund operations and shareholders.
The I.R.S has concluded that euro conversion will not cause a U.S.
taxpayer to realize gain or loss to the extent taxpayer's rights and obligations
are altered solely by reason of the conversion.
FINANCIAL STATEMENTS
The following financial statements and the reports thereon of
PricewaterhouseCoopers LLP of the European Equity Fund are incorporated herein
by reference to 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
J.P. Morgan Funds Services at (800) 766-7722. The Fund's financial statements
include the financial statements of the Fund's Portfolio.
- ------------------------------------------------- -----------------------------
Date of Annual Report; Date
Annual Report Filed; and
Accession Number
Name of Fund
- ------------------------------------------------- -----------------------------
- ------------------------------------------------- -----------------------------
J.P. Morgan Institutional European Equity Fund 12/31/97;
3/3/98
0001047469-98-008431
- ------------------------------------------------- -----------------------------
<PAGE>
APPENDIX A
Description of Security Ratings
STANDARD & POOR'S
Corporate and Municipal Bonds
AAA - Debt rated AAA have the highest ratings assigned by Standard & Poor's to a
debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA - Debt rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in a small degree.
A - Debt rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB - Debt rated BBB are regarded as having an adequate capacity to pay interest
and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.
BB - Debt rated BB are regarded as having less near-term vulnerability to
default than other speculative issues. However, they face major ongoing
uncertainties or exposure to adverse business, financial or economic conditions
which could lead to inadequate capacity to meet timely interest and principal
payments.
B - An obligation rated B is more vulnerable to nonpayment than obligations
rated BB, but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
CCC - An obligation rated CCC is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
CC - An obligation rated CC is currently highly vulnerable to nonpayment.
C - The C rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments on this obligation
are being continued.
Commercial Paper, including Tax Exempt
A -- Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined with
the designations 1, 2, and 3 to indicate the relative degree of safety.
A-1 -- This designation indicates that the degree of safety regarding timely
payment is very strong.
Short-Term Tax-Exempt Notes
SP-1 -- The short-term tax-exempt note rating of SP-1 is the highest rating
assigned by Standard & Poor's and has a very strong or strong capacity to pay
principal and interest. Those issues determined to possess overwhelming safety
characteristics are given a "plus" (+) designation.
SP-2 - The short-term tax-exempt note rating of SP-2 has a satisfactory capacity
to pay principal and interest.
MOODY'S
Corporate and Municipal Bonds
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
<PAGE>
C - Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Commercial Paper, including Tax Exempt
Prime-1 - Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
- - Leading market positions in well established industries.
- - High rates of return on funds employed.
- - Conservative capitalization structures with moderate reliance on debt and
ample asset protection. - Broad margins in earnings coverage of fixed financial
charges and high internal cash generation. - Well established access to a range
of financial markets and assured sources of alternate liquidity.
Short-Term Tax Exempt Notes
MIG-1 - The short-term tax-exempt note rating MIG-1 is the highest rating
assigned by Moody's for notes judged to be the best quality. Notes with this
rating enjoy strong protection from established cash flows of funds for their
servicing or from established and broad-based access to the market for
refinancing, or both.
MIG-2 - MIG-2 rated notes are of high quality but with margins of protection not
as large as MIG-1.
- -------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
FEBRUARY 2, 1998 |
AS REVISED | PROSPECTUS
OCTOBER 1, 1998 |
================================================================================
J.P. MORGAN INSTITUTIONAL
PRIME MONEY MARKET FUND
===========================================
Seeking to provide high current income
consistent with the preservation of capital
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>
CONTENTS
<TABLE>
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<S> <C> <C>
3 | MONEY MARKET MANAGEMENT APPROACH
Money market investment process.............................................3
4 | J.P. MORGAN INSTITUTIONAL PRIME MONEY MARKET FUND
Fund description ...........................................................4
The fund's goal, investment approach,
risks, expenses, performance, and Investor expenses ..........................................................4
financial highlights
Performance ................................................................5
Financial highlights .......................................................5
6 | YOUR INVESTMENT
Investing through a financial professional .................................6
Investing in the J.P. Morgan Institutional
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
business operations Management and administration ..............................................9
FOR MORE INFORMATION ...............................................back cover
</TABLE>
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INTRODUCTION
================================================================================
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 $275 billion in assets under management,
including assets managed by the fund's advisor, J.P. Morgan Investment
Management Inc.
========================================
Before you invest
Investors considering the fund should
understand that:
o 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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2 |
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<PAGE>
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
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 short-term debt market, such as
sectors for diversification and corporate, bank and U.S. government
to take advantage of yield spreads obligations, allows J.P. Morgan to
adjust the fund's sector allocation,
with the goal of enhancing current
income while also maintaining exposure
to different types of securities and
diversification across sectors.
[GRAPHIC] Security selection Based on the results
of the firm's credit research and the
The fund selects its securities fund's maturity determination and sector
as described later in this allocation, the portfolio managers and
prospectus dedicated fixed-income traders make buy
and sell decisions according to the
fund's goal and strategy.
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MONEY MARKET MANAGEMENT APPROACH | 3
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<PAGE>
J.P. MORGAN INSTITUTIONAL PRIME
MONEY MARKET FUND | TICKER SYMBOL: JPIXX
================================================================================
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 consistent with the
preservation of capital and same-day liquidity. This goal can be changed without
shareholder approval.
[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 3.
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
desires. 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 $275 billion, including more than $12 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 0.12
Marketing (12b-1) fees None
Other expenses(2)
(after reimbursement) 0.08
================================================================================
Total operating expenses(2)
(after reimbursement) 0.20
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<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 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.(3) 10 yrs.(3)
<S> <C> <C> <C>
J.P. Morgan Institutional Prime Money Market Fund (after expenses) 5.60 4.80 5.81
- ------------------------------------------------------------------------------------------------------------------------------------
IBC's First Tier Money Fund Average(4)(after expenses) 5.04 4.36 5.45
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[THE FOLLOWING TABLE WAS REPRESENTED BY 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 Prime Money 7.38 9.13 8.04 6.07 3.67 2.87 4.15 5.98 5.41 5.60
Market Fund
- ------------------------------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
====================================================================================================================================
FINANCIAL HIGHLIGHTS
==================================
Per-share data For fiscal periods ended November 30
==================================--------------------------------------------------------------------------------------------------
1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ($) 1.00 1.00 1.00 1.00 1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.0120 0.0385 0.0577 0.0529 0.0543
Net realized and unrealized gain (loss)
on investment ($) (0.0000)(5) (0.0000)(5) 0.0003 0.0001 (0.0000)(5)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations ($) 0.0120 0.0385 0.0580 0.0530 0.0543
- ------------------------------------------------------------------------------------------------------------------------------------
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)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions ($) (0.0120) (0.0385) (0.0577) (0.0532) (0.0546)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period ($) 1.00 1.00 1.00 1.00 1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Total return (%) 1.21(6) 3.92 5.93 5.46 5.59
- ------------------------------------------------------------------------------------------------------------------------------------
==================================
Ratios and supplemental data
==================================--------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 27,188 584,867 999,746 1,220,401 1,387,792
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Expenses (%) 0.30(7) 0.21 0.20 0.20 0.20
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (%) 2.88(7) 4.42 5.77 5.28 5.42
- ------------------------------------------------------------------------------------------------------------------------------------
Decrease reflected in expense ratio due
to expense reimbursement (%) 1.10(7) 0.31 0.15 0.11 0.09
- ------------------------------------------------------------------------------------------------------------------------------------
The Financial Highlights above have been audited by PricewaterhouseCoopers 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 0.20%.
(2) Without reimbursement, other expenses and total operating expenses would
have been 0.17% and 0.29%, respectively. There is no guarantee that
reimbursement will continue beyond 3/31/99. Other expenses and total
operating expenses do not reflect the effect of the increase in the
shareholder servicing fee, from 0.05% to 0.10%, that took affect on August
1, 1998.
(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.
|
J.P. MORGAN INSTITUTIONAL 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 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 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>
<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 full or
fractional vote for each dollar or fraction of a dollar invested.
The fund and its master portfolio expect to maintain consistent goals, but if
they do not, the fund will withdraw from the master portfolio, receiving its
assets either in cash or securities. The fund's trustees would then consider
whether the fund should hire its own investment adviser, invest in a different
master portfolio, or take other action.
MANAGEMENT AND ADMINISTRATION
The fund and its master portfolio are governed by the same trustees. The
trustees are responsible for overseeing all business activities. The trustees
are assisted by Pierpont Group, Inc., which they own and operate on a cost
basis; costs are shared by all funds governed by these trustees. Funds
Distributor, Inc., as co-administrator, along with J.P. Morgan, provides fund
officers. J.P. Morgan, as co-administrator, oversees the fund's other service
providers.
J.P. Morgan receives the following fees for investment advisory and other
services:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Advisory services 0.20% of the first $1 billion of the
master portfolio's average net assets
plus 0.10% over $1 billion
- --------------------------------------------------------------------------------
<S> <C>
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 0.10% 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 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.
Year 2000 Fund operations and shareholders could be adversely affected if the
computer systems used by J.P. Morgan, the fund's other service providers and
other entities with computer systems linked to the fund do not properly process
and calculate January 1, 2000 and after date-related information. J.P. Morgan is
working to avoid these problems and to obtain assurances from other service
providers that they are taking similar steps. However, it is not certain that
these actions will be sufficient to prevent these date-related problems from
adversely impacting fund operations and shareholders. In addition, to the extent
that operations of issuers of securities held by the fund are impaired by
date-related problems or prices of securities decline as a result of real or
perceived date-related problems of issuers held by the fund or generally, the
net asset value of the fund will decline.
|
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, along with other information
about the fund, 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, upon
payment of a duplicating fee, from the Public Reference Room of the Securities
and Exchange Commission in Washington, D.C. (1-800-SEC-0330) and may be viewed
on-screen or downloaded from the SEC's Internet site at http://www.sec.gov. The
fund's investment company and 1933 Act registration numbers are 811-07342 and
033-54642.
J.P. MORGAN INSTITUTIONAL FUNDS AND THE MORGAN TRADITION
The J.P. Morgan Institutional Funds combine a heritage of integrity and
financial leadership with comprehensive, sophisticated analysis and management
techniques. Drawing on J.P. Morgan's extensive experience and depth as an
investment manager, the J.P. Morgan Institutional Funds offer a broad array of
distinctive opportunities for mutual fund investors.
[LOGO] JPMorgan
================================================================================
J.P. Morgan Institutional Funds
Advisor Distributor
J.P. Morgan Investment Management Inc. Funds Distributor, Inc.
522 Fifth Avenue 60 State Street
New York, NY 10036 Boston, MA 02109
1-800-766-7722 1-800-221-7930
PROS390-9810
- -------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
FEBRUARY 2, 1998 |
AS REVISED | PROSPECTUS
OCTOBER 1, 1998 |
================================================================================
J.P. MORGAN INSTITUTIONAL
FEDERAL MONEY MARKET FUND
===========================================
Seeking to provide high current income
consistent with the preservation of capital
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>
CONTENTS
<TABLE>
====================================================================================================================================
<S> <C> <C>
3 | MONEY MARKET MANAGEMENT APPROACH
Money market investment process ....................................................3
4 | J.P. MORGAN INSTITUTIONAL FEDERAL 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 financial professional .........................................6
Investing in the J.P. Morgan Institutional
Federal 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
business operations Management and administration ......................................................9
FOR MORE INFORMATION ......................................................back cover
</TABLE>
|
| 1
|
<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 $275 billion in assets under management,
including assets managed by the fund's advisor, J.P. Morgan Investment
Management Inc.
========================================
Before you invest
Investors considering the fund should
understand that:
o 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
========================================
|
2 |
|
<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,
J.P. Morgan uses a disciplined process including current yields,
to control the fund's sensitivity economic forecasts, and
to interest rates anticipated fiscal and monetary
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.
Sector allocation Analysis of the
yields available from various
U.S. government agency securities
[GRAPHIC] and obligations of the U.S.
Treasury, allows J.P. Morgan to
The fund invests in various U.S. government adjust the fund's sector
agencies and obligations of the U.S. Treasury allocation, with the goal of
to take advantage of yield spreads enhancing current income while
maintaining high liquidity.
Security selection Based on the
results of the fund's maturity
determination and sector
allocation, the portfolio
[GRAPHIC] managers and dedicated
fixed-income traders make buy and
The fund selects its securities as sell decisions according to the
described later in this prospectus fund's goal and strategy.
|
MONEY MARKET MANAGEMENT APPROACH | 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 high current income consistent with the
preservation of capital and same-day liquidity. This goal can be changed without
shareholder approval.
[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 3.
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 $275 billion, including more than $12 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 expenses(2)
(after reimbursement) 0.20
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<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 MARKET 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(3) (after expenses) 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 REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL]
<TABLE>
==================================--------------------------------------------------------------------------------------------------
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) 3.55 5.19 4.67 4.83
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
====================================================================================================================================
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 (%) 2.81(7) 3.81 5.56 5.09 5.19
- ------------------------------------------------------------------------------------------------------------------------------------
Decrease reflected in expense ratio due
to expense reimbursement (%) 0.76(7) 0.47 0.31 0.26 0.26
- ------------------------------------------------------------------------------------------------------------------------------------
The Financial Highlights above have been audited by PricewaterhouseCoopers 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 0.20%.
(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. Other expenses
and total operating expenses do not reflect the effect of the increase in
the shareholder servicing fee, from 0.05% to 0.10%, that took affect on
August 1, 1998.
(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 full or
fractional vote for each dollar or fraction of a dollar invested.
The fund and its master portfolio expect to maintain consistent goals, but if
they do not, the fund will withdraw from the master portfolio, receiving its
assets either in cash or securities. The fund's trustees would then consider
whether the fund should hire its own investment adviser, invest in a different
master portfolio, or take other action.
MANAGEMENT AND ADMINISTRATION
The fund and its master portfolio are governed by the same trustees. The
trustees are responsible for overseeing all business activities. The trustees
are assisted by Pierpont Group, Inc., which they own and operate on a cost
basis; costs are shared by all funds governed by these trustees. Funds
Distributor, Inc., as co-administrator, along with J.P. Morgan provides fund
officers. J.P. Morgan, as co-administrator, oversees the fund's other service
providers.
J.P. Morgan 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 0.10% 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.
Year 2000 Fund operations and shareholders could be adversely affected if the
computer systems used by J.P. Morgan, the fund's other service providers and
other entities with computer systems linked to the fund do not properly process
and calculate January 1, 2000 and after date-related information. J.P. Morgan is
working to avoid these problems and to obtain assurances from other service
providers that they are taking similar steps. However, it is not certain that
these actions will be sufficient to prevent these date-related problems from
adversely impacting fund operations and shareholders. In addition, to the extent
that operations of issuers of securities held by the fund are impaired by
date-related problems or prices of securities decline as a result of real or
perceived date-related problems of issuers held by the fund or generally, the
net asset value of the fund will decline.
|
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, along with other information
about the fund, 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, upon
payment of a duplicating fee, from the Public Reference Room of the Securities
and Exchange Commission in Washington, D.C. (1-800-SEC-0330) and may be viewed
on-screen or downloaded from the SEC's Internet site at http://www.sec.gov. The
fund's investment company and 1933 Act registration numbers are 811-07342 and
033-54642.
J.P. MORGAN INSTITUTIONAL FUNDS AND THE MORGAN TRADITION
The J.P. Morgan Institutional Funds combine a heritage of integrity and
financial leadership with comprehensive, sophisticated analysis and management
techniques. Drawing on J.P. Morgan's extensive experience and depth as an
investment manager, the J.P. Morgan Institutional Funds offer a broad array of
distinctive opportunities for mutual fund investors.
[LOGO] JPMorgan
================================================================================
J.P. Morgan Institutional Funds
Advisor Distributor
J.P. Morgan Investment Management Inc. Funds Distributor, Inc.
522 Fifth Avenue 60 State Street
New York, NY 10036 Boston, MA 02109
1-800-766-7722 1-800-221-7930
PROS373-9810
- -------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
FEBRUARY 2, 1998 |
AS REVISED | PROSPECTUS
OCTOBER 1, 1998 |
================================================================================
J.P. MORGAN INSTITUTIONAL
TREASURY MONEY MARKET FUND
===========================================
Seeking to provide high current income
consistent with the preservation of capital
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>
CONTENTS
<TABLE>
====================================================================================================================================
<S> <C> <C>
3 | MONEY MARKET MANAGEMENT APPROACH
Money market investment process.............................................3
4 | J.P. MORGAN INSTITUTIONAL TREASURY MONEY MARKET FUND
Fund description ...........................................................4
The fund's goal, investment approach,
risks, expenses, performance, and Investor expenses ..........................................................4
financial highlights
Performance ................................................................5
Financial highlights .......................................................5
6 | YOUR INVESTMENT
Investing through a financial professional .................................6
Investing in the J.P. Morgan Institutional
Treasury 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
business operations Management and administration ..............................................9
FOR MORE INFORMATION ...............................................back cover
</TABLE>
|
| 1
|
<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 $275 billion in assets under management,
including assets managed by the fund's advisor, J.P. Morgan Investment
Management Inc.
========================================
Before you invest
Investors considering the fund should
understand that:
o 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
- ----------------------------------------
|
2 |
|
<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 of allocation, with the goal of enhancing
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 sector allocation, the portfolio
as described later in this managers and dedicated fixed-income
prospectus traders make buy and sell decisions
according to the fund's goal and
strategy.
|
MONEY MARKET MANAGEMENT APPROACH | 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 high current income consistent with the
preservation of capital and same-day liquidity. This goal can be changed without
shareholder approval.
[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 3.
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 $275 billion, including more than $12 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(2)
(after expense reimbursement) 0.11
Marketing (12b-1) fees None
Other expenses(2)
(after reimbursement) None
================================================================================
Total operating expenses(2)
(after reimbursement) 0.11
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
================================================================================
Expense example
================================================================================
The example below uses the same assumptions as other fund prospectuses: $1,000
initial investment, 5% annual total return, expenses unchanged, all shares sold
at the end of each time period. The example is for comparison only; the fund's
actual return and expenses will be different.
- --------------------------------------------------------------------------------
1 yr. 3 yrs.
<S> <C> <C>
Your cost($) 1 6
- --------------------------------------------------------------------------------
</TABLE>
|
4 | J.P. MORGAN INSTITUTIONAL 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(3)
<S> <C>
J.P. Morgan Institutional Treasury Money Market Fund (after expenses) 2.35
- ------------------------------------------------------------------------------------------------------------------------------------
IBC's U.S. Treasury & Repo Money Fund Average 2.00
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[THE FOLLOWING TABLE WAS REPRESENTED BY 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 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 PricewaterhouseCoopers LLP, the fund's independent accountants.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The fund has a master/feeder structure as described on page 9. Due to the
fund's blended expense limitation (as described in footnote 2), this table
shows the fund's expenses and its share of master portfolio expenses for
the current fiscal year ending 10/31/98, expressed as a percentage of the
fund's average net assets after reimbursement for ordinary expenses over
0.11%.
(2) The total operating expenses for the fund is subject to a blended expense
limitation which requires various reimbursements through 10/31/98 (see
"Management and Administration")and may not necessarily represent the
actual amount incurred by a shareholder. Without reimbursement, the
advisory fee, other expenses and total operating expenses are estimated to
be 0.20%, 0.22% and 0.42%, respectively for the current fiscal year. There
is no guarantee that reimbursement will continue beyond 2/28/99. Other
expenses and total operating expenses do not reflect the effect of the
increase in the shareholder servicing fee, from 0.05% to 0.10%, that took
affect on August 1, 1998.
(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 4:30 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 4:30 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 4:30 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 4:30 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 full or
fractional vote for each dollar or fraction of a dollar invested.
The fund and its master portfolio expect to maintain consistent goals, but if
they do not, the fund will withdraw from the master portfolio, receiving its
assets either in cash or securities. The fund's trustees would then consider
whether the fund should hire its own investment adviser, invest in a different
master portfolio, or take other action.
MANAGEMENT AND ADMINISTRATION
The fund and its master portfolio are governed by the same trustees. The
trustees are responsible for overseeing all business activities. The trustees
are assisted by Pierpont Group, Inc., which they own and operate on a cost
basis; costs are shared by all funds governed by these trustees. Funds
Distributor, Inc., as co-administrator, along with J.P. Morgan, provides fund
officers. J.P. Morgan, as co-administrator, oversees the fund's other service
providers.
J.P. Morgan 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 0.10% 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 - 7/31/98 0.10%
8/1/98 - 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.
Year 2000 Fund operations and shareholders could be adversely affected if the
computer systems used by J.P. Morgan, the fund's other service providers and
other entities with computer systems linked to the fund do not properly process
and calculate January 1, 2000 and after date-related information. J.P. Morgan is
working to avoid these problems and to obtain assurances from other service
providers that they are taking similar steps. However, it is not certain that
these actions will be sufficient to prevent these date-related problems from
adversely impacting fund operations and shareholders. In addition, to the extent
that operations of issuers of securities held by the fund are impaired by
date-related problems or prices of securities decline as a result of real or
perceived date-related problems of issuers held by the fund or generally, the
net asset value of the fund will decline.
|
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, along with other information
about the fund, 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, upon
payment of a duplicating fee, from the Public Reference Room of the Securities
and Exchange Commission in Washington, D.C. (1-800-SEC-0330) and may be viewed
on-screen or downloaded from the SEC's Internet site at http://www.sec.gov. The
fund's investment company and 1933 Act registration numbers are 811-07342 and
033-54642.
J.P. MORGAN INSTITUTIONAL FUNDS AND THE MORGAN TRADITION
The J.P. Morgan Institutional Funds combine a heritage of integrity and
financial leadership with comprehensive, sophisticated analysis and management
techniques. Drawing on J.P. Morgan's extensive experience and depth as an
investment manager, the J.P. Morgan Institutional Funds offer a broad array of
distinctive opportunities for mutual fund investors.
[LOGO] JPMorgan
================================================================================
J.P. Morgan Institutional Funds
Advisor Distributor
J.P. Morgan Investment Management Inc. Funds Distributor, Inc.
522 Fifth Avenue 60 State Street
New York, NY 10036 Boston, MA 02109
1-800-766-7722 1-800-221-7930
PROS365-9810
- -------------------------------------------------------------------------------
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
AS REVISED
OCTOBER 1, 1998
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT CONTAINS
ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS
DATED FEBRURARY 2, 1998 AS REVISED OCTOBER 1, 1998 FOR THE FUND OR FUNDS LISTED
ABOVE, AS SUPPLEMENTED FROM TIME TO TIME. ADDITIONALLY, THIS STATEMENT OF
ADDITIONAL INFORMATION INCORPORATES BY REFERENCE THE FINANCIAL STATEMENTS
INCLUDED IN THE SHAREHOLDER REPORTS RELATING TO THE FUNDS LISTED ABOVE. THE
PROSPECTUS AND THESE FINANCIAL STATEMENTS FOR THE FUNDS LISTED ABOVE, INCLUDING
THE AUDITOR'S REPORT THEREON, ARE AVAILABLE, WITHOUT CHARGE, UPON REQUEST FROM
FUNDS DISTRIBUTOR, INC., ATTENTION: J.P. MORGAN INSTITUTIONAL FUNDS (800)
221-7930.
<PAGE>
Table of Contents
Page
General................................................1
Investment Objectives and Policies.....................1
Investment Restrictions................................9
Trustees and Officers.................................13
Investment Advisor....................................18
Distributor...........................................20
Co-Administrator......................................20
Services Agent........................................22
Custodian and Transfer Agent..........................23
Shareholder Servicing.................................23
Financial Professionals. . . . . . . . . . . . . . . .24
Independent Accountants................................25
Expenses...............................................25
Purchase of Shares.....................................25
Redemption of Shares...................................26
Exchange of Shares.....................................27
Dividends and Distributions............................27
Net Asset Value........................................27
Performance Data.......................................28
Portfolio Transactions.................................30
Massachusetts Trust....................................31
Description of Shares..................................32
Special Information Concerning
Investment Structure. . . . . . . . . . . . . . . . . .34
Taxes..................................................35
Additional Information.................................38
Appendix A - Description of Security Ratings..........A-1
<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 J.P. Morgan Investment Management Inc.
("JPMIM" or the "Advisor").
