As filed with the Securities and Exchange Commission on December 30, 1998.
Registration Nos. 033-54632 and 811-07340
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. 59
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 60
J.P. MORGAN FUNDS
(formerly The JPM Pierpont 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):
[ ] Immediately upon filing pursuant to paragraph (b)
[ ] on [date] pursuant to paragraph (b)
[X] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
The Prime Money Market Portfolio, The Federal Money Market Portfolio, The Tax
Exempt Money Market Portfolio, The U.S. Equity Portfolio, The U.S. Small Company
Portfolio, The International Equity Portfolio, The Emerging Markets Equity
Portfolio and The Series Portfolio have also executed this registration
statement.
<PAGE>
EXPLANATORY NOTE
This post-effective amendment No. 59 to the registration statement of
J.P. Morgan Funds (the "Registrant") on Form N-1A is being filed to allow for
staff review of the Registrant's money market, U.S. equity and international
equity prospectuses in connection with revised Form N-1A.
<PAGE>
March 1, 1999
Prospectus
J.P. Morgan Money Market funds
Prime Money Market Fund
Federal Money Market Fund
Tax Exempt Money Market Fund
- --------------------------------------
Seeking to provide high current income
consistent with the preservation of
capital and same-day liquidity
This prospectus contains essential information for anyone investing in these
funds. 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>
(THIS PAGE IS INTENTIONALLY LEFT BLANK)
<PAGE>
Contents
2
Each fund's goal, investment approach, risks, expenses, performance, and
financial highlights
J.P. MORGAN MONEY MARKET FUNDS
J.P. Morgan Prime Money Market Fund ........................... 2
J.P. Morgan Federal Money Market Fund ......................... 4
J.P. Morgan Tax Exempt Money Market Fund ...................... 6
8
Principles and techniques common
to the funds in this prospectus
MONEY MARKET MANAGEMENT APPROACH
J.P. Morgan ................................................... 8
J.P. Morgan Money Market Funds ................................ 8
The spectrum of money market funds ............................ 8
Who may want to invest ........................................ 8
Money market investment process ............................... 9
10
Investing in the J.P. Morgan
Money Market Funds
YOUR INVESTMENT
Investing through a financial professional ....................10
Investing through an employer-sponsored retirement plan .......10
Investing through an IRA or rollover IRA ......................10
Investing directly ............................................10
Opening your account ..........................................10
Adding to your account ........................................10
Selling shares ................................................11
Account and transaction policies ..............................11
Dividends and distributions ...................................12
Tax considerations ............................................12
13
More about the funds'
business operations
FUND DETAILS
Master/feeder structure .......................................13
Management and administration .................................13
Financial highlights ..........................................14
FOR MORE INFORMATION ..................................back cover
<PAGE>
J.P. MORGAN PRIME
MONEY MARKET FUND TICKER SYMBOL: PPMXX
- --------------------------------------------------------------------------------
REGISTRANT: J.P. MORGAN FUNDS
(J.P. MORGAN PRIME MONEY MARKET FUND)
[GRAPHIC GOAL
OMITTED] The fund's goal is to maximize current income consistent with the
preservation of capital and same-day liquidity. This goal can be changed without
shareholder approval.
[GRAPHIC INVESTMENT APPROACH
OMITTED] The fund looks for investments across a broad spectrum of U.S.
dollar-denominated money market securities, typically emphasizing different
types of securities at different times in order to take advantage of changing
yield differentials. The fund's investments may include obligations issued by
the U.S. Treasury, government agencies, domestic and foreign banks and
corporations, foreign governments, repurchase agreements, as well as
asset-backed securities, taxable municipal obligations, and other money market
instruments. Some of these investments may be illiquid or purchased on a
when-issued or delayed delivery basis.
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 9.
As with all money market funds, the fund's investments are subject to various
risks, which, while generally considered to be minimal, could cause its share
price to fall below $1. For example, the issuer or guarantor of a portfolio
security or the counterparty to a contract could default on its obligation. An
unexpected rise in interest rates could also lead to a loss in share price if
the fund is near the maximum allowable average weighted maturity at the time. To
the extent that the fund invests in foreign securities, the fund could lose
money because of foreign government actions, political instability, or lack of
adequate and accurate information. Also, the fund may have difficulty valuing
its illiquid holdings and may be unable to sell them at the time or price it
desires. While these possibilities exist, the fund's investment process and
management policies are designed to minimize the likelihood and impact of these
risks. To date, through this process, the fund's share price has never deviated
from $1.
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 governement
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.
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages
approximately $275 billion, including more than $12 billion using the same
strategy as the fund.
The portfolio management team is led by Robert R. Johnson, vice president, who
has been on the team since the fund's inception and has been at J.P. Morgan
since 1988, Daniel B. Mulvey, vice president, who joined the team in January of
1995 and has been at J.P. Morgan since 1991, and by John Donohue, vice
president, who has been on the team since joining J.P. Morgan in June of 1997.
Prior to managing this fund, Mr. Donohue was an Institutional Money Market
Portfolio Manager at Goldman Sachs & Co.
- --------------------------------------------------------------------------------
BEFORE YOU INVEST
Investors considering these funds should understand that:
o There is no assurance that these funds will meet their investment goals.
o These funds do not represent complete investment programs
2 | J.P. MORGAN PRIME MONEY MARKET FUND
<PAGE>
PERFORMANCE (unaudited)
The bar chart and table shown below indicated the risks of investing in J.P.
Morgan Prime Money Market Fund.
The bar chart indicates the risks by showing changes in the performance of the
fund's shares from year to year for each of the last ten calendar years.
The table indicates the risks by showing how the fund's average annual returns
for the past one year, five years, ten years, and life of the fund compared to
those of the IBC's First Tier Money Fund Average. This is an average of all
major U.S. government and agency money fund returns.
The fund's past performance does not necessarily indicate how the fund will
perform in the future.
Year-by-year total return (%) Shows changes in returns by calendar year(1,2)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
12%
9% 9.13
8.04
6% 6.07 5.79 5.21 5.41
3.95
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 fund's
highest quarterly return was xx% (for the quarter ended xx/xx/xx); and the
lowest quarterly return was xx% (for the quarter ended xx/xx/xx).
PERFORMANCE (unaudited)
Average annual total return (%) Shows performance over time, for periods ended
December 31, 1998(1)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Past 1 yr. Past 5 yrs. Past 10 yrs. Life of fund
<S> <C> <C> <C> <C>
J.P. Morgan Prime Money Market Fund (after expenses) __.__ __.__ __.__ __.__
- ---------------------------------------------------------------------------------------------------------------
IBC's First Tier Money Fund Average (after expenses) __.__ __.__ __.__ __.__
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
================================================================================
INVESTOR EXPENSES
The expenses of the fund are shown at right. The fund has no sales, redemption,
exchange, or account fees, although some institutions may charge you a fee for
shares you buy through them. The annual fund expenses are deducted form fund
assets prior to performance calculations.
Annual fund operating expenses(3) (%)
(expenses that are deducted from fund assets)
Management fees __.__
Marketing (12b-1) fees None
Other expenses __.__
- -----------------------------------------------------------------
Total operating expenses __.__
- -----------------------------------------------------------------
Expense example
The example below is intended to help you compare the cost of investing in the
fund with the cost of investing in other mutual funds. The example assumes:
$10,000 initial investment, 5% return each year, total operating expenses
unchanged, and all shares sold at the end of each time period. The example is
for comparison only; the fund's actual return and your actual costs may be
higher or lower.
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($) __.__ __.__ __.__ __.__
- --------------------------------------------------------------------------------
(1) The fund commenced operations on 7/12/93. Returns reflect performance of The
Pierpont Money Market Fund, the fund's predecessor, prior to that date.
(2) The fund's fiscal year end is 11/30.
(3) The fund has a master/feeder structure as described on page 13. This table
shows the fund's expenses and its share of master portfolio expenses for the
past fiscal year, expressed as a percentage of the fund's average net
assets.
J.P. MORGAN PRIME MONEY MARKET FUND | 3
<PAGE>
J.P. MORGAN FEDERAL
MONEY MARKET FUND TICKER SYMBOL: PTYXX
- --------------------------------------------------------------------------------
REGISTRANT: J.P. MORGAN FUNDS
(J.P. MORGAN FEDERAL MONEY MARKET FUND)
[GRAPHIC GOAL
OMITTED] The fund's goal is to provide high current income consistent with the
preservation of capital and same-day liquidity. This goal can be changed without
shareholder approval.
[GRAPHIC INVESTMENT APPROACH
OMITTED] The fund purchases securities that offer very high credit quality and
pay regular income that is generally free from state and local income taxes. It
invests exclusively in U.S. government agency obligations such as the Federal
Farm Credit Bank, the Tennessee Valley Authority, the Federal Home Loan Bank,
the Student Loan Marketing Association, and in obligations of the U.S. Treasury.
Some of these investments may be purchased on a when-issued or delayed delivery
basis.
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 9.
While the fund's U.S. Treasury obligations are backed by the full faith and
credit of the Government, investors should bear in mind that any agency
obligations the fund may hold do not have this guarantee, and that in any case
government guarantees do not extend to shares of the fund itself.
Most of the fund's income is generally exempt from state and local personal
income taxes and from some corporate income taxes (although not federal income
taxes). Because of this beneficial tax status, the fund's yields are generally
lower than those of taxable money market funds when compared on a pre-tax basis.
As with all money market funds, the fund's investments are subject to various
risks, which, while generally considered to be minimal, could cause its share
price to fall below $1. For example, the issuer or guarantor of a portfolio
security could default on its obligation. An unexpected rise in interest rates
could also lead to a loss in share price if the fund is near the maximum
allowable average weighted maturity at the time. However, the fund's investment
process and management policies are designed to minimize the likelihood and
impact of these risks. To date, through this process, the fund's share price has
never deviated from $1.
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 governement
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.
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages
approximately $275 billion, including more than $12 billion using the same
strategy as the fund.
The portfolio management team is led by Robert R. Johnson, vice president, who
has been on the team since the fund's inception and has been at J.P. Morgan
since 1988, Daniel B. Mulvey, vice president, who joined the team in January of
1995 and has been at J.P. Morgan since 1991, and by John Donohue, vice
president, who has been on the team since joining J.P. Morgan in June of 1997.
Prior to managing this fund, Mr. Donohue was an Institutional Money Market
Portfolio Manager at Goldman Sachs & Co.
- --------------------------------------------------------------------------------
BEFORE YOU INVEST
Investors considering these funds should understand that:
o There is no assurance that these funds will meet their investment goals
o These funds do not represent complete investment programs
4 | J.P. MORGAN FEDERAL MONEY MARKET FUND
<PAGE>
PERFORMANCE (unaudited)
The bar chart and table shown below indicate the risks of investing in J.P.
Morgan Federal Money Market Fund.
The bar chart indicates the risks by showing changes in the performance of the
fund's shares from year to year for each of the last five calendar years.
The table indicates the risks by showing how the fund's average annual returns
for the past one year, five years and life of the fund compared to those of the
IBC's U.S. Government and Agency Money Market Fund Average. This is an average
of all major U.S. government and agency money market fund returns.
The fund's past performance does not necessarily indicate how the fund will
perform in the future.
Year-by-year total return (%) Shows changes in returns by calendar year(1,2)
- --------------------------------------------------------------------------------
1994 1995 1996 1997 1998
6% 5.59 5.18
3.78 4.99
3%
0%
- --------------------------------------------------------------------------------
[ ] J.P. Morgan Federal Money Market Fund
For the period covered by this year-by-year total return chart, the fund's
highest quarterly return was xx% (for the quarter ended xx/xx/xx); and the
lowest quarterly return was xx% (for the quarter ended xx/xx/xx).
PERFORMANCE (unaudited)
Average annual total return (%) Shows performance over time, for period ended
December 31, 1998(1)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Past 1 yr. Past 5 yrs. Life of fund
<S> <C> <C> <C>
J.P. Morgan Federal Money Market Fund (after expenses) __.__ __.__ __.__
- ----------------------------------------------------------------------------------------------------------------------
IBC's U.S. Government and Agency Money Market Fund Average (after expenses) __.__ __.__ __.__
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
The expenses of the fund are shown at right. The fund has no sales, redemption,
exchange, or account fees, although some institutions may charge you a fee for
shares you buy through them. The annual fund expenses are deducted form fund
assets prior to performance calculations.
Annual fund operating expenses(3) (%)
(expenses that are deducted from fund assets)
Management fees 0.20
Marketing (12b-1) fees None
Other expenses(4) __.__
- --------------------------------------------------------------------------------
Total operating expenses(4) __.__
- --------------------------------------------------------------------------------
Expense example
The example below is intended to help you compare the cost of investing in the
fund with the cost of investing in other mutual funds. The example assumes:
$10,000 initial investment, 5% return each year, total operating expenses
unchanged, and all shares sold at the end of each time period. The example is
for comparison only; the fund's actual return and your actual costs may be
higher or lower.
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($) ___ ___ ___ ___
- --------------------------------------------------------------------------------
(1) The fund commenced operations on 1/4/93. Returns reflect performance of the
fund from 1/31/93.
(2) The fund's fiscal year end is 10/31.
(3) The fund has a master/feeder structure as described on page 13. This table
shows the fund's expenses for the past fiscal year, before reimbursement,
expressed as a percentage of the fund's average net assets.
(4) After reimbursement, other expenses and total operating expenses are xx% and
0.55%, respectively. This reimbursement can be changed or terminated at any
time at the option of J.P. Morgan.
J.P. MORGAN FEDERAL MONEY MARKET FUND | 5
<PAGE>
J.P. MORGAN TAX EXEMPT
MONEY MARKET FUND TICKER SYMBOL: PPTXX
- --------------------------------------------------------------------------------
REGISTRANT: J.P. MORGAN FUNDS
(J.P. MORGAN TAX EXEMPT MONEY MARKET FUND)
[GRAPHIC GOAL
OMITTED] The fund's goal is to maximize current income that is exempt from
federal income tax consistent with the preservation of capital and same-day
liquidity. This goal can be changed without shareholder approval.
[GRAPHIC INVESTMENT APPROACH
OMITTED] The fund invests primarily in high quality municipal obligations
whose income is exempt from federal income taxes. The fund's municipal
obligations must fall into the highest short-term rating category (top two
highest categories for New York State obligations) or be of equivalent quality.
The fund may also invest in certain structured municipal obligations, and in
certain municipal or other obligations whose income is subject to tax, including
the alternative minimum tax. Although the fund is permitted to hold these other
obligations or cash, it aims to be fully invested in municipal obligations. In
order to maintain liquidity, the fund may buy securities with puts that allow
the fund to liquidate the securities on short notice. Some of the fund's
securities may be purchased on a when-issued or delayed delivery basis.
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 9.
As with all money market funds, the fund's investments are subject to various
risks, which, while generally considered to be minimal, could cause its share
price to fall below $1. For example, the issuer or guarantor of a portfolio
security or the counterparty to a contract could default on its obligation. An
unexpected rise in interest rates could also lead to a loss in share price if
the fund is near the maximum allowable average weighted maturity at the time.
However, the fund's investment process and management policies are designed to
minimize the likelihood and impact of these risks. To date, through this
process, the fund's share price has never deviated from $1.
The fund's income is generally exempt from federal income taxes. A small portion
may be exempt from state or local income taxes.
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 governement
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.
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages
approximately $275 billion, including more than $12 billion using the same
strategy as the fund.
The portfolio management team is led by Daniel B. Mulvey, vice president, who
has been on the team since August of 1995 and has been at J.P. Morgan since
1991, and by Richard W. Oswald, vice president, who has been on the team since
joining J.P. Morgan in October of 1996. Prior to managing this fund, Mr. Oswald
served as Treasurer of CBS and President of its finance unit.
- --------------------------------------------------------------------------------
BEFORE YOU INVEST
Investors considering these funds should understand that:
o There is no assurance that these funds will meet their investment goals
o These funds do not represent complete investment programs
6 | J.P. MORGAN TAX EXEMPT MONEY MARKET FUND
<PAGE>
PERFORMANCE (unaudited)
The bar chart and table shown below indicate the risks of investing J.P. Morgan
Tax Exempt Money Market Fund.
The bar chart indicates the risks by showing changes in the performance of the
fund's shares from year to year for each of the last ten calendar years.
The table indicates the risks by showing how the fund's average annual returns
for the past on year, five years, ten years, and life of the fund compare to
those of the IBC's Tax Exempt Money Market Fund Average. This is an average of
all major tax free money market fund returns.
The 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)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
9%
6% 6.11
5.58 4.16 2.71 3.52
3% 3.12 3.26
2.04 2.50
0%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
[ ] J.P. Morgan Tax Exempt Money Market Fund
For the period covered by this year-by-year total return chart, the fund's
highest quarterly return was xx% (for the quarter ended xx/xx/xx); and the
lowest quarterly return was xx% (for the quarter ended xx/xx/xx).
PERFORMANCE (unaudited)
Average annual total return (%) Shows performance over time, for periods ended
December 31, 1998(1)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Past 1 yr. Past 5 yrs. Past 10 yrs. Life of fund
<S> <C> <C> <C> <C>
J.P. Morgan Tax Exempt Money Market Fund __.__ __.__ __.__ __.__
- ------------------------------------------------------------------------------------------------------------------------
IBC's Tax Exempt Money Market Fund Average (after expenses) __.__ __.__ __.__ __.__
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
The expenses of the fund are shown at right. The fund has no sales, redemption,
exchange, or account fees, although some institutions may charge you a fee for
shares you buy through them. The annual fund expenses are deducted form fund
assets prior to performance calculations.
Annual fund operating expenses(3) (%)
(expenses that are deducted from fund assets)
Management fees 0.16
Marketing (12b-1) fees None
Other expenses __.__
- --------------------------------------------------------------------------------
Total operating expenses __.__
- --------------------------------------------------------------------------------
Expense example
The example below is intended to help you compare the cost of investing
in the fund with the cost of investing in other mutual funds. The example
assumes: $10,000 initial investment, 5% return each year, total operating
expenses unchanged, and all shares sold at the end of each time period. The
example is for comparison only; the fund's actual return and your actual costs
may be higher or lower.
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($) ___ ___ ___ ___
- --------------------------------------------------------------------------------
(1) The fund commenced operations on 7/12/93. Returns reflect performance of the
Pierpont Tax Exempt Money Market Fund, the fund's predecessor, prior to that
date.
(2) The fund's fiscal year end is 8/31.
(3) The fund has a master/feeder structure as described on page 13. This table
shows the fund's expenses and its share of master portfolio expenses for the
past fiscal year, expressed as a percentage of the fund's average net
assets.
J.P. MORGAN TAX EXEMPT MONEY MARKET FUND | 7
<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 300 analysts and portfolio managers
around the world and has approximately $275 billion in assets under management,
including assets managed by the funds' advisor, J.P. Morgan Investment
Management Inc.
J.P. MORGAN MONEY MARKET FUNDS
Each of these funds invests in high-quality short-term debt securities by
investing through a master portfolio (another fund with the same goal). Each
fund accrues dividends daily, pays them to shareholders monthly, and seeks to
maintain a stable $1 share price.
THE SPECTRUM OF MONEY MARKET FUNDS
The funds described in this prospectus differ primarily in the types of
securities they hold and in the tax status of the income they offer. The table
below provides an overview of the main types of securities in which each fund
may invest. The distinguishing features of each money market fund are described
in more detail on the following pages.
- --------------------------------------------------------------------------------
WHO MAY WANT TO INVEST
The funds are designed for investors who:
o want an investment that strives to preserve capital
o want regular income from a high quality portfolio
o want a highly liquid investment
o are looking for an interim investment
o are pursuing a short-term goal
o are seeking income that is generally exempt from state and local income
taxes (in the case of Federal Money Market Fund) or exempt from federal
income tax (in the case of Tax Exempt Money Market Fund)
The funds are not designed for investors who:
o are investing for long-term growth
o are investing for high income
o require the added security of the FDIC insurance
o in the case of Tax Exempt Money Market Fund, are investing through an IRA or
other tax-advantaged retirement plan
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.
<PAGE>
Primary investments
- --------------------------------------------------------------------------------
Prime Federal Tax Exempt
Money Money Money
Market Market Market
- --------------------------------------------------------------------------------
U.S.
Treasuries* o o
- --------------------------------------------------------------------------------
U.S.
Government
Agency
instruments o o
- --------------------------------------------------------------------------------
Domestic
& foreign
bank
obligations o
- --------------------------------------------------------------------------------
Domestic
& foreign
short-term
corporate
obligations o
- --------------------------------------------------------------------------------
Foreign
governments o
- --------------------------------------------------------------------------------
Illiquid
holdings o
- --------------------------------------------------------------------------------
Repurchase
agreements o
- --------------------------------------------------------------------------------
Tax-exempt
municipal
obligations** o
- --------------------------------------------------------------------------------
* Income is generally exempt from state and local income taxes
** Income is generally exempt from federal income taxes
8 |
<PAGE>
- --------------------------------------------------------------------------------
MONEY MARKET INVESTMENT PROCESS
While each fund follows its own strategy, the funds as a group share a single
investment philosophy. This philosophy, developed by the funds' advisor,
emphasizes investment quality through in-depth research of short-term securities
and their issuers. This allows each 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 funds described in this prospectus, J.P. Morgan employs a
three-step process:
[GRAPHIC OMITTED]
J.P. Morgan uses a disciplined process
to control each fund's sensitivity
to interest rates
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 weighted average maturity for each
fund within the permissible 90-day range. Controlling weighted average maturity
allows the funds to manage risk, since securities with shorter maturities are
typically less sensitive to interest rate shifts than those with longer
maturities.
[GRAPHIC OMITTED]
The funds invest across different
sectors for diversification and to
take advantage of yield spreads
Sector allocation Analysis of the yields available in different sectors of the
short-term debt market allows J.P. Morgan to adjust each fund's sector
allocation, with the goal of enhancing current income while also maintaining
diversification across permissible sectors.
[GRAPHIC OMITTED]
Each fund selects its securities as
described later in this prospectus
Security selection Based on the results of the firm's credit research and each
fund's maturity determination and sector allocation, the portfolio managers and
dedicated fixed-income traders make buy and sell decisions according to each
fund's goal and strategy.
| 9
<PAGE>
YOUR INVESTMENT
- --------------------------------------------------------------------------------
For your convenience, the J.P. Morgan Funds offer several ways to start and add
to fund investments.
INVESTING THROUGH A FINANCIAL PROFESSIONAL
If you work with a financial professional, either at J.P. Morgan or elsewhere,
he or she is prepared to handle your planning and transaction needs. Your
financial professional will be able to assist you in establishing your find
account, executing transactions, and monitoring your investment. If your fund
investment is not held in the name of your financial professional and you prefer
to place a transaction order yourself, please use the instructions for investing
directly.
INVESTING THROUGH AN EMPLOYER-SPONSORED RETIREMENT PLAN
Your fund investments are handled through your plan. Refer to your plan
materials or contact your benefits office for information on buying, selling, or
exchanging fund shares.
INVESTING THROUGH AN IRA OR ROLLOVER IRA
Please contact a J.P. Morgan Retirement Services Specialist at 1-888-576-4472
for information on J.P. Morgan's comprehensive IRA services, including lower
minimum investments.
INVESTING DIRECTLY
Investors may establish accounts without the help of an intermediary by using
the instructions below and at right:
o Determine the amount you are investing. The minimum amount for initial
investments in a fund is $2,500 and for additional investments $500, although
these minimums may be less for some investors. For more information on minimum
investments, call 1-800-521-5411.
o Complete the application, indicating how much of your investment you want to
allocate to which fund(s). Please apply now for any account privileges you may
want to use in the future, in order to avoid the delays associated with adding
them later on.
o Mail in your application, making your initial investment as shown below.
For answers to any questions, please speak with a J.P. Morgan Funds Services
Representative at 1-800-521-5411.
OPENING YOUR ACCOUNT
By wire
o Mail your completed application to the Shareholder Services Agent.
o Call the Shareholder Services Agent to obtain an account number and to place a
purchase order. Funds that are wired without a purchase order will be returned
uninvested.
o After placing your purchase order, instruct your bank to wire the amount of
your investment to:
State Street Bank & Trust Company
Routing number: 021-000-238
Credit: J.P. Morgan Funds
Account number: 001-57-689
FFC: your account number, name of registered owner(s) and fund name
By check
o Make out a check for the investment amount payable to J.P. Morgan Funds.
o Mail the check with your completed application to the Transfer Agent.
By exchange
o Call the Shareholder Services Agent to effect an exchange.
<PAGE>
ADDING TO YOUR ACCOUNT
By wire
o Call the Shareholder Services Agent to place a purchase order. Funds that are
wired without a purchase order will be returned uninvested.
o Once you have placed your purchase order, instruct your bank to wire the
amount of your investment as described above.
By check
o Make out a check for the investment amount payable to J.P. Morgan Funds.
o Mail the check with a completed investment slip to the Transfer Agent. If you
do not have an investment slip, attach a note indicating your account number
and how much you wish to invest in which fund(s).
By exchange
o Call the Shareholder Services Agent to effect an exchange.
10 | YOUR INVESTMENT
<PAGE>
- --------------------------------------------------------------------------------
SELLING SHARES
By phone -- wire payment
o Call the Shareholder Services Agent to verify that the wire redemption
privilege is in place on your account. If it is not, a representative can help
you add it.
o Place your wire request. If you are transferring money to a non-Morgan
account, you will need to provide the representative with the personal
identification number (PIN) that was provided to you when you opened your fund
account.
By phone -- check payment
o Call the Shareholder Services Agent and place your request. Once your request
has been verified, a check for the net amount, payable to the registered
owner(s), will be mailed to the address of record. For checks payable to any
other party or mailed to any other address, please make your request in
writing (see below).
In writing
o Write a letter of instruction that includes the following information: The
name of the registered owner(s) of the account; the account number; the fund
name; the amount you want to sell; and the recipient's name and address or
wire information, if different from those of the account registration.
o Indicate whether you want the proceeds sent by check or by wire.
o Make sure the letter is signed by an authorized party. The Shareholder
Services Agent may require additional information, such as a signature
guarantee.
o Mail the letter to the Shareholder Services Agent.
By exchange
o Call the Shareholder Services Agent to effect an exchange.
Redemption in kind
o Each fund reserves the right to make redemptions of over $250,000 in
securities rather than in cash.
ACCOUNT AND TRANSACTION POLICIES
Telephone orders The funds accept telephone orders from all shareholders. To
guard against fraud, the funds require shareholders to use a PIN, and may record
telephone orders or take other reasonable precautions. However, if a fund does
take such steps to ensure the authenticity of an order, you may bear any loss if
the order later proves fraudulent.
Exchanges You may exchange shares in these funds for shares in any other J.P.
Morgan or J.P. Morgan Institutional mutual fund at no charge (subject to the
securities laws of your state). When making exchanges, it is important to
observe any applicable minimums. Keep in mind that, for tax purposes, an
exchange is considered a sale. A fund may alter, limit, or suspend its exchange
policy at any time.
Business days and NAV calculations The funds' regular business days are the same
as those of the New York Stock Exchange. The funds calculate their net asset
value per share (NAV) every business day at 4:00 p.m. (5:00 p.m. for Prime Money
Market Fund) 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
each fund must be received by the times indicated in the table below:
Fund Cut-off Time
Prime Money Market 5:00 p.m.
Federal Money Market 2:00 p.m.
Tax Exempt Money Market 12:00 noon
For the purchase to be effective and dividends to be earned on the same day,
immediately available funds must be received by 4:00 p.m. (5:00 p.m. for Prime
Money Market Fund) eastern time on a fund business day. A fund
Transfer Agent Shareholder Services Agent
State Street Bank and Trust Company J.P. Morgan Funds Services
P.O. Box 8411 522 Fifth Avenue
Boston, MA 02266-8411 New York, NY 10036
Attention: J.P. Morgan Funds Services 1-800-521-5411
Representatives are available 8:00 a.m. to 5:00 p.m. eastern time on fund
business days.
YOUR INVESTMENT | 11
<PAGE>
has the right to suspend redemption of shares and to postpone payment of
proceeds for up to seven days or as permitted by law.
Timing of settlements When you buy shares, you will become the owner of record
when a fund receives your payment.
Redemption orders for each fund received by the respective cut-off times 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 funds send monthly account statements as well as
confirmations after each purchase or sale of shares (except reinvestments).
Every six months, each 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 funds earn
dividends on the business day their purchase is effective, but not on the
business day their redemption is effective.
Dividends and distributions are reinvested in additional fund shares.
Alternatively, you may instruct your financial professional or J.P. Morgan Funds
Services to have them sent to you by check, credited to a separate account, or
invested in another J.P. Morgan Fund.
TAX CONSIDERATIONS
In general, selling shares, exchanging shares, and receiving distributions
(whether reinvested or taken in cash) are all taxable events. The transactions
below typically create the following tax liabilities:
- --------------------------------------------------------------------------------
Transaction Tax status
Income dividends from Prime Ordinary income
Money Market and Federal
Money Market Funds
- --------------------------------------------------------------------------------
Income dividends from Tax Exempt from federal
Exempt Money Market Fund income taxes
- --------------------------------------------------------------------------------
Short-term capital gains Ordinary income
distributions
- --------------------------------------------------------------------------------
Every January, each fund issues tax information on its distributions for the
previous year.
Any investor for whom a 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.
12 | YOUR INVESTMENT
<PAGE>
FUND DETAILS
- --------------------------------------------------------------------------------
MASTER/FEEDER STRUCTURE
As noted earlier, each 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.)
Each master portfolio accepts investments from other feeder funds, and all the
feeders of a given 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 1-800-521-5411. 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.
Each feeder 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. Each 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 feeder funds described in this prospectus and their corresponding master
portfolios 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 receives the following fees for investment advisory and other
services:
Advisory services 0.20% of the first $1 billion of
each master portfolio's average
net assets plus 0.10% over
$1 billion
Administrative services Master portfolio's and fund's
(fee shared with Funds pro-rata portions of 0.09% of
Distributor, Inc. the first $7 billion in J.P.
Morgan-advised portfolios,
plus 0.04% over $7 billion
Shareholder services 0.25% of the each fund's average
net assets
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.
Year 2000 Fund operations and shareholders could be adversely affected if the
computer systems used by J.P. Morgan, the funds' other service providers and
other entities with computer systems linked to the funds do not properly process
and calculate January 1, 2000 and after date-related information. J.P. Morgan is
working to avoid these problems and to obtain assurances from other service
providers that they are taking similar steps. However, it is not certain that
these actions will be sufficient to prevent these date-related problems from
adversely impacting fund operations and shareholders. In addition, to the extent
that operations of issuers of securities held by the funds are impaired by
date-related problems or prices of securities decline as a result of real or
perceived date-related problems of issuers held by the funds or generally, the
net asset value of the fund will decline.
FUND DETAILS | 13
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The financial tables are intended to help you understand each fund's financial
performance for the past one through five fiscal years or periods, as
applicable. Certain information reflects financial results for a single fund
share. The total returns in the tables represent the rate that an investor would
have earned (or lost) on an investment in a fund (assuming reinvestment of all
dividends are distributions). Except where noted, this information has been
audited by PricewatershouseCoopers LLP, whose reports, along with each fund's
financial statements, are included in the respective fund's annual report, which
are available upon request.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
J.P. MORGAN PRIME MONEY MARKET FUND
Per-share data For fiscal periods ended November 30
- --------------------------------------------------------------------------------------------------------------------------
1994(1) 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 1.00 1.00 1.00 1.00 x.xx
- --------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.0367 0.0557 0.0509 0.0524 x.xxxx
Net realized gain (loss)
on investment ($) (0.0000)(2) 0.0005 0.0001 (0.0000)(2) (x.xxxxxx)
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations ($) 0.0367 0.0562 0.0510 0.0524 x.xxxx
- --------------------------------------------------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) (0.0367) (0.0557) (0.0509) (0.0524) (x.xxxx)
Net realized gain ($) -- -- (0.0005) (0.0003) (x.xxxx)
- --------------------------------------------------------------------------------------------------------------------------
Total distributions ($) (0.0367) (0.0557) (0.0514) (0.0527) (x.xxxx)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year ($) 1.00 1.00 1.00 1.00 x.xx
- --------------------------------------------------------------------------------------------------------------------------
Total return (%) 3.73 5.71 5.27 5.40 x.xx
- --------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------------------------------------------------
Net assets, end of year ($ millions) 2,004 2,153 2,155 2,318 x,xxx
- --------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Expenses (%) 0.43 0.41 0.40 0.38 x.xx
- --------------------------------------------------------------------------------------------------------------------------
Net investment income (%) 3.64 5.56 5.09 5.25 x.xx
- --------------------------------------------------------------------------------------------------------------------------
Decrease reflected in expense ratio due
to expense reimbursement (%) 0.01 0.00(3) 0.00(3) -- x.xx
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The fund commenced operations on 7/12/93.
(2) Less than $0.0001.
(3) Less than 0.01%.
14 | J.P. MORGAN FEDERAL MONEY MARKET FUND
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
J.P. MORGAN FEDERAL MONEY MARKET FUND
Per-share data For fiscal periods ended October 31
- --------------------------------------------------------------------------------------------------------------------------
1994(1) 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ($) 1.00 1.00 1.00 1.00 x.xx
- --------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.0333 0.0536 0.0489 0.0501 x.xxxx
Net realized gain (loss)
on investment ($) (0.0000)(2) 0.0004 0.0006 0.0001 (x.xxxx)
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations ($) 0.0333 0.0540 0.0495 0.0502 x.xxxx
- --------------------------------------------------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) (0.0333) (0.0536) (0.0489) (0.0501) (x.xxxx)
Net realized gain ($) (0.0002) -- (0.0003) (0.0005) --
- --------------------------------------------------------------------------------------------------------------------------
Total distributions ($) (0.0335) (0.0536) (0.0492) (0.0506) (x.xxxx)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period ($) 1.00 1.00 1.00 1.00 x.xx
- --------------------------------------------------------------------------------------------------------------------------
Total return (%) 3.41 5.49 5.03 5.17 x.xx
- --------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 118,631 171,120 185,424 239,074 --
- --------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Expenses (%) 0.40 0.40 0.40 0.40 x.xx
- --------------------------------------------------------------------------------------------------------------------------
Net investment income (%) 3.40 5.36 4.89 5.00 x.xx
- --------------------------------------------------------------------------------------------------------------------------
Decrease reflected in expense ratio due
to expense reimbursement (%) 0.22 0.15 0.13 0.12 x.xx
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The fund commenced operations on 1/4/93.
(2) Less than $0.0001.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
J.P. MORGAN TAX-EXEMPT MONEY MARKET FUND
Per-share data For fiscal years ended August 31
- --------------------------------------------------------------------------------------------------------------------------
1994(1) 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 1.00 1.00 1.00 1.00 1.00
- --------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.0212 0.0336 0.0318 0.0314 0.0318
Net realized gain (loss) on investment ($) (0.0000)(2) (0.0002) (0.0000)(2) (0.0000)(2) (0.0000)(2)
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations ($) 0.0212 0.0334 0.0318 0.0314 0.0318
- --------------------------------------------------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) (0.0212) (0.0336) (0.0318) (0.0314) (0.0318)
Net realized gain ($) (0.0000)(2) -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Total distributions ($) (0.0212) (0.0336) (0.0318) (0.0314) (0.0318)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year ($) 1.00 1.00 1.00 1.00 1.00
- --------------------------------------------------------------------------------------------------------------------------
Total return (%) 2.14 3.41 3.23 3.18 3.23
- --------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------------------------------------------------
Net assets, end of year ($ millions) 974 985 1,050 1,103 1,240
- --------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Expenses (%) 0.52 0.51 0.48 0.46 0.43
- --------------------------------------------------------------------------------------------------------------------------
Net investment income (%) 2.10 3.35 3.17 3.13 3.18
- --------------------------------------------------------------------------------------------------------------------------
Decrease reflected in expense ratio due
to expense reimbursement (%) 0.01 0.00(3) -- -- --
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The fund commenced operations on 7/12/93.
