As filed with the Securities and Exchange Commission on April 3, 2000.
Registration Nos. 033-54642 and 811-07342
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 72
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 73
J.P. MORGAN INSTITUTIONAL FUNDS
(formerly The JPM Institutional Funds)
(Exact Name of Registrant as Specified in Charter)
60 State Street, Suite 1300, Boston, Massachusetts 02109
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code:
(617) 557-0700
Margaret W. Chambers, c/o Funds Distributor, Inc.
60 State Street, Suite 1300, Boston, Massachusetts 02109
(Name and Address of Agent for Service)
Copy to: John E. Baumgardner, Jr., Esq.
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
It is proposed that this filing will become effective (check appropriate box):
[x] Immediately upon filing pursuant to paragraph (b) [ ] on [ date ] pursuant
to paragraph (b) [ ] 60 days after filing pursuant to paragraph (a)(i) [ ] on
(date) pursuant to paragraph (a)(i) [ ] 75 days after filing pursuant to
paragraph (a)(ii) [ ] on (date) pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
EXPLANATORY NOTE
This post-effective amendment No. 72 to the registration statement of J.P.
Morgan Institutional Funds (the "Registrant") on Form N-1A is being filed to
make changes resulting from staff review of the initial filing of the J.P.
Disciplined Equity Fund - Advisor Series and J.P. Morgan Institutional Direct
Prime Money Market Fund and to make other non-material changes.
<PAGE>
- --------------------------------------------------------------------------------
APRIL 3, 2000 | PROSPECTUS
- --------------------------------------------------------------------------------
J.P. MORGAN DISCIPLINED
EQUITY FUND - ADVISOR SERIES
----------------------------------------------
Seeking to provide a consistently high total
return from a broadly diversified portfolio of
equity securities
This prospectus contains essential information for anyone investing in the fund.
Please read it carefully and keep it for reference.
As with all mutual funds, the fact that these shares are registered with the
Securities and Exchange Commission does not mean that the commission approves
them or guarantees that the information in this prospectus is correct or
adequate. It is a criminal offense for anyone to state or suggest otherwise.
Distributed by Funds Distributor, Inc. JPMorgan
<PAGE>
CONTENTS
- --------------------------------------------------------------------------------
2 | The fund's goal, principal strategies, principal risks, performance and
expenses
J.P. MORGAN DISCIPLINED EQUITY FUND - ADVISOR SERIES
Fund description ............................................................ 2
Investor expenses ........................................................... 3
4 |
U.S. EQUITY MANAGEMENT APPROACH
J.P. Morgan ................................................................. 4
J.P. Morgan Disciplined Equity Fund - Advisor Series ........................ 4
Who may want to invest ...................................................... 4
U.S. equity investment process .............................................. 5
6 | Investing in the J.P. Morgan Disciplined Equity Fund - Advisor Series
YOUR INVESTMENT
Investing through a service organization .................................... 6
Account and transaction policies ............................................ 6
Dividends and distributions ................................................. 6
Tax considerations .......................................................... 7
9 | More about risk and the fund's business operations
FUND DETAILS
Business structure .......................................................... 8
Management and administration ............................................... 8
Performance of private accounts ............................................. 9
Risk and reward elements .................................................... 10
FOR MORE INFORMATION ................................................ back cover
<PAGE>
J.P. MORGAN DISCIPLINED
EQUITY FUND - ADVISOR SERIES
- --------------------------------------------------------------------------------
REGISTRANT: J.P. MORGAN INSTITUTIONAL FUNDS
(J.P. MORGAN DISCIPLINED EQUITY FUND -
ADVISOR SERIES)
[GRAPHIC OMITTED]
RISK/RETURN SUMMARY
For a more detailed discussion of the fund's investments and their main risks,
as well as fund strategies, please see pages 10-11.
[GRAPHIC OMITTED]
GOAL
The fund's goal is to provide a consistently high total return from a broadly
diversified portfolio of equity securities with risk characteristics similar to
the Standard & Poor's 500 Stock Index (S&P 500). This goal can be changed
without shareholder approval.
[GRAPHIC OMITTED]
INVESTMENT APPROACH
Principal strategies
The fund invests primarily in large- and medium-capitalization U.S. companies.
Industry by industry, the fund's weightings are similar to those of the S&P 500.
The fund does not look to overweight or underweight industries.
Within each industry, the fund modestly overweights stocks that are ranked as
undervalued or fairly valued while modestly underweighting or not holding stocks
that appear overvalued. (The process used to rank stocks according to their
relative valuations is described on page 5.)
By owning a large number of stocks within the S&P 500, with an emphasis on those
that appear undervalued or fairly valued, and by tracking the industry
weightings of that index, the fund seeks returns that modestly exceed those of
the S&P 500 over the long term with virtually the same level of volatility.
Principal Risks
The value of your investment in the fund will fluctuate in response to movements
in the stock market. Fund performance will also depend on the effectiveness of
J.P. Morgan's research and the management team's stock picking decisions.
An investment in the fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. You could lose money if you sell when the fund's share price is lower
than when you invested.
<PAGE>
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages
approximately $349 billion, including more than $26 billion using similar
strategies as the fund
The portfolio management team is led by Bernard A. Kroll, managing director,
Timothy J. Devlin, vice president, and Nanette J. Buziak, vice president. Mr.
Kroll has been at J.P. Morgan since August of 1996 and prior to that time was an
equity derivatives specialist at Goldman Sachs & Co. Mr. Devlin has been at J.P.
Morgan since July of 1996 and prior to that time was an equity portfolio manager
at Mitchell Hutchins Asset Management Inc. Ms. Buziak has been at J.P. Morgan
since March of 1997 and prior to that time was an index arbitrage trader and
convertible bond portfolio manager at First Marathon America, Inc.
- --------------------------------------------------------------------------------
Before you invest
Investors considering the fund should understand that:
o The fund seeks to achieve its goal by investing its assets in a master
portfolio, which is another fund with the same goal.
o There is no assurance that the fund will meet its investment goal.
o The fund does not represent a complete investment program.
2 | J.P. MORGAN DISCIPLINED EQUITY FUND - ADVISOR SERIES
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE (unaudited)
The bar chart and table shown below provide some indication of the risks of
investing in J.P. Morgan Disciplined Equity Fund - Advisor Series because
returns reflect performance of the J.P. Morgan Institutional Disciplined Equity
Fund, a separate feeder fund investing in the same master portfolio.
The bar chart indicates some of the risks by showing the performance of the J.P.
Morgan Institutional Disciplined Equity Fund's shares from year to year for each
of the past 2 calendar years.
The table indicates some of the risks by showing how the J.P. Morgan
Institutional Disciplined Equity Fund's average annual returns for the past year
and for its life compare to those of the S&P 500 Index. This is a widely
recognized, unmanaged index of U.S. stocks used as a measure of overall U.S.
stock market performance.
The J.P. Morgan Institutional Disciplined Equity Fund's past performance does
not necessarily indicate how the fund will perform in the future.
Total return (%) Shows changes in returns by calendar year(1,2)
- --------------------------------------------------------------------------------
1998 1999
40% 32.35
30%
20% 18.32
10%
0%
- --------------------------------------------------------------------------------
[] J.P. Morgan Institutional Disciplined Equity Fund
For the period covered by this total return chart, the J.P. Morgan Institutional
Disciplined Equity Fund's highest quarterly return was 22.85% (for the quarter
ended 12/31/98); and the lowest quarterly return was -9.91% (for the quarter
ended 9/30/98).
<TABLE>
<CAPTION>
Average annual total return (%) Shows performance over time, for periods ended December 31, 1999(1)
- --------------------------------------------------------------------------------------------------------------
Past 1 yr Life of fund(3)
<S> <C> <C>
J.P. Morgan Institutional Disciplined Equity Fund (after expenses) 18.32 26.16
- --------------------------------------------------------------------------------------------------------------
S&P 500 Index (no expenses) 21.04 25.81
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
The estimated expenses of the fund before and after reimbursement are shown at
right. The fund has no redemption, exchange, or account fees, although some
institutions may charge you a fee for shares you buy through them. The annual
fund expenses after reimbursement are deducted from fund assets prior to
performance calculations.
Annual fund operating expenses(4) (%)
(expenses that are deducted from fund assets)
- --------------------------------------------------------------------------------
Management fees 0.35
Rule (12b-1) fees 0.25
Service fees(5) 0.25
Other expenses 0.26
- --------------------------------------------------------------------------------
Total operating expenses 1.11
Fee waiver and expense
reimbursement(6) 0.16
- --------------------------------------------------------------------------------
Net expenses(6) 0.95
- --------------------------------------------------------------------------------
Expense example(6)
- --------------------------------------------------------------------------------
The example below is intended to help you compare the cost of investing in the
fund with the cost of investing in other mutual funds. The example assumes:
$10,000 initial investment, 5% return each year, net expenses for the 12 months
ending 3/31/01 and total operating expenses thereafter, and all shares sold at
the end of each time period. The example is for comparison only; the fund's
actual return and your actual costs may be higher or lower.
- --------------------------------------------------------------------------------
1 yr. 3 yrs.
Your cost($) 97 337
- --------------------------------------------------------------------------------
(1) These returns reflect lower operating expenses than those of the fund.
Therefore, the fund's returns would have been lower had the fund existed
during the same period.
(2) The fund's fiscal year end is 5/31.
(3) The J.P. Morgan Institutional Disciplined Equity Fund commenced operations
on 1/3/97. Life of fund performance is calculated as of 1/31/97.
(4) The fund has a master/feeder structure as described on page 8. 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.
(5) Service organizations (described on page 6) 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.
(6) Reflects an agreement dated 4/1/00 by Morgan Guaranty Trust Company of New
York, an affiliate of J.P. Morgan, to reimburse the fund to the extent
expenses (excluding extraordinary expenses) exceed 0.95% of the fund's
average daily net assets through 3/31/01.
J.P. MORGAN DISCIPLINED EQUITY FUND - ADVISOR SERIES | 3
<PAGE>
U.S. EQUITY MANAGEMENT APPROACH
- --------------------------------------------------------------------------------
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 380 analysts and portfolio managers
around the world and has approximately $349 billion in assets under management,
including assets managed by the funds' advisor, J.P. Morgan Investment
Management Inc.
J.P. MORGAN DISCIPLINED EQUITY FUND - ADVISOR SERIES
The fund invests primarily in large- and medium-capitalization U.S. companies.
Industry by industry, the fund's weightings are similar to those of the S&P 500.
The fund does not look to overweight or underweight industries.
- --------------------------------------------------------------------------------
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 an investment with growth potential to further diversify a
portfolio
o want a fund that seeks to outperform the market in which it invests over the
long term
The fund is not designed for investors who:
o want a fund that pursues market trends or focuses only on particular
industries or sectors
o require regular income or stability of principal
o are pursuing a short-term goal or investing emergency reserves
4 | U.S. EQUITY MANAGEMENT APPROACH
<PAGE>
U.S. EQUITY INVESTMENT PROCESS
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
J.P. Morgan analysts develop proprietary
fundamental research
[GRAPHIC OMITTED]
Stocks in each industry are ranked
with the help of models
[GRAPHIC OMITTED]
Using research and valuations,
the fund's management team
chooses stocks for the fund
<PAGE>
- --------------------------------------------------------------------------------
U.S. EQUITY INVESTMENT PROCESS
The fund invests primarily in U.S. stocks through another fund. As a
shareholder, you should anticipate risks and rewards beyond those of a typical
bond fund or a typical balanced fund.
The fund's philosophy, developed by the fund's advisor, focuses on stock picking
while largely avoiding sector or market-timing strategies.
In managing the fund, J.P. Morgan employs a three-step process:
Research J.P. Morgan takes an in-depth look at company prospects over a
relatively long period -- often as much as five years -- rather than focusing on
near-term expectations. This approach is designed to provide insight into a
company's real growth potential. J.P. Morgan's in-house research is developed by
an extensive worldwide network of over 120 career analysts. The team of analysts
dedicated to U.S. equities includes more than 20 members, with an average of
over ten years of experience.
Valuation The research findings allow J.P. Morgan to rank the companies in each
industry group according to their relative value. The greater a company's
estimated worth compared to the current market price of its stock, the more
undervalued the company. The valuation rankings are produced with the help of a
variety of models that quantify the research team's findings.
Stock selection The fund buys and sells stocks according to its policies, using
the research and valuation rankings as a basis. In general, the management team
buys stocks that are identified as undervalued and considers selling them when
they appear overvalued. Along with attractive valuation, the fund's managers
often consider a number of other criteria:
o catalysts that could trigger a rise in a stock's price
o high potential reward compared to potential risk
o temporary mispricings caused by market overreactions
U.S. EQUITY MANAGEMENT APPROACH | 5
<PAGE>
YOUR INVESTMENT
- --------------------------------------------------------------------------------
INVESTING THROUGH A SERVICE ORGANIZATION
Prospective investors may only 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. The minimum amount for initial investments in the
fund is $2,500 and for additional investments $500, although these minimums may
be less for some investors. Service organizations may provide the following
services in connection with their customers' investments in the fund:
o Acting, directly or through an agent, as the sole shareholder of record
o Maintaining account records for customers l Processing orders to purchase,
redeem or exchange shares for customers
o Responding to inquiries from shareholders
o Assisting customers with investment procedures
ACCOUNT AND TRANSACTION POLICIES
Business days 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
(e.g., when an event occurs after the close of trading that would materially
impact a security's value), 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. A fund has the right to suspend redemption of shares as
permitted by law and to postpone payment of proceeds for up to seven days.
<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, cash 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 its 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
Income dividends are typically paid four times a year. The fund typically makes
capital gains distributions, if any, once per year. However, the fund may make
more or fewer payments in a given year, depending on its investment results and
its tax compliance situation. The fund's dividends and distributions consist of
most or all of its net investment income and net realized capital gains.
Dividends and distributions are reinvested in additional fund shares.
Alternatively, you may instruct your financial professional to have them sent to
you by check, credited to a separate account, or invested in another J.P. Morgan
Institutional Fund.
6 | YOUR INVESTMENT
<PAGE>
TAX CONSIDERATIONS
In general, selling shares for cash, exchanging shares, and receiving
distributions (whether reinvested or taken in cash) are all taxable events.
These transactions typically create the following tax liabilities for taxable
accounts:
- --------------------------------------------------------------------------------
Transaction Tax status
- --------------------------------------------------------------------------------
Income dividends Ordinary income
- --------------------------------------------------------------------------------
Short-term capital gains Ordinary income
distributions
- --------------------------------------------------------------------------------
Long-term capital gains Capital gains
distributions
- --------------------------------------------------------------------------------
Sales or exchanges of shares Capital gains or losses
owned for more than one year
- --------------------------------------------------------------------------------
Sales or exchanges of shares Gains are treated as ordinary
owned for one year or less income; losses are subject
to special rules
- --------------------------------------------------------------------------------
Because long-term capital gains distributions are taxable as capital gains
regardless of how long you have owned your shares, you may want to avoid making
a substantial investment when the fund is about to declare a long-term capital
gains distribution.
Every January, the fund issues tax information on its distributions for the
previous year.
Any investor for whom the fund does not have a valid taxpayer identification
number will be subject to backup withholding for taxes.
The tax considerations described in this section do not apply to tax-deferred
accounts or other non-taxable entities.
Because each investor's tax circumstances are unique, please consult your tax
professional about your fund investment.
- --------------------------------------------------------------------------------
Shareholder Services Agent
J.P. Morgan Funds Services
522 Fifth Avenue
New York, NY 10036
1-800-521-5411
Representatives are available
8:00 a.m. to 5:00 p.m. eastern
time on fund business days.
YOUR INVESTMENT | 7
<PAGE>
FUND DETAILS
- --------------------------------------------------------------------------------
BUSINESS STRUCTURE
As noted earlier, the fund is a series of J.P. Morgan Institutional Funds, a
Massachusetts business trust, and 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 a master portfolio seeks a vote, its
feeder 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.
<PAGE>
J.P. Morgan, subject to the expense reimbursements described earlier in this
prospectus, receives the following fees for investment advisory and other
services:
Advisory services 0.35% 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 of average net
assets in J.P. Morgan-
advised portfolios, plus 0.04%
of average net assets over
$7 billion
- --------------------------------------------------------------------------------
Shareholder services 0.05% of the fund's average
net assets
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 fund has adopted a plan under Rule 12b-1 that allows the fund to pay
distribution fees up to 0.25% of the fund's average net assets for the sale and
distribution of its shares. Because these fees are paid out of the fund's assets
on an ongoing basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales charges.
J.P. Morgan may pay fees to certain firms and professionals for providing
recordkeeping or other services in connection with investments in the fund.
8 | YOUR INVESTMENT
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE OF PRIVATE ACCOUNTS
The Disciplined Equity Fund - Advisor Series' investment objective and policies
are substantially similar to those used by J.P. Morgan in managing certain
discretionary investment management accounts. The chart below shows the
historical investment performance for a composite of these private accounts (the
"Disciplined Equity Composite") and for the fund's benchmark index.
The performance of the Disciplined Equity Composite does not represent the
fund's performance nor should it be interpreted as indicative of the fund's
future performance. The accounts in the Disciplined Equity Composite are not
subject to the same regulatory requirements and limitations imposed on mutual
funds. If the accounts included in the Disciplined Equity Composite had been
subject to these regulatory requirements and limitations, their performance
might have been lower.
Additionally, although it is anticipated that the fund and the Disciplined
Equity Composite will hold similar securities, their investment results are
expected to differ. In particular, difference in asset size and cash flow
resulting from purchases and redemptions of fund shares may result in different
securities selections, differences in the relative weightings of securities or
differences in the prices paid for particular fund holdings.
The performance of the Disciplined Equity Composite reflects the deductions of
the fund's total operating expenses (after expense reimbursement), and the
reinvestment of dividends and other distributions. The performance information
is the average annual total return of the Disciplined Equity Composite for the
periods indicated.
<TABLE>
<CAPTION>
Annual Total Returns for the Year Ended December 31,
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Disciplined Equity
Composite -3.43% 29.76% 11.19% 9.65% 1.70% 37.20% 22.66% 32.72% 31.27% 18.23%
- ------------------------------------------------------------------------------------------------------------------------
S&P 500 -3.11% 30.47% 7.62% 10.08% 1.32% 37.58% 22.96% 33.36% 28.58% 21.04%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Disciplined Equity Composite currently includes all discretionary accounts
managed by J.P. Morgan using a substantially similar investment strategy as the
Disciplined Equity Fund. The inception date for the Disciplined Equity Composite
was October 31, 1989.