Investments in a Fund are not deposits or obligations of, or guaranteed
or endorsed by, Morgan Guaranty Trust Company of New York, ("Morgan"), an
affiliate of the Advisor or any other bank. Shares of 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 high current income consistent
with the preservation of capital and same-day liquidity from a portfolio of high
quality money market instruments. The Prime Money Market Fund's investment
objective is to maximize current income consistent with the preservation of
capital and same day 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 Treasury Money Market Fund (the "Treasury
Money Market Fund") is designed for investors who seek high current income
consistent with the preservation of capital and same-day liquidity from a
portfolio of high quality money market instruments. The Treasury Money Market
Fund's investment objective is to provide current income, consistent with the
preservation of capital and same-day liquidity. 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 high current income consistent
with the preservation of capital and same-day liquidity from a portfolio of high
quality money market instruments. The Federal Money Market Fund's investment
objective is to provide current income, consistent with the preservation of
capital and same-day liquidity. 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. 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 acting as agent, for no
additional fee. The monies loaned to the borrower come from accounts managed by
Morgan or its affiliates, pursuant to arrangements with such accounts. Interest
and principal payments are credited to such accounts. Morgan, an affiliate of
the Advisor, has the right to increase or decrease the amount provided to the
borrower under an obligation. The borrower has the right to pay without penalty
all or any part of the principal amount then outstanding on an obligation
together with interest to the date of payment. Since these obligations typically
provide that the interest rate is tied to the Federal Reserve commercial paper
composite rate, the rate on master demand obligations is subject to change.
Repayment of a master demand obligation to participating accounts depends on the
ability of the borrower to pay the accrued interest and principal of the
obligation on demand which is continuously monitored by Morgan. Since master
demand obligations typically are not rated by credit rating agencies, the 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 thirteen months. The securities which are subject to
repurchase agreements, however, may have maturity dates in excess of thirteen
months from the effective date of the repurchase agreement. The 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. Also, a Fund may be
disadvantaged if the other party to the transaction defaults. 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 or any order pursuant thereto. These limits
currently require that, as determined immediately after a purchase is made, (i)
not more than 5% of the value of 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 reflecting the interest rates effective for the term of the
agreement. 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. Leverage may cause any gains or
losses for a Fund to be magnified. 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. 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 securities or receives
upon resale may be lower than the price paid or received for similar securities
with a more liquid market. Accordingly the valuation of these securities will
reflect any limitations on their liquidity.
The 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. Current 1940 Act diversification requirements require that with
respect to 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) 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 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 the Federal Money Market Fund and their
corresponding Portfolios:
1. May not make any investment inconsistent with the Fund's classification as a
diversified investment company under the Investment Company Act of 1940.
2. May not make purchase any security which would cause the Fund to concentrate
its investments in the securities of issuers primarily engaged in any particular
industry except as permitted by the SEC. In the case of Prime Money Market Fund,
this restriction does not apply to instruments considered to be domestic bank
money market instruments.
3. Issue senior securities, except as permitted under the Investment Company Act
of 1940 or any rule, order or interpretation thereunder;
4. May not borrow money, except to the extent permitted by applicable law;
5. May not underwrite securities of other issuers, except to the extent that the
Fund, in disposing of portfolio securities, may be deemed an underwriter within
the meaning of the 1933 Act;
6. May not purchase or sell real estate, except that, to the extent permitted by
applicable law, the Fund may (a) invest in securities or other instruments
directly or indirectly secured by real estate, and (b) invest in securities or
other instruments issued by issuers that invest in real estate;
7. May not purchase or sell commodities or commodity contracts unless acquired
as a result of ownership of securities or other instruments issued by persons
that purchase or sell commodities or commodities contracts; but this shall not
prevent the Fund from purchasing, selling and entering into financial futures
contracts (including futures contracts on indices of securities, interest rates
and currencies), options on financial futures contracts (including futures
contracts on indices of securities, interest rates and currencies), warrants,
swaps, forward contracts, foreign currency spot and forward contracts or other
derivative instruments that are not related to physical commodities; and
8. May make loans to other persons, in accordance with the Fund's investment
objective and policies and to the extent permitted by applicable law.
The Treasury Money Market Fund 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 Treasury Money Market Fund's Portfolio has adopted substantially
similar fundamental investment restrictions, except investment restrictions
numbered 7 and 8 above are non-fundamental at the Portfolio level.
Any differences are not expected to materially impact portfolio management.
Non-Fundamental Investment Restrictions - Prime Money Market Fund and
Federal Money Market Fund. The investment restrictions described below are not
fundamental policies of the Funds and their corresponding Portfolios and may be
changed by their Trustees. These non-fundamental investment policies require
that the Funds and their corresponding Portfolios:
(i) May not acquire any illiquid securities, such as repurchase agreements with
more than seven days to maturity or fixed time deposits with a duration of over
seven calendar days, if as a result thereof, more than 10% of the market value
of the Fund's total assets would be in investments which are illiquid;
(ii) May not purchase securities on margin, make short sales of securities, or
maintain a short position, provided that this restriction shall not be deemed to
be applicable to the purchase or sale of when-issued or delayed delivery
securities.
(iii) May not acquire securities of other investment companies, except as
permitted by the 1940 Act or any order pursuant thereto.
(iv) The Prime Money Market Fund may not 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.
(v) The Federal Money Market Fund may not 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.
Non-Fundamental Investment Restrictions - Treasury Money Market Fund.
The investment restriction described below is not a fundamental policy of the
Fund or the Portfolio and may be changed by their respective Trustees. This
non-fundamental investment policy requires that 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
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, Texas 78746, and his date of birth is January 1, 1932.
WILLIAM G. BURNS--Trustee; Retired, Former Vice Chairman and Chief
Financial Officer, NYNEX. His address is 2200 Alaqua Drive, Longwood, Florida
32779, and his date of birth is November 2, 1932.
ARTHUR C. ESCHENLAUER--Trustee; Retired; Former Senior Vice President,
Morgan Guaranty Trust Company of New York. His address is 14 Alta Vista Drive,
RD #2, Princeton, New Jersey 08540, and his date of birth is May 23, 1934.
MATTHEW HEALEY*-Trustee, Chairman and Chief Executive Officer;
Chairman, Pierpont Group, Inc., since prior to 1992. His address is Pine Tree
Club Estates, 10286 Saint Andrews Road, Boynton Beach, Florida 33436, and his
date of birth is August 23, 1937.
MICHAEL P. MALLARDI-- Trustee; Retired; Prior to April 1996, Senior Vice
President, Capital Cities/ABC, Inc. and President, Broadcast Group. His address
is 10 Charnwood Drive, Suffern, New York 10910, and his date of birth is March
17, 1934.
The Trustees of the Trust are the same as the Trustees of 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.
- ---------------------------------------
* Mr. Healey is an "interested person" (as defined in the 1940 Act) of the
Trust. Mr. Healey is also an "interested person" (as defined in the 1940 Act) of
the advisor due to his son's affiliation with JPMIM.
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 these
funds.
Trustee compensation expenses paid by the Trust for the calendar year ended
December 31, 1997 are set forth below.
- -------------------------------------------------- ------------------------
- ---------------------------------------
TOTAL TRUSTEE COMPENSATION
AGGREGATE TRUSTEE ACCRUED BYTHE MASTER
COMPENSATION PORTFOLIOS(*), J.P. MORGAN
PAID BY THE TRUST FUNDS, J.P. MORGAN SERIES
DURING 1997 TRUST ANDTHE TRUST DURING
-------------- 1997(***)
---------
NAME OF TRUSTEE
- ---------------------------------- ------------------------ -------------------
- ---------------------------------- ------------------------ -------------------
Frederick S. Addy, Trustee $11,772.77 $72,500
- ---------------------------------- ------------------------ -------------------
- ---------------------------------- ------------------------ -------------------
William G. Burns, Trustee $11,786.38 $72,500
- ---------------------------------- ------------------------ -------------------
- ---------------------------------- ------------------------ -------------------
Arthur C. Eschenlauer, Trustee $11,786.38 $72,500
- ---------------------------------- ------------------------ -------------------
- ---------------------------------- ------------------------ -------------------
Matthew Healey, Trustee (**) $11,786.38 $72,500
Chairman and Chief Executive
Officer
- ---------------------------------- ------------------------ -------------------
- ---------------------------------- ------------------------ -------------------
Michael P. Mallardi, Trustee $11,786.38 $72,500
- ---------------------------------- ------------------------ -------------------
(*)Includes the Portfolio and 17 other portfolios (collectively, the "Master
Portfolios") for which JPMIM 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 decide upon general policies and are responsible for
overseeing the Trust's and Portfolio's business affairs. 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 (now the J.P. Morgan Family of Funds), and the Trustees are the
equal and sole shareholders of Pierpont Group, Inc. The Trust and the 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, Florida 33436. His date of birth is August 23, 1937.
MARGARET W. CHAMBERS; Vice President and Secretary. Senior Vice President
and General Counsel of FDI since April, 1998. From August 1996 to March 1998,
Ms. Chambers was Vice President and Assistant General Counsel for Loomis, Sayles
& Company, L.P. From January 1986 to July 1996, she was an associate with the
law firm of Ropes & Gray. Her date of birth is October 12, 1959.
MARIE E. CONNOLLY; Vice President and Assistant Treasurer. President,
Chief Executive Officer, Chief Compliance Officer and Director of FDI, Premier
Mutual Fund Services, Inc., an affiliate of FDI ("Premier Mutual") and an
officer of certain investment companies distributed or administered by FDI.
Prior to July 1994, she was President and Chief Compliance Officer of FDI. Her
date of birth is August 1, 1957.
DOUGLAS C. CONROY; Vice President and Assistant Treasurer. Assistant Vice
President and Assistant Department Manager of Treasury Services and
Administration of FDI and an officer of certain investment companies distributed
or administered by FDI. Prior to April 1997, Mr. Conroy was Supervisor of
Treasury Services and Administration of FDI. From April 1993 to January 1995,
Mr. Conroy was a Senior Fund Accountant for Investors Bank & Trust Company. His
date of birth is March 31, 1969.
JACQUELINE HENNING(of The Prime Money Market Portfolio only); Assistant
Secretary and Assistant Treasurer of the Portfolios only. Managing Director,
State Street Cayman Trust Company, Ltd. since October 1994. Prior to October
1994, Mrs. Henning was head of mutual funds at Morgan Grenfell in Cayman and was
Managing Director of Bank of Nova Scotia Trust Company (Cayman) Limited prior to
September 1993. Address: P.O. Box 2508 GT, Elizabethan Square, 2nd Floor,
Shedden Road, George Town, Grand Cayman, Cayman Islands, BWI. Her date of birth
is March 24, 1942.
KAREN JACOPPO-WOOD; Vice President and Assistant Secretary. Vice President
and Senior Counsel of FDI and an officer of certain investment companies
distributed or administered by FDI. From June 1994 to January 1996, Ms.
Jacoppo-Wood was a Manager of SEC Registration at Scudder, Stevens & Clark, Inc.
Prior to May 1994, Ms. Jacoppo-Wood was a senior paralegal at The Boston Company
Advisors, Inc. ("TBCA"). Her date of birth is December 29, 1966.
CHRISTOPHER J. KELLEY; Vice President and Assistant Secretary. Vice
President and Senior Associate General Counsel of FDI and Premier Mutual and an
officer of certain investment companies distributed or administered by FDI. From
April 1994 to July 1996, Mr. Kelley was Assistant Counsel at Forum Financial
Group. Prior to April 1994, Mr. Kelley was employed by Putnam Investments in
legal and compliance capacities. His date of birth is December 24, 1964.
KATHLEEN K. MORRISEY; Vice President and Assistant Secretary. Vice
President and Assistant Secretary of FDI. Manager of Treasury Services
Administration and an officer of certain investment companies advised or
administered by Montgomery Asset Management, L.P. and Dresdner RCM Global
Investors, Inc., and their respective affiliates. From July 1994 to November
1995, Ms. Morrisey was a Fund Accountant II for Investors Bank & Trust Company.
Prior to July 1994 she was a finance student at Stonehill College. Her date of
birth is July 5, 1972.
MARY A. NELSON; Vice President and Assistant Treasurer. Vice President and
Manager of Treasury Services and Administration of FDI and Premier Mutual and an
officer of certain investment companies distributed or administered by FDI.
Prior to August 1994, Ms. Nelson was an Assistant Vice President and Client
Manager for The Boston Company, Inc. Her date of birth is April 22, 1964.
MARY JO PACE; Assistant Treasurer. Vice President, Morgan Guaranty Trust
Company of New York. Ms. Pace serves in the Funds Administration group as a
Manager for the Budgeting and Expense Processing Group. Prior to September 1995,
Ms. Pace served as a Fund Administrator for Morgan Guaranty Trust Company of New
York. Her address is 60 Wall Street, New York, New York 10260. Her date of birth
is March 13, 1966.
MICHAEL S. PETRUCELLI; Vice President and Assistant Secretary. Senior Vice
President and Director of Strategic Client Initiatives for FDI since December
1996. From December 1989 through November 1996, Mr. Petrucelli was employed with
GE Investments where he held various financial, business development and
compliance positions. He also served as Treasurer of the GE Funds and as
Director of GE Investment Services. Address: 200 Park Avenue, New York, New
York, 10166. His date of birth is May 18, 1961.
STEPHANIE D. PIERCE; Vice President and Assistant Secretary. Vice President
and Client Development Manager for FDI since April 1998. From April 1997 to
March 1998, Ms. Pierce was employed by Citibank, NA as an officer of Citibank
and Relationship Manager on the Business and Professional Banking team handling
over 22,000 clients. Address: 200 Park Avenue, New York, New York 10166. Her
date of birth is August 18, 1968.
GEORGE A. RIO; President and Treasurer. Executive Vice President and Client
Service Director of FDI since April 1998. From June 1995 to March 1998, Mr. Rio
was Senior Vice President and Senior Key Account Manager for Putnam Mutual
Funds. From May 1994 to June 1995, Mr. Rio was Director of Business Development
for First Data Corporation. From September 1983 to May 1994, Mr. Rio was Senior
Vice President & Manager of Client Services and Director of Internal Audit at
The Boston Company. His date of birth is January 2, 1955.
CHRISTINE ROTUNDO; Assistant Treasurer. Vice President, Morgan Guaranty
Trust Company of New York. Ms. Rotundo serves in the Funds Administration group
as a Manager of the Tax Group and is responsible for U.S. mutual fund tax
matters. Prior to September 1995, Ms. Rotundo served as a Senior Tax Manager in
the Investment Company Services Group of Deloitte & Touche LLP. Her address is
60 Wall Street, New York, New York 10260. Her date of birth is September 26,
1965.
<PAGE>
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, the Advisor makes each Portfolio's day-to-day
investment decisions, arranges for the execution of Portfolio transactions and
generally manages the Portfolio's investments. Effective October 1, 1998 each
Portfolio's investment advisor is JPMIM. Prior to that date, Morgan was the
investment advisor. JPMIM, a wholly owned subsidiary of J.P. Morgan & Co.
Incorporated ("J.P. Morgan"), is a registered investment adviser under the
Investment Advisers Act of 1940, as amended, 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 Morgan serves as trustee.
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 $275 billion.
J.P. Morgan has a long history of service as adviser, underwriter and
lender to an extensive roster of major companies and as a financial advisor to
national governments. The firm, through its predecessor firms, has been in
business for over a century and has been managing investments since 1913.
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.
Morgan, also a wholly owned subsidiary of J.P. Morgan, is a bank
holding company organized under the laws of the State of Delaware. Morgan, whose
principal offices are at 60 Wall Street, New York, New York 10260, is a New York
trust company which conducts a general banking and trust business. Morgan is
subject to regulation by the New York State Banking Department and is a member
bank of the Federal Reserve System. Through offices in New York City and abroad,
Morgan offers a wide range of services, primarily to governmental,
institutional, corporate and high net worth individual customers in the United
States and throughout the world.
The 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
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 Morgan, each Portfolio's advisor prior to October 1, 1998, 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 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 and its corresponding
Portfolio the administrative fees paid to FDI for the fiscal periods indicated.
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% of the first $7 billion of their aggregate
average daily net assets and 0.04% of their aggregate average daily net assets
in excess of $7 billion, less the complex-wide fees payable to FDI. The portion
of this charge payable by 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.
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.
Effective August 1, 1998, under the Shareholder Servicing Agreement,
each Fund has agreed to pay Morgan for these services a fee at the annual rate
of 0.10% (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).
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 the activities of JPMIM in acting as Advisor to the
Portfolios under the Investment Advisory Agreements, may raise issues under
these laws. However, Morgan and JPMIM believes that they 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.
The Funds may be sold to or through financial intermediaries who are
customers of J.P. Morgan ("financial professionals"), including financial
institutions and broker-dealers, that may be paid fees by J.P. Morgan or its
affiliates for services provided to their clients that invest in the 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 be remitted
to the Fund or J.P. Morgan.
INDEPENDENT ACCOUNTANTS
The independent accountants of the Trust and the Portfolios are
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York
10036. PricewaterhouseCoopers 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., JPMIM, Morgan
and FDI under various agreements discussed under "Trustees and Officers,"
"Investment Advisor," "Co-Administrator, "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 and audit
expenses, insurance costs, the compensation and expenses of the Trustees, costs
associated with their registration fees 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 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 the Advisor, appropriate
investments for the Fund's corresponding Portfolio. In addition, securities
accepted in payment for shares must: (i) meet the investment objective and
policies of 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.
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.
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 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%.
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 end2: 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.
From time to time, the Funds may, in addition to any other
permissible information, include the following types of information in
advertisements, supplemental sales literature and reports to shareholders: (1)
discussions of general economic or financial principles (such as the effects of
compounding and the benefits of dollar-cost averaging); (2) discussions of
general economic trends; (3) presentations of statistical data to supplement
such discussions; (4) descriptions of past or anticipated portfolio holdings for
one or more of the Funds; (5) descriptions of investment strategies for one or
more of the Funds; (6) descriptions or comparisons of various savings and
investment products (including, but not limited to, qualified retirement plans
and individual stocks and bonds), which may or may not include the Funds; (7)
comparisons of investment products (including the Funds) with relevant markets
or industry indices or other appropriate benchmarks; (8) discussions of Fund
rankings or ratings by recognized rating organizations; and (9) discussions of
various statistical methods quantifying the Fund's volatility relative to its
benchmark or to past performance, including risk adjusted measures. The Funds
may also include calculations, such as hypothetical compounding examples, which
describe hypothetical investment results in such communications. Such
performance examples will be based on an express set of assumptions and are not
indicative of the performance of any of the Funds.
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.
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 one vote for each dollar
of net asset value (or a proportionate fractional vote in respect of a
fractional dollar amount), on matters on which shares of the Fund shall be
entitled to vote. Subject to the 1940 Act, the Trustees themselves have the
power to alter the number and the terms of office of the Trustees, to lengthen
their own terms, or to make their terms of unlimited duration subject to certain
removal procedures, and appoint their own successors, provided, however, that
immediately after such appointment the requisite majority of the Trustees have
been elected by the shareholders of the Trust. The voting rights of shareholders
are not cumulative so that holders of more than 50% of the shares voting can, if
they choose, elect all Trustees being selected while the shareholders of the
remaining shares would be unable to elect any Trustees. It is the intention of
the Trust not to hold meetings of shareholders annually. The Trustees may call
meetings of shareholders for action by shareholder vote as may be required by
either the 1940 Act or the Trust's Declaration of Trust.
Shareholders of the Trust have the right, upon the declaration in
writing or vote of more than two-thirds of its outstanding shares, to remove a
Trustee. The Trustees will call a meeting of shareholders to vote on removal of
a Trustee upon the written request of the record holders of 10% of the Trust's
shares. In addition, whenever ten or more shareholders of record who have been
such for at least six months preceding the date of application, and who hold in
the aggregate either shares having a net asset value of at least $25,000 or at
least 1% of the Trust's outstanding shares, whichever is less, shall apply to
the Trustees in writing, stating that they wish to communicate with other
shareholders with a view to obtaining signatures to request a meeting for the
purpose of voting upon the question of removal of any Trustee or Trustees and
accompanied by a form of communication and request which they wish to transmit,
the Trustees shall within five business days after receipt of such application
either: (1) afford to such applicants access to a list of the names and
addresses of all shareholders as recorded on the books of the Trust; or (2)
inform such applicants as to the approximate number of shareholders of record,
and the approximate cost of mailing to them the proposed communication and form
of request. If the Trustees elect to follow the latter course, the Trustees,
upon the written request of such applicants, accompanied by a tender of the
material to be mailed and of the reasonable 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 23 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: 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 Master Portfolio, a separate registered
investment company with the same investment objective as the Fund. Generally,
when a Master Portfolio seeks a vote to change a fundamental investment
restriction and policies, 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 for each dollar of net asset value (or a
proportionate fractional vote in respect of a fractional dollar amount), on
matters on which shares of the Fund shall be entitled to vote.
In addition to selling a beneficial interest to 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 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 fundamental investment policies or
restrictions, or a failure by a Fund's shareholders to approve such change in
the Portfolio's investment restrictions, may require withdrawal of the Fund's
interest in the Portfolio. Any such withdrawal could result in a distribution in
kind of portfolio securities (as opposed to a cash distribution) from the
Portfolio which may or may not be readily marketable. The distribution in kind
may result in the Fund having a less diversified portfolio of investments or
adversely affect the Fund's liquidity, and the Fund could incur brokerage, tax
or other charges in converting the securities to cash. Notwithstanding the
above, there are other means for meeting shareholder redemption requests, such
as borrowing.
Smaller funds investing in 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 affect 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 and remain qualified 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 fiscal quarter of its taxable year, (i) at
least 50% of the value of the Fund's total assets is represented by cash, cash
items, U.S. Government securities, investments in other regulated investment
companies, and other securities limited, in respect of any one issuer, to an
amount not greater than 5% of the Fund's total assets, and 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its total assets is invested in the securities of any one issuer (other
than U.S. Government securities or securities of other regulated investment
companies). As a regulated investment company, 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 generally 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 losses (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 gains (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 gains,
regardless of whether such distributions are taken in cash or reinvested in
additional shares and regardless of how long a shareholder has held shares in
the Fund. In general, long-term capital gain of an individual shareholder will
be subject to a reduced rate of tax. Investors should consult their tax advisors
concerning the treatment of capital gains and losses. Additionally, any loss
realized on a redemption or exchange of shares of a Fund will be disallowed to
the extent the shares disposed of are replaced within a period of 61 days
beginning 30 days before such disposition, such as pursuant to reinvestment of a
dividend in shares of the Fund.
To maintain a constant $1.00 per share net asset value, the Trustees of
the Trust may direct that the number of outstanding shares be reduced pro rata.
If this adjustment is made, it will reflect the lower market value of portfolio
securities and not realized losses. The adjustment may result in a shareholder
having more dividend income than net income in his account for a period. When
the number of outstanding shares of a Fund is reduced, the shareholder's basis
in the shares of the Fund may be adjusted to reflect the difference between
taxable income and net dividends actually distributed. This difference may be
realized as a capital loss when the shares are liquidated. Subject to certain
limited exceptions, capital losses cannot be used to offset ordinary income. See
"Net Asset Value."
Gains or losses on sales of portfolio securities will be treated as
long-term capital gains or losses if the securities have been held for more than
one year except in certain cases where, if applicable, 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.
If a correct and certified taxpayer identification number is not on file,
the Fund is required, subject to certain exemptions, to withold 31% of certain
payments made or distributions declared to non-corporate shareholders.
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, J.P. Morgan or Financial Professionals as
shareholder servicing agent may be tape recorded. With respect to the securities
offered hereby, this Statement of Additional Information and the Prospectus do
not contain all the information included in the Trust's Registration Statement
filed with the SEC under the 1933 Act and the 1940 Act 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.
The Year 2000 Initiative
With the new millennium rapidly approaching, organizations are
examining their computer systems to ensure they are year 2000 compliant. The
issue, in simple terms, is that many existing computer systems use only two
numbers to identify a year in the date field with the assumption that the first
two digits are always 19. As the century is implied in the date, on January 1,
2000, computers that are not year 2000 compliant will assume the year is 1900.
Systems that calculate, compare, or sort using the incorrect date will cause
erroneous results, ranging from system malfunctions to incorrect or incomplete
transaction processing. If not remedied, potential risks include business
interruption or shutdown, financial loss, reputation loss, and/or legal
liability.