(2) Less than $0.0001.
(3) Less than 0.01%.
FOR MORE INFORMATION | 15
<PAGE>
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 a fund's most recently completed fiscal year or
half-year.
Statement of Additional Information (SAI) Provides a fuller technical and legal
description of a 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 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. (1-800-SEC-0330) and may be viewed
on-screen or downloaded from the SEC's Internet site at http://www.sec.gov. The
funds' investment company and 1933 Act registration numbers are:
J.P. Morgan Prime Money Market Fund .....................811-07342 and 033-54632
J.P. Morgan Federal Money Market Fund ...................811-07342 and 033-54632
J.P. Morgan Tax Exempt Money Market Fund ................811-07342 and 033-54632
J.P. MORGAN FUNDS AND
THE MORGAN TRADITION
The J.P. Morgan 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 Funds offer a broad array of distinctive opportunities for mutual fund
investors.
JPMorgan
- --------------------------------------------------------------------------------
J.P. Morgan 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
1-800-521-5411 1-800-221-7930
<PAGE>
MARCH 1, 1999 PROSPECTUS
J.P. Morgan U.S. Equity funds
Disciplined Equity Fund
U.S. Equity Fund
U.S. Small Company Fund
U.S. Small Company Opportunities Fund
Tax Aware U.S. Equity Fund
- --------------------------------------------------------------------------------
Seeking to outperform U.S. stock markets over the long term through a
disciplined management approach
This prospectus contains essential information for anyone investing in these
funds. 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 J.P. MORGAN U.S. EQUITY FUNDS
J.P. Morgan Disciplined Equity Fund ........................... 2
J.P. Morgan U.S. Equity Fund .................................. 4
J.P. Morgan U.S. Small Company Fund ........................... 6
J.P. Morgan U.S. Small Company Opportunities Fund ............. 8
J.P. Morgan Tax Aware U.S. Equity Fund ........................10
Principles and techniques common
to the funds in this prospectus
12 U.S. EQUITY MANAGEMENT APPROACH
J.P. Morgan ...................................................12
J.P. Morgan U.S. equity funds .................................12
The spectrum of U.S. equity funds .............................12
Who may want to invest ........................................12
U.S. equity investment process ................................13
Tax aware investing at J.P. Morgan ............................13
Each fund's goal, investment approach, risks, expenses, performance, and
financial highlights
14 YOUR INVESTMENT
Investing through a financial professional ....................14
Investing through an employer-sponsored retirement plan .......14
Investing through an IRA or rollover IRA ......................14
Investing directly ............................................14
Opening your account ..........................................14
Adding to your account ........................................14
Selling shares ................................................15
Account and transaction policies ..............................15
Dividends and distributions ...................................16
Tax considerations ............................................16
Investing in the J.P. Morgan
U.S. Equity Funds
17 FUND DETAILS
Business structure ............................................17
Management and administration .................................17
Risk and reward elements ......................................18
Financial Highlights ..........................................20
More about risk and the funds'
business operations
FOR MORE INFORMATION ..................................back cover
<PAGE>
J.P. MORGAN DISCIPLINED EQUITY FUND ticker symbol: jpeqx
- --------------------------------------------------------------------------------
Registrant: J.P. morgan Funds
(J.P. MorGAn Disciplined Equity Fund)
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 18-19.
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.
INVESTMENT APPROACH
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 13.) Therefore, the fund tends to own a
larger number of stocks within the S&P 500 than the U.S. Equity Fund or the Tax
Aware U.S. Equity Fund.
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.
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.
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.
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages over $275
billion, including more than $13 billion using the same strategy as the fund.
The portfolio management team is led by James C. Wiess and Timothy J. Devlin,
both vice presidents, who have been on the team since the fund's inception.
Mr. Wiess has been at J.P. Morgan since 1992, and prior to managing this fund
managed other structured equity portfolios for J.P. Morgan. 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.
- --------------------------------------------------------------------------------
BEFORE YOU INVEST
Investors considering the fund should understand that:
o There is no assurance that the fund will meet its investment goal.
o The fund does not represent a complete investment program.
2 J.P. MORGAN DISCIPLINED EQUITY FUND
<PAGE>
- --------------------------------------------------------------------------------
Performance (unaudited)
The bar chart and table shown below indicate the risks of investing in J.P.
Morgan Disciplined Equity Fund.
The bar chart indicates the risks by showing the performance of the fund's
shares for the last calendar year.
The table indicates the risks by showing how the fund's average annual returns
for the past year and for the life of the fund 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 fund's past performance does not necessarily indicate how the fund will
perform in the future.
Year-by-year total return (%) Shows changes in returns by calendar year(1,2)
1998
20%
- --------------------------------------------------------------------------------
10%
- --------------------------------------------------------------------------------
0%
- --------------------------------------------------------------------------------
(10%)
- --------------------------------------------------------------------------------
o J.P. Morgan Disciplined Equity Fund
For the period covered by this year-by-year total return chart, the fund's
highest quarterly return was xxxx% (for the quarter ended x/xx/xx); and the
lowest quarterly return was (for the quarter ended).
Average annual total return (%) Shows performance over time, for periods
ended December 31, 1998(1)
- --------------------------------------------------------------------------------
Past 1 yr. Life of fund
J.P. Morgan Disciplined Equity Fund (after expenses)
- --------------------------------------------------------------------------------
S&P 500 Index (no expenses)
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
The expenses of the fund are shown at right. The fund has no sales, redemption,
exchange, or account fees, although some institutions may charge you a fee for
shares you buy through them. The annual fund expenses are deducted from fund
assets prior to performance calculations.
Annual fund operating expenses(3) (%)
(expenses that are deducted from fund assets)
Management fees 0.35
Marketing (12b-1) fees none
Other expenses(4)
- --------------------------------------------------------------------------------
Total annual fund
operating expenses(4) x.xx
- --------------------------------------------------------------------------------
Expense example
The example below is intended to help you compare the cost of investing in the
fund with the cost of investing in other mutual funds. The example assumes:
$10,000 initial investment, 5% return each year, total operating expenses
unchanged, and all shares sold at the end of each time period. The example is
for comparison only; the fund's actual return and your actual costs may be
higher or lower.
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($)
- --------------------------------------------------------------------------------
(1) The fund commenced operations on 12/31/97.
(2) The fund's fiscal year end is 5/31.
(3) The fund has a master/feeder structure as described on page. This table
shows the fund's expenses and its share of master portfolio expenses for
the past fiscal year before reimbursment, expressed as a percentage of the
fund's average net assets.
(4) After reimbursment other expenses and total operating expenses were x.xx %
and x.xx%, respectively. This reimbursment can be changed at any time after
9/30/99 at the option of J.P. Morgan.
J.P. MORGAN DISCIPLINED EQUITY FUND 3
<PAGE>
J.P. MORGAN U.S. EQUITY FUND ticker symbol: PPEQX
- --------------------------------------------------------------------------------
Registrant: J.P. Morgan Funds
(J.P. Morgan U.S. equity Fund)
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 18-19.
GOAL
The fund's goal is to provide high total return from a portfolio of selected
equity securities. This goal can be changed without shareholder approval.
INVESTMENT APPROACH
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 Standard
& Poor's 500 Stock Index (S&P 500). The fund can moderately underweight or
overweight industries when it believes it will benefit performance.
Within each industry, the fund focuses on those stocks that are ranked as most
undervalued according to the investment process described on page 13. The fund
generally considers selling stocks that appear overvalued.
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.
By emphasizing undervalued stocks, the fund seeks to produce returns that exceed
those of the S&P 500. At the same time, by controlling the industry weightings
of the fund so they can differ only moderately from the industry weightings of
the S&P 500, the fund seeks to limit its volatility to that of the overall
market, as represented by this index.
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.
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages over $275
billion, including more than $12.5 billion using the same strategy as the fund.
The portfolio management team is led by William M. Riegel, Jr., managing
director, who has been on the team since 1993 and has been at J.P. Morgan since
1979, and Henry D. Cavanna, managing director, who joined the team in February
of 1998, and has been at J.P. Morgan since 1971. Both served as managers of U.S.
equity portfolios prior to managing the fund.
- --------------------------------------------------------------------------------
Before you invest
Investors considering the fund should understand that:
o There is no assurance that the fund will meet its investment goal.
o The fund does not represent a complete investment program.
4 J.P. MORGAN U.S. EQUITY FUND
<PAGE>
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PERFORMANCE (unaudited)
The bar chart and table shown below indicate the risks of investing in J.P.
Morgan U.S. Equity Fund.
The bar chart indicates the risks by showing changes in the performance of the
fund's shares from year to year for each of the fund's last 10 calendar years.
The table indicates the risks by showing how the fund's average annual returns
for the past one, five and ten years 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 fund's past performance does not necessarily indicate how the fund will
perform in the future.
Year-by-year total return (%) Shows changes in returns by calendar year(1,2)
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- --------------------------------------------------------------------------------
40%
32.48
30% 31.43 34.12 28.41
21.06
20%
10% 10.11
8.73
0%
(10%) 1.38
(0.61)
o J.P. Morgan U.S. Equity Fund
For the period covered by this year-by-year total return chart, the fund's
highest quarterly return was % (for the quarter ended 6/30/85); and the lowest
quarterly return was % (for the quarter ended).
Average annual total return (%) Shows performance over time, for periods ended
December 31, 1998(1)
- --------------------------------------------------------------------------------
Past 1 yr. Past 5 yrs. Past 10 yrs.
- --------------------------------------------------------------------------------
J.P. Morgan U.S. Equity Fund (after expenses)
- --------------------------------------------------------------------------------
S&P 500 Index (no expenses)
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
The expenses of the fund are shown at right. The fund has no sales, redemption,
exchange, or account fees, although some institutions may charge you a fee for
shares you buy through them. The annual fund expenses are deducted from fund
assets prior to performance calculations.
Annual fund operating expenses(3) (%)
(expenses that are deducted from fund assets)
Management fees 0.40
Marketing (12b-1) fees none
Other expenses
- --------------------------------------------------------------------------------
Total annual fund
operating expenses
- --------------------------------------------------------------------------------
Expense example
The example below is intended to help you compare the cost of investing in the
fund with the cost of investing in other mutual funds. The example assumes:
$10,000 initial investment, 5% return each year, total operating expenses
unchanged, and all shares sold at the end of each time period. The example is
for comparison only; the fund's actual return and your actual costs may be
higher or lower.
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($)
- --------------------------------------------------------------------------------
(1) The fund commenced operations on 7/18/93. For the period 1/1/89 through
7/31/93 returns reflect performance of The Pierpont Equity Fund, the
predecessor of the fund.
(2) The fund's fiscal year end is 5/31.
(3) The fund has a master/feeder structure as described on page. This table
shows the fund's expenses and its share of master portfolio expenses for
the past fiscal year, expressed as a percentage of the fund's average net
assets.
J.P. MORGAN U.S. EQUITY FUND 5
<PAGE>
J.P. MORGAN U.S. SMALL COMPANY FUND TICKER SYMBOL: PPCAX
- --------------------------------------------------------------------------------
REGISTRANT: J.P. MORGAN FUNDS
(J.P. MORGAN U.S. SMALL COMPANY FUND)
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 18-19.
GOAL
The fund's goal is to provide high total return from a portfolio of small
company stocks. This goal can be changed without shareholder approval.
INVESTMENT APPROACH
The fund invests primarily in small and medium sized U.S. companies whose market
capitalizations are greater than $110 million and less than $2.5 billion.
Industry by industry, the fund's weightings are similar to those of the Russell
2000 Index. The fund can moderately underweight or overweight industries when it
believes it will benefit performance.
Within each industry, the fund focuses on those stocks that are ranked as most
undervalued according to the process described on page 13. The fund generally
considers selling stocks that appear overvalued or have grown into large-cap
stocks.
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.
Small-cap stocks have historically offered higher long-term growth than
large-cap stocks, and have also involved higher risks. The fund's small-cap
emphasis means it is likely to be more sensitive to economic news and is likely
to fall further in value during broad market downturns. The fund pursues returns
that exceed those of the Russell 2000 Index while seeking to limit its
volatility relative to this index.
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.
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages over $275
billion, including more than $24 billion using the same strategy as the fund.
The portfolio management team is led by Denise Higgins, Candice Eggerss and
Stephen J. Rich, all vice presidents. Ms. Higgins joined the team in January of
1998 and has been with J.P. Morgan since 1994. Prior to managing the fund, Ms.
Higgins served as a balanced and equity portfolio manager and member of the U.S.
asset allocation committee, and prior to 1994, was a mid-to-small cap portfolio
manager at Lord Abbett & Company. Ms. Eggerss has been with J.P. Morgan since
May of 1996 as a member of the U.S. small company portfolio management team and
from June of 1993 to May of 1996 held a similar position with Weiss, Peck and
Greer. Mr. Rich joined the team in January of 1997 and has been at J.P. Morgan
since 1991, and prior to managing the fund held positions in J.P. Morgan's
structured equity and balanced/equity groups.
- --------------------------------------------------------------------------------
Before you invest
Investors considering the fund should understand that:
o There is no assurance that the fund will meet its investment goal.
o The fund does not represent a complete investment program.
6 J.P. MORGAN U.S. SMALL COMPANY FUND
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE (unaudited)
The bar chart and table shown below indicate the risks of investing in J.P.
Morgan U.S. Small Company Fund.
The bar chart indicates the risks by showing changes in the performance of the
fund's shares from year to year for each of the fund's last 10 calendar years.
The table indicates the risks by showing how the fund's average annual returns
for the past one, five and ten years compare to those of the Russell 2000 Index.
This is a widely recognized, unmanaged index of small cap U.S. stocks used as a
measure of overall U.S. small company stock performance.(1)
The fund's past performance does not necessarily indicate how the fund will
perform in the future.
- --------------------------------------------------------------------------------
Year-by-year total return (%) Shows changes in returns by calendar year(2,3)
- --------------------------------------------------------------------------------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
60% 59.59
30% 29.01 31.86
18.98 8.58 20.75 22.75
0% (5.89)
(24.34)
- --------------------------------------------------------------------------------
(30%)
o J.P. Morgan U.S. Small Company Fund
For the period covered by this year-by-year total return chart, the fund's
highest quarterly return was x.xx% (for the quarter ended x/xx/xx); and the
lowest quarterly return was -% (for the quarter ended).
Average annual total return (%) Shows performance over time, for periods ended
December 31, 1998(2)
- --------------------------------------------------------------------------------
Past 1 yr. Past 5 yrs. Past 10 yrs.
- --------------------------------------------------------------------------------
J.P. Morgan Tax Exempt Bond Fund (after expenses)
- --------------------------------------------------------------------------------
Russell 2000 Index (no expenses)
- --------------------------------------------------------------------------------
Russell 2500 Index (no expenses)
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
The expenses of the fund are shown at right. The fund has no sales, redemption,
exchange, or account fees, although some institutions may charge you a fee for
shares you buy through them. The annual fund expenses are deducted from fund
assets prior to performance calculations.
Annual fund operating expenses(4) (%)
(expenses that are deducted from fund assets)
Management fees 0.60
Marketing (12b-1) fees none
Other expenses
- --------------------------------------------------------------------------------
Total annual fund
operating expenses
- --------------------------------------------------------------------------------
<PAGE>
Expense example
The example below is intended to help you compare the cost of investing in the
fund with the cost of investing in other mutual funds. The example assumes:
$10,000 initial investment, 5% return each year, total operating expenses
unchanged, and all shares sold at the end of each time period. The example is
for comparison only; the fund's actual return and your actual costs may be
higher or lower.
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($)
- --------------------------------------------------------------------------------
(1) Effective 3/1/98, the fund's benchmark changed from the Russell 2500 Index,
a widely recognized, unmanaged index used primarily to measure the
performance of small- to medium-cap U.S. stocks, to the Russell 2000 Index,
a widely recognized, unmanaged index used primarly to measure the
performance of small-cap U.S. stocks. The Russell 2000 Index represents the
returns of small-cap stocks only, better captures that universe's
performance and fits more neatly into an investor's asset allocation model.
(2) The fund commenced operations on 7/19/93. For the period 1/1/89 through
7/31/93 returns reflect performance of The Pierpont Capital Appreciation
Fund, the predecessor of the fund.
(3) The fund's fiscal year end is 5/31.
(4) The fund has a master/feeder structure as described on page. This table
shows the fund's expenses and its share of master portfolio expenses for
the past fiscal year, expressed as a percentage of the fund's average net
assets.
J.P. MORGAN U.S. SMALL COMPANY FUND 7
<PAGE>
J.P. MORGAN U.S. SMALL COMPANY TICKER
OPPORTUNITIES FUND SYMBOL: JPSOX
- --------------------------------------------------------------------------------
REGISTRANT: J.P. MORGAN FUNDS
(J.P. MORGAN U.S. SMALL COMPANY
OPPORTUNITIES FUND)
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 18-19.
GOAL
The fund's goal is to provide long-term growth from a portfolio of small
company growth stocks. This goal can be changed without shareholder approval.
INVESTMENT APPROACH
The fund invests primarily in stocks of small U.S. companies whose market
capitalization is greater than $150 million and less than $1.25 billion when
purchased. While the fund holds stocks in many industries to reduce the impact
of poor performance in any one sector, it tends to emphasize industries with
higher growth potential and does not track the sector weightings of the overall
small company stock market.
In searching for companies, the fund combines the approach described on page 13
with a growth-oriented approach that focuses on each company's business
strategies and its competitive environment. The fund seeks to buy stocks when
they are undervalued or fairly valued and are poised for long-term growth.
Stocks become candidates for sale when they appear overvalued or when the
company is no longer a small-cap company, but the fund may also continue to hold
them if it believes further substantial growth is possible.
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.
Small-cap stocks have historically offered higher long-term growth than
medium-or large-cap stocks, and have also involved higher risks. The fund's
small-cap emphasis means it is likely to be more sensitive to economic news and
is likely to fall further in value during broad market downturns. Because the
fund seeks to outperform the Russell 2000 Growth Index while not tracking its
industry weightings, investors should expect higher volatility compared to this
index or to more conservatively managed small-cap funds.
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.
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages over $275
billion, including more than $2.4 billion using the same strategy as the fund.
The portfolio management team is led by Candice Eggerss, vice president, and
Saira Malik, associate. Ms. Eggerss has been with J.P. Morgan since May of 1996
as a member of the U.S. small company portfolio management team, and from June
of 1993 to May of 1996 held a similar position with Weiss, Peck & Greer. Ms.
Malik has been with J.P. Morgan since July of 1995 as a small company equity
analyst and portfolio manager after graduating from the University of Wisconsin
with an M.S. in finance.
- --------------------------------------------------------------------------------
Before you invest
Investors considering the fund should understand that:
o There is no assurance that the fund will meet its investment goal.
o The fund does not represent a complete investment program.
8 J.P. MORGAN U.S. SMALL COMPANY OPPORTUNITIES FUND
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE (unaudited)
The bar chart and table shown below indicate the risks of investing in J.P.
Morgan U.S. Small Company Opportunities Fund.
The bar chart indicates the risks by showing the performance of the fund's
shares for the last calendar year.
The table indicates the risks by showing how the fund's average annual returns
for the past year and for the life of the fund compare to those of the Russell
2000 Growth Index. This is a widely recognized, unmanaged index of small cap
U.S. growth stocks used as a measure of overall U.S. small cap growth stock
performance.
The fund's past performance does not necessarily indicate how the fund will
perform in the future.
Year-by-year total return (%) Shows changes in returns by calendar year(1,2)
- --------------------------------------------------------------------------------
1998
20%
10%
0%
- --------------------------------------------------------------------------------
(10%)
o J.P. Morgan U.S. Small Company Opportunities Fund
For the period covered by this year-by-year total return chart, the fund's
highest quarterly return was (for the quarter ended); and the lowest quarterly
return was - (for the quarter ended).
Average annual total return (%) Shows performance over time, for periods
ended December 31, 1998(1)
- --------------------------------------------------------------------------------
Past 1 yr. Life of fund
J.P. Morgan U.S. Small Company
Opportunities Fund (after expenses)
- --------------------------------------------------------------------------------
Russell 2000 Growth Index (no expenses)
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
The expenses of the fund are shown at right. The fund has no sales, redemption,
exchange, or account fees, although some institutions may charge you a fee for
shares you buy through them. The annual fund expenses are deducted from fund
assets prior to performance calculations.
Annual fund operating expenses(3) (%)
(expenses that are deducted from fund assets)
Management fees 0.60
Marketing (12b-1) fees none
Other expenses
- --------------------------------------------------------------------------------
Total annual fund
operating expenses
- --------------------------------------------------------------------------------
Expense example
The example below is intended to help you compare the cost of investing in the
fund with the cost of investing in other mutual funds. The example assumes:
$10,000 initial investment, 5% return each year, total operating expenses
unchanged, and all shares sold at the end of each time period. The example is
for comparison only; the fund's actual return and your actual costs may be
higher or lower.
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($)
- --------------------------------------------------------------------------------
(1) The fund commenced operations on 6/16/97 and returns reflect performance of
the fund from 6/30/97.
(2) The fund's fiscal year end is 5/31.
(3) The fund has a master/feeder structure as described on page xx. This table
shows the fund's expenses and its share of master portfolio expenses for
the past fiscal year, expressed as a percentage of the fund's average net
assets.
J.P. MORGAN U.S. SMALL COMPANY OPPORTUNITIES FUND 9
<PAGE>
J.P. MORGAN TAX AWARE
U.S. EQUITY FUND TICKER SYMBOL: JPTAX
- --------------------------------------------------------------------------------
REGISTRANT: J.P. MORGAN SERIES TRUST
(J.P. MORGAN TAX AWARE U.S.
EQUITY FUND: SELECT SHARES)
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 18-19.
GOAL
The fund's goal is to provide high after tax total return from a portfolio of
selected equity securities. This goal can be changed without shareholder
approval.
INVESTMENT APPROACH
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 Standard
& Poor's 500 Stock Index (S&P 500). The fund can moderately underweight or
overweight industries when it believes it will benefit performance.
Within each industry, the fund focuses on those stocks that are ranked as most
undervalued according to the investment process described on page 13. The fund
generally considers selling stocks that appear overvalued.
To this investment approach the fund adds the element of tax aware investing.
The fund's tax aware investment strategies are described on page 13.
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.
By emphasizing undervalued stocks, the fund seeks to produce returns that exceed
those of the S&P 500. At the same time, by controlling the industry weightings
of the fund so that they differ only moderately from the industry weightings of
the S&P 500, the fund seeks to limit its volatility to that of the overall
market, as represented by this index. The fund's tax aware strategies may reduce
your capital gains but will not eliminate them. Maximizing after-tax returns may
require trade-offs that reduce pre-tax returns.
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.
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages over $275
billion, including more than $12.5 billion using the same strategy as the fund.
The portfolio management team is led by Terry E. Banet, vice president, and
Gordon B. Fowler, managing director, who have been on the team since the fund's
inception in December of 1996. Ms. Banet has been at J.P. Morgan since 1985, Mr.
Fowler since 1981. Prior to managing this fund, Ms. Banet managed tax aware
accounts and helped develop Morgan's tax aware equity process while Mr. Fowler
was responsible for structured equity products for both the institutional and
the private client markets.
- --------------------------------------------------------------------------------
Before you invest
Investors considering the fund should understand that:
o There is no assurance that the fund will meet its investment goal.
o The fund does not represent a complete investment program.
10 J.P. MORGAN TAX AWARE U.S. EQUITY FUND
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE (unaudited)
The bar chart and table shown below indicate the risks of investing in J.P.
Morgan Tax Aware U.S. Equity Fund.
The bar chart indicates the risks by showing changes in the performance of the
fund's shares from year to year for each of the fund's last 2 calendar years.
The table indicates the risks by showing how the fund's average annual returns
for the past year and the life of the fund compare to those of the S&P 500
Index. This is a widely recognized, unmanaged index of U.S. stocks used as a
measure of overall U.S. stock performance.
The fund's past performance does not necessarily indicate how the fund will
perform in the future.
Year-by-year total return (%) Shows changes in returns by calendar year(1,2)
- --------------------------------------------------------------------------------
1997 1998
40%
30.52
20%
0%
- --------------------------------------------------------------------------------
(20%)
o J.P. Morgan Tax Aware U.S. Equity Fund
For the period covered by this year-by-year total return chart, the fund's
highest quarterly return was x.xx% (for the quarter ended xx/xx/xx) and the
lowest quarterly return was x.xx% (for the quarter ended xx/xx/xx).
Average annual total return (%) Shows performance over time, for periods
ended December 31, 1998(1)
- --------------------------------------------------------------------------------
Past 1 yr. Life of fund
J.P. Morgan Tax Aware U.S. Equity Fund (after expenses)
- --------------------------------------------------------------------------------
S&P 500 Index (no expenses)
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
The expenses of the fund before reimbursement are shown at right. The fund has
no sales, redemption, exchange, or account fees, although some institutions may
charge you a fee for shares you buy through them. The annual fund expenses after
reimbursement are deducted from fund assets prior to performance calculations.
Shareholder transaction expenses(3)
Redemption fees (% of your cash proceeds)
- --------------------------------------------------------------------------------
Shares held for less than one year 1.00
Shares held one year or longer none
Annual expenses (% of fund assets)
- --------------------------------------------------------------------------------
Management fees 0.45
Marketing (12b-1) fees none
Other expenses
- --------------------------------------------------------------------------------
Total operating expenses
- --------------------------------------------------------------------------------
<PAGE>
Expense example
The example below is intended to help you compare the cost of investing in the
fund with the cost of investing in other mutual funds. The example assumes:
$10,000 initial investment, 5% return each year, total operating expenses
(before reimbursement) unchanged, and all shares sold at the end of each time
period. The first number assumes that you continued to hold your shares, the
second that you sold all shares for cash at the end of each time period. The
example is for comparison only; the fund's actual return and your actual costs
may be higher or lower.
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($)
- --------------------------------------------------------------------------------
(1) The fund commenced operations on 12/18/96, and returns reflect performance
of the fund from 12/31/96.
(2) The fund's fiscal year end is 10/31.
(3) This table shows the fund's expenses for the past fiscal year expressed as
a percentage of the fund's average net assets. After reimbursement, other
expenses and total operating expenses were 0.40% and 0.85%, respectively.
This reimbursement arrangement can be changed or terminated at any time at
the option of J.P. Morgan.
J.P. MORGAN TAX AWARE U.S. EQUITY FUND 11
<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 300 analysts and portfolio managers
around the world and has more than $275 billion in assets under management,
including assets managed by the funds' advisor, J.P. Morgan Investment
Management Inc.
J.P. MORGAN U.S. EQUITY FUNDS
These funds invest primarily in U.S. stocks either directly or 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 SPECTRUM OF U.S. EQUITY FUNDS
The funds described in this prospectus pursue a range of goals and offer varying
degrees of risk and potential reward. Differences between these funds include:
o how much emphasis they give to the most undervalued stocks
o how closely they follow the industry weightings of their benchmarks
o how many securities they typically maintain in their portfolios
o the size or market capitalization of the companies in which they invest
o whether they focus on before-tax or after-tax returns
The table below shows degrees of the relative risk and return
that these funds potentially offer. These and other distinguishing features of
each U.S. equity fund are described on the following pages.
- --------------------------------------------------------------------------------
Who May Want To Invest
The funds are 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 funds that seek to outperform the markets in which they each invest
over the long term
o with regard to the Tax Aware Fund, are individuals that could benefit from
a strategy that pursues returns from an after-tax perspective
The funds are not designed for investors who:
o want funds that pursue market trends or focus 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
o with regard to the Tax Aware Fund, are investing through a tax-deferred
account such as an IRAmaster portfolio. The Tax Aware Fund invests directly
in individual securities.
Potential risk and return
The positions of the funds in this graph reflect long-term performance goals
only and are relative, not absolute.
Return
U.S. Small Company Opportunities Fund
U.S. Small Company Fund
Tax Aware U.S. Equity Fund U.S. Equity Fund
Disciplined Equity Fund
Risk
12
<PAGE>
- --------------------------------------------------------------------------------
U.S. EQUITY INVESTMENT PROCESS
The J.P. Morgan U.S. equity funds invest primarily in U.S. stocks. The Tax Aware
Fund does so while seeking to enhance after-tax returns.
While each fund follows its own strategy, the funds as a group share a single
investment philosophy. This philosophy, developed by the funds' advisor, focuses
on stock picking while largely avoiding sector or market-timing strategies.
Also, under normal market conditions, each fund will remain fully invested.
In managing the funds, 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 Each fund buys and sells stocks according to its own policies,
using the research and valuation rankings as a basis. In general, each
management team buys stocks that are identified as undervalued and considers
selling them when they appear overvalued. Along with attractive valuation, the
funds' 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
J.P. Morgan analysts develop proprietary fundamental research
Stocks in each industry are ranked with the help of models
Using research and valuations, each fund's management team chooses stocks for
its fund
- --------------------------------------------------------------------------------
TAX AWARE INVESTING AT J.P. MORGAN
The Tax Aware Fund is designed to reduce, but not eliminate, capital gains
distributions to shareholders. In doing so, the fund sells securities when the
anticipated performance benefit justifies the resulting tax liability. This
strategy often includes holding securities long enough to avoid higher,
short-term capital gains taxes, selling shares with a higher cost basis first,
and offsetting gains realized in one security by selling another security at a
capital loss. The fund is aided in this process by a tax-sensitive optimization
model developed by J.P. Morgan.
The Tax Aware Fund generally intends to pay redemption proceeds in cash; however
it reserves the right at its sole discretion to pay redemptions over $250,000
in-kind as a portfolio of representative stocks rather than cash. An in-kind
redemption payment can shield the fund -- and other shareholders -- from tax
liabilities that might otherwise be incurred. It is not subject to a redemption
fee by the fund. However, the stocks received will continue to fluctuate in
value after redemption and will be subject to brokerage or other transaction
costs when liquidated.
13
<PAGE>
YOUR INVESTMENT
- --------------------------------------------------------------------------------
For your convenience, the J.P. Morgan Funds offer several ways to start and add
to fund investments.
INVESTING THROUGH A FINANCIAL PROFESSIONAL
If you work with a financial professional, either at J.P. Morgan or elsewhere,
he or she is prepared to handle your planning and transaction needs. Your
financial professional will be able to assist you in establishing your fund
account, executing transactions, and monitoring your investment. If your fund
investment is not held in the name of your financial professional and you prefer
to place a transaction order yourself, please use the instructions for investing
directly.
INVESTING THROUGH AN EMPLOYER-SPONSORED RETIREMENT PLAN
Your fund investments are handled through your plan. Refer to your plan
materials or contact your benefits office for information on buying, selling, or
exchanging fund shares.
INVESTING THROUGH AN IRA OR ROLLOVER IRA
Please contact a J.P. Morgan Retirement Services Specialist at 1-888-576-4472
for information on J.P. Morgan's comprehensive IRA services, including lower
minimum investments.
INVESTING DIRECTLY
Investors may establish accounts without the help of an intermediary by using
the instructions below and at right:
o Choose a fund (or funds) and determine the amount you are investing. The
minimum amount for initial investments in a fund is $2,500 and for
additional investments $500, although these minimums may be less for some
investors. For more information on minimum investments, call
1-800-521-5411.
o Complete the application, indicating how much of your investment you want
to allocate to which fund(s). Please apply now for any account privileges
you may want to use in the future, in order to avoid the delays associated
with adding them later on.
o Mail in your application, making your initial investment as shown on the
right.
For answers to any questions, please speak with a J.P. Morgan Funds Services
Representative at 1-800-521-5411.
OPENING YOUR ACCOUNT
By wire
o Mail your completed application to the Shareholder Services Agent.
o Call the Shareholder Services Agent to obtain an account number and to
place a purchase order. Funds that are wired without a purchase order will
be returned uninvested.
o After placing your purchase order, instruct your bank to wire the amount of
your investment to:
State Street Bank & Trust Company
Routing number: 011-000-028
Credit: J.P. Morgan Funds
Account number: 9904-226-9
FFC: your account number, name of registered owner(s) and fund name.
By check
o Make out a check for the investment amount payable to J.P. Morgan Funds
o Mail the check with your completed application to the Transfer Agent.
By exchange
o Call the Shareholder Services Agent to effect an exchange. Adding to your
account
By wire
o Call the Shareholder Services Agent to place a purchase order. Funds that
are wired without a purchase order will be returned uninvested.
o Once you have placed your purchase order, instruct your bank to wire the
amount of your investment as described above.
By check
o Make out a check for the investment amount payable to J.P. Morgan Funds.
o Mail the check with a completed investment slip to the Transfer Agent. If
you do not have an investment slip, attach a note indicating your account
number and how much you wish to invest in which fund(s).
By exchange
o Call the Shareholder Services Agent to effect an exchange.
14 YOUR INVESTMENT
<PAGE>
- --------------------------------------------------------------------------------
SELLING SHARES
By phone -- wire payment
o Call the Shareholder Services Agent to verify that the wire redemption
privilege is in place on your account. If it is not, a representative can
help you add it.
o Place your wire request. If you are transferring money to a non-Morgan
account, you will need to provide the representative with the personal
identification number (PIN) that was provided to you when you opened your
fund account.
By phone -- check payment
o Call the Shareholder Services Agent and place your request. Once your
request has been verified, a check for the net cash amount, payable to the
registered owner(s), will be mailed to the address of record. For checks
payable to any other party or mailed to any other address, please make your
request in writing (see below).
In writing
o Write a letter of instruction that includes the following information: The
name of the registered owner(s) of the account; the account number; the
fund name; the amount you want to sell; and the recipient's name and
address or wire information, if different from those of the account
registration.
o Indicate whether you want the proceeds sent by check or by wire.
o Make sure the letter is signed by an authorized party. The Shareholder
Services Agent may require additional information, such as a signature
guarantee.
o Mail the letter to the Shareholder Services Agent.
By exchange
o Call the Shareholder Services Agent to effect an exchange.
Redemption in kind
o Each fund reserves the right to make redemptions of over 250,000 in
securities rather than in cash.
ACCOUNT AND TRANSACTION POLICIES
Telephone orders The funds accept telephone orders from all shareholders. To
guard against fraud, the funds require shareholders to use a PIN, and may record
telephone orders or take other reasonable precautions. However, if a fund does
take such steps to ensure the authenticity of an order, you may bear any loss if
the order later proves fraudulent.
Exchanges You may exchange shares in these funds for shares in any other J.P.
Morgan or J.P. Morgan Institutional mutual fund at no charge (subject to the
securities laws of your state). When making exchanges, it is important to
observe any applicable minimums. Keep in mind that for tax purposes an exchange
is considered a sale.
A fund may alter, limit, or suspend its exchange policy at any time.
Business days and NAV calculations The funds' regular business days and hours
are the same as those of the New York Stock Exchange (NYSE). Each fund calculate
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). Each 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 and to
postpone payment of proceeds for up to seven days or as permitted by law.
- --------------------------------------------------------------------------------
Transfer Agent Shareholder Services Agent
State Street Bank and Trust Company J.P. Morgan Funds Services
P.O. Box 8411 522 Fifth Avenue
Boston, MA 02266-8411 New York, NY 10036
Attention: J.P. Morgan Funds Services 1-800-521-5411
Representatives are available 8:00 a.m. to 5:00 p.m. eastern
time on fund business days.
YOUR INVESTMENT 15
<PAGE>
- --------------------------------------------------------------------------------
Timing of settlements When you buy shares, you will become the owner of record
when a 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. In-kind
redemptions (described on page 3) will be available as promptly as is feasible.
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 funds send monthly account statements as well as
confirmations after each purchase or sale of shares (except reinvestments).