FUND DETAILS | 9
<PAGE>
- --------------------------------------------------------------------------------
RISK AND REWARD ELEMENTS
This table discusses the main elements that make up the fund's overall risk and
reward characteristics. 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>
Market conditions o Under normal circumstances the fund plans
to remain fully invested, with at least 65%
o The fund's share price and o Stocks have generally in stocks; stock investments may include
performance will fluctuate outperformed more stable U.S. and foreign common stocks, convertible
in response to stock investments (such as bonds securities, preferred stocks, trust or
market movements and cash equivalents) over partnership interests, warrants, rights,
the long term and investment company securities
o Adverse market conditions
may from time to time o The fund seeks to limit risk through
cause the fund to take diversification
temporary defensive
positions that are o During severe market downturns, the fund
inconsistent with its has the option of investing up to 100% of
principal investment assets in investment-grade short-term
strategies and may hinder securities
the fund from achieving
its investment objective
- ----------------------------------------------------------------------------------------------------------------------
Management choices
o The fund could o The fund could outperform o J.P. Morgan focuses its active management
underperform its benchmark its benchmark due to these on securities selection, the area where it
due to its securities and same choices believes its commitment to research can
asset allocation choices most enhance returns
- ----------------------------------------------------------------------------------------------------------------------
Foreign investments
o Currency exchange rate o Favorable exchange rate o The fund anticipates that its total foreign
movements could reduce movements could generate investments will not exceed 20% of assets
gains or create losses gains or reduce losses
o The fund actively manages the currency
o The fund could lose money o Foreign investments, which exposure of its foreign investments
because of foreign represent a major portion relative to its benchmark, and may hedge
government actions, of the world's securities, back into the U.S. dollar from time to time
political instability, or offer attractive potential (see also "Derivatives")
lack of adequate and performance and
accurate information opportunities for
diversification
- ----------------------------------------------------------------------------------------------------------------------
When-issued and delayed
delivery securities
o When the fund buys o The fund can take o The fund uses segregated accounts to offset
securities before issue or advantage of attractive leverage risk
for delayed delivery, it transaction opportunities
could be exposed to
leverage risk if it does
not use segregated
accounts
- ----------------------------------------------------------------------------------------------------------------------
Short-term trading
o Increased trading would o The fund could realize o The fund generally avoids short-term
raise the fund's brokerage gains in a short period of trading, except to take advantage of
and related costs time attractive or unexpected opportunities or
to meet demands generated by shareholder
o Increased short-term o The fund could protect activity. The portfolio turnover rate for
capital gains against losses if a stock the fund's master portfolio for its most
distributions would raise is overvalued and its recent fiscal year end was 51%
shareholders' income tax value later falls
liability
- ----------------------------------------------------------------------------------------------------------------------
</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 o Hedges that correlate well o The fund uses derivatives for hedging and
futures, options, swaps, with underlying positions for risk management (i.e., to establish or
and forward foreign can reduce or eliminate adjust exposure to particular securities,
currency contracts that losses at low cost markets or currencies); risk management may
are used for hedging the include management of the fund's exposure
portfolio or specific o The fund could make money relative to its benchmark
securities may not fully and protect against losses
offset the underlying if management's analysis o The fund only establishes hedges that it
positions1 and this could proves correct expects will be highly correlated with
result in losses to the underlying positions
fund that would not have o Derivatives that involve
otherwise occurred leverage could generate o While the fund may use derivatives that
substantial gains at low incidentally involve leverage, it does not
o Derivatives used for risk cost use them for the specific purpose of
management may not have leveraging its portfolio
the intended effects and
may result in losses or
missed opportunities
o The counterparty to a
derivatives contract could
default
o Derivatives that involve
leverage could magnify
losses
o Certain types of
derivatives involve costs
to the fund which can
reduce returns
- ----------------------------------------------------------------------------------------------------------------------
Securities lending
o When the fund lends a o The fund may enhance o J.P. Morgan maintains a list of approved
security, there is a risk income through the borrowers
that the loaned securities investment of the
may not be returned if the collateral received from o The fund receives collateral equal to at
borrower defaults the borrower least 100% of the current value of
securities loaned
o The collateral will be
subject to the risks of o The lending agents indemnify the fund
the securities in which it against borrower default
is invested
o J.P. Morgan's collateral investment
guidelines limit the quality and duration
of collateral investment to minimize losses
o Upon recall, the borrower must return the
securities loaned within the normal
settlement period
- ----------------------------------------------------------------------------------------------------------------------
Illiquid holdings
o The fund could have o These holdings may offer o The fund may not invest more than 15% of
difficulty valuing these more attractive yields or net assets in illiquid holdings
holdings precisely potential growth than
comparable widely traded o To maintain adequate liquidity to meet
o The fund could be unable securities redemptions, the fund may hold
to sell these holdings at investment-grade short-term securities
the time or price it (including repur-chase agreements and
desires reverse repurchase agreements) and, for
temporary or extraordinary purposes, may
borrow from banks up to 331/3% of the value
of its total assets
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
(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
pre-determined 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>
- --------------------------------------------------------------------------------
THIS PAGE IS LEFT BLANK INTENTIONALLY
<PAGE>
- --------------------------------------------------------------------------------
THIS PAGE IS LEFT BLANK INTENTIONALLY
<PAGE>
FOR MORE INFORMATION
For investors who want more information on these funds, 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 Funds
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. (1-202-942-8090) 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.
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
IMPR26
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
APRIL 3, 2000 | PROSPECTUS
- --------------------------------------------------------------------------------
J.P. MORGAN INSTITUTIONAL DIRECT 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 the fund.
Please read it carefully and keep it for reference.
As with all mutual funds, the fact that these shares are registered with the
Securities and Exchange Commission does not mean that the commission approves
them 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. JPMorgan
<PAGE>
CONTENTS
- --------------------------------------------------------------------------------
1 | The fund's goal, principal strategies, principal risks, performance
and expenses
J.P. MORGAN INSTITUTIONAL DIRECT PRIME
MONEY MARKET FUND
Fund description ......................................................... 1
Investor expenses ........................................................ 2
3 |
MONEY MARKET MANAGEMENT APPROACH
J.P. Morgan .............................................................. 3
J.P. Morgan Institutional Direct Prime Money Market Fund ................. 3
Who may want to invest ................................................... 3
Money market investment process .......................................... 4
5 | Investing in the J.P. Morgan Institutional Direct Prime Money Market Fund
YOUR INVESTMENT
Investing through a service organization ................................. 5
Account and transaction policies ......................................... 5
Dividends and distributions .............................................. 5
Tax considerations ....................................................... 6
7 | More about the fund's business operations
FUND DETAILS
Master/feeder structure .................................................. 7
Management and administration ............................................ 7
FOR MORE INFORMATION ............................................ back cover
<PAGE>
J.P. MORGAN INSTITUTIONAL DIRECT PRIME MONEY MARKET FUND
[GRAPHIC OMITTED]
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 OMITTED]
INVESTMENT APPROACH
Principal Strategies
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, reverse 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.
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 4.
Principal Risks
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 dollar weighted average maturity
(currently not to exceed 90 days) 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.
An investment in the fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. Although the fund seeks to preserve the value of your investment at $1
per share, it is possible to lose money by investing in the fund.
<PAGE>
REGISTRANT: J.P. MORGAN INSTITUTIONAL FUNDS
(J.P. MORGAN INSTITUTIONAL DIRECT PRIME MONEY
MARKET FUND)
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages
approximately $349 billion, including more than $52 billion using similar
strategies as the fund.
The advisor uses a team of portfolio managers and traders to manage the fund.
The portfolio management team is led by John Donohue, vice president, who has
been on the team since joining J.P. Morgan in June of 1997 from Goldman Sachs &
Co., where he was an institutional money market portfolio manager; and Mark
Settles, vice president, who has been on the team since November 1999. Prior to
managing this fund, Mr. Settles was a fixed income trader on J.P. Morgan's New
York and London trading desks. The traders on the team are Donald Clemmenson,
vice president, who has been on the team since its inception; Gunter Heiland,
associate, who has been on the team since joining J.P. Morgan in June of 1997
from Salomon Brothers, where he was a sales assistant; and Kimberly Weil, who
has been on the team since its inception.
- --------------------------------------------------------------------------------
Before you invest
Investors considering this fund should understand that:
o The fund seeks to achieve its goal by investing its assets in a master
portfolio, which is another fund with the same goal
o There is no assurance that this fund will meet its investment goals
o This fund does not represent a complete investment program
1 | J.P. MORGAN INSTITUTIONAL DIRECT PRIME MONEY MARKET FUND
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE (unaudited)
The bar chart and table shown below provide some indication of the risks of
investing in J.P. Morgan Institutional Direct Prime Money Market Fund because
returns reflect performance of the J.P. Morgan Prime Money Market Fund, a
separate feeder fund investing in the same master portfolio.
The bar chart indicates some of the risks by showing changes in the performance
of the J.P. Morgan Prime Money Market Fund's shares from year to year for each
of the last ten calendar years.
The table indicates some of the risks by showing the J.P. Morgan Prime Money
Market Fund's average annual returns for the past one year, five years and ten
years.
The J.P. Morgan Prime Money Market Fund's past performance does not necessarily
indicate how the fund will perform in the future.
<TABLE>
<CAPTION>
Year-by-year total return (%) (%)Shows changes in returns by calendar year(1,2)
- -------------------------------------------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12%
9%
8.04
6% 6.07
3.95 5.79 5.21 5.41 5.35 4.93
3% 3.67
2.83
0%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[ ] J.P. Morgan Prime Money Market Fund
For the period covered by this year-by-year total return chart, the J.P. Morgan
Prime Money Market Fund's highest quarterly return was 1.97% (for the quarter
ended 6/30/90); and the lowest quarterly return was 0.69% (for the quarter ended
6/30/93).
PERFORMANCE (unaudited)
<TABLE>
<CAPTION>
Average annual total return (%) Shows performance over time, for periods ended December 31, 1999(1)
- ---------------------------------------------------------------------------------------------------------
Past 1 yr. Past 5 yrs. Past 10 yrs.
<S> <C> <C> <C>
J.P. Morgan Prime Money Market Fund (after expenses) 4.93 5.34 5.12
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
The estimated expenses of the fund before and after reimbursement are shown at
right. The fund has no sales, redemption, exchange, or account fees, although
some institutions may charge you a fee for shares you buy through them. The
annual fund expenses are deducted from fund assets prior to performance
calculations.
Annual fund operating expenses(3) (%)
(expenses that are deducted from fund assets)
- --------------------------------------------------------------------------------
Management fees 0.11
Rule (12b-1) fees None
Service fees(4) 0.10
Other expenses 0.18
- --------------------------------------------------------------------------------
Total operating expenses 0.39
Fee waiver and
expense reimbursement(5) 0.09
- --------------------------------------------------------------------------------
Net expenses(5) 0.30
- --------------------------------------------------------------------------------
Expense examples(5)
- --------------------------------------------------------------------------------
The example below is intended to help you compare the cost of investing in the
fund with the cost of investing in other mutual funds. The example assumes:
$10,000 initial investment, 5% return each year, net expenses for the 12 months
ending 3/31/01 and total operating expenses thereafter, and all shares sold at
the end of each time period. The example is for comparison only; the fund's
actual return and your actual costs may be higher or lower.
- --------------------------------------------------------------------------------
1 yr. 3 yrs.
Your cost($) 31 116
- --------------------------------------------------------------------------------
(1) Returns reflect performance of the J.P. Morgan Prime Money Market Fund, a
separate feeder fund investing in the same master portfolio. The J.P. Morgan
Prime Money Market Fund commenced operations on 7/12/93 and returns for
periods prior to 7/31/93 reflect performance of The Pierpont Money Market
Fund, the predecessor of the J.P. Morgan Prime Money Market Fund.
(2) The fund's fiscal year end is 11/30.
(3) The fund has a master/feeder structure as described on page 7. This table
shows the fund's estimated expenses and its estimated share of master
portfolio expenses for the current year expressed as a percentage of the
fund's estimated average net assets.
(4) Service Organizations (described on page 5) 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.
(5) Reflects an agreement dated 4/1/00 by Morgan Guaranty Trust Company of New
York, an affiliate of J.P. Morgan, to reimburse the fund to the extent
expenses (excluding extraordinary expenses) exceed 0.30% of the fund's
average daily net assets through 3/31/01.
J.P. MORGAN INSTITUTIONAL DIRECT PRIME MONEY MARKET FUND | 2
<PAGE>
MONEY MARKET MANAGEMENT APPROACH
- --------------------------------------------------------------------------------
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 380 analysts and portfolio managers
around the world and has approximately $349 billion in assets under management,
including assets managed by the fund's advisor, J.P. Morgan Investment
Management Inc.
J.P. MORGAN INSTITUTIONAL DIRECT PRIME MONEY MARKET FUND
The 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.
Primary investments
- ----------------------------------------------------------------
Direct
Prime Money
Market Fund
- ----------------------------------------------------------------
U.S. Treasuries* o
- ----------------------------------------------------------------
U.S. government
agency
instruments o
- ----------------------------------------------------------------
Domestic &
foreign bank
obligations o
- ----------------------------------------------------------------
Domestic &
foreign
short-term
corporate
obligations o
- ----------------------------------------------------------------
Foreign
governments o
- ----------------------------------------------------------------
Illiquid holdings o
- ----------------------------------------------------------------
Repurchase
agreements and
reverse repurchase
agreements o
- ----------------------------------------------------------------
* Income is generally exempt from state and local income taxes
<PAGE>
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
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.
3 | MONEY MARKET MANAGEMENT APPROACH
<PAGE>
[GRAPHIC OMITTED]
J.P. Morgan uses a disciplined process
to control the fund's sensitivity
to interest rates
[GRAPHIC OMITTED]
The fund invests across different
sectors for diversification and to
take advantage of yield spreads
[GRAPHIC OMITTED]
The fund directs its securities as
described earlier in this prospectus
<PAGE>
MONEY MARKET INVESTMENT PROCESS
The fund's philosophy, developed by the fund's 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.
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 described in this prospectus, J.P. Morgan employs a
three-step process that combines maturity determination, sector allocation and
fundamental research for identifying portfolio securities:
Maturity determination Based on analysis of a range of factors, including
current yields, economic forecasts, and anticipated fiscal and monetary
policies, J.P. Morgan establishes the desired dollar 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 in different sectors of the
short-term debt market 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.
Security direction Based on the results of the firm's credit research and the
fund's maturity determination and sector allocation, the portfolio managers and
dedicated fixed-income traders make buy and sell decisions according to the
fund's goal and strategy.
MONEY MARKET MANAGEMENT APPROACH | 4
<PAGE>
YOUR INVESTMENT
- --------------------------------------------------------------------------------
INVESTING THROUGH A SERVICE ORGANIZATION
Prospective investors may only 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. 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. Service organizations may provide the
following services in connection with their customers' investments in the fund:
o Acting, directly or through an agent, as the sole shareholder of record
o Maintaining account records for customers
o Processing orders to purchase, redeem or exchange shares for customers
o Responding to inquiries from shareholders
o Assisting customers with investment procedures
ACCOUNT AND TRANSACTION POLICIES
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 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.
For the purchase to be effective and dividends to be earned on the same day,
immediately available funds must be received by the fund by its close of
business on that day. Service organizations will be responsible for transmitting
accepted orders and payments to the fund within the time period agreed upon by
them. The fund has the right to suspend redemption of shares as permitted by law
and to postpone payment of proceeds for up to seven days.
<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. 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 its 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.
5 | YOUR INVESTMENT
<PAGE>
- --------------------------------------------------------------------------------
Dividends and distributions are reinvested in additional fund shares.
Alternatively, you may instruct your financial professional 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. Income dividends
from the fund typically create ordinary income.
- -------------------------------------------------------------------
Transaction Tax status
- -------------------------------------------------------------------
Income dividends Ordinary income
- -------------------------------------------------------------------
Short-term capital gains Ordinary income
distributions
- -------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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 | 6
<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 all the
feeders of the master portfolio bear the 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 a master
portfolio seeks a vote, its feeder 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 feeder fund and its master portfolio expect to maintain consistent goals,
but if they do not, the feeder fund will withdraw from the master portfolio,
receiving its assets either in cash or securities. The feeder fund's trustees
would then consider whether the feeder fund should hire its own investment
adviser, invest in a different master portfolio, or take other action.
MANAGEMENT AND ADMINISTRATION
The feeder fund described in this prospectus and its corresponding master
portfolio are all 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 each 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:
<PAGE>
- --------------------------------------------------------------------------------
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 of average
net assets in J.P. Morgan-
advised portfolios, plus 0.04%
over $7 billion
- --------------------------------------------------------------------------------
Shareholder services 0.05% of the fund's
average net assets
- --------------------------------------------------------------------------------
The fund has a service plan which allows it to pay service organizations up to
0.10% of the average net assets of the shares held in the name of the service
organization.
J.P. Morgan may also pay fees to certain firms and professionals for providing
recordkeeping or other services in connection with investments in a fund.
7 | FUND DETAILS
<PAGE>
THIS PAGE IS LEFT BLANK INTENTIONALLY
| 8
<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 each fund's SAI by reference.
Copies of the current versions of these documents, along with other information
about the funds, may be obtained by contacting:
J.P. Morgan Institutional Funds
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. (1-202-942-8090) 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.
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
<PAGE>
J.P. MORGAN INSTITUTIONAL FUNDS
J.P. MORGAN DISCIPLINED EQUITY FUND - ADVISOR SERIES
STATEMENT OF ADDITIONAL INFORMATION
APRIL 3, 2000
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT CONTAINS
ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS
DATED APRIL 3, 2000 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 MASTER PORTFOLIO OF THE FUND LISTED ABOVE DATED MAY 31, 1999. THE
PROSPECTUS AND THESE FINANCIAL STATEMENTS, INCLUDING THE INDEPENDENT
ACCOUNTANTS' REPORT ON THE ANNUAL FINANCIAL STATEMENTS, 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 . . . . . . . . . . . 18
Trustees and Members of the Advisory Board . 19
Officers . . . . . . . . . . . . . . . . . . 22
Investment Advisor . . . . . . . . . . . . . . 23
Distributor . . . . . . . . . . . . . . . . . 26
Co-Administrator . . . . . . . . . . . . . . . 27
Services Agent . . . . . . . . . . . . . . . . 27
Custodian and Transfer Agent . . . . . . . . . 28
Shareholder Servicing . . . . . . . . . . . . 28
Service Organizations . . . . . . . . . . . . . 29
Distribution Plan . . . . . . . . . . . . . . 30
Financial Professionals. . . . . . . . . . . . 31
Independent Accountants . . . . . . . . . . . 32
Expenses . . . . . . . . . . . . . . . . . . . 32
Purchase of Shares . . . . . . . . . . . . . . 32
Redemption of Shares . . . . . . . . . . . . . 33
Exchange of Shares . . . . . . . . . . . . . . 34
Dividends and Distributions . . . . . . . . . 34
Net Asset Value . . . . . . . . . . . . . . . 35
Performance Data . . . . . . . . . . . . . . . 36
Portfolio Transactions . . . . . . . . . . . . 37
Massachusetts Trust . . . . . . . . . . . . . 39
Description of Shares . . . . . . . . . . . . 40
Special Information Concerning
Investment Structure. . . . . . .. . . . . . . 41
Taxes . . . . . . . . . . . . . . . . . . . . 42
Additional Information . . . . . . . . . . . 46
Financial Statements . . . . . . . . . . . . . 47
Appendix A - Description of Securities
Ratings . . . . . . . . . . . . . . . . . . . Appendix A - 1
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GENERAL
This Statement of Additional Information relates only to J.P. Morgan
Disciplined Equity Fund - Advisor Series (the "Fund"). The Fund is a series of
shares of beneficial interest of 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's corresponding Master Portfolio and the Fund. The Fund operates through a
two-tier master-feeder investment fund structure.
This Statement of Additional Information provides additional
information with respect to the Fund and should be read in conjunction with the
Fund's current Prospectus (the "Prospectus"). Capitalized terms not otherwise
defined herein have the meanings accorded to them in the Prospectus. The Fund's
executive offices are located at 60 State Street, Suite 1300, Boston ,
Massachusetts 02109.