J.P. Morgan has undertaken a firmwide initiative to address the year
2000 issue and has developed a comprehensive plan to prepare, as appropriate,
its computer systems. Each business line has taken responsibility for
identifying and fixing the problem within its own area of operation and for
addressing all interdependencies. A multidisciplinary team of internal and
external experts supports the business teams by providing direction and firmwide
coordination. Working together, the business and multidisciplinary teams have
completed a thorough education and awareness initiative and a global inventory
and assessment of J.P. Morgan's technology and application portfolio to
understand the scope of the year 2000 impact at J.P. Morgan. J.P. Morgan
presently is renovating and testing these technologies and applications in
partnership with external consulting and software development organizations, as
well as with year 2000 tool providers. J.P. Morgan is on target with its plan to
substantially complete renovation, testing, and validation of its key systems by
year-end 1998 and to participate in industry-wide testing (or streetwide
testing) in 1999. J.P. Morgan is also working with key external parties,
including clients, counterparties, vendors, exchanges, depositories, utilities,
suppliers, agents and regulatory agencies, to stem the potential risks the year
2000 problem poses to J.P. Morgan and to the global financial community.
Costs associated with efforts to prepare J.P. Morgan's systems for
the year 2000 approximated $95 million in 1997. In 1998, J.P. Morgan will
continue its efforts to prepare its systems for the year 2000. The total cost to
become year-2000 compliant is estimated at $250 million, for internal systems
renovation and testing, testing equipment, and both internal and external
resources working on the project. Remaining costs will be incurred primarily in
1998. The costs associated with J.P. Morgan becoming year-2000 compliant will be
borne by J.P. Morgan and not the Fund nor the Portfolio.
The Euro
Effective January 1, 1999 the euro, a single multinational currency,
will replace the national currencies of certain countries in the Economic
Monetary Union (EMU). Conversion rates among EMU countries will be fixed on
December 31, 1998, however, existing currencies will still be used through July
1, 2002. During this transition period, transactions may be settled in either
euro or existing currencies, but financial markets and payment systems are
expected to use the euro exclusively. Beginning January 1, 1999, J.P. Morgan
intends to conduct and settle all fund transactions, where appropriate, in the
euro.
J.P. Morgan has identified the following potential risks to the Funds,
after the conversion: The risk that valuation of assets are not properly
redenominated; currency risk resulting from increased volatility in exchange
rates between EMU countries and non-participating countries; the inability any
of the Funds, their service providers and the issuers of the Funds' portfolio
securities to make information technology updates timely; and the potential
unenforceability of contracts. There have been recent laws and regulations
designed to ensure the continuity of contracts, however there is a risk that the
valuation of contracts will be negatively impacted after the Funds' conversion.
J.P. Morgan is working to avoid these problems and to obtain assurances from
other service providers that they are taking similar steps. However, it is not
certain that these actions will be sufficient to prevent problems associated
with the conversion from adversely impacting fund operations and shareholders.
The I.R.S has concluded that euro conversion will not cause a U.S.
taxpayer to realize gain or loss to the extent taxpayer's rights and obligations
are altered solely by reason of the conversion.
FINANCIAL STATEMENTS
The following financial statements and the report thereon of
PricewaterhouseCoopers 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.
- ------------------------------------------------------- ------------------------
Date of Annual Report;
Name of Fund Date Annual Report
Filed; and 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
12/ /97
0001047469-97-00
- ------------------------------------------------------- -----------------------
- ------------------------------------------------------- -----------------------
J.P. Morgan Institutional Federal Money Market Fund 10/31/97
12/30/97
0001047469-97-009108
- ------------------------------------------------------- -----------------------
<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.
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.
- --------
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.
2 J.P. Morgan Institutional Federal Money Market Fund commenced
operations on January 4, 1993.
- -------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
FEBRUARY 2, 1998 |
AS REVISED | PROSPECTUS
OCTOBER 1, 1998 |
================================================================================
J.P. MORGAN INSTITUTIONAL
TAX EXEMPT MONEY MARKET FUND
===========================================
Seeking to provide high current income
consistent with the preservation of capital
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>
CONTENTS
<TABLE>
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<S> <C> <C>
3 | MONEY MARKET MANAGEMENT APPROACH
Money market investment process.............................................3
4 | J.P. MORGAN INSTITUTIONAL TAX EXEMPT MONEY MARKET FUND
Fund description ...........................................................4
The fund's goal, investment approach,
risks, expenses, performance, and Investor expenses ..........................................................4
financial highlights
Performance ................................................................5
Financial highlights .......................................................5
6 | YOUR INVESTMENT
Investing through a financial professional .................................6
Investing in the J.P. Morgan Institutional
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
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
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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 $275 billion in assets under management,
including assets managed by the fund's advisor, J.P. Morgan Investment
Management Inc.
========================================
Before you invest
Investors considering the fund should
understand that:
o 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 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 fund's maturity determination and sector
as described later in this allocation, the portfolio managers and
prospectus dedicated fixed-income traders make buy
and sell decisions according to the
fund's goal and strategy.
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MONEY MARKET MANAGEMENT APPROACH | 3
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<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 maximize current income that is exempt from federal
income tax consistent with the preservation of capital and same-day liquidity.
This goal can be changed without shareholder approval.
[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
municipal or other obligations whose income is subject to tax, including the
alternative minimum tax. Although the fund is permitted to hold these other
obligations or cash, it aims to be fully invested in municipal obligations. In
order to maintain liquidity, 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 3.
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.
The fund's income is generally 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 $275 billion, including more than $12 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 0.18
Marketing (12b-1) fees None
Other expenses(2)
(after waiver and reimbursement) 0.06
================================================================================
Total operating expenses(2)
(after reimbursement) 0.24
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<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>
<TABLE>
<CAPTION>
====================================================================================================================================
PERFORMANCE (unaudited)
==================================
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 BY 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. MorganInstitutional 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'sTax 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 (%) 0.35(7) 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
- ------------------------------------------------------------------------------------------------------------------------------------
The Financial Highlights above have been audited by PricewaterhouseCoopers LLP,
the fund's independent accountants.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The fund has a master/feeder structure as described on page 9. 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. Other expenses and total operating expenses do not reflect
the effect of the increase in the shareholder servicing fee, from 0.05% to
0.10%, that took affect on August 1, 1998.
(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 full or
fractional vote for each dollar or fraction of a dollar invested.
The fund and its master portfolio expect to maintain consistent goals, but if
they do not, the fund will withdraw from the master portfolio, receiving its
assets either in cash or securities. The fund's trustees would then consider
whether the fund should hire its own investment adviser, invest in a different
master portfolio, or take other action.
MANAGEMENT AND ADMINISTRATION
The fund and its master portfolio are governed by the same trustees. The
trustees are responsible for overseeing all business activities. The trustees
are assisted by Pierpont Group, Inc., which they own and operate on a cost
basis; costs are shared by all funds governed by these trustees. Funds
Distributor, Inc., as co-administrator, along with J.P. Morgan, provides fund
officers. J.P. Morgan, as co-administrator, oversees the fund's other service
providers.
J.P. Morgan 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 0.10% 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.
Year 2000 Fund operations and shareholders could be adversely affected if the
computer systems used by J.P. Morgan, the fund's other service providers and
other entities with computer systems linked to the fund do not properly process
and calculate January 1, 2000 and after date-related information. J.P. Morgan is
working to avoid these problems and to obtain assurances from other service
providers that they are taking similar steps. However, it is not certain that
these actions will be sufficient to prevent these date-related problems from
adversely impacting fund operations and shareholders. In addition, to the extent
that operations of issuers of securities held by the fund are impaired by
date-related problems or prices of securities decline as a result of real or
perceived date-related problems of issuers held by the fund or generally, the
net asset value of the fund will decline.
|
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, along with other information
about the fund, 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, upon
payment of a duplicating fee from the Public Reference Room of the Securities
and Exchange Commission in Washington, D.C. (1-800-SEC-0330) and may be viewed
on-screen or downloaded from the SEC's Internet site at http://www.sec.gov. The
fund's investment company and 1933 Act registration numbers are 811-07342 and
033-54642.
J.P. MORGAN INSTITUTIONAL FUNDS AND THE MORGAN TRADITION
The J.P. Morgan Institutional Funds combine a heritage of integrity and
financial leadership with comprehensive, sophisticated analysis and management
techniques. Drawing on J.P. Morgan's extensive experience and depth as an
investment manager, the J.P. Morgan Institutional Funds offer a broad array of
distinctive opportunities for mutual fund investors.
[LOGO] JPMorgan
================================================================================
J.P. Morgan Institutional Funds
Advisor Distributor
J.P. Morgan Investment Management Inc. Funds Distributor, Inc.
522 Fifth Avenue 60 State Street
New York, NY 10036 Boston, MA 02109
1-800-766-7722 1-800-221-7930
PROS381-9810
- --------------------------------------------------------------------------------
J.P. MORGAN INSTITUTIONAL FUNDS
J.P. MORGAN INSTITUTIONAL TAX EXEMPT MONEY MARKET FUND
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 2, 1998
AS REVISED
OCTOBER 1, 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 AS REVISED OCTOBER 1, 1998 FOR THE FUND LISTED ABOVE, AS
SUPPLEMENTED FROM TIME TO TIME. ADDITIONALLY, THIS STATEMENT OF ADDITIONAL
INFORMATION INCORPORATES BY REFERENCE THE FINANCIAL STATEMENTS INCLUDED IN THE
SHAREHOLDER REPORTS RELATING TO THE FUND LISTED ABOVE. THE PROSPECTUS AND THESE
FINANCIAL STATEMENTS, INCLUDING THE AUDITOR'S REPORT THEREON, ARE AVAILABLE,
WITHOUT CHARGE, UPON REQUEST FROM FUNDS DISTRIBUTOR, INC., ATTENTION: J.P.
MORGAN INSTITUTIONAL FUNDS (800) 221-7930.
<PAGE>
Table of Contents
Page
General................................................1
Investment Objective and Policies......................1
Investment Restrictions...............................11
Trustees and Officers.................................13
Investment Advisor....................................17
Distributor...........................................19
Co-Administrator......................................20
Services Agent........................................21
Custodian and Transfer Agent..........................21
Shareholder Servicing.................................22
Financial Professionals. . . . . . . . . . . . . . . .23
Independent Accountants..............................23
Expenses.............................................23
Purchase of Shares...................................24
Redemption of Shares.................................25
Exchange of Shares...................................25
Dividends and Distributions..........................26
Net Asset Value......................................26
Performance Data.....................................27
Portfolio Transactions...............................28
Massachusetts Trust..................................29
Description of Shares................................30
Special Information Concerning
Investment Structure. . . . . . . . . . . . . . . .32
Taxes.................................................33
Additional Information................................36
Appendix A - Description of Security Ratings.........A-1
<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 J.P. Morgan Investment Management Inc. ("JPMIM"
or the "Advisor").
Investments in the Fund are not deposits or obligations of, or
guaranteed or endorsed by, Morgan Guaranty Trust Company of New York,
("Morgan"), an affiliate of the Advisor or any other bank. Shares of the Fund
are not federally insured by the Federal Deposit Insurance Corporation, the
Federal Reserve Board, or any other governmental agency. An investment in the
Fund is subject to risk that may cause the value of the investment to fluctuate,
and when the investment is redeemed, the value may be higher or lower than the
amount originally invested by the investor.
INVESTMENT OBJECTIVE AND POLICIES
The following discussion supplements the information regarding the
investment objective of the Fund and the policies to be employed to achieve 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 high current income
consistent with the preservation of capital and same-day liquidity from a
portfolio of high quality money market instruments. The Fund's investment
objective is to maximize current income that is exempt from federal income tax
consistent with the preservation of capital and same-day 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. If attractive municipal obligations are not available,
the Fund may hold cash rather than invest in taxable money market instruments.
The Portfolio, however, may temporarily invest up to 20% of total assets in
taxable securities in abnormal market conditions, for defensive purposes only.
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
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 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 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 securities
and when investments are not available, may hold cash or may invest to a
limited extent in taxable securities. While the Fund does not currently intend
to invest in taxable securities, in abnormal market conditions for defensive
purposes only, it may 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 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.
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.
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 acting as agent, for no additional
fee. The monies loaned to the borrower come from accounts managed by Morgan or
its affiliates, pursuant to arrangements with such accounts. Interest and
principal payments are credited to such accounts. Morgan, an affiliate of the
Advisor, has the right to increase or decrease the amount provided to the
borrower under an obligation. The borrower has the right to pay without
penalty all or any part of the principal amount then outstanding on an
obligation together with interest to the date of payment. Since these
obligations typically provide that the interest rate is tied to the Federal
Reserve commercial paper composite rate, the rate on master demand obligations
is subject to change. Repayment of a master demand obligation to participating
accounts depends on the ability of the borrower to pay the accrued interest
and principal of the obligation on demand which is continuously monitored by
Morgan. Since master demand obligations typically are not rated by credit
rating agencies, the 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
date of the purchase commitment. The purchase price and the interest rate
payable, if any, on the securities are fixed on the purchase commitment date
or at the time the settlement date is fixed. The value of such securities is
subject to market fluctuation and for money market instruments and other fixed
income securities no interest accrues to the Fund until settlement takes
place. At the time the Fund makes the commitment to purchase securities on a
when-issued or delayed delivery basis, it will record the transaction, reflect
the value each day of such securities in determining its net asset value and,
if applicable, calculate the maturity for the purposes of average maturity
from that date. At the time of settlement a when-issued security may be valued
at less than the purchase price. To facilitate such acquisitions, the Fund
will maintain with the Custodian a segregated account with liquid assets,
consisting of cash, U.S. Government securities or other appropriate
securities, in an amount at least equal to such commitments. On delivery dates
for such transactions, the Fund will meet its obligations from maturities or
sales of the securities held in the segregated account and/or from cash flow.
If the Fund chooses to dispose of the right to acquire a when-issued security
prior to its acquisition, it could, as with the disposition of any other
portfolio obligation, incur a gain or loss due to market fluctuation. Also, a
Fund may be disadvantaged if the other party to the transaction defaults. It
is the current policy of the Fund not to enter into when-issued commitments
exceeding in the aggregate 15% of the market value of the Fund's total assets,
less liabilities other than the obligations created by when-issued
commitments.
Investment Company Securities. Securities of other investment
companies may be acquired by the Fund and Portfolio to the extent permitted
under the 1940 Act or any order pursuant thereto. These limits currently
require that, as determined immediately after a purchase is made, (i) not more
than 5% of the value of the 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
reflecting the interest rate effective for the term of the agreement. For
purposes of the 1940 Act a reverse repurchase agreement is also considered as
the borrowing of money by the Fund and, therefore, a form of leverage.
Leverage may cause any gains or losses for a Fund to be magnified. 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 limited liquidity,
such as private placements or investments that are not registered under the
Securities Act of 1933, as amended (the "1933 Act") and cannot be offered for
public sale in the United States without first being registered under the 1933
Act. An illiquid investment is any investment that cannot be disposed of
within seven days in the normal course of business at approximately the amount
at which it is valued by the Portfolio. The price the Portfolio pays for
illiquid securities or receives upon resale may be lower than the price paid
or received for similar securities with a more liquid market. Accordingly the
valuation of these securities will reflect any limitations on their liquidity.
The 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.
Quality and Diversification Requirements
The Fund intends to meet the diversification requirements of the 1940
Act. Current 1940 Act diversification requirements require that with respect
to 75% of the assets of the Fund: (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 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.
The Fund and its corresponding Portfolio:
1. May not make any investment inconsistent with the Fund's classification as a
diversified investment company under the Investment Company Act of 1940.
2. May not purchase any security which would cause the Fund to concentrate its
investments in the securities of issuers primarily engaged in any particular
industry except as permitted by the SEC.
3. May not issue senior securities, except as permitted under the Investment
Company Act of 1940 or any rule, order or interpretation thereunder;
4. May not borrow money, except to the extent permitted by applicable law;
5. May not underwrite securities of other issuers, except to the extent that the
Fund, in disposing of portfolio securities, may be deemed an underwriter within
the meaning of the 1933 Act;
6. May not purchase or sell real estate, except that, to the extent permitted by
applicable law, the Fund may (a) invest in securities or other instruments
directly or indirectly secured by real estate, and (b) invest in securities or
other instruments issued by issuers that invest in real estate;
7. May not purchase or sell commodities or commodity contracts unless acquired
as a result of ownership of securities or other instruments issued by persons
that purchase or sell commodities or commodities contracts; but this shall not
prevent the Fund from purchasing, selling and entering into financial futures
contracts (including futures contracts on indices of securities, interest rates
and currencies), options on financial futures contracts (including futures
contracts on indices of securities, interest rates and currencies), warrants,
swaps, forward contracts, foreign currency spot and forward contracts or other
derivative instruments that are not related to physical commodities; and
8. May make loans to other persons, in accordance with the Fund's investment
objective and policies and to the extent permitted by applicable law.
Non-Fundamental Investment Restrictions. The investment restrictions
described below are not fundamental policies of the Fund and its corresponding
Portfolio and may be changed by their Trustees. These non-fundamental investment
policies require that the Fund and its corresponding Portfolio:
(i) May not acquire any illiquid securities, such as repurchase agreements with
more than seven days to maturity or fixed time deposits with a duration of over
seven calendar days, if as a result thereof, more than 10% of the market value
of the Fund's total assets would be in investments which are illiquid;
(ii) May not purchase securities on margin, make short sales of securities, or
maintain a short position, provided that this restriction shall not be deemed to
be applicable to the purchase or sale of when-issued or delayed delivery
securities
(iii) May not acquire securities of other investment companies, except as
permitted by the 1940 Act or any order pursuant thereto.
(iv) May not 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.
(v) May not 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.
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, Texas 78746, and his date of birth is January 1, 1932.
WILLIAM G. BURNS--Trustee; Retired, Former Vice Chairman and Chief
Financial Officer, NYNEX. His address is 2200 Alaqua Drive, Longwood, Florida
32779, and his date of birth is November 2, 1932.
ARTHUR C. ESCHENLAUER--Trustee; Retired; Former Senior Vice President,
Morgan Guaranty Trust Company of New York. His address is 14 Alta Vista Drive,
RD #2, Princeton, New Jersey 08540, and his date of birth is May 23, 1934.
MATTHEW HEALEY1--Trustee, Chairman and Chief Executive Officer;
Chairman, Pierpont Group, Inc., since prior to 1993. His address is Pine Tree
Club Estates, 10286 Saint Andrews Road, Boynton Beach, Florida 33436, and his
date of birth is August 23, 1937.
MICHAEL P. MALLARDI--Trustee; Retired; Prior to April 1996, Senior Vice
President, Capital Cities/ABC, Inc. and President, Broadcast Group. His address
is 10 Charnwood Drive, Suffern, New York 10910, and his date of birth is March
17, 1934.
The Trustees of the Trust are the same as the Trustees of the
Portfolio. 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.
Trustee compensation expenses paid by the Trust for the calendar
year ended December 31, 1997 are set forth below.
- -------------------------------------------------- ------------------------
TOTAL TRUSTEE COMPENSATION
AGGREGATE TRUSTEE ACCRUED BY THE MASTER
COMPENSATION PORTFOLIOS(*), J.P. MORGAN
PAID BY THE TRUST FUNDS, J.P. MORGAN SERIES
DURING 1997 TRUST ANDTHE TRUST DURING
1997(***)
-------------- ---------
NAME OF TRUSTEE
- ------------------------------- -------------------------------------------
- ------------------------------- -------------------------------------------
Frederick S. Addy, Trustee $11,772.77 $72,500
- ------------------------------- -------------------------------------------
- ------------------------------- -------------------------------------------
William G. Burns, Trustee $11,786.38 $72,500
- ------------------------------- -------------------------------------------
- ------------------------------- -------------------------------------------
Arthur C. Eschenlauer, Trustee $11,786.38 $72,500
- ------------------------------- -------------------------------------------
- ------------------------------- -------------------------------------------
Matthew Healey, Trustee (**) $11,786.38 $72,500
Chairman and Chief Executive
Officer
- ------------------------------- -------------------------------------------
- ------------------------------- -------------------------------------------
Michael P. Mallardi, Trustee $11,786.38 $72,500
- ---------------------------------- -------------------------------------------
(*) Includes the Portfolio and 19 other portfolios (collectively, the
"Master Portfolios") for which JPMIM acts as investment adviser.
(**) 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 decide upon general policies and are responsible for
overseeing the Trust's and Portfolio's business affairs. The Portfolio and the
Trust have entered into a Fund Services Agreement with Pierpont Group, Inc. to
assist the Trustees in exercising their overall supervisory responsibilities
over the affairs of the Portfolio and the Trust. Pierpont Group, Inc. was
organized in July 1989 to provide services for The Pierpont Family of Funds (now
the J.P. Morgan Family of Funds), and the Trustees are the equal and sole
shareholders of Pierpont Group, Inc. The Trust and the Portfolio have agreed to
pay Pierpont Group, Inc. a fee in an amount representing its reasonable costs in
performing these services to the Trust, the Portfolio and certain other
registered investment companies subject to similar agreements with Pierpont
Group, Inc. These costs are periodically reviewed by the Trustees. The principal
offices of Pierpont Group, Inc. are located at 461 Fifth Avenue, New York, New
York 10017.
The aggregate fees paid to Pierpont Group, Inc. by the Fund and the
Portfolio during the indicated fiscal years are set forth below:
Fund -- For the fiscal years ended 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, Florida 33436. His date of birth is August 23, 1937.
MARGARET W. CHAMBERS; Vice President and Secretary. Senior Vice President
and General Counsel of FDI since April, 1998. From August 1996 to March 1998,
Ms. Chambers was Vice President and Assistant General Counsel for Loomis, Sayles
& Company, L.P. From January 1986 to July 1996, she was an associate with the
law firm of Ropes & Gray. Her date of birth is October 12, 1959.
MARIE E. CONNOLLY; Vice President and Assistant Treasurer. President,
Chief Executive Officer, Chief Compliance Officer and Director of FDI, Premier
Mutual Fund Services, Inc., an affiliate of FDI ("Premier Mutual") and an
officer of certain investment companies distributed or administered by FDI.
Prior to July 1994, she was President and Chief Compliance Officer of FDI. Her
date of birth is August 1, 1957.
DOUGLAS C. CONROY; Vice President and Assistant Treasurer. Assistant Vice
President and Assistant Department Manager of Treasury Services and
Administration of FDI and an officer of certain investment companies distributed
or administered by FDI. Prior to April 1997, Mr. Conroy was Supervisor of
Treasury Services and Administration of FDI. From April 1993 to January 1995,
Mr. Conroy was a Senior Fund Accountant for Investors Bank & Trust Company. His
date of birth is March 31, 1969.
KAREN JACOPPO-WOOD; Vice President and Assistant Secretary. Vice President
and Senior Counsel of FDI and an officer of certain investment companies
distributed or administered by FDI. From June 1994 to January 1996, Ms.
Jacoppo-Wood was a Manager of SEC Registration at Scudder, Stevens & Clark, Inc.
Prior to May 1994, Ms. Jacoppo-Wood was a senior paralegal at The Boston Company
Advisors, Inc. ("TBCA"). Her date of birth is December 29, 1966.
CHRISTOPHER J. KELLEY; Vice President and Assistant Secretary. Vice
President and Senior Associate General Counsel of FDI and Premier Mutual and an
officer of certain investment companies distributed or administered by FDI. From
April 1994 to July 1996, Mr. Kelley was Assistant Counsel at Forum Financial
Group. Prior to April 1994, Mr. Kelley was employed by Putnam Investments in
legal and compliance capacities. His date of birth is December 24, 1964.
KATHLEEN K. MORRISEY. Vice President and Assistant Secretary. Vice
President and Assistant Secretary of FDI. Manager of Treasury Services
Administration and an officer of certain investment companies advised or
administered by Montgomery Asset Management, L.P. and Dresdner RCM Global
Investors, Inc., and their respective affiliates. From July 1994 to November
1995, Ms. Morrisey was a Fund Accountant II for Investors Bank & Trust Company.
Prior to July 1994 she was a Finance student at Stonehill College in North
Easton, Massachusetts. Her date of birth is July 5, 1972.