Every six months each 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), each 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, each 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 for the Disciplined
Equity, U.S. Equity and Tax Aware funds; and twice a year for the U.S. Small
Company and U.S. Small Company Opportunities funds. Each fund typically makes
capital gains distributions, if any, once per year. However, a fund may make
more or fewer payments in a given year, depending on its investment results and
its tax compliance situation. Each 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 or J.P. Morgan Funds
Services to have them sent to you by check, credited to a separate account, or
invested in another J.P. Morgan Fund.
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 a fund is about to declare a long-term capital
gains distribution.
Every January, each fund issues tax information on its distributions for the
previous year.
Any investor for whom a 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.
16 YOUR INVESTMENT
<PAGE>
FUND DETAILS
- --------------------------------------------------------------------------------
BUSINESS STRUCTURE
As noted earlier, each fund (except the Tax Aware 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.)
Each master portfolio accepts investments from other feeder funds, and all the
feeders of a given 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 1-800-521-5411. 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.
Each 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. Each feeder fund's trustees
would then consider whether a fund should hire its own investment adviser,
invest in a different master portfolio, or take other action.
The Tax Aware Fund is a series of J.P. Morgan Series Trust, a Massachusetts
business trust. Information about other series or classes is available by
calling 1-800-521-5411. In the future, the trustees could create other series or
share classes, which would have different expenses.
MANAGEMENT AND ADMINISTRATION
The feeder funds described in this prospectus, their corresponding master
portfolios, and J.P. Morgan Series Trust 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:
Advisory services Percentage of the master portfolio's average net assets
Disciplined Equity 0.35%
U.S. Equity 0.40%
U.S. Small Company 0.60%
U.S. Small Company 0.60%
Opportunities
Administrative services Master portfolio's and fund's pro-
(fee shared with Funds rata portions of 0.09% of the
Distributor, Inc.) first $7 billion in J.P. Morgan-
advised portfolios, plus 0.04% of average
net assets over $7 billion
Shareholder services 0.25% of the fund's average net assets
The Tax Aware Fund, subject to the expense reimbursements described earlier in
this prospectus, pays J.P. Morgan the following fees for investment advisory and
other services:
Advisory services 0.45% of the fund's average net assets
Administrative services Fund's pro-rata portion of 0.09%
(fee shared with Funds of the first $7 billion in
Distributor, Inc.) J.P. Morgan-advised portfolios,
plus 0.04% of average net
assets over $7 billion
Shareholder services 0.25% of the fund's average net assets
J.P. Morgan may pay fees to certain firms and professionals for providing
recordkeeping or other services in connection with investments in a fund. Year
2000 Fund operations and shareholders could be adversely affected if the
computer systems used by J.P. Morgan, the funds' other service providers and
other entities with computer systems linked to the funds do not properly process
and calculate January 1, 2000 and after date-related information. J.P. Morgan is
working to avoid these problems and to obtain assurances from other service
providers that they are taking similar steps. However, it is not certain that
these actions will be sufficient to prevent these problems from adversely
impacting fund operations and shareholders. In addition, to the extent that
operations of issuers of securities held by the funds are impaired by
date-related problems or prices of securities decline as a result of real or
perceived date-related problems of issuers held by the funds or generally, the
net asset value of the funds will decline.
FUND DETAILS 17
<PAGE>
- --------------------------------------------------------------------------------
RISK AND REWARD ELEMENTS
This table discusses the main elements that make up each fund's overall risk and
reward characteristics. It also outlines each fund's policies toward various
securities, including those that are designed to help certain funds manage risk.
Potential risks
Market conditions
o Each fund's share price and performance will fluctuate in response to stock
market movements
o Adverse market conditions may from time to time cause a fund to take
temporary defensive positions that are inconsistent with its principal
investment strategies and may hinder a fund from achieving its investment
objective
Management choices
o A fund could underperform its benchmark due to its securities and asset
allocation choices
Foreign investments
o Currency exchange rate movements could reduce gains or create losses
o A fund could lose money because of foreign government actions, political
instability, or lack of adequate and accurate information
Potential rewards
o Stocks have generally outperformed more stable investments (such as bonds
and cash equivalents) over the long term
o A fund could outperform its benchmark due to these same choices
o Favorable exchange rate movements could generate gains or reduce losses
o Foreign investments, which represent a major portion of the world's
securities, offer attractive potential performance and opportunities for
diversification
Policies to balance risk and reward
o Under normal circumstances the funds plan to remain fully invested, with at
least 65% in stocks; stock investments may include U.S. and foreign common
stocks, convertible securities, preferred stocks, trust or partnership
interests, warrants, rights, and investment company securities
o The funds seek to limit risk through diversification
o During severe market downturns, the funds have the option of investing up
to 100% of assets in investment-grade short-term securities
o J.P. Morgan focuses its active management on securities selection, the area
where it believes its commitment to research can most enhance returns
o Each Fund anticipates that its total foreign investments will not exceed
20% of assets
o Each fund actively manages the currency exposure of its foreign investments
relative to its benchmark, and may hedge back into the U.S. dollar from
time to time (see also "Derivatives")
18 FUND DETAILS
<PAGE>
Potential risks
- --------------------------------------------------------------------------------
Derivatives
o Derivatives such as futures, options, swaps, and forward foreign currency
contracts that are used for hedging the portfolio or specific securities
may not fully offset the underlying positions(1) and this could result in
losses to the fund that would not have otherwise occured
o Derivatives used for risk management may not have 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 funds which can reduce
returns
Illiquid holdings
o A fund could have difficulty valuing these holdings precisely
o A fund could be unable to sell these holdings at the time or price it
desires
When-issued and delayed delivery securities
o When a fund buys securities before issue or for delayed delivery, it could
be exposed to leverage risk if it does not use segregated accounts
Short-term trading
o Increased trading would raise a fund's brokerage and related costs
o Increased short-term capital gains distributions would raise shareholders'
income tax liability
Potential rewards
- --------------------------------------------------------------------------------
o Hedges that correlate well with underlying positions can reduce or
eliminate losses at low cost
o A fund could make money and protect against losses if management's analysis
proves correct
o Derivatives that involve leverage could generate substantial gains at low
cost
o These holdings may offer more attractive yields or potential growth than
comparable widely traded securities
o A fund can take advantage of attractive transaction opportunities
o A fund could realize gains in a short period of time
o A fund could protect against losses if a stock is overvalued and its value
later falls
<PAGE>
Policies to balance risk and reward
- --------------------------------------------------------------------------------
o The funds use derivatives for hedging and for risk management (i.e., to
establish or adjust exposure to particular securities, markets or
currencies); risk management may include management of a fund's exposure
relative to its benchmark (swaps and forward foreign currency contracts are
not permitted to be used by the Tax Aware Fund; the U.S. Small Company
Opportunities Fund is permitted to use derivatives, however, it has no
current intention to do so)
o The funds only establish hedges that they expect will be highly correlated
with underlying positions
o While the funds may use derivatives that incidentally involve leverage,
they do not use them for the specific purpose of leveraging their
portfoliosl
o No fund may invest more than 15% of net assets in illiquid holdings
o To maintain adequate liquidity to meet redemptions, each fund may hold
investment-grade short-term securities (including repurchase agreements)
and, for temporary or extraordinary purposes, may borrow from banks up to
33 1/3% of the value of its assets
o Each fund uses segregated accounts to offset leverage risk
o Each Fund anticipates a portfolio turnover rate of approximately 100%
o The funds generally avoid short-term trading, except to take advantage of
attractive or unexpected opportunities or to meet demands generated by
shareholder activity
(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 19
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The financial tables are intended to help you understand each fund's financial
performance for the past one through five fiscal years or periods, as
applicable. Certain information reflects financial results for a single fund
share. The total returns in the tables represent the rate that an investor would
have earned (or lost) on an investment in a fund (assuming reinvestment of all
dividends are distributions). Except where noted, this information has been
audited by PricewaterhouseCoopers LLP, whose reports, along with each fund's
financial statements, are included in the respective fund's annual report which
are available upon request.
J.P. MORGAN DISCIPLINED EQUITY FUND
Per-share data For fiscal periods ended
5/31/98(1) 11/30/98
(unaudited)
Net asset value, beginning of period ($) 12.98 xx
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) ($) 0.03 xx
Net realized and unrealized gain
on investments ($) 1.96 xx
- --------------------------------------------------------------------------------
Total from investment operations ($) 1.99 xx
- --------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) (0.02) xx
- --------------------------------------------------------------------------------
Total distributions ($) (0.02) xx
- --------------------------------------------------------------------------------
Net asset value, end of period ($) 14.95 xx
- --------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------
Total return (%) 15.33(2) xx
- --------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 18,037 xx
- --------------------------------------------------------------------------------
Ratio to average net assets:
Expenses (%) 0.75(3) xx
- --------------------------------------------------------------------------------
Net investment income (%) 1.00(3) xx
- --------------------------------------------------------------------------------
Expenses without reimbursement (%) 3.28(3) xx
- --------------------------------------------------------------------------------
(1) The fund commenced operations on 12/31/97.
(2) Not annualized.
(3) Annualized.
20 FUND DETAILS
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
J.P. MORGAN U.S. EQUITY FUND
Per-share data For fiscal periods ended
- ------------------------------------------------------------------------------------------------------------------------------
5/31/89 5/31/90 5/31/91 5/31/92 5/31/93 5/31/94 5/31/95
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 12.04 14.54 16.51 18.21 19.02 19.30 19.38
Income from investment operations:
Net investment income ($) 0.46 0.44 0.44 0.37 0.38 0.27 0.32
Net realized and unrealized gain (loss)
on investments ($) 2.49 2.20 1.90 2.13 1.35 1.32 2.17
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations ($) 2.95 2.64 2.34 2.50 1.73 1.59 2.49
- ------------------------------------------------------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) (0.45) (0.44) (0.45) (0.40) (0.36) (0.29) (0.28)
Net realized gains ($) -- (0.23) (0.19) (1.29) (1.09) (1.22) (2.17)
- ------------------------------------------------------------------------------------------------------------------------------
Total distributions ($) (0.45) (0.67) (0.64) (1.69) (1.45) (1.51) (2.45)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year ($) 14.54 16.51 18.21 19.02 19.30 19.38 19.42
- ------------------------------------------------------------------------------------------------------------------------------
Total return (%) 25.12 18.75 14.81 14.60 10.02 8.54 15.11
- ------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year ($ thousands) 27,677 40,032 55,144 109,246 202,474 231,306 259,338
- ------------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Expenses (%) 1.00 0.93 0.91 0.90 0.90 0.90 0.90
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income (%) 3.52 2.97 2.81 2.16 2.20 1.43 1.74
- ------------------------------------------------------------------------------------------------------------------------------
Expenses without reimbursement (%) 1.45 1.34 1.29 1.09 0.98 0.93 0.91
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 18 23 43 99 60 10(1) --
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
J.P. MORGAN U.S. EQUITY FUND
Per-share data For fiscal periods ended
- ------------------------------------------------------------------------------------------
5/31/96 5/31/97 5/31/98 11/30/98
unaudited)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of year ($) 19.42 22.15 24.63 xx
Income from investment operations:
Net investment income ($) 0.38 0.25 0.18 xx
Net realized and unrealized gain (loss)
on investments ($) 4.23 4.72 5.92 xx
- ------------------------------------------------------------------------------------------
Total from investment operations ($) 4.61 4.97 6.10 xx
- ------------------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) (0.29) (0.36) (0.23) xx
Net realized gains ($) (1.59) (2.13) (4.84) xx
- ------------------------------------------------------------------------------------------
Total distributions ($) (1.88) (2.49) (5.07) xx
- ------------------------------------------------------------------------------------------
Net asset value, end of year ($) 22.15 24.63 25.66 xx
- ------------------------------------------------------------------------------------------
Total return (%) 25.18 25.00 28.35 xx
- ------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------
Net assets, end of year ($ thousands) 330,014 362,603 448,144 xx
- ------------------------------------------------------------------------------------------
Ratio to average net assets:
Expenses (%) 0.81 0.80 0.78 xx
- ------------------------------------------------------------------------------------------
Net investment income (%) 1.87 1.13 0.71 xx
- ------------------------------------------------------------------------------------------
Expenses without reimbursement (%) -- -- -- --
- ------------------------------------------------------------------------------------------
Portfolio turnover (%) -- -- -- --
- ------------------------------------------------------------------------------------------
</TABLE>
(1) Portfolio turnover reflects the period 6/1/93 to 7/18/93 and has not been
annualized. In July, 1993 the fund's predecessor contributed all of its
investable assets to The U.S. Equity Portfolio.
FUND DETAILS 21
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
J.P. MORGAN U.S. SMALL COMPANY FUND
Per-share data For fiscal periods ended
- ---------------------------------------------------------------------------------------------------------------------------------
5/31/89 5/31/90 5/31/91 5/31/92 5/31/93 5/31/94 5/31/95
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ($) 12.91 16.83 18.68 17.98 20.03 25.12 21.40
Income from investment operations:
Net investment income (loss)1 ($) (0.03) (0.03) (0.02) (0.04) (0.01) 0.20 0.22
Net realized and unrealized gain
on investment ($) 3.95 1.88 (0.33) 2.09 5.10 0.19 2.13
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations ($) 3.92 1.85 (0.35) 2.05 5.09 0.39 2.35
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income ($) -- -- -- -- -- (0.09) (0.21)
Net realized gain ($) -- -- (0.35) -- -- (4.02) (1.52)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions ($) -- -- (0.35) -- -- (4.11) (1.73)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period ($) 16.83 18.68 17.98 20.03 25.12 21.40 22.02
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Total return (%) 30.36 10.99 (1.90) 11.40 25.41 1.14 12.28
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 42,403 47,921 58,859 97,548 186,887 204,445 179,130
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Expenses (%) 1.00 0.93 0.91 0.90 0.90 0.90 0.90
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (%) (0.23) (0.18) (0.15) (0.25) (0.06) 0.75 1.02
- ---------------------------------------------------------------------------------------------------------------------------------
Expenses without reimbursement (%) 1.36 1.25 1.22 1.03 0.95 1.10 1.12
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 38 66 56 58 50 14(2) --
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
J.P. MORGAN U.S. SMALL COMPANY FUND
Per-share data For fiscal periods ended
- -------------------------------------------------------------------------------------------
5/31/96 5/31/97 5/31/98 11/30/98
(unaudited)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period ($) 22.02 26.20 26.04 xx
Income from investment operations:
Net investment income (loss)1 ($) 0.26 0.18 0.11 xx
Net realized and unrealized gain
on investment ($) 6.96 2.00 5.58 xx
- -------------------------------------------------------------------------------------------
Total from investment operations ($) 7.22 2.18 5.69 xx
- -------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income ($) (0.26) (0.21) (0.14) xx
Net realized gain ($) (2.78) (2.13) (3.91) xx
- -------------------------------------------------------------------------------------------
Total distributions ($) (3.04) (2.34) (4.05) xx
- -------------------------------------------------------------------------------------------
Net asset value, end of period ($) 26.20 26.04 27.68 xx
Ratios and supplemental data
- -------------------------------------------------------------------------------------------
Total return (%) 35.48 9.49 23.37 xx
- -------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 220,917 237,985 261,804 xx
- -------------------------------------------------------------------------------------------
Ratio to average net assets:
Expenses (%) 0.90 0.90 0.97 xx
- -------------------------------------------------------------------------------------------
Net investment income (loss) (%) 1.10 0.71 0.39 xx
- -------------------------------------------------------------------------------------------
Expenses without reimbursement (%) 1.03 1.03 1.03 xx
- -------------------------------------------------------------------------------------------
Portfolio turnover (%) -- -- -- --
- -------------------------------------------------------------------------------------------
</TABLE>
(1) Based on shares outstanding at the beginning and end of each fiscal period
except for the fiscal year ended 5/31/91, where average shares outstanding
were used.
(2) Portfolio turnover reflects the period 6/1/93 to 7/18/93 and has not been
annualized. In July, 1993 the Fund's predecessor contributed all of its
investable assets to The U.S. Small Company Portfolio.
- --------------------------------------------------------------------------------
J.P. MORGAN U.S. SMALL COMPANY OPPORTUNITIES FUND
Per-share data For fiscal period ended
5/31/98(1)
- --------------------------------------------------------------------------------
Net asset value, beginning of period ($) 10.00
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) ($) (0.02)
Net realized and unrealized gain
on investment ($) 2.59
- --------------------------------------------------------------------------------
Total from investment operations ($) 2.57
- --------------------------------------------------------------------------------
Net asset value, end of period ($) 12.57
- --------------------------------------------------------------------------------
Ratios and supplemental data
Total return (%) 25.70(2)
- --------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 188,932
Ratio to average net assets:
- --------------------------------------------------------------------------------
Expenses (%) 1.19(3)
- --------------------------------------------------------------------------------
Net investment income (loss) (%) (0.37)(3)
- --------------------------------------------------------------------------------
Expenses without reimbursement (%) 1.25(3)
- --------------------------------------------------------------------------------
(1) The fund commenced operations on 6/16/97.
(2) Not annualized.
(3) Annualized.
22 FUND DETAILS
<PAGE>
- --------------------------------------------------------------------------------
J.P. MORGAN TAX AWARE U.S. EQUITY FUND
Per-share data For fiscal periods ended
10/31/97(1) 10/31/98
- --------------------------------------------------------------------------------
Net asset value, beginning of period ($) 10.00 xx
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.06 xx
Net realized and unrealized gain
on investments ($) 2.52 xx
- --------------------------------------------------------------------------------
Total from investment operations ($) 2.58 xx
- --------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) (0.01) xx
- --------------------------------------------------------------------------------
Net asset value, end of period ($) 12.57 xx
- --------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------
Total return (%) 25.83(2) xx
- --------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 25,649 xx
- --------------------------------------------------------------------------------
Ratio to average net assets:
Expenses (%) 0.85(3) xz
- --------------------------------------------------------------------------------
Net investment income (%) 0.70(3) xx
- --------------------------------------------------------------------------------
Expenses without reimbursement (%) 2.162 xx
- --------------------------------------------------------------------------------
Portfolio turnover rate (%) 232 xx
- --------------------------------------------------------------------------------
Average broker commissions per share ($) 0.0321 xx
- --------------------------------------------------------------------------------
(1) The fund commenced operations on 12/18/96.
(2) Not annualized.
(3) Annualized.
FUND DETAILS 23
<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 a fund's most recently completed fiscal year or
half-year.
Statement of Additional Information (SAI) Provides a fuller technical and legal
description of a 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 Funds
J.P. Morgan Funds Services
522 Fifth Avenue
New York, NY 10036
Telephone: 1-800-521-5411
Hearing impaired: 1-888-468-4015
Email: [email protected]
Text-only versions of these documents and this prospectus are available, upon
payment of a duplicating fee, from the Public Reference Room of the Securities
and Exchange Commission in Washington, D.C. (1-800-SEC-0330) and may be viewed
on-screen or downloaded from the SEC's Internet site at http://www.sec.gov. Each
fund's investment company and 1933 Act registration numbers are:
J.P. Morgan Disciplined Equity Fund ....................811-07340 and 033-54632
J.P. Morgan U.S. Equity Fund ...........................811-07340 and 033-54632
J.P. Morgan U.S. Small Company Fund ....................811-07340 and 033-54632
J.P. Morgan U.S. Small Company Opportunities Fund ......811-07340 and 033-54632
J.P. Morgan Tax Aware U.S. Equity Fund .................811-07795 and 333-11125
J.P. MORGAN FUNDS AND
THE MORGAN TRADITION
The J.P. Morgan 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 Funds offer a broad array of distinctive opportunities for mutual fund
investors.
J.P. Morgan
- --------------------------------------------------------------------------------
J.P. Morgan 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
Telephone: 1-800-521-5411 1-800-221-7930
REQCP-993
<PAGE>
MARCH 1, 1999
PROSPECTUS
J.P. MORGAN INTERNATIONAL EQUITY FUNDS
International Equity Fund
European Equity Fund
International Opportunities Fund
Emerging Markets Equity Fund
- ----------------------------------------
Seeking high total return primarily from
stocks outside the United States
This prospectus contains essential information for anyone investing in these
funds. 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
- --------------------------------------------------------------------------------
2
Each fund's goal, investment approach,
risks, expenses, performance, and
financial highlights
J.P. MORGAN INTERNATIONAL EQUITY FUNDS
J.P. Morgan International Equity Fund ..........................2
J.P. Morgan European Equity Fund ...............................4
J.P. Morgan International Opportunities Fund ...................6
J.P. Morgan Emerging Markets Equity Fund .......................8
10
Principles and techniques common
to the funds in this prospectus
INTERNATIONAL EQUITY MANAGEMENT APPROACH
J.P. Morgan ...................................................10
J.P. Morgan international equity funds ........................10
The spectrum of international equity funds ....................10
Who may want to invest ........................................10
International equity investment process .......................11
12
Investing in the J.P. Morgan
International Equity Funds
YOUR INVESTMENT
Investing through a financial professional ....................12
Investing through an employer-sponsored retirement plan .......12
Investing through an IRA or rollover IRA ......................12
Investing directly ............................................12
Opening your account ..........................................12
Adding to your account ........................................12
Selling shares ................................................13
Account and transaction policies ..............................13
Dividends and distributions ...................................14
Tax considerations ............................................14
15
More about risk and the funds'
business operations
FUND DETAILS
Master/Feeder structure .......................................15
Management and administration .................................15
Risk and reward elements ......................................16
Financial highlights ..........................................18
FOR MORE INFORMATION ..................................back cover
<PAGE>
J.P. MORGAN INTERNATIONAL
EQUITY FUND TICKER SYMBOL: PPIEX
- --------------------------------------------------------------------------------
REGISTRANT: J.P. MORGAN FUNDS
(J.P. MORGAN INTERNATIONAL EQUITY FUND)
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 16-17.
GOAL
The fund's goal is to provide high total return from a portfolio of foreign
company equity securities. This goal can be changed without shareholder
approval.
INVESTMENT APPROACH
The fund invests primarily in equity securities from developed countries
included in the Morgan Stanley Capital International Europe, Australasia, and
Far East Index (EAFE), which is the fund's benchmark. The fund typically does
not invest in U.S. companies.
The fund's industry weightings generally approximate those of the EAFE Index,
although it does not seek to mirror the index in its choice of individual
securities, and may overweight or underweight countries relative to the EAFE
Index. In choosing stocks, the fund emphasizes those that are ranked as
undervalued according to J.P. Morgan's proprietary research, while
underweighting or avoiding those that appear overvalued. The fund makes its
currency management decisions as described on pages 11 and 16.
The value of your investment in the fund will fluctuate in response to movements
in international stock markets and currency exchange rates. Fund performance
will also depend on the effectiveness of J.P. Morgan's research and the
management team's stock picking and currency management decisions.
In general, international investing involves higher risks than investing in U.S.
markets but offers attractive opportunities for diversification. Foreign markets
tend to be more volatile than those of the U.S., and changes in currency
exchange rates could reduce market performance. To the extent that the fund
hedges its currency exposure into the U.S. dollar, it may reduce the effects of
currency fluctuations. The fund may also hedge from one foreign currency to
another. Foreign stocks are generally riskier than their domestic counterparts.
You should be prepared to ride out periods of underperformance.
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.
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages over $275
billion, including approximately $8 billion using international equity
strategies.
The portfolio management team is led by Paul A. Quinsee, managing director, who
joined the team in April of 1993 and has been at J.P. Morgan since 1992, and by
Nigel F. Emmett, vice president, who has been on the team since joining J.P.
Morgan in August of 1997. Previously, Mr. Emmett was an assistant manager at
Brown Brothers Harriman and Co. and a portfolio manager at Gartmore Investment
Management.
- --------------------------------------------------------------------------------
Before you invest
Investors considering the fund should understand that:
o There is no assurance that the fund will meet its investment goals.
o The fund does not represent a complete investment program.
2 J.P. MORGAN INTERNATIONAL EQUITY FUND
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE (unaudited)
The bar chart and table shown below indicate the risks of investing in J.P.
Morgan International Equity Fund.
The bar chart indicates the risks by showing changes in the performance of the
fund's shares from year to year for each of the last 8 calendar years.
The table indicates the risks by showing how the fund's average annual returns
for the past one and five years and life of the fund compare to those of the
EAFE Index. This is an unmanaged index used to track the average performance of
over 900 securities listed on the stock exchanges of countries in Europe,
Australasia and the Far East.
The fund's past performance does not necessarily indicate how the fund will
perform in the future.
Year-by-year total return (%) Shows changes in returns by calendar year(1,2)
- --------------------------------------------------------------------------------
1991 1992 1993 1994 1995 1996 1997 1998
40%
24.37
20%
0% 10.58 5.65 7.59 8.41 1.17
- --------------------------------------------------------------------------------
(20%) (10.77)
[ ] J.P. Morgan International Equity Fund
For the period covered by this year-by-year total return chart, the fund's
highest quarterly return was xxxx% (for the quarter ended xxxxx); and the lowest
quarterly return was -xxxx% (for the quarter ended xxxxxxx).
Shows performance over time, for periods ended
Average annual total return (%) December 31, 1998(1)
- --------------------------------------------------------------------------------
Past 1 yr. Past 5 yrs. Life of fund
J.P. Morgan International Equity
Fund (after expenses) -- -- --
- --------------------------------------------------------------------------------
EAFE Index (no expenses) -- -- --
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
The expenses of the fund are shown at right. The fund has no sales, redemption,
exchange, or account fees, although some institutions may charge you a fee for
shares you buy through them. The annual fund expenses are deducted from fund
assets prior to performance calculations.
Annual fund operating expenses(3) (%)
(expenses that are deducted from fund assets)
Management fees 0.60
Marketing (12b-1) fees none
Other expenses _._
- --------------------------------------------------------------------------------
Total annual fund
operating expenses _._
- --------------------------------------------------------------------------------
Expense example
The example below is intended to help you compare the cost of investing in the
fund with the cost of investing in other mutual funds. The example assumes:
$10,000 initial investment, 5% return each year, total operating expenses
unchanged, and all shares sold at the end of each time period. The example is
for comparison only; the fund's actual return and your actual costs may be
higher or lower.
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($) -- -- -- --
- --------------------------------------------------------------------------------
(1) The fund commenced operations on 6/1/90 and performance is calculated as of
6/30/90.
(2) The fund's fiscal year end is 10/31.
(3) The fund has a master/feeder structure as described on page 15. This table
shows the fund's expenses and its share of master portfolio expenses for the
past fiscal year expressed as a percentage of the fund's average net assets.
J.P. MORGAN INTERNATIONAL EQUITY FUND 3
<PAGE>
J.P. MORGAN EUROPEAN EQUITY FUND
- --------------------------------------------------------------------------------
REGISTRANT: J.P. MORGAN FUNDS
(J.P. MORGAN EUROPEAN EQUITY FUND)
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 16-17.
GOAL
The fund's goal is to provide high total return from a portfolio of European
company equity securities. This goal can be changed without shareholder
approval.
INVESTMENT APPROACH
The fund invests primarily in equity securities from the 14 countries included
in the Morgan Stanley Capital International (MSCI) Europe Index, which is the
fund's benchmark. The fund typically does not invest in U.S. companies.
The fund focuses on stock picking, emphasizing those stocks that are ranked as
undervalued according to J.P. Morgan's proprietary research, while
underweighting or avoiding those that appear overvalued. The fund generally
keeps its industry weightings similar to those of the MSCI Europe Index,
although it does not seek to mirror the index in its choice of individual
securities. The fund makes its country allocation and currency management
decisions as described on pages 11 and 16.
The value of your investment in the fund will fluctuate in response to movements
in European stock markets and currency exchange rates. Fund performance will
also depend on the effectiveness of J.P. Morgan's research and the management
team's stock picking and currency management decisions.
In general, international investing involves higher risks than investing in U.S.
markets but offers attractive opportunities for diversification. Foreign markets
tend to be more volatile than those of the U.S., and changes in currency
exchange rates could reduce market performance. To the extent that the fund
hedges its currency exposure into the U.S. dollar, it may reduce the effects of
currency fluctuations. The fund may also hedge from one foreign currency to
another. Foreign stocks are generally riskier than their domestic counterparts.
You should be prepared to ride out periods of underperformance.
By emphasizing undervalued stocks, the fund has the potential to outperform the
MSCI Europe Index. At the same time, the fund seeks to limit its volatility to
that of the index.
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.
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages over $275
billion, including more than $5 billion using the same strategy as this fund.
The portfolio management team is led by Paul A. Quinsee, managing director, who
has been at J.P. Morgan since 1992, and by Nigel F. Emmett, vice president, who
has been on the team since February of 1998. Mr. Emmett has been at J.P. Morgan
since August of 1997. Previously, Mr. Emmett was an assistant manager at Brown
Brothers Harriman and Co. and a portfolio manager at Gartmore Investment
Management.
- --------------------------------------------------------------------------------
Before you invest
Investors considering the fund should understand that:
o There is no assurance that the fund will meet its investment goals.
o The fund does not represent a complete investment program.
4 J.P. MORGAN EUROPEAN EQUITY FUND
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE (unaudited)
The bar chart and table shown below indicate the risks of investing in J.P.
Morgan European Equity Fund.
The bar chart indicates the risks by showing changes in the performance of the
fund's shares from year to year for each of the last 2 calendar years.
The table indicates the risks by showing how the fund's average annual returns
for the past one year and life of the fund compare to those of the MSCI Europe
Index. This is an unmanaged index comprised of more than 600 companies in 14
European countries.
The fund's past performance does not necessarily indicate how the
fund will perform in the future.
Year-by-year total return (%) Shows changes in returns by calendar year(1,2)
- --------------------------------------------------------------------------------
1997 1998
40%
20% 22.10
0%
- --------------------------------------------------------------------------------
(20%)
[ ] J.P. Morgan European Equity Fund
For the period covered by this year-by-year total return chart, the fund's
highest quarterly return was xxxx% (for the quarter ended xxxxx); and the lowest
quarterly return was -xxxx% (for the quarter ended xxxxxxx).
Shows performance over time, for periods ended
Average annual total return (%) December 31, 1998(1)
- --------------------------------------------------------------------------------
Past 1 yr. Life of fund
J.P. Morgan European Equity Fund (after expenses) -- --
- --------------------------------------------------------------------------------
MSCI Europe Index (no expenses) -- --
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
The expenses of the fund are shown at right. The fund has no sales, redemption,
exchange, or account fees, although some institutions may charge you a fee for
shares you buy through them. The annual fund expenses are deducted from fund
assets prior to performance calculations.
Annual fund operating expenses(3) (%)
(expenses that are deducted from fund assets)
Management fees 0.65
Marketing (12b-1) fees none
Other expenses(4) _._
- --------------------------------------------------------------------------------
Total annual fund
operating expenses(4) _._
- --------------------------------------------------------------------------------
Expense example
The example below is intended to help you compare the cost of investing in the
fund with the cost of investing in other mutual funds. The example assumes:
$10,000 initial investment, 5% return each year, total operating expenses
unchanged, and all shares sold at the end of each time period. The example is
for comparison only; the fund's actual return and your actual costs may be
higher or lower.
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($) -- -- -- --
- --------------------------------------------------------------------------------
(1) The fund commenced operations on 5/13/96. For the period 2/29/96 through
5/12/96 returns reflect performance of J.P. Morgan Institutional European
Equity Fund (a separate feeder fund investing in the same master portfolio)
which commenced operation on 2/29/96. These returns reflect lower operating
expenses than those of the fund. Therefore, these returns may be higher than
the fund's would have been had it existed during the same periods.
(2) The fund's fiscal year end is 12/31.
(3) The fund has a master/feeder structure as described on page 15. This table
shows the fund's expenses and its share of master portfolio expenses for the
past fiscal year, before reimbursement, expressed as a percentage of the
fund's average net assets.
(4) After reimbursement, other expenses and total operating expenses are 0.77%
and 1.42%, respectively. This reimbursement can be changed or terminated at
any time after 4/30/99 at the option of J.P. Morgan.
J.P. MORGAN EUROPEAN EQUITY FUND 5
<PAGE>
J.P. MORGAN INTERNATIONAL OPPORTUNITIES FUND TICKER SYMBOL: PPIOX
- --------------------------------------------------------------------------------
REGISTRANT: J.P. MORGAN FUNDS
(J.P. MORGAN INTERNATIONAL OPPORTUNITIES FUND)
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 16-17.
GOAL
The fund's goal is to provide high total return from a portfolio of equity
securities of foreign companies in developed and, to a lesser extent, emerging
markets. This goal can be changed without shareholder approval.
INVESTMENT APPROACH
The fund's assets are invested primarily in companies from developed markets
other than the U.S. The fund's assets may also be invested to a limited extent
in companies from emerging markets. Developed countries include Australia,
Canada, Japan, New Zealand, the United Kingdom, and most of the countries of
western Europe; emerging markets include most other countries in the world.
The fund focuses on stock picking, emphasizing those stocks that are ranked as
undervalued according to J.P. Morgan's proprietary research, while
underweighting or avoiding those that appear overvalued. While the fund
generally follows the process described on page 11, its country allocations and
sector weightings may differ significantly from those of the MSCI All Country
World Index Free (ex-U.S.), the fund's benchmark. The fund makes its currency
management decisions as described on pages 11 and 16.
The value of your investment in the fund will fluctuate in response to movements
in international stock markets and currency exchange rates. Fund performance
will also depend on the effectiveness of J.P. Morgan's research and the
management team's stock picking and currency management decisions.
In general, international investing involves higher risks than investing in U.S.
markets but offers attractive opportunities for diversification. Foreign markets
tend to be more volatile than those of the U.S., and changes in currency
exchange rates could reduce market performance. These risks are higher in
emerging markets. To the extent that the fund hedges its currency exposure into
the U.S. dollar, it may reduce the effects of currency fluctuations. The fund
may also hedge from one foreign currency to another. However, the fund does not
typically use this strategy for its emerging markets currency exposure. Foreign
stocks are generally riskier than their domestic counterparts. You should be
prepared to ride out periods of underperformance.
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.
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages over $275
billion, including approximately $8 billion using international equity
strategies.
The portfolio management team is led by Paul A. Quinsee, managing director, who
has been on the team since the fund's inception and at J.P. Morgan since 1992,
Andrew C. Cormie, vice president, who has been an international equity portfolio
manager since 1997 and employed by J.P. Morgan since 1984, and by Nigel F.
Emmett, vice president, who has been on the team since joining J.P. Morgan in
August of 1997. Previously, Mr. Emmett was an assistant manager at Brown
Brothers Harriman and Co. and a portfolio manager at Gartmore Investment
Management.
- --------------------------------------------------------------------------------
Before you invest
Investors considering the fund should understand that:
o There is no assurance that the fund will meet its investment goals.
o The fund does not represent a complete investment program.
6 J.P. MORGAN INTERNATIONAL OPPORTUNITIES FUND
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE (unaudited)
The bar chart and table shown below indicate the risks of investing in J.P.
Morgan International Opportunities Fund.
The bar chart indicates the risks by showing changes in the performance of the
fund's shares since inception.
The table indicates the risks by showing how the fund's average annual return
for the period ended December 31, 1998 compare to those of the MSCI All Country
World Index Free (ex.-U.S.). This is an unmanaged index that measures developed
and emerging foreign stock market performance.(1)
The fund's past performance does not necessarily indicate how the fund will
perform in the future.
Year-by-year total return (%) Shows changes in returns by calendar year(2,3)
- --------------------------------------------------------------------------------
Since inception
40%
20%
0%
- --------------------------------------------------------------------------------
(20%)
[ ] J.P. Morgan International Opportunities Fund
For the period covered by this year-by-year total return chart, the fund's
highest quarterly return was xxxx% (for the quarter ended xxxxx); and the lowest
quarterly return was -xxxx% (for the quarter ended xxxxxxx).
Shows performance over time, for period ended
Average annual total return (%) December 31, 1998(1,2)
- --------------------------------------------------------------------------------
Since inception
J.P. Morgan International
Opportunities Fund (after expenses) --
- --------------------------------------------------------------------------------
MSCI All Country World Index Free (ex-U.S.) --
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
The expenses of the fund are shown at right. The fund has no sales, redemption,
exchange, or account fees, although some institutions may charge you a fee for
shares you buy through them. The annual fund expenses are deducted from fund
assets prior to performance calculations.