Unlike other mutual funds which directly acquire and manage their own
portfolio of securities, the Fund seeks to achieve its investment objective by
investing all of its investable assets in 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 any 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 OBJECTIVES AND POLICIES
The following discussion supplements the information regarding the
investment objective of the Fund and the policies to be employed to achieve this
objective by the Portfolio as set forth above and in the Prospectus. The
investment objective of the Fund and the Portfolio is identical. Accordingly,
references below to the Fund also include the Fund's Portfolio; similarly,
references to the Portfolio also include the Fund unless the context requires
otherwise.
The Fund is designed for investors seeking enhanced total return
relative to that of large and medium sized companies, typically represented by
the S&P 500 Index. The Fund's investment objective is to provide a consistently
high total return from a broadly diversified portfolio of equity securities with
risk characteristics similar to the S&P 500 Index. This investment objective can
be changed without shareholder approval. The Fund attempts to achieve its
investment objective by investing all of its investable assets in The
Disciplined Equity Portfolio, a diversified open-end management investment
company having the same investment objective as the Fund.
The Fund invests primarily in a diversified portfolio of common stocks
and other equity securities. Under normal circumstances, the Fund expects to
invest at least 65% of its total assets in such securities.
Investment Process
Research: The Advisor's more than 20 domestic equity analysts, each an
industry specialist with an average of over 10 years of experience, follow
approximately 600 medium and large capitalization U.S. companies. Their research
goal is to forecast intermediate-term earnings and prospective dividend growth
rates for the companies that they cover.
Valuation: The analysts' forecasts are converted into comparable
expected returns using a proprietary dividend discount model, which calculates
the intermediate-term earnings by comparing a company's current stock price with
its forecasted dividends and earnings. Within each sector, companies are ranked
according to their relative value and grouped into quintiles: those with the
highest expected returns (Quintile 1) are deemed the most undervalued relative
to their long-term earnings power, while those with the lowest expected returns
(Quintile 5) are deemed the most overvalued.
Stock Selection: A broadly diversified portfolio is constructed using
disciplined buy and sell rules. Purchases are allocated among stocks in the
first three quintiles. Once a stock falls into the fourth and fifth quintiles --
either because its price has risen or its fundamentals have deteriorated -- it
generally becomes a candidate for sale. The Fund's sector weightings are matched
to those of the S&P 500 Index, the Fund's benchmark. The Advisor, also controls
the Fund's exposure to style and theme bets and maintains near-market security
weightings in individual security holdings. This process results in an
investment portfolio containing approximately 300 stocks.
The various types of securities in which the Fund may invest are
described below.
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 may invest in certain foreign securities. The Fund does not
expect to invest more than 20% of their respective total assets, at the time of
purchase, in securities of foreign issuers. This 20% limit is designed to
accommodate the increased globalization of companies as well as the
re-domiciling of companies for tax treatment purposes. It is not currently
expected to be used to increase direct non-U.S. exposure.
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.
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, the Fund'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 Depository Receipts ("ADRs"), European
Depository Receipts ("EDRs") and Global Depository Receipts ("GDRs") or other
similar securities of foreign issuers. ADRs are securities, typically issued by
a U.S. financial institution (a "depository"), that evidence ownership interests
in a security or a pool of securities issued by a foreign issuer and deposited
with the depository. ADRs include American Depository Shares and New York
Shares. EDRs are receipts issued by a European financial institution. GDRs,
which are sometimes referred to as Continental Depository 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 depository, whereas an unsponsored facility may be established by a depository
without participation by the issuer of the receipt's underlying security.
Holders of an unsponsored depository receipt generally bear all costs
of the unsponsored facility. The depository 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 the 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.
Foreign Currency Exchange Transactions
Because the Fund may buy and sell securities and receive 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 the
Fund to purchase or sell a specific currency at a future date, which may be any
fixed number of days from the date of the contract. Forward foreign currency
exchange contracts establish an exchange rate at a future date. These contracts
are derivative instruments, as their value derives from the spot exchange rates
of the currencies underlying the contract. These contracts are entered into in
the interbank market directly between currency traders (usually large commercial
banks) and their customers. A forward foreign currency exchange contract
generally has no deposit requirement and is traded at a net price without
commission. Neither spot transactions nor forward foreign currency exchange
contracts eliminate fluctuations in the prices of the Fund's securities or in
foreign exchange rates, or prevent loss if the prices of these securities should
decline.
The Fund may enter into foreign currency exchange transactions in an
attempt to protect against changes in foreign currency exchange rates between
the trade and settlement dates of specific securities transactions or
anticipated securities transactions. The Fund may also enter into forward
contracts to hedge against a change in foreign currency exchange rates that
would cause a decline in the value of existing investments denominated or
principally traded in a foreign currency. To do this, the Fund would enter into
a forward contract to sell the foreign currency in which the investment is
denominated or principally traded in exchange for U.S. dollars or in exchange
for another foreign currency. The Fund will only enter into forward contracts to
sell a foreign currency in exchange for another foreign currency if the Advisor
expects the foreign currency purchased to appreciate against the U.S. dollar.
Although these transactions are intended to minimize the risk of loss
due to a decline in the value of the hedged currency, at the same time they
limit any potential gain that might be realized should the value of the hedged
currency increase. In addition, forward contracts that convert a foreign
currency into another foreign currency will cause the Fund 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.
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 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.
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 the Fund's total assets will be invested in the securities of any one
investment company, (ii) not more than 10% of the value of its total assets will
be invested in the aggregate in securities of investment companies as a group,
and (iii) not more than 3% of the outstanding voting stock of any one investment
company will be owned by the Fund, provided however, that the Fund may invest
all of its investable assets in an open-end investment company that has the same
investment objective as the Fund. As a shareholder of another investment
company, the Fund 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.
The Securities and Exchange Commission ("SEC") has granted the
Portfolio an exemptive order permitting it to invest its uninvested cash in any
of the following affiliated money market funds: J.P. Morgan Institutional Prime
Money Market Fund, J.P. Morgan Institutional Tax Exempt Money Market Fund, J.P.
Morgan Institutional Federal Money Market Fund and J.P. Morgan Institutional
Treasury Money Market Fund. The order sets forth the following conditions: (1)
the Portfolio may invest in one or more of the permitted money market funds up
to an aggregate limit of 25% of its assets; and (2) the Advisor will waive
and/or reimburse its advisory fee from the Portfolio in an amount sufficient to
offset any doubling up of investment advisory and shareholder servicing fees.
Reverse Repurchase Agreements. The Fund may enter into reverse
repurchase agreements. In a reverse repurchase agreement, the Fund sells a
security and agrees to repurchase the same security at a mutually agreed upon
date and price reflecting the interest rate effective for the term of the
agreement. For purposes of the 1940 Act a reverse repurchase agreement is also
considered as the borrowing of money by the Fund and, therefore, a form of
leverage. Leverage may cause any gains or losses for the Fund to be magnified.
The Fund will invest the proceeds of borrowings under reverse repurchase
agreements. In addition, except for liquidity purposes, the Fund will enter into
a reverse repurchase agreement only when the expected return from the investment
of the proceeds is greater than the expense of the transaction. The Fund will
not invest the proceeds of a reverse repurchase agreement for a period which
exceeds the duration of the reverse repurchase agreement. The Fund will
establish and maintain with the custodian a separate account with a segregated
portfolio of securities in an amount at least equal to its purchase obligations
under its reverse repurchase agreements. See "Investment Restrictions" for the
Fund's limitations on reverse repurchase agreements and bank borrowings.
Loans of Portfolio Securities. 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 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, Member of the Advisory Board, Director, employee or other
affiliate of the Fund, the Advisor or the Distributor, unless otherwise
permitted by applicable law.
Illiquid Investments; Privately Placed and Other Unregistered
Securities. The Fund may not acquire any illiquid securities if, as a result
thereof, more than 15% of its net assets would be in illiquid investments.
Subject to this non-fundamental policy limitation, the Fund may acquire
investments that are illiquid or have limited liquidity, such as private
placements or investments that are not registered under the Securities Act of
1933, as amended (the "1933 Act"), and cannot be offered for public sale in the
United States without first being registered under the 1933 Act. An illiquid
investment is any investment that cannot be disposed of within seven days in the
normal course of business at approximately the amount at which it is valued by
the 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
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.
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
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 Fund, subject to its 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
(the "Asset Limitation") 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 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 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 Fund may invest in commercial paper, including
master demand obligations. Master demand obligations are obligations that
provide for a periodic adjustment in the interest rate paid and permit daily
changes in the amount borrowed. Master demand obligations are governed by
agreements between the issuer and Morgan Guaranty Trust Company of New York
("Morgan"), an affiliate of the Advisor, 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." It is possible
that the issuer of a master demand obligation could be a client of Morgan, to
whom Morgan, an affiliate of the Advisor, 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.
Quality and Diversification Requirements
The Fund intends to meet the diversification requirements of the 1940
Act. To meet these requirements, 75% of the assets of the Fund is subject to the
following fundamental limitations: (1) the Fund may not invest more than 5% of
its total assets in the securities of any one issuer, except obligations of the
U.S. Government, its agencies and instrumentalities, and (2) the Fund may not
own more than 10% of the outstanding voting securities of any one issuer. As for
the other 25% of the Fund's assets not subject to the limitation described
above, there is no limitation on investment of these assets under the 1940 Act,
so that all of such assets may be invested in securities of any one issuer.
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 Fund 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 Fund may invest in convertible debt securities, for which there are
no specific quality requirements. In addition, at the time the 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 the 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
The Fund may (a) purchase and sell exchange traded and over-the-counter
(OTC) put and call options on equity securities or indexes of equity securities,
(b) purchase and sell futures contracts on indexes of equity securities and (c)
purchase and sell put and call options on futures contracts on indexes of equity
securities. Each of these instruments is a derivative instrument as its value
derives from the underlying asset or index.
The Fund may utilize options and futures contracts to manage its
exposure to changing interest rates and/or security prices. Some options and
futures strategies, including selling futures contracts and buying puts, tend to
hedge the Fund's investments against price fluctuations. Other strategies,
including buying futures contracts, writing puts and calls, and buying calls,
tend to increase market exposure. Options and futures contracts may be combined
with each other or with forward contracts in order to adjust the risk and return
characteristics of the Fund's overall strategy in a manner deemed appropriate to
the Advisor and consistent with the Fund's objective and policies. Because
combined options positions involve multiple trades, they result in higher
transaction costs and may be more difficult to open and close out.
The use of options and futures is a highly specialized activity which
involves investment strategies and risks different from those associated with
ordinary portfolio securities transactions, and there can be no guarantee that
their use will increase the Fund's return. While the use of these instruments by
the Fund may reduce certain risks associated with owning its portfolio
securities, these techniques themselves entail certain other risks. If the
Advisor applies a strategy at an inappropriate time or judges market conditions
or trends incorrectly, options and futures strategies may lower the Fund's
return. Certain strategies limit the Fund's possibilities to realize gains as
well as limiting its exposure to losses. The Fund could also experience losses
if the prices of its options and futures positions were poorly correlated with
its other investments, or if it could not close out its positions because of an
illiquid secondary market. In addition, the Fund will incur transaction costs,
including trading commissions and option premiums, in connection with its
futures and options transactions and these transactions could significantly
increase the Fund's turnover rate.
The Fund may purchase put and call options on securities, indexes of
securities and futures contracts, or purchase and sell futures contracts, only
if such options are written by other persons and if (i) the aggregate premiums
paid on all such options which are held at any time do not exceed 20% of the
Fund's net assets, and (ii) the aggregate margin deposits required on all such
futures or options thereon held at any time do not exceed 5% of the Fund's total
assets.
Options
Purchasing Put and Call Options. By purchasing a put option, the Fund
obtains the right (but not the obligation) to sell the instrument underlying the
option at a fixed strike price. In return for this right, the Fund pays the
current market price for the option (known as the option premium). Options have
various types of underlying instruments, including specific securities, indexes
of securities, indexes of securities prices, and futures contracts. The Fund may
terminate its position in a put option it has purchased by allowing it to expire
or by exercising the option. The Fund may also close out a put option position
by entering into an offsetting transaction, if a liquid market exists. If the
option is allowed to expire, the Fund will lose the entire premium it paid. If
the Fund exercises a put option on a security, it will sell the instrument
underlying the option at the strike price. If the Fund exercises an option on an
index, settlement is in cash and does not involve the actual sale of securities.
If an option is American style, it may be exercised on any day up to its
expiration date. A European style option may be exercised only on its expiration
date.
The buyer of a typical put option can expect to realize a gain if the
price of the underlying instrument falls substantially. However, if the price of
the instrument underlying the option does not fall enough to offset the cost of
purchasing the option, a put buyer can expect to suffer a loss (limited to the
amount of the premium paid, plus related transaction costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the instrument underlying the option at the option's
strike price. A call buyer typically attempts to participate in potential price
increases of the instrument underlying the option with risk limited to the cost
of the option if security prices fall. At the same time, the buyer can expect to
suffer a loss if security prices do not rise sufficiently to offset the cost of
the option.
Selling (Writing) Put and Call Options. When the Fund writes a put
option, it takes the opposite side of the transaction from the option's
purchaser. In return for receipt of the premium, the Fund assumes the obligation
to pay the strike price for the instrument underlying the option if the other
party to the option chooses to exercise it. The Fund may seek to terminate its
position in a put option it writes before exercise by purchasing an offsetting
option in the market at its current price. If the market is not liquid for a put
option the Fund has written, however, the Fund must continue to be prepared to
pay the strike price while the option is outstanding, regardless of price
changes, and must continue to post margin as discussed below.
If the price of the underlying instrument rises, a put writer would
generally expect to profit, although its gain would be limited to the amount of
the premium it received. If security prices remain the same over time, it is
likely that the writer will also profit, because it should be able to close out
the option at a lower price. If security prices fall, the put writer would
expect to suffer a loss. This loss should be less than the loss from purchasing
and holding the underlying instrument directly, however, because the premium
received for writing the option should offset a portion of the decline.
Writing a call option obligates the Fund to sell or deliver the
option's underlying instrument in return for the strike price upon exercise of
the option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium a call writer offsets part of the effect of a price decline. At the same
time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is greater,
a call writer gives up some ability to participate in security price increases.
The writer of an exchange traded put or call option on a security, an
index of securities or a futures contract is required to deposit cash or
securities or a letter of credit as margin and to make mark to market payments
of variation margin as the position becomes unprofitable.
Options on Indexes. Options on securities indexes are similar to
options on securities, except that the exercise of securities index options is
settled by cash payment and does not involve the actual purchase or sale of
securities. In addition, these options are designed to reflect price
fluctuations in a group of securities or segment of the securities market rather
than price fluctuations in a single security. The Fund, in purchasing or selling
index options, is subject to the risk that the value of its portfolio securities
may not change as much as an index because the Fund's investments generally will
not match the composition of an index.
For a number of reasons, a liquid market may not exist and thus the
Fund may not be able to close out an option position that it has previously
entered into. When the Fund purchases an OTC option, it will be relying on its
counterparty to perform its obligations, and the Fund may incur additional
losses if the counterparty is unable to perform.
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, the 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 (write) futures contracts and purchase or sell put and call
options, including put and call options on futures contracts. Futures contracts
obligate the buyer to take and the seller to make delivery at a future date of a
specified quantity of a financial instrument or an amount of cash based on the
value of a securities index. Currently, futures contracts are available on
various types of fixed income securities, including but not limited to U.S.
Treasury bonds, notes and bills, Eurodollar certificates of deposit and on
indexes of fixed income securities and indexes of equity securities.
Unlike a futures contract, which requires the parties to buy and sell a
security or make a cash settlement payment based on changes in a financial
instrument or securities index on an agreed date, an option on a futures
contract entitles its holder to decide on or before a future date whether to
enter into such a contract. If the holder decides not to exercise its option,
the holder may close out the option position by entering into an offsetting
transaction or may decide to let the option expire and forfeit the premium
thereon. The purchaser of an option on a futures contract pays a premium for the
option but makes no initial margin payments or daily payments of cash in the
nature of "variation" margin payments to reflect the change in the value of the
underlying contract as does a purchaser or seller of a futures contract.
The seller of an option on a futures contract receives the premium paid
by the purchaser and may be required to pay initial margin. Amounts equal to the
initial margin and any additional collateral required on any options on futures
contracts sold by the 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. Although
the Fund will not be commodity pools, certain derivatives subject the Fund to
the rules of the Commodity Futures Trading Commission which limit the extent to
which the Fund can invest in such derivatives. The Fund may invest in futures
contracts and options with respect thereto for hedging purposes without limit.
However, the Fund may not invest in such contracts and options for other
purposes if the sum of the amount of initial margin deposits and premiums paid
for unexpired options with respect to such contracts, other than for bona fide
hedging purposes, exceeds 5% of the liquidation value of the Fund's assets,
after taking into account unrealized profits and unrealized losses on such
contracts and options; provided, however, that in the case of an option that is
in-the-money at the time of purchase, the in-the-money amount may be excluded in
calculating the 5% limitation.
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 the result,
there is a possibility that segregation of a large percentage of the Fund's
assets could impede portfolio 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. Risk
management strategies are used to keep the Fund fully invested and to reduce the
transaction costs associated with cash flows into and out of the Fund. The
objective where equity futures are used to "equitize" cash is to match the
notional value of all futures contracts to the Fund's cash balance. The notional
value of futures and of the cash is monitored daily. As the cash is invested in
securities and/or paid out to participants in redemptions, the Advisor
simultaneously adjusts the futures positions. Through such procedures, the Fund
not only gains equity exposure from the use of futures, but also benefit from
increased flexibility in responding to client cash flow needs. Additionally,
because it can be less expensive to trade a list of securities as a package or
program trade rather than as a group of individual orders, futures provide a
means through which transaction costs can be reduced. 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. 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 Portfolio -- For the period December 30, 1996 (commencement of
operations) through May 31, 1997: 20%. For the fiscal years ended May 31, 1998
and 1999: 61% and 51%, respectively.
INVESTMENT RESTRICTIONS
The investment restrictions of the Fund and the Portfolio are
identical, unless otherwise specified. Accordingly, references below to the Fund
also include the Portfolio unless the context requires otherwise; similarly,
references to the Portfolio also include the Fund unless the context requires
otherwise.
The investment restrictions below have been adopted by the Trust with
respect to the Fund and by the Portfolio. Except where otherwise noted, these
investment restrictions are "fundamental" policies which, under the 1940 Act,
may not be changed without the vote of a majority of the outstanding voting
securities of the Fund or Portfolio, as the case may be. A "majority of the
outstanding voting securities" is defined in the 1940 Act as the lesser of (a)
67% or more of the voting securities present at a meeting if the holders of more
than 50% of the outstanding voting securities are present or represented by
proxy, or (b) more than 50% of the outstanding voting securities. The percentage
limitations contained in the restrictions below apply at the time of the
purchase of securities. Whenever the Fund is requested to vote on a change in
the fundamental investment restrictions of the Portfolio, the Trust will hold a
meeting of Fund shareholders and will cast its votes as instructed by the Fund's
shareholders.
The Fund and the Portfolio:
1. May not make any investments 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 its 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 the Portfolio and
may be changed by their Trustees.
These non-fundamental investment policies require that the Fund:
(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, 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 MEMBERS OF THE ADVISORY BOARD
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 date of birth is
January 1, 1932.
WILLIAM G. BURNS -- Trustee; Retired, Former Vice Chairman and Chief
Financial Officer, NYNEX. 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 date of birth is May 23, 1934.