MARY A. NELSON; Vice President and Assistant Treasurer. Vice President and
Manager of Treasury Services and Administration of FDI and Premier Mutual and an
officer of certain investment companies distributed or administered by FDI.
Prior to August 1994, Ms. Nelson was an Assistant Vice President and Client
Manager for The Boston Company, Inc. Her date of birth is April 22, 1964.
MARY JO PACE; Assistant Treasurer. Vice President, Morgan Guaranty Trust
Company of New York. Ms. Pace serves in the Funds Administration group as a
Manager for the Budgeting and Expense Processing Group. Prior to September 1995,
Ms. Pace served as a Fund Administrator for Morgan Guaranty Trust Company of New
York. Her address is 60 Wall Street, New York, New York 10260. Her date of birth
is March 13, 1966.
MICHAEL S. PETRUCELLI; Vice President and Assistant Secretary. Senior Vice
President and Director of Strategic Client Initiatives for FDI since December
1996. From December 1989 through November 1996, Mr. Petrucelli was employed with
GE Investments where he held various financial, business development and
compliance positions. He also served as Treasurer of the GE Funds and as
Director of GE Investment Services. Address: 200 Park Avenue, New York, New
York, 10166. His date of birth is May 18, 1961.
STEPHANIE D. PIERCE; Vice President and Assistant Secretary. Vice President
and Client Development Manager for FDI since April 1998. From April 1997 to
March 1998, Ms. Pierce was employed by Citibank, NA as an officer of Citibank
and Relationship Manager on the Business and Professional Banking team handling
over 22,000 clients. Address: 200 Park Avenue, New York, New York 10166. Her
date of birth is August 18, 1968.
GEORGE A. RIO; President and Treasurer. Executive Vice President and Client
Service Director of FDI since April 1998. From June 1995 to March 1998, Mr. Rio
was Senior Vice President and Senior Key Account Manager for Putnam Mutual
Funds. From May 1994 to June 1995, Mr. Rio was Director of Business Development
for First Data Corporation. From September 1983 to May 1994, Mr. Rio was Senior
Vice President & Manager of Client Services and Director of Internal Audit at
The Boston Company. His date of birth is January 2, 1955.
CHRISTINE ROTUNDO; Assistant Treasurer. Vice President, Morgan Guaranty
Trust Company of New York. Ms. Rotundo serves in the Funds Administration group
as a Manager of the Tax Group and is responsible for U.S. mutual fund tax
matters. Prior to September 1995, Ms. Rotundo served as a Senior Tax Manager in
the Investment Company Services Group of Deloitte & Touche LLP. Her address is
60 Wall Street, New York, New York 10260. Her date of birth is September 26,
1965.
INVESTMENT ADVISOR
The Fund has not retained the services of an investment adviser because
the Fund seeks to achieve its investment objective by investing all of its
investable assets in a corresponding Portfolio. Subject to the supervision of
the Portfolio's Trustees, the Advisor makes the Portfolio's day-to-day
investment decisions, arranges for the execution of Portfolio transactions and
generally manages the Portfolio's investments. Effective October 1, 1998 the
Portfolio's investment advisor is JPMIM. Prior to that date, Morgan was the
Portfolio's investment advisor. JPMIM, a wholly owned subsidiary of J.P. Morgan
& Co. Incorporated ("J.P. Morgan"), is a registered investment adviser under the
Investment Advisers Act of 1940, as amended, 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 Morgan serves as trustee.
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 $275 billion.
J.P. Morgan has a long history of service as adviser, underwriter and
lender to an extensive roster of major companies and as a financial advisor to
national governments. The firm, through its predecessor firms, has been in
business for over a century and has been managing investments since 1913.
The basis of the Advisor's investment process is fundamental investment
research as the firm believes that fundamentals should determine an asset's
value over the long term. J.P. Morgan currently employs over 100 full time
research analysts, among the largest research staffs in the money management
industry, in its investment management divisions located in New York, London,
Tokyo, Frankfurt, and Singapore to cover companies, industries and countries on
site. In addition, the investment management divisions employ approximately 300
capital market researchers, portfolio managers and traders. The Advisor's fixed
income investment process is based on analysis of real rates, sector
diversification and quantitative and credit analysis.
The investment advisory services the Advisor provides to the Portfolio
are not exclusive under the terms of the Advisory Agreement. The Advisor is free
to and does render similar investment advisory services to others. The Advisor
serves as investment advisor to personal investors and other investment
companies and acts as fiduciary for trusts, estates and employee benefit plans.
Certain of the assets of trusts and estates under management are invested in
common trust funds for which the Advisor serves as trustee. 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.
Morgan, also a wholly owned subsidiary of J.P. Morgan, is a bank holding
company organized under the laws of the State of Delaware. Morgan, whose
principal offices are at 60 Wall Street, New York, New York 10260, is a New
York trust company which conducts a general banking and trust business. Morgan
is subject to regulation by the New York State Banking Department and is a
member bank of the Federal Reserve System. Through offices in New York City
and abroad, Morgan offers a wide range of services, primarily to governmental,
institutional, corporate and high net worth individual customers in the United
States and throughout the world.
The 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
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 Morgan, the
Portfolio's advisor prior to October 1, 1998 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 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 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
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.
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
terminated at any time, without penalty, by the Trustees or Morgan, in each case
on not more than 60 days' nor less than 30 days' written notice to the other
party.
Under the Services Agreements, the Fund and the Portfolio have agreed
to pay Morgan fees equal to its allocable share of an annual complex-wide
charge. This charge is calculated daily based on the aggregate net assets of the
Master Portfolios and J.P. Morgan Series Trust in accordance with the following
annual schedule: 0.09% of the first $7 billion of their aggregate average daily
net assets and 0.04% of their aggregate average daily net assets in excess of $7
billion, less the complex-wide fees payable to FDI. The portion of this charge
payable by the Fund and Portfolio is determined by the proportionate share that
its net assets bear to the total net assets of the Trust, the Master Portfolios,
the other investors in the Master Portfolios for which Morgan provides similar
services and J.P. Morgan Series Trust.
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.
- ------------------------------------
(*)Indicates a reimbursement by Morgan for expenses in excess of its fees under
the Services Agreements. No fees were paid for the fiscal period. Portfolio --
For the fiscal years ended August 31, 1995, 1996 and 1997: $169,754, $205,419
and $397,340.
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02110, serves as the Trust's and the Portfolio's
custodian and fund accounting agent and the Fund's transfer and dividend
disbursing agent. Pursuant to the Custodian Contracts, State Street is
responsible for maintaining the books of account and records of portfolio
transactions and holding portfolio securities and cash. In addition, the
Custodian has entered into subcustodian agreements on behalf of the Portfolio
with Bankers Trust Company for the purpose of holding TENR Notes and with Bank
of New York and Chemical Bank, N.A. for the purpose of holding certain variable
rate demand notes. The custodian maintains portfolio transaction records. As
transfer agent and dividend disbursing agent, State Street is responsible for
maintaining account records detailing the ownership of Fund shares and for
crediting income, capital gains and other changes in share ownership to
shareholder accounts.
SHAREHOLDER SERVICING
The Trust on behalf of the Fund has entered into a Shareholder
Servicing Agreement with Morgan pursuant to which Morgan acts as shareholder
servicing agent for its customers and for other Fund investors who are customers
of a Financial Professional. Under this agreement, Morgan is responsible for
performing shareholder account, administrative and servicing functions, which
include but are not limited to, answering inquiries regarding account status and
history, the manner in which purchases and redemptions of Fund shares may be
effected, and certain other matters pertaining to the Fund; assisting customers
in designating and changing dividend options, account designations and
addresses; providing necessary personnel and facilities to coordinate the
establishment and maintenance of shareholder accounts and records with the
Fund's transfer agent; transmitting purchase and redemption 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.
Effective August 1, 1998, under the Shareholder Servicing Agreement,
the Fund has agreed to pay Morgan for these services a fee at the annual rate of
0.10%(expressed as a percentage of the average daily net asset value of Fund
shares owned by or for shareholders for whom Morgan is acting as shareholder
servicing agent). Morgan acts as shareholder servicing agent for all
shareholders. 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 the activities of JPMIM in acting as Advisor to the
Portfolio under the Investment Advisory Agreement may raise issues under these
laws. However, Morgan and JPMIM believes that they 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 J.P. Morgan ("financial professionals"), including financial
institutions and broker-dealers, that may be paid fees by J.P. Morgan or its
affiliates for services provided to their clients that invest in the Fund. See
"Financial Professionals" below. Organizations that provide recordkeeping or
other services to certain employee benefit or retirement plans that include the
Fund as an investment alternative may also be paid a fee.
FINANCIAL PROFESSIONALS
The services provided by financial professionals may include
establishing and maintaining shareholder accounts, processing purchase and
redemption transactions, arranging for bank wires, performing shareholder
subaccounting, answering client inquiries regarding the Trust, assisting clients
in changing dividend options, account designations and addresses, providing
periodic statements showing the client's account balance and integrating these
statements with those of other transactions and balances in the client's other
accounts serviced by the financial professional, transmitting proxy statements,
periodic reports, updated prospectuses and other communications to shareholders
and, with respect to meetings of shareholders, collecting, tabulating and
forwarding executed proxies and obtaining such other information and performing
such other services as Morgan or the financial professional's clients may
reasonably request and agree upon with the financial professional.
Although there is no sales charge levied directly by the Fund,
financial professionals may establish their own terms and conditions for
providing their services and may charge investors a transaction-based or other
fee for their services. Such charges may vary among financial professionals but
in all cases will be retained by the financial professional and not be remitted
to the Fund or J.P. Morgan.
INDEPENDENT ACCOUNTANTS
The independent accountants of the Trust and the Portfolio are
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York
10036. PricewaterhouseCoopers LLP conducts an annual audit of the financial
statements of the Fund and the Portfolio, assists in the preparation and/or
review of the Fund's and the Portfolio's federal and state income tax returns
and consults with the Fund and the Portfolio as to matters of accounting and
federal and state income taxation.
EXPENSES
In addition to the fees payable to Pierpont Group, Inc., JPMIM, Morgan
and FDI under various agreements discussed under "Trustees and Officers,"
"Investment Advisor," "Co-Administrator", "Distributor," "Services Agent" and
"Shareholder Servicing" above, the Fund and the Portfolio are responsible for
usual and customary expenses associated with their respective operations. Such
expenses include organization expenses, legal fees, accounting and audit
expenses, insurance costs, the compensation and expenses of the Trustees, costs
associated with their registration fees under federal securities laws, and
extraordinary expenses applicable to the Fund or the Portfolio. For the Fund,
such expenses also include transfer, registrar and dividend disbursing costs,
the expenses of printing and mailing reports, notices and proxy statements to
Fund shareholders, and filing fees under state securities laws. For the
Portfolio, such expenses also include custodian fees. 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 the Advisor, 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
Financial Professional, and the Financial Professional may charge the investor a
fee for this service and other services it provides to its customers.
<PAGE>
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.
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.
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.
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:
3.26%; Average annual total return, 5 years: 2.89%; average annual total return,
10 years: 3.78%; aggregate total return, 1 year: 3.26%; 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.
From time to time, the Funds may, in addition to any other permissible
information, include the following types of information in advertisements,
supplemental sales literature and reports to shareholders: (1) discussions of
general economic or financial principles (such as the effects of compounding and
the benefits of dollar-cost averaging); (2) discussions of general economic
trends; (3) presentations of statistical data to supplement such discussions;
(4) descriptions of past or anticipated portfolio holdings for one or more of
the Funds; (5) descriptions of investment strategies for one or more of the
Funds; (6) descriptions or comparisons of various savings and investment
products (including, but not limited to, qualified retirement plans and
individual stocks and bonds), which may or may not include the Funds; (7)
comparisons of investment products (including the Funds) with relevant markets
or industry indices or other appropriate benchmarks; (8) discussions of Fund
rankings or ratings by recognized rating organizations; and (9) discussions of
various statistical methods quantifying the Fund's volatility relative to its
benchmark or to past performance, including risk adjusted measures. The Funds
may also include calculations, such as hypothetical compounding examples, which
describe hypothetical investment results in such communications. Such
performance examples will be based on an express set of assumptions and are not
indicative of the performance of any of the Funds.
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 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.
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.
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 one vote for each dollar
of net asset value (or a proportionate fractional vote in respect of a
fractional dollar amount), on matters on which shares of the Fund shall be
entitled to vote. Subject to the 1940 Act, the Trustees themselves have the
power to alter the number and the terms of office of the Trustees, to lengthen
their own terms, or to make their terms of unlimited duration subject to certain
removal procedures, and appoint their own successors, provided, however, that
immediately after such appointment the requisite majority of the Trustees have
been elected by the shareholders of the Trust. The voting rights of shareholders
are not cumulative so that holders of more than 50% of the shares voting can, if
they choose, elect all Trustees being selected while the shareholders of the
remaining shares would be unable to elect any Trustees. It is the intention of
the Trust not to hold meetings of shareholders annually. The Trustees may call
meetings of shareholders for action by shareholder vote as may be required by
either the 1940 Act or the Trust's Declaration of Trust.
Shareholders of the Trust have the right, upon the declaration in
writing or vote of more than two-thirds of its outstanding shares, to remove a
Trustee. The Trustees will call a meeting of shareholders to vote on removal of
a Trustee upon the written request of the record holders of 10% of the Trust's
shares. In addition, whenever ten or more shareholders of record who have been
such for at least six months preceding the date of application, and who hold in
the aggregate either shares having a net asset value of at least $25,000 or at
least 1% of the Trust's outstanding shares, whichever is less, shall apply to
the Trustees in writing, stating that they wish to communicate with other
shareholders with a view to obtaining signatures to request a meeting for the
purpose of voting upon the question of removal of any Trustee or Trustees and
accompanied by a form of communication and request which they wish to transmit,
the Trustees shall within five business days after receipt of such application
either: (1) afford to such applicants access to a list of the names and
addresses of all shareholders as recorded on the books of the Trust; or (2)
inform such applicants as to the approximate number of shareholders of record,
and the approximate cost of mailing to them the proposed communication and form
of request. If the Trustees elect to follow the latter course, the Trustees,
upon the written request of such applicants, accompanied by a tender of the
material to be mailed and of the reasonable 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 23 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.
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 J.S. Dickson (6.37%), Rye Songs (7.07%), Morgan as Agent for S.R.
Wexner (10.58%).
The address of each owner listed above is c/o Morgan, 522 Fifth Avenue,
New York, New York 10036. As of the date of this Statement of Additional
Information, the officers and Trustees as a group owned less than 1% of the
shares of the Fund.
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 Master Portfolio, a separate registered investment
company with the same investment objective as the Fund. Generally, when a Master
Portfolio seeks a vote to change a fundamental investment restriction and
policies, 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 for each dollar of net asset value (or a proportionate
fractional vote in respect of a fractional dollar amount), on matters on which
shares of the Fund shall be entitled to vote.
In addition to selling a beneficial interest to the Fund, the Portfolio
may sell beneficial interests to other mutual funds or institutional investors.
Such investors will invest in the Portfolio on the same terms and conditions and
will bear a proportionate share of the Portfolio's expenses. However, the other
investors investing in the Portfolio may sell shares of their own fund using a
different pricing structure than the Fund. Such different pricing structures may
result in differences in returns experienced by investors in other funds that
invest in the Portfolio. Such differences in returns are not uncommon and are
present in other mutual fund structures. Information concerning other holders of
interests in the Portfolio is available from Morgan at (800) 766-7722.
The Trust may withdraw the investment of the Fund from the Portfolio at
any time if the Board of Trustees of the Trust determines that it is in the best
interests of the Fund to do so. Upon any such withdrawal, the Board of Trustees
would consider what action might be taken, including the investment of all the
assets of the Fund in another pooled investment entity having the same
investment objective and restrictions 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 fundamental investment policies or
restrictions, or a failure by the Fund's shareholders to approve such change in
the Portfolio's investment restrictions, may require withdrawal of the Fund's
interest in the Portfolio. Any such withdrawal could result in a distribution in
kind of portfolio securities (as opposed to a cash distribution) from the
Portfolio which may or may not be readily marketable. The distribution in kind
may result in the Fund having a less diversified portfolio of investments or
adversely affect the Fund's liquidity, and the Fund could incur brokerage, tax
or other charges in converting the securities to cash. Notwithstanding the
above, there are other means for meeting shareholder redemption requests, such
as borrowing.
Smaller funds investing in the Portfolio may be materially affected by
the actions of larger funds investing in the Portfolio. For example, if a large
fund withdraws from the Portfolio, the remaining funds may subsequently
experience higher pro rata operating expenses, thereby producing lower returns.
Additionally, because the Portfolio would become smaller, it may become
less diversified, resulting in potentially increased portfolio risk (however,
these possibilities also exist for traditionally structured funds which have
large or institutional investors who may withdraw from a fund). Also, funds with
a greater pro rata ownership in the Portfolio could have effective voting
control of the operations of the Portfolio. Whenever the Fund is requested to
vote on matters pertaining to the Portfolio (other than a vote by the Fund to
continue the operation of the Portfolio upon the withdrawal of another investor
in the Portfolio), the Trust will hold a meeting of shareholders of the Fund and
will cast all of its votes proportionately as instructed by the Fund's
shareholders. The Trust will vote the shares held by Fund shareholders who do
not give voting instructions in the same proportion as the shares of Fund
shareholders who do give voting instructions. Shareholders of the Fund who do
not vote will have no affect on the outcome of such matters.
TAXES
The following discussion of tax consequences is based on U.S. federal
tax laws in effect on the date of this Prospectus. These laws and regulations
are subject to change by legislative or administrative action.
The Fund intends to qualify and remain qualified as a regulated
investment company under Subchapter M of the Code. As a regulated investment
company, the Fund must, among other things, (a) derive at least 90% of its gross
income from dividends, interest, payments with respect to loans of stock and
securities, gains from the sale or other disposition of stock, securities or
foreign currency and other income (including but not limited to gains from
options, futures, and forward contracts) derived with respect to its business of
investing in such stock, securities or foreign currency; and (b) diversify its
holdings so that, at the end of each fiscal quarter of its taxable year, (i) at
least 50% of the value of the Fund's total assets is represented by cash, cash
items, U.S. Government securities, investment 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
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 gains in excess of net long-term capital losses (other than exempt
interest dividends) are generally taxable to shareholders of the Fund as
ordinary income whether such distributions are taken in cash or reinvested in
additional shares. 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
gains, regardless of whether such distributions are taken in cash or reinvested
in additional shares and regardless of how long a shareholder has held shares in
the Fund. In general, long-term capital gain of an individual shareholder will
be subject to a reduced rate of tax. Investors should consult their tax advisors
concerning the treatment of capital gains and losses. Additionally, any loss
realized on a redemption or exchange of shares of the Fund will be disallowed to
the extent the shares disposed of are replaced within a period of 61 days
beginning 30 days before such disposition, such as pursuant to reinvestment of a
dividend in shares of the Fund.
To maintain a constant $1.00 per share net asset value, the Trustees of
the Trust may direct that the number of outstanding shares be reduced pro rata.
If this adjustment is made, it will reflect the lower market value of portfolio
securities and not realized losses. The adjustment may result in a shareholder
having more dividend income than net income in his account for a period. When
the number of outstanding shares of the Fund is reduced, the shareholder's basis
in the shares of the Fund may be adjusted to reflect the difference between
taxable income and net dividends actually distributed. This difference may be
realized as a capital loss when the shares are liquidated. Subject to certain
limited exceptions, capital losses cannot be used to offset ordinary income. See
"Net Asset Value."
Gains or losses on sales of portfolio securities will be treated as
long-term capital gains or losses if the securities have been held for more than
one year except in certain cases where, if applicable, 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. 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.
If a correct and certified taxpayer identification number is not on
file, the Fund is required, subject to certain exemptions, to withold 31% of
certain payments made or distributions declared to non-corporate shareholders.
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 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, J.P. Morgan or Financial Professionals as
shareholder servicing agent may be tape recorded. With respect to the securities
offered hereby, this Statement of Additional Information and the Prospectus do
not contain all the information included in the Trust's registration statement
filed with the SEC under the 1933 Act and the 1940 Act and the Portfolio's
registration statements filed under the 1940 Act. Pursuant to the rules and
regulations of the SEC, certain portions have been omitted. The registration
statements including the exhibits filed therewith may be examined at the office
of the SEC in Washington, D.C.
Statements contained in this Statement of Additional Information and
the Prospectus concerning the contents of any contract or other document are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the applicable
Registration Statements.
Each such statement is qualified in all respects by such reference.
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in the
Prospectus and this Statement of Additional Information, in connection with the
offer contained therein and, if given or made, such other information or
representations must not be relied upon as having been authorized by any of the
Trust, the Fund or the Distributor. The Prospectus and this Statement of
Additional Information do not constitute an offer by the Fund or by the
Distributor to sell or solicit any offer to buy any of the securities offered
hereby in any jurisdiction to any person to whom it is unlawful for the Fund or
the Distributor to make such offer in such jurisdictions.
The Year 2000 Initiative
With the new millennium rapidly approaching, organizations are
examining their computer systems to ensure they are year 2000 compliant. The
issue, in simple terms, is that many existing computer systems use only two
numbers to identify a year in the date field with the assumption that the first
two digits are always 19. As the century is implied in the date, on January 1,
2000, computers that are not year 2000 compliant will assume the year is 1900.
Systems that calculate, compare, or sort using the incorrect date will cause
erroneous results, ranging from system malfunctions to incorrect or incomplete
transaction processing. If not remedied, potential risks include business
interruption or shutdown, financial loss, reputation loss, and/or legal
liability.
J.P. Morgan has undertaken a firmwide initiative to address the year
2000 issue and has developed a comprehensive plan to prepare, as appropriate,
its computer systems. Each business line has taken responsibility for
identifying and fixing the problem within its own area of operation and for
addressing all interdependencies. A multidisciplinary team of internal and
external experts supports the business teams by providing direction and firmwide
coordination. Working together, the business and multidisciplinary teams have
completed a thorough education and awareness initiative and a global inventory
and assessment of J.P. Morgan's technology and application portfolio to
understand the scope of the year 2000 impact at J.P. Morgan. J.P. Morgan
presently is renovating and testing these technologies and applications in
partnership with external consulting and software development organizations, as
well as with year 2000 tool providers. J.P. Morgan is on target with its plan to
substantially complete renovation, testing, and validation of its key systems by
year-end 1998 and to participate in industry-wide testing (or streetwide
testing) in 1999. J.P. Morgan is also working with key external parties,
including clients, counterparties, vendors, exchanges, depositories, utilities,
suppliers, agents and regulatory agencies, to stem the potential risks the year
2000 problem poses to J.P. Morgan and to the global financial community.
Costs associated with efforts to prepare J.P. Morgan's systems for the
year 2000 approximated $95 million in 1997. In 1998, J.P. Morgan will continue
its efforts to prepare its systems for the year 2000. The total cost to become
year-2000 compliant is estimated at $250 million, for internal systems
renovation and testing, testing equipment, and both internal and external
resources working on the project. Remaining costs will be incurred primarily in
1998. The costs associated with J.P. Morgan becoming year-2000 compliant will be
borne by J.P. Morgan and not the Fund nor the Portfolio.
The Euro
Effective January 1, 1999 the euro, a single multinational currency, will
replace the national currencies of certain countries in the Economic Monetary
Union (EMU). Conversion rates among EMU countries will be fixed on December 31,
1998, however, existing currencies will still be used through July 1, 2002.
During this transition period, transactions may be settled in either euro or
existing currencies, but financial markets and payment systems are expected to
use the euro exclusively. Beginning January 1, 1999, J.P. Morgan intends to
conduct and settle all fund transactions, where appropriate, in the euro.
J.P. Morgan has identified the following potential risks to the Fund,
after the conversion: The risk that valuation of assets are not properly
redenominated; currency risk resulting from increased volatility in exchange
rates between EMU countries and non-participating countries; the inability any
of the Funds, their service providers and the issuers of the Funds' portfolio
securities to make information technology updates timely; and the potential
unenforceability of contracts. There have been recent laws and regulations
designed to ensure the continuity of contracts, however there is a risk that the
valuation of contracts will be negatively impacted after the Funds' conversion.
J.P. Morgan is working to avoid these problems and to obtain assurances from
other service providers that they are taking similar steps. However, it is not
certain that these actions will be sufficient to prevent problems associated
with the conversion from adversely impacting fund operations and shareholders.