Annual fund operating expenses(4) (%)
(expenses that are deducted from fund assets)
Management fees 0.60
Marketing (12b-1) fees none
Other expenses(5) _._
- --------------------------------------------------------------------------------
Total annual fund
operating expenses(5) _._
- --------------------------------------------------------------------------------
Expense example
The example below is intended to help you compare the cost of investing in the
fund with the cost of investing in other mutual funds. The example assumes:
$10,000 initial investment, 5% return each year, total operating expenses
unchanged, and all shares sold at the end of each time period. The example is
for comparison only; the fund's actual return and your actual costs may be
higher or lower.
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($) -- -- -- --
- --------------------------------------------------------------------------------
(1) The fund's benchmark changed from the MSCI All Country World ex-U.S. Index
to the MSCI All Country World Index Free (ex-U.S.) on September 1, 1998. The
new benchmark includes only securities in which foreign investors may invest
and is more representative of the fund's investment operations.
(2) The fund commenced operations on 2/26/97 and performance is calculated as of
2/28/97.
(3) The fund's fiscal year end is 11/30.
(4) The fund has a master/feeder structure as described on page 15. This table
shows the fund's expenses and its share of master portfolio expenses for the
past fiscal year, before reimbursement, expressed as a percentage of the
fund's average net assets.
(5) After reimbursement other expenses and total operating expenses are 0.60%
and 1.20%, respectively. This reimbursement arrangement can be changed or
terminated at any time after 3/31/99 at the option of J.P. Morgan.
J.P. MORGAN INTERNATIONAL OPPORTUNITIES FUND 7
<PAGE>
J.P. MORGAN EMERGING MARKETS EQUITY FUND TICKER SYMBOL: PPEEX
- --------------------------------------------------------------------------------
Registrant: J.P. Morgan Funds
(J.P. Morgan Emerging Markets Equity Fund)
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 16-17.
GOAL
The fund's goal is to provide high total return from a portfolio of equity
securities from emerging markets issuers. This goal can be changed without
shareholder approval.
INVESTMENT APPROACH
The fund invests primarily in equity securities from countries whose economies
or stock markets are less developed. This designation currently includes most
countries in the world except Australia, Canada, Japan, New Zealand, the United
Kingdom, the U.S., and most of the countries of western Europe.
The fund makes its country allocation decisions as described on page 11 and may
overweight or underweight countries relative to its benchmark, the Morgan
Stanley Capital International (MSCI) Emerging Markets Free Index. The fund
emphasizes stocks that are ranked as undervalued, while underweighting or
avoiding stocks that appear overvalued. The fund typically maintains full
currency exposure to those markets in which it invests. However, the fund may
from time to time hedge a portion of its foreign currency exposure into the U.S.
dollar.
The value of your investment in the fund will fluctuate in response to movements
in international stock markets and currency exchange rates. Fund performance
will also depend on the effectiveness of J.P. Morgan's research and the
management team's country allocation and stock picking decisions.
In general, international investing involves higher risks than investing in U.S.
markets but offers attractive opportunities for diversification. Because
emerging markets carry higher risks than developed markets, the fund's
performance is likely to be more volatile than that of many other international
equity funds. To the extent that the fund hedges its currency exposure into the
U.S. dollar, it may reduce the effects of currency fluctuations. Foreign stocks
are generally riskier than their domestic counterparts. You should be prepared
to ride out periods of underperformance.
By emphasizing undervalued stocks, the fund has the potential to produce returns
that exceed those of the fund's benchmark. At the same time, the fund seeks to
limit its volatility to that of the benchmark.
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.
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages over $275
billion, including more than $2 billion using the same strategy as this fund.
The management team is led by Douglas Dooley, managing director, who has been at
J.P. Morgan since 1979, Satyen Mehta, vice president, who has been at J.P.
Morgan since 1984, both of whom have been on the team since the fund's inception
and by Leigh Wasson, vice president, who has been at J.P. Morgan since 1987. Ms.
Wasson joined the team in March of 1997.
- --------------------------------------------------------------------------------
Before you invest
Investors considering the fund should understand that:
o There is no assurance that the fund will meet its investment goals.
o The fund does not represent a complete investment program.
8 J.P. MORGAN EMERGING MARKETS EQUITY FUND
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE (unaudited)
The bar chart and table shown below indicate the risks of investing in J.P.
Morgan Emerging Markets Equity Fund.
The bar chart indicates the risks by showing changes in the performance of the
fund's shares from year to year for each of the last 5 calendar years.
The table indicates the risks by showing how the fund's average annual returns
for the past one and five years and life of the fund compare to those of the
MSCI Emerging Markets Free Index. This is a widely recognized, unmanaged index
of emerging markets stocks used as a measure of overall emerging market equity
performance.
The fund's past performance does not necessarily indicate how the fund will
perform in the future.
Year-by-year total return (%) Shows changes in returns by calendar year(1,2)
- --------------------------------------------------------------------------------
1994 1995 1996 1997 1998
20%
10%
0%
- --------------------------------------------------------------------------------
(10%) (7.58) (10.03) (8.50) (7.63)
[ ] J.P. Morgan Emerging Markets Equity Fund
For the period covered by this year-by-year total return chart, the fund's
highest quarterly return was xxxx% (for the quarter ended x/xx/xx); and the
lowest quarterly return was -xxxx% (for the quarter ended xx/xx/xx).
Shows performance over time, for periods ended
Average annual total return (%) December 31, 1998(2)
- --------------------------------------------------------------------------------
Past 1 yr. Past 5 yrs Life of fund
J.P. Morgan Emerging Markets Equity Fund
(after expenses) -- -- --
- --------------------------------------------------------------------------------
MSCI Emerging Markets Equity Free -- -- --
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
The expenses of the fund are shown at right. The fund has no sales, redemption,
exchange, or account fees, although some institutions may charge you a fee for
shares you buy through them. The annual fund expenses are deducted from fund
assets prior to performance calculations.
Annual fund operating expenses(3) (%)
(expenses that are deducted from fund assets)
Management fees 1.00
Marketing (12b-1) fees none
Other expenses(4) _._
- --------------------------------------------------------------------------------
Total annual fund
operating expenses(4) _._
- --------------------------------------------------------------------------------
Expense example
The example below is intended to help you compare the cost of investing in the
fund with the cost of investing in other mutual funds. The example assumes:
$10,000 initial investment, 5% return each year, total operating expenses
unchanged, and all shares sold at the end of each time period. The example is
for comparison only; the fund's actual return and your actual costs may be
higher or lower.
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($) -- -- -- --
- --------------------------------------------------------------------------------
(1) The fund commenced operations on 11/15/93.
(2) The fund's fiscal year end is 10/31.
(3) The fund has a master/feeder structure as described on page 15. This table
shows the fund's expenses and its share of master portfolio expenses for the
past fiscal year, before reimbursement, expressed as a percentage of the
fund's average net assets.
(4) Although expenses for the past fiscal year were ___% of the fund's average
net assets, J.P. Morgan will reimburse the fund to the extent necessary to
maintain total operating expenses at no more than 1.75%. The reimbursement
arrangement can be changed or terminated at any time at the option of J.P.
Morgan.
J.P. MORGAN EMERGING MARKETS EQUITY FUND 9
<PAGE>
INTERNATIONAL 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 300 analysts and portfolio managers
around the world and has more than $275 billion in assets under management,
including assets managed by the funds' advisor, J.P. Morgan Investment
Management Inc.
J.P. MORGAN INTERNATIONAL EQUITY FUNDS
These funds invest primarily in stocks and other equity securities of companies
outside the U.S. through a master portfolio (another fund with the same goal).
As a shareholder, you should anticipate risks and rewards beyond those of a
typical U.S. stock fund.
THE SPECTRUM OF INTERNATIONAL EQUITY FUNDS
The funds described in this
prospectus pursue a range of goals and offer varying degrees of risk and
potential reward. Differences between these funds include:
o the parts of the world in which they invest
o how closely they follow the weightings of their benchmarks
o how many securities they typically maintain in their portfolios
o the relative weighting of stocks in developed vs emerging markets
The table below shows degrees of the relative risk and return that these funds
potentially offer. These and other distinguishing features of each international
equity fund were described on the preceding pages.
- --------------------------------------------------------------------------------
Who May Want to Invest
The funds are designed for investors who:
o are pursuing a long-term goal
o want to add a non-U.S. investment with growth potential to further diversify a
portfolio
o want funds that seek to consistently outperform the markets in which they
invest
The funds are not designed for investors who:
o are uncomfortable with the risks of international investing
o are looking for a less aggressive stock investment
o require regular income or stability of principal
o are pursuing a short-term goal or investing emergency reserves
Potential risk and return
The positions of the funds in this graph reflect long-term performance goals
only and are relative, not absolute.
Emerging Markets Equity Fund
European Equity Fund
Return
International
Opportunities Fund
International Equity Fund
FUND DETAILS
Risk
10 INTERNATIONAL EQUITY MANAGEMENT APPROACH
<PAGE>
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY INVESTMENT PROCESS
While each fund follows its own strategy, the funds as a group share a single
investment philosophy. This philosophy, developed by the funds' advisor, focuses
on allocating assets by country (where relevant), selecting stocks and managing
currency exposure. The funds largely avoid using sector or market-timing
strategies. Under normal market conditions, each fund will remain fully
invested.
Through its extensive global equity research and analytical systems, J.P. Morgan
seeks to generate an information advantage. Using fundamental analysis as well
as macro-economic models, J.P. Morgan develops proprietary research on
countries, companies, and currencies. In these processes, the analysts focus on
a relatively long period rather than on near-term expectations alone. The team
of analysts dedicated to international equities includes more than 90 members
around the world, with an average of nearly ten years of experience.
In managing the funds described in this prospectus, J.P. Morgan employs a
three-step process that combines country allocation, fundamental research for
identifying portfolio securities, and currency management decisions:
J.P. Morgan uses top-down analysis
(where relevant) in determining
which countries to emphasize
Country allocation J.P. Morgan takes an in-depth look at the relative valuations
and economic prospects of different countries, ranking the attractiveness of
their markets. Using these rankings, a team of strategists establishes a country
allocation for each fund. Country allocation may vary either significantly or
moderately from the benchmark, depending on the fund.
Stocks in each industry are ranked
with the help of models, then selected
for investment
Stock selection Various models are used to quantify J.P. Morgan's fundamental
stock research, producing a ranking of companies in each industry group
according to their relative value. Each fund's management team then buys and
sells stocks, using the research and valuation rankings as well as its
assessment of other factors, including:
o catalysts that could trigger a change in a stock's price
o potential reward compared to potential risk
o temporary mispricings caused by market overreactions
In some funds, J.P. Morgan may adjust
currency exposure to seek to manage
risks and enhance returns
Currency management The funds have access to J.P. Morgan's currency specialists
in determining the extent and nature of each fund's exposure to various foreign
currencies. (The Emerging Markets Equity fund typically maintains full currency
exposure to those markets in which it invests.)
INTERNATIONAL EQUITY MANAGEMENT APPROACH 11
<PAGE>
YOUR INVESTMENT
- --------------------------------------------------------------------------------
For your convenience, the J.P. Morgan Funds offer several ways to start and add
to fund investments.
INVESTING THROUGH A FINANCIAL PROFESSIONAL
If you work with a financial professional, either at J.P. Morgan or elsewhere,
he or she is prepared to handle your planning and transaction needs. Your
financial professional will be able to assist you in establishing your fund
account, executing transactions, and monitoring your investment. If your fund
investment is not held in the name of your financial professional and you prefer
to place a transaction order yourself, please use the instructions for investing
directly.
INVESTING THROUGH AN EMPLOYER-SPONSORED RETIREMENT PLAN
Your fund investments are handled through your plan. Refer to your plan
materials or contact your benefits office for information on buying, selling, or
exchanging fund shares.
INVESTING THROUGH AN IRA OR ROLLOVER IRA
Please contact a J.P. Morgan Retirement Services Specialist at 1-888-576-4472
for information on J.P. Morgan's comprehensive IRA services, including lower
minimum investments.
INVESTING DIRECTLY
Investors may establish accounts without the help of an intermediary by
using the instructions below and at right:
o Choose a fund (or funds) and determine the amount you are investing. The
minimum amount for initial investments in a fund is $2,500 and for additional
investments $500, although these minimums may be less for some investors. For
more information on minimum investments, call 1-800-521-5411.
o Complete the application, indicating how much of your investment you want to
allocate to which fund(s). Please apply now for any account privileges you may
want to use in the future, in order to avoid the delays associated with adding
them later on.
o Mail in your application, making your initial investment as shown at right.
For answers to any questions, please speak with a J.P. Morgan Funds Services
Representative at 1-800-521-5411.
OPENING YOUR ACCOUNT
By wire
o Mail your completed application to the Shareholder Services Agent.
o Call the Shareholder Services Agent to obtain an account number and to place a
purchase order. Funds that are wired without a purchase order will be returned
uninvested.
o After placing your purchase order, instruct your bank to wire the amount of
your investment to:
State Street Bank & Trust Company
Routing number: 011-000-028
Credit: J.P. Morgan Funds
Account number: 9904-226-9
FFC: your account number, name of registered owner(s) and fund name
By check
o Make out a check for the investment amount payable to J.P. Morgan Funds.
o Mail the check with your completed application to the Transfer Agent.
By exchange
o Call the Shareholder Services Agent to effect an exchange.
<PAGE>
ADDING TO YOUR ACCOUNT
By wire
o Call the Shareholder Services Agent to place a purchase order. Funds that are
wired without a purchase order will be returned uninvested.
o Once you have placed your purchase order, instruct your bank to wire the
amount of your investment as described above.
By check
o Make out a check for the investment amount payable to J.P. Morgan Funds.
o Mail the check with a completed investment slip to the Transfer Agent. If you
do not have an investment slip, attach a note indicating your account number
and how much you wish to invest in which fund(s).
By exchange
o Call the Shareholder Services Agent to effect an exchange.
12 YOUR INVESTMENT
<PAGE>
- --------------------------------------------------------------------------------
SELLING SHARES
By phone--wire payment
o Call the Shareholder Services Agent to verify that the wire redemption
privilege is in place on your account. If it is not, a representative can help
you add it.
o Place your wire request. If you are transferring money to a non-Morgan
account, you will need to provide the representative with the personal
identification number (PIN) that was provided to you when you opened your fund
account.
By phone--check payment
o Call the Shareholder Services Agent and place your request. Once your request
has been verified, a check for the net amount, payable to the registered
owner(s), will be mailed to the address of record. For checks payable to any
other party or mailed to any other address, please make your request in
writing (see below).
In writing
o Write a letter of instruction that includes the following information: The
name of the registered owner(s) of the account; the account number; the fund
name; the amount you want to sell; and the recipient's name and address or
wire information, if different from those of the account registration.
o Indicate whether you want the proceeds sent by check or by wire.
o Make sure the letter is signed by an authorized party. The Shareholder
Services Agent may require additional information, such as a signature
guarantee.
o Mail the letter to the Shareholder Services Agent.
By exchange
o Call the Shareholder Services Agent to effect an exchange
Redemption in kind
o Each fund reserves the right to make redemptions of over $250,000 in
securities rather than in cash.
ACCOUNT AND TRANSACTION POLICIES
Telephone orders The funds accept telephone orders from all shareholders. To
guard against fraud, the funds require shareholders to use a PIN, and may record
telephone orders or take other reasonable precautions. However, if a fund does
take such steps to ensure the authenticity of an order, you may bear any loss if
the order later proves fraudulent.
Exchanges You may exchange shares in these funds for shares in any other J.P.
Morgan or J.P. Morgan Institutional mutual fund at no charge (subject to the
securities laws of your state). When making exchanges, it is important to
observe any applicable minimums. Keep in mind that, for tax purposes, an
exchange is considered a sale.
A fund may alter, limit, or suspend its exchange policy at any time.
Business hours and NAV calculations The funds' regular business days and hours
are the same as those of the New York Stock Exchange (NYSE). Each 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 and to
postpone payment of proceeds for up to seven days or as permitted by law.
- --------------------------------------------------------------------------------
Transfer Agent Shareholder Services Agent
State Street Bank and Trust Company J.P. Morgan Funds Services
P.O. Box 8411 522 Fifth Avenue
Boston, MA 02266-8411 New York, NY 10036
Attention: J.P. Morgan Funds Services 1-800-521-5411
Representatives are available 8:00 a.m. to 5:00 p.m. eastern
time on fund business days.
YOUR INVESTMENT 13
<PAGE>
- --------------------------------------------------------------------------------
Timing of settlements When you buy shares, you will become the owner of record
when a fund receives your payment, generally the day following execution. When
you sell shares, proceeds are generally available the day following execution
and will be forwarded according to your instructions.
When you sell shares that you recently purchased by check, your order will be
executed at the next NAV but the proceeds will not be available until your check
clears. This may take up to 15 days.
Statements and reports The funds send monthly account statements as well as
confirmations after each purchase or sale of shares (except reinvestments).
Every six months, each 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
Each fund typically pays income dividends and makes capital gains distributions,
if any, once a year. A fund may declare an additional income dividend in a given
year, depending on its tax situation. However, a fund may also make fewer
payments in a given year, depending on its investment results. Dividends and
distributions consist of substantially all of the fund's net investment income
and realized capital gains.
Dividends and distributions are reinvested in additional fund shares.
Alternatively, you may instruct your financial professional or J.P. Morgan Funds
Services to have them sent to you by check, credited to a separate account, or
invested in another J.P. Morgan Fund.
TAX CONSIDERATIONS
In general, selling shares, exchanging shares, and receiving distributions
(whether reinvested or taken in cash) are all taxable events. These transactions
typically create the following tax liabilities for taxable accounts:
- --------------------------------------------------------------------------------
Transaction Tax status
Income dividends Ordinary income
Short-term capital gains Ordinary income
distributions
Long-term capital gains Capital gains
distributions
Sales or exchanges of shares Capital gains or losses
owned for more than one year
Sales or exchanges of shares Gains are treated as ordinary
owned for one year or less income; losses are subject
to special rules
Because long-term capital gains distributions are taxable as capital gains
regardless of how long you have owned your shares, you may want to avoid making
a substantial investment when a fund is about to declare a long-term capital
gains distribution.
Every January, each fund issues tax information on its distributions for the
previous year.
Any investor for whom a 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.
14 YOUR INVESTMENT
<PAGE>
FUND DETAILS
- --------------------------------------------------------------------------------
MASTER/FEEDER STRUCTURE
As noted earlier, each 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.)
Each master portfolio accepts investments from other feeder funds, and all the
feeders of a given 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 1-800-521-5411. 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.
Each feeder 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. Each 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 feeder funds described in this prospectus, their corresponding master
portfolios and J.P. Morgan Series Trust 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:
Advisory services Percentage of the master
portfolio's average net assets
International Equity 0.60%
European Equity 0.65%
International Opportunities 0.60%
Emerging Markets Equity 1.00%
Administrative services Master portfolio's and fund's
(fee shared with Funds pro-rata portions of 0.09% of the
Distributor, Inc.) first $7 billion in J.P. Morgan-
advised portfolios, plus 0.04%
of average net assets over
$7 billion
Shareholder services 0.25% of the fund's average
net assets
J.P. Morgan may pay fees to certain firms and professionals for providing
recordkeeping or other services in connection with investments in a fund.
Year 2000 Fund operations and shareholders could be adversely affected if the
computer systems used by J.P. Morgan, the fund's other service providers and
other entities with computer systems linked to the fund do not properly process
and calculate January 1, 2000 and after date-related information. J.P. Morgan is
working to avoid these problems and to obtain assurances from other service
providers that they are taking similar steps. However, it is not certain that
these actions will be sufficient to prevent these date-related problems from
adversely impacting fund operations and shareholders. In addition, to the extent
that operations of issuers of securities held by the fund are impaired by
date-related problems or prices of securities decline as a result of real or
perceived date-related problems of issuers held by the fund or generally, the
net asset value of the fund will decline.
The Euro Effective January 1, 1999 the euro, a single multinational currency,
will replace the national currencies of certain countries in the Economic
Monetary Union (EMU).
J.P. Morgan has identified the following potential risks to the funds, after the
conversion: The risk that the valuation of assets is not properly converted from
the national currency to euro; currency risk resulting from increased volatility
in exchange rates between EMU countries and non-participating countries; the
inability of any of the fund, it's service providers and the issuers of the
fund's portfolio securities to make information technology updates timely; and
the potential unenforceability of contracts. There have been recent laws and
regulations designed to ensure the continuity of contracts, however there is a
risk that the valuation of contracts will be negatively impacted after the
conversion. J.P. Morgan is working to avoid these problems and to obtain
assurances from other service providers that they are taking similar steps.
However, it is not certain that these actions will be sufficient to prevent
problems associated with the conversion from adversely impacting fund operations
and shareholders.
FUND DETAILS 15
<PAGE>
- --------------------------------------------------------------------------------
RISK AND REWARD ELEMENTS
This table identifies the main elements that make up each fund's overall risk
and reward characteristics. It also outlines each fund's policies toward various
investments, including those that are designed to help certain funds manage
risk.
- --------------------------------------------------------------------------------
Potential risks
- --------------------------------------------------------------------------------
Foreign and other market conditions
o Each fund's share price and performance will fluctuate in response to stock
market movements
o A fund could lose money because of foreign government actions, political
instability, or lack of adequate and/or accurate information
o Investment risks tend to be higher in emerging markets. These markets also
present higher liquidity and valuation risks
o Adverse market conditions may from time to time cause the fund to take
temporary defensive positions that are inconsistent with its principal
investment strategies and may hinder the fund from achieving its investment
objective
Management choices
o A fund could underperform its benchmark due to its securities choices and
other management decisions
Foreign currencies
o Currency exchange rate movements could reduce gains or create losses
o Currency risks tend to be higher in emerging markets
- --------------------------------------------------------------------------------
Potential rewards
- --------------------------------------------------------------------------------
o Stocks have generally outperformed more stable investments (such as bonds and
cash equivalents) over the long term
o Foreign investments, which represent a major portion of the world's
securities, offer attractive potential performance and opportunities for
diversification
o Emerging markets can offer higher returns
o A fund could outperform its benchmark due to these same choices
o Favorable exchange rate movements could generate gains or reduce losses
- --------------------------------------------------------------------------------
Policies to balance risk and reward
- --------------------------------------------------------------------------------
o Under normal circumstances the funds plan to remain fully invested, with at
least 65% in stocks; stock investments may include convertible securities,
preferred stocks, depository receipts (such as ADRs and EDRs), trust or
partnership interests, warrants, rights, and investment company securities
o The funds seek to limit risk and enhance performance through active
management, country allocation and diversification
o During severe market downturns, the funds have the option of investing up to
100% of assets in investment-grade short-term securities
o J.P. Morgan focuses its active management on securities selection, the area
where it believes its commitment to research can most enhance returns
o Except as noted earlier in this prospectus, each fund manages the currency
exposure of its foreign investments relative to its benchmark and may hedge a
portion of its foreign currency exposure into the U.S. dollar from time to
time. (see also "Derivatives")
16 FUND DETAILS
<PAGE>
- --------------------------------------------------------------------------------
Potential risks
- --------------------------------------------------------------------------------
Derivatives
o Derivatives such as futures, options, swaps, and forward foreign currency
contracts(1) that are used for hedging the portfolio or specific securities
may not fully offset the underlying positions and this could result in losses
to the fund that would not have otherwise occurred
o Derivatives used for risk management may not have 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 a fund which can reduce returns
Illiquid holdings
o A fund could have difficulty valuing these holdings precisely
o A fund could be unable to sell these holdings at the time or price it desired
When-issued and delayed delivery securities
o When a fund buys securities before issue or for delayed delivery, it could be
exposed to leverage risk if it does not use segregated accounts
Short-term trading
o Increased trading could raise a fund's brokerage and related costs
o Increased short-term capital gains distributions could raise shareholders'
income tax liability
- --------------------------------------------------------------------------------
Potential rewards
- --------------------------------------------------------------------------------
o Hedges that correlate well with underlying positions can reduce or eliminate
losses at low cost
o A fund could make money and protect against losses if the investment analysis
proves correct
o Derivatives that involve leverage could generate substantial gains at low cost
o These holdings may offer more attractive yields or potential growth than
comparable widely traded securities
o A fund can take advantage of attractive transaction opportunities
o A fund could realize gains in a short period of time l A fund could protect
against losses if a stock is overvalued and its value later falls
- --------------------------------------------------------------------------------
Policies to balance risk and reward
- --------------------------------------------------------------------------------
o The funds use derivatives, such as futures, options, swaps, and forward
foreign currency contracts, for hedging and for risk management (i.e., to
establish or adjust exposure to particular securities, markets or currencies);
risk management may include management of a fund's exposure relative to its
benchmark
o The funds only establish hedges that they expect will be highly correlated
with underlying positions
o While the funds may use derivatives that incidentally involve leverage, they
do not use them for the specific purposes of leveraging their portfolios
o No fund may invest more than 15% of net assets in illiquid holdings
o To maintain adequate liquidity, each fund may hold investment-grade short-term
securities (including repurchase agreements) and, for temporary or
extraordinary purposes, may borrow from banks up to 331/3% of the value of its
total assets
o Each fund uses segregated accounts to offset leverage risk
o Each fund anticipates that its portfolio turnover rate will not exceed 100%
o The funds generally avoid short-term trading, except to take advantage of
attractive or unexpected opportunities or to meet demands generated by
shareholder activity
- --------------------------------------------------------------------------------
(1) A futures contract is an agreement to buy or sell a set quantity of an
underlying instrument at a future date, or to make or receive a cash payment
based on changes in the value of a securities index. An option is the right
to buy or sell a set quantity of an underlying instrument at a predetermined
price. A swap is a privately negotiated agreement to exchange one stream of
payments for another. A forward foreign currency contract is an obligation
to buy or sell a given currency on a future date and at a set price.
FUND DETAILS 17
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand each fund's
financial performance for the past one through five fiscal years or periods, as
applicable. Certain information reflects financial results for a single fund
share. The total returns in the tables represent the rate that an investor would
have earned (or lost) on an investment in a fund (assuming reinvestment of all
dividends and distributions). Except where noted, this information has been
audited by PricewaterhouseCoopers LLP, whose reports, along with each fund's
financial statements, are included in the respective fund's annual report,
which are available upon request.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
J.P. MORGAN INTERNATIONAL EQUITY FUND
Per-share data For fiscal periods ended October 31
- ------------------------------------------------------------------------------------------------------------------------------------
1990(1,2) 1991(2) 1992(2) 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ($) 10.00 9.33 9.69 8.58 11.15 11.50 10.68 11.38 x
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.05 0.11 0.04 0.01 0.05 0.09 0.12 0.15 x
Net realized and unrealized gain (loss)
on investment and foreign currency ($) (0.72) 0.42 (1.11) 2.64 0.57 (0.42) 1.16 0.23 x
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations ($) (0.67) 0.53 (1.07) 2.65 0.62 (0.33) 1.28 0.38 x
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) -- (0.05) (0.04) (0.08) (0.04) -- (0.24) (0.25) x
Net realized gain ($) -- (0.12) -- -- (0.23) (0.49) (0.34) (0.54) x
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions ($) -- (0.17) (0.04) (0.08) (0.27) (0.49) (0.58) (0.79) x
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period ($) 9.33 9.69 8.58 11.15 11.50 10.68 11.38 10.97 x
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return (%) (6.70) 5.89 (11.08) 31.18 5.73 (2.71) 12.31 3.46 x
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 19,358 27,426 41,484 182,822 210,435 185,541 200,720 146,659 x
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses (%) 1.36(3) 1.38 1.38 1.38 1.38 1.28 1.14 1.12 x
-----------------------------------------------------------------------------------------------------------------------------------
Net investment income (%) 1.49(3) 1.34 1.03 0.79 0.46 0.80 1.00 1.11 x
-----------------------------------------------------------------------------------------------------------------------------------
Decrease reflected in expense ratio due
to expense reimbursement (%) 1.52 0.66 0.45 0.13 0.07 0.00(4) -- -- x
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 0.00 18.84 30.12 34.15(5) -- -- -- -- x
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The fund commenced operations on 6/1/90.
(2) Financial highlights were audited by Ernst & Young LLP for the fiscal
periods ended October 31, 1990, 1991 and 1992 and by PricewaterhouseCoopers
LLP thereafter.
(3) Annualized.
(4) Less than 0.01%.
(5) Portfolio turnover reflects the period 11/1/92 through 10/3/93 and has not
been annualized. On 10/3/93, the fund's predecessor contributed all of its
investable assets to the master portfolio.
18 J.P. MORGAN INTERNATIONAL EQUITY FUNDS
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
J.P MORGAN EUROPEAN EQUITY FUND
Per-share data For fiscal periods ended
- ---------------------------------------------------------------------------------------------
12/31/96(1) 12/31/97 6/30/98
(unaudited)
<S> <C> <C> <C>
Net asset value, beginning of period ($) 10.00 11.61 __.__
- ---------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.01 0.10 __.__
Net realized and unrealized gain
on investment and foreign currency ($) 1.60 2.45 __.__
- ---------------------------------------------------------------------------------------------
Total from investment operations ($) 1.61 2.55 __.__
- ---------------------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) -- (0.07) __.__
Net realized gains ($) 0.00(2) (0.74) __.__
- ---------------------------------------------------------------------------------------------
Total distributions ($) 0.00(2) (0.81) __.__
- ---------------------------------------------------------------------------------------------
Net asset value, end of period ($) 11.61 13.35 __.__
- ---------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------
Total return (%) 16.10(3) 22.10 __.__
- ---------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 2,072 4,832 __.__
- ---------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses (%) 1.42(4) 1.42 __.__
--------------------------------------------------------------------------------------------
Net investment income (%) 0.29(4) 0.91 __.__
--------------------------------------------------------------------------------------------
Decrease reflected in expense ratio due
to expense reimbursement (%) 1.08(5) 2.36 __.__
--------------------------------------------------------------------------------------------
</TABLE>
(1) The fund commenced operations on 5/13/96.
(2) Less than 0.01.
(3) Not annualized.
(4) Annualized.
(5) After consideration of then applicable state limitations.
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
J.P. MORGAN INTERNATIONAL OPPORTUNITIES FUND
Per-share data For fiscal period ended November 30
- ---------------------------------------------------------------------------------------------
1997(1) 1998
<S> <C> <C>
Net asset value, beginning of period ($) 10.00 __.__
- ---------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.06 __.__
Net realized and unrealized loss
on investment and foreign currency ($) (0.14) __.__
- ---------------------------------------------------------------------------------------------
Total from investment operations ($) (0.08) __.__
- ---------------------------------------------------------------------------------------------
Net asset value, end of period ($) 9.92 __.__
- ---------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------
Total return (%) (0.80)(2) __.__
- ---------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 62,939 __.__
- ---------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses (%) 1.20(3) __.__
--------------------------------------------------------------------------------------------
Net investment income (%) 1.08(3) __.__
--------------------------------------------------------------------------------------------
Decrease reflected in expense ratio due
to expense reimbursement (%) 0.31(3) __.__
--------------------------------------------------------------------------------------------
</TABLE>
(1) The fund commenced operations on 2/26/97
(2) Not annualized.
(3) Annualized.
J.P. MORGAN INTERNATIONAL EQUITY FUNDS 19
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
J.P. MORGAN EMERGING MARKETS EQUITY FUND
Per-share data For fiscal periods ended October 31
- --------------------------------------------------------------------------------------------------------------------
1994(1) 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ($) 10.00 12.43 9.65 10.18 x
- --------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) ($) 0.02 0.05 0.08 0.08 x
Net realized and unrealized gain (loss)
on investment and foreign currency ($) 2.41 (2.66) 0.53 (0.42) x
- --------------------------------------------------------------------------------------------------------------------
Total from investment operations ($) 2.43 (2.61) 0.61 (0.34) x
- --------------------------------------------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) -- (0.03) (0.08) (0.06) x
Net realized gain ($) -- (0.14) -- --
- --------------------------------------------------------------------------------------------------------------------
Total distributions ($) -- (0.17) (0.08) (0.06) x
- --------------------------------------------------------------------------------------------------------------------
Net asset value, end of period ($) 12.43 9.65 10.18 9.78 x
- --------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------------------------------------------
Total return (%) 24.30(2) (21.15) 6.31 (3.34) x
- --------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 53,431 49,295 59,107 45,444 x
- --------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Expenses (%) 1.84(3) 1.80 1.69 1.65 x
-------------------------------------------------------------------------------------------------------------------
Net investment income (%) 0.25(3) 0.55 0.68 0.62 x
-------------------------------------------------------------------------------------------------------------------
Decrease reflected in expense ratio due
to expense reimbursement (%) 0.12(3) -- -- -- --
-------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The fund commenced operations on 11/15/93.
(2) Not annualized.
(3) Annualized.
20 J.P. MORGAN INTERNATIONAL EQUITY FUNDS
<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 a fund's most recently completed fiscal year or
half-year.
Statement of Additional Information (SAI) Provides a fuller technical and legal
description of a 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 these funds, may be obtained by contacting:
J.P. Morgan Funds
J.P. Morgan Funds Services
522 Fifth Avenue
New York, NY 10036
Telephone: 1-800-521-5411
Hearing impaired: 1-888-468-4015
Email: [email protected]
Text-only versions of these documents and this prospectus are available, upon
payment of a duplicating fee, from the Public Reference Room of the Securities
and Exchange Commission in Washington, D.C. (1-800-SEC-0330) and may be viewed
on-screen or downloaded from the SEC's Internet site at http://www.sec.gov. The
funds' investment company and 1933 Act registration numbers are:
<TABLE>
<CAPTION>
<S> <C>
J.P. Morgan International Equity Fund ...........................811-07340 and 033-54632
J.P. Morgan European Equity Fund ................................811-07340 and 033-54632
J.P. Morgan International Opportunities Fund ....................811-07340 and 033-54632
J.P. Morgan Emerging Markets Equity Fund ........................811-07340 and 033-54632
</TABLE>
J.P. MORGAN FUNDS AND THE
MORGAN TRADITION
The J.P. Morgan 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 Funds offer a broad array of distinctive opportunities for mutual fund
investors.
JPMORGAN
- --------------------------------------------------------------------------------
J.P. Morgan Funds
Advisor
J.P. Morgan Investment Management Inc.
522 Fifth Avenue
New York, NY 10036
1-800-521-5411
Distributor
Funds Distributor, Inc.
60 State Street
Boston, MA 02109
1-800-221-7930
J.P. MORGAN FUNDS
J.P. MORGAN PRIME MONEY MARKET FUND
J.P. MORGAN FEDERAL MONEY MARKET FUND
STATEMENT OF ADDITIONAL INFORMATION
MARCH 1, 1999
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT CONTAINS
ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS
DATED MARCH 1, 1999 FOR THE FUND OR FUNDS LISTED ABOVE, AS SUPPLEMENTED FROM
TIME TO TIME. ADDITIONALLY, THIS STATEMENT OF ADDITIONAL INFORMATION
INCORPORATES BY REFERENCE THE FINANCIAL STATEMENTS INCLUDED IN THE SHAREHOLDER
REPORTS DATED OCTOBER 31, 1998 (FOR THE FEDERAL MONEY MARKET FUND) AND NOVEMBER
30, 1998 (FOR THE PRIME MONEY MARKET FUND). THE PROSPECTUS AND THESE FINANCIAL
STATEMENTS FOR THE FUNDS LISTED ABOVE, INCLUDING THE AUDITOR'S REPORT THEREON,
ARE AVAILABLE, WITHOUT CHARGE, UPON REQUEST FROM FUNDS DISTRIBUTOR, INC.,
ATTENTION: J.P. MORGAN FUNDS (800) 221-7930.