MATTHEW HEALEY1 -- Trustee, Chairman and Chief Executive Officer; Chairman,
Pierpont Group, Inc., since prior to 1993. 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 date of
birth is March 17, 1934.
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, of
the Portfolio and the J.P. Morgan Funds, up to and including creating a separate
board of trustees.
Each Trustee is currently paid an annual fee of $75,000 (adjusted as of
April 1, 1997) for serving as Trustee of the Trust, each of the Master
Portfolios (as defined below), J.P. Morgan Funds and J.P. Morgan Series Trust
and is reimbursed for expenses incurred in connection with service as a Trustee.
The Trustees may hold various other directorships unrelated to these funds.
<PAGE>
Trustee compensation expenses paid by the Trust for the calendar year
ended December 31, 1999 are set forth below.
<TABLE>
<CAPTION>
<S> <C> <C>
- ---------------------------------- -------------------- -----------------------------------------
TOTAL TRUSTEE COMPENSATION ACCRUED BY
THE MASTER PORTFOLIOS(*), J.P. MORGAN
AGGREGATE TRUSTEE FUNDS, J.P. MORGAN SERIES TRUST AND THE
COMPENSATION TRUST DURING 1999 (**)
PAID BY THE
NAME OF TRUSTEE TRUST DURING 1999
- ---------------------------------- -------------------- -----------------------------------------
Frederick S. Addy, Trustee $22,488 $75,000
- ---------------------------------- -------------------- -----------------------------------------
William G. Burns, Trustee $22,488 $75,000
- ---------------------------------- -------------------- -----------------------------------------
Arthur C. Eschenlauer, Trustee $22,488 $75,000
- ---------------------------------- -------------------- -----------------------------------------
Matthew Healey, Trustee(***), $22,488 $75,000
Chairman and Chief Executive
Officer
- ---------------------------------- -------------------- -----------------------------------------
Michael P. Mallardi, Trustee $22,488 $75,000
- ---------------------------------- -------------------- -----------------------------------------
</TABLE>
(*) Includes the Portfolio and 16 other Portfolios (collectively the
"Master Portfolios") for which JPMIM acts as investment advisor.
(**) No investment company within the fund complex has a pension or retirement
plan. Currently there are 17 investment companies (14 investment companies
comprising the Master Portfolios, the Trust, J.P. Morgan Funds and J.P. Morgan
Series Trust) in the fund complex.
(***) During 1999, Pierpont Group, Inc. paid Mr. Healey, in his role as
Chairman of Pierpont Group, Inc., compensation in the amount of $153,800,
contributed $23,100 to a defined contribution plan on his behalf and paid
$17,300 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 the 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:
The Portfolio -- For the period December 30, 1996 (commencement of
operations) through May 31, 1997: $607. For the fiscal years ended May 31, 1998
and 1999: $5,818 and $14,804, respectively.
Advisory Board
The Trustees determined as of January 26, 2000 to establish an advisory
board and appoint four members ("Members of the Advisory Board") thereto. Each
member serves at the pleasure of the Trustees. The advisory board is distinct
from the Trustees and provides advice to the Trustees as to investment,
management and operations of the Trust; but has no power to vote upon any matter
put to a vote of the Trustees. The advisory board and the Members thereof also
serve each of the Trusts and the Master Portfolios. It is also the current
intention of the Trustees that the Members of the Advisory Board will be
proposed at the next shareholders' meeting, expected to be held within a year
from the date hereof, for election as Trustees of each of the Trusts and the
Master Portfolios. The creation of the Advisory Board and the appointment of the
Members thereof was designed so that the Board of Trustees will continuously
have available to it persons able to assume the duties of Trustees and be fully
familiar with the business and affairs of each of the Trusts and the Master
Portfolios, in anticipation of the current Trustees reaching the mandatory
retirement age of seventy. Each Member of the Advisory Board is paid an annual
fee of $75,000 for serving in this capacity for the Trust, each of the Master
Portfolios, the J.P. Morgan Funds and the J.P. Morgan Series Trust and is
reimbursed for expenses incurred in connection with such service. The Members of
the Advisory Board may hold various directorships unrelated to these funds. The
mailing address of the Members of the Advisory Board is c/o Pierpont Group,
Inc., 461 Fifth Avenue, New York, New York 10017. Their names, principal
occupations during the past five years and dates of birth are set forth below:
Ann Maynard Gray - President, Diversified Publishing Group and Vice
President, Capital Cities/ABC, Inc. Her date of birth is August 22, 1945.
John R. Laird -- Retired; Former Chief Executive Officer, Shearson
Lehman Brothers and The Boston Company. His date of birth is June 21, 1942.
Gerard P. Lynch -- Retired; Former Managing Director, Morgan Stanley
Group and President and Chief Operating Officer, Morgan Stanley Services, Inc.
His date of birth is October 5, 1936.
James J. Schonbachler -- Retired; Prior to September, 1998, Managing
Director, Bankers Trust Company and Chief Executive Officer and Director,
Bankers Trust A.G., Zurich and BT Brokerage Corp. His date of birth is January
26, 1943.
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 Country 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. 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.
JOHN P. COVINO; Vice President and Assistant Treasurer. Vice President and
Treasury Group Manager of Treasury Servicing and Administration of FDI. Prior to
November 1998, Mr. Covino was employed by Fidelity Investments where he held
multiple positions in their Institutional Brokerage Group. Prior to joining
Fidelity, Mr. Covino was employed by SunGard Brokerage systems where he was
responsible for the technology and development of the accounting product group.
His date of birth is October 8, 1963.
JACQUELINE HENNING; Assistant Secretary and Assistant Treasurer of the
Portfolios only. Managing Director, State Street Cayman Trust Company, Ltd.
since October 1994. 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. 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. 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.
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. 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. Her address is 60 Wall
Street, New York, New York 10260. Her date of birth is March 13, 1966.
STEPHANIE D. PIERCE; Vice President and Assistant Secretary. Vice President
and Client Development Manager for FDI since April 1998. From April 1997 to
March 1998, Ms. Pierce was employed by Citibank, NA as an officer of Citibank
and Relationship Manager on the Business and Professional Banking team handling
over 22,000 clients. Address: 200 Park Avenue, New York, New York 10166. Her
date of birth is August 18, 1968.
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. 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.
CODE OF ETHICS
The Trust and the Adviser have adopted codes of ethics pursuant to Rule
17j-1 under the 1940 Act. Each of these codes permits personnel subject to such
code to invest in securities, including securities that may be purchased or held
by the Portfolio. Such purchases, however, are subject to preclearance and other
procedures reasonably necessary to prevent a fraud or deceit on the Trust.
INVESTMENT ADVISOR
The Fund has not retained the services of an investment adviser because
the Fund seeks to achieve its investment objective by investing all of its
investable assets in the Portfolio. Subject to the supervision of the
Portfolio's Trustees, the Advisor makes the Portfolio's day-to-day investment
decisions, arranges for the execution of portfolio transactions and generally
manages the Portfolio's investments. Effective October 1, 1998 the 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, and 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 $349 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 380
capital market researchers, portfolio managers and traders. The conclusions of
the equity analysts' fundamental research is quantified into a set of projected
returns for individual companies through the use of a dividend discount model.
These returns are projected for 2 to 5 years to enable analysts to take a longer
term view. These returns, or normalized earnings, are used to establish relative
values among stocks in each industrial sector. These values may not be the same
as the markets' current valuations of these companies. This provides the basis
for ranking the attractiveness of the companies in an industry according to five
distinct quintiles or rankings. This ranking is one of the factors considered in
determining the stocks purchased and sold in each sector.
The investment advisory services the Advisor provides to the Portfolio
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 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 S&P 500 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 employees 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 investment management affiliates of J.P. Morgan.
As compensation for the services rendered and related expenses such as
salaries of advisory personnel borne by the Advisor under the Advisory
Agreement, the Portfolio has agreed to pay the Advisor a fee, which is computed
daily and may be paid monthly, equal to the annual rate of 0.35% of the
Portfolio's average daily net assets.
The table below sets forth for the Fund listed the advisory fees paid
by the Portfolio to Morgan and JPMIM, as applicable, for the fiscal periods
indicated. See also the Fund's financial statements which are incorporated
herein by reference.
The Portfolio -- For the period December 30, 1996 (commencement of
operations) through May 31, 1997: $73,985. For the fiscal years ended May 31,
1998 and 1999: $628,965 and $2,310,525, respectively.
The Investment Advisory Agreement provides that it will continue in
effect for a period of two years after execution only if specifically approved
thereafter annually in the same manner as the Distribution Agreement. See
"Distributor" below. The Investment Advisory Agreement will terminate
automatically if assigned and is terminable at any time without penalty by a
vote of a majority of the Portfolio's Trustees, or by a vote of the holders of a
majority of the Portfolio's outstanding voting securities, on 60 days' written
notice to the Advisor and by the Advisor on 90 days' written notice to the
Portfolio. See "Additional Information."
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 Member of
the Advisory Board" 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 Agreement 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 Agreement may be renewed or amended by
the respective Trustees without a shareholder vote. The Co-Administration
Agreement is 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,
Members of the Advisory Board and investors; and (vi) maintains related books
and records.
For its services under the Co-Administration Agreement, 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 the administrative fees paid by the
Portfolio to FDI for the fiscal periods indicated.
The Portfolio -- For the period December 30, 1996 (commencement of
operations) through May 31, 1997: $520. For the fiscal years ended May 31, 1998
and 1999: $3,742 and $9,294, respectively.
SERVICES AGENT
The Trust, on behalf of the Fund, and the Portfolio have entered into
Administrative Services Agreements (the "Services Agreements") with Morgan,
pursuant to which Morgan is responsible for certain administrative and related
services provided to the Fund and the Portfolio. The Services Agreements may be
terminated at any time, without penalty, by the Trustees or Morgan, in each case
on not more than 60 days' nor less than 30 days' written notice to the other
party.
Under the Services Agreements, 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 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 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' aggregate average daily net assets in excess of $7
billion.
The Portfolio -- For the period December 30, 1996 (commencement of
operations) through May 31, 1997: $6,614. For the fiscal years ended May 31,
1998 and 1999: $53,654 and $176,331, respectively.
CUSTODIAN AND TRANSFER AGENT
The Bank of New York ("BONY"), One Wall Street, New York, New York
10286, serves as the Trust's and Portfolio's custodian and fund accounting
agent. Pursuant to the Custodian Contracts, BONY is responsible for holding
portfolio securities and cash and maintaining the books of account and records
of portfolio transactions.
State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02110, serves as the Fund's transfer and dividend
disbursing agent. 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; and providing other related services.
Under the Shareholder Servicing Agreement, the Fund has agreed to pay
Morgan for these services at an annual rate of 0.05% (expressed as a percentage
of the average daily net assets 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 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 a Fund. See
"Financial Professionals" below. Organizations that provide recordkeeping or
other services to certain employee benefit or retirement plans that include a
Fund as an investment alternative may also be paid a fee.
SERVICE ORGANIZATIONS
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 advisors
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 January 26,
2000. 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 Fund 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.
DISTRIBUTION PLAN
Rule 12b-1 (the "Rule") under the 1940 Act provides, among other
things, that an investment company may bear expenses of distributing its shares
only pursuant to a plan adopted in accordance with the Rule. On January 26,
2000, the Trustees have adopted such a plan on behalf of the Fund (the
"Distribution Plan") pursuant to which the Fund pays for distributing its shares
at an annual rate not to exceed 0.25% of the value of the average daily net
assets of the Fund. Under the Distribution Plan, the Fund may make payments to
certain financial institutions, securities dealers, and other industry
professionals that have entered into written agreements with the Fund in respect
of these services. The amounts to be paid to such institutions is based on the
daily value of shares owned by their clients. The fees payable under the
Distribution Plan for advertising, marketing and distributing are payable
without regard to actual expenses incurred. The Trustees believe that there is a
reasonable likelihood that the Distribution Plan will benefit the Fund and its
shareholders.
Quarterly reports of the amounts expended under the Distribution Plan,
and the purposes for which such expenditures were incurred, will be made to the
Trustees for their review. In addition, the Distribution Plan provides that it
may not be amended to increase materially the costs which holders of the Fund's
shares may bear for distribution without approval of such shareholders and that
all material amendments of the Distribution Plan must be approved by the
Trustees, and by the Trustees who are neither "interested persons" (as defined
in the 1940 Act) of the Trust nor have any direct or indirect financial interest
in the operation of the Distribution Plan or in the related Distribution Plan
agreements, by vote cast in person at a meeting called for the purpose of
considering such amendments. The Distribution Plan and related agreements are
subject to annual approval by such vote of the Trustees cast in person at a
meeting called for the purpose of voting on the Distribution Plan and related
agreements. The Distribution Plan is terminable at any time by vote of a
majority of the Trustees who are not "interested persons" and who have no direct
or indirect financial interest in the operation of the Distribution Plan or in
the related agreements or by vote of the holders of a majority of shares, as the
case may be. A related Distribution Plan agreement is terminable without
penalty, at any time, by such vote of the Trustees or by vote of the holders of
a majority of the Fund's shares upon not more than 60 days' written notice to
any other party to such agreement. A Distribution Plan agreement will terminate
automatically in the event of its assignment (as defined in the 1940 Act).
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 J.P. 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 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 Members of the
Advisory Board" 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 and Members of the Advisory Board, 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.
J.P. Morgan has agreed that it will reimburse the Fund as described in
the prospectus until March 31, 2001 to the extent necessary to maintain the
Fund's total operating expenses (which include expenses of the Fund and the
Portfolio) at the annual rate of 0.95% of the Fund's average daily net assets.
This limit does not cover extraordinary expenses.
PURCHASE OF SHARES
Additional Minimum Balance Information. 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.
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 the 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 acquiring
Portfolio; (ii) be acquired by the Fund for investment and not for resale (other
than for resale to the Portfolio); (iii) be liquid securities which are not
restricted as to transfer either by law or liquidity of market; and (iv) if
stock, have a value which is readily ascertainable as evidenced by a listing on
a stock exchange, OTC market or by readily available market quotations from a
dealer in such securities. The Fund reserves the right to accept or reject at
its own option any and all securities offered in payment for its shares.
Prospective investors may purchase shares with the assistance of a
financial professional, and the financial professional may establish its own
minimums and charge the investor a fee for this service and other services it
provides to its customers. J.P. 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
Fund, in lieu of cash, in conformity with the applicable rule of the SEC. If
shares are redeemed in-kind, the redeeming shareholder might incur transaction
costs in converting the assets into cash. The method of valuing portfolio
securities is described under "Net Asset Value," and such valuation will be made
as of the same time the redemption price is determined. The Trust on behalf of
the Fund and the Portfolio has elected to be governed by Rule 18f-1 under the
1940 Act pursuant to which the Fund and the Portfolio are obligated to redeem
shares solely in cash up to the lesser of $250,000 or one percent of the net
asset value of the Fund during any 90 day period for any one shareholder. The
Trust will redeem Fund shares in-kind only if it has received a redemption in
kind from the Portfolio and therefore shareholders of the Fund that receive
redemptions in-kind will receive securities of the 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.
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 J.P. Morgan Institutional Fund
into 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. The Fund generally intends to pay
redemption proceeds in cash, however, since the Fund reserves the right at its
sole discretion to pay redemptions over $250,000 in-kind as a portfolio of
representative stocks rather than in cash, the Fund reserves the right to deny
an exchange request in excess of that amount. See "Redemption of Shares".
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 a 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
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 J.P. Morgan or at his financial
professional or, in the case of certain J.P. Morgan customers, are mailed by
check in accordance with the customer's instructions. The Fund reserves the
right to discontinue, alter or limit the automatic reinvestment privilege at any
time.
If a shareholder has elected to receive dividends and/or capital gain
distributions in cash and the postal or other delivery service is unable to
deliver checks to the shareholder's address of record, such shareholder's
distribution option will automatically be converted to having all dividend and
other distributions reinvested in additional shares. No interest will accrue on
amounts represented by uncashed distribution or redemption checks.
NET ASSET VALUE
The Fund computes its net asset value once daily on Monday through
Friday at the time described in the prospectus. The net asset value will not be
computed on the day the following legal holidays are observed: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. On days when
U.S. trading markets close early in observance of these holidays, the Fund will
close for purchases and redemptions at the same time. The Fund and the Portfolio
may also close for purchases and redemptions at such other times as may be
determined by the Board of Trustees to the extent permitted by applicable law.
The days on which net asset value is determined are the Fund's business days.
The net asset value of the Fund is equal to the value of the Fund's
investment in the Portfolio (which is equal to the Fund's pro rata share of the
total investment of the Fund and of any other investors in the Portfolio less
the Fund's pro rata share of the Portfolio's liabilities) less the Fund's
liabilities. The following is a discussion of the procedures used by the
Portfolio in valuing its assets.
The value of investments listed on a domestic or foreign securities
exchange, including National Association of Securities Dealers Automated
Quotations ("NASDAQ"), other than options on stock indexes, is based on the last
sale prices on the exchange on which the security is principally traded (the
"primary exchange"). If there has been no sale on the primary exchange on the
valuation date, and the spread between bid and asked quotations on the primary
exchange is less than or equal to 10% of the bid price for the security, the
security shall be valued at the average of the closing bid and asked quotations
on the primary exchange. Under all other circumstances (e.g., there is no last
sale on the primary exchange, there are no bid and asked quotations on the
primary exchange, or the spread between bid and asked quotations is greater than
10% of the bid price), the value of the security shall be the last sale price on
the primary exchange up to ten days prior to the valuation date unless, in the
judgment of the portfolio manager, material events or conditions since such last
sale necessitate fair valuation of the security. 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 rate average on the valuation date.
Options on stock indexes traded on national securities exchanges are
valued at the close of options trading on such exchanges which is currently 4:10
p.m. New York time. Stock index futures and related options, which are traded on
commodities exchanges, are valued at their last sales price as of the close of
such commodities exchanges which is currently 4:15 p.m., New York time. Options
and futures traded on foreign exchanges are valued at the last sale price
available prior to the calculation of the Fund's net asset value. 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 markets is normally completed
before the close of trading in U.S. markets and may also take place on days on
which the U.S. markets are closed. If events materially affecting the value of
securities occur between the time when the market in which they are traded
closes and the time when the Fund's net asset value is calculated, such
securities will be valued at fair value in accordance with procedures
established by and under the general supervision of the Trustees.
PERFORMANCE DATA
From time to time, the Fund may quote performance in terms of actual
distributions, total return or capital appreciation in reports, sales literature
and advertisements published by the Trust. Shareholders may obtain current
performance information by calling the number provided on the cover page of this
Statement of Additional Information. See also the Prospectus.
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
annualized 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
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.
The historical performance information shown below for the Fund's
related series, J.P. Morgan Institutional Disciplined Equity Fund, reflects
operating expenses which were lower than those of the Fund. These returns are
lower than would have occurred if an investment in the Fund had been made during
the periods indicated. All performance information will be presented in
accordance with applicable SEC staff interpretations. The applicable financial
information in the registration statement for the J.P. Morgan Institutional Fund
(Registration Nos. 033-54642 and 811-07342) is incorporated herein by reference.
J.P. Morgan Institutional Disciplined Equity Fund (11/30/99): Average
annual total return, 1 year: 19.55%; average annual total return, 5 years: N/A;
average annual total return, commencement of operations (January 3, 1997) to
period end: 26.32%; aggregate total return, 1 year: 19.55%; aggregate total
return, 5 years: N/A; aggregate total return, commencement of operations
(January 3, 1997) to period end: 97.26%.