The I.R.S has concluded that euro conversion will not cause a U.S.
taxpayer to realize gain or loss to the extent taxpayer's rights and obligations
are altered solely by reason of the conversion.
FINANCIAL STATEMENTS
The following financial statements and the report thereon of Price
waterhouseCoopers 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
<PAGE>
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.
- ------------------------------------------------------ ------------------------
Date of Annual Report; Date Annual
Name of Fund Report Filed; and Accession Number
- ------------------------------------------------------ ------------------------
- ------------------------------------------------------ ------------------------
J.P. Morgan Institutional 08/31/97
Tax Exempt Money Market Fund 10/30/97
0001047469-97-002081
- ------------------------------------------------------ ------------------------
<PAGE>
I:\dsfndlgl\institut\1098mm.497\temmsai.doc
A-2
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.
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.
--------
1 Mr. Healey is an "interested person" (as defined in the 1940 Act) of
the Trust. Mr. Healey is also an "interested person" (as defined in the
1940 Act) of the advisor due to his son's affiliation with JPMIM.
- -------------------------------------------------------------------------------
================================================================================
FEBRUARY 2, 1998
AS REVISED | PROSPECTUS
OCTOBER 1, 1998
================================================================================
J.P. MORGAN INSTITUTIONAL SERVICE
PRIME MONEY MARKET FUND
===========================================
Seeking to provide high current income
consistent with the preservation of capital
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>
================================================================================
<PAGE>
CONTENTS
<TABLE>
====================================================================================================================================
<S> <C> <C>
3 | MONEY MARKET MANAGEMENT APPROACH
Money market investment process ....................................................3
4 | J.P. MORGAN INSTITUTIONAL SERVICE 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 through a service organization ...........................................6
Investing in the J.P. Morgan Institutional
Service 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
business operations Management and administration ......................................................9
FOR MORE INFORMATION ......................................................back cover
</TABLE>
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| 1
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<PAGE>
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:
. want an investment that strives to preserve capital
. want regular income from a high quality portfolio
. want a highly liquid investment
. are looking for an interim investment
. are pursuing a short-term goal
The fund is not designed for investors who:
. are investing for long-term growth
. are investing for high income
. 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 $275 billion in assets under management,
including assets managed by the fund's advisor, J.P. Morgan Investment
Management Inc.
========================================
Before you invest
Investors considering the fund should
understand that:
. There is no assurance that the fund
will meet its investment goals
. Future returns will not necessarily
resemble past performance
. The fund does not represent a
complete investment program
- ----------------------------------------
|
2 |
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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:
Maturity determination Based on
analysis of a range of factors,
including current yields, economic
forecasts, and anticipated fiscal
and monetary policies, J.P. Morgan
[GRAPHIC] establishes the desired weighted
average maturity for the fund
J.P. Morgan uses a disciplined process within the permissible 90-day
to control the fund's sensitivity range. Controlling weighted average
to interest rates 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
The fund invests across different sectors sectors of the short-term debt
for diversification and to take advantage market, such as corporate, bank and
of yield spreads U.S. government obligations, allows
J.P. Morgan to adjust the fund's
sector allocation, with the goal of
enhancing current income while also
maintaining diversification across
sectors.
Security selection Based on the
results of the firm's credit
research and the fund's maturity
determination and sector
allocation, the portfolio managers
[GRAPHIC] and dedicated fixed-income traders
make buy and sell decisions
The fund selects its securities as according to the fund's goal and
described later in this prospectus strategy.
|
MONEY MARKET MANAGEMENT APPROACH | 3
|
<PAGE>
J.P. MORGAN INSTITUTIONAL SERVICE
PRIME MONEY MARKET FUND |
================================================================================
REGISTRANT: J.P. MORGANINSTITUTIONAL FUNDS
(J.P. MORGAN INSTITUTIONAL SERVICE
PRIME MONEY MARKET FUND)
[GRAPHIC] GOAL
The fund's goal is to maximize current income consistent with the preservation
of capital and same-day liquidity. This goal can be changed without shareholder
approval.
[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 3.
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
desires. 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 $275 billion, including more than $12 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 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>
<TABLE>
<CAPTION>
================================================================================
Expense example
================================================================================
The example below uses the same assumptions as other fund prospectuses: $1,000
initial investment, 5% annual total return, expenses unchanged, all shares sold
at the end of each time period. The example is for comparison only; the fund's
actual return and expenses will be different.
- --------------------------------------------------------------------------------
1 yr. 3 yrs.
<S> <C> <C>
Your cost($) 5 14
- --------------------------------------------------------------------------------
</TABLE>
|
4 | J.P. MORGAN INSTITUTIONAL SERVICE PRIME MONEY MARKET FUND
|
<PAGE>
<TABLE>
====================================================================================================================================
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>
[THE FOLLOWING TABLE WAS REPRESENTED BY 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 Service Prime Money Market Fund(4) 7.38 9.13 8.04 6.07 3.67 2.83 3.95 5.79 5.21 5.41
- ------------------------------------------------------------------------------------------------------------------------------------
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 PricewaterhouseCoopers 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:
. 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.
. 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.
. 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
. Mail your completed application to the Shareholder Services Agent.
. 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.
. 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
. Make out a check for the investment amount payable to J.P. Morgan
Institutional Funds.
. Mail the check with your completed application to the Shareholder Services
Agent.
By exchange
. Call the Shareholder Services Agent to effect an exchange.
ADDING TO YOUR ACCOUNT
By wire
. Call the Shareholder Services Agent to place a purchase order. Funds that
are wired without a purchase order will be returned uninvested.
. Once you have placed your purchase order, instruct your bank to wire the
amount of your investment as described above.
By check
. Make out a check for the investment amount payable to J.P. Morgan
Institutional Funds.
|
6 | YOUR INVESTMENT
|
<PAGE>
================================================================================
. 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
. Call the Shareholder Services Agent to effect an exchange.
SELLING SHARES
By phone -- wire payment
. 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.
. 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
. 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
. 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.
. Indicate whether you want the proceeds sent by check or by wire.
. Make sure the letter is signed by an authorized party. The Shareholder
Services Agent may require additional information, such as a signature
guarantee.
. Mail the letter to the Shareholder Services Agent.
By exchange
. 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>
<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 full or
fractional vote for each dollar or fraction of a dollar invested.
The fund and its master portfolio expect to maintain consistent goals, but if
they do not, the fund will withdraw from the master portfolio, receiving its
assets either in cash or securities. The fund's trustees would then consider
whether the fund should hire its own investment adviser, invest in a different
master portfolio, or take other action.
MANAGEMENT AND ADMINISTRATION
The fund and its master portfolio are governed by the same trustees. The
trustees are responsible for overseeing all business activities. The trustees
are assisted by Pierpont Group, Inc., which they own and operate on a cost
basis; costs are shared by all funds governed by these trustees. Funds
Distributor, Inc., as co-administrator, along with J.P. Morgan, provides fund
officers. J.P. Morgan, as co-administrator, oversees the fund's other service
providers.
J.P. Morgan 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.
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.
Year 2000 Fund operations and shareholders could be adversely affected if the
computer systems used by J.P. Morgan, the fund's other service providers and
other entities with computer systems linked to the fund do not properly process
and calculate January 1, 2000 and after date-related information. J.P. Morgan is
working to avoid these problems and to obtain assurances from other service
providers that they are taking similar steps. However, it is not certain that
these actions will be sufficient to prevent these date-related problems from
adversely impacting fund operations and shareholders. In addition, to the extent
that operations of issuers of securities held by the fund are impaired by
date-related problems or prices of securities decline as a result of real or
perceived date-related problems of issuers held by the fund or generally, the
net asset value of the fund will decline.
|
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, along with other information
about the fund, 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, upon
payment of a duplicating fee, from the Public Reference Room of the Securities
and Exchange Commission in Washington, D.C. (1-800-SEC-0330) and may be viewed
on-screen or downloaded from the SEC's Internet site at http://www.sec.gov. The
fund's investment company and 1933 Act registration numbers are 811-07342 and
033-54642.
J.P. MORGAN INSTITUTIONAL FUNDS AND THE MORGAN TRADITION
The J.P. Morgan Institutional Funds combine a heritage of integrity and
financial leadership with comprehensive, sophisticated analysis and management
techniques. Drawing on J.P. Morgan's extensive experience and depth as an
investment manager, the J.P. Morgan Institutional Funds offer a broad array of
distinctive opportunities for mutual fund investors.
[LOGO] JPMorgan
================================================================================
J.P. Morgan Institutional Funds
Advisor Distributor
J.P. Morgan Investment Management Inc. Funds Distributor, Inc.
522 Fifth Avenue 60 State Street
New York, NY 10036 Boston, MA 02109
1-800-766-7722 1-800-221-7930
PROS366-9810
- ------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
FEBRUARY 2, 1998 |
AS REVISED | PROSPECTUS
OCTOBER 1, 1998 |
================================================================================
J.P. MORGAN INSTITUTIONAL SERVICE
TREASURY MONEY MARKET FUND
===========================================
Seeking to provide high current income
consistent with the preservation of capital
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>
CONTENTS
<TABLE>
====================================================================================================================================
<S> <C> <C>
3 | MONEY MARKET MANAGEMENT APPROACH
Money market investment process.............................................3
4 | J.P. MORGAN INSTITUTIONAL SERVICE TREASURY MONEY MARKET FUND
Fund description ...........................................................4
The fund's goal, investment approach,
risks, expenses, performance, and Investor expenses ..........................................................4
financial highlights
Performance ................................................................5
Financial highlights .......................................................5
6 | YOUR INVESTMENT
Investing through a service organization ...................................6
Investing in the J.P. Morgan Institutional
Service Treasury 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
business operations Management and administration ..............................................9
FOR MORE INFORMATION ...............................................back cover
</TABLE>
|
| 1
|
<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 $275 billion in assets under management,
including assets managed by the fund's advisor, J.P. Morgan Investment
Management Inc.
========================================
Before you invest
Investors considering the fund should
understand that:
o 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
- ----------------------------------------
|
2 |
|
<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
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 of allocation, with the goal of enhancing
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.
|
MONEY MARKET MANAGEMENT APPROACH | 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 high current income consistent with the
preservation of capital and same-day liquidity. This goal can be changed without
shareholder approval.
[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 3.
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 $275 billion, including more than $12 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) 0.11
Marketing (12b-1) fees None
Other expenses(2)
(after reimbursement) None
Service fees(3) 0.25
================================================================================
Total operating expenses(2)
(after reimbursement) 0.36
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
================================================================================
Expense example
================================================================================
The example below uses the same assumptions as other fund prospectuses: $1,000
initial investment, 5% annual total return, expenses unchanged, all shares sold
at the end of each time period. The example is for comparison only; the fund's
actual return and expenses will be different.
- --------------------------------------------------------------------------------
1 yr. 3 yrs.
<S> <C> <C>
Your cost($) 4 14
- --------------------------------------------------------------------------------
</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>
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
==================================
Year-by-year total return (%) Shows changes in returns for period ended December 31, 1997
==================================--------------------------------------------------------------------------------------------------
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 PricewaterhouseCoopers LLP, the fund's independent accountants.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The fund has a master/feeder structure as described on page 9. Due to the
fund's blended expense limitation (as described in footnote 2), this table
shows the fund's expenses and its share of master portfolio expenses for
the current fiscal year ending 10/31/98, expressed as a percentage of the
fund's average net assets after reimbursement for ordinary expenses over
0.36%.
(2) The total operating expenses for the fund is subject to a blended expense
limitation which requires various reimbursements through 10/31/98 (see
"Management and Administration")and may not necessarily represent the
actual amount incurred by a shareholder. Without reimbursement, the
advisory fee, other expenses and total operating expenses are estimated to
be 0.20%, 0.18% and 0.63%, respectively for the current fiscal year. 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 7/7/97and 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 4:30 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 4:30 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 4:30 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 4:30 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 full or
fractional vote for each dollar or fraction of a dollar invested.
The fund and its master portfolio expect to maintain consistent goals, but if
they do not, the fund will withdraw from the master portfolio, receiving its
assets either in cash or securities. The fund's trustees would then consider
whether the fund should hire its own investment adviser, invest in a different
master portfolio, or take other action.
MANAGEMENT AND ADMINISTRATION
The fund and its master portfolio are governed by the same trustees. The
trustees are responsible for overseeing all business activities. The trustees
are assisted by Pierpont Group, Inc., which they own and operate on a cost
basis; costs are shared by all funds governed by these trustees. Funds
Distributor, Inc., as co-administrator, along with J.P. Morgan, provides fund
officers. J.P. Morgan, as co-administrator, oversees the fund's other service
providers.
J.P. Morgan 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 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:
12/1/97 - 7/31/98 0.35%
8/1/98 - 11/30/98 0.40%
12/1/98 - 2/28/99 0.45%
J.P. Morgan may pay fees to certain firms and professionals for providing
recordkeeping or other services in connection with investments in the fund.
Year 2000 Fund operations and shareholders could be adversely affected if the
computer systems used by J.P. Morgan, the fund's other service providers and
other entities with computer systems linked to the fund do not properly process
and calculate January 1, 2000 and after date-related information. J.P. Morgan is
working to avoid these problems and to obtain assurances from other service
providers that they are taking similar steps. However, it is not certain that
these actions will be sufficient to prevent these date-related problems from
adversely impacting fund operations and shareholders. In addition, to the extent
that operations of issuers of securities held by the fund are impaired by
date-related problems or prices of securities decline as a result of real or
perceived date-related problems of issuers held by the fund or generally, the
net asset value of the fund will decline.
|
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, along with other information
about the fund, 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, upon
payment of a duplicating fee, from the Public Reference Room of the Securities
and Exchange Commission in Washington, D.C. (1-800-SEC-0330) and may be viewed
on-screen or downloaded from the SEC's Internet site at http://www.sec.gov. The
fund's investment company and 1933 Act registration numbers are 811-07342 and
033-54642.
J.P. MORGAN INSTITUTIONAL FUNDS AND THE MORGAN TRADITION
The J.P. Morgan Institutional Funds combine a heritage of integrity and
financial leadership with comprehensive, sophisticated analysis and management
techniques. Drawing on J.P. Morgan's extensive experience and depth as an
investment manager, the J.P. Morgan Institutional Funds offer a broad array of
distinctive opportunities for mutual fund investors.
[LOGO] JPMorgan
================================================================================
J.P. Morgan Institutional Funds
Advisor Distributor
J.P. Morgan Investment Management Inc. Funds Distributor, Inc.
522 Fifth Avenue 60 State Street
New York, NY 10036 Boston, MA 02109
1-800-766-7722 1-800-221-7930
PROS369-9810
- ------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FEBRUARY 2, 1998 |
AS REVISED | PROSPECTUS
OCTOBER 1, 1998 |
================================================================================
J.P. MORGAN INSTITUTIONAL SERVICE
FEDERAL MONEY MARKET FUND
===========================================
Seeking to provide high current income
consistent with the preservation of capital
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>
================================================================================
<PAGE>
CONTENTS
<TABLE>
====================================================================================================================================
<S> <C> <C>
3 | MONEY MARKET MANAGEMENT APPROACH
Money market investment process.............................................3
4 | J.P. MORGAN INSTITUTIONAL SERVICE FEDERAL MONEY MARKET FUND
Fund description ...........................................................4
The fund's goal, investment approach,
risks, expenses, performance Investor expenses ..........................................................4
Performance ................................................................5
6 | YOUR INVESTMENT
Investing through a service organization ...................................6
Investing in the J.P. Morgan Institutional
Service Federal 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
business operations Management and administration ..............................................9
FOR MORE INFORMATION ...............................................back cover
</TABLE>
|
| 1
|
<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:
. want an investment that strives to preserve capital
. want regular income from a high quality portfolio
. want a highly liquid investment
. are looking for an interim investment
. are pursuing a short-term goal
. are seeking income that is generally exempt from state and local income
taxes
The fund is not designed for investors who:
. are investing for long-term growth
. are investing for high income
. 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 $275 billion in assets under management,
including assets managed by the fund's advisor, J.P. Morgan Investment
Management Inc.
========================================
Before you invest
Investors considering the fund should
understand that:
o 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
- ----------------------------------------
|
2 |
|
<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
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 various U.S government
The fund invests in various U.S. agency securities and obligations of the
government agencies and obligations U.S. Treasury, allows J.P. Morgan to
of the U.S. Treasury to take adjust the fund's sector allocation,
advantage of yield spreads with the goal of enhancing 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.
|
MONEY MARKET MANAGEMENT APPROACH | 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 high current income consistent with the
preservation of capital and same-day liquidity. This goal can be changed without
shareholder approval.
[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 3.
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 $275 billion, including more than $12 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 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>
<TABLE>
<CAPTION>
================================================================================
Expense example
================================================================================
The example below uses the same assumptions as other fund prospectuses: $1,000
initial investment, 5% annual total return, expenses unchanged, all shares sold
at the end of each time period. The example is for comparison only; the fund's
actual return and expenses will be different.
- --------------------------------------------------------------------------------
1 yr. 3 yrs.
<S> <C> <C>
Your cost($) 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
======================================----------------------------------------------------------------------------------------------
1 yr. 3 yrs. Since inception
<S> <C> <C> <C>
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 BY 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:
. 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.
. 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.
. 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
. Mail your completed application to the Shareholder Services Agent.
. 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.
. 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
. Make out a check for the investment amount payable to J.P. Morgan
Institutional Funds.
. Mail the check with your completed application to the Shareholder Services
Agent.
By exchange
. Call the Shareholder Services Agent to effect an exchange.
ADDING TO YOUR ACCOUNT
By wire
. Call the Shareholder Services Agent to place a purchase order. Funds that
are wired without a purchase order will be returned uninvested.
. Once you have placed your purchase order, instruct your bank to wire the
amount of your investment as described above.
By check
. Make out a check for the investment amount payable to J.P. Morgan
Institutional Funds.
. 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
. Call the Shareholder Services Agent to effect an exchange.
SELLING SHARES
By phone -- wire payment
. 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.
. 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
. 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
. 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.
. Indicate whether you want the proceeds sent by check or by wire.
. Make sure the letter is signed by an authorized party. The Shareholder
Services Agent may require additional information, such as a signature
guarantee.
. Mail the letter to the Shareholder Services Agent.
By exchange
. 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
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<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.
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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 full or
fractional vote for each dollar or fraction of a dollar invested.
The fund and its master portfolio expect to maintain consistent goals, but if
they do not, the fund will withdraw from the master portfolio, receiving its
assets either in cash or securities. The fund's trustees would then consider
whether the fund should hire its own investment adviser, invest in a different
master portfolio, or take other action.
MANAGEMENT AND ADMINISTRATION
The fund and its master portfolio are governed by the same trustees. The
trustees are responsible for overseeing all business activities. The trustees
are assisted by Pierpont Group, Inc., which they own and operate on a cost
basis; costs are shared by all funds governed by these trustees. Funds
Distributor, Inc., as co-administrator, along with J.P. Morgan, provides fund
officers. J.P. Morgan, as co-administrator, oversees the fund's other service
providers.
J.P. Morgan 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.
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.
Year 2000 Fund operations and shareholders could be adversely affected if the
computer systems used by J.P. Morgan, the fund's other service providers and
other entities with computer systems linked to the fund do not properly process
and calculate January 1, 2000 and after date-related information. J.P. Morgan is
working to avoid these problems and to obtain assurances from other service
providers that they are taking similar steps. However, it is not certain that
these actions will be sufficient to prevent these date-related problems from
adversely impacting fund operations and shareholders. In addition, to the extent
that operations of issuers of securities held by the fund are impaired by
date-related problems or prices of securities decline as a result of real or
perceived date-related problems of issuers held by the fund or generally, the
net asset value of the fund will decline.
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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, along with other information
about the fund, 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, upon
payment of a duplicating fee, from the Public Reference Room of the Securities
and Exchange Commission in Washington, D.C. (1-800-SEC-0330) and may be viewed
on-screen or downloaded from the SEC's Internet site at http://www.sec.gov. The
fund's investment company and 1933 Act registration numbers are 811-07342 and
033-54642.
J.P. MORGAN INSTITUTIONAL FUNDS AND THE MORGAN TRADITION
The J.P. Morgan Institutional Funds combine a heritage of integrity and
financial leadership with comprehensive, sophisticated analysis and management
techniques. Drawing on J.P. Morgan's extensive experience and depth as an
investment manager, the J.P. Morgan Institutional Funds offer a broad array of
distinctive opportunities for mutual fund investors.
[LOGO] JPMorgan
================================================================================
J.P. Morgan Institutional Funds
Advisor Distributor
J.P. Morgan Investment Management Inc. Funds Distributor, Inc.
522 Fifth Avenue 60 State Street
New York, NY 10036 Boston, MA 02109
1-800-766-7722 1-800-221-7930
PROS367-9810
- -------------------------------------------------------------------------------
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
AS REVISED
OCTOBER 1, 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, AS REVISED OCTOBER 1, 1998 FOR THE FUND OR FUNDS LISTED
ABOVE, AS SUPPLEMENTED FROM TIME TO TIME. ADDITIONALLY, THIS STATEMENT OF
ADDITIONAL INFORMATION INCORPORATES BY REFERENCE THE FINANCIAL STATEMENTS
INCLUDED IN THE SHAREHOLDER REPORTS RELATING TO THE FUNDS LISTED ABOVE. THE
PROSPECTUS AND THESE FINANCIAL STATEMENTS FOR THE FUNDS LISTED ABOVE, INCLUDING
THE AUDITOR'S REPORT THEREON, ARE AVAILABLE, WITHOUT CHARGE, UPON REQUEST FROM
FUNDS DISTRIBUTOR, INC., ATTENTION: J.P. MORGAN INSTITUTIONAL SERVICE FUNDS
(800) 221-7930.
<PAGE>
i:\dsfndlgl\institut\1098mm.pea\servsai.doc
Table of Contents
Page
General.....................................................................1
Investment Objectives and Policies..........................................1
Investment Restrictions.....................................................9
Trustees and Officers.......................................................14
Investment Advisor..........................................................18
Distributor.................................................................20
Co-Administrator............................................................21
Services Agent..............................................................22
Custodian and Transfer Agent................................................23
Shareholder Servicing.......................................................23
Service Organization........................................................24
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......................................................31
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
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."
The Portfolio is advised by J.P. Morgan Investment Management Inc. ("JPMIM"
or the "Advisor").
Investments in a Fund are not deposits or obligations of, or guaranteed
or endorsed by, Morgan Guaranty Trust Company of New York, ("Morgan"), an
affiliate of the Advisor, or any other bank. Shares of 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 high current income
consistent with the preservation of capital and same day liquidity from a
portfolio of high quality money market instruments. The Prime Money Market
Fund's investment objective is to maximize current income while maintaining 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 high current
income consistent with the preservation of capital and same-day liquidity from a
portfolio of high quality money market instruments. 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 high current
income with the preservation of capital and same-day liquidity from a portfolio
of high quality money market instruments. 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 acting as agent, for no
additional fee. The monies loaned to the borrower come from accounts managed by
Morgan or its affiliates, pursuant to arrangements with such accounts. Interest
and principal payments are credited to such accounts. Morgan, an affiliate of
the Advisor, 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 thirteen months. The securities which are subject to
repurchase agreements, however, may have maturity dates in excess of thirteen
months from the effective date of the repurchase agreement. The 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. Also, a Fund may be
disadvantaged if the other party to the transactions defaults. 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 or any order pursuant thereto. These limits
currently require that, as determined immediately after a purchase is made, (i)
not more than 5% of the value of 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 reflecting the interest rate effective for the term of the
agreement. 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
each Fund with respect to borrowers of its portfolio securities are similar to
the risks to the Funds 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 Funds' 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 securities or receives
upon resale may be lower than the price paid or received for similar securities
with a more liquid market. Accordingly the valuation of these securities will
reflect any limitations on their liquidity.
The 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. Current 1940 Act requirements require that with respect to 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) 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; 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, except as noted, 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 Treasury Money Market Fund and its corresponding portfolio:
1. May not make any investment inconsistent with the Fund's classification as a
diversified investment company under the Investment Company Act of 1940.