<PAGE>
Table of Contents
Page
General....................................................................1
Investment Objectives and Policies.........................................1
Investment Restrictions....................................................9
Trustees and Officers......................................................11
Investment Advisor.........................................................16
Distributor................................................................18
Co-Administrator...........................................................18
Services Agent.............................................................20
Custodian and Transfer Agent...............................................21
Shareholder Servicing......................................................21
Financial Professionals. . . . . . . . . . . . . . . . . . . . . . . . . . 22
Independent Accountants....................................................22
Expenses...................................................................23
Purchase of Shares.........................................................23
Redemption of Shares.......................................................24
Exchange of Shares.........................................................24
Dividends and Distributions................................................25
Net Asset Value............................................................25
Performance Data...........................................................26
Portfolio Transactions.....................................................27
Massachusetts Trust........................................................29
Description of Shares......................................................30
Special Information Concerning
Investment Structure. . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Taxes......................................................................33
Additional Information.....................................................35
Appendix A - Description of Security Ratings...............................A-1
i:\dsfndlgl\pierpont\1098mm.497\mmsai.doc
<PAGE>
GENERAL
This Statement of Additional Information relates only to the J.P.
Morgan Prime Money Market Fund and the J.P. Morgan Federal Money Market Fund
(each, a "Fund" and collectively, the "Funds"). Each Fund is a series of shares
of beneficial interest of the J.P. Morgan Funds, an open-end management
investment company formed as a Massachusetts business trust (the "Trust"). In
addition to the Funds, the Trust consists of other series representing separate
investment funds (each a "J.P. Morgan Fund"). The other J.P. Morgan Funds are
covered by separate Statements of Additional Information.
This Statement of Additional Information describes the financial
history, investment objective and policies, management and operation of each of
the Funds and provides additional information with respect to the Funds and
should be read in conjunction with the relevant Fund's current Prospectus (the
"Prospectus"). Capitalized terms not otherwise defined herein have the meanings
accorded to them in the Prospectus. The Trust's executive offices are located at
60 State Street, Suite 1300, Boston, Massachusetts 02109.
Unlike other mutual funds which directly acquire and manage their own
portfolio of securities, each Fund seeks to achieve its investment objective by
investing all of its investable assets in a corresponding Master Portfolio (the
"Portfolio"), a corresponding open-end management investment company having the
same investment objective as the Fund. Each Fund invests in a Portfolio through
a two-tier master-feeder investment fund structure. See "Special Information
Concerning Investment Structure."
The Portfolio is advised by J.P. Morgan Investment Management Inc. ("JPMIM"
or the "Advisor").
Investments in a Fund are not deposits or obligations of, or guaranteed
or endorsed by, Morgan Guaranty Trust Company of New York, ("Morgan"), an
affiliate of the Advisor, or any other bank. Shares of a Fund are not federally
insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board,
or any other governmental agency. An investment in a Fund is subject to risk
that may cause the value of the investment to fluctuate, and when the investment
is redeemed, the value may be higher or lower than the amount originally
invested by the investor.
INVESTMENT OBJECTIVES AND POLICIES
The following discussion supplements the information regarding the
investment objective of each Fund and the policies to be employed to achieve the
objective by each Portfolio as set forth herein and in the applicable
Prospectus. Since the investment characteristics and experiences of each Fund
correspond directly with those of its corresponding Portfolio, the discussion in
this Statement of Additional Information focuses on the investments and
investment policies of each Portfolio. Accordingly, references below to a
Portfolio also include the corresponding Fund; similarly, references to a Fund
also include the corresponding Portfolio unless the context requires otherwise.
J.P. Morgan Prime Money Market Fund (the "Prime Money Market Fund") is
designed for investors who seek high current income consistent with the
preservation of capital and same day liquidity from a portfolio of high quality
money market instruments. The Prime Money Market Fund's investment objective is
to maximize current income consistent with the preservation of capital and same
day liquidity. The Prime Money Market Fund attempts to achieve this objective by
investing all of its investable assets in The Prime Money Market Portfolio (the
"Portfolio"), a diversified open-end management investment company having the
same investment objective as the Prime Money Market Fund.
The Portfolio seeks to achieve its investment objective by maintaining
a dollar-weighted average portfolio maturity of not more than 90 days and by
investing in U.S. dollar denominated securities described in this Statement of
Additional Information that meet certain rating criteria, present minimal credit
risk and have effective maturities of not more than thirteen months. The
Portfolio's ability to achieve maximum current income is affected by its high
quality standards. See "Quality and Diversification Requirements."
J.P. Morgan Federal Money Market Fund (the "Federal Money Market Fund")
is designed for investors who seek high current income consistent with the
preservation of capital and same day liquidity from a portfolio of high quality
money market instruments. The Federal Money Market Fund attempts to accomplish
this objective by investing all of its investable assets in The Federal Money
Market Portfolio (the "Portfolio"), a diversified open-end management investment
company having the same investment objective as the Federal Money Market Fund.
The Portfolio attempts to achieve its investment objective by
maintaining a dollar-weighted average portfolio maturity of not more than 90
days and by investing in U.S. Treasury securities and in obligations of certain
U.S. Government agencies, as described in this Statement of Additional
Information that have effective maturities of not more than thirteen months. See
"Quality and Diversification Requirements."
Money Market Instruments
A description of the various types of money market instruments that may be
purchased by the Funds appears below. Also see "Quality and Diversification
Requirements."
U.S. Treasury Securities. Each of the Funds may invest in direct
obligations of the U.S. Treasury, including Treasury bills, notes and bonds, all
of which are backed as to principal and interest payments by the full faith and
credit of the United States.
Additional U.S. Government Obligations. Each of the Funds may invest in
obligations issued or guaranteed by U.S. Government agencies or
instrumentalities. These obligations may or may not be backed by the "full faith
and credit" of the United States. Securities which are backed by the full faith
and credit of the United States include obligations of the Government National
Mortgage Association, the Farmers Home Administration, and the Export-Import
Bank. In the case of securities not backed by the full faith and credit of the
United States, each Fund must look principally to the federal agency issuing or
guaranteeing the obligation for ultimate repayment and may not be able to assert
a claim against the United States itself in the event the agency or
instrumentality does not meet its commitments. Securities in which each Fund may
invest that are not backed by the full faith and credit of the United States
include, but are not limited to: (i) obligations of the Tennessee Valley
Authority, the Federal Home Loan Mortgage Corporation, the Federal Home Loan
Banks and the U.S. Postal Service, each of which has the right to borrow from
the U.S. Treasury to meet its obligations; (ii) securities issued by the Federal
National Mortgage Association, which are supported by the discretionary
authority of the U.S. Government to purchase the agency's obligations; and (iii)
obligations of the Federal Farm Credit System and the Student Loan Marketing
Association, each of whose obligations may be satisfied only by the individual
credits of the issuing agency.
Foreign Government Obligations. The Prime Money Market Fund, subject to
its applicable investment policies, may also invest in short-term obligations of
foreign sovereign governments or of their agencies, instrumentalities,
authorities or political subdivisions. These securities must be denominated in
the U.S.
dollar.
Bank Obligations. The Prime Money Market Fund, unless otherwise noted
in the Prospectus or below, may invest in negotiable certificates of deposit,
time deposits and bankers' acceptances of (i) banks, savings and loan
associations and savings banks which have more than $2 billion in total assets
and are organized under the laws of the United States or any state, (ii) foreign
branches of these banks or of foreign banks of equivalent size (Euros) and (iii)
U.S. branches of foreign banks of equivalent size (Yankees). See "Foreign
Investments." The Prime Money Market Fund will not invest in obligations for
which the Advisor, or any of its affiliated persons, is the ultimate obligor or
accepting bank. The Prime Money Market Fund may also invest in obligations of
international banking institutions designated or supported by national
governments to promote economic reconstruction, development or trade between
nations (e.g., the European Investment Bank, the Inter-American Development
Bank, or the World Bank).
Commercial Paper. The Prime Money Market Fund may invest in commercial
paper, including master demand obligations. Master demand obligations are
obligations that provide for a periodic adjustment in the interest rate paid and
permit daily changes in the amount borrowed. Master demand obligations are
governed by agreements between the issuer and Morgan acting as agent, for no
additional fee. The monies loaned to the borrower come from accounts managed by
Morgan or its affiliates, pursuant to arrangements with such accounts. Interest
and principal payments are credited to such accounts. Morgan, an affiliate of
the Advisor, has the right to increase or decrease the amount provided to the
borrower under an obligation. The borrower has the right to pay without penalty
all or any part of the principal amount then outstanding on an obligation
together with interest to the date of payment. Since these obligations typically
provide that the interest rate is tied to the Federal Reserve commercial paper
composite rate, the rate on master demand obligations is subject to change.
Repayment of a master demand obligation to participating accounts depends on the
ability of the borrower to pay the accrued interest and principal of the
obligation on demand which is continuously monitored by Morgan. Since master
demand obligations typically are not rated by credit rating agencies, the Prime
Money Market Fund may invest in such unrated obligations only if at the time of
an investment the obligation is determined by the Advisor to have a credit
quality which satisfies the Prime Money Market Fund's quality restrictions. See
"Quality and Diversification Requirements." Although there is no secondary
market for master demand obligations, such obligations are considered by the
Prime Money Market Fund to be liquid because they are payable upon demand. The
Prime Money Market Fund does not have any specific percentage limitation on
investments in master demand obligations. It is possible that the issuer of a
master demand obligation could be a client of Morgan to whom Morgan, in its
capacity as a commercial bank, has made a loan.
Asset-backed Securities. The Prime Money Market Fund may also invest in
securities generally referred to as asset-backed securities, which directly or
indirectly represent a participation interest in, or are secured by and payable
from, a stream of payments generated by particular assets, such as motor vehicle
or credit card receivables or other asset-backed securities collateralized by
such assets. Asset-backed securities provide periodic payments that generally
consist of both interest and 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 a Fund may invest are subject to the Fund's
overall credit requirements. However, asset-backed securities, in general, are
subject to certain risks. Most of these risks are related to limited interests
in applicable collateral. For example, credit card debt receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts on credit card debt thereby reducing the
balance due. Additionally, if the letter of credit is exhausted, holders of
asset-backed securities may also experience delays in payments or losses if the
full amounts due on underlying sales contracts are not realized. Because
asset-backed securities are relatively new, the market experience in these
securities is limited and the market's ability to sustain liquidity through all
phases of the market cycle has not been tested.
Repurchase Agreements. Each of the Funds may enter into repurchase
agreements with brokers, dealers or banks that meet the credit guidelines
approved by the Funds' Trustees. In a repurchase agreement, a Fund buys a
security from a seller that has agreed to repurchase the same security at a
mutually agreed upon date and price. The resale price normally is in excess of
the purchase price, reflecting an agreed upon interest rate. This interest rate
is effective for the period of time the Fund is invested in the agreement and is
not related to the coupon rate on the underlying security. A repurchase
agreement may also be viewed as a fully collateralized loan of money by a Fund
to the seller. The period of these repurchase agreements will usually be short,
from overnight to one week, and at no time will any Fund invest in repurchase
agreements for more than thirteen months. The securities which are subject to
repurchase agreements, however, may have maturity dates in excess of thirteen
months from the effective date of the repurchase agreement. The Federal Money
Market Fund may only enter into repurchase agreements involving U.S. Treasury
securities and Permitted Agency Securities. The Funds will always receive
securities as collateral whose market value is, and during the entire term of
the agreement remains, at least equal to 100% of the dollar amount invested by
the Funds in each agreement plus accrued interest, and the Funds will make
payment for such securities only upon physical delivery or upon evidence of book
entry transfer to the account of the Custodian. Each Fund will be fully
collateralized within the meaning of paragraph (a)(4) of Rule 2a-7 under the
Investment Company Act of 1940, as amended (the "1940 Act"). If the seller
defaults, a Fund might incur a loss if the value of the collateral securing the
repurchase agreement declines and might incur disposition costs in connection
with liquidating the collateral. In addition, if bankruptcy proceedings are
commenced with respect to the seller of the security, realization upon disposal
of the collateral by a Fund may be delayed or limited.
The Prime Money Market Fund may make investments in other debt
securities with remaining effective maturities of not more than thirteen months,
including, without limitation, corporate and foreign bonds, asset-backed
securities and other obligations described in the Prospectus or this Statement
of Additional Information.
Foreign Investments
The Prime Money Market Fund may invest in certain foreign securities.
All investments must be U.S. dollar-denominated. Investment in securities of
foreign issuers and in obligations of foreign branches of domestic banks
involves somewhat different investment risks from those affecting securities of
U.S. domestic issuers. There may be limited publicly available information with
respect to foreign issuers, and foreign issuers are not generally subject to
uniform accounting, auditing and financial standards and requirements comparable
to those applicable to domestic companies. Any foreign commercial paper must not
be subject to foreign withholding tax at the time of purchase.
Investors should realize that the value of the Fund's investments in
foreign securities may be adversely affected by changes in political or social
conditions, diplomatic relations, confiscatory taxation, expropriation,
nationalization, limitation on the removal of funds or assets, or imposition of
(or change in) exchange control or tax regulations in those foreign countries.
In addition, changes in government administrations or economic or monetary
policies in the United States or abroad could result in appreciation or
depreciation of portfolio securities and could favorably or unfavorably affect
the Fund's operations. Furthermore, the economies of individual foreign nations
may differ from the U.S. economy, whether favorably or unfavorably, in areas
such as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position; it may
also be more difficult to obtain and enforce a judgment against a foreign
issuer. Any foreign investments made by the Fund must be made in compliance with
U.S. and foreign currency restrictions and tax laws restricting the amounts and
types of foreign investments.
Additional Investments
Municipal Bonds. The Prime Money Market Fund may invest in municipal
bonds issued by or on behalf of states, territories and possessions of the
United States and the District of Columbia and their political subdivisions,
agencies, authorities and instrumentalities. The Prime Money Market Fund may
also invest in municipal notes of various types, including notes issued in
anticipation of receipt of taxes, the proceeds of the sale of bonds, other
revenues or grant proceeds, as well as municipal commercial paper and municipal
demand obligations such as variable rate demand notes and master demand
obligations. These municipal bonds and notes will be taxable securities; income
generated from these investments will be subject to federal, state and local
taxes.
When-Issued and Delayed Delivery Securities. Each of the Funds may
purchase securities on a when-issued or delayed delivery basis. For example,
delivery of and payment for these securities can take place a month or more
after the date of the purchase commitment. The purchase price and the interest
rate payable, if any, on the securities are fixed on the purchase commitment
date or at the time the settlement date is fixed. The value of such securities
is subject to market fluctuation and for money market instruments and other
fixed income securities, no interest accrues to a Fund until settlement takes
place. At the time a Fund makes the commitment to purchase securities on a
when-issued or delayed delivery basis, it will record the transaction, reflect
the value each day of such securities in determining its net asset value and, if
applicable, calculate the maturity for the purposes of average maturity from
that date. At the time of settlement a when-issued security may be valued at
less than the purchase price. To facilitate such acquisitions, each Fund will
maintain with the Custodian a segregated account with liquid assets, consisting
of cash, U.S. Government securities or other appropriate securities, in an
amount at least equal to such commitments. On delivery dates for such
transactions, each Fund will meet its obligations from maturities or sales of
the securities held in the segregated account and/or from cash flow. If a Fund
chooses to dispose of the right to acquire a when-issued security prior to its
acquisition, it could, as with the disposition of any other portfolio
obligation, incur a gain or loss due to market fluctuation. Also, a Fund may be
disadvantaged if the other party to the transaction defaults. It is the current
policy of each Fund not to enter into when-issued commitments exceeding in the
aggregate 15% of the market value of the Fund's total assets, less liabilities
other than the obligations created by when-issued commitments.
Investment Company Securities. Securities of other investment companies
may be acquired by each of the Funds and their corresponding Portfolios to the
extent permitted under the 1940 Act or any order pursuant thereto. These limits
currently require that, as determined immediately after a purchase is made, (i)
not more than 5% of the value of a Fund's total assets will be invested in the
securities of any one investment company, (ii) not more than 10% of the value of
its total assets will be invested in the aggregate in securities of investment
companies as a group, and (iii) not more than 3% of the outstanding voting stock
of any one investment company will be owned by a Fund, provided however, that a
Fund may invest all of its investable assets in an open-end investment company
that has the same investment objective as the Fund (its corresponding
Portfolio). As a shareholder of another investment company, a Fund or Portfolio
would bear, along with other shareholders, its pro rata portion of the other
investment company's expenses, including advisory fees. These expenses would be
in addition to the advisory and other expenses that a Fund or Portfolio bears
directly in connection with its own operations.
Reverse Repurchase Agreements. Each of the Funds may enter into reverse
repurchase agreements. In a reverse repurchase agreement, a Fund sells a
security and agrees to repurchase the same security at a mutually agreed upon
date and price reflecting the interest rate effective for the term of the
agreement. For purposes of the 1940 Act a reverse repurchase agreement is also
considered as the borrowing of money by the Fund and, therefore, a form of
leverage. Leverage may cause any gains or losses for a Fund to be magnified. The
Funds will invest the proceeds of borrowings under reverse repurchase
agreements. In addition, a Fund will enter into a reverse repurchase agreement
only when the interest income to be earned from the investment of the proceeds
is greater than the interest expense of the transaction. A Fund will not invest
the proceeds of a reverse repurchase agreement for a period which exceeds the
duration of the reverse repurchase agreement. Each Fund will establish and
maintain with the Custodian a separate account with a segregated portfolio of
securities in an amount at least equal to its purchase obligations under its
reverse repurchase agreements. If interest rates rise during the term of a
reverse repurchase agreement, entering into the reverse repurchase agreement may
have a negative impact on a Fund's ability to maintain a net asset value of
$1.00 per share. See "Investment Restrictions" for each Fund's limitations on
reverse repurchase agreements and bank borrowings.
Loans of Portfolio Securities. Subject to applicable investment
restrictions, each Fund is permitted to lend its securities in an amount up to
33 1/3% of the value of the Fund's net assets. Each of the Funds may lend its
securities if such loans are secured continuously by cash or equivalent
collateral or by a letter of credit in favor of the Fund at least equal at all
times to 100% of the market value of the securities loaned, plus accrued
interest. While such securities are on loan, the borrower will pay the Fund any
income accruing thereon. Loans will be subject to termination by the Funds in
the normal settlement time, generally three business days after notice, or by
the borrower on one day's notice. Borrowed securities must be returned when the
loan is terminated. Any gain or loss in the market price of the borrowed
securities which occurs during the term of the loan inures to a Fund and its
respective investors. The Funds may pay reasonable finders' and custodial fees
in connection with a loan. In addition, a Fund will consider all facts and
circumstances including the creditworthiness of the borrowing financial
institution, and no Fund will make any loans in excess of one year. Loans of
portfolio securities may be considered extensions of credit by the Funds. The
risks to each Fund with respect to borrowers of its portfolio securities are
similar to the risks to each Fund with respect to sellers in repurchase
agreement transactions. See "Repurchase Agreements". The Funds will not lend
their securities to any officer, Trustee, Director, employee or other affiliate
of the Funds, the Advisor or the Distributor, unless otherwise permitted by
applicable law.
Illiquid Investments, Privately Placed and Certain Unregistered
Securities. The Funds may invest in privately placed, restricted, Rule 144A or
other unregistered securities. No Fund may acquire any illiquid holdings if, as
a result thereof, more than 10% of a Fund's net assets would be in illiquid
investments. Subject to this non-fundamental policy limitation (Prime Money
Market Fund only), the Portfolios may acquire investments that are illiquid or
have limited liquidity, such as private placements or investments that are not
registered under the Securities Act of 1933, as amended (the "1933 Act") and
cannot be offered for public sale in the United States without first being
registered under the 1933 Act. An illiquid investment is any investment that
cannot be disposed of within seven days in the normal course of business at
approximately the amount at which it is valued by the Portfolios. The price the
Portfolios pay for illiquid securities or receives upon resale may be lower than
the price paid or received for similar securities with a more liquid market.
Accordingly the valuation of these securities will reflect any limitations on
their liquidity.
The Funds may purchase Rule 144A securities sold to institutional
investors without registration under the 1933 Act. These securities may be
determined to be liquid in accordance with guidelines established by the Advisor
and approved by the Trustees. The Trustees will monitor the Advisor's
implementation of these guidelines on a periodic basis.
As to illiquid investments, a Fund is subject to a risk that should the
Fund decide to sell them when a ready buyer is not available at a price the Fund
deems representative of their value, the value of the Fund's net assets could be
adversely affected. Where an illiquid security must be registered under the 1933
Act, before it may be sold, a Fund may be obligated to pay all or part of the
registration expenses, and a considerable period may elapse between the time of
the decision to sell and the time the Fund may be permitted to sell a security
under an effective registration statement. If, during such a period, adverse
market conditions were to develop, a Fund might obtain a less favorable price
than prevailed when it decided to sell.
Synthetic Instruments. The Prime Money Market Fund may invest in
certain synthetic instruments. Such instruments generally involve the deposit of
asset-backed securities in a trust arrangement and the issuance of certificates
evidencing interests in the trust. The certificates are generally sold in
private placements in reliance on Rule 144A. The Advisor will review the
structure of synthetic instruments to identify credit and liquidity risks and
will monitor those risks. See "Illiquid Investments, Privately Placed and
Certain Unregistered Securities".
Quality and Diversification Requirements
Each of the Funds intends to meet the diversification requirements of
the 1940 Act. Current 1940 Act diversification requirements require that with
respect to 75% of the assets of each Fund: (1) the Fund may not invest more than
5% of its total assets in the securities of any one issuer, except obligations
of the U.S. Government, its agencies and instrumentalities, and (2) the Fund may
not own more than 10% of the outstanding voting securities of any one issuer. As
for the other 25% of the Fund's assets not subject to the limitation described
above, there is no limitation on investment of these assets under the 1940 Act,
so that all of such assets may be invested in securities of any one issuer.
Investments not subject to the limitations described above could involve an
increased risk to a Fund should an issuer, or a state or its related entities,
be unable to make interest or principal payments or should the market value of
such securities decline.
At the time any of the Funds 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.
Prime Money Market Fund. In order to maintain a stable net asset value,
the Prime Money Market Fund will (i) limit its investment in the securities
(other than U.S. Government securities) of any one issuer to no more than 5% of
its assets, measured at the time of purchase, except for investments held for
not more than three business days; and (ii) limit investments to securities that
present minimal credit risks and securities (other than U.S. Government
securities) that are rated within the highest short-term rating category by at
least two nationally recognized statistical rating organizations ("NRSROs") or
by the only NRSRO that has rated the security. Securities which originally had a
maturity of over one year are subject to more complicated, but generally similar
rating requirements. A description of illustrative credit ratings is set forth
in "Appendix A." The Fund may also purchase unrated securities that are of
comparable quality to the rated securities described above. Additionally, if the
issuer of a particular security has issued other securities of comparable
priority and security and which have been rated in accordance with (ii) above,
that security will be deemed to have the same rating as such other rated
securities.
In addition, the Board of Trustees has adopted procedures which (i)
require the Board of Trustees to approve or ratify purchases by the Fund of
securities (other than U.S. Government securities) that are unrated; (ii)
require the Fund to maintain a dollar-weighted average portfolio maturity of not
more than 90 days and to invest only in securities with a remaining maturity of
not more than 397 days; 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.
Federal Money Market Fund. In order to maintain a stable net asset
value, the Federal Money Market Fund will limit its investments to direct
obligations of the U.S. Treasury, including Treasury bills, notes and bonds, and
certain U.S. Government agency securities with remaining maturities of not more
than thirteen months at the time of purchase and will maintain a dollar-weighted
average portfolio maturity of not more than 90 days.
INVESTMENT RESTRICTIONS
The investment restrictions of each Fund and its corresponding
Portfolio are identical, unless otherwise specified. Accordingly, references
below to a Fund also include the Fund's corresponding Portfolio unless the
context requires otherwise; similarly, references to a Portfolio also include
its corresponding Fund unless the context requires otherwise.
The investment restrictions below have been adopted by the Trust with
respect to each Fund and by each corresponding Portfolio. Except where otherwise
noted, these investment restrictions are "fundamental" policies which, under the
1940 Act, may not be changed without the vote of a majority of the outstanding
voting securities of the Fund or Portfolio, as the case may be. A "majority of
the outstanding voting securities" is defined in the 1940 Act as the lesser of
(a) 67% or more of the voting securities present at a meeting if the holders of
more than 50% of the outstanding voting securities are present or represented by
proxy, or (b) more than 50% of the outstanding voting securities. The percentage
limitations contained in the restrictions below apply at the time of the
purchase of securities. Whenever a Fund is requested to vote on a change in the
fundamental investment restrictions of its corresponding Portfolio, the Trust
will hold a meeting of Fund shareholders and will cast its votes as instructed
by the Fund's shareholders.
The Prime Money Market Fund and the Federal Money Market Fund and their
corresponding Portfolios:
1. May not make any investment inconsistent with the Fund's classification as a
diversified investment company under the Investment Company Act of 1940.
2. May not purchase any security which would cause the Fund to concentrate its
investments in the securities of issuers primarily engaged in any particular
industry except as permitted by the SEC. In the case of Prime Money Market Fund,
this restriction does not apply to instruments considered to be domestic bank
money market instruments.
3. 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 - Prime Money Market Fund and
Federal Money Market Fund. The investment restrictions described below are not
fundamental policies of the Funds and their corresponding Portfolios and may be
changed by their Trustees. These non-fundamental investment policies require
that the Funds and their corresponding Portfolios:
(i) May not acquire any illiquid securities, such as repurchase agreements with
more than seven days to maturity or fixed time deposits with a duration of over
seven calendar days, if as a result thereof, more than 10% of the market value
of the Fund's total assets would be in investments which are illiquid;
(ii) May not purchase securities on margin, make short sales of securities, or
maintain a short position, provided that this restriction shall not be deemed to
be applicable to the purchase or sale of when-issued or delayed delivery
securities
(iii) May not acquire securities of other investment companies, except as
permitted by the 1940 Act or any order pursuant thereto.
(iv) The Prime Money Market Fund may not borrow money, except from banks for
extraordinary or emergency purposes and then only in amounts not to exceed 10%
of the value of the Fund's total assets, taken at cost, at the time of such
borrowing. Mortgage, pledge, or hypothecate any assets except in connection with
any such borrowing and in amounts not to exceed 10% of the value of the Fund's
net assets at the time of such borrowing. The Fund will not purchase securities
while borrowings exceed 5% of the Fund's total assets; provided, however, that
the Fund may increase its interest in an open-end management investment company
with the same investment objective and restrictions as the Fund while such
borrowings are outstanding. This borrowing provision is included to facilitate
the orderly sale of portfolio securities, for example, in the event of
abnormally heavy redemption requests, and is not for investment purposes and
shall not apply to reverse repurchase agreements.
(v) The Federal Money Market Fund may not borrow money (not including reverse
repurchase agreements), except from banks for temporary or extraordinary or
emergency purposes and then only in amounts up to 10% of the value of the Fund's
or the Portfolio's total assets, taken at cost at the time of such borrowing
(and provided that such borrowings and reverse repurchase agreements do not
exceed in the aggregate one-third of the market value of the Fund's and the
Portfolio's total assets less liabilities other than the obligations represented
by the bank borrowings and reverse repurchase agreements). Mortgage, pledge, or
hypothecate any assets except in connection with any such borrowing and in
amounts up to 10% of the value of the Fund's or the Portfolio's net assets at
the time of such borrowing. The Fund or the Portfolio will not purchase
securities while borrowings exceed 5% of the Fund's or the Portfolio's total
assets, respectively; provided, however, that the Fund may increase its interest
in an open-end management investment company with the same investment objective
and restrictions as the Fund while such borrowings are outstanding. This
borrowing provision is included to facilitate the orderly sale of portfolio
securities, for example, in the event of abnormally heavy redemption requests,
and is not for investment purposes.
Notwithstanding any other fundamental or non-fundamental investment
restriction or policy, each Fund reserves the right, without the approval of
shareholders, to invest all of its assets in the securities of a single open-end
registered investment company with substantially the same investment objective,
restrictions and policies as the Fund.
There will be no violation of any investment restriction if that
restriction is complied with at the time the relevant action is taken
notwithstanding a later change in market value of an investment, in net or total
assets, in the securities rating of the investment, or any other later change.
For purposes of fundamental investment restrictions regarding industry
concentration, the Advisor may classify issuers by industry in accordance with
classifications set forth in the Directory of Companies Filing Annual Reports
With The Securities and Exchange Commission or other sources. In the absence of
such classification or if the Advisor determines in good faith based on its own
information that the economic characteristics affecting a particular issuer make
it more appropriately considered to be engaged in a different industry, the
Advisor may classify accordingly. For instance, personal credit finance
companies and business credit finance companies are deemed to be separate
industries and wholly owned finance companies are considered to be in the
industry of their parents if their activities are primarily related to financing
the activities of their parents.
TRUSTEES AND OFFICERS
Trustees
The Trustees of the Trust, who are also the Trustees of each of the
Portfolios, their business addresses, principal occupations during the past five
years and dates of birth are set forth below.
FREDERICK S. ADDY--Trustee; Retired; Prior to April 1994, Executive Vice
President and Chief Financial Officer, Amoco Corporation. His address is 5300
Arbutus Cove, Austin, Texas 78746, and his date of birth is January 1, 1932.
WILLIAM G. BURNS--Trustee; Retired, Former Vice Chairman and Chief
Financial Officer, NYNEX. His address is 2200 Alaqua Drive, Longwood, Florida
32779, and his date of birth is November 2, 1932.
ARTHUR C. ESCHENLAUER--Trustee; Retired; Former Senior Vice President,
Morgan Guaranty Trust Company of New York. His address is 14 Alta Vista Drive,
RD #2, Princeton, New Jersey 08540, and his date of birth is May 23, 1934.
MATTHEW HEALEY1--Trustee, Chairman and Chief Executive Officer;
Chairman, Pierpont Group, Inc., since prior to 1992. His address is Pine Tree
Club Estates, 10286 Saint Andrews Road, Boynton Beach, Florida 33436, and his
date of birth is August 23, 1937.
MICHAEL P. MALLARDI--Trustee; Retired; Prior to April 1996, Senior Vice
President, Capital Cities/ABC, Inc. and President, Broadcast Group. His address
is 10 Charnwood Drive, Suffern, New York 10910, and his date of birth is March
17, 1934.
The Trustees of the Trust are the same as the Trustees of each of the
Portfolios. In accordance with applicable state requirements, a majority of the
disinterested Trustees have adopted written procedures reasonably appropriate to
deal with potential conflicts of interest arising from the fact that the same
individuals are Trustees of the Trust, each of the Portfolios and the J.P.
Morgan 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 Institutional 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.
- --------------------------
2 Mr. Healey is an "interested person" (as defined in the 1940 Act) of the
Trust. Mr. Healey is also an "interested person" (as defined in the 1940 Act) of
the advisor due to his son's affiliation with JPMIM.
Trustee compensation expenses paid by the Trust for the calendar year ended
December 31, 1997 are set forth below.
<TABLE>
<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 1997 1997(***)
------------- -------------
NAME OF TRUSTEE
- -------------------------------------------------- ------------------------ ---------------------------------------
- -------------------------------------------------- ------------------------ ---------------------------------------
Frederick S. Addy, Trustee $12,641.75 $72,500
- -------------------------------------------------- ------------------------ ---------------------------------------
- -------------------------------------------------- ------------------------ ---------------------------------------
William G. Burns, Trustee $12,644.75 $72,500
- -------------------------------------------------- ------------------------ ---------------------------------------
- -------------------------------------------------- ------------------------ ---------------------------------------
Arthur C. Eschenlauer, Trustee $12,644.75 $72,500
- -------------------------------------------------- ------------------------ ---------------------------------------
- -------------------------------------------------- ------------------------ ---------------------------------------
Matthew Healey, Trustee (**) $12,644.75 $72,500
Chairman and Chief Executive
Officer
- -------------------------------------------------- ------------------------ ---------------------------------------
- -------------------------------------------------- ------------------------ ---------------------------------------
Michael P. Mallardi, Trustee $12,644.75 $72,500
- -------------------------------------------------- ------------------------ ---------------------------------------
- --------------------------------------------- ------------------------------ -------------------------------------------
- --------------------------------------------- ------------------------------ -------------------------------------------
</TABLE>
(*) Includes the Portfolio and 18 other portfolios (collectively, the
"Master Portfolios") for which JPMIM acts as investment adviser.
(**) During 1997, Pierpont Group, Inc. paid Mr. Healey, in his role as
Chairman of Pierpont Group, Inc., compensation in the amount of $147,500,
contributed $22,100 to a defined contribution plan on his behalf and paid
$20,500 in insurance premiums for his benefit.
(***) No investment company within the fund complex has a pension or
retirement plan. Currently there are 18 investment companies (15
investment companies comprising the Master Portfolios, the J.P. Morgan
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. Each of the Portfolios
and the Trust has entered into a Fund Services Agreement with Pierpont Group,
Inc. to assist the Trustees in exercising their overall supervisory
responsibilities over the affairs of the Portfolios and the Trust. Pierpont
Group, Inc. was organized in July 1989 to provide services for The Pierpont
Family of Funds, and the Trustees are the equal and sole shareholders of
Pierpont Group, Inc. The Trust and the Portfolios have agreed to pay Pierpont
Group, Inc. a fee in an amount representing its reasonable costs in performing
these services to the Trust, the Portfolios and certain other registered
investment companies subject to similar agreements with Pierpont Group, Inc.
These costs are periodically reviewed by the Trustees. The principal offices of
Pierpont Group, Inc. are located at 461 Fifth Avenue, New York, New York 10017.
The aggregate fees paid to Pierpont Group, Inc. by each Fund and its
corresponding Portfolio during the indicated fiscal periods are set forth below:
Prime Money Market Fund -- For the fiscal years ended November 30, 1995, 1996
and 1997: $193,838, $96,853 and $80,429. The Prime Money Market Portfolio -- For
the fiscal years ended November 30, 1995, 1996 and 1997: $261,045, $157,428 and
$143,027.
Federal Money Market Fund -- For the fiscal years ended October 31, 1995, 1996
and 1997: $14,332, $9,821 and $ 8,221. The Federal Money Market Portfolio -- For
the fiscal years ended October 31, 1995, 1996 and 1997: $22,791, $16,144 and $
12,004.
Officers
The Trust's and Portfolios' executive officers (listed below), other
than the Chief Executive Officer, are provided and compensated by Funds
Distributor, Inc. ("FDI"), a wholly owned indirect subsidiary of Boston
Institutional Group, Inc. The officers conduct and supervise the business
operations of the Trust and the Portfolios. The Trust and the Portfolios have no
employees.
The officers of the Trust and the Portfolios, their principal
occupations during the past five years and dates of birth are set forth below.
Unless otherwise specified, each officer holds the same position with the Trust
and each Portfolio. The business address of each of the officers unless
otherwise noted is Funds Distributor, Inc., 60 State Street, Suite 1300, Boston,
Massachusetts 02109.
MATTHEW HEALEY; Chief Executive Officer; Chairman, Pierpont Group,
since prior to 1993. His address is Pine Tree Club Estates, 10286 Saint Andrews
Road, Boynton Beach, Florida 33436. His date of birth is August 23, 1937.
MARGARET W. CHAMBERS; Vice President and Secretary. Senior Vice President
and General Counsel of FDI since April, 1998. From August 1996 to March 1998,
Ms. Chambers was Vice President and Assistant General Counsel for Loomis, Sayles
& Company, L.P. From January 1986 to July 1996, she was an associate with the
law firm of Ropes & Gray. Her date of birth is October 12, 1959.
MARIE E. CONNOLLY; Vice President and Assistant Treasurer. President,
Chief Executive Officer, Chief Compliance Officer and Director of FDI, Premier
Mutual Fund Services, Inc., an affiliate of FDI ("Premier Mutual") and an
officer of certain investment companies distributed or administered by FDI.