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 Fund may, in addition to any other permissible
information, include the following types of information in advertisements,
supplemental sales literature and reports to shareholders: (1) discussions of
general economic or financial principles (such as the effects of compounding and
the benefits of dollar-cost averaging); (2) discussions of general economic
trends; (3) presentations of statistical data to supplement such discussions;
(4) descriptions of past or anticipated portfolio holdings for the Fund; (5)
descriptions of investment strategies for the Fund; (6) descriptions or
comparisons of various savings and investment products (including, but not
limited to, qualified retirement plans and individual stocks and bonds), which
may or may not include the Fund; (7) comparisons of investment products
(including the Fund) with relevant markets or industry indices or other
appropriate benchmarks; (8) discussions of Fund rankings or ratings by
recognized rating organizations; and (9) discussions of various statistical
methods quantifying the Fund's volatility relative to its benchmark or to past
performance, including risk adjusted measures. The Fund may also include
calculations, such as hypothetical compounding examples, which describe
hypothetical investment results in such communications. Such performance
examples will be based on an express set of assumptions and are not indicative
of the performance of the Fund.
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. The Advisor intends to seek best execution on
a competitive basis for both purchases and sales of securities.
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 paid the following approximate brokerage commissions for
the indicated periods:
The Portfolio -- For the period December 30, 1996 (commencement of
operations) through May 31, 1997: $25,351. For the fiscal years ended May 31,
1998 and 1999: $175,629 and $504,145, respectively.
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. Under the 1940 Act, persons
affiliated with the Portfolio and persons who are affiliated with such persons
are prohibited from dealing with the Portfolio as principal in the purchase and
sale of securities unless a permissive order allowing such transactions is
obtained from the SEC. However, affiliated persons of the Portfolio may serve as
its broker in listed or over-the-counter transactions conducted on an agency
basis provided that, among other things, the fee or commission received by such
affiliated broker is reasonable and fair compared to the fee or commission
received by non-affiliated brokers in connection with comparable transactions.
In addition, the Portfolio may no purchase securities during the existence of
any underwriting syndicate for such securities of which Morgan or an affiliate
is a member or in a private placement in which Morgan or an affiliate serves as
placement agent except pursuant to procedures adopted by the Board of Trustees
of the Portfolio that either comply with rules adopted by the SEC or with
interpretations of the SEC's staff.
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 clients,
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 a Portfolio. In some instances, this procedure might adversely affect the
Portfolio.
If the Portfolio writes options effecting a closing purchase
transaction with respect to an option written by it, normally such transaction
will be executed by the same broker-dealer who executed the sale of the option.
The writing of options by the Portfolio will be subject to limitations
established by each of the exchanges governing the maximum number of options in
each class which may be written by a single investor or group of investors
acting in concert, regardless of whether the options are written on the same or
different exchanges or are held or written in one or more accounts or through
one or more brokers. The number of options which the Portfolio may write may be
affected by options written by the Advisor for other investment advisory
clients. An exchange may order the liquidation of positions found to be in
excess of these limits, and it may impose certain other sanctions.
MASSACHUSETTS TRUST
The Trust is a trust fund of the type commonly known as a
"Massachusetts business trust" of which the Fund is a separate and distinct
series. A copy of the Declaration of Trust for the Trust is on file in the
office of the Secretary of The Commonwealth of Massachusetts. The Declaration of
Trust and the By-Laws of the Trust are designed to make the Trust similar in
most respects to a Massachusetts business corporation. The principal distinction
between the two forms concerns shareholder liability described below.
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, Member of the Advisory Board, officer, employee or
agent of the Fund is liable to the Fund or to a shareholder, and that no
Trustee, Member of the Advisory Board, 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,
Member of the Advisory Board, 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 full or fractional
vote for each dollar or fraction of a dollar invested. 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 24 series of the Trust. The Trustees have no current intention to
create any classes within the initial series or any subsequent series. The
Trustees may, however, authorize the issuance of shares of additional series and
the creation of classes of shares within any series with such preferences,
privileges, limitations and voting and dividend rights as the Trustees may
determine. The proceeds from the issuance of any additional series would be
invested in separate, independently managed portfolios with distinct investment
objectives, policies and restrictions, and share purchase, redemption and net
asset valuation procedures. Any additional classes would be used to distinguish
among the rights of different categories of shareholders, as might be required
by future regulations or other unforeseen circumstances. All consideration
received by the Trust for shares of any additional series or class, and all
assets in which such consideration is 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".
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 its Master Portfolio, a separate registered investment
company with the same investment objective and policies as the Fund. Generally,
when the 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. The shareholders of the
Trust are entitled to a full or fractional vote for each dollar or fraction of a
dollar invested.
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 restriction, 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 following discussion of tax consequences is based on U.S. federal
tax laws in effect on the date of this Statement of Additional Information.
These laws and regulations are subject to change by legislative or
administrative action, possibly on a retroactive basis.
The Fund intends to continue to qualify as a regulated investment
company under Subchapter M of the Code. As a regulated investment company, the
Fund must, among other things, (a) derive at least 90% of its gross income from
dividends, interest, payments with respect to loans of stock and securities,
gains from the sale or other disposition of stock, securities or foreign
currency and other income (including but not limited to gains from options,
futures, and forward contracts) derived with respect to its business of
investing in such stock, securities or foreign currency; and (b) diversify its
holdings so that, at the end of each quarter of its taxable year, (i) at least
50% of the value of the Fund's total assets is represented by cash, cash items,
U.S. Government securities, securities of other regulated investment companies,
and other securities limited, in respect of any one issuer, to an amount not
greater than 5% of the Fund's total assets, and 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its total
assets is invested in the securities of any one issuer (other than U.S.
Government securities or securities of other regulated investment companies).
As a regulated investment company, the Fund (as opposed to its
shareholders) will not be subject to federal income taxes on the net investment
income and capital gain that it distributes to its shareholders, provided that
at least 90% of its net investment income and realized net short-term capital
gain in excess of net long-term capital loss for the taxable year is distributed
in accordance with the Code's timing requirements.
Under the Code, the Fund will be subject to a 4% excise tax on a
portion of its undistributed taxable income and capital gains if it fails to
meet certain distribution requirements by the end of the calendar year. The Fund
intends to make distributions in a timely manner and accordingly does not expect
to be subject to the excise tax.
For federal income tax purposes, dividends that are declared by the
Fund in October, November or December as of a record date in such month and
actually paid in January of the following year will be treated as if they were
paid on December 31 of the year declared. Therefore, such dividends will be
taxable to a shareholder in the year declared rather than the year paid.
Distributions of net investment income, certain foreign currency gains,
and realized net short-term capital gain in excess of net long-term capital loss
(other than exempt interest dividends) are generally taxable to shareholders of
the Fund as ordinary income whether such distributions are taken in cash or
reinvested in additional shares. The Fund expects that a portion of these
distributions to corporate shareholders will be eligible for the
dividends-received deduction, subject to applicable limitations under the Code.
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 gain (i.e., net
long-term capital gain in excess of net short-term capital loss) are taxable to
shareholders of the Fund as long-term capital gain, regardless of whether such
distributions are taken in cash or reinvested in additional shares and
regardless of how long a shareholder has held shares in the Fund. In general,
long-term capital gain of an individual shareholder will be subject to a 20%
rate of tax.
Gains or losses on sales of portfolio securities will be treated as
long-term capital gains or losses if the securities have been held for more than
one year except in certain cases where a put option 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. Except as described below, if an option written by the
Portfolio lapses or is terminated through a closing transaction, such as a
repurchase by the Portfolio of the option from its holder, the Portfolio will
realize a short-term capital gain or loss, depending on whether the premium
income is greater or less than the amount paid by the Portfolio in the closing
transaction. If securities are purchased by the Portfolio pursuant to the
exercise of a put option written by it, the Portfolio will subtract the premium
received from its cost basis in the securities purchased.
Any distribution of net investment income or capital gains will have
the effect of reducing the net asset value of Fund shares held by a shareholder
by the same amount as the distribution. If the net asset value of the shares is
reduced below a shareholder's cost as a result of such a distribution, the
distribution, although constituting a return of capital to the shareholder, will
be taxable as described above. Investors should consider the consequences of
purchasing shares in the Fund shortly before the Fund declares a sizable
dividend distribution.
Any gain or loss realized on the redemption or exchange of Fund shares
by a shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held for more than one year, and
otherwise as short-term capital gain or loss. Long-term capital gain of an
individual holder is subject to maximum tax rate of 20%. 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. Investors are
urged to consult their tax advisors concerning the limitations on the
deductibility of capital losses.
Under the Code, gains or losses attributable to disposition of foreign
currency or to certain foreign currency contracts, or to fluctuations in
exchange rates between the time the Portfolio accrues income or receivables or
expenses or other liabilities denominated in a foreign currency and the time the
Portfolio actually collects such income or pays such liabilities, are generally
treated as ordinary income or ordinary loss. Similarly, gains or losses on the
disposition of debt securities held by the Portfolio, if any, denominated in
foreign currency, to the extent attributable to fluctuations in exchange rates
between the acquisition and disposition dates are also treated as ordinary
income or loss.
Forward currency contracts, options and futures contracts entered into
by the Portfolio may create "straddles" for U.S. federal income tax purposes and
this may affect the character and timing of gains or losses realized by the
Portfolio on forward currency contracts, options and futures contracts or on the
underlying securities.
Certain options, futures and foreign currency contracts held by the
Portfolio at the end of each taxable year will be required to be "marked to
market" for federal income tax purposes -- i.e., treated as having been sold at
market value. For options and futures contracts, 60% of any gain or loss
recognized on these deemed sales and on actual dispositions will be treated as
long-term capital gain or loss, and the remainder will be treated as short-term
capital gain or loss regardless of how long the Portfolio has held such options
or futures. However, gain or loss recognized on certain foreign currency
contracts will be treated as ordinary income or loss.
The Fund may invest in Equity Securities of foreign issuers. If the
Portfolio purchases shares in certain foreign corporations (referred to as
passive foreign investment companies ("PFICs") under the Code), the
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.
The Portfolio will be permitted to "mark to market" any marketable
stock held by the Portfolio in a PFIC. If the Portfolio made such an election,
the Fund would include in income each year an amount equal to its share of the
excess, if any, of the fair market value of the PFIC stock as of the 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.
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 (or any successor form) is
provided. Transfers by gift of shares of the Fund by a foreign shareholder who
is a nonresident alien individual will not be subject to U.S. federal gift tax,
but the value of shares of the Fund held by such a shareholder at his or her
death will be includible in his or her gross estate for U.S. federal estate tax
purposes.
Foreign Taxes. It is expected that the Fund may be subject to foreign
withholding taxes or other foreign taxes with respect to income (possibly
including, in some cases, capital gains) received from sources within foreign
countries.
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.
FINANCIAL STATEMENTS
The following financial statements of the Portfolio and the report
thereon of PricewaterhouseCoopers LLP are incorporated herein by reference from
the 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.
<TABLE>
<CAPTION>
<S> <C> <C>
- -------------------------------------- --------------------------------------- ----------------------------------------
Date of Annual Report; Date Annual Date of Semi-Annual Report; Date
Name of Portfolio Report Filed; and Accession Number Semi-Annual Report Filed; and
Accession Number
- -------------------------------------- --------------------------------------- ----------------------------------------
The Disciplined Equity Portfolio 5/31/99; 8/11/99; 10/31/99; 02/07/00
0001047469-99-031148 0000912057-00-004070
- -------------------------------------- --------------------------------------- ----------------------------------------
</TABLE>
<PAGE>
APPENDIX A
Description of Security Ratings
STANDARD & POOR'S
Corporate and Municipal Bonds
AAA - Debt rated AAA have the highest ratings assigned by Standard & Poor's
to a debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA - Debt rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in a small degree.
A - Debt rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
BBB - Debt rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for debt in
higher rated categories.
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.
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.
- --------
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.
<PAGE>
J.P. MORGAN INSTITUTIONAL FUNDS
J.P. MORGAN INSTITUTIONAL DIRECT PRIME MONEY MARKET FUND
STATEMENT OF ADDITIONAL INFORMATION
APRIL 3, 2000
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT CONTAINS
ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS
DATED APRIL 3, 2000 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 REPORT RELATING
TO THE MASTER PORTFOLIO OF THE FUND LISTED ABOVE DATED NOVEMBER 30, 1999. THE
PROSPECTUS AND THESE FINANCIAL STATEMENTS FOR THE FUND AND THE MASTER PORTFOLIO,
INCLUDING THE INDEPENDENT ACCOUNTANTS' 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.....................................................8
Trustees and Advisory Board ..............................................10
Officers...................................................................12
Investment Advisor.........................................................14
Distributor................................................................16
Co-Administrator...........................................................17
Services Agent.............................................................17
Custodian and Transfer Agent...............................................18
Shareholder Servicing......................................................18
Service Organizations ................................................19
Independent Accountants....................................................20
Expenses...................................................................20
Purchase of Shares.........................................................21
Redemption of Shares.......................................................22
Exchange of Shares.........................................................22
Dividends and Distributions................................................23
Net Asset Value............................................................23
Performance Data...........................................................24
Portfolio Transactions.....................................................25
Massachusetts Trust........................................................27
Description of Shares......................................................28
Special Information Concerning
Investment Structure..................................................29
Taxes......................................................................30
Additional Information.....................................................34
Financial Statements.......................................................34
Appendix A - Description of Security Ratings..............................A-1
<PAGE>
GENERAL
This Statement of Additional Information relates only to the J.P.
Morgan Institutional Direct Prime 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 Fund's executive offices are located at 60 State
Street, Suite 1300, Boston, Massachusetts 02109.
Unlike other mutual funds which directly acquire and manage their own
portfolio of securities, the Fund seeks to achieve its investment objective by
investing all of its investable assets in a 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 OBJECTIVES 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 in the Prospectus. The investment
objectives of the Fund and the investment objectives of its Portfolio are
identical. 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 consistent with the preservation of
capital and same-day liquidity. The Fund attempts to achieve this objective by
investing all of its investable assets in The Prime Money Market Portfolio (the
"Portfolio"), a diversified open-end management investment company having the
same investment objective as the 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."
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."
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.
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. See "Foreign Investments." These securities must be
denominated in the U.S. dollar.
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 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 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 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.
Asset-backed Securities. The 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 principle 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 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.
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. 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 and foreign bonds and other obligations described in the
Prospectus or this Statement of Additional Information.
Foreign Investments
The 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 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 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. The Fund may purchase
securities on a when-issued or delayed delivery basis. For example, delivery of
and payment for these securities can take place a month or more after the date
of the purchase commitment. The purchase price and the interest rate payable, if
any, on the securities are fixed on the purchase commitment date or at the time
the settlement date is fixed. The value of such securities is subject to market
fluctuation and for money market instruments and other fixed income securities,
no interest accrues to the Fund until settlement takes place. At the time the
Fund makes the commitment to purchase securities on a when-issued or delayed
delivery basis, it will record the transaction, reflect the value each day of
such securities in determining its net asset value and, if applicable, calculate
the maturity for the purposes of average maturity from that date. At the time of
settlement a when-issued security may be valued at less than the purchase price.
To facilitate such acquisitions, the Fund will maintain with the Custodian a
segregated account with liquid assets, consisting of cash, U.S. Government
securities or other appropriate securities, in an amount at least equal to such
commitments. On delivery dates for such transactions, the Fund will meet its
obligations from maturities or sales of the securities held in the segregated
account and/or from cash flow. If the Fund chooses to dispose of the right to
acquire a when-issued security prior to its acquisition, it could, as with the
disposition of any other portfolio obligation, incur a gain or loss due to
market fluctuation. Also, the Fund may be disadvantaged if the other party to
the transactions defaults.
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 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 Portfolio). As a shareholder of another
investment company, the Fund or Portfolio would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that the Fund or Portfolio bears directly in connection with its
own operations.
Reverse Repurchase Agreements. The Fund may enter into reverse
repurchase agreements. In a reverse repurchase agreement, the Fund sells a
security and agrees to repurchase the same security at a mutually agreed upon
date and price 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, except for liquidity purposes, the Fund will enter into
a reverse repurchase agreement only when the expected return from the investment
of the proceeds is greater than the expense of the transaction. The Fund will
not invest the proceeds of a reverse repurchase agreement for a period which
exceeds the duration of the reverse repurchase agreement. The Fund will
establish and maintain with the custodian a separate account with a segregated
portfolio of securities in an amount at least equal to its purchase obligations
under its reverse repurchase agreements. See "Investment Restrictions" for the
Fund's limitations on reverse repurchase agreements and bank borrowings.
Loans of Portfolio Securities. Subject to applicable investment
restrictions, the Fund is permitted to lend 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 no
Fund will make any loans in excess of one year. 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 their 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 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
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
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.
In order to achieve its investment objective and maintain a stable net
asset value, the 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.
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 and the 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. This restriction does not apply to
instruments considered to be domestic bank money market instruments.
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 the Portfolio and
may be changed by their Trustees. These non-fundamental investment policies
require that the Fund and the 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 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.
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, ADVISORY BOARD AND OFFICERS
The mailing address of the Trustees of the Trust, who are also the
Trustees of the Portfolio and the other Master Portfolios, as defined below, is
c/o Pierpont Group, Inc. 461 Fifth Avenue, New York, New York, 10017. Their
names, principal occupations during the past five years and dates of birth are
set forth below:
Frederick S. Addy -- Trustee; Retired; Former Executive Vice President
and Chief Financial Officer, Amoco Corporation. His date of birth is January 1,
1932.
William G. Burns -- Trustee; Retired; Former Vice Chairman and Chief
Financial Officer, NYNEX. 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 date of birth is May
23, 1934.
Matthew Healey1 -- Trustee; Chairman and Chief Executive Officer; Chairman,
Pierpont Group, Inc. ("Pierpont Group") since prior to 1993. 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 date of
birth is March 17, 1934.
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 Institutional Funds up to and including
creating a separate board of trustees.
Each Trustee is currently paid an annual fee of $75,000 (adjusted as of
April 1, 1997) for serving as Trustee of the Trust, each of the Master
Portfolios (as defined below), 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, 1999 are set forth below.
<TABLE>
<CAPTION>
<S> <C> <C>
- ------------------------------------- ---------------- ---------------------------------------
TOTAL TRUSTEE COMPENSATION ACCRUED BY
AGGREGATE TRUSTEE THE MASTER PORTFOLIOS(*), J.P. MORGAN
COMPENSATION INSTITUTIONAL FUNDS, J.P. MORGAN
PAID BY THE TRUST SERIES TRUST AND THE TRUST DURING
DURING 1999 1999(***)
NAME OF TRUSTEE
- ------------------------------------- ------------------ ---------------------------------------
Frederick S. Addy, Trustee $22,488 $75,000
- ------------------------------------- ------------------ ---------------------------------------
William G. Burns, Trustee $22,488 $75,000
- ------------------------------------- ------------------ ---------------------------------------
Arthur C. Eschenlauer, Trustee $22,488 $75,000
- ------------------------------------- ------------------ ---------------------------------------
Matthew Healey, Trustee (**) $22,488 $75,000
Chairman and Chief Executive
Officer
- ------------------------------------- ------------------ ---------------------------------------
Michael P. Mallardi, Trustee $22,488 $75,000
- ------------------------------------- ------------------ ---------------------------------------
</TABLE>
(*) Includes the Portfolios and 17 other portfolios (collectively, the
"Master Portfolios") for which JPMIM acts as investment adviser.