2. May not purchase any security which would cause the Fund to concentrate its
investments in the securities of issuers primarily engaged in any particular
industry except as permitted by the SEC;
3. May not issue senior securities, except as permitted under the Investment
Company Act of 1940 or any rule, order or interpretation thereunder;
4. May not borrow money, except to the extent permitted by applicable law;
5. May not underwrite securities of other issuers, except to the extent that the
Fund, in disposing of portfolio securities, may be deemed an underwriter within
the meaning of the 1933 Act;
6. May not purchase or sell real estate, except that, to the extent permitted by
applicable law, the Fund may (a) invest in securities or other instruments
directly or indirectly secured by real estate, (b) invest in securities or other
instruments issued by issuers that invest in real estate;
7. May not purchase or sell commodities or commodity contracts unless acquired
as a result of ownership of securities or other instruments issued by persons
that purchase or sell commodities or commodities contracts; but this shall not
prevent the Fund from purchasing, selling and entering into financial futures
contracts (including futures contracts on indices of securities, interest rates
and currencies), options on financial futures contracts (including futures
contracts on indices of securities, interest rates and currencies), warrants,
swaps, forward contracts, foreign currency spot and forward contracts or other
derivative instruments that are not related to physical commodities; and
8. May make loans to other persons, in accordance with the Fund's investment
objective and policies and to the extent permitted by applicable law.
The Prime Money Market Fund 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 Prime Money Market Portfolio, except as noted below, has adopted
substantially similar fundamental investment restrictions. Investment
restrictions numbered 8 and 9 above are non-fundamental for the Portfolio. The
Portfolio's fundamental borrowing restriction allows the Portfolio to borrow to
the extent permitted by law, currently 33-1/3% of total assets. The Portfolio,
however, has adopted a non-fundamental investment restriction limiting its
borrowing ability to 10% of total assets. These differences are not expected to
materially affect the management of the Portfolio.
The Federal Money Market Fund 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.
The Federal Money Market Portfolio, except as noted below, has adopted
substantially similar fundamental investment restrictions. Investment
restrictions numbered 7 and 8 above are non-fundamental for the Portfolio. The
Portfolio's fundamental borrowing restriction allows the Portfolio to borrow to
the extent permitted by law, currently 33-1/3% of total assets. The Portfolio,
however, has adopted a non-fundamental investment restriction limiting its
borrowing ability to 10% of total assets. These differences are note expected to
materially affect the management of the portfolio.
Non-Fundamental Investment Restrictions - Treasury Money Market Fund.
The investment restrictions described below are not fundamental policies of the
Fund and its Portfolio and may be changed by their Trustees. These
non-fundamental investment policies require that the Fund and its corresponding
Portfolio:
(i) May not acquire any illiquid securities, such as repurchase agreements with
more than seven days to maturity or fixed time deposits with a duration of over
seven calendar days, if as a result thereof, more than 10% of the market value
of the Fund's total assets would be in investments which are illiquid;
(ii) May not purchase securities on margin, make short sales of securities, or
maintain a short position, provided that this restriction shall not be deemed to
be applicable to the purchase or sale of when-issued or delayed delivery
securities
(iii)May not acquire securities of other investment companies, except as
permitted by the 1940 Act or any order pursuant thereto.
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 - Federal Money Market. The
investment restriction described below is not a fundamental policy of the Fund
or the 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, 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, Texas 78746, and his date of birth is January 1, 1932.
WILLIAM G. BURNS--Trustee; Retired, Former Vice Chairman and Chief
Financial Officer, NYNEX. His address is 2200 Alaqua Drive, Longwood, Florida
32779, and his date of birth is November 2, 1932.
ARTHUR C. ESCHENLAUER--Trustee; Retired; Former Senior Vice President,
Morgan Guaranty Trust Company of New York. His address is 14 Alta Vista Drive,
RD #2, Princeton, New Jersey 08540, and his date of birth is May 23, 1934.
MATTHEW HEALEY1--Trustee, Chairman and Chief Executive Officer;
Chairman, Pierpont Group, Inc., since prior to 1992. His address is Pine Tree
Club Estates, 10286 Saint Andrews Road, Boynton Beach, Florida 33436, and his
date of birth is August 23, 1937.
MICHAEL P. MALLARDI--Trustee; Retired; Prior to April 1996, Senior Vice
President, Capital Cities/ABC, Inc. and President, Broadcast Group. His address
is 10 Charnwood Drive, Suffern, New York 10910, and his date of birth is March
17, 1934.
The Trustees of the Trust are the same as the Trustees of 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 (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 these
funds.
Trustee compensation expenses paid by the Trust for the calendar year ended
December 31, 1997 are set forth below.
<TABLE>
<C> <S> <S>
- --------------------------------------------------- ------------------------------ -------------------------------------------
TOTAL TRUSTEE COMPENSATION ACCRUED BY THE
MASTER PORTFOLIOS (*), J.P. MORGAN
AGGREGATE TRUSTEE FUNDS, J.P. MORGAN SERIES TRUST AND THE
COMPENSATION TRUST DURING 1997 (***)
PAID BY THE
NAME OF TRUSTEE TRUST DURING 1997
- --------------------------------------------------- ------------------------------ -------------------------------------------
- --------------------------------------------------- ------------------------------ -------------------------------------------
Frederick S. Addy, Trustee $ 11,772.77 $ 72,500
- --------------------------------------------------- ------------------------------ -------------------------------------------
- --------------------------------------------------- ------------------------------ -------------------------------------------
William G. Burns, Trustee $ 11,786.38 $ 72,500
- --------------------------------------------------- ------------------------------ -------------------------------------------
- --------------------------------------------------- ------------------------------ -------------------------------------------
Arthur C. Eschenlauer, Trustee $ 11,786.38 $ 72,500
- --------------------------------------------------- ------------------------------ -------------------------------------------
- --------------------------------------------------- ------------------------------ -------------------------------------------
Matthew Healey, Trustee(**), $ 11,786.38 $ 72,500
Chairman and Chief Executive
Officer
- --------------------------------------------------- ------------------------------ -------------------------------------------
- --------------------------------------------------- ------------------------------ -------------------------------------------
Michael P. Mallardi, Trustee $ 11,786.38 $ 75,000
- --------------------------------------------------- ------------------------------ -------------------------------------------
</TABLE>
(*) Includes the Portfolio and 17 other portfolios (collectively, the
"Master Portfolios") for which JPMIM acts as investment adviser.
(**) 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 decide upon general policies and are responsible for
overseeing the Trust's and Portfolio's business affairs. 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 (now the J.P. Morgan Family of Funds), and the Trustees are the
equal and sole shareholders of Pierpont Group, Inc. The Trust and the 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, Florida 33436. His date of birth is August 23, 1937.
MARGARET W. CHAMBERS; Vice President and Secretary. Senior Vice President
and General Counsel of FDI since April, 1998. From August 1996 to March 1998,
Ms. Chambers was Vice President and Assistant General Counsel for Loomis, Sayles
& Company, L.P. From January 1986 to July 1996, she was an associate with the
law firm of Ropes & Gray. Her date of birth is October 12, 1959.
MARIE E. CONNOLLY; Vice President and Assistant Treasurer. President,
Chief Executive Officer, Chief Compliance Officer and Director of FDI, Premier
Mutual Fund Services, Inc., an affiliate of FDI ("Premier Mutual") and an
officer of certain investment companies distributed or administered by FDI.
Prior to July 1994, she was President and Chief Compliance Officer of FDI. Her
date of birth is August 1, 1957.
DOUGLAS C. CONROY; Vice President and Assistant Treasurer. Assistant Vice
President and Assistant Department Manager of Treasury Services and
Administration of FDI and an officer of certain investment companies distributed
or administered by FDI. Prior to April 1997, Mr. Conroy was Supervisor of
Treasury Services and Administration of FDI. From April 1993 to January 1995,
Mr. Conroy was a Senior Fund Accountant for Investors Bank & Trust Company. His
date of birth is March 31, 1969.
JACQUELINE HENNING (of The Prime Money Market Portfolio only); Assistant
Secretary and Assistant Treasurer of the Portfolio only. Managing Director,
State Street Cayman Trust Company, Ltd. since October 1994. Prior to October
1994, Mrs. Henning was head of mutual funds at Morgan Grenfell in Cayman and was
Managing Director of Bank of Nova Scotia Trust Company (Cayman) Limited prior to
September 1993. Address: P.O. Box 2508 GT, Elizabethan Square, 2nd Floor,
Shedden Road, George Town, Grand Cayman, Cayman Islands, BWI. Her date of birth
is March 24, 1942.
KAREN JACOPPO-WOOD; Vice President and Assistant Secretary. Vice President
and Senior Counsel of FDI and an officer of certain investment companies
distributed or administered by FDI. From June 1994 to January 1996, Ms.
Jacoppo-Wood was a Manager of SEC Registration at Scudder, Stevens & Clark, Inc.
Prior to May 1994, Ms. Jacoppo-Wood was a senior paralegal at The Boston Company
Advisors, Inc. ("TBCA"). Her date of birth is December 29, 1966.
CHRISTOPHER J. KELLEY; Vice President and Assistant Secretary. Vice
President and Senior Associate General Counsel of FDI and Premier Mutual and an
officer of certain investment companies distributed or administered by FDI. From
April 1994 to July 1996, Mr. Kelley was Assistant Counsel at Forum Financial
Group. Prior to April 1994, Mr. Kelley was employed by Putnam Investments in
legal and compliance capacities. His date of birth is December 24, 1964.
KATHLEEN K. MORRISEY. Vice President and Assistant Secretary. Vice
President and Assistant Secretary of FDI. Manager of Treasury Services
Administration and an officer of certain investment companies advised or
administered by Montgomery Asset Management, L.P. and Dresdner RCM Global
Investors, Inc., and their respective affiliates. From July 1994 to November
1995, Ms. Morrisey was a Fund Accountant II for Investors Bank & Trust Company.
Prior to July 1994 she was a Finance student at Stonehill College in North
Easton, Massachusetts. Her date of birth is July 5, 1972.
MARY A. NELSON; Vice President and Assistant Treasurer. Vice President and
Manager of Treasury Services and Administration of FDI and Premier Mutual and an
officer of certain investment companies distributed or administered by FDI.
Prior to August 1994, Ms. Nelson was an Assistant Vice President and Client
Manager for The Boston Company, Inc. Her date of birth is April 22, 1964.
MARY JO PACE; Assistant Treasurer. Vice President, Morgan Guaranty Trust
Company of New York. Ms. Pace serves in the Funds Administration group as a
Manager for the Budgeting and Expense Processing Group. Prior to September 1995,
Ms. Pace served as a Fund Administrator for Morgan Guaranty Trust Company of New
York. Her address is 60 Wall Street, New York, New York 10260. Her date of birth
is March 13, 1966.
MICHAEL S. PETRUCELLI; Vice President and Assistant Secretary. Senior Vice
President and Director of Strategic Client Initiatives for FDI since December
1996. From December 1989 through November 1996, Mr. Petrucelli was employed with
GE Investments where he held various financial, business development and
compliance positions. He also served as Treasurer of the GE Funds and as
Director of GE Investment Services. Address: 200 Park Avenue, New York, New
York, 10166. His date of birth is May 18, 1961.
STEPHANIE D. PIERCE; Vice President and Assistant Secretary. Vice President
and Client Development Manager for FDI since April 1998. From April 1997 to
March 1998, Ms. Pierce was employed by Citibank, NA as an officer of Citibank
and Relationship Manager on the Business and Professional Banking team handling
over 22,000 clients. Address: 200 Park Avenue, New York, New York 10166. Her
date of birth is August 18, 1968.
GEORGE A. RIO; President and Treasurer. Executive Vice President and Client
Service Director of FDI since April 1998. From June 1995 to March 1998, Mr. Rio
was Senior Vice President and Senior Key Account Manager for Putnam Mutual
Funds. From May 1994 to June 1995, Mr. Rio was Director of Business Development
for First Data Corporation. From September 1983 to May 1994, Mr. Rio was Senior
Vice President & Manager of Client Services and Director of Internal Audit at
The Boston Company. His date of birth is January 2, 1955.
CHRISTINE ROTUNDO; Assistant Treasurer. Vice President, Morgan Guaranty
Trust Company of New York. Ms. Rotundo serves in the Funds Administration group
as a Manager of the Tax Group and is responsible for U.S. mutual fund tax
matters. Prior to September 1995, Ms. Rotundo served as a Senior Tax Manager in
the Investment Company Services Group of Deloitte & Touche LLP. Her address is
60 Wall Street, New York, New York 10260. Her date of birth is September 26,
1965.
INVESTMENT ADVISOR
The 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, the Advisor makes each Portfolio's day-to-day
investment decisions, arranges for the execution of Portfolio transactions and
generally manages the Portfolio's investments. Effective October 1, 1998 each
Portfolio's investment advisor is JPMIM. Prior to that date, Morgan was the
investment advisor. JPMIM, a wholly owned subsidiary of J.P. Morgan & Co.
Incorporated ("J.P. Morgan"), is a registered investment adviser under the
Investment Advisers Act of 1940, as amended, 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 Morgan serves as trustee.
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 $275 billion.
J.P. Morgan has a long history of service as adviser, underwriter and
lender to an extensive roster of major companies and as a financial advisor to
national governments. The firm, through its predecessor firms, has been in
business for over a century and has been managing investments since 1913.
The basis of the Advisor's investment process is fundamental investment
research as the firm believes that fundamentals should determine an asset's
value over the long term. J.P. Morgan currently employs over 100 full time
research analysts, among the largest research staffs in the money management
industry, in its investment management divisions located in New York, London,
Tokyo, Frankfurt, and Singapore to cover companies, industries and countries on
site. In addition, the investment management divisions employ approximately 300
capital market researchers, portfolio managers and traders. The Advisor's fixed
income investment process is based on analysis of real rates, sector
diversification and quantitative and credit analysis.
The investment advisory services the Advisor provides to the 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.
Morgan, also a wholly owned subsidiary of J.P. Morgan, is a bank holding
company organized under the laws of the State of Delaware. Morgan, whose
principal offices are at 60 Wall Street, New York, New York 10260, is a New York
trust company which conducts a general banking and trust business. Morgan is
subject to regulation by the New York State Banking Department and is a member
bank of the Federal Reserve System. Through offices in New York City and abroad,
Morgan offers a wide range of services, primarily to governmental,
institutional, corporate and high net worth individual customers in the United
States and throughout the world.
The 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
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 Morgan, each Portfolio's advisor prior to October 1, 1998 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 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.
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% of the first $7 billion of their aggregate average daily
net assets and 0.04% of their aggregate average daily net assets in excess of $7
billion, less the complex-wide fees payable to FDI. The portion of this charge
payable by 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 the activities of JPMIM in acting as Advisor to the
Portfolios under the Investment Advisory Agreements, may raise issues under
these laws. However, JPMIM and Morgan believe that they 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
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York
10036. PricewaterhouseCoopers 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., JPMIM, Morgan,
FDI and Service Organizations under various agreements discussed under "Trustees
and Officers," "Investment Advisor," "Co-Administrator", "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 and audit expenses, insurance costs, the compensation and expenses of
the Trustees, costs associated with their registration fees 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 the Advisor, appropriate
investments for the Fund's corresponding Portfolio. In addition, securities
accepted in payment for shares must: (i) meet the investment objective and
policies of 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:
5.06%; average annual total return, 5 years: 4.56%; average annual total return,
10 years: 5.70%; aggregate total return, 1 year: 5.06%; 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:
5.16%; average annual total return, 5 years: N/A; average annual total return,
commencement of operations to period end2: 4.42%; aggregate total return, 1
year: 5.16%; 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.
From time to time, the Funds may, in addition to any other permissible
information, include the following types of information in advertisements,
supplemental sales literature and reports to shareholders: (1) discussions of
general economic or financial principles (such as the effects of compounding and
the benefits of dollar-cost averaging); (2) discussions of general economic
trends; (3) presentations of statistical data to supplement such discussions;
(4) descriptions of past or anticipated portfolio holdings for one or more of
the Funds; (5) descriptions of investment strategies for one or more of the
Funds; (6) descriptions or comparisons of various savings and investment
products (including, but not limited to, qualified retirement plans and
individual stocks and bonds), which may or may not include the Funds; (7)
comparisons of investment products (including the Funds) with relevant markets
or industry indices or other appropriate benchmarks; (8) discussions of Fund
rankings or ratings by recognized rating organizations; and (9) discussions of
various statistical methods quantifying the Fund's volatility relative to its
benchmark or to past performance, including risk adjusted measures. The Funds
may also include calculations, such as hypothetical compounding examples, which
describe hypothetical investment results in such communications. Such
performance examples will be based on an express set of assumptions and are not
indicative of the performance of any of the Funds.
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 one vote for each dollar
of net asset value (or a proportionate fractional vote in respect of a
fractional dollar amount), on matters on which shares of the Fund shall be
entitled to vote. Subject to the 1940 Act, the Trustees themselves have the
power to alter the number and the terms of office of the Trustees, to lengthen
their own terms, or to make their terms of unlimited duration subject to certain
removal procedures, and appoint their own successors, provided, however, that
immediately after such appointment the requisite majority of the Trustees have
been elected by the shareholders of the Trust. The voting rights of shareholders
are not cumulative so that holders of more than 50% of the shares voting can, if
they choose, elect all Trustees being selected while the shareholders of the
remaining shares would be unable to elect any Trustees. It is the intention of
the Trust not to hold meetings of shareholders annually. The Trustees may call
meetings of shareholders for action by shareholder vote as may be required by
either the 1940 Act or the Trust's Declaration of Trust.
Shareholders of the Trust have the right, upon the declaration in
writing or vote of more than two-thirds of its outstanding shares, to remove a
Trustee. The Trustees will call a meeting of shareholders to vote on removal of
a Trustee upon the written request of the record holders of 10% of the Trust's
shares. In addition, whenever ten or more shareholders of record who have been
such for at least six months preceding the date of application, and who hold in
the aggregate either shares having a net asset value of at least $25,000 or at
least 1% of the Trust's outstanding shares, whichever is less, shall apply to
the Trustees in writing, stating that they wish to communicate with other
shareholders with a view to obtaining signatures to request a meeting for the
purpose of voting upon the question of removal of any Trustee or Trustees and
accompanied by a form of communication and request which they wish to transmit,
the Trustees shall within five business days after receipt of such application
either: (1) afford to such applicants access to a list of the names and
addresses of all shareholders as recorded on the books of the Trust; or (2)
inform such applicants as to the approximate number of shareholders of record,
and the approximate cost of mailing to them the proposed communication and form
of request. If the Trustees elect to follow the latter course, the Trustees,
upon the written request of such applicants, accompanied by a tender of the
material to be mailed and of the reasonable 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 23 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 Master Portfolio, a separate registered
investment company with the same investment objective and policies as the Fund.
Generally, when a Master Portfolio seeks a vote to change a fundamental
investment restriction, 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 for each dollar of net asset value (or a
proportionate fractional vote in respect of a fractional dollar amount), on
matters on which shares of the Fund shall be entitled to vote.
In addition to selling a beneficial interest to 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 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 fundamental investment policies or
restrictions, or a failure by a Fund's shareholders to approve such change in
the Portfolio's investment restrictions, may require withdrawal of the Fund's
interest in the Portfolio. Any such withdrawal could result in a distribution in
kind of portfolio securities (as opposed to a cash distribution) from the
Portfolio which may or may not be readily marketable. The distribution in kind
may result in the Fund having a less diversified portfolio of investments or
adversely affect the Fund's liquidity, and the Fund could incur brokerage, tax
or other charges in converting the securities to cash. Notwithstanding the
above, there are other means for meeting shareholder redemption requests, such
as borrowing.
Smaller funds investing in 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 affect 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 and remain qualified 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 fiscal quarter of its taxable year, (i) at
least 50% of the value of the Fund's total assets is represented by cash, cash
items, U.S. Government securities, investments 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 generally, 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 gains 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 gains (i.e., net long-term capital gains 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. In general, long-term capital gain of an individual shareholder will
be subject to a reduced rate of tax. Investors should consult their tax advisors
concerning the treatment of capital gains and losses. Additionally, any loss
realized on a redemption or exchange of shares of a Fund will be disallowed to
the extent the shares disposed of are replaced within a period of 61 days
beginning 30 days before such disposition, such as pursuant to reinvestment of a
dividend in shares of the Fund.
To maintain a constant $1.00 per share net asset value, the Trustees of
the Trust may direct that the number of outstanding shares be reduced pro rata.
If this adjustment is made, it will reflect the lower market value of portfolio
securities and not realized losses. The adjustment may result in a shareholder
having more dividend income than net income in his account for a period. When
the number of outstanding shares of a Fund is reduced, the shareholder's basis
in the shares of the Fund may be adjusted to reflect the difference between
taxable income and net dividends actually distributed. This difference may be
realized as a capital loss when the shares are liquidated. Subject to certain
limited exceptions, capital losses cannot be used to offset ordinary income. See
"Net Asset Value."
Gains or losses on sales of portfolio securities will be treated as
long-term capital gains or losses if the securities have been held for more than
one year except in certain cases where, if applicable 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. 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.
If a correct and certified taxpayer identification number is not on
file, the Fund is required, subject to certain exemptions, to withold 31% of
certain payments made or distributions declared to non-corporate shareholders.
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, J.P. 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 1940 Act 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.
The Year 2000 Initiative
With the new millennium rapidly approaching, organizations are
examining their computer systems to ensure they are year 2000 compliant. The
issue, in simple terms, is that many existing computer systems use only two
numbers to identify a year in the date field with the assumption that the first
two digits are always 19. As the century is implied in the date, on January 1,
2000, computers that are not year 2000 compliant will assume the year is 1900.
Systems that calculate, compare, or sort using the incorrect date will cause
erroneous results, ranging from system malfunctions to incorrect or incomplete
transaction processing. If not remedied, potential risks include business
interruption or shutdown, financial loss, reputation loss, and/or legal
liability.
J.P. Morgan has undertaken a firmwide initiative to address the year
2000 issue and has developed a comprehensive plan to prepare, as appropriate,
its computer systems. Each business line has taken responsibility for
identifying and fixing the problem within its own area of operation and for
addressing all interdependencies. A multidisciplinary team of internal and
external experts supports the business teams by providing direction and firmwide
coordination. Working together, the business and multidisciplinary teams have
completed a thorough education and awareness initiative and a global inventory
and assessment of J.P. Morgan's technology and application portfolio to
understand the scope of the year 2000 impact at J.P. Morgan. J.P. Morgan
presently is renovating and testing these technologies and applications in
partnership with external consulting and software development organizations, as
well as with year 2000 tool providers. J.P. Morgan is on target with its plan to
substantially complete renovation, testing, and validation of its key systems by
year-end 1998 and to participate in industry-wide testing (or streetwide
testing) in 1999. J.P. Morgan is also working with key external parties,
including clients, counterparties, vendors, exchanges, depositories, utilities,
suppliers, agents and regulatory agencies, to stem the potential risks the year
2000 problem poses to J.P. Morgan and to the global financial community.
Costs associated with efforts to prepare J.P. Morgan's systems for the
year 2000 approximated $95 million in 1997. In 1998, J.P. Morgan will continue
its efforts to prepare its systems for the year 2000. The total cost to become
year-2000 compliant is estimated at $250 million, for internal systems
renovation and testing, testing equipment, and both internal and external
resources working on the project. Remaining costs will be incurred primarily in
1998. The costs associated with J.P. Morgan becoming year-2000 compliant will be
borne by J.P. Morgan and not the Fund nor the Portfolio.
The Euro
Effective January 1, 1999 the euro, a single multinational currency, will
replace the national currencies of certain countries in the Economic Monetary
Union (EMU). Conversion rates among EMU countries will be fixed on December 31,
1998, however, existing currencies will still be used through July 1, 2002.
During this transition period, transactions may be settled in either euro or
existing currencies, but financial markets and payment systems are expected to
use the euro exclusively. Beginning January 1, 1999, J.P. Morgan intends to
conduct and settle all fund transactions, where appropriate, in the euro.
J.P. Morgan has identified the following potential risks to the Funds, after the
conversion: The risk that valuation of assets are not properly redenominated;
currency risk resulting from increased volatility in exchange rates between EMU
countries and non-participating countries; the inability any of the Funds, their
service providers and the issuers of the Funds' portfolio securities to make
information technology updates timely; and the potential unenforceability of
contracts. There have been recent laws and regulations designed to ensure the
continuity of contracts, however there is a risk that the valuation of contracts
will be negatively impacted after the Funds' conversion. J.P. Morgan is working
to avoid these problems and to obtain assurances from other service providers
that they are taking similar steps. However, it is not certain that these
actions will be sufficient to prevent problems associated with the conversion
from adversely impacting fund operations and shareholders.