Prior to July 1994, she was President and Chief Compliance Officer of FDI. Her
date of birth is August 1, 1957.
DOUGLAS C. CONROY; Vice President and Assistant Treasurer. Assistant Vice
President and Assistant Department Manager of Treasury Services and
Administration of FDI and an officer of certain investment companies distributed
or administered by FDI. Prior to April 1997, Mr. Conroy was Supervisor of
Treasury Services and Administration of FDI. From April 1993 to January 1995,
Mr. Conroy was a Senior Fund Accountant for Investors Bank & Trust Company. His
date of birth is March 31, 1969.
JACQUELINE HENNING; Assistant Secretary and Assistant Treasurer of the
Portfolio only. Managing Director, State Street Cayman Trust Company, Ltd. since
October 1994. Prior to October 1994, Mrs. Henning was head of mutual funds at
Morgan Grenfell in Cayman and was Managing Director of Bank of Nova Scotia Trust
Company (Cayman) Limited prior to September 1993. Address: P.O. Box 2508 GT,
Elizabethan Square, 2nd Floor, Shedden Road, George Town, Grand Cayman, Cayman
Islands, BWI. Her date of birth is March 24, 1942.
KAREN JACOPPO-WOOD; Vice President and Assistant Secretary. Vice President
and Senior Counsel of FDI and an officer of certain investment companies
distributed or administered by FDI. From June 1994 to January 1996, Ms.
Jacoppo-Wood was a Manager of SEC Registration at Scudder, Stevens & Clark, Inc.
Prior to May 1994, Ms. Jacoppo-Wood was a senior paralegal at The Boston Company
Advisors, Inc. ("TBCA"). Her date of birth is December 29, 1966.
CHRISTOPHER J. KELLEY; Vice President and Assistant Secretary. Vice
President and Senior Associate General Counsel of FDI and Premier Mutual and an
officer of certain investment companies distributed or administered by FDI. From
April 1994 to July 1996, Mr. Kelley was Assistant Counsel at Forum Financial
Group. Prior to April 1994, Mr. Kelley was employed by Putnam Investments in
legal and compliance capacities. His date of birth is December 24, 1964.
KATHLEEN K. MORRISEY. Vice President and Assistant Secretary. Vice
President and Assistant Secretary of FDI. Manager of Treasury Services
Administration and an officer of certain investment companies advised or
administered by Montgomery Asset Management, L.P. and Dresdner RCM Global
Investors, Inc., and their respective affiliates. From July 1994 to November
1995, Ms. Morrisey was a Fund Accountant II for Investors Bank & Trust Company.
Prior to July 1994 she was a Finance student at Stonehill College in North
Easton, Massachusetts. Her date of birth is July 5, 1972.
MARY A. NELSON; Vice President and Assistant Treasurer. Vice President and
Manager of Treasury Services and Administration of FDI and Premier Mutual and an
officer of certain investment companies distributed or administered by FDI.
Prior to August 1994, Ms. Nelson was an Assistant Vice President and Client
Manager for The Boston Company, Inc. Her date of birth is April 22, 1964.
MARY JO PACE; Assistant Treasurer. Vice President, Morgan Guaranty Trust
Company of New York. Ms. Pace serves in the Funds Administration group as a
Manager for the Budgeting and Expense Processing Group. Prior to September 1995,
Ms. Pace served as a Fund Administrator for Morgan Guaranty Trust Company of New
York. Her address is 60 Wall Street, New York, New York 10260. Her date of birth
is March 13, 1966.
MICHAEL S. PETRUCELLI; Vice President and Assistant Secretary. Senior Vice
President and Director of Strategic Client Initiatives for FDI since December
1996. From December 1989 through November 1996, Mr. Petrucelli was employed with
GE Investments where he held various financial, business development and
compliance positions. He also served as Treasurer of the GE Funds and as
Director of GE Investment Services. Address: 200 Park Avenue, New York, New
York, 10166. His date of birth is May 18, 1961.
STEPHANIE D. PIERCE; Vice President and Assistant Secretary. Vice President
and Client Development Manager for FDI since April 1998. From April 1997 to
March 1998, Ms. Pierce was employed by Citibank, NA as an officer of Citibank
and Relationship Manager on the Business and Professional Banking team handling
over 22,000 clients. Address: 200 Park Avenue, New York, New York 10166. Her
date of birth is August 18, 1968.
GEORGE A. RIO; President and Treasurer. Executive Vice President and Client
Service Director of FDI since April 1998. From June 1995 to March 1998, Mr. Rio
was Senior Vice President and Senior Key Account Manager for Putnam Mutual
Funds. From May 1994 to June 1995, Mr. Rio was Director of Business Development
for First Data Corporation. From September 1983 to May 1994, Mr. Rio was Senior
Vice President & Manager of Client Services and Director of Internal Audit at
The Boston Company. His date of birth is January 2, 1955.
CHRISTINE ROTUNDO; Assistant Treasurer. Vice President, Morgan Guaranty
Trust Company of New York. Ms. Rotundo serves in the Funds Administration group
as a Manager of the Tax Group and is responsible for U.S. mutual fund tax
matters. Prior to September 1995, Ms. Rotundo served as a Senior Tax Manager in
the Investment Company Services Group of Deloitte & Touche LLP. Her address is
60 Wall Street, New York, New York 10260. Her date of birth is September 26,
1965.
<PAGE>
INVESTMENT ADVISOR
The Funds have not retained the services of an investment adviser
because each Fund seeks to achieve its investment objective by investing all of
its investable assets in a corresponding Portfolio. Subject to the supervision
of the Portfolio's Trustees, the Advisor makes each Portfolio's day-to-day
investment decisions, arranges for the execution of Portfolio transactions and
generally manages the Portfolio's investments. Effective October 1, 1998 each
Portfolio's investment advisor is JPMIM. Prior to that date, Morgan was the
investment advisor. JPMIM, a wholly owned subsidiary of J.P. Morgan & Co.
Incorporated ("J.P. Morgan"), is a registered investment adviser under the
Investment Advisers Act of 1940, as amended, which manages employee benefit
funds of corporations, labor unions and state and local governments and the
accounts of other institutional investors, including investment companies.
Certain of the assets of employee benefit accounts under its management are
invested in commingled pension trust funds for which Morgan serves as trustee.
J.P. Morgan, through the Advisor and other subsidiaries, acts as
investment advisor to individuals, governments, corporations, employee benefit
plans, mutual funds and other institutional investors with combined assets under
management of approximately $275 billion.
J.P. Morgan has a long history of service as adviser, underwriter and
lender to an extensive roster of major companies and as a financial advisor to
national governments. The firm, through its predecessor firms, has been in
business for over a century and has been managing investments since 1913.
The basis of the Advisor's investment process is fundamental investment
research as the firm believes that fundamentals should determine an asset's
value over the long term. J.P. Morgan currently employs over 100 full time
research analysts, among the largest research staffs in the money management
industry, in its investment management divisions located in New York, London,
Tokyo, Frankfurt, and Singapore to cover companies, industries and countries on
site. In addition, the investment management divisions employ approximately 300
capital market researchers, portfolio managers and traders. The Advisor's fixed
income investment process is based on analysis of real rates, sector
diversification and quantitative and credit analysis.
The investment advisory services the Advisor provides to the Portfolios
are not exclusive under the terms of the Advisory Agreements. The Advisor is
free to and does render similar investment advisory services to others. The
Advisor serves as investment advisor to personal investors and other investment
companies and acts as fiduciary for trusts, estates and employee benefit plans.
Certain of the assets of trusts and estates under management are invested in
common trust funds for which Morgan serves as trustee. The accounts which are
managed or advised by the Advisor have varying investment objectives and the
Advisor invests assets of such accounts in investments substantially similar to,
or the same as, those which are expected to constitute the principal investments
of the Portfolios. Such accounts are supervised by officers and employees of the
Advisor who may also be acting in similar capacities for the Portfolios. See
"Portfolio Transactions."
Sector weightings are generally similar to a benchmark with the
emphasis on security selection as the method to achieve investment performance
superior to the benchmark. The benchmarks for the Portfolios in which the Funds
invest are currently: The Prime Money Market Portfolio--IBC's First Tier Money
Fund Average; and The Federal Money Market Portfolio--IBC's U.S. Government and
Agency Money Fund Average.
Morgan, also a wholly owned subsidiary of J.P. Morgan, is a bank
holding company organized under the laws of the State of Delaware. Morgan, whose
principal offices are at 60 Wall Street, New York, New York 10260, is a New York
trust company which conducts a general banking and trust business. Morgan is
subject to regulation by the New York State Banking Department and is a member
bank of the Federal Reserve System. Through offices in New York City and abroad,
Morgan offers a wide range of services, primarily to governmental,
institutional, corporate and high net worth individual customers in the United
States and throughout the world.
The Portfolios are managed by officers of the Advisor who, in acting
for their customers, including the Portfolios, do not discuss their investment
decisions with any personnel of J.P. Morgan or any personnel of other divisions
of the Advisor or with any of its affiliated persons, with the exception of
certain other investment management affiliates of J.P. Morgan.
As compensation for the services rendered and related expenses such as
salaries of advisory personnel borne by the Advisor under the Investment
Advisory Agreements, the Portfolio corresponding to each Fund has agreed to pay
the Advisor a fee, which is computed daily and may be paid monthly, equal to the
annual rates of 0.20% of each Portfolio's average daily net assets up to $1
billion and 0.10% of each Portfolio's average daily net assets in excess of $1
billion.
The table below sets forth for each Portfolio listed the advisory fees
paid to Morgan, each Portfolio's advisor fees prior to October 1, 1998 for the
fiscal periods indicated.
The Prime Money Market Portfolio -- For the fiscal years ended November 30,
1995, 1996 and 1997: $3,913,479, $4,503,793 and $5,063,662.
The Federal Money Market Portfolio -- For the fiscal years ended October
31, 1995, 1996 and 1997: $492,941, $653,326 and $659,707.
The Investment Advisory Agreements provide that they will continue in
effect for a period of two years after execution only if specifically approved
thereafter annually in the same manner as the Distribution Agreement. See
"Distributor" below. Each of the Investment Advisory Agreements will terminate
automatically if assigned and is terminable at any time without penalty by a
vote of a majority of the Portfolio's Trustees, or by a vote of the holders of a
majority of the Portfolio's outstanding voting securities, on 60 days' written
notice to the Advisor and by the Advisor on 90 days' written notice to the
Portfolio. See "Additional Information."
The Glass-Steagall Act and other applicable laws generally prohibit
banks such as the Advisor from engaging in the business of underwriting or
distributing securities, and the Board of Governors of the Federal Reserve
System has issued an interpretation to the effect that under these laws a bank
holding company registered under the federal Bank Holding Company Act or certain
subsidiaries thereof may not sponsor, organize, or control a registered open-end
investment company continuously engaged in the issuance of its shares, such as
the Trust. The interpretation does not prohibit a holding company or a
subsidiary thereof from acting as investment advisor and custodian to such an
investment company. The Advisor believes that it may perform the services for
the Portfolios contemplated by the Advisory Agreements without violation of the
Glass-Steagall Act or other applicable banking laws or regulations. State laws
on this issue may differ from the interpretation of relevant federal law, and
banks and financial institutions may be required to register as dealers pursuant
to state securities laws. However, it is possible that future changes in either
federal or state statutes and regulations concerning the permissible activities
of banks or trust companies, as well as further judicial or administrative
decisions and interpretations of present and future statutes and regulations,
might prevent the Advisor from continuing to perform such services for the
Portfolios.
If the Advisor were prohibited from acting as investment advisor to any
Portfolio, it is expected that the Trustees of the Portfolio would recommend to
investors that they approve the Portfolio's entering into a new investment
advisory agreement with another qualified investment advisor selected by the
Trustees.
Under separate agreements, Morgan provides certain financial, fund
accounting and administrative services to the Trust and the Portfolios and
shareholder services for the Trust. See "Services Agent" and "Shareholder
Servicing" below.
DISTRIBUTOR
FDI serves as the Trust's exclusive Distributor and holds itself
available to receive purchase orders for each of the Fund's shares. In that
capacity, FDI has been granted the right, as agent of the Trust, to solicit and
accept orders for the purchase of each of the Fund's shares in accordance with
the terms of the Distribution Agreement between the Trust and FDI. Under the
terms of the Distribution Agreement between FDI and the Trust, FDI receives no
compensation in its capacity as the Trust's distributor. FDI is a wholly owned
indirect subsidiary of Boston Institutional Group, Inc. FDI also serves as
exclusive placement agent for the Portfolio. FDI currently provides
administration and distribution services for a number of other investment
companies.
The Distribution Agreement shall continue in effect with respect to
each of the Funds for a period of two years after execution only if it is
approved at least annually thereafter (i) by a vote of the holders of a majority
of the Fund's outstanding shares or by its Trustees and (ii) by a vote of a
majority of the Trustees of the Trust who are not "interested persons" (as
defined by the 1940 Act) of the parties to the Distribution Agreement, cast in
person at a meeting called for the purpose of voting on such approval (see
"Trustees and Officers"). The Distribution Agreement will terminate
automatically if assigned by either party thereto and is terminable at any time
without penalty by a vote of a majority of the Trustees of the Trust, a vote of
a majority of the Trustees who are not "interested persons" of the Trust, or by
a vote of the holders of a majority of the Fund's outstanding shares as defined
under "Additional Information," in any case without payment of any penalty on 60
days' written notice to the other party. The principal offices of FDI are
located at 60 State Street, Suite 1300, Boston, Massachusetts 02109.
CO-ADMINISTRATOR
Under Co-Administration Agreements with the Trust and the Portfolios
dated August 1, 1996, FDI also serves as the Trust's and the Portfolios'
Co-Administrator. The Co-Administration Agreements may be renewed or amended by
the respective Trustees without a shareholder vote. The Co-Administration
Agreements are terminable at any time without penalty by a vote of a majority of
the Trustees of the Trust or the Portfolios, as applicable, on not more than 60
days' written notice nor less than 30 days' written notice to the other party.
The Co-Administrator may subcontract for the performance of its obligations,
provided, however, that unless the Trust or the Portfolios, as applicable,
expressly agrees in writing, the Co-Administrator shall be fully responsible for
the acts and omissions of any subcontractor as it would for its own acts or
omissions. See "Services Agent" below.
FDI (i) provides office space, equipment and clerical personnel for
maintaining the organization and books and records of the Trust and the
Portfolio; (ii) provides officers for the Trust and the Portfolio; (iii)
prepares and files documents required for notification of state securities
administrators; (iv) reviews and files marketing and sales literature; (v) files
Portfolio regulatory documents and mails Portfolio communications to Trustees
and investors; and (vi) maintains related books and records.
For its services under the Co-Administration Agreements, each Fund and
Portfolio has agreed to pay FDI fees equal to its allocable share of an annual
complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The amount
allocable to each Fund or Portfolio is based on the ratio of its net assets to
the aggregate net assets of the Trust, the Master Portfolios and certain other
investment companies subject to similar agreements with FDI.
The table below sets forth for each Fund listed and its corresponding
Portfolio the administrative fees paid to FDI for the fiscal periods indicated.
See the Prospectus and below for applicable expense limitations.
Prime Money Market Fund --For the period August 1, 1996 through November 30,
1996 and the fiscal year ended November 30, 1997: $25,995 and $ 70,148. The
Prime Money Market Portfolio -- For the period August 1, 1996 through November
30, 1996 and the fiscal year ended November 30, 1997: $33,012 and $96,662.
Federal Money Market Fund -- For the period August 1, 1996 through October 31,
1996 and the fiscal year ended October 31, 1997: $1,838 and $ 6,930. The Federal
Money Market Portfolio -- For the period August 1, 1996 through October 31, 1996
and the fiscal year ended October 31, 1997: $1,663 and $6,218.
The table below sets forth for each Fund listed and its corresponding
Portfolio the administrative fees paid to Signature Broker-Dealer Services, Inc.
(which provided distribution and administrative services to the Trust and
placement agent and administrative services to the Portfolios prior to August 1,
1996) for the fiscal periods indicated. See the Prospectus and below for
applicable expense limitations.
Prime Money Market Fund -- For the fiscal year ended November 30, 1995 and the
period December 1, 1995 through July 31, 1996: $565,438 and $201,216. The Prime
Money Market Portfolio -- For the fiscal year ended November 30, 1995 and the
period December 1, 1995 through July 31, 1996: $176,717 and $272,989.
Federal Money Market Fund -- For the fiscal year ended October 31, 1995 and the
period November 1, 1995 through July 31, 1996: $46,000 and $23,554. The Federal
Money Market Portfolio -- For the fiscal year ended October 31, 1995 and the
period November 1, 1995 through July 31, 1996: $17,480 and $28,623.
SERVICES AGENT
The Trust, on behalf of each Fund, and the Portfolios have entered into
Administrative Services Agreements (the "Services Agreements") with Morgan
pursuant to which Morgan is responsible for certain administrative and related
services provided to each Fund and its corresponding Portfolio. The Services
Agreements may be terminated at any time, without penalty, by the Trustees or
Morgan, in each case on not more than 60 days' nor less than 30 days' written
notice to the other party.
Under the Services Agreements, each of the Funds and the Portfolios has
agreed to pay Morgan fees equal to its allocable share of an annual complex-wide
charge. This charge is calculated daily based on the aggregate net assets of the
Master Portfolios and J.P. Morgan Series Trust in accordance with the following
annual schedule: 0.09% of the first $7 billion of their aggregate average daily
net assets and 0.04% of their aggregate average daily net assets in excess of $7
billion, less the complex-wide fees payable to FDI. The portion of this charge
payable by each Fund and Portfolio is determined by the proportionate share that
its net assets bear to the total net assets of the Trust, the Master Portfolios,
the other investors in the Master Portfolios for which Morgan provides similar
services and J.P. Morgan Series Trust.
Under prior administrative services agreements in effect from December
29, 1995 through July 31, 1996, with Morgan, each Fund's corresponding Portfolio
paid Morgan a fee equal to its proportionate share of an annual complex-wide
charge. This charge was calculated daily based on the aggregate net assets of
the Master Portfolios in accordance with the following schedule: 0.06% of the
first $7 billion of the Master Portfolios' aggregate average daily net assets,
and 0.03% of the Master Portfolios' aggregate average daily net assets in excess
of $7 billion.
Prior to December 29, 1995, the Trust and each Portfolio had entered
into Financial and Fund Accounting Services Agreements with Morgan, the
provisions of which included certain of the activities described above and,
prior to September 1, 1995, also included reimbursement of usual and customary
expenses. The table below sets forth for each Fund listed (except the Federal
Money Market Fund) and its corresponding Portfolio the fees paid to Morgan, net
of fee waivers and reimbursements, as Services Agent. See the Prospectus and
below for applicable expense limitations.
Prime Money Market Fund --For the fiscal years ended November 30, 1995, 1996 and
1997: $(74,259)*, $530,464 and $700,635. The Prime Money Market Portfolio -- For
the fiscal years ended November 30, 1995, 1996 and 1997: $373,077, $891,730 and
$ 1,256,131.
Federal Money Market Fund -- For the fiscal years ended October 31, 1995, 1996
and 1997: $(57,960)* , $45,950 and $ 68,154. The Federal Money Market Portfolio
- -- For the fiscal years ended October 31, 1995, 1996 and 1997: $(146,180)*,
$(165,137)* and $ 101,963.
- -------------------------------
* Indicates a reimbursement by Morgan for expenses in excess of its fees
under the prior administrative services agreements. No fees were paid
for the fiscal period.
<PAGE>
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02110, serves as the Trust's and each Portfolio's
custodian and fund accounting agent and each Fund's transfer and dividend
disbursing agent. Pursuant to the Custodian Contracts, State Street is
responsible for maintaining the books of account and records of portfolio
transactions and holding portfolio securities and cash. The custodian maintains
portfolio transaction records. As transfer agent and dividend disbursing agent,
State Street is responsible for maintaining account records detailing the
ownership of Fund shares and for crediting income, capital gains and other
changes in share ownership to shareholder accounts.
SHAREHOLDER SERVICING
The Trust on behalf of each of the Funds has entered into a Shareholder
Servicing Agreement with Morgan pursuant to which Morgan acts as shareholder
servicing agent for its customers and for other Fund investors who are customers
of a Financial Professional. Under this agreement, Morgan is responsible for
performing shareholder account, administrative and servicing functions, which
include but are not limited to, answering inquiries regarding account status and
history, the manner in which purchases and redemptions of Fund shares may be
effected, and certain other matters pertaining to a Fund; assisting customers in
designating and changing dividend options, account designations and addresses;
providing necessary personnel and facilities to coordinate the establishment and
maintenance of shareholder accounts and records with the Funds' transfer agent;
transmitting purchase and redemption orders to the Funds' transfer agent and
arranging for the wiring or other transfer of funds to and from customer
accounts in connection with orders to purchase or redeem Fund shares; verifying
purchase and redemption orders, transfers among and changes in accounts;
informing the Distributor of the gross amount of purchase orders for Fund
shares; monitoring the activities of the Funds' transfer agent; and providing
other related services.
Effective August 1, 1998 under the Shareholder Servicing Agreement,
each Fund has agreed to pay Morgan for these services a fee at the annual rate
of 0.25% (expressed as a percentage of the average daily net asset values of
Fund shares owned by or for shareholders for whom Morgan is acting as
shareholder servicing agent).
Morgan acts as shareholder servicing agent for all shareholders.
The table below sets forth for each Fund listed the shareholder
servicing fees paid by each Fund to Morgan, net of fee waivers and
reimbursements, for the fiscal periods indicated. See the Prospectus and below
for applicable expense limitations.
Prime Money Market Fund -- For the fiscal years ended November 30, 1995,
1996 and 1997: $3,629,031, $3,148,702 and $ 3,262,834.
Federal Money Market Fund -- For the fiscal years ended October 31, 1995,
1996 and 1997: $273,861, $313,504 and $ 330,316.
As discussed under "Investment Advisor," the Glass-Steagall Act and
other applicable laws and regulations limit the activities of bank holding
companies and certain of their subsidiaries in connection with registered
open-end investment companies. The activities of Morgan in acting as shareholder
servicing agent for Fund shareholders under the Shareholder Servicing Agreement
and providing administrative services to the Funds and the Portfolios under the
Services Agreements, and the activities of JPMIM in acting as Advisor to the
Portfolios under the Investment Advisory Agreements, may raise issues under
these laws. However, JPMIM and Morgan believe that they may properly perform
these services and the other activities described in the Prospectus without
violation of the Glass-Steagall Act or other applicable banking laws or
regulations.
If Morgan were prohibited from providing any of the services under the
Shareholder Servicing Agreement and the Services Agreements, the Trustees would
seek an alternative provider of such services. In such event, changes in the
operation of the Funds or the Portfolios might occur and a shareholder might no
longer be able to avail himself or herself of any services then being provided
to shareholders by Morgan.
The Funds may be sold to or through financial intermediaries who are
customers of J.P. Morgan ("financial professionals"), including financial
institutions and broker-dealers, that may be paid fees by J.P. Morgan or its
affiliates for services provided to their clients that invest in the Funds. See
"Financial Professionals" below. Organizations that provide record keeping or
other services to certain employee benefit or retirement plans that include the
Funds as an investment alternative may also be paid a fee.
FINANCIAL PROFESSIONALS
The services provided by financial professionals may include
establishing and maintaining shareholder accounts, processing purchase and
redemption transactions, arranging for bank wires, performing shareholder
subaccounting, answering client inquiries regarding the Trust, assisting clients
in changing dividend options, account designations and addresses, providing
periodic statements showing the client's account balance and integrating these
statements with those of other transactions and balances in the client's other
accounts serviced by the financial professional, transmitting proxy statements,
periodic reports, updated prospectuses and other communications to shareholders
and, with respect to meetings of shareholders, collecting, tabulating and
forwarding executed proxies and obtaining such other information and performing
such other services as Morgan or the financial professional's clients may
reasonably request and agree upon with the financial professional.
Although there is no sales charge levied directly by the Fund,
financial professionals may establish their own terms and conditions for
providing their services and may charge investors a transaction-based or other
fee for their services. Such charges may vary among financial professionals but
in all cases will be retained by the financial professional and not be remitted
to the Fund or J.P. Morgan.
INDEPENDENT ACCOUNTANTS
The independent accountants of the Trust and the Portfolios are
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York
10036. PricewaterhouseCoopers LLP conducts an annual audit of the financial
statements of each of the Funds and the Portfolios, assists in the preparation
and/or review of each of the Fund's and the Portfolio's federal and state income
tax returns and consults with the Funds and the Portfolios as to matters of
accounting and federal and state income taxation.
<PAGE>
EXPENSES
In addition to the fees payable to Pierpont Group, Inc., JPMIM, Morgan
and FDI under various agreements discussed under "Trustees and Officers,"
"Investment Advisor," "Co-Administrator", "Distributor", "Services Agent" and
"Shareholder Servicing" above, the Funds and the Portfolios are responsible for
usual and customary expenses associated with their respective operations. Such
expenses include organization expenses, legal fees, accounting and audit
expenses, insurance costs, the compensation and expenses of the Trustees, costs
associated with their registration fees under federal securities laws, and
extraordinary expenses applicable to the Funds or the Portfolios. For the Funds,
such expenses also include transfer, registrar and dividend disbursing costs,
the expenses of printing and mailing reports, notices and proxy statements to
Fund shareholders, and filing fees under state securities laws. For the
Portfolios, such expenses also include custodian fees and brokerage expenses.
Under fee arrangements prior to September 1, 1995, Morgan as Services Agent was
responsible for reimbursements to the Trust and certain Portfolios and the usual
and customary expenses described above (excluding organization and extraordinary
expenses, custodian fees and brokerage expenses). For additional information
regarding waivers or expense subsidies, see the Prospectus.
PURCHASE OF SHARES
Method of Purchase. Investors may open accounts with the Fund only
through the Distributor. All purchase transactions in Fund accounts are
processed by Morgan as shareholder servicing agent and the Fund is authorized to
accept any instructions relating to a Fund account from Morgan as shareholder
servicing agent for the customer. All purchase orders must be accepted by the
Distributor. Prospective investors who are not already customers of Morgan may
apply to become customers of Morgan for the sole purpose of Fund transactions.
There are no charges associated with becoming a Morgan customer for this
purpose. Morgan reserves the right to determine the customers that it will
accept, and the Trust reserves the right to determine the purchase orders that
it will accept.
References in the Prospectus and this Statement of Additional
Information to customers of Morgan or a financial professional include customers
of their affiliates and references to transactions by customers with Morgan or a
financial professional include transactions with their affiliates. Only Fund
investors who are using the services of a financial institution acting as
shareholder servicing agent pursuant to an agreement with the Trust on behalf of
a Fund may make transactions in shares of a Fund.
Each Fund may, at its own option, accept securities in payment for
shares. The securities delivered in such a transaction are valued by the method
described in "Net Asset Value" as of the day the Fund receives the securities.
This is a taxable transaction to the shareholder. Securities may be accepted in
payment for shares only if they are, in the judgment of the Advisor, appropriate
investments for the Fund's corresponding Portfolio. In addition, securities
accepted in payment for shares must: (i) meet the investment objective and
policies of the acquiring Fund's corresponding Portfolio; (ii) be acquired by
the applicable Fund for investment and not for resale (other than for resale to
the Fund's corresponding Portfolio); and (iii) be liquid securities which are
not restricted as to transfer either by law or liquidity of market. Each Fund
reserves the right to accept or reject at its own option any and all securities
offered in payment for its shares.
Prospective investors may purchase shares with the assistance of a
Financial Professional, and the Financial Professional may charge the investor a
fee for this service and other services it provides to its customers.
REDEMPTION OF SHARES
Investors may redeem shares as described in the Prospectus.
Shareholders redeeming shares of the Funds should be aware that the Funds
attempt to maintain a stable net asset value of $1.00 per share; however, there
can be no assurance that they will be able to continue to do so, and in that
case the net asset value of the Fund's shares might deviate from $1.00 per
share. Accordingly, a redemption request might result in payment of a dollar
amount which differs from the number of shares redeemed. See "Net Asset Value"
below.
If the Trust on behalf of a Fund and its corresponding Portfolio
determine that it would be detrimental to the best interest of the remaining
shareholders of a Fund to make payment wholly or partly in cash, payment of the
redemption price may be made in whole or in part by a distribution in kind of
securities from the Portfolio, in lieu of cash, in conformity with the
applicable rule of the SEC. If shares are redeemed in kind, the redeeming
shareholder might incur transaction costs in converting the assets into cash.
The method of valuing portfolio securities is described under "Net Asset Value,"
and such valuation will be made as of the same time the redemption price is
determined. The Trust on behalf of the Federal Money Market Fund and its
corresponding Portfolio have elected to be governed by Rule 18f-1 under the 1940
Act pursuant to which such Funds and their corresponding Portfolios are
obligated to redeem shares solely in cash up to the lesser of $250,000 or one
percent of the net asset value of such Fund during any 90-day period for any one
shareholder. The Trust will redeem Fund shares in kind only if it has received a
redemption in kind from the corresponding Portfolio and therefore shareholders
of the Fund that receive redemptions in kind will receive securities of the
Portfolio. The Portfolios have advised the Trust that the Portfolios will not
redeem in kind except in circumstances in which a Fund is permitted to redeem in
kind.
Further Redemption Information. Investors should be aware that
redemptions from the Fund may not be processed if a redemption request is not
submitted in proper form. To be in proper form, the Fund must have received the
shareholder's taxpayer identification number and address. In addition, if a
shareholder sends a check for the purchase of fund shares and shares are
purchased before the check has cleared, the transmittal of redemption proceeds
from the shares will occur upon clearance of the check which may take up to 15
days. The Trust, on behalf of a Fund, and the Portfolios reserve the right to
suspend the right of redemption and to postpone the date of payment upon
redemption as follows: (i) for up to seven days, (ii) during periods when the
New York Stock Exchange is closed for other than weekends and holidays or when
trading on such Exchange is restricted as determined by the SEC by rule or
regulation, (iii) during periods in which an emergency, as determined by the
SEC, exists that causes disposal by the Portfolio of, or evaluation of the net
asset value of, its portfolio securities to be unreasonable or impracticable, or
(iv) for such other periods as the SEC may permit.
EXCHANGE OF SHARES
An investor may exchange shares from any Fund into shares of any other
J.P. Morgan or J.P. Morgan Institutional mutual fund, without charge. An
exchange may be made so long as after the exchange the investor has shares, in
each fund in which he or she remains an investor, with a value of at least that
fund's minimum investment amount. Shareholders should read the prospectus of the
fund into which they are exchanging and may only exchange between fund accounts
that are registered in the same name, address and taxpayer identification
number. Shares are exchanged on the basis of relative net asset value per share.
Exchanges are in effect redemptions from one fund and purchases of another fund
and the usual purchase and redemption procedures and requirements are applicable
to exchanges. Shareholders subject to federal income tax who exchange shares in
one fund for shares in another fund may recognize capital gain or loss for
federal income tax purposes. Shares of the Fund to be acquired are purchased for
settlement when the proceeds from redemption become available. The Trust
reserves the right to discontinue, alter or limit the exchange privilege at any
time.
DIVIDENDS AND DISTRIBUTIONS
Each Fund declares and pays dividends and distributions as described in
the Prospectus.
If a shareholder has elected to receive dividends and/or capital gain
distributions in cash and the postal or other delivery service is unable to
deliver checks to the shareholder's address of record, such shareholder's
distribution option will automatically be converted to having all dividend and
other distributions reinvested in additional shares. No interest will accrue on
amounts represented by uncashed distribution or redemption checks.
NET ASSET VALUE
Each of the Funds computes its net asset value once daily on Monday
through Friday as described in the Prospectus. The net asset value will not be
computed on the day the following legal holidays are observed: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Columbus Day, Veteran's Day, Thanksgiving Day, and
Christmas Day. In the event that trading in the money markets is scheduled to
end earlier than the close of the New York Stock Exchange in observance of these
holidays, the Funds and their corresponding Portfolios would expect to close for
purchases and redemptions an hour in advance of the end of trading in the money
markets. The Funds and the Portfolios may also close for purchases and
redemptions at such other times as may be determined by the Board of Trustees to
the extent permitted by applicable law. On any business day when the Public
Securities Association ("PSA") recommends that the securities market close
early, the Funds reserve the right to cease accepting purchase and redemption
orders for same business day credit at the time PSA recommends that the
securities market close. On days the Funds close early, purchase and redemption
orders received after the PSA-recommended closing time will be credited the next
business day. The days on which net asset value is determined are the Funds'
business days.
The net asset value of each Fund is equal to the value of the Fund's
investment in its corresponding Portfolio (which is equal to the Fund's pro rata
share of the total investment of the Fund and of any other investors in the
Portfolio less the Fund's pro rata share of the Portfolio's liabilities) less
the Fund's liabilities. The following is a discussion of the procedures used by
the Portfolios corresponding to each Fund in valuing their assets.
The Portfolios' portfolio securities are valued by the amortized cost
method. The purpose of this method of calculation is to attempt to maintain a
constant net asset value per share of the Fund of $1.00. No assurances can be
given that this goal can be attained. The amortized cost method of valuation
values a security at its cost at the time of purchase and thereafter assumes a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the instrument. If a
difference of more than 1/2 of 1% occurs between valuation based on the
amortized cost method and valuation based on market value, the Trustees will
take steps necessary to reduce such deviation, such as changing a Fund's
dividend policy, shortening the average portfolio maturity, realizing gains or
losses, or reducing the number of outstanding Fund shares. Any reduction of
outstanding shares will be effected by having each shareholder contribute to a
Fund's capital the necessary shares on a pro rata basis. Each shareholder will
be deemed to have agreed to such contribution in these circumstances by his
investment in the Funds. See "Taxes."
PERFORMANCE DATA
From time to time, the Funds may quote performance in terms of yield,
actual distributions, total return or capital appreciation in reports, sales
literature and advertisements published by the Trust. Current performance
information for the Funds may be obtained by calling the number provided on the
cover page of this Statement of Additional Information. See "Additional
Information" in the Prospectus.
Yield Quotations. As required by regulations of the SEC, current yield
for the Funds is computed by determining the net change exclusive of capital
changes in the value of a hypothetical pre-existing account having a balance of
one share at the beginning of a seven-day calendar period, dividing the net
change in account value of the account at the beginning of the period, and
multiplying the return over the seven-day period by 365/7. For purposes of the
calculation, net change in account value reflects the value of additional shares
purchased with dividends from the original share and dividends declared on both
the original share and any such additional shares, but does not reflect realized
gains or losses or unrealized appreciation or depreciation. Effective yield for
each Fund is computed by annualizing the seven-day return with all dividends
reinvested in additional Fund shares.
Below is set forth historical yield information for the periods
indicated:
Prime Money Market Fund (12/31/97): 7-day current yield: 5.58%; 7-day
effective yield: 5.73%.
Federal Money Market Fund (12/31/97): 7-day current yield: 5.29%; 7-day
effective yield: 5.43%.
Total Return Quotations. Historical performance information for periods
prior to the establishment of the Prime Money Market Fund will be that of its
corresponding free-standing predecessor fund and will be presented in accordance
with applicable SEC staff interpretations.
Below is set forth historical return information for each Fund or its
predecessor for the periods indicated:
Prime Money Market Fund (12/31/97): Average annual total return, 1 year:
5.41%; average annual total return, 5 years: 4.63%; average annual total return,
10 years: 5.73%; aggregate total return, 1 year: 5.41%; aggregate total return,
5 years: 25.40%; aggregate total return, 10 years: 74.59%.
Federal Money Market Fund (12/31/97): Average annual total return,
1 year: 5.18%; average annual total return, 5 years: N/A; average annual total
return, commencement of operations3 to period end: 4.42%; aggregate total
return, 1 year: 5.18%; aggregate total return, 5 years: N/A; aggregate total
return, commencement of operations2 to period end: 24.10%.