(**) During 1999, Pierpont Group, Inc. paid Mr. Healey, in his role as
Chairman of Pierpont Group, Inc., compensation in the amount of $153,800,
contributed $23,100 to a defined contribution plan on his behalf and paid
$17,300 in insurance premiums for his benefit.
(***) No investment company within the fund complex has a pension or
retirement plan. Currently there are 17 investment companies (14
investment companies comprising the Master Portfolios, the J.P. Morgan
Institutional 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 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 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
Portfolio during the indicated fiscal periods are set forth below:
The Portfolio - For the fiscal years ended November 30, 1997, 1998 and
1999: $143,027, $173,032 and $228,328, respectively.
Advisory Board
The Trustees determined as of January 26, 2000 to establish an advisory
board and appoint four members ("Members of the Advisory Board") thereto. Each
member serves at the pleasure of the Trustees. The advisory board is distinct
from the Trustees and provides advice to the Trustees as to investment,
management and operations of the Trust; but has no power to vote upon any matter
put to a vote of the Trustees. The advisory board and the Members thereof also
serve each of the Trusts and the Master Portfolios. It is also the current
intention of the Trustees that the Members of the Advisory Board will be
proposed at the next shareholders' meeting, expected to be held within a year
from the date hereof, for election as Trustees of each of the Trusts and the
Master Portfolios. The creation of the Advisory Board and the appointment of the
Members thereof was designed so that the Board of Trustees will continuously
have available to it persons able to assume the duties of Trustees and be fully
familiar with the business and affairs of each of the Trusts and the Master
Portfolios, in anticipation of the current Trustees reaching the mandatory
retirement age of seventy. Each Member of the Advisory Board is paid an annual
fee of $75,000 for serving in this capacity for the Trust, each of the Master
Portfolios, the J.P. Morgan Funds and the J.P. Morgan Series Trust and is
reimbursed for expenses incurred in connection with such service. The Members of
the Advisory Board may hold various directorships unrelated to these funds. The
mailing address of the Members of the Advisory Board is c/o Pierpont Group,
Inc., 461 Fifth Avenue, New York, New York 10017. Their names, principal
occupations during the past five years and dates of birth are set forth below:
Ann Maynard Gray - President, Diversified Publishing Group and Vice
President, Capital Cities/ABC, Inc. Her date of birth is August 22, 1945.
John R. Laird -- Retired; Former Chief Executive Officer, Shearson
Lehman Brothers and The Boston Company. His date of birth is June 21, 1942.
Gerard P. Lynch -- Retired; Former Managing Director, Morgan Stanley
Group and President and Chief Operating Officer, Morgan Stanley Services, Inc.
His date of birth is October 5, 1936.
James J. Schonbachler -- Retired; Prior to September, 1998, Managing
Director, Bankers Trust Company and Chief Executive Officer and Director,
Bankers Trust A.G., Zurich and BT Brokerage Corp. His date of birth is January
26, 1943.
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 Country 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. 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. His date of birth is March 31,
1969.
JOHN P. COVINO - Vice President and Assistant Treasurer. Vice President and
Treasury Group Manager of Treasury Servicing and Administration of FDI. Prior to
November 1998, Mr. Covino was employed by Fidelity Investments where he held
multiple positions in their Institutional Brokerage Group. Prior to joining
Fidelity, Mr. Covino was employed by SunGard Brokerage systems where he was
responsible for the technology and development of the accounting product group.
His date of birth is October 8, 1963.
JACQUELINE HENNING; Assistant Secretary and Assistant Treasurer of the
Portfolio only. Managing Director, State Street Cayman Trust Company, Ltd. since
October 1994. 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. 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. 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.
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. 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. Her address is 60 Wall
Street, New York, New York 10260. Her date of birth is March 13, 1966.
stephanie d. pierce; Vice President and Assistant Secretary. Vice President
and Client Development Manager for FDI since April 1998. From April 1997 to
March 1998, Ms. Pierce was employed by Citibank, NA as an officer of Citibank
and Relationship Manager on the Business and Professional Banking team handling
over 22,000 clients. Address: 200 Park Avenue, New York, New York 10166. Her
date of birth is August 18, 1968.
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. 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. Her address is 60 Wall Street, New York, New York 10260. Her date of
birth is September 26, 1965.
CODE OF ETHICS
The Trust and the Adviser have adopted codes of ethics pursuant to Rule
17j-1 under the 1940 Act. Each of these codes permits personnel subject to such
code to invest in securities, including securities that may be purchased or held
by the Portfolio. Such purchases, however, are subject to preclearance and other
procedures reasonably necessary to prevent a fraud or deceit on the Trust.
INVESTMENT ADVISOR
The Fund has not retained the services of an investment adviser because
the Fund seeks to achieve its investment objective by investing all of its
investable assets in the Portfolio. Subject to the supervision of the
Portfolio's Trustees, the Advisor makes the Portfolio's day-to-day investment
decisions, arranges for the execution of Portfolio transactions and generally
manages the Portfolio's investments. Effective October 1, 1998 the 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 $349 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 120 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 380
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 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 Portfolio. Such accounts are supervised by employees of the Advisor who
may also be acting in similar capacities for the Portfolio. See "Portfolio
Transactions."
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 employees 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 table below sets forth for the Portfolio listed the advisory fees
paid by the Portfolio to Morgan and JPMIM, as applicable, for the fiscal periods
indicated. See the Prospectus and below for applicable expense limitations.
The Portfolio -- For the fiscal years ended November 30, 1997, 1998 and
1999: $5,063,662, $7,199,733 and $13,226,942, respectively.
The Investment Advisory Agreement provides that it will continue in
effect for a period of two years after execution only if specifically approved
thereafter annually in the same manner as the Distribution Agreement. See
"Distributor" below. The Investment Advisory Agreement will terminate
automatically if assigned and is terminable at any time without penalty by a
vote of a majority of the Portfolio's Trustees, or by a vote of the holders of a
majority of the Portfolio's outstanding voting securities, on 60 days' written
notice to the Advisor and by the Advisor on 90 days' written notice to the
Portfolio. See "Additional Information."
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 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 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 Members of
the Advisory Board" 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 a 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,
Members of the Advisory Board 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 Portfolio and certain other
investment companies subject to similar agreements with FDI.
The table below sets forth the administrative fees paid by the
Portfolio to FDI for the fiscal periods indicated.
The Portfolio -- For the fiscal years ended November 30, 1997, 1998 and
1999: $96,662, $115,137 and $147,749, respectively.
SERVICES AGENT
The Trust, on behalf of the Fund, and the Portfolio have entered into
Administrative Services Agreements (the "Services Agreements") with Morgan
pursuant to which Morgan is responsible for certain administrative and related
services provided to the Fund and the Portfolio. The Services Agreements may be
terminated at any time, without penalty, by the Trustees or Morgan, not more
than 60 days' nor less than 30 days' written notice to the other party.
Under the Services Agreements, each of 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 each of the Fund and the 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.
The table below sets forth for the Portfolio the fees paid to Morgan as
Services Agent. See the Prospectus and below for applicable expense limitations.
The Portfolio -- For the fiscal years ended November 30, 1997, 1998 and
1999: $1,256,131, $1,788,454 and $3,127,566, respectively.
CUSTODIAN AND TRANSFER AGENT
The Bank of New York ("BONY"), One Wall Street, New York, New York
10286, serves as the Trust's and each of the Portfolio's custodian and fund
accounting agent. Pursuant to the Custodian Contracts, BONY is responsible for
holding portfolio securities and cash and maintaining the books of account and
records of portfolio transactions.
State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02110, serves as each Fund's transfer and dividend
disbursing agent. 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 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.
SERVICE ORGANIZATIONS
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 Agreement, 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 0.10% (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.
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 advisors
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 January 26,
2000. 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 Fund 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,
FDI and Service Organizations under various agreements discussed under
"Trustees, Advisory Board 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 and Members of the Advisory
Board, 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. For additional
information regarding reimbursements, see the Prospectus.
J.P. Morgan has agreed that it will reimburse the Fund until March 31,
2001 to the extent necessary to maintain the Fund's total operating expenses
(which include expenses of the Fund and the Portfolio) at the annual rate of
0.30% of the Fund's average daily net assets. This limit does not cover
extraordinary expenses.
PURCHASE OF SHARES
Additional Minimum Balance Information. 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.
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 the 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.
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 the
Fund bear the cost of service fees at the annual rate of up to 0.10% 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.
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); 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 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 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.
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
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. The Fund generally intends to pay redemption proceeds in cash,
however, since it reserves the right at its sole discretion to pay redemptions
over $250,000 in-kind as a portfolio of representative securities rather than in
cash, the Fund reserves the right to deny an exchange request in excess of that
amount. See "Redemption of Shares". 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, 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 Fund and the 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 Bond Market Association ("BMA") 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 BMA recommends that the securities market close. On days the Fund closes
early, purchase and redemption orders received after the Fund closes 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. See "Additional
Information" in the Prospectus.
Yield Quotations. As required by regulations of the SEC, current yield
for the Fund is computed by determining the net change exclusive of capital
changes in the value of a hypothetical pre-existing account having a balance of
one share at the beginning of a seven-day calendar period, dividing the net
change in account value of the account at the beginning of the period, and
multiplying the return over the seven-day period by 365/7. For purposes of the
calculation, net change in account value reflects the value of additional shares
purchased with dividends from the original share and dividends declared on both
the original share and any such additional shares, but does not reflect realized
gains or losses or unrealized appreciation or depreciation. Effective yield for
the Fund is computed by annualizing the seven-day return with all dividends
reinvested in additional Fund shares.
Below is set forth historical yield information for the Fund's related
series, the J.P. Morgan Prime Money Market Fund for the periods indicated:
J.P. Morgan Prime Money Market Fund (11/30/99): 7-day current yield: 5.33%;
7-day effective yield: 5.48%.
Total Return Quotations. Historical performance information for periods
prior to the establishment of the Fund's related series, J.P. Morgan Prime Money
Market Fund will be that of the 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 Fund's
related series, the J.P. Morgan Prime Money Market Fund 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.
Below is set forth historical return information for the Fund's related
series the J.P. Morgan Prime Money Market Fund for the periods indicated:
J.P. Morgan Prime Money Market Fund (11/30/99): Average annual total
return, 1 year: 4.88%; average annual total return, 5 years: 5.33%; average
annual total return, 10 years: 5.14%; aggregate total return, 1 year: 4.88%;
aggregate total return, 5 years: 29.63%; aggregate total return, 10 years:
65.07%.
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 or data from
Lipper Analytical Services, Inc., Micropal, Inc., Ibbotson Associates,
Morningstar Inc., the Dow Jones Industrial Average and other industry
publications.
From time to time, the Fund may, in addition to any other permissible
information, include the following types of information in advertisements,
supplemental sales literature and reports to shareholders: (1) discussions of
general economic or financial principles (such as the effects of compounding and
the benefits of dollar-cost averaging); (2) discussions of general economic
trends; (3) presentations of statistical data to supplement such discussions;
(4) descriptions of past or anticipated portfolio holdings for the Fund; (5)
descriptions of investment strategies for the Fund; (6) descriptions or
comparisons of various savings and investment products (including, but not
limited to, qualified retirement plans and individual stocks and bonds), which
may or may not include the Fund; (7) comparisons of investment products
(including the Fund) with relevant markets or industry indices or other
appropriate benchmarks; (8) discussions of Fund rankings or ratings by
recognized rating organizations; and (9) discussions of various statistical
methods quantifying the Fund's volatility relative to its benchmark or to past
performance, including risk adjusted measures. The Fund may also include
calculations, such as hypothetical compounding examples, which describe
hypothetical investment results in such communications. Such performance
examples will be based on an express set of assumptions and are not indicative
of the performance of the Fund.
PORTFOLIO TRANSACTIONS
The Advisor places orders for the Portfolio for all purchases and sales of
portfolio securities, enters into repurchase agreements, and may enter into
reverse repurchase agreements and execute loans of portfolio securities on
behalf of all the 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 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 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. Under the 1940 Act, persons
affiliated with the Portfolio and persons who are affiliated with such persons
are prohibited from dealing with the Portfolio as principal in the purchase and
sale of securities unless a permissive order allowing such transactions is
obtained from the SEC. However, affiliated persons of the Portfolio may serve as
its broker in listed or over-the-counter transactions conducted on an agency
basis provided that, among other things, the fee or commission received by such
affiliated broker is reasonable and fair compared to the fee or commission
received by non-affiliated brokers in connection with comparable transactions.
In addition, the Portfolio may not purchase securities during the existence of
any underwriting syndicate for such securities of which Morgan or an affiliate
is a member or in a private placement in which Morgan or an affiliate serves as
placement agent except pursuant to procedures adopted by the Board of Trustees
of the Portfolio that either comply with rules adopted by the SEC or with
interpretations of the SEC's staff.
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 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 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".
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, Member of the Advisory Board, officer, employee or
agent of the Fund is liable to the Fund or to a shareholder, and that no
Trustee, Member of the Advisory Board, 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,
Member of the Advisory Board, 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 22 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.
SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE
Unlike other mutual funds which directly acquire and manage their own
portfolio of securities, the Fund is an open-end management investment company
which seeks to achieve its investment objective by investing all of its
investable assets in a 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) 521-5411.
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 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 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 Statement of Additional Information.
These laws and regulations are subject to change by legislative or
administrative action, possibly on a retroactive basis.
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.
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 gains in excess of net short-term
capital loss) are taxable to shareholders of the Fund as long-term capital gain,
regardless of whether such distributions are taken in cash or reinvested in
additional shares and regardless of how long a shareholder has held shares in
the Fund. In general, long-term capital gain of an individual shareholder will
be subject to a 20% rate of tax.
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 option 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. Investors should thus consider the consequences
of purchasing shares in the Fund shortly before the Fund declares a sizable
dividend distribution.
Any gain or loss realized on the redemption or exchange of Fund shares
by a shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held for more than one year, and
otherwise as short-term capital gain or loss. Long-term capital gain of an
individual holder is subject to maximum tax rate of 20%. 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. 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. Investors are urged to consult their tax advisors concerning the
limitations on the deductibility of capital losses.
The Fund may invest in Equity Securities of foreign issuers. If the
Fund purchases shares in certain foreign corporations (referred to as passive
foreign investment companies ("PFICs") under the Code), the Fund may be subject
to federal income tax on a portion of 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.
The Fund will be permitted to "mark to market" any marketable stock
held by the Fund in a PFIC. If the Fund made such an election, it 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.
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 (or any successor form) 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 statement filed under the 1940 Act. Pursuant to the rules and
regulations of the SEC, certain portions have been omitted. The registration
statements including the exhibits filed therewith may be examined at the office
of the SEC in Washington, D.C.
Statements contained in this Statement of Additional Information and
the Prospectus concerning the contents of any contract or other document are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the applicable
Registration Statements.
Each such statement is qualified in all respects by such reference.
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.
FINANCIAL STATEMENTS
The 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 on February 7, 2000 (Accession
number 0000912057-00-004059) pursuant to Section 30(b) of the 1940 Act and Rule
30b2-1 thereunder. The financial report is available without charge upon request
by calling JP Morgan Funds Services at (800) 766-7722.
<PAGE>
APPENDIX A
Description of Security Ratings
STANDARD & POOR'S
Corporate and Municipal Bonds
AAA - Debt rated AAA have the highest ratings assigned by Standard &
Poor's to a debt obligation.
Capacity to pay interest and repay principal is extremely strong.
AA - Debt rated AA have a very strong capacity to pay interest and repay
principal and differ from the
highest rated issues only in a small degree.
A - Debt rated A have a strong capacity to pay interest and repay principal
although they are somewhat
more susceptible to the adverse effects of changes in circumstances
and economic conditions than
debt in higher rated categories.
BBB - Debt rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity
to pay interest and repay
principal for debt in this category than for debt in higher rated categories.
Commercial Paper, including Tax Exempt
A - Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category
are further refined with the designations 1, 2, and 3 to
indicate the relative degree of safety.
A-1 - This designation indicates that the degree of safety regarding timely
payment is very strong.
Short-Term Tax-Exempt Notes
SP-1 - The short-term tax-exempt note rating of SP-1 is the highest
rating assigned by Standard & Poor's and has a very strong or
strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics are
given a "plus" (+) designation.
SP-2 - The short-term tax-exempt note rating of SP-2 has a satisfactory
capacity to pay principal and interest.
<PAGE>
MOODY'S
Corporate and Municipal Bonds
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Commercial Paper, including Tax Exempt
Prime-1 - Issuers rated Prime-1 (or related supporting institutions) have
a superior capacity for repayment of short-term promissory
obligations. Prime-1 repayment capacity will normally be
evidenced by the following characteristics:
- Leading market positions in well established industries.
- High rates of return on funds employed.
- Conservative capitalization structures with moderate reliance on
debt and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
- Well established access to a range of financial markets and
assured sources of alternate liquidity.
<PAGE>
Short-Term Tax Exempt Notes
MIG-1 - The short-term tax-exempt note rating MIG-1 is the highest
rating assigned by Moody's for notes judged to be the best
quality. Notes with this rating enjoy strong protection from
established cash flows of funds for their servicing or from
established and broad-based access to the market for refinancing,
or both.
MIG-2 - MIG-2 rated notes are of high quality but with margins of protection
not as large as MIG-1.
- --------
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.
<PAGE>
PART C
ITEM 23. EXHIBITS.
(a) Declaration of Trust, as amended, was filed as Exhibit No. 1 to
Post-Effective Amendment No. 25 to the Registration Statement filed on September
26, 1996 (Accession Number 0000912057-96-021281).
(a)1 Amendment No. 5 to Declaration of Trust; Amendment and Fifth Amended
and Restated Establishment and Designation of Series of Shares of Beneficial
Interest. Incorporated herein by reference to Post-Effective Amendment No. 29 to
the Registration Statement filed on December 26, 1996 (Accession Number
0001016964-96-000061).
(a)2 Amendment No. 6 to Declaration of Trust; Amendment and Sixth Amended
and Restated Establishment and Designation of Series of Shares of Beneficial
Interest was filed as Exhibit No. 1(b) to Post-Effective Amendment No. 31 to the
Registration Statement on February 28, 1997 (Accession Number
0001016964-97-000041).
(a)3 Amendment No. 7 to Declaration of Trust; Amendment and Seventh Amended
and Restated Establishment and Designation of Series of Shares of Beneficial
Interest was filed as Exhibit No. 1(c) to Post-Effective Amendment No. 32 to the
Registration Statement on April 15, 1997 (Accession Number
0001016964-97-000053).
(a)4 Amendment No. 8 to Declaration of Trust; Amendment and Eighth Amended
and Restated Establishment and Designation of Series of Shares of Beneficial
Interest was filed as Exhibit No. 1(d) to Post-Effective Amendment No. 40 to the
Registration Statement on October 9, 1997 (Accession Number
0001016964-97-000158).
(a)5 Amendment No. 9 to Declaration of Trust; Amendment and Ninth Amended
and Restated Establishment and Designation of Series of Shares of Beneficial
Interest was filed as Exhibit No. 1(e) to Post-Effective Amendment No. 50 to the
Registration Statement on December 29, 1997 (Accession Number
0001041455-97-000014).