The I.R.S has concluded that euro conversion will not cause a U.S. taxpayer to
realize gain or loss to the extent taxpayer's rights and obligations are altered
solely by reason of the conversion.
FINANCIAL STATEMENTS
The following financial statements and the report thereon of
PricewaterhouseCoopers 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.
<TABLE>
<C> <S> <S>
- ------------------------------------------------- -------------------------------- --------------------------------
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 02/03/98
0001047469-98-003137
- ------------------------------------------------- -------------------------------- --------------------------------
- ------------------------------------------------- -------------------------------- --------------------------------
J.P. Morgan Institutional Service Treasury N/A 10/31/97
Money Market Fund 01/09/98
0001047469-98-00566
- ------------------------------------------------- -------------------------------- --------------------------------
The Federal Money Market Portfolio N/A 10/31/97
12/24/97
0001016969-97-100
- ------------------------------------------------- -------------------------------- --------------------------------
</TABLE>
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.
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 protec-
tion not as large as MIG-1.
- --------
1Mr. Healey is an "interested person" (as defined in the 1940 Act) of the
Trust. Mr. Healey is also an "interested person" (as defined in the 1940 Act) of
the Advisor due to his son's affiliation with J.P. Morgan Investment Management
Inc.
2 J.P. Morgan Federal Money Market Fund commenced operations on January 4,
1993.
- -------------------------------------------------------------------------------
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FEBRUARY 2, 1998 |
AS REVISED |PROSPECTUS
OCTOBER 1, 1998 |
================================================================================
J.P. MORGAN INSTITUTIONAL SERVICE
TAX EXEMPT MONEY MARKET FUND
=========================================
Seeking to provide high current income
consistent with the preservation of
capital 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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<PAGE>
Contents
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<S> <C> <C>
3 | MONEY MARKET MANAGEMENT APPROACH
Money Market investment process .............................................3
4 | J.P. MORGAN INSTITUTIONAL SERVICE TAX EXEMPT MONEY MARKET FUND
Fund description ...........................................................4
The fund's goal, investment approach,
risks, expenses, performance Investor expenses ..........................................................4
Performance ................................................................5
6 | YOUR INVESTMENT
Investing through a service organization....................................6
Investing in the J.P. Morgan Institutional
Service 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
Master/feeder structure ....................................................9
More about the fund's
business operations Management and administration ..............................................9
FOR MORE INFORMATION ...............................................back cover
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<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:
. want an investment that strives to preserve capital
. want regular income from a high quality portfolio
. want a highly liquid investment
. are looking for an interim investment
. are pursuing a short-term goal
. are seeking income that is exempt from federal income tax
The fund is not designed for investors who:
. are investing for long-term growth
. are investing for high income
. require the added security of the FDIC insurance
. 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 $275 billion in assets under management,
including assets managed by the fund's advisor, J.P. Morgan Investment
Management Inc.
=========================================
Before you invest
Investors considering the fund should
understand that:
. There is no assurance that the
fund will meet its investment goals
. Future returns will not necessarily
resemble past performance
. The fund does not represent a
complete investment program
- -----------------------------------------
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2 |
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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:
Maturity determination Based on analysis
of a range of factors, including current
yields, economic forecasts, and
anticipated fiscal and monetary
[GRAPHIC] policies, J.P. Morgan establishes the
desired weighted average maturity for
J.P. Morgan uses a disciplined the fund within the permissible 90-day
process to control the fund's range. Controlling weighted average
sensitivity to interest rates 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.
Sector allocation Analysis of the yields
[GRAPHIC] available in different sectors of the
municipal debt market, such as
The fund invests across different government obligations and revenue
sectors for diversification and bonds, allows J.P. Morgan to adjust the
to take advantage of yield spreads fund's sector allocation, with the goal
of enhancing current income while also
maintaining diversification across
permissible sectors.
Security selection Based on the results
[GRAPHIC] of the firm's credit research and the
fund's maturity determination and sector
The fund selects its securities as allocation, the portfolio managers and
described later in this prospectus dedicated fixed-income traders make buy
and sell decisions according to the
fund's goal and strategy.
|
MONEY MARKET MANAGEMENT APPROACH | 3
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<PAGE>
J.P. MORGAN INSTITUTIONAL SERVICE
TAX EXEMPT MONEY MARKET FUND |
================================================================================
REGISTRANT: J.P. MORGAN INSTITUTIONAL FUNDS
(J.P. MORGAN INSTITUTIONAL SERVICE TAX
EXEMPT MONEY MARKET FUND)
[GRAPHIC] GOAL
The fund's goal is to maximize current income that is exempt from federal
income tax consistent with the preservation of capital and same-day liquidity.
This goal can be changed without shareholder approval.
[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
municipal or other obligations whose income is subject to tax, including the
alternative minimum tax. Although the fund is permitted to hold these other
obligations or cash, it aims to be fully invested in municipal obligations. In
order to maintain liquidity, 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 3.
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.
The fund's income is generally 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 $275 billion, including more than $12 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 0.18
Marketing (12b-1) fees None
Other expenses(2)
(after waiver and reimbursement) 0.17
Service fees(3) 0.25
================================================================================
Total operating expenses(2)
(after reimbursement) 0.60
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
================================================================================
Expense example
================================================================================
The example below uses the same assumptions as other fund prospectuses: $1,000
initial investment, 5% annual total return, expenses unchanged, all shares sold
at the end of each time period. The example is for comparison only; the fund's
actual return and expenses will be different.
- --------------------------------------------------------------------------------
1 yr. 3 yrs.
<S> <C> <C>
Your cost($) 6 19
- --------------------------------------------------------------------------------
</TABLE>
|
4 | J.P. MORGAN INSTITUTIONAL SERVICE TAX EXEMPT 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 Tax Exempt Money Market Fund(4) 3.26 2.89 3.78
- ------------------------------------------------------------------------------------------------------------------------------------
IBC's Tax Exempt Money Market Fund Average(5) (after expenses) 3.09 2.72 3.65
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[THE FOLLOWING TABLE WAS REPRESENTED BY 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 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 Average(5) (after expenses) 4.80 5.91 5.49 4.17 2.56 1.93 2.34 3.34 2.93 3.09
- ------------------------------------------------------------------------------------------------------------------------------------
</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 average net assets after reimbursement for ordinary expenses
over 0.60%.
(2) Without such waiver and reimbursement, other expenses and total operating
expenses would have been 299.11% and 299.52%, 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.
|
J.P. MORGAN INSTITUTIONAL SERVICE 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 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:
. 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.
. 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.
. Mail in your application, making your initial investment as shown below.
For answers to any questions, please speak with J.P. Morgan Funds Services
Representative at 1-800-766-7722.
OPENING YOUR ACCOUNT
By wire
. Mail your completed application to the Shareholder Services Agent.
. 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.
. 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
. Make out a check for the investment amount payable to J.P. Morgan
Institutional Funds.
. Mail the check with your completed application to the Shareholder Services
Agent.
By exchange
. Call the Shareholder Services Agent to effect an exchange.
ADDING TO YOUR ACCOUNT
By wire
. Call the Shareholder Services Agent to place a purchase order. Funds that
are wired without a purchase order will be returned uninvested.
. Once you have placed your purchase order, instruct your bank to wire the
amount of your investment as described above.
By check
. Make out a check for the investment amount payable to J.P. Morgan
Institutional Funds.
|
6 | YOUR INVESTMENT
|
<PAGE>
================================================================================
. 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
. Call the Shareholder Services Agent to effect an exchange.
SELLING SHARES
By phone -- wire payment
. 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.
. 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
. 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
. 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.
. Indicate whether you want the proceeds sent by check or by wire.
. Make sure the letter is signed by an authorized party. The Shareholder
Services Agent may require additional information, such as a signature
guarantee.
. Mail the letter to the Shareholder Services Agent.
By exchange
. 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 full or
fractional vote for each dollar or fraction of a dollar invested.
The fund and its master portfolio expect to maintain consistent goals, but if
they do not, the fund will withdraw from the master portfolio, receiving its
assets either in cash or securities. The fund's trustees would then consider
whether the fund should hire its own investment adviser, invest in a different
master portfolio, or take other action.
MANAGEMENT AND ADMINISTRATION
The fund and its master portfolio are governed by the same trustees. The
trustees are responsible for overseeing all business activities. The trustees
are assisted by Pierpont Group, Inc., which they own and operate on a cost
basis; costs are shared by all funds governed by these trustees. Funds
Distributor, Inc., as co-administrator, along with J.P. Morgan, provides fund
officers. J.P. Morgan, as co-administrator, oversees the fund's other service
providers.
J.P. Morgan 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 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.
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.
Year 2000 Fund operations and shareholders could be adversely affected if the
computer systems used by J.P. Morgan, the fund's other service providers and
other entities with computer systems linked to the fund do not properly process
and calculate January 1, 2000 and after date-related information. J.P. Morgan is
working to avoid these problems and to obtain assurances from other service
providers that they are taking similar steps. However, it is not certain that
these actions will be sufficient to prevent these date-related problems from
adversely impacting fund operations and shareholders. In addition, to the extent
that operations of issuers of securities held by the fund are impaired by
date-related problems or prices of securities decline as a result of real or
perceived date-related problems of issuers held by the fund or generally, the
net asset value of the fund will decline.
|
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, along with other information
about the fund, 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, upon
payment of a duplicating fee, from the Public Reference Room of the Securities
and Exchange Commission in Washington, D.C. (1-800-SEC-0330) and may be viewed
on-screen or downloaded from the SEC's Internet site at http://www.sec.gov. The
fund's investment company and 1933 Act registration numbers are 811-07342 and
033-54642.
J.P. MORGAN INSTITUTIONAL FUNDS AND THE MORGAN TRADITION
The J.P. Morgan Institutional Funds combine a heritage of integrity and
financial leadership with comprehensive, sophisticated analysis and management
techniques. Drawing on J.P. Morgan's extensive experience and depth as an
investment manager, the J.P. Morgan Institutional Funds offer a broad array of
distinctive opportunities for mutual fund investors.
[LOGO] JPMorgan
================================================================================
J.P. Morgan Institutional Funds
Advisor Distributor
J.P. Morgan Investment Management Inc. Funds Distributor, Inc.
522 Fifth Avenue 60 State Street
New York, NY 10036 Boston, MA 02109
1-800-766-7722 1-800-221-7930
PROS368-9810
- -------------------------------------------------------------------------------
J.P. MORGAN INSTITUTIONAL FUNDS
J.P. MORGAN INSTITUTIONAL SERVICE TAX EXEMPT MONEY MARKET FUND
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 2, 1998
AS REVISED
OCTOBER 1, 1998
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT CONTAINS
ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS
DATED FEBRURAY 2, 1998, AS REVISED OCTOBER 1, 1998 FOR THE FUND LISTED ABOVE, AS
SUPPLEMENTED FROM TIME TO TIME. ADDITIONALLY, THIS STATEMENT OF ADDITIONAL
INFORMATION INCORPORATES BY REFERENCE THE FINANCIAL STATEMENTS INCLUDED IN THE
SHAREHOLDER REPORTS RELATING TO THE FUND LISTED ABOVE. THE PROSPECTUS AND THESE
FINANCIAL STATEMENTS, INCLUDING THE AUDITOR'S REPORT THEREON, ARE AVAILABLE,
WITHOUT CHARGE, UPON REQUEST FROM FUNDS DISTRIBUTOR, INC., ATTENTION: J.P.
MORGAN INSTITUTIONAL SERVICE FUNDS (800) 221-7930.
Table of Contents
Page
General.....................................................................1
Investment Objective and Policies...........................................1
Investment Restrictions.....................................................11
Trustees and Officers.......................................................14
Investment Advisor..........................................................18
Distributor.................................................................20
Co-Administrator............................................................20
Services Agent..............................................................21
Custodian and Transfer Agent................................................22
Shareholder Servicing.......................................................22
Service Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Independent Accountants.....................................................24
Expenses....................................................................25
Purchase of Shares..........................................................25
Redemption of Shares........................................................25
Exchange of Shares..........................................................26
Dividends and Distributions.................................................27
Net Asset Value.............................................................27
Performance Data............................................................28
Portfolio Transactions......................................................29
Massachusetts Trust.........................................................31
Description of Shares.......................................................32
Special Information Concerning
Investment Structure. . . . . . . . . . . . . . . . . . . . . . . . . . . .33
Taxes.......................................................................35
Additional Information......................................................38
Appendix A - Description of Security Ratings................................A-1
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 J.P. Morgan Investment Management Inc. ("JPMIM"
or the "Advisor").
Investments in the Fund are not deposits or obligations of, or
guaranteed or endorsed by, Morgan Guaranty Trust Company of New York,
("Morgan"), an affiliate of the Advisor, or any other bank. Shares of the Fund
are not federally insured by the Federal Deposit Insurance Corporation, the
Federal Reserve Board, or any other governmental agency. An investment in the
Fund is subject to risk that may cause the value of the investment to fluctuate,
and when the investment is redeemed, the value may be higher or lower than the
amount originally invested by the investor.
INVESTMENT OBJECTIVE AND POLICIES
The following discussion supplements the information regarding the
investment objective of the Fund and the policies to be employed to achieve 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 high current income
consistent with the preservation of capital and same day liquidity from a
portfolio of high quality money market instruments. The Fund's investment
objective is maximize current income that is exempt from federal income tax
consistent with the preservation of capital and same day liquidity. See "Taxes."
The Fund attempts to achieve this objective by investing all of its investible
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. If attractive municipal obligations are not available,
the Fund may hold cash rather than invest in taxable money market instruments.
The Portfolio, however, may temporarily invest up to 20% of total assets in
taxable securities in abnormal market conditions, for defensive purposes only.
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
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 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.
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 Fund attempts to invest its assets in tax exempt securities and when
investments are not available, may hold cash or may invest to a limited extent
in taxable securities. While the Fund does not currently intend to invest in
taxable securities, in abnormal market conditions for defensive purposes only,
it may 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 taxable investments permitted for the Fund include obligations of
the U.S. Government and its agencies and instrumentalities, bank obligations,
commercial paper and repurchase agreements.
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.
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 acting as agent, for no additional
fee. The monies loaned to the borrower come from accounts managed by Morgan or
its affiliates, pursuant to arrangements with such accounts. Interest and
principal payments are credited to such accounts. Morgan, an affiliate of the
Advisor, has the right to increase or decrease the amount provided to the
borrower under an obligation. The borrower has the right to pay without
penalty all or any part of the principal amount then outstanding on an
obligation together with interest to the date of payment. Since these
obligations typically provide that the interest rate is tied to the Federal
Reserve commercial paper composite rate, the rate on master demand obligations
is subject to change. Repayment of a master demand obligation to participating
accounts depends on the ability of the borrower to pay the accrued interest
and principal of the obligation on demand which is continuously monitored by
Morgan. Since master demand obligations typically are not rated by credit
rating agencies, the 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
date of the purchase commitment. The purchase price and the interest rate
payable, if any, on the securities are fixed on the purchase commitment date
or at the time the settlement date is fixed. The value of such securities is
subject to market fluctuation and for money market instruments and other fixed
income securities no interest accrues to the Fund until settlement takes
place. At the time the Fund makes the commitment to purchase securities on a
when-issued or delayed delivery basis, it will record the transaction, reflect
the value each day of such securities in determining its net asset value and,
if applicable, calculate the maturity for the purposes of average maturity
from that date. At the time of settlement a when-issued security may be valued
at less than the purchase price. To facilitate such acquisitions, the Fund
will maintain with the Custodian a segregated account with liquid assets,
consisting of cash, U.S. Government securities or other appropriate
securities, in an amount at least equal to such commitments. On delivery dates
for such transactions, the Fund will meet its obligations from maturities or
sales of the securities held in the segregated account and/or from cash flow.
If the Fund chooses to dispose of the right to acquire a when-issued security
prior to its acquisition, it could, as with the disposition of any other
portfolio obligation, incur a gain or loss due to market fluctuation. Also, a
Fund may be disadvantaged if the other party to the transaction defaults. It
is the current policy of the Fund not to enter into when-issued commitments
exceeding in the aggregate 15% of the market value of the Fund's total assets,
less liabilities other than the obligations created by when-issued
commitments.
Investment Company Securities. Securities of other investment
companies may be acquired by the Fund and Portfolio to the extent permitted
under the 1940 Act or any order pursuant thereto. These limits currently
require that, as determined immediately after a purchase is made, (i) not more
than 5% of the value of the 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
reflecting the interest rate effective for the term of the agreement. For
purposes of the 1940 Act a reverse repurchase agreement is also considered as
the borrowing of money by the Fund and, therefore, a form of leverage.
Leverage may cause any gains or losses for a Fund to be magnified. 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 limited liquidity,
such as private placements or investments that are not registered under the
Securities Act of 1933, as amended (the "1933 Act") and cannot be offered for
public sale in the United States without first being registered under the 1933
Act. An illiquid investment is any investment that cannot be disposed of
within seven days in the normal course of business at approximately the amount
at which it is valued by the Portfolio. The price the Portfolio pays for
illiquid securities or receives upon resale may be lower than the price paid
or received for similar securities with a more liquid market. Accordingly the
valuation of these securities will reflect any limitations on their liquidity.
The 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.
Quality and Diversification Requirements
The Fund intends to meet the diversification requirements of the 1940
Act. Current 1940 Act requirements require that with respect to 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 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, except as noted, 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 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 agencies or instrumentalities or to permitted
investments of up to 25% of the Fund's total assets;2
5. Make loans, except through the purchase or holding of debt obligations,
repurchase agreements, or loans of portfolio securities in accordance
with the Fund's investment objective and policies (see "Investment
Objectives and Policies");
6. Purchase or sell puts, calls, straddles, spreads, or any combination
thereof except to the extent that securities subject to a demand
obligation, stand-by commitments and puts may be purchased (see
"Investment Objectives and Policies"); real estate; commodities;
commodity contracts; or interests in oil, gas, or mineral exploration
or development programs. However, the Fund may purchase municipal
bonds, notes or commercial paper secured by interests in real estate;
7. Purchase securities on margin, make short sales of securities, or
maintain a short position, provided that this restriction shall not be
deemed to be applicable to the purchase or sale of when-issued
securities or of securities for delayed delivery;
8. Acquire securities of other investment companies, except as permitted by the
1940 Act;
9. Act as an underwriter of securities; or
10. Issue senior securities, except as may otherwise be permitted by the
foregoing investment restrictions or under the 1940 Act or any rule,
order or interpretation thereunder.
The Tax Exempt Money Market Portfolio, except as noted below, has
adopted substantially similar fundamental investment restrictions. Investment
restrictions numbered 3, 7 and 8 above are non-fundamental for the Portfolio.
The Portfolio's fundamental borrowing restriction allows the Portfolio to borrow
to the extent permitted by law, currently 33-1/3% of total assets. The
Portfolio, however, has adopted a non-fundamental investment restriction
limiting its borrowing ability to 10% of total assets. These differences are not
expected to materially affect the management of the Portfolio.
Non-Fundamental Investment Restriction. The investment restriction
described below is not a fundamental policy of the Fund 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.
TRUSTEES AND OFFICERS
Trustees
The Trustees of the Trust, who are also the Trustees of the Portfolio,
their business addresses, principal occupations during the past five years and
dates of birth are set forth below.
FREDERICK S. ADDY--Trustee; Retired; Prior to April 1994, Executive Vice
President and Chief Financial Officer, Amoco Corporation. His address is 5300
Arbutus Cove, Austin, Texas 78746, and his date of birth is January 1, 1932.
WILLIAM G. BURNS--Trustee; Retired, Former Vice Chairman and Chief
Financial Officer, NYNEX. His address is 2200 Alaqua Drive, Longwood, Florida
32779, and his date of birth is November 2, 1932.
ARTHUR C. ESCHENLAUER--Trustee; Retired; Former Senior Vice President,
Morgan Guaranty Trust Company of New York. His address is 14 Alta Vista Drive,
RD #2, Princeton, New Jersey 08540, and his date of birth is May 23, 1934.
MATTHEW 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, Florida 33436, and his
date of birth is August 23, 1937.
MICHAEL P. MALLARDI--Trustee; Retired; Prior to April 1996, Senior Vice
President, Capital Cities/ABC, Inc. and President, Broadcast Group. His address
is 10 Charnwood Drive, Suffern, New York 10910, and his date of birth is March
17, 1934.
The Trustees of the Trust are the same as the Trustees of the
Portfolio. 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.
Trustee compensation expenses paid by the Trust for the calendar year ended
December 31, 1997 are set forth below.
<TABLE>
<C> <S> <S>
- -------------------------------------------------- ------------------------ ---------------------------------------
TOTAL TRUSTEE COMPENSATION ACCRUED BY
AGGREGATE TRUSTEE THE MASTER PORTFOLIOS(*), J.P. MORGAN
COMPENSATION FUNDS, J.P. MORGAN SERIES TRUST AND
PAID BY THE TRUST THE TRUST DURING
DURING 1997 1997(***)
-------------- ---------
NAME OF TRUSTEE
- -------------------------------------------------- ------------------------ ---------------------------------------
- -------------------------------------------------- ------------------------ ---------------------------------------
Frederick S. Addy, Trustee $11,772.77 $72,500
- -------------------------------------------------- ------------------------ ---------------------------------------
- -------------------------------------------------- ------------------------ ---------------------------------------
William G. Burns, Trustee $11,786.38 $72,500
- -------------------------------------------------- ------------------------ ---------------------------------------
- -------------------------------------------------- ------------------------ ---------------------------------------
Arthur C. Eschenlauer, Trustee $11,786.38 $72,500
- -------------------------------------------------- ------------------------ ---------------------------------------
- -------------------------------------------------- ------------------------ ---------------------------------------
Matthew Healey, Trustee (**) $11,786.38 $72,500
Chairman and Chief Executive
Officer
- -------------------------------------------------- ------------------------ ---------------------------------------
- -------------------------------------------------- ------------------------ ---------------------------------------
Michael P. Mallardi, Trustee $11,786.38 $72,500
- -------------------------------------------------- ------------------------ ---------------------------------------
</TABLE>
(*) Includes the Portfolio and 19 other portfolios (collectively, the
"Master Portfolios") for which JPMIM acts as investment adviser.
(**) 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 decide upon general policies and are responsible for
overseeing the Trust's and Portfolio's business affairs. The Portfolio and the
Trust have entered into a Fund Services Agreement with Pierpont Group, Inc. to
assist the Trustees in exercising their overall supervisory responsibilities
over the affairs of the Portfolio and the Trust. Pierpont Group, Inc. was
organized in July 1989 to provide services for The Pierpont Family of Funds (now
the J.P. Morgan Family of Funds), and the Trustees are the equal and sole
shareholders of Pierpont Group, Inc. The Trust and the Portfolio have agreed to
pay Pierpont Group, Inc. a fee in an amount representing its reasonable costs in
performing these services to the Trust, the Portfolio and certain other
registered investment companies subject to similar agreements with Pierpont
Group, Inc. These costs are periodically reviewed by the Trustees. The principal
offices of Pierpont Group, Inc. are located at 461 Fifth Avenue, New York, New
York 10017.
The aggregate fees paid to Pierpont Group, Inc. by the 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, Florida 33436. His date of birth is August 23, 1937.
MARGARET W. CHAMBERS; Vice President and Secretary. Senior Vice President
and General Counsel of FDI since April, 1998. From August 1996 to March 1998,
Ms. Chambers was Vice President and Assistant General Counsel for Loomis, Sayles
& Company, L.P. From January 1986 to July 1996, she was an associate with the
law firm of Ropes & Gray. Her date of birth is October 12, 1959.
MARIE E. CONNOLLY; Vice President and Assistant Treasurer. President,
Chief Executive Officer, Chief Compliance Officer and Director of FDI, Premier
Mutual Fund Services, Inc., an affiliate of FDI ("Premier Mutual") and an
officer of certain investment companies distributed or administered by FDI.
Prior to July 1994, she was President and Chief Compliance Officer of FDI. Her
date of birth is August 1, 1957.