Aggregate total returns, reflecting the cumulative percentage change
over a measuring period, may also be calculated.
General. A Fund's performance will vary from time to time depending
upon market conditions, the composition of its corresponding Portfolio, and its
operating expenses. Consequently, any given performance quotation should not be
considered representative of a Fund's performance for any specified period in
the future. In addition, because performance will fluctuate, it may not provide
a basis for comparing an investment in a Fund with certain bank deposits or
other investments that pay a fixed yield or return for a stated period of time.
Comparative performance information may be used from time to time in
advertising the Funds' shares, including appropriate market indices including
the benchmarks indicated under "Investment Advisor" above or data from Lipper
Analytical Services, Inc., Micropal, Inc., Ibbotson Associates, Morningstar
Inc., the Dow Jones Industrial Average and other industry publications.
From time to time, the Funds may, in addition to any other permissible
information, include the following types of information in advertisements,
supplemental sales literature and reports to shareholders: (1) discussions of
general economic or financial principles (such as the effects of compounding and
the benefits of dollar-cost averaging); (2) discussions of general economic
trends; (3) presentations of statistical data to supplement such discussions;
(4) descriptions of past or anticipated portfolio holdings for one or more of
the Funds; (5) descriptions of investment strategies for one or more of the
Funds; (6) descriptions or comparisons of various savings and investment
products (including, but not limited to, qualified retirement plans and
individual stocks and bonds), which may or may not include the Funds; (7)
comparisons of investment products (including the Funds) with relevant markets
or industry indices or other appropriate benchmarks; (8) discussions of Fund
rankings or ratings by recognized rating organizations; and (9) discussions of
various statistical methods quantifying the Fund's volatility relative to its
benchmark or to past performance, including risk adjusted measures. The Funds
may also include calculations, such as hypothetical compounding examples, which
describe hypothetical investment results in such communications. Such
performance examples will be based on an express set of assumptions and are not
indicative of the performance of any of the Funds.
PORTFOLIO TRANSACTIONS
The Advisor places orders for all Portfolios for all purchases and sales of
portfolio securities, enters into repurchase agreements, and may enter into
3 J.P. Morgan Federal Money Market Fund commenced operations on January 4,
1993.
reverse repurchase agreements and execute loans of portfolio securities on
behalf of all the Portfolios. See "Investment Objectives and Policies."
Fixed income and debt securities are generally traded at a net price
with dealers acting as principal for their own accounts without a stated
commission. The price of the security usually includes profit to the dealers. In
underwritten offerings, securities are purchased at a fixed price which includes
an amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount. On occasion, certain securities may be
purchased directly from an issuer, in which case no commissions or discounts are
paid.
Portfolio transactions for the Portfolios will be undertaken principally to
accomplish a Portfolio's objective in relation to expected movements in the
general level of interest rates. The Portfolios may engage in short-term trading
consistent with their objectives. See "Investment Objectives and Policies --
Portfolio Turnover."
In connection with portfolio transactions for the Portfolios, the
Advisor intends to seek best execution on a competitive basis for both purchases
and sales of securities.
The Portfolios have a policy of investing only in securities with
maturities of not more than thirteen months, which will result in high portfolio
turnovers. Since brokerage commissions are not normally paid on investments
which the Portfolios make, turnover resulting from such investments should not
adversely affect the net asset value or net income of the Portfolios.
Subject to the overriding objective of obtaining best execution of
orders, the Advisor may allocate a portion of a Portfolio's brokerage
transactions to affiliates of the Advisor. In order for affiliates of the
Advisor to effect any portfolio transactions for a Portfolio, the commissions,
fees or other remuneration received by such affiliates must be reasonable and
fair compared to the commissions, fees, or other remuneration paid to other
brokers in connection with comparable transactions involving similar securities
being purchased or sold on a securities exchange during a comparable period of
time. Furthermore, the Trustees of each Portfolio, including a majority of the
Trustees who are not "interested persons," have adopted procedures which are
reasonably designed to provide that any commissions, fees, or other remuneration
paid to such affiliates are consistent with the foregoing standard.
Portfolio securities will not be purchased from or through or sold to
or through the Co-Administrator, the Distributor or the Advisor or any other
"affiliated person" (as defined in the 1940 Act) of the Co-Administrator,
Distributor or Advisor when such entities are acting as principals, except to
the extent permitted by law. In addition, the Portfolios will not purchase
securities during the existence of any underwriting group relating thereto of
which the Advisor or an affiliate of the Advisor is a member, except to the
extent permitted by law.
On those occasions when the Advisor deems the purchase or sale of a
security to be in the best interests of a Portfolio as well as other customers
including other Portfolios, the Advisor to the extent permitted by applicable
laws and regulations, may, but is not obligated to, aggregate the securities to
be sold or purchased for a Portfolio with those to be sold or purchased for
other customers in order to obtain best execution, including lower brokerage
commissions if appropriate. In such event, allocation of the securities so
purchased or sold as well as any expenses incurred in the transaction will be
made by the Advisor in the manner it considers to be most equitable and
consistent with its fiduciary obligations to a Portfolio. In some instances,
this procedure might adversely affect a Portfolio.
MASSACHUSETTS TRUST
The Trust is a trust fund of the type commonly known as a
"Massachusetts business trust" of which each Fund is a separate and distinct
series. A copy of the Declaration of Trust for the Trust is on file in the
office of the Secretary of The Commonwealth of Massachusetts. The Declaration of
Trust and the By-Laws of the Trust are designed to make the Trust similar in
most respects to a Massachusetts business corporation. The principal distinction
between the two forms concerns shareholder liability described below.
Effective 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 Pierpont Funds" to "J.P.
Morgan Funds", and each Fund's name changed accordingly.
Under Massachusetts law, shareholders of such a trust may, under
certain circumstances, be held personally liable as partners for the obligations
of the trust which is not the case for a corporation. However, the Trust's
Declaration of Trust provides that the shareholders shall not be subject to any
personal liability for the acts or obligations of any Fund and that every
written agreement, obligation, instrument or undertaking made on behalf of any
Fund shall contain a provision to the effect that the shareholders are not
personally liable thereunder.
No personal liability will attach to the shareholders under any
undertaking containing such provision when adequate notice of such provision is
given, except possibly in a few jurisdictions. With respect to all types of
claims in the latter jurisdictions, (i) tort claims, (ii) contract claims where
the provision referred to is omitted from the undertaking, (iii) claims for
taxes, and (iv) certain statutory liabilities in other jurisdictions, a
shareholder may be held personally liable to the extent that claims are not
satisfied by a Fund. However, upon payment of such liability, the shareholder
will be entitled to reimbursement from the general assets of a Fund. The
Trustees intend to conduct the operations of the Trust in such a way so as to
avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the Funds.
The Trust's Declaration of Trust further provides that the name of the
Trust refers to the Trustees collectively as Trustees, not as individuals or
personally, that no Trustee, officer, employee or agent of a Fund is liable to a
Fund or to a shareholder, and that no Trustee, officer, employee, or agent is
liable to any third persons in connection with the affairs of a Fund, except as
such liability may arise from his or its own bad faith, willful misfeasance,
gross negligence or reckless disregard of his or its duties to such third
persons. It also provides that all third persons shall look solely to Fund
property for satisfaction of claims arising in connection with the affairs of a
Fund. With the exceptions stated, the Trust's Declaration of Trust provides that
a Trustee, officer, employee, or agent is entitled to be indemnified against all
liability in connection with the affairs of a Fund.
The Trust shall continue without limitation of time subject to the
provisions in the Declaration of Trust concerning termination by action of the
shareholders or by action of the Trustees upon notice to the shareholders.
DESCRIPTION OF SHARES
The Trust is an open-end management investment company organized as a
Massachusetts business trust in which each Fund represents a separate series of
shares of beneficial interest. See "Massachusetts Trust."
The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares ($0.001 par value) of one or more series
and classes within any series and to divide or combine the shares (of any
series, if applicable) without changing the proportionate beneficial interest of
each shareholder in a Fund (or in the assets of other series, if applicable).
Each share represents an equal proportional interest in a Fund with each other
share. Upon liquidation of a Fund, holders are entitled to share pro rata in the
net assets of a Fund available for distribution to such shareholders. See
"Massachusetts Trust." Shares of a Fund have no preemptive or conversion rights
and are fully paid and nonassessable. The rights of redemption and exchange are
described in the Prospectus and elsewhere in this Statement of Additional
Information.
The shareholders of the Trust are entitled to one vote for each dollar
of net asset value (or a proportionate fractional vote in respect of a
fractional dollar amount), on matters on which shares of the Fund shall be
entitled to vote. Subject to the 1940 Act, the Trustees themselves have the
power to alter the number and the terms of office of the Trustees, to lengthen
their own terms, or to make their terms of unlimited duration subject to certain
removal procedures, and appoint their own successors, provided, however, that
immediately after such appointment the requisite majority of the Trustees have
been elected by the shareholders of the Trust. The voting rights of shareholders
are not cumulative so that holders of more than 50% of the shares voting can, if
they choose, elect all Trustees being selected while the shareholders of the
remaining shares would be unable to elect any Trustees. It is the intention of
the Trust not to hold meetings of shareholders annually. The Trustees may call
meetings of shareholders for action by shareholder vote as may be required by
either the 1940 Act or the Trust's Declaration of Trust.
Shareholders of the Trust have the right, upon the declaration in
writing or vote of more than two-thirds of its outstanding shares, to remove a
Trustee. The Trustees will call a meeting of shareholders to vote on removal of
a Trustee upon the written request of the record holders of 10% of the Trust's
shares. In addition, whenever ten or more shareholders of record who have been
such for at least six months preceding the date of application, and who hold in
the aggregate either shares having a net asset value of at least $25,000 or at
least 1% of the Trust's outstanding shares, whichever is less, shall apply to
the Trustees in writing, stating that they wish to communicate with other
shareholders with a view to obtaining signatures to request a meeting for the
purpose of voting upon the question of removal of any Trustee or Trustees and
accompanied by a form of communication and request which they wish to transmit,
the Trustees shall within five business days after receipt of such application
either: (1) afford to such applicants access to a list of the names and
addresses of all shareholders as recorded on the books of the Trust; or (2)
inform such applicants as to the approximate number of shareholders of record,
and the approximate cost of mailing to them the proposed communication and form
of request. If the Trustees elect to follow the latter course, the Trustees,
upon the written request of such applicants, accompanied by a tender of the
material to be mailed and of the reasonable expenses of mailing, shall, with
reasonable promptness, mail such material to all shareholders of record at their
addresses as recorded on the books, unless within five business days after such
tender the Trustees shall mail to such applicants and file with the SEC,
together with a copy of the material to be mailed, a written statement signed by
at least a majority of the Trustees to the effect that in their opinion either
such material contains untrue statements of fact or omits to state facts
necessary to make the statements contained therein not misleading, or would be
in violation of applicable law, and specifying the basis of such opinion. After
opportunity for hearing upon the objections specified in the written statements
filed, the SEC may, and if demanded by the Trustees or by such applicants shall,
enter an order either sustaining one or more of such objections or refusing to
sustain any of them. If the SEC shall enter an order refusing to sustain any of
such objections, or if, after the entry of an order sustaining one or more of
such objections, the SEC shall find, after notice and opportunity for hearing,
that all objections so sustained have been met, and shall enter an order so
declaring, the Trustees shall mail copies of such material to all shareholders
with reasonable promptness after the entry of such order and the renewal of such
tender.
The Trustees have authorized the issuance and sale to the public of
shares of 18 series of the Trust. The Trustees have no current intention to
create any classes within the initial series or any subsequent series. The
Trustees may, however, authorize the issuance of shares of additional series and
the creation of classes of shares within any series with such preferences,
privileges, limitations and voting and dividend rights as the Trustees may
determine. The proceeds from the issuance of any additional series would be
invested in separate, independently managed portfolios with distinct investment
objectives, policies and restrictions, and share purchase, redemption and net
asset valuation procedures. Any additional classes would be used to distinguish
among the rights of different categories of shareholders, as might be required
by future regulations or other unforeseen circumstances. All consideration
received by the Trust for shares of any additional series or class, and all
assets in which such consideration is invested, would belong to that series or
class, subject only to the rights of creditors of the Trust and would be subject
to the liabilities related thereto. Shareholders of any additional series or
class will approve the adoption of any management contract or distribution plan
relating to such series or class and of any changes in the investment policies
related thereto, to the extent required by the 1940 Act.
For information relating to mandatory redemption of Fund shares or
their redemption at the option of the Trust under certain circumstances, see the
Prospectus.
As of January 2, 1998, the following owned of record, or to the
knowledge of management, beneficially owned more than 5% of the outstanding
shares of:
Prime Money Market Fund: Kingsley & Co./JPM Asset Sweep Fund Omnibus Account
(10.52%).
Federal Money Market Fund: Morgan as agent for Alfred Dunner Inc. (5.98%)
and Kingsley & Co./JPM Asset Sweep Fund Omnibus Account (22.13%).
SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE
Unlike other mutual funds which directly acquire and manage their own
portfolio of securities, each Fund is an open-end management investment company
which seeks to achieve its investment objective by investing all of its
investable assets in a corresponding Master Portfolio, a separate registered
investment company with the same investment objective and policies as the Fund.
Generally, when a Master Portfolio seeks a vote to change a fundamental
investment objective, its feeder fund(s) will hold a shareholder meeting and
cast its vote proportionately, as instructed by its shareholders. Fund
shareholders are entitled to one vote for each dollar of net asset value (or a
proportionate fractional vote in respect of a fractional dollar amount), on
matters on which shares of the Fund shall be entitled to vote.
In addition to selling a beneficial interest to a Fund, a Portfolio may
sell beneficial interests to other mutual funds or institutional investors. Such
investors will invest in the Portfolio on the same terms and conditions and will
bear a proportionate share of the Portfolio's expenses. However, the other
investors investing in the Portfolio may sell shares of their own fund using a
different pricing structure than the Fund. Such different pricing structures may
result in differences in returns experienced by investors in other funds that
invest in the Portfolio. Such differences in returns are not uncommon and are
present in other mutual fund structures. Information concerning other holders of
interests in the Portfolio is available from Morgan at (800) 521-5411.
The Trust may withdraw the investment of a Fund from a Portfolio at any
time if the Board of Trustees of the Trust determines that it is in the best
interests of the Fund to do so. Upon any such withdrawal, the Board of Trustees
would consider what action might be taken, including the investment of all the
assets of the Fund in another pooled investment entity having the same
investment objective and restrictions in accordance with the investment policies
with respect to the Portfolio described above and in each Fund's prospectus.
Certain changes in a Portfolio's fundamental investment policies or
restrictions, or a failure by a Fund's shareholders to approve such change in
the Portfolio's investment restrictions, may require withdrawal of the Fund's
interest in the Portfolio. Any such withdrawal could result in a distribution in
kind of portfolio securities (as opposed to a cash distribution) from the
Portfolio which may or may not be readily marketable. The distribution in kind
may result in the Fund having a less diversified portfolio of investments or
adversely affect the Fund's liquidity, and the Fund could incur brokerage, tax
or other charges in converting the securities to cash. Notwithstanding the
above, there are other means for meeting shareholder redemption requests, such
as borrowing.
Smaller funds investing in a Portfolio may be materially affected by
the actions of larger funds investing in the Portfolio. For example, if a large
fund withdraws from the Portfolio, the remaining funds may subsequently
experience higher pro rata operating expenses, thereby producing lower returns.
Additionally, because a Portfolio would become smaller, it may become
less diversified, resulting in potentially increased portfolio risk (however,
these possibilities also exist for traditionally structured funds which have
large or institutional investors who may withdraw from a fund). Also, funds with
a greater pro rata ownership in the Portfolio could have effective voting
control of the operations of the Portfolio. Whenever the Fund is requested to
vote on matters pertaining to the Portfolio (other than a vote by the Fund to
continue the operation of the Portfolio upon the withdrawal of another investor
in the Portfolio), the Trust will hold a meeting of shareholders of the Fund and
will cast all of its votes proportionately as instructed by the Fund's
shareholders. The Trust will vote the shares held by Fund shareholders who do
not give voting instructions in the same proportion as the shares of Fund
shareholders who do give voting instructions. Shareholders of the Fund who do
not vote will have no affect on the outcome of such matters.
TAXES
The following discussion of tax consequences is based on U.S. federal
tax laws in effect on the date of this Prospectus. These laws and regulations
are subject to change by legislative or administrative action.
Each Fund intends to qualify and remain qualified as a regulated
investment company under Subchapter M of the Code. As a regulated investment
company, a Fund must, among other things, (a) derive at least 90% of its gross
income from dividends, interest, payments with respect to loans of stock and
securities, gains from the sale or other disposition of stock, securities or
foreign currency and other income (including but not limited to gains from
options, futures, and forward contracts) derived with respect to its business of
investing in such stock, securities or foreign currency; and (b) diversify its
holdings so that, at the end of each quarter of its taxable year, (i) at least
50% of the value of the Fund's total assets is represented by cash, cash items,
U.S. Government securities, investments of other regulated investment companies,
and other securities limited, in respect of any one issuer, to an amount not
greater than 5% of the Fund's total assets, and 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its total
assets is invested in the securities of any one issuer (other than U.S.
Government securities or securities of other regulated investment companies). As
a regulated investment company, a Fund (as opposed to its shareholders) will not
be subject to federal income taxes on the net investment income and capital gain
that it distributes to its shareholders, provided that at least 90% of its net
investment income and realized net short-term capital gain in excess of net
long-term capital loss for the taxable year is distributed in accordance with
the Code's timing requirements. Effective as of an investor's first taxable year
beginning after August 5, 1997, the 30% of gross income test described in (b)
above will no longer apply to the Funds wishing to satisfy the requirements of
subchapter M of the Code.
Under the Code, a Fund will be subject to a 4% excise tax on a portion
of its undistributed taxable income and capital gains if it fails to meet
certain distribution requirements by the end of the calendar year. Each Fund
intends to make distributions in a timely manner and accordingly does not expect
to be subject to the excise tax.
For federal income tax purposes, dividends that are declared by a Fund
in October, November or December as of a record date in such month and actually
paid in January of the following year will be treated as if they were paid on
December 31 of the year declared. Therefore, such dividends generally will be
taxable to a shareholder in the year declared rather than the year paid.
Distributions of net investment income and realized net short-term
capital gains in excess of net long-term capital losses (other than exempt
interest dividends) are generally taxable to shareholders of the Funds as
ordinary income whether such distributions are taken in cash or reinvested in
additional shares. Distributions to corporate shareholders of the Funds are not
eligible for the dividends received deduction. Distributions of net long-term
capital gains (i.e., net long-term capital gain in excess of net short-term
capital loss) are taxable to shareholders of a Fund as long-term capital gain,
regardless of whether such distributions are taken in cash or reinvested in
additional shares and regardless of how long a shareholder has held shares in
the Fund. In general, long-term capital gain of an individual shareholder will
be subject to a reduced rate of tax. Investors should consult their tax advisors
concerning the treatment of capital gains and losses. Additionally, any loss
realized on a redemption or exchange of shares of a Fund will be disallowed to
the extent the shares disposed of are replaced within a period of 61 days
beginning 30 days before such disposition, such as pursuant to reinvestment of a
dividend in shares of the Fund.
To maintain a constant $1.00 per share net asset value, the Trustees of
the Trust may direct that the number of outstanding shares be reduced pro rata.
If this adjustment is made, it will reflect the lower market value of portfolio
securities and not realized losses. The adjustment may result in a shareholder
having more dividend income than net income in his account for a period. When
the number of outstanding shares of a Fund is reduced, the shareholder's basis
in the shares of the Fund may be adjusted to reflect the difference between
taxable income and net dividends actually distributed. This difference may be
realized as a capital loss when the shares are liquidated. Subject to certain
limited exceptions, capital losses cannot be used to offset ordinary income. See
"Net Asset Value."
Gains or losses on sales of portfolio securities will be treated as
long-term capital gains or losses if the securities have been held for more than
one year except in certain cases where, if applicable, a put is acquired or a
call option is written thereon or straddle rules are otherwise applicable. Other
gains or losses on the sale of securities will be short-term capital gains or
losses. Gains and losses on the sale, lapse or other termination of options on
securities will be treated as gains and losses from the sale of securities.
Except as described below, if an option written by a Portfolio lapses or is
terminated through a closing transaction, such as a repurchase by the Portfolio
of the option from its holder, the Portfolio will realize a short-term capital
gain or loss, depending on whether the premium income is greater or less than
the amount paid by the Portfolio in the closing transaction. If securities are
purchased by a Portfolio pursuant to the exercise of a put option written by it,
the Portfolio will subtract the premium received from its cost basis in the
securities purchased.
Any distribution of net investment income or capital gains will have
the effect of reducing the net asset value of Fund shares held by a shareholder
by the same amount as the distribution. If the net asset value of the shares is
reduced below a shareholder's cost as a result of such a distribution, the
distribution, although constituting a return of capital to the shareholder, will
be taxable as described above.
Any gain or loss realized on the redemption or exchange of Fund shares
by a shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held for more than one year, and
otherwise as short-term capital gain or loss. However, any loss realized by a
shareholder upon the redemption or exchange of shares in the Fund held for six
months or less will be treated as a long-term capital loss to the extent of any
long-term capital gain distributions received by the shareholder with respect to
such shares.
If a correct and certified taxpayer identification number is not on
file, the Fund is required, subject to certain exemptions, to withold 31% of
certain payments made or distributions declared to non-corporate shareholders.
Foreign Shareholders. Dividends of net investment income and
distributions of realized net short-term gain in excess of net long-term loss to
a shareholder who, as to the United States, is a nonresident alien individual,
fiduciary of a foreign trust or estate, foreign corporation or foreign
partnership (a "foreign shareholder") will be subject to U.S. withholding tax at
the rate of 30% (or lower treaty rate) unless the dividends are effectively
connected with a U.S. trade or business of the shareholder, in which case the
dividends will be subject to tax on a net income basis at the graduated rates
applicable to U.S. individuals or domestic corporations. Distributions treated
as long term capital gains to foreign shareholders will not be subject to U.S.
tax unless the distributions are effectively connected with the shareholder's
trade or business in the United States or, in the case of a shareholder who is a
nonresident alien individual, the shareholder was present in the United States
for more than 182 days during the taxable year and certain other conditions are
met.
In the case of a foreign shareholder who is a nonresident alien
individual or foreign entity, a Fund may be required to withhold U.S. federal
income tax as "backup withholding" at the rate of 31% from distributions treated
as long-term capital gains and from the proceeds of redemptions, exchanges or
other dispositions of Fund shares unless IRS Form W-8 is provided. Transfers by
gift of shares of a Fund by a foreign shareholder who is a nonresident alien
individual will not be subject to U.S. federal gift tax, but the value of shares
of the Fund held by such a shareholder at his or her death will be includible in
his or her gross estate for U.S. federal estate tax purposes.
State and Local Taxes. Each Fund may be subject to state or local taxes
in jurisdictions in which the Fund is deemed to be doing business. In addition,
the treatment of a Fund and its shareholders in those states which have income
tax laws might differ from treatment under the federal income tax laws.
Shareholders should consult their own tax advisors with respect to any state or
local taxes.
Other Taxation. The Trust is organized as a Massachusetts business
trust and, under current law, neither the Trust nor any Fund is liable for any
income or franchise tax in The Commonwealth of Massachusetts, provided that each
Fund continues to qualify as a regulated investment company under Subchapter M
of the Code. The Portfolios are organized as New York trusts. The Portfolios are
not subject to any federal income taxation or income or franchise tax in the
State of New York or The Commonwealth of Massachusetts. The investment by a Fund
in its corresponding Portfolio does not cause the Fund to be liable for any
income or franchise tax in the State of New York.
ADDITIONAL INFORMATION
As used in this Statement of Additional Information and the Prospectus,
the term "majority of the outstanding voting securities" means the vote of (i)
67% or more of the Fund's shares or the Portfolio's outstanding voting
securities present at a meeting, if the holders of more than 50% of the Fund's
outstanding shares or the Portfolio's outstanding voting securities are present
or represented by proxy, or (ii) more than 50% of the Fund's outstanding shares
or the Portfolio's outstanding voting securities, whichever is less.
Telephone calls to the Funds, J.P. Morgan or Financial Professionals as
shareholder servicing agent may be tape recorded. With respect to the securities
offered hereby, this Statement of Additional Information and the Prospectus do
not contain all the information included in the Trust's registration statement
filed with the SEC under the 1933 Act and the 1940 Act and the Portfolios'
registration statements filed under the 1940 Act. Pursuant to the rules and
regulations of the SEC, certain portions have been omitted. The registration
statements including the exhibits filed therewith may be examined at the office
of the SEC in Washington, D.C.
Statements contained in this Statement of Additional Information and
the Prospectus concerning the contents of any contract or other document are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the applicable
Registration Statements.
Each such statement is qualified in all respects by such reference.
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in the
Prospectus and this Statement of Additional Information, in connection with the
offer contained therein and, if given or made, such other information or
representations must not be relied upon as having been authorized by any of the
Trust, the Funds or the Distributor. The Prospectus and this Statement of
Additional Information do not constitute an offer by any Fund or by the
Distributor to sell or solicit any offer to buy any of the securities offered
hereby in any jurisdiction to any person to whom it is unlawful for the Fund or
the Distributor to make such offer in such jurisdictions.
The Year 2000 Initiative
With the new millennium rapidly approaching, organizations are
examining their computer systems to ensure they are year 2000 compliant. The
issue, in simple terms, is that many existing computer systems use only two
numbers to identify a year in the date field with the assumption that the first
two digits are always 19. As the century is implied in the date, on January 1,
2000, computers that are not year 2000 compliant will assume the year is 1900.
Systems that calculate, compare, or sort using the incorrect date will cause
erroneous results, ranging from system malfunctions to incorrect or incomplete
transaction processing. If not remedied, potential risks include business
interruption or shutdown, financial loss, reputation loss, and/or legal
liability.
J.P. Morgan has undertaken a firmwide initiative to address the year
2000 issue and has developed a comprehensive plan to prepare, as appropriate,
its computer systems. Each business line has taken responsibility for
identifying and fixing the problem within its own area of operation and for
addressing all interdependencies. A multidisciplinary team of internal and
external experts supports the business teams by providing direction and firmwide
coordination. Working together, the business and multidisciplinary teams have
completed a thorough education and awareness initiative and a global inventory
and assessment of J.P. Morgan's technology and application portfolio to
understand the scope of the year 2000 impact at J.P. Morgan. J.P. Morgan
presently is renovating and testing these technologies and applications in
partnership with external consulting and software development organizations, as
well as with year 2000 tool providers. J.P. Morgan is on target with its plan to
substantially complete renovation, testing, and validation of its key systems by
year-end 1998 and to participate in industry-wide testing (or streetwide
testing) in 1999. J.P. Morgan is also working with key external parties,
including clients, counterparties, vendors, exchanges, depositories, utilities,
suppliers, agents and regulatory agencies, to stem the potential risks the year
2000 problem poses to J.P. Morgan and to the global financial community.
Costs associated with efforts to prepare J.P. Morgan's systems for the
year 2000 approximated $95 million in 1997. In 1998, J.P. Morgan will continue
its efforts to prepare its systems for the year 2000. The total cost to become
year-2000 compliant is estimated at $250 million, for internal systems
renovation and testing, testing equipment, and both internal and external
resources working on the project. Remaining costs will be incurred primarily in
1998. The costs associated with J.P. Morgan becoming year-2000 compliant will be
borne by J.P. Morgan and not the Fund nor the Portfolio.
The Euro
Effective January 1, 1999 the euro, a single multinational currency,
will replace the national currencies of certain countries in the Economic
Monetary Union (EMU). Conversion rates among EMU countries will be fixed on
December 31, 1998, however, existing currencies will still be used through July
1, 2002. During this transition period, transactions may be settled in either
euro or existing currencies, but financial markets and payment systems are
expected to use the euro exclusively. Beginning January 1, 1999, J.P. Morgan
intends to conduct and settle all fund transactions, where appropriate, in the
euro.
J.P. Morgan has identified the following potential risks to the Funds,
after the conversion: The risk that valuation of assets are not properly
redenominated; currency risk resulting from increased volatility in exchange
rates between EMU countries and non-participating countries; the inability any
of the Funds, their service providers and the issuers of the Funds' portfolio
securities to make information technology updates timely; and the potential
unenforceability of contracts. There have been recent laws and regulations
designed to ensure the continuity of contracts, however there is a risk that the
valuation of contracts will be negatively impacted after the Funds' conversion.
J.P. Morgan is working to avoid these problems and to obtain assurances from
other service providers that they are taking similar steps. However, it is not
certain that these actions will be sufficient to prevent problems associated
with the conversion from adversely impacting fund operations and shareholders.
The I.R.S has concluded that euro conversion will not cause a U.S.
taxpayer to realize gain or loss to the extent taxpayer's rights and obligations
are altered solely by reason of the conversion.
<PAGE>
FINANCIAL STATEMENTS
The following financial statements and the report thereon of
PricewaterhouseCoopersLLP of each Fund are incorporated herein by reference from
their respective annual report filings made with the SEC pursuant to Section
30(b) of the 1940 Act and Rule 30b2-1 thereunder. Any of the following financial
reports are available without charge upon request by calling J.P. Morgan Funds
Services at (800) 521-5411. Each Fund's financial statements include the
financial statements of the Fund's corresponding Portfolio.
<TABLE>
<S> <C>
- ------------------------------------------------------------- -----------------------------------------------------
Date of Annual Report; Date Annual Report Filed;
Name of Fund and Accession Number
- ------------------------------------------------------------- -----------------------------------------------------
- ------------------------------------------------------------- -----------------------------------------------------
J.P. Morgan Prime Money Market Fund 11/30/97
02/03/98
0001047469-98-003139
J.P. Morgan Federal Money Market Fund 10/31/97
12/30/97
0001047469-97-009108
- ------------------------------------------------------------- -----------------------------------------------------
</TABLE>
APPENDIX A
Description of Security Ratings
STANDARD & POOR'S
Corporate and Municipal Bonds
AAA - Debt rated AAA have the highest ratings assigned by Standard & Poor's
to a debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA - Debt rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in a small degree.
A - Debt rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB - Debt rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.
Commercial Paper, including Tax Exempt
A - Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined with
the designations 1, 2, and 3 to indicate the relative degree of safety.
A-1 - This designation indicates that the degree of safety regarding timely
payment is very strong.
Short-Term Tax-Exempt Notes
SP-1 - The short-term tax-exempt note rating of SP-1 is the highest
rating assigned by Standard & Poor's and has a very strong or
strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics are
given a "plus" (+) designation.
SP-2 - The short-term tax-exempt note rating of SP-2 has a satisfactory capacity
to pay principal and interest.
MOODY'S
Corporate and Municipal Bonds
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Commercial Paper, including Tax Exempt
Prime-1 - Issuers rated Prime-1 (or related supporting institutions) have
a superior capacity for repayment of short-term promissory
obligations. Prime-1 repayment capacity will normally be
evidenced by the following characteristics:
- Leading market positions in well established industries.
- High rates of return on funds employed.
- Conservative capitalization structures with moderate reliance
on debt and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.
- Well established access to a range of financial markets and
assured sources of alternate liquidity.
Short-Term Tax Exempt Notes
MIG-1 - The short-term tax-exempt note rating MIG-1 is the highest
rating assigned by Moody's for notes judged to be the best
quality. Notes with this rating enjoy strong protection from
established cash flows of funds for their servicing or from
established and broad-based access to the market for refinancing,
or both.
MIG-2 - MIG-2 rated notes are of high quality but with margins of protec-
tion not as large as MIG-1.
- --------
<PAGE>
<PAGE>
J.P. MORGAN FUNDS
J.P. MORGAN DISCIPLINED EQUITY FUND
J.P. MORGAN U.S. EQUITY FUND
J.P. MORGAN U.S. SMALL COMPANY FUND
J.P. MORGAN U.S. SMALL COMPANY OPPORTUNITIES FUND
STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 1, 1998
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT CONTAINS
ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS
DATED OCTOBER 1, 1998 FOR EACH OF THE FUNDS LISTED ABOVE, AS SUPPLEMENTED FROM
TIME TO TIME. ADDITIONALLY, THIS STATEMENT OF ADDITIONAL INFORMATION
INCORPORATES BY REFERENCE THE FINANCIAL STATEMENTS INCLUDED IN THE SHAREHOLDER
REPORTS RELATING TO EACH OF THE FUNDS LISTED ABOVE DATED MAY 31, 1998. THE
PROSPECTUSES AND THESE FINANCIAL STATEMENTS, INCLUDING THE AUDITOR'S REPORT
THEREON, ARE AVAILABLE, WITHOUT CHARGE, UPON REQUEST FROM FUNDS DISTRIBUTOR,
INC., ATTENTION: J.P. MORGAN FUNDS (800) 221-7930.
<PAGE>
Table of Contents
Page
General................................. 1
Investment Objectives and Policies...... 1
Investment Restrictions................. 20
Trustees and Officers................... 22
Investment Advisor...................... 26
Distributor............................. 29
Co-Administrator........................ 29
Services Agent.......................... 31
Custodian and Transfer Agent............ 32
Shareholder Servicing................... 32
Financial Professionals................. 33
Independent Accountants................. 34
Expenses................................ 34
Purchase of Shares...................... 35
Redemption of Shares.................... 35
Exchange of Shares...................... 36
Dividends and Distributions............. 36
Net Asset Value......................... 37
Performance Data........................ 38
Portfolio Transactions.................. 39
Massachusetts Trust..................... 41
Description of Shares................... 42
Special Information Concerning Investment
Structure............................... 44
Taxes................................... 45
Additional Information.................. 48
Financial Statements.................... 50
Appendix A - Description of
Securities Ratings...................... Appendix A-1
<PAGE>
GENERAL
This Statement of Additional Information relates only to J.P. Morgan
Disciplined Equity Fund, J.P. Morgan U.S. Equity Fund, J.P. Morgan U.S. Small
Company Fund and J.P. Morgan U.S. Small Company Opportunities Fund
(collectively, the "Funds"). Each of the Funds is a series of shares of
beneficial interest of J.P. Morgan Funds, an open-end management investment
company formed as a Massachusetts business trust (the "Trust"). In addition to
the Funds, the Trust consists of other series representing separate investment
funds (each a "J.P. Morgan Fund"). The other J.P. Morgan Funds are covered by
separate Statements of Additional Information.
This Statement of Additional Information describes the financial
history, investment objectives and policies, management and operation of each of
the Funds in order to enable investors to select the Fund or Funds which best
suit their needs. The J.P. Morgan Funds operate through a two-tier master-feeder
investment fund structure. Formerly, J.P. Morgan U.S. Equity Fund and J.P.
Morgan U.S. Small Company Fund operated as free-standing mutual funds and not
through the master-feeder structure. Where indicated in this Statement of
Additional Information, historical information for each of these Funds includes
information for their respective predecessor entities.
This Statement of Additional Information provides additional
information with respect to the Funds and should be read in conjunction with the
relevant Fund's current Prospectus (the "Prospectus"). Capitalized terms not
otherwise defined herein have the meanings accorded to them in the Prospectus.
The Funds' executive offices are located at 60 State Street, Suite 1300, Boston,
Massachusetts 02109.
Unlike other mutual funds which directly acquire and manage their own
portfolio of securities, the Funds seek to achieve their investment objectives
by investing all of their investable assets in separate Master Portfolios (each
a "Portfolio"), a corresponding diversified open-end management investment
company having the same investment objective as the corresponding Fund. Each
Fund invests in a Portfolio through a two-tier master-feeder investment fund
structure. See "Special Information Concerning Investment Structure."
The Portfolios are advised by J.P. Morgan Investment Management Inc.
("JPMIM" or the "Advisor").