(a)6 Amendment No. 10 to Declaration of Trust; Amendment and Tenth Amended
and Restated Establishment and Designation of Series of Shares of Beneficial
Interest and change voting procedures to dollar-based voting was filed as
Exhibit No. (a)6 to Post-Effective Amendment No. 60 to the Registration
Statement on December 31, 1998(Accession Number 0001041455-98-000097).
(a)7 Amendment No. 11 to Declaration of Trust. Incorporated herein by
reference to Post-Effective Amendment No. 63 to the Registration Statement filed
on April 29, 1999 (Accession Number 00001041455-99-000041).
(a)8 Amendment No. 12 to Declaration of Trust. (filed herewith)
(b) Restated By-Laws of Registrant. Incorporated herein by reference to
Post-Effective Amendment No. 29 to the Registration Statement filed on December
26, 1996 (Accession Number 0001016964-96-000061).
(b)(1) Amendment to Restated By-laws of Registrant. Incorporated herein by
reference to Post-Effective Amendment No. 71 to the Registration Statement filed
on February 28, 2000 (Accession Number 0001041455-00-000056).
(e) Distribution Agreement between Registrant and Funds Distributor, Inc.
("FDI"). Incorporated herein by reference to Post-Effective Amendment No. 29 to
the Registration Statement filed on December 26, 1996 (Accession Number
0001016964-96-000061).
(g)1 Custodian Contract between Registrant and State Street Bank and Trust
Company ("State Street"). Incorporated herein by reference to Post-Effective
Amendment No. 29 to the Registration Statement filed on December 26, 1996
(Accession Number 0001016964-96-000061).
(g)2 Custodian Contract between Registrant and The Bank of New York.
Incorporated herein by reference to Post-Effective Amendment No. 71 to the
Registration Statement filed on February 28, 2000 (Accession Number
0001041455-00-000056).
(h)1 Co-Administration Agreement between Registrant and FDI. Incorporated
herein by reference to Post-Effective Amendment No. 29 to the Registration
Statement filed on December 26, 1996 (Accession Number 0001016964-96-000061).
(h)2 Restated Shareholder Servicing Agreement between Registrant and Morgan
Guaranty Trust Company of New York ("Morgan Guaranty") filed as Exhibit (h)2 to
Post Effective Amendment No. 54 to the Registration Statement on August 25, 1998
(Accession No. 0001041455-98-000053).
(h)3 Transfer Agency and Service Agreement between Registrant and State
Street. Incorporated herein by reference to Post-Effective Amendment No. 29 to
the Registration Statement filed on December 26, 1996 (Accession Number
0001016964-96-000061).
(h)4 Restated Administrative Services Agreement between Registrant and
Morgan Guaranty. Incorporated herein by reference to Post-Effective Amendment
No. 29 to the Registration Statement filed on December 26, 1996 (Accession
Number 0001016964-96-000061).
(h)5 Fund Services Agreement, as amended, between Registrant and Pierpont
Group, Inc. Incorporated herein by reference to Post-Effective Amendment No. 29
to the Registration Statement filed on December 26, 1996 (Accession Number
0001016964-96-000061).
(h)6 Service Plan with respect to Registrant's Service Money Market
Funds. Incorporated herein by reference to Post-Effective Amendment No. 33 to
the Registration Statement filed on April 30, 1997 (Accession Number
00001016964-97-000059).
(h)7 Amended Service Plan with respect to Registrant's Disciplined Equity -
Advisor Series and Direct Prime Money Market Funds. (filed herewith)
(i) Opinion and consent of Sullivan & Cromwell. Incorporated herein by
reference to Post-Effective Amendment No. 29 to the Registration Statement filed
on December 26, 1996 (Accession Number 0001016964-96-000061).
(j) Consent of independent accountants (filed herewith).
(l) Purchase agreements with respect to Registrant's initial shares.
Incorporated herein by reference to Post-Effective Amendment No. 29 to the
Registration Statement filed on December 26, 1996 (Accession Number
0001016964-96-000061).
(n) Financial Data Schedules (not required).
(p) Code of Ethics (filed herewith).
- -------------------------
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND.
Not applicable.
ITEM 25. INDEMNIFICATION.
Reference is made to Section 5.3 of Registrant's Declaration of Trust and
Section 5 of Registrant's Distribution Agreement.
Registrant, its Trustees and officers are insured against certain expenses in
connection with the defense of claims, demands, actions, suits, or proceedings,
and certain liabilities that might be imposed as a result of such actions, suits
or proceedings.
Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended (the "1933 Act"), may be permitted to directors, trustees,
officers and controlling persons of the Registrant and the principal underwriter
pursuant to the foregoing provisions or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the 1933 Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, trustee, officer, or controlling person of the Registrant
and the principal underwriter in connection with the successful defense of any
action, suite or proceeding) is asserted against the Registrant by such
director, trustee, officer or controlling person or principal underwriter in
connection with the shares being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the 1933 Act and
will be governed by the final adjudication of such issue.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER.
Not Applicable.
ITEM 27. PRINCIPAL UNDERWRITERS.
(a) Funds Distributor, Inc. (the "Distributor") is the principal
underwriter of the Registrant's shares.
Funds Distributor, Inc. acts as principal underwriter for the following
investment companies other than the Registrant:
American Century California Tax-Free and Municipal Funds
American Century Capital Portfolios, Inc.
American Century Government Income Trust
American Century International Bond Funds
American Century Investment Trust
American Century Municipal Trust
American Century Mutual Funds, Inc.
American Century Premium Reserves, Inc.
American Century Quantitative Equity Funds
American Century Strategic Asset Allocations, Inc.
American Century Target Maturities Trust
American Century Variable Portfolios, Inc.
American Century World Mutual Funds, Inc.
BJB Investment Funds
The Brinson Funds
Dresdner RCM Capital Funds, Inc.
Dresdner RCM Equity Funds, Inc.
Founders Funds, Inc.
Harris Insight Funds Trust
HT Insight Funds, Inc. d/b/a Harris Insight Funds
J.P. Morgan Funds
J.P. Morgan Series Trust
J.P. Morgan Series Trust II
LaSalle Partners Funds, Inc.
Monetta Fund, Inc.
Monetta Trust
The Montgomery Funds
The Montgomery Funds II
The Munder Framlington Funds Trust
The Munder Funds Trust
The Munder Funds, Inc.
Orbitex Group of Funds
St. Clair Funds, Inc.
The Skyline Funds
Waterhouse Investors Family of Funds, Inc.
WEBS Index Fund, Inc.
Funds Distributor, Inc. does not act as depositor or investment adviser to
any of the investment companies.
Funds Distributor, Inc. is registered with the Securities and Exchange
Commission as a broker-dealer and is a member of the National Association of
Securities Dealers. Funds Distributor, Inc. is located at 60 State Street, Suite
1300, Boston, Massachusetts 02109. Funds Distributor, Inc. is an indirect
wholly-owned subsidiary of Boston Institutional Group, Inc., a holding company
all of whose outstanding shares are owned by key employees.
(b) The following is a list of the executive officers, directors and
partners of Funds Distributor, Inc.:
Director, President and Chief Executive Officer: Marie E. Connolly
Executive Vice President: George Rio
Executive Vice President: Donald R. Roberson
Executive Vice President: William S. Nichols
Director, Senior Vice President, Treasurer and
Chief Financial Officer: Joseph F. Tower, III
Senior Vice President, General Counsel, Chief
Compliance Officer, Secretary and Clerk Margaret M. Chambers
Senior Vice President: Paula R. David
Senior Vice President: Judith K. Benson
Senior Vice President: Gary S. MacDonald
Director, Chairman of the Board, Executive
Vice President William J. Nutt
(c) Not applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
PIERPONT GROUP, INC.: 461 Fifth Avenue, New York, New York 10017 (records
relating to its assisting the Trustees in carrying out their duties in
supervising the Registrant's affairs).
MORGAN GUARANTY TRUST COMPANY OF NEW YORK: 60 Wall Street, New York, New York
10260-0060, 522 Fifth Avenue, New York, New York 10036 or 9 West 57th Street,
New York, New York 10019 (records relating to its functions as shareholder
servicing agent and administrative services agent).
STATE STREET BANK AND TRUST COMPANY: 1776 Heritage Drive, North Quincy,
Massachusetts 02171 and 40 King Street West, Toronto, Ontario, Canada M5H 3Y8
(records relating to its functions as fund accountant, custodian, transfer agent
and dividend disbursing agent).
THE BANK OF NEW YORK: 1 Wall Street New York, New York 10086, (records
relating to its functions as fund accountant and custodian).
FUNDS DISTRIBUTOR, INC.: 60 State Street, Suite 1300, Boston, Massachusetts
02109 (records relating to its functions as distributor and co-administrator).
ITEM 29. MANAGEMENT SERVICES.
Not Applicable.
ITEM 30. UNDERTAKINGS.
(a) If the information called for by Item 5A of Form N-1A is contained in
the latest annual report to shareholders, the Registrant shall furnish
each person to whom a prospectus is delivered with a copy of the
Registrant's latest annual report to shareholders upon request and
without charge.
(b) The Registrant undertakes to comply with Section 16(c) of the 1940 Act
as though such provisions of the 1940 Act were applicable to the
Registrant, except that the request referred to in the third full
paragraph thereof may only be made by shareholders who hold in the
aggregate at least 10% of the outstanding shares of the Registrant,
regardless of the net asset value of shares held by such requesting
shareholders.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this registration statement
to be signed on its behalf by the undersigned, thereto duly authorized, in the
City of New York and State of New York on the 3rd day of April, 2000.
J.P. MORGAN INSTITUTIONAL FUNDS,
By /s/ Stephanie D. Pierce
----------------------------
Stephanie D. Pierce
Vice President and Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed below by the following persons in the capacities
indicated on April 3, 2000.
George Rio*
- ------------------------------
George Rio
President and Treasurer
Matthew Healey*
- -----------------------------
Matthew Healey
Trustee, Chairman and Chief Executive Officer (Principal Executive Officer)
Frederick S. Addy*
- ------------------------------
Frederick S. Addy
Trustee
William G. Burns*
- ------------------------------
William G. Burns
Trustee
Arthur C. Eschenlauer*
- ------------------------------
Arthur C. Eschenlauer
Trustee
Michael P. Mallardi*
- ------------------------------
Michael P. Mallardi
Trustee
*By /s/ Stephanie D. Pierce
----------------------------
Stephanie D. Pierce
as attorney-in-fact pursuant to a power of attorney.
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
- ------------- ------------------------
EX-99.(a)(8) Amendment No. 12 to Declaration of Trust
EX-99.(h)(7) Amended Service Plan
EX-99.(j) Consent of Independent Accountants
EX-99.(p) Code of Ethics
Appendix I
J.P. MORGAN INSTITUTIONAL FUNDS
(formerly The JPM Institutional Funds)
AMENDMENT NO. 12 TO DECLARATION OF TRUST
Amendment and
Ninth Amended and Restated Establishment and
Designation of Series of Shares of
Beneficial Interest (par value $0.001 per share)
dated January 26, 2000, effective February 8, 2000
Pursuant to Sections 6.9 and 9.3 of the Declaration of Trust,
dated as of November 4, 1992, as amended (the "Declaration of Trust"), of J.P.
Morgan Institutional Funds (the "Trust"), the Trustees of the Trust hereby amend
and restate the Eleventh Amended and Restated Establishment and Designation of
Series appended to the Declaration of Trust to add two additional series.
1. The Funds shall be named and/or designated as follows:
J.P. Morgan Institutional Federal Money Market Fund
J.P. Morgan Institutional Prime Money Market Fund
J.P. Morgan Institutional Tax Exempt Money Market Fund
J.P. Morgan Institutional Short Term Bond Fund
J.P. Morgan Institutional Bond Fund
J.P. Morgan Institutional Tax Exempt Bond Fund
J.P. Morgan Institutional U.S. Equity Fund
J.P. Morgan Institutional U.S. Small Company Fund
J.P. Morgan Institutional International Equity Fund
J.P. Morgan Institutional Diversified Fund
J.P. Morgan Institutional Emerging Markets Equity Fund
J.P. Morgan Institutional New York Tax Exempt Bond Fund
J.P. Morgan Institutional European Equity Fund
J.P. Morgan Institutional Disciplined Equity Fund
J.P. Morgan Institutional Global Strategic Income Fund
J.P. Morgan Institutional International Opportunities Fund
J.P. Morgan Institutional U.S. Small Company Opportunities Fund
J.P. Morgan Institutional Emerging Markets Debt Fund
J.P. Morgan Institutional Treasury Money Market Fund
J.P. Morgan Institutional Service Treasury Money Market Fund
J.P. Morgan Institutional Service Prime Money Market Fund
J.P. Morgan Institutional Service Federal Money Market Fund
J.P. Morgan Institutional Service Tax Exempt Money Market Fund
J.P. Morgan Institutional Bond Fund - Ultra
J.P. Morgan Institutional Treasury Money Market Reserves Fund
J.P. Morgan Institutional Prime Money Market Reserves Fund
J.P. Morgan Institutional Direct Prime Money Market Fund
J.P. Morgan Institutional Disciplined Equity Fund - Advisor Series
and shall have the following special and relative rights:
2. Each Fund shall be authorized to hold cash, invest in securities,
instruments and other properties and use investment techniques as from time to
time described in the Trust's then currently effective registration statement
under the Securities Act of 1933 to the extent pertaining to the offering of
Shares of such Fund. Each Share of a Fund shall be redeemable, shall be entitled
to one vote (or fraction thereof in respect of a fractional share) on matters on
which Shares of the Fund shall be entitled to vote, shall represent a pro rata
beneficial interest in the assets allocated or belonging to the Fund, and shall
be entitled to receive its pro rata share of the net assets of the Fund upon
liquidation of the Fund, all as provided in Section 6.9 of the Declaration of
Trust. The proceeds of sales of Shares of a Fund, together with any income and
gain thereon, less any diminution or expenses thereof, shall irrevocably belong
to that Fund, unless otherwise required by law.
3. Shareholders of each Fund shall vote separately as a class on any
matter to the extent required by, and any matter shall be deemed to have been
effectively acted upon with respect to the Fund as provided in, Rule 18f-2, as
from time to time in effect, under the Investment Company Act of 1940, as
amended, or any successor rule, and by the Declaration of Trust.
4. The assets and liabilities of the Trust shall be allocated
among the Funds as set forth in Section 6.9 of the Declaration of Trust.
5. Subject to the provisions of Section 6.9 and Article IX of the
Declaration of Trust, the Trustees (including any successor Trustees) shall have
the right at any time and from time to time to reallocate assets and expenses,
to change the designation of any Fund, previously, now or hereafter created, or
otherwise to change the special and relative rights of any Fund or any such
other series of Shares.
IN WITNESS WHEREOF, the undersigned have executed this instrument as of
the date first written above. This instrument may be executed by the Trustees on
separate counterparts but shall be effective on March , 2000 and only when
signed by a majority of the Trustees.
/s/ Frederick S. Addy
- ---------------------------------------------------
Frederick S. Addy
/s/ William G. Burns
- --------------------------------------------------
William G. Burns
/s/ Arthur C. Eschenlauer
- ---------------------------------------------------
Arthur C. Eschenlauer
/s/ Matthew Healey
- ---------------------------------------------------
Matthew Healey
/s/ Michael P. Mallardi
- ----------------------------------------------------
Michael P. Mallardi
THE JPM INSTITUTIONAL FUNDS
SERVICE PLAN
WHEREAS, The JPM Institutional Funds (the "Trust") engages in business
as an open-end management investment company and is registered as such under the
Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Trust has several particular "Service" series or funds, as
set forth on Schedule A (each, a "Fund"), as it may be amended from time to
time;
WHEREAS, the Trust, on behalf of each Fund, desires to adopt a Service
Plan and the Board of Trustees of the Trust has determined that there is a
reasonable likelihood that adoption of this Service Plan (the "Plan") will
benefit the Trust and its shareholders; and
WHEREAS, the Trust, on behalf of each Fund, employs institutions (the
"Service Organizations") to act as nominees and record holders of shares of each
Fund for their respective customers who are or may become beneficial owners of
such shares (the "Customers") and to perform certain account administration and
other services with respect to the Customers pursuant to Service Agreements
between the Trust, on behalf of each Fund, and such Service Organizations (the
"Agreements").
NOW, THEREFORE, the Trust, on behalf of each Fund, hereby adopts this
Service Plan (the "Plan") on the following terms and conditions:
1. (a) The Trust, on behalf of each Fund, is authorized to pay each
Service Organization the monthly or quarterly administration fee specified in
the Agreement with such Service Organization, which shall be equal on an annual
basis to not more than the percentage (%) stated on the attached Schedule A of
the average daily net asset value of the shares of such Fund which are owned
beneficially by the Customers of such Service Organization during such period.
(b) The types of services and expenses for which a Service
Organization may be compensated by a Fund under this Plan include, without
limitation: (i) acting directly or through an agent as record holder and nominee
of all shares of a Fund beneficially owned by Customers; (ii) assisting in
establishing and maintaining individual accounts and records with respect to
shares of a Fund owned by each Customer; (iii) assisting in receiving and
transmitting funds representing the purchase price or redemption proceeds of
such shares; and (iv) providing such statistical and other information as may be
reasonably requested by the Trust or necessary for the Trust to comply with
applicable federal or state law. No Fund may compensate a Service Organization
for services provided with respect to another Fund.
2. This Plan shall not take effect with respect to a Fund until it has
been approved by a vote of at least a majority of the outstanding voting
securities of such Fund.
3. This Plan shall not take effect as to a Fund until the Plan,
together with any related agreements, has been approved for such Fund by votes
of a majority of both (a) the Board of Trustees of the Trust and (b) those
Trustees of the Trust who are not "interested persons" of the Trust and who have
no direct or indirect financial interest in the operation of the Plan or any
agreements related to it (the "non-interested Trustees") cast in person at a
meeting (or meetings) called for the purpose of voting on the Plan and such
related agreements.
4. This Plan shall remain in effect until July 10, 1998 and shall
continue in effect thereafter so long as such continuance is specifically
approved at least annually in the manner provided for approval of this Plan in
paragraph 3.
5. The President, Vice President, Treasurer or any Assistant Treasurer
of the Trust shall provide the Board of Trustees of the Trust and the Board
shall review, at least quarterly, a written report of services performed by and
fees paid to each Service Organization under the Agreements and this Plan.
6. This Plan may be terminated as to a Fund at any time by vote of a
majority of the non-interested Trustees or by vote of a majority of the
outstanding voting securities of such Fund.
7. This Plan may not be amended to increase materially the amount of
compensation payable pursuant to paragraph 1 hereof unless such amendment is
approved in the manner provided for initial approval in paragraph 2 hereof. No
material amendment to the Plan shall be made unless approved in the manner
provided in paragraph 3 hereof.
8. While this Plan is in effect, the selection and nomination of the
non-interested Trustees of the Trust shall be committed to the discretion of the
non-interested Trustees.
9. The Trust shall preserve copies of this Plan and any related
agreements and all reports made pursuant to paragraph 5 hereof for a period of
not less than six years from the date of the Plan, any such agreement or any
such report, as the case may be, the first two years in an easily accessible
place.
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
<S> <C>
Maximum Fee as a Percentage of
Average Daily Net Assets of Shares
Beneficially Owned by Clients of
Name of Series Sales Agent
J.P. Morgan Disciplined Equity Fund-Advisor Series 0.25%
J.P. Morgan Prime Money Market Reserves Fund 0.25%
J.P. Morgan Treasury Money Market Reserves Fund 0.25%
</TABLE>
CONSENTS OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form N-1A of our report dated January 14, 2000, relating to the
financial statements and supplementary data which appears in the November 30,
1999 Annual Report of The Prime Money Market Portfolio, which is also
incorporated by reference into the Registration Statement.