DOUGLAS C. CONROY; Vice President and Assistant Treasurer. Assistant Vice
President and Assistant Department Manager of Treasury Services and
Administration of FDI and an officer of certain investment companies distributed
or administered by FDI. Prior to April 1997, Mr. Conroy was Supervisor of
Treasury Services and Administration of FDI. From April 1993 to January 1995,
Mr. Conroy was a Senior Fund Accountant for Investors Bank & Trust Company. His
date of birth is March 31, 1969.
KAREN JACOPPO-WOOD; Vice President and Assistant Secretary. Vice President
and Senior Counsel of FDI and an officer of certain investment companies
distributed or administered by FDI. From June 1994 to January 1996, Ms.
Jacoppo-Wood was a Manager of SEC Registration at Scudder, Stevens & Clark, Inc.
Prior to May 1994, Ms. Jacoppo-Wood was a senior paralegal at The Boston Company
Advisors, Inc. ("TBCA"). Her date of birth is December 29, 1966.
CHRISTOPHER J. KELLEY; Vice President and Assistant Secretary. Vice
President and Senior Associate General Counsel of FDI and Premier Mutual and an
officer of certain investment companies distributed or administered by FDI. From
April 1994 to July 1996, Mr. Kelley was Assistant Counsel at Forum Financial
Group. Prior to April 1994, Mr. Kelley was employed by Putnam Investments in
legal and compliance capacities. His date of birth is December 24, 1964.
KATHLEEN K. MORRISEY. Vice President and Assistant Secretary. Vice
President and Assistant Secretary of FDI. Manager of Treasury Services
Administration and an officer of certain investment companies advised or
administered by Montgomery Asset Management, L.P. and Dresdner RCM Global
Investors, Inc., and their respective affiliates. From July 1994 to November
1995, Ms. Morrisey was a Fund Accountant II for Investors Bank & Trust Company.
Prior to July 1994 she was a Finance student at Stonehill College in North
Easton, Massachusetts. Her date of birth is July 5, 1972.
MARY A. NELSON; Vice President and Assistant Treasurer. Vice President and
Manager of Treasury Services and Administration of FDI and Premier Mutual and an
officer of certain investment companies distributed or administered by FDI.
Prior to August 1994, Ms. Nelson was an Assistant Vice President and Client
Manager for The Boston Company, Inc. Her date of birth is April 22, 1964.
MARY JO PACE; Assistant Treasurer. Vice President, Morgan Guaranty Trust
Company of New York. Ms. Pace serves in the Funds Administration group as a
Manager for the Budgeting and Expense Processing Group. Prior to September 1995,
Ms. Pace served as a Fund Administrator for Morgan Guaranty Trust Company of New
York. Her address is 60 Wall Street, New York, New York 10260. Her date of birth
is March 13, 1966.
MICHAEL S. PETRUCELLI; Vice President and Assistant Secretary. Senior Vice
President and Director of Strategic Client Initiatives for FDI since December
1996. From December 1989 through November 1996, Mr. Petrucelli was employed with
GE Investments where he held various financial, business development and
compliance positions. He also served as Treasurer of the GE Funds and as
Director of GE Investment Services. Address: 200 Park Avenue, New York, New
York, 10166. His date of birth is May 18, 1961.
STEPHANIE D. PIERCE; Vice President and Assistant Secretary. Vice President
and Client Development Manager for FDI since April 1998. From April 1997 to
March 1998, Ms. Pierce was employed by Citibank, NA as an officer of Citibank
and Relationship Manager on the Business and Professional Banking team handling
over 22,000 clients. Address: 200 Park Avenue, New York, New York 10166. Her
date of birth is August 18, 1968.
GEORGE A. RIO; President and Treasurer. Executive Vice President and Client
Service Director of FDI since April 1998. From June 1995 to March 1998, Mr. Rio
was Senior Vice President and Senior Key Account Manager for Putnam Mutual
Funds. From May 1994 to June 1995, Mr. Rio was Director of Business Development
for First Data Corporation. From September 1983 to May 1994, Mr. Rio was Senior
Vice President & Manager of Client Services and Director of Internal Audit at
The Boston Company. His date of birth is January 2, 1955.
CHRISTINE ROTUNDO; Assistant Treasurer. Vice President, Morgan Guaranty
Trust Company of New York. Ms. Rotundo serves in the Funds Administration group
as a Manager of the Tax Group and is responsible for U.S. mutual fund tax
matters. Prior to September 1995, Ms. Rotundo served as a Senior Tax Manager in
the Investment Company Services Group of Deloitte & Touche LLP. Her address is
60 Wall Street, New York, New York 10260. Her date of birth is September 26,
1965.
INVESTMENT ADVISOR
The Fund has not retained the services of an investment adviser because
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, the Advisor makes each Portfolio's day-to-day
investment decisions, arranges for the execution of Portfolio transactions and
generally manages the Portfolio's investments. Effective October 1, 1998 the
Portfolio's investment advisor is JPMIM. Prior to that date, Morgan was the
Portfolio's investment advisor. JPMIM, a wholly owned subsidiary of J.P. Morgan
& Co. Incorporated ("J.P. Morgan"), is a registered investment adviser under the
Investment Advisers Act of 1940, as amended, 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 Morgan serves as trustee.
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 $275 billion.
J.P. Morgan has a long history of service as adviser, underwriter and
lender to an extensive roster of major companies and as a financial advisor to
national governments. The firm, through its predecessor firms, has been in
business for over a century and has been managing investments since 1913.
The basis of the Advisor's investment process is fundamental investment
research as the firm believes that fundamentals should determine an asset's
value over the long term. J.P. Morgan currently employs over 100 full time
research analysts, among the largest research staffs in the money management
industry, in its investment management divisions located in New York, London,
Tokyo, Frankfurt, and Singapore to cover companies, industries and countries on
site. In addition, the investment management divisions employ approximately 300
capital market researchers, portfolio managers and traders. The Advisor's fixed
income investment process is based on analysis of real rates, sector
diversification and quantitative and credit analysis.
The investment advisory services the Advisor provides to the Portfolio
are not exclusive under the terms of the Advisory Agreement. The Advisor is free
to and does render similar investment advisory services to others. The Advisor
serves as investment advisor to personal investors and other investment
companies and acts as fiduciary for trusts, estates and employee benefit plans.
Certain of the assets of trusts and estates under management are invested in
common trust funds for which the Advisor serves as trustee. 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.
Morgan, also a wholly owned subsidiary of J.P. Morgan, is a bank holding
company organized under the laws of the State of Delaware. Morgan, whose
principal offices are at 60 Wall Street, New York, New York 10260, is a New York
trust company which conducts a general banking and trust business. Morgan is
subject to regulation by the New York State Banking Department and is a member
bank of the Federal Reserve System. Through offices in New York City and abroad,
Morgan offers a wide range of services, primarily to governmental,
institutional, corporate and high net worth individual customers in the United
States and throughout the world.
The Portfolio is managed by officers of the Advisor who, in acting for
their customers, including the Portfolio, do not discuss their investment
decisions with any personnel of J.P. Morgan or any personnel of other divisions
of the Advisor or with any of its affiliated persons, with the exception of
certain other investment management affiliates of J.P. Morgan.
As compensation for the services rendered and related expenses such as
salaries of advisory personnel borne by the Advisor under the 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 Morgan, the
Portfolio's advisor prior to October 1, 1998 for the fiscal years ended August
31, 1995, 1996 and 1997: $2,150,291, $2,154,248 and $2,267,159.
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 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 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
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
pursuant to which Morgan is responsible for certain administrative and related
services provided to the Fund and Portfolio. The Services Agreements may be
terminated at any time, without penalty, by the Trustees or Morgan, in each case
on not more than 60 days' nor less than 30 days' written notice to the other
party.
Under the Services Agreements, the Fund and the Portfolio have agreed
to pay Morgan fees equal to its allocable share of an annual complex-wide
charge. This charge is calculated daily based on the aggregate net assets of the
Master Portfolios and J.P. Morgan Series Trust in accordance with the following
annual schedule: 0.09% of the first $7 billion of their aggregate average daily
net assets and 0.04% of their aggregate average daily net assets in excess of $7
billion, less the complex-wide fees payable to FDI. The portion of this charge
payable by the Fund and Portfolio is determined by the proportionate share that
its net assets bear to the total net assets of the Trust, the Master Portfolios,
the other investors in the Master Portfolios for which Morgan provides similar
services and J.P. Morgan Series Trust.
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.
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.
As discussed under "Investment Advisor," the Glass-Steagall Act and
other applicable laws and regulations limit the activities of bank holding
companies and certain of their subsidiaries in connection with registered
open-end investment companies. The activities of Morgan in acting as shareholder
servicing agent for Fund shareholders under the Shareholder Servicing Agreement
and providing administrative services to the Fund and the Portfolio under the
Services Agreements, and the activities of JPMIM in acting as Advisor to the
Portfolio under the Investment Advisory Agreement may raise issues under these
laws. However, JPMIM and Morgan believe that they may properly perform these
services and the other activities described 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.
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 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
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York
10036. PricewaterhouseCoopers LLP conducts an annual audit of the financial
statements of the Fund and the Portfolio, assists in the preparation and/or
review of the Fund's and the Portfolio's federal and state income tax returns
and consults with the Fund and the Portfolio as to matters of accounting and
federal and state income taxation.
EXPENSES
In addition to the fees payable to Pierpont Group, Inc., JPMIM, Morgan
and FDI under various agreements discussed under "Trustees and Officers,"
"Investment Advisor," "Co-Administrator", "Distributor", "Services Agent" and
"Shareholder Servicing" above, the Fund and the Portfolio are responsible for
usual and customary expenses associated with their respective operations. Such
expenses include organization expenses, legal fees, accounting and audit
expenses, insurance costs, the compensation and expenses of the Trustees, costs
associated with their registration fees under federal securities laws, and
extraordinary expenses applicable to the Fund or the Portfolio. For the Fund,
such expenses also include transfer, registrar and dividend disbursing costs,
the expenses of printing and mailing reports, notices and proxy statements to
Fund shareholders, and filing fees under state securities laws. For the
Portfolio, such expenses also include custodian fees and brokerage expenses.
Under fee arrangements prior to September 1, 1995, Morgan as Services Agent was
responsible for reimbursements to the Trust and the Portfolio and the usual and
customary expenses described above (excluding organization and extraordinary
expenses, custodian fees and brokerage expenses). 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
the Fund may make transactions in shares of the Fund.
The Fund may, at its own option, accept securities in payment for
shares. The securities delivered in such a transaction are valued by the method
described in "Net Asset Value" as of the day the Fund receives the securities.
This is a taxable transaction to the shareholder. Securities may be accepted in
payment for shares only if they are, in the judgment of the Advisor, appropriate
investments for the 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 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
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."
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, 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.
From time to time, the Funds may, in addition to any other permissible
information, include the following types of information in advertisements,
supplemental sales literature and reports to shareholders: (1) discussions of
general economic or financial principles (such as the effects of compounding and
the benefits of dollar-cost averaging); (2) discussions of general economic
trends; (3) presentations of statistical data to supplement such discussions;
(4) descriptions of past or anticipated portfolio holdings for one or more of
the Funds; (5) descriptions of investment strategies for one or more of the
Funds; (6) descriptions or comparisons of various savings and investment
products (including, but not limited to, qualified retirement plans and
individual stocks and bonds), which may or may not include the Funds; (7)
comparisons of investment products (including the Funds) with relevant markets
or industry indices or other appropriate benchmarks; (8) discussions of Fund
rankings or ratings by recognized rating organizations; and (9) discussions of
various statistical methods quantifying the Fund's volatility relative to its
benchmark or to past performance, including risk adjusted measures. The Funds
may also include calculations, such as hypothetical compounding examples, which
describe hypothetical investment results in such communications. Such
performance examples will be based on an express set of assumptions and are not
indicative of the performance of any of the Funds.
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.
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.
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 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 one vote for each dollar
of net asset value (or a proportionate fractional vote in respect of a
fractional dollar amount), on matters on which shares of the Fund shall be
entitled to vote. Subject to the 1940 Act, the Trustees themselves have the
power to alter the number and the terms of office of the Trustees, to lengthen
their own terms, or to make their terms of unlimited duration subject to certain
removal procedures, and appoint their own successors, provided, however, that
immediately after such appointment the requisite majority of the Trustees have
been elected by the shareholders of the Trust. The voting rights of shareholders
are not cumulative so that holders of more than 50% of the shares voting can, if
they choose, elect all Trustees being selected while the shareholders of the
remaining shares would be unable to elect any Trustees. It is the intention of
the Trust not to hold meetings of shareholders annually. The Trustees may call
meetings of shareholders for action by shareholder vote as may be required by
either the 1940 Act or the Trust's Declaration of Trust.
Shareholders of the Trust have the right, upon the declaration in
writing or vote of more than two-thirds of its outstanding shares, to remove a
Trustee. The Trustees will call a meeting of shareholders to vote on removal of
a Trustee upon the written request of the record holders of 10% of the Trust's
shares. In addition, whenever ten or more shareholders of record who have been
such for at least six months preceding the date of application, and who hold in
the aggregate either shares having a net asset value of at least $25,000 or at
least 1% of the Trust's outstanding shares, whichever is less, shall apply to
the Trustees in writing, stating that they wish to communicate with other
shareholders with a view to obtaining signatures to request a meeting for the
purpose of voting upon the question of removal of any Trustee or Trustees and
accompanied by a form of communication and request which they wish to transmit,
the Trustees shall within five business days after receipt of such application
either: (1) afford to such applicants access to a list of the names and
addresses of all shareholders as recorded on the books of the Trust; or (2)
inform such applicants as to the approximate number of shareholders of record,
and the approximate cost of mailing to them the proposed communication and form
of request. If the Trustees elect to follow the latter course, the Trustees,
upon the written request of such applicants, accompanied by a tender of the
material to be mailed and of the reasonable 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 23 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 Master Portfolio, a separate registered investment
company with the same investment objective and policies as the Fund. Generally,
when a Master Portfolio seeks a vote to change a fundamental investment
restriction, 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 for each dollar of net asset value (or a proportionate
fractional vote in respect of a fractional dollar amount), on matters on which
shares of the Fund shall be entitled to vote.
In addition to selling a beneficial interest to the Fund, the Portfolio
may sell beneficial interests to other mutual funds or institutional investors.
Such investors will invest in the Portfolio on the same terms and conditions and
will bear a proportionate share of the Portfolio's expenses. However, the other
investors investing in the Portfolio may sell shares of their own fund using a
different pricing structure than the Fund. Such different pricing structures may
result in differences in returns experienced by investors in other funds that
invest in the Portfolio. Such differences in returns are not uncommon and are
present in other mutual fund structures. Information concerning other holders of
interests in the Portfolio is available from Morgan at (800) 766-7722.
The Trust may withdraw the investment of the Fund from the Portfolio at
any time if the Board of Trustees of the Trust determines that it is in the best
interests of the Fund to do so. Upon any such withdrawal, the Board of Trustees
would consider what action might be taken, including the investment of all the
assets of the Fund in another pooled investment entity having the same
investment objective and restrictions 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 fundamental investment policies or
restrictions, or a failure by the Fund's shareholders to approve such change in
the Portfolio's investment restrictions, may require withdrawal of the Fund's
interest in the Portfolio. Any such withdrawal could result in a distribution in
kind of portfolio securities (as opposed to a cash distribution) from the
Portfolio which may or may not be readily marketable. The distribution in kind
may result in the Fund having a less diversified portfolio of investments or
adversely affect the Fund's liquidity, and the Fund could incur brokerage, tax
or other charges in converting the securities to cash. Notwithstanding the
above, there are other means for meeting shareholder redemption requests, such
as borrowing.
Smaller funds investing in the Portfolio may be materially affected by
the actions of larger funds investing in the Portfolio. For example, if a large
fund withdraws from the Portfolio, the remaining funds may subsequently
experience higher pro rata operating expenses, thereby producing lower returns.
Additionally, because the Portfolio would become smaller, it may become
less diversified, resulting in potentially increased portfolio risk (however,
these possibilities also exist for traditionally structured funds which have
large or institutional investors who may withdraw from a fund). Also, funds with
a greater pro rata ownership in the Portfolio could have effective voting
control of the operations of the Portfolio. Whenever the Fund is requested to
vote on matters pertaining to the Portfolio (other than a vote by the Fund to
continue the operation of the Portfolio upon the withdrawal of another investor
in the Portfolio), the Trust will hold a meeting of shareholders of the Fund and
will cast all of its votes proportionately as instructed by the Fund's
shareholders. The Trust will vote the shares held by Fund shareholders who do
not give voting instructions in the same proportion as the shares of Fund
shareholders who do give voting instructions. Shareholders of the Fund who do
not vote will have no affect on the outcome of such matters.
TAXES
The following discussion of tax consequences is based on U.S. federal
tax laws in effect on the date of this Prospectus. These laws and regulations
are subject to change by legislative or administrative action.
The Fund intends to qualify and remain qualified as a regulated
investment company under Subchapter M of the Code. As a regulated investment
company, the Fund must, among other things, (a) derive at least 90% of its gross
income from dividends, interest, payments with respect to loans of stock and
securities, gains from the sale or other disposition of stock, securities or
foreign currency and other income (including but not limited to gains from
options, futures, and forward contracts) derived with respect to its business of
investing in such stock, securities or foreign currency; and (b) diversify its
holdings so that, at the end of each fiscal quarter of its taxable year, (i) at
least 50% of the value of the Fund's total assets is represented by cash, cash
items, U.S. Government securities, investments 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 generally
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
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 gains 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 gains (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
gains, regardless of whether such distributions are taken in cash or reinvested
in additional shares and regardless of how long a shareholder has held shares in
the Fund. In general, long-term capital gain of an individual shareholder will
be subject to a reduced rate of tax. Investors should consult their tax advisors
concerning the treatment of capital gains and losses. Additionally, any loss
realized on a redemption or exchange of shares of the Fund will be disallowed to
the extent the shares disposed of are replaced within a period of 61 days
beginning 30 days before such disposition, such as pursuant to reinvestment of a
dividend in shares of the Fund.
To maintain a constant $1.00 per share net asset value, the Trustees of
the Trust may direct that the number of outstanding shares be reduced pro rata.
If this adjustment is made, it will reflect the lower market value of portfolio
securities and not realized losses. The adjustment may result in a shareholder
having more dividend income than net income in his account for a period. When
the number of outstanding shares of the Fund is reduced, the shareholder's basis
in the shares of the Fund may be adjusted to reflect the difference between
taxable income and net dividends actually distributed. This difference may be
realized as a capital loss when the shares are liquidated. Subject to certain
limited exceptions, capital losses cannot be used to offset ordinary income. See
"Net Asset Value."
Gains or losses on sales of portfolio securities will be treated as
long-term capital gains or losses if the securities have been held for more than
one year except in certain cases where, if applicable, 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. 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.
If a correct and certified taxpayer identification number is not on
file, the Fund is required, subject to certain exemptions, to withhold 31% of
certain payments made or distributions declared to non-corporate shareholders.
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 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, J.P. 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 1940 Act and the Portfolio's
registration statements filed under the 1940 Act. Pursuant to the rules and
regulations of the SEC, certain portions have been omitted. The registration
statements including the exhibits filed therewith may be examined at the office
of the SEC in Washington, D.C.
Statements contained in this Statement of Additional Information and
the Prospectus concerning the contents of any contract or other document are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the applicable
Registration Statements.
Each such statement is qualified in all respects by such reference.
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in the
Prospectus and this Statement of Additional Information, in connection with the
offer contained therein and, if given or made, such other information or
representations must not be relied upon as having been authorized by any of the
Trust, the Fund or the Distributor. The Prospectus and this Statement of
Additional Information do not constitute an offer by the Fund or by the
Distributor to sell or solicit any offer to buy any of the securities offered
hereby in any jurisdiction to any person to whom it is unlawful for the Fund or
the Distributor to make such offer in such jurisdictions.
The Year 2000 Initiative
With the new millennium rapidly approaching, organizations are
examining their computer systems to ensure they are year 2000 compliant. The
issue, in simple terms, is that many existing computer systems use only two
numbers to identify a year in the date field with the assumption that the first
two digits are always 19. As the century is implied in the date, on January 1,
2000, computers that are not year 2000 compliant will assume the year is 1900.
Systems that calculate, compare, or sort using the incorrect date will cause
erroneous results, ranging from system malfunctions to incorrect or incomplete
transaction processing. If not remedied, potential risks include business
interruption or shutdown, financial loss, reputation loss, and/or legal
liability.
J.P. Morgan has undertaken a firmwide initiative to address the year
2000 issue and has developed a comprehensive plan to prepare, as appropriate,
its computer systems. Each business line has taken responsibility for
identifying and fixing the problem within its own area of operation and for
addressing all interdependencies. A multidisciplinary team of internal and
external experts supports the business teams by providing direction and firmwide
coordination. Working together, the business and multidisciplinary teams have
completed a thorough education and awareness initiative and a global inventory
and assessment of J.P. Morgan's technology and application portfolio to
understand the scope of the year 2000 impact at J.P. Morgan. J.P. Morgan
presently is renovating and testing these technologies and applications in
partnership with external consulting and software development organizations, as
well as with year 2000 tool providers. J.P. Morgan is on target with its plan to
substantially complete renovation, testing, and validation of its key systems by
year-end 1998 and to participate in industry-wide testing (or streetwide
testing) in 1999. J.P. Morgan is also working with key external parties,
including clients, counterparties, vendors, exchanges, depositories, utilities,
suppliers, agents and regulatory agencies, to stem the potential risks the year
2000 problem poses to J.P. Morgan and to the global financial community.
Costs associated with efforts to prepare J.P. Morgan's systems for the
year 2000 approximated $95 million in 1997. In 1998, J.P. Morgan will continue
its efforts to prepare its systems for the year 2000. The total cost to become
year-2000 compliant is estimated at $250 million, for internal systems
renovation and testing, testing equipment, and both internal and external
resources working on the project. Remaining costs will be incurred primarily in
1998. The costs associated with J.P. Morgan becoming year-2000 compliant will be
borne by J.P. Morgan and not the Fund nor the Portfolio.
The Euro
Effective January 1, 1999 the euro, a single multinational currency,
will replace the national currencies of certain countries in the Economic
Monetary Union (EMU). Conversion rates among EMU countries will be fixed on
December 31, 1998, however, existing currencies will still be used through July
1, 2002. During this transition period, transactions may be settled in either
euro or existing currencies, but financial markets and payment systems are
expected to use the euro exclusively. Beginning January 1, 1999, J.P. Morgan
intends to conduct and settle all fund transactions, where appropriate, in the
euro.
J.P. Morgan has identified the following potential risks to the Fund,
after the conversion: The risk that valuation of assets are not properly
redenominated; currency risk resulting from increased volatility in exchange
rates between EMU countries and non-participating countries; the inability any
of the Funds, their service providers and the issuers of the Fund's portfolio
securities to make information technology updates timely; and the potential
unenforceability of contracts. There have been recent laws and regulations
designed to ensure the continuity of contracts, however there is a risk that the
valuation of contracts will be negatively impacted after the Fund's conversion.
J.P. Morgan is working to avoid these problems and to obtain assurances from
other service providers that they are taking similar steps. However, it is not
certain that these actions will be sufficient to prevent problems associated
with the conversion from adversely impacting fund operations and shareholders.
The I.R.S has concluded that euro conversion will not cause a U.S.
taxpayer to realize gain or loss to the extent taxpayer's rights and obligations
are altered solely by reason of the conversion.
<PAGE>
FINANCIAL STATEMENTS
The following financial statements and the report thereon of
PricewaterhouseCoopers 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.
<TABLE>
<C> <S>
- ------------------------------------------------------------- -----------------------------------------------------
Date of Annual Report; Date Annual Report Filed;
Name of Portfolio and Accession Number
- ------------------------------------------------------------- -----------------------------------------------------
- ------------------------------------------------------------- -----------------------------------------------------
The Tax Exempt Money Market Portfolio 08/31/97
10/30/97
0001047469-97-002084
- ------------------------------------------------------------- -----------------------------------------------------
</TABLE>
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.
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 protec-
tion not as large as MIG-1.
- --------
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.
3Mr. Healey is an "interested person" (as defined in the 1940 Act) of
the Trust. Mr. Healey is also an "interested person" (as defined in the
1940 Act) of the advisor due to his son's affiliation with JPMIM.