We hereby consent to the incorporation by reference in this Registration
Statement on Form N-1A of our report dated November 30, 1999, relating to the
financial statements and supplementary data which appears in the May 31, 1999
Annual Report of The Disciplined Equity Portfolio, which is also incorporated by
reference into the Registration Statement.
We also consent to the references to us under the headings "Independent
Accountants" and "Financial Statements" in such Registration Statement.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
New York, New York
April 3, 2000
CODE OF ETHICS
1. Purposes
This Code of Ethics (the "Code") has been adopted by the Trustees of
the funds listed on Schedule A hereto (each, a "Portfolio"), in accordance with
Rule 17j-1(c) promulgated under the Investment Company Act of 1940, as amended
(the "Act"). Rule 17j-1 under the Act generally proscribes fraudulent or
manipulative practices with respect to purchases or sales of Securities Held or
to be Acquired by investment companies, if effected by associated persons of
such companies. The purpose of this Code is to provide regulations and
procedures consistent with the Act and Rule 17j-1 designed to give effect to the
general prohibitions set forth in Rule 17j-1(b) as follows:
It is unlawful for any affiliated person of or principal
underwriter for a fund, or any affiliated person of an investment adviser of or
principal underwriter for a fund, in connection with the purchase or sale,
directly or indirectly, by the person of a Security Held or to be Acquired by
such fund --
(a) To employ any device, scheme or artifice to defraud the fund;
(b) To make any untrue statement of a material fact to the fund or
omit to state a material fact necessary in order to make the
statements made to the fund, in light of the circumstances
under which they are made, not misleading;
(c) To engage in any act, practice, or course of business that
operates or would operate as a fraud or deceit on the fund; or
(d) To engage in any manipulative practice with respect to the fund.
2. Definitions
(a) "Access Person" means any Trustee, officer or Advisory Person of
the Portfolio .
(b) "Advisory Person" of a Portfolio means: (i) any employee of the
Portfolio (or any company in a control relationship to the Portfolio) who, in
connection with his or her regular functions or duties, makes, participates in,
or obtains information regarding the purchase or sale of Covered Securities by
the Portfolio, or whose functions relate to the making of any recommendations
with respect to such purchases or sales; and (ii) any natural person in a
control relationship to the Portfolio who obtains information concerning
recommendations made to the Portfolio with regard to the purchase or sale of
Covered Securities by the Portfolio.
(c) "Beneficial Ownership" shall be interpreted in the same manner as it would
be under Exchange Act Rule 16a-1(a)(2)in determining whether a person is the
beneficial owner of a security for purposes of Section 16 of the Securities
Exchange Act of 1934 and the rules and regulations thereunder (see Annex A). Any
report required by Section 5(a) of this Code may contain a statement that the
report will not be construed as an admission that the person making the report
has any direct or indirect beneficial ownership in the Security to which the
report relates.
(d) "Covered Security" shall have the meaning set forth in Section 2(a)(36) of
the Act, except that it shall not include shares of open-end funds, direct
obligations of the United States Government, bankers' acceptances, bank
certificates of deposit, commercial paper and high quality short-term debt
instruments, including repurchase agreements.
(e) "Control" has the same meaning as in Section 2(a)(9) of the Act.
(f) "Disinterested Trustee" means a Trustee of the Portfolio who is not an
"interested person" of the Portfolio within the meaning of Section 2(a)(19) of
the Act.
(g) "Initial Public Offering" means an offering of securities registered under
the Securities Act of 1933, the issuer of which, immediately before the
registration, was not subject to the reporting requirements of Sections 13 or
15(d) of the Securities Exchange Act.
(h) "Investment Personnel" means (i) any employee of the Portfolio (or
of any company in a control relationship to the Portfolio) who, in connection
with his or her regular functions or duties, makes or participates in making
recommendations regarding the purchase or sale of securities by the Portfolio;
and (ii) any natural person who controls the Portfolio and who obtains
information concerning recommendations made to the Portfolio regarding the
purchase or sale of securities by the Portfolio.
(i) "Limited Offering" means an offering that is exempt from
registration under the Securities Act pursuant to Section 4(2) or Section 4(6)
or pursuant to Rule 504, Rule 505, or Rule 506 under the Securities Act.
(j) "Purchase or Sale of a Covered Security" includes, inter alia, the writing
of an option to purchase or sell a Covered Security.
(k) "Security Held or to be Acquired" by a Portfolio means: (i) any Covered
Security which, within the most recent 15 days, is or has been held by the
Portfolio or is being or has been considered by the Portfolio or its adviser for
purchase by the Portfolio; and (ii) any option to purchase or sell, and any
security convertible into or exchangeable for, a Covered Security described in
Section 2(k)(i) of this Code.
3. Prohibited Purchases and Sales
(a) No Access Person shall purchase or sell directly or indirectly any
Covered Security in which he or she has, or by reason of such transaction
acquires, any direct or indirect Beneficial Ownership and which to his or her
actual knowledge at the time of such purchase or sale:
(i) is being considered for purchase or sale by the Portfolio; or
(ii) is being purchased or sold by the Portfolio.
(b) No Access Person shall reveal to any other person (except in the
normal course of his or her duties on behalf of the Portfolio) any information
regarding Covered Securities transactions by the Portfolio or consideration by
the Portfolio or its adviser of any such Covered Securities transactions.
(c) No Access Person shall recommend any Covered Securities transaction
by the Portfolio without having disclosed his or her interest, if any, in such
Covered Securities or the issuer thereof, including without limitation (i) his
or her direct or indirect Beneficial Ownership of any Covered Securities of such
issuer, (ii) any contemplated transaction by such person in such Covered
Securities (iii) any position with such issuer or its affiliates and (iv) any
present or proposed business relationship between such issuer or its affiliates,
on the one hand, and such person or any party in which such person has a
significant interest, on the other; provided, however, that in the event the
interest of such Access Person in such Covered Securities or issuer is not
material to his or her personal net worth and any contemplated transaction by
such person in such Covered Securities cannot reasonably be expected to have a
material adverse effect on any such transaction by the Portfolio or on the
market for the Covered Securities, generally, such Access Person shall not be
required to disclose his or her interest in the Covered Securities or issuer
thereof in connection with any such recommendation.
(d) No Investment Personnel shall purchase any Covered Security which
is part of an Initial Public Offering or a Limited Offering.
4. Exempted Transactions
The prohibitions of Section 3 of this Code shall not apply to:
(a) Purchases or sales effected in any account over which the Access
Person has no direct or indirect influence or control.
(b) Purchases or sales of Covered Securities which are not eligible for
purchase or sale by the Portfolio.
(c) Purchases or sales which are non-volitional on the part of either
the Access Person or the Portfolio.
(d) Purchases which are part of an automatic dividend reinvestment
plan.
(e) Purchases effected upon the exercise of rights issued by an issuer
pro rata to all holders of a class of its Covered Securities, to the extent such
rights were acquired from such issuer, and sales of such rights so acquired.
(f) Purchases or sales which are only remotely potentially harmful to
the Portfolio because they would be very unlikely to affect a highly
institutional market, or because they clearly are not related economically to
the Covered Securities to be purchased, sold or held by the Portfolio.
5. Reporting Requirements
(a) Every Access Person must report to the Portfolio in accordance with Section
5(d) of this Code:
(i)Initial Holdings Reports. No later than 10 days after the
person becomes an Access Person, the following information:
(A) the title, number of shares and principal amount of each
Covered Security in which the Access Person had any direct or
indirect beneficial ownership when the person became an Access
Person; (B) the name of any broker, dealer or bank with whom
the Access Person maintained an account in which any Covered
Securities were held for the direct or indirect benefit of the
Access Person as of the date the person became an Access
Person; and (C) the date that the report is submitted by the
Access Person.
(ii)Quarterly Transaction Reports. No later than 10 days after
the end of a calendar quarter, with respect to any transaction
during the quarter in a Covered Security in which the Access
Person had any direct or indirect Beneficial Ownership: (A)
the date of the transaction, the title, the interest rate and
maturity date (if applicable), the number of shares and
principal amount of each Covered Security involved; (B) the
nature of the transaction; (C) the price of the Covered
Security at which the transaction was effected; (D) the name
of the broker, dealer or bank with or through which the
transaction was effected; and (E) the date that the report is
submitted by the Access Person.
(iii)New Account Report. With respect to any account
established by the Access Person in which any Covered
Securities were held during the calendar quarter for the
direct or indirect benefit of the Access Person: (A) the name
of the broker, dealer or bank with whom the Access Person
established the account; (B) the date the account was
established; and (C) the date that the report is submitted by
the Access Person. Such report shall be filed no later than 10
days after the end of each calendar quarter.
(iv)Annual Holdings Report. Annually, the following
information (which information must be current as of a date no
more than 30 days before the report is submitted): (A) the
title, number of shares and principal amount of each Covered
Security in which the Access Person had any direct or indirect
beneficial ownership; (B) the name of any broker, dealer or
bank with whom the Access Person maintains an account in which
any Covered Securities are held for the direct or indirect
benefit of the Access Person: and (C) the date that the report
is submitted by the Access Person.
(b) Exceptions from the Reporting Requirements.
(i) Notwithstanding the provisions of Section 5(a), no Access
Person shall be required to make:
A. a report with respect to transactions effected
for any account over which such person does not have
any direct or indirect influence or control;
B. to make a Quarterly Transaction or New Account
Report under Section 5(a)(ii) or (ii) if the report
would duplicate information contained in broker trade
confirmations or account statements received by the
Portfolio or its adviser with respect to the Access
Person no later than 10 days after the calendar
quarter end, if all of the information required by
Sections 5(a)(ii) or (ii), as the case may be, is
contained in the broker trade confirmations or
account statements, or in the records of the adviser.
(ii) a Disinterested Trustee who would be required to make a report solely by
reason of being a Trustee need not make:
A. an initial holdings report and annual holdings
reports; and
B. quarterly transaction and new account reports,
since the Trustees generally have no involvement in
the security selection process. Such reports need to
be filed only if a Trustee, at the time of that
transaction, knew, or in the ordinary course of
fulfilling his or her official duties as a Trustee of
the Portfolio, should have known, that during the
15-day period immediately before or after the date of
the Trustee's transaction in a Covered Security, such
Covered Security is or was purchased or sold by the
Portfolio or was being considered for purchase or
sale by the Portfolio or its adviser.
(c) Each Access Person shall promptly report any transaction which
is, or might appear to be, in violation of this Code. Such
report shall contain the information required in quarterly
transaction reports filed pursuant to Section 5(a)(ii).
(d) All reports prepared pursuant to this Section 5 shall be filed with the
person designated by the Portfolio's adviser to
review these materials.
(e) The Portfolio will identify all Access Persons who are required to file
reports pursuant to this Section 5 and will inform
them of their reporting obligation.
6. Recordkeeping Requirements
Each Portfolio must at its principal place of business maintain records
in the manner and extent set out in this Section of this Code and must
make available to the Securities and Exchange Commission (SEC) at any
time and from time to time for reasonable, periodic, special or other
examination:
(a) A copy of each code of ethics of the adviser,
distributor and the Portfolios that is in effect, or
at any time within the past five years was in effect,
must be maintained in an easily accessible place;
(b) A record of any violation of this Code, and of any
action taken as a result of the violation, must be
maintained in an easily accessible place for at least
five years after the end of the fiscal year in which
the violation occurs;
(c) A copy of each report made by an Access Person as
required by Section 5(a) of this Code, including any
information provided in lieu of a quarterly
transaction report, must be maintained for at least
five years after the end of the fiscal year in which
the report is made or the information is provided,
the first two years in an easily accessible place.
(d) A record of all persons, currently or within the past
five years, who are or were required to make reports
as Access Persons or who are or were responsible for
reviewing these reports, must be maintained in an
easily accessible place.
(e) A copy of each report required by Section 7(b) of
this Code must be maintained for at least five years
after the end of the fiscal year in which it is made,
the first two years in an easily accessible place.
(f) The Portfolio must maintain a record of any decision,
and the reasons supporting the decision, to approve
the acquisition by Investment Personnel of any
Covered Security that is part of an Initial Public
Offering or a Limited Offering, for at least five
years after the end of the fiscal year in which the
approval is granted.
7. Fiduciary Duties of the Portfolio's Board of Trustees
a. Each Portfolio's Trustees, including a majority of Disinterested
Trustees, must approve the code of ethics of the Portfolio, its adviser and
distributor and any material change to these codes. The Board must base its
approval of a code and any material changes to the code on a determination that
the code contains provisions reasonably necessary to prevent Access Persons from
engaging in any conduct prohibited by Rule 17j-1(b) of the Act as described in
Section 1. Before approving the codes of the adviser, distributor and the
Portfolios, each Portfolio's Board must receive certification from the adviser,
distributor and the Portfolios that each has adopted procedures reasonably
necessary to prevent Access Persons from violating its code of ethics. The
Portfolio's Board must approve the codes of the adviser and the distributor
before initially retaining the services of the adviser or distributor. The
Portfolio's Board must approve a material change to a code not later than six
months after adoption of the material change. The adviser, distributor and the
Portfolios must each use reasonable diligence and institute procedures
reasonably necessary to prevent violations of its code of ethics.
b. No less frequently than annually, the adviser, distributor,
and the Portfolios must furnish to the Portfolio's Board a
written report that:
1. Describes any issues arising under the code of ethics
or procedures since the last report to the Board,
including, but not limited to, information about
material violations of the code or procedures and
sanctions imposed in response to the material
violations; and
2. Certifies that the adviser, the distributor, and the
Portfolios have adopted procedures reasonably
necessary to prevent Access Persons from violating
the code.
8. Sanctions
Upon discovering a violation of this Code, the Trustees of the
Portfolio may impose such sanctions as they deem appropriate, including, inter
alia, a letter of censure or suspension or termination of the employment of the
violator.
<PAGE>
Annex A
The term "beneficial owner" shall mean any person who,
directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise, has or shares a direct or
indirect pecuniary interest in the securities, subject to the
following:
(i) The term "pecuniary interest" in any class of securities shall mean the
opportunity, directly or indirectly, to profit or share in any profit
derived from a transaction in the subject securities.
(ii) The term "indirect pecuniary interest" in any class of securities shall
include, but not be limited to:
(A) Securities held by members of a person's immediate family sharing the
same household; provided, however, that the presumption of such
beneficial ownership may be rebutted;
(B) A general partner's proportionate interest in the portfolio securities
held by a general or limited partnership. The general partner's
proportionate interest, as evidenced by the partnership agreement in
effect at the time of the transaction and the partnership's most recent
financial statements, shall be the greater of: (1) the general
partner's share of the partnership's profits, including profits
attributed to any limited partnership interests held by the general
partner and any other interests in profits that arise from the purchase
and sale of the partnership's portfolio securities; or (2) the general
partner's share of the partnership capital account, including the share
attributable to any limited partnership interest held by the general
partner;
(C) A performance-related fee, other than an asset-based fee, received by
any broker, dealer, bank, insurance company, investment company,
investment adviser, investment manager, trustee or person or entity
performing a similar function; provided, however, that no pecuniary
interest shall be present where (1) the performance-related fee,
regardless of when payable, is calculated based upon net capital gains
and/or net capital appreciation generated from the portfolio or from
the fiduciary's overall performance over a period of one year or more;
and (2) securities of the issuer do not account for more than 10
percent of the market value of the portfolio. A right to a
nonperformance-related fee alone shall not represent a pecuniary
interest in the securities;
(D) A person's right to dividends that is separated or separable from the
underlying securities. Otherwise, a right to dividends alone shall not
represent a pecuniary interest in the securities;
(E) A person's interest in the securities held by a trust, as follows:
(1) Trustees. If a trustee has a pecuniary interest,
as provided above, in any holding or transaction in
the issuer's securities held by the trust, such
holding or transaction shall be attributed to the
trustee in the trustee's individual capacity, as well
as on behalf of the trust. With respect to
performance fees and holdings of the trustee's
immediate family, trustees shall be deemed to have a
pecuniary interest in the trust holdings and
transactions in the following circumstances: (i) a
performance fee is received that does not meet the
proviso of paragraph (ii)(C) above; or (ii)at least
one beneficiary of the trust is a member of the
trustee's immediate family. The pecuniary interest of
the immediate family member(s) shall be attributed to
the trustee;
(2) Beneficiaries. A beneficiary shall have or share
reporting obligations with respect to transactions in
the issuer's securities held by the trust, if the
beneficiary is a beneficial owner of the securities,
as follows:
(aa) If a beneficiary shares investment
control with the trustee with
respect to a trust transaction, the
transaction shall be attributed to
both the beneficiary and the trust;
(bb) If a beneficiary has investment
control with respect to a trust
transaction without consultation
with the trustee, the transaction
shall be attributed to the
beneficiary only; and
(cc) In making a determination as to
whether a
beneficiary is the beneficial owner
of the securities, beneficiaries
shall be deemed to have a pecuniary
interest in the issuer's securities
held by the trust to the extent of
their pro rata interest in the trust
where the trustee does not exercise
exclusive investment control.
(3) Settlors. If a settlor reserves the right to
revoke
the trust without the consent of another
person, the trust holdings and transactions
shall be attributed to the settlor instead
of the trust; provided, however, that if the
settlor does not exercise or share
investment control over the issuer's
securities held by the trust, the trust
holdings and transactions shall be
attributed to the trust instead of the
settlor; and
(F) A person's right to acquire securities through the exercise or
conversion of any derivative security, whether or not presently
exercisable.
(iii) A shareholder shall not be deemed to have a pecuniary
interest in the portfolio securities held by a corporation or similar
entity in which the person owns securities if the shareholder is not a
controlling shareholder of the entity and does not have or share
investment control over the entity's portfolio.
Schedule A
Portfolio Adoption Date
The Federal Money Market Portfolio 1/27/00
The Prime Money Market Portfolio 1/27/00
The Tax Exempt Money Market Portfolio 1/27/00
The Short Term Bond Portfolio 1/27/00
The U.S. Fixed Income Portfolio 1/27/00
The Tax Exempt Bond Portfolio 1/27/00
The U.S. Equity Portfolio 1/27/00
The U.S. Small Company Portfolio 1/27/00
The International Equity Portfolio 1/27/00
The Diversified Portfolio 1/27/00
The Emerging Markets Equity Portfolio 1/27/00
The New York Tax Exempt Bond Portfolio 1/27/00
The European Equity Portfolio 1/27/00
The Disciplined Equity Portfolio 1/27/00
The International Opportunities Portfolio 1/27/00
J.P. Morgan Tax Aware U.S. Equity Fund 1/27/00
J.P. Morgan Tax Aware Disciplined Equity Fund 1/27/00
J.P. Morgan California Bond Fund 1/27/00
The Emerging Markets Debt Portfolio 1/27/00
The U.S. Small Companies Portfolio 1/27/00
The Global Strategic Income Portfolio 1/27/00
The Treasury Money Market Portfolio 1/27/00
J.P. Morgan Global 50 Fund 1/27/00
J.P. Morgan U.S. Market Neutral Fund 1/27/00
J.P. Morgan U.S. Large Cap Growth Fund 1/27/00
J.P. Morgan SmartIndex Fund 1/27/00
J.P. Morgan Tax Aware Enhanced Income Fund 1/27/00