Investments in the Funds are not deposits or obligations of, or
guaranteed or endorsed by any bank. Shares of the Funds are not federally
insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board,
or any other governmental agency. An investment in a Fund is subject to risk
that may cause the value of the investment to fluctuate, and when the investment
is redeemed, the value may be higher or lower than the amount originally
invested by the investor.
INVESTMENT OBJECTIVES AND POLICIES
The following discussion supplements the information regarding the
investment objective of each Fund and the policies to be employed to achieve
this objective by its corresponding Portfolio as set forth above and in the
Prospectus. The investment objective of each Fund and its corresponding
Portfolio is identical. Accordingly, references below to a Fund also include the
Fund's corresponding Portfolio; similarly, references to a Portfolio also
include the corresponding Fund that invests in the Portfolio unless the context
requires otherwise.
<PAGE>
J.P. Morgan Disciplined Equity Fund (the "Disciplined Equity 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
Disciplined Equity 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 Disciplined Equity 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 Disciplined Equity Fund.
The Disciplined Equity Fund invests primarily in a diversified
portfolio of common stocks and other equity securities. Under normal
circumstances, the Disciplined Equity Fund expects to invest at least 65% of its
total assets in such securities.
Investment Process for The Disciplined Equity Fund
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 Disciplined Equity Fund's sector
weightings are matched to those of the S&P 500 Index, the Disciplined Equity
Fund's benchmark. The Advisor, also controls the Disciplined Equity 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.
J.P. Morgan U.S. Equity Fund (the "U.S. Equity Fund") is designed for
investors who want an actively managed portfolio of selected equity securities
that seeks to outperform the S&P 500 Index. The U.S. Equity Fund's investment
objective is to provide a high total return from a portfolio of selected equity
securities. This investment objective can be changed without shareholder
approval. The U.S. Equity Fund attempts to achieve its investment objective by
investing all of its investable assets in The U.S. Equity Portfolio, a
diversified open-end management investment company having the same investment
objective as the U.S. Equity Fund.
In normal circumstances, at least 65% of the U.S. Equity Fund's net
assets will be invested in equity securities consisting of U.S. and foreign
common stocks and other securities with equity characteristics comprised of
preferred stock, warrants, rights, convertible securities, depository receipts
<PAGE>
(such as ADRs and EDRs) trust certifications, limited partnership interests and
investment company securities (collectively, "Equity Securities"). The U.S.
Equity Fund's primary equity investments are the common stock of large
capitalization U.S. corporations and, to a limited extent, similar securities of
foreign corporations.
Investment Process for The U.S. Equity Fund
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 700 predominantly large- and medium-sized U.S. companies --
approximately 500 of which form the universe for the U.S. Equity Fund's
investments. Their research goal is to forecast normalized, longer term earnings
and dividends for the companies that they cover. In doing this, they may work in
concert with the Advisor's international equity analysts in order to gain a
broader perspective for evaluating industries and companies in today's global
economy.
Valuation: The analysts' forecasts are converted into comparable
expected returns using a proprietary dividend discount model, which calculates
the long-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 diversified portfolio is constructed using
disciplined buy and sell rules. Purchases are concentrated among first-quintile
stocks; the specific names selected reflect the portfolio manager's judgment
concerning the soundness of the underlying forecasts, the likelihood that the
perceived misvaluation will be corrected within a reasonable time frame, and the
magnitude of the risks versus the rewards. Once a stock falls into the third
quintile -- because its price has risen or its fundamentals have deteriorated --
it generally becomes a candidate for sale. The portfolio manager seeks to hold
sector weightings close to those of the S&P 500 Index, the U.S. Equity Fund's
benchmark.
J.P. Morgan U.S. Small Company Fund (the "U.S. Small Company Fund") is
designed for investors who are willing to assume the somewhat higher risk of
investing in small companies in order to seek a higher return over time than
might be expected from a portfolio of stocks of large companies. The U.S. Small
Company Fund's investment objective is to provide high total return from a
portfolio of small company stocks. This investment objective can be changed
without shareholder approval. The U.S. Small Company Fund attempts to achieve
its investment objective by investing all of its investable assets in The U.S.
Small Company Portfolio, a diversified open-end management investment company
having the same investment objective as the U.S. Small Company Fund.
The U.S. Small Company Fund attempts to achieve its investment
objective by investing primarily in the common stock of small sized U.S.
companies that are included in the Russell 2000 Index, which is composed of
2,000 common stocks of U.S. small-cap companies with market capitalizations
ranging from $110 million to $2.5 billion.
<PAGE>
Investment Process for The U.S. Small Company Fund
Research: The Advisor's more than 20 domestic equity analysts, each an
industry specialist with an average of over 10 years of experience, continuously
monitor the small cap stocks in their respective sectors with the aim of
identifying companies that exhibit superior financial strength and operating
returns. Meetings with management and on-site visits play a key role in shaping
their assessments. Their research goal is to forecast normalized, long-term
earnings and dividends for the most attractive small cap companies among those
they monitor -- a universe that contains a total of approximately 600 names.
Because the Advisor's analysts follow both the larger and smaller companies in
their industries -- in essence, covering their industries from top to bottom --
they are able to bring broad perspective to the research they do on both.
Valuation: The analysts' forecasts are converted into comparable
expected returns using a proprietary dividend discount model, which calculates
the long-term earnings by comparing a company's current stock price with the its
forecasted dividends and earnings. Within each industry, 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 diversified portfolio is constructed using
disciplined buy and sell rules. Purchases are concentrated among the stocks in
the top two quintiles of the rankings; the specific names selected reflect the
portfolio manager's judgment concerning the soundness of the underlying
forecasts, the likelihood that the perceived misvaluation will soon be
corrected, and the magnitude of the risks versus the rewards. Once a stock falls
into the third quintile -- because its price has risen or its fundamentals have
deteriorated -- it generally becomes a candidate for sale. The portfolio manager
seeks to hold sector weightings close to those of the Russell 2000 Index, the
U.S. Small Company Fund's benchmark.
J.P. Morgan U.S. Small Company Opportunities Fund (the "U.S. Small
Company Opportunities Fund") is designed for investors seeking an actively
managed portfolio of equity securities of companies with high growth potential,
emphasizing growth sectors of the market without undue emphasis on a specific
sector and encompassing a higher degree of risk than some small company stock
portfolios. The U.S. Small Company Opportunities Fund's investment objective is
to provide long-term growth from a portfolio of small company growth stocks.
This investment objective can be changed without shareholder approval. The U.S.
Small Company Opportunities Fund attempts to achieve its investment objective by
investing all of its investable assets in The U.S. Small Company Opportunities
Portfolio, a diversified open-end management investment company having the same
investment objective as the U.S. Small Company Opportunities Fund.
The U.S. Small Company Opportunities Fund attempts to achieve its
investment objective by investing in a diversified portfolio of common stocks
issued by small companies with above average long-term earnings growth potential
that are included in the Russell 2000 Growth Index, an index composed of 2000
equity securities of companies with market capitalizations ranging from $150
billion to $2 billion. The U.S. Small Company Opportunities Fund emphasizes
stocks of U.S. small companies with market capitalizations of less than $1.25
billion when purchased.
<PAGE>
Investment Process for The U.S. Small Company Opportunities Fund
Research: The Advisor's more than 20 domestic equity analysts, each an
industry specialist with an average of over 10 years of experience, continuously
monitor stocks in the small company universe with the aim of identifying
companies that participate in expanding markets or have a competitive advantage
that is sustainable over the long term, exhibit superior potential, sound
financial and operating characteristics and can be purchased at a reasonable
price. Frequent reviews of individual companies focus on the forecasted growth
and profitability inputs to the proprietary valuation analyses. The research
goal is to forecast normalized, long-term earnings and dividends for the most
attractive small capitalization growth companies among those they monitor.
Valuation: The analysts' forecasts are converted into comparable
expected returns using a proprietary dividend discount model, which calculates
the long-term earnings by comparing a company's current stock price with its
forecasted dividends and earnings. Within each industry, 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 diversified portfolio is constructed using
disciplined buy and sell rules. Purchases are concentrated among the stocks in
the top two quintiles of the rankings; the specific names selected reflect the
portfolio manager's judgment concerning the soundness of the underlying
forecasts, the likelihood that the perceived misevaluation will soon be
corrected, and the magnitude of the risks versus the rewards. Once a stock falls
into the third quintile -- because its price has risen or its fundamentals have
deteriorated -- it generally becomes a candidate for sale. While the U.S. Small
Company Opportunities Fund holds stocks in many industries to reduce the impact
of poor performance in any one sector, it tends to emphasize industries with
higher growth potential and does not track the sector weightings of the overall
small company stock market.
The various types of securities in which the Funds may invest are
described below.
Equity Investments
The Funds invest primarily in Equity Securities. The Equity Securities
in which the Funds invest include those listed on any domestic or foreign
securities exchange or traded in the over-the-counter (OTC) market as well as
certain restricted or unlisted securities.
Equity Securities. The Equity Securities in which the Funds may invest may
or may not pay dividends and may or may not carry voting rights. Common stock
occupies the most junior position in a company's capital structure.
The convertible securities in which the Funds may invest include any
debt securities or preferred stock which may be converted into common stock or
which carry the right to purchase common stock. Convertible securities entitle
the holder to exchange the securities for a specified number of shares of common
stock, usually of the same company, at specified prices within a certain period
of time.
The terms of any convertible security determine its ranking in a
company's capital structure. In the case of subordinated convertible debentures,
the holders' claims on assets and earnings are subordinated to the
<PAGE>
claims of other creditors, and are senior to the claims of preferred and common
shareholders. In the case of convertible preferred stock, the holders' claims on
assets and earnings are subordinated to the claims of all creditors and are
senior to the claims of common shareholders.
Common Stock Warrants
The Funds may invest in common stock warrants that entitle the holder
to buy common stock from the issuer of the warrant at a specific price (the
strike price) for a specific period of time. The market price of warrants may be
substantially lower than the current market price of the underlying common
stock, yet warrants are subject to similar price fluctuations. As a result,
warrants may be more volatile investments than the underlying common stock.
Warrants generally do not entitle the holder to dividends or voting
rights with respect to the underlying common stock and do not represent any
rights in the assets of the issuer company. A warrant will expire worthless if
it is not exercised on or prior to the expiration date.
Foreign Investments
The Funds may invest in certain foreign securities. The Funds do 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 Funds' investments in
foreign securities may be adversely affected by changes in political or social
conditions, diplomatic relations, confiscatory taxation, expropriation,
nationalization, limitation on the removal of funds or assets, or imposition of
(or change in) exchange control or tax regulations in those foreign countries.
In addition, changes in government administrations or economic or monetary
policies in the United States or abroad could result in appreciation or
depreciation of portfolio securities and could favorably or unfavorably affect
the Funds' operations. Furthermore, the economies of individual foreign nations
may differ from the U.S. economy, whether favorably or unfavorably, in areas
such as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position; it may
also be more difficult to obtain and enforce a judgment against a foreign
issuer. Any foreign investments made by the Funds must be made in compliance
with U.S. and foreign currency restrictions and tax laws restricting the amounts
and types of foreign investments.
In addition, while the volume of transactions effected on foreign stock
exchanges has increased in recent years, in most cases it remains appreciably
below that of domestic security exchanges. Accordingly, a 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.
<PAGE>
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 a Fund's assets as measured in U.S. dollars may be affected
favorably or unfavorably by changes in currency rates and in exchange control
regulations, including currency blockage. The Funds may enter into forward
commitments for the purchase or sale of foreign currencies in connection with
the settlement of foreign securities transactions or to manage the Funds'
currency exposure related to foreign investments.
Foreign Currency Exchange Transactions
Because each Fund may buy and sell securities and receive interest and
dividends in currencies other than the U.S. dollar, a Fund may enter from time
to time into foreign currency exchange transactions. Each 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 a 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 a Fund's securities or in
foreign exchange rates, or prevent loss if the prices of these securities should
decline.
<PAGE>
Each 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. Each 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, a 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 Funds 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 a 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. Each of the Funds may
purchase securities on a when-issued or delayed delivery basis. For example,
delivery of and payment for these securities can take place a month or more
after the date of the purchase commitment. The purchase price and the interest
rate payable, if any, on the securities are fixed on the purchase commitment
date or at the time the settlement date is fixed. The value of such securities
is subject to market fluctuation and for money market instruments and other
fixed income securities no interest accrues to a Fund until settlement takes
place. At the time a Fund makes the commitment to purchase securities on a
when-issued or delayed delivery basis, it will record the transaction, reflect
the value each day of such securities in determining its net asset value, and
calculate the maturity for the purposes of average maturity from that date. At
the time of settlement a when-issued security may be valued at less than the
purchase price. To facilitate such acquisitions, each Fund will maintain with
the custodian a segregated account with liquid assets, consisting of cash, U.S.
Government securities or other appropriate securities, in an amount at least
equal to such commitments. On delivery dates for such transactions, each Fund
will meet its obligations from maturities or sales of the securities held in the
segregated account and/or from cash flow. If a Fund chooses to dispose of the
right to acquire a when-issued security prior to its acquisition, it could, as
with the disposition of any other portfolio obligation, incur a gain or loss due
to market fluctuation. Also, a Fund may be disadvantaged if the other party to
the transaction defaults. It is the current policy of each Fund not to enter
into when-issued commitments exceeding in the aggregate 15% of the market value
of the Fund's total assets, less liabilities other than the obligations created
by when-issued commitments.
<PAGE>
Investment Company Securities. Securities of other investment companies
may be acquired by each of the Funds and their corresponding Portfolios to the
extent permitted under the 1940 Act. These limits require that, as determined
immediately after a purchase is made, (i) not more than 5% of the value of a
Fund's total assets will be invested in the securities of any one investment
company, (ii) not more than 10% of the value of its total assets will be
invested in the aggregate in securities of investment companies as a group, and
(iii) not more than 3% of the outstanding voting stock of any one investment
company will be owned by a Fund, provided however, that a Fund may invest all of
its investable assets in an open-end investment company that has the same
investment objective as the Fund (its corresponding Portfolio). As a shareholder
of another investment company, a Fund or Portfolio would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund or Portfolio bears directly in connection with its
own operations. The Funds have applied for exemptive relief from the SEC to
permit the Funds to invest in affiliated investment companies. If the requested
relief is granted, the Funds would then be permitted to invest in affiliated
Funds, subject to certain conditions specified in the applicable order.
Reverse Repurchase Agreements. Each of the Funds may enter into reverse
repurchase agreements. In a reverse repurchase agreement, a Fund sells a
security and agrees to repurchase the same security at a mutually agreed upon
date and price reflecting the interest rate effective for the term of the
agreement. For purposes of the 1940 Act a reverse repurchase agreement is also
considered as the borrowing of money by the Fund and, therefore, a form of
leverage. Leverage may cause any gains or losses for a Fund to be magnified. The
Funds will invest the proceeds of borrowings under reverse repurchase
agreements. In addition, a Fund will enter into a reverse repurchase agreement
only when the interest income to be earned from the investment of the proceeds
is greater than the interest expense of the transaction. A Fund will not invest
the proceeds of a reverse repurchase agreement for a period which exceeds the
duration of the reverse repurchase agreement. Each Fund will establish and
maintain with the custodian a separate account with a segregated portfolio of
securities in an amount at least equal to its purchase obligations under its
reverse repurchase agreements. See "Investment Restrictions" for each Fund's
limitations on reverse repurchase agreements and bank borrowings.
Loans of Portfolio Securities. Each Fund is permitted to lend its
securities in an amount up to 331/3% of the value of such Fund's net assets.
Each of the Funds may lend its securities if such loans are secured continuously
by cash or equivalent collateral or by a letter of credit in favor of the Fund
at least equal at all times to 100% of the market value of the securities
loaned, plus accrued interest. While such securities are on loan, the borrower
will pay the Fund any income accruing thereon. Loans will be subject to
termination by the Funds in the normal settlement time, generally three business
days after notice, or by the borrower on one day's notice. Borrowed securities
must be returned when the loan is terminated. Any gain or loss in the market
price of the borrowed securities which occurs during the term of the loan inures
to a Fund and its respective investors. The Funds may pay reasonable finders'
and custodial fees in connection with a loan. In addition, a Fund will consider
all facts and circumstances before entering into such an agreement, including
the creditworthiness of the borrowing financial institution, and no Fund will
make any loans in excess of one year. The Funds will not lend their securities
to any officer, Trustee, Director, employee or other affiliate of the Funds, the
Advisor or the Distributor, unless otherwise permitted by applicable law.
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Illiquid Investments; Privately Placed and Other Unregistered
Securities. No Fund may 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, each 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 a Fund. The price
a 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.
Each 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, a Fund is subject to a risk that should a
Fund decide to sell them when a ready buyer is not available at a price the Fund
deems representative of their value, the value of the Fund's net assets could be
adversely affected. Where an illiquid security must be registered under the 1933
Act, before it may be sold, a Fund may be obligated to pay all or part of the
registration expenses, and a considerable period may elapse between the time of
the decision to sell and the time a Fund may be permitted to sell a security
under an effective registration statement. If, during such a period, adverse
market conditions were to develop, a Fund might obtain a less favorable price
than prevailed when it decided to sell.
Money Market Instruments
Although the Funds intend, under normal circumstances and to the extent
practicable, to be fully invested in equity securities, each Fund may invest in
money market instruments to the extent consistent with its respective investment
objective and policies. The Funds may make money market investments pending
other investment or settlement, for liquidity or in adverse market conditions. A
description of the various types of money market instruments that may be
purchased by the Funds appears below. Also see "Quality and Diversification
Requirements."
U.S. Treasury Securities. Each of the Funds may invest in direct
obligations of the U.S. Treasury, including Treasury bills, notes and bonds, all
of which are backed as to principal and interest payments by the full faith and
credit of the United States.
Additional U.S. Government Obligations. Each of the Funds may invest in
obligations issued or guaranteed by U.S. Government agencies or
instrumentalities. These obligations may or may not be backed by the "full faith
and credit" of the United States. Securities which are backed by the full faith
and credit of the United States include obligations of the Government National
Mortgage Association, the Farmers Home Administration, and the Export-Import
Bank. In the case of securities not backed by the full faith and credit of the
United States, each Fund must look principally to the federal agency issuing or
guaranteeing the obligation for ultimate repayment and may not be able to assert
a claim against the United States itself in the event the agency or
instrumentality does not meet its commitments. Securities
<PAGE>
in which each Fund may invest that are not backed by the full faith and credit
of the United States include, but are not limited to: (i) obligations of the
Tennessee Valley Authority, the Federal Home Loan Mortgage Corporation, the
Federal Home Loan Banks and the U.S. Postal Service, each of which has the right
to borrow from the U.S. Treasury to meet its obligations; (ii) securities issued
by the Federal National Mortgage Association, which are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; and (iii) obligations of the Federal Farm Credit System and the
Student Loan Marketing Association, each of whose obligations may be satisfied
only by the individual credits of the issuing agency.
Foreign Government Obligations. Each of the Funds, subject to its
applicable investment policies, may also invest in short-term obligations of
foreign sovereign governments or of their agencies, instrumentalities,
authorities or political subdivisions. These securities may be denominated in
the U.S. dollar or in another currency. See "Foreign Investments."
Bank Obligations. Each of the Funds may invest in negotiable
certificates of deposit, time deposits and bankers' acceptances of (i) banks,
savings and loan associations and savings banks which have more than $2 billion
in total assets (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 Funds will not invest
in obligations for which the Advisor, or any of its affiliated persons, is the
ultimate obligor or accepting bank. Each of the Funds may also invest in
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. Each of the Funds may invest in commercial paper,
including master demand obligations. Master demand obligations are obligations
that provide for a periodic adjustment in the interest rate paid and permit
daily changes in the amount borrowed. Master demand obligations are governed by
agreements between the issuer and Morgan 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 Funds may invest in such unrated
obligations only if at the time of an investment the obligation is determined by
the Advisor to have a credit quality which satisfies the Fund's quality
restrictions. See "Quality and Diversification Requirements." 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.
<PAGE>
Repurchase Agreements. Each of the Funds may enter into repurchase
agreements with brokers, dealers or banks that meet the credit guidelines
approved by the Funds' Trustees. In a repurchase agreement, a Fund buys a
security from a seller that has agreed to repurchase the same security at a
mutually agreed upon date and price. The resale price normally is in excess of
the purchase price, reflecting an agreed upon interest rate. This interest rate
is effective for the period of time the Fund is invested in the agreement and is
not related to the coupon rate on the underlying security. A repurchase
agreement may also be viewed as a fully collateralized loan of money by a Fund
to the seller. The period of these repurchase agreements will usually be short,
from overnight to one week, and at no time will the Funds invest in repurchase
agreements for more than thirteen months. The securities which are subject to
repurchase agreements, however, may have maturity dates in excess of thirteen
months from the effective date of the repurchase agreement. The Funds will
always receive securities as collateral whose market value is, and during the
entire term of the agreement remains, at least equal to 100% of the dollar
amount invested by the Funds in each agreement plus accrued interest, and the
Funds will make payment for such securities only upon physical delivery or upon
evidence of book entry transfer to the account of the custodian. If the seller
defaults, a Fund might incur a loss if the value of the collateral securing the
repurchase agreement declines and might incur disposition costs in connection
with liquidating the collateral. In addition, if bankruptcy proceedings are
commenced with respect to the seller of the security, realization upon disposal
of the collateral by a Fund may be delayed or limited.
Each of the Funds may make investments in other debt securities with
remaining effective maturities of not more than thirteen months, including
without limitation corporate and foreign bonds, asset-backed securities and
other obligations described in this Statement of Additional Information.
<PAGE>
Quality and Diversification Requirements
Each of the Funds intends to meet the diversification requirements of
the 1940 Act. To meet these requirements, 75% of the assets of each Fund is
subject to the following fundamental limitations: (1) a 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)
a Fund may not own more than 10% of the outstanding voting securities of any one
issuer. As for the other 25% of a Fund's assets not subject to the limitation
described above, there is no limitation on investment of these assets under the
1940 Act, so that all of such assets may be invested in securities of any one
issuer. Investments not subject to the limitations described above could involve
an increased risk to a Fund should an issuer, or a state or its related
entities, be unable to make interest or principal payments or should the market
value of such securities decline.
The Funds will also comply with the diversification requirements imposed by
the Internal Revenue Code of 1986, as amended (the "Code"), for qualification as
a regulated investment company. See "Taxes."
The Funds may invest in convertible debt securities, for which there
are no specific quality requirements. In addition, at the time a Fund invests in
any commercial paper, bank obligation or repurchase agreement, the issuer must
have outstanding debt rated A or higher by Moody's or Standard & Poor's, the
issuer's parent corporation, if any, must have outstanding commercial paper
rated Prime-1 by Moody's or A-1 by Standard & Poor's, or if no such ratings are
available, the investment must be of comparable quality in the Advisor's
opinion. At the time a Fund invests in any other short-term debt securities,
they must be rated A or higher by Moody's or Standard & Poor's, or if unrated,
the investment must be of comparable quality in the Advisor's opinion.
In determining suitability of investment in a particular unrated
security, the Advisor takes into consideration asset and debt service coverage,
the purpose of the financing, history of the issuer, existence of other rated
securities of the issuer, and other relevant conditions, such as comparability
to other issuers.
Options and Futures Transactions
Each of the Funds 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.
Each 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 a 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 a Fund's overall strategy in a manner deemed appropriate to
the Advisor and consistent with a 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.
<PAGE>
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 a Fund's return. While the use of these instruments by a
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 a Fund's possibilities to realize gains as well as limiting its
exposure to losses. A 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, a 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 a Fund's
turnover rate.
Each 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 a
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 a Fund's total
assets.
Options
Purchasing Put and Call Options. By purchasing a put option, a 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, a 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. A Fund may
terminate its position in a put option it has purchased by allowing it to expire
or by exercising the option. A 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, a Fund will lose the entire premium it paid. If a
Fund exercises a put option on a security, it will sell the instrument
underlying the option at the strike price. If a 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.
<PAGE>
Selling (Writing) Put and Call Options. When a 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, a 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. A 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 a Fund has written, however, a 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 a 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. A 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 a 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 a Fund
may not be able to close out an option position that it has previously entered
into. When a Fund purchases an OTC option, it will be relying on its
counterparty to perform its obligations, and a Fund may incur additional losses
if the counterparty is unable to perform.
Exchange Traded and OTC Options. All options purchased or sold by the
Funds will be traded on a securities exchange or will be purchased or sold by
securities dealers (OTC options) that meet creditworthiness standards approved
by a Funds' Board of Trustees. While exchange-traded options are obligations of
the Options Clearing Corporation, in the case of OTC options, a Fund relies
<PAGE>
on the dealer from which it purchased the option to perform if the option is
exercised. Thus, when a 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 a Fund as well as loss of the expected benefit of the
transaction.
Provided that a 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, a 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 Funds 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 a Fund are paid by a 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 Funds are 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, a 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.
<PAGE>
Correlation of Price Changes. Because there are a limited number of
types of exchange-traded options and futures contracts, it is likely that the
standardized options and futures contracts available will not match a Fund's
current or anticipated investments exactly. A 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 a 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 a
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. A 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 a 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 a 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 a Fund to continue to hold a position until delivery or expiration
regardless of changes in its value. As a result, a 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, a Fund or the Advisor may be required to
reduce the size of its futures and options positions or may not be able to trade
a certain futures or options contract in order to avoid exceeding such limits.
Asset Coverage for Futures Contracts and Options Positions. The Funds
intend to comply with Section 4.5 of the regulations under the Commodity
Exchange Act, which limits the extent to which a Fund can commit assets to
initial margin deposits and option premiums. In addition, the Funds 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
<PAGE>
cannot be sold while the futures contract or option is outstanding, unless they
are replaced with other suitable assets. As a result, there is a possibility
that segregation of a large percentage of a Fund's assets could impede portfolio
management or a Fund's ability to meet redemption requests or other current
obligations.
Swaps and Related Swap Products
Each of the Funds may engage in swap transactions, including, but not
limited to, interest rate, currency, securities index, basket, specific security
and commodity swaps, interest rate caps, floors and collars and options on
interest rate swaps (collectively defined as "swap transactions").
Each Fund may enter into swap transactions for any legal purpose
consistent with its investment objective and policies, such as for the purpose
of attempting to obtain or preserve a particular return or spread at a lower
cost than obtaining that return or spread through purchases and/or sales of
instruments in cash markets, to protect against currency fluctuations, as a
duration management technique, to protect against any increase in the price of
securities a Fund anticipates purchasing at a later date, or to gain exposure to
certain markets in the most economical way possible. A Fund will not sell
interest rate caps, floors or collars if it does not own securities with coupons
which provide the interest that a Fund may be required to pay.
Swap agreements are two-party contracts entered into primarily by
institutional counterparties for periods ranging from a few weeks to several
years. In a standard swap transaction, two parties agree to exchange the returns
(or differentials in rates of return) that would be earned or realized on
specified notional investments or instruments. The gross returns to be exchanged
or "swapped" between the parties are calculated by reference to a "notional
amount," i.e., the return on or increase in value of a particular dollar amount
invested at a particular interest rate, in a particular foreign currency or
commodity, or in a "basket" of securities representing a particular index. The
purchaser of an interest rate cap or floor, upon payment of a fee, has the right
to receive payments (and the seller of the cap is obligated to make payments) to
the extent a specified interest rate exceeds (in the case of a cap) or is less
than (in the case of a floor) a specified level over a specified period of time
or at specified dates. The purchaser of an interest rate collar, upon payment of
a fee, has the right to receive payments (and the seller of the collar is
obligated to make payments) to the extent that a specified interest rate falls
outside an agreed upon range over a specified period of time or at specified
dates. The purchaser of an option on an interest rate swap, upon payment of a
fee (either at the time of purchase or in the form of higher payments or lower
receipts within an interest rate swap transaction) has the right, but not the
obligation, to initiate a new swap transaction of a pre-specified notional
amount with pre-specified terms with the seller of the option as the
counterparty.
The "notional amount" of a swap transaction is the agreed upon basis
for calculating the payments that the parties have agreed to exchange. For
example, one swap counterparty may agree to pay a floating rate of interest
(e.g., 3 month LIBOR) calculated based on a $10 million notional amount on a
quarterly basis in exchange for receipt of payments calculated based on the same
notional amount and a fixed rate of interest on a semi-annual basis. In the
event a Fund is obligated to make payments more frequently than it receives
payments from the other party, it will incur incremental credit exposure to that
swap counterparty. This risk may be mitigated somewhat by the use of swap
agreements which call for a net payment to be made by the party with the larger
payment obligation when the obligations of the parties
<PAGE>
fall due on the same date. Under most swap agreements entered into by a Fund,
payments by the parties will be exchanged on a "net basis", and a Fund will
receive or pay, as the case may be, only the net amount of the two payments.
The amount of a Fund's potential gain or loss on any swap transaction
is not subject to any fixed limit. Nor is there any fixed limit on a Fund's
potential loss if it sells a cap or collar. If the Fund buys a cap, floor or
collar, however, the Fund's potential loss is limited to the amount of the fee
that it has paid. When measured against the initial amount of cash required to
initiate the transaction, which is typically zero in the case of most
conventional swap transactions, swaps, caps, floors and collars tend to be more
volatile than many other types of instruments.
The use of swap transactions, caps, floors and collars involves
investment techniques and risks which are different from those associated with
portfolio security transactions. If the Advisor is incorrect in its forecasts of
market values, interest rates, and other applicable factors, the investment
performance of a Fund will be less favorable than if these techniques had not
been used. These instruments are typically not traded on exchanges. Accordingly,
there is a risk that the other party to certain of these instruments will not
perform its obligations to a Fund or that a Fund may be unable to enter into
offsetting positions to terminate its exposure or liquidate its position under
certain of these instruments when it wishes to do so. Such occurrences could
result in losses to a Fund.
The Advisor will, however, consider such risks and will enter into
swap and other derivatives transactions only when it believes that the risks are
not unreasonable.
Each Fund will maintain cash or liquid assets in a segregated account
with its custodian in an amount sufficient at all times to cover its current
obligations under its swap transactions, caps, floors and collars. If 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 a Fund's accrued
obligations under the swap agreement over the accrued amount a Fund is entitled
to receive under the agreement. If a Fund enters into a swap agreement on other
than a net basis, or sells a cap, floor or collar, it will segregate assets with
a daily value at least equal to the full amount of a Fund's accrued obligations
under the agreement.
Each Fund will not enter into any swap transaction, cap, floor, or
collar, unless the counterparty to the transaction is deemed creditworthy by the
Advisor. If a counterparty defaults, a Fund may have contractual remedies
pursuant to the agreements related to the transaction. The swap markets in which
many types of swap transactions are traded have grown substantially in recent
years, with a large number of banks and investment banking firms acting both as
principals and as agents utilizing standardized swap documentation. As a result,
the markets for certain types of swaps (e.g., interest rate swaps) have become
relatively liquid. The markets for some types of caps, floors and collars are
less liquid.
The liquidity of swap transactions, caps, floors and collars will be as
set forth in guidelines established by the Advisor and approved by the Trustees
which are based on various factors, including (1) the availability of dealer
quotations and the estimated transaction volume for the instrument, (2) the
number of dealers and end users for the instrument in the marketplace, (3) the
level of market making by dealers in the type of instrument, (4) the nature of
the instrument (including any right of a party to terminate it on
<PAGE>
demand) and (5) the nature of the marketplace for trades (including the ability
to assign or offset a Fund's rights and obligations relating to the instrument).
Such determination will govern whether the instrument will be deemed within the
15% restriction on investments in securities that are not readily marketable.
During the term of a swap, cap, floor or collar, changes in the value
of the instrument are recognized as unrealized gains or losses by marking to
market to reflect the market value of the instrument. When the instrument is
terminated, a Fund will record a realized gain or loss equal to the difference,
if any, between the proceeds from (or cost of) the closing transaction and a
Fund's basis in the contract.
The federal income tax treatment with respect to swap transactions,
caps, floors, and collars may impose limitations on the extent to which a Fund
may engage in such transactions.
Risk Management
The Funds may employ non-hedging risk management techniques. Risk
management strategies are used to keep the Funds fully invested and to reduce
the transaction costs associated with cash flows into and out of the Funds. The
objective where equity futures are used to "equitize" cash is to match the
notional value of all futures contracts to a 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 Funds
not only gain 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 Funds.
A rate of 100% indicates that the equivalent of all of the Fund'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 Disciplined Equity Portfolio (Disciplined Equity Fund) -- For the period
December 30, 1996 (commencement of operations) through May 31, 1997: 20%. For
the fiscal year ended May 31, 1998: 61%.
The U.S. Equity Portfolio (U.S. Equity Fund) -- For the fiscal year ended
May 31, 1996: 85%. For the fiscal year ended May 31, 1997: 99%. For the fiscal
year ended May 31, 1998: 106%.
The U.S. Small Company Portfolio (U.S. Small Company Fund) -- For the
fiscal year ended May 31, 1996: 93%. For the fiscal year ended May 31, 1997:
98%. For the fiscal year ended May 31, 1998: 96%.
<PAGE>
The U.S. Small Company Opportunities Portfolio (U.S. Small Company
Opportunities Fund) -- For the period June 16, 1997 (commencement of operations)
through May 31, 1998: 73%.
INVESTMENT RESTRICTIONS
The investment restrictions of each Fund and its corresponding
Portfolio are identical, unless otherwise specified. Accordingly, references
below to a Fund also include the Fund's corresponding Portfolio unless the
context requires otherwise; similarly, references to a Portfolio also include
its corresponding Fund unless the context requires otherwise.
The investment restrictions below have been adopted by the Trust with
respect to each Fund and by each corresponding Portfolio. Except where otherwise
noted, these investment restrictions are "fundamental" policies which, under the
1940 Act, may not be changed without the vote of a majority of the outstanding
voting securities of the Fund or Portfolio, as the case may be. A "majority of
the outstanding voting securities" is defined in the 1940 Act as the lesser of
(a) 67% or more of the voting securities present at a meeting if the holders of
more than 50% of the outstanding voting securities are present or represented by
proxy, or (b) more than 50% of the outstanding voting securities. The percentage
limitations contained in the restrictions below apply at the time of the
purchase of securities. Whenever a Fund is requested to vote on a change in the
fundamental investment restrictions of its corresponding Portfolio, the Trust
will hold a meeting of Fund shareholders and will cast its votes as instructed
by the Fund's shareholders.
Unless Sections 8(b)(1) and 13(a) of the 1940 Act or any SEC or SEC
staff interpretations thereof are amended or modified, the Funds and their
corresponding Portfolios may not:
1. Make any investments inconsistent with a Fund's classification as a
diversified investment company under the Investment Company Act of 1940;
2. Purchase any security which would cause a Fund to concentrate its investments
in the securities of issuers primarily engaged in any particular industry except
as permitted by the SEC;
3. Issue senior securities, except as permitted under the Investment Company Act
of 1940 or any rule, order or interpretation thereunder;
4. Borrow money, except to the extent permitted by applicable law;
5. Underwrite securities of other issuers, except to the extent that a Fund, in
disposing of portfolio securities, may be deemed an underwriter within the
meaning of the 1933 Act;
6. Purchase or sell real estate, except that, to the extent permitted by
applicable law, a 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. 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 a 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),
<PAGE>
warrants, swaps, forward contracts, foreign currency spot and forward contracts
or other derivative instruments that are not related to physical commodities;
and
8. Make loans to other persons, in accordance with its respective 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 these Funds and their
corresponding Portfolios and may be changed by their respective Trustees. These
non-fundamental investment policies require that each such Fund may not:
(i) Acquire any illiquid securities, such as repurchase agreements with more
than seven days to maturity or fixed time deposits with a duration of over seven
calendar days, if as a result thereof, more than 15% of the market value of a
Fund's net assets would be in investments which are illiquid;
(ii) 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) 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, Morgan 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 Morgan 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, Morgan
may classify an issuer accordingly. For instance, personal credit finance
companies and business credit finance companies are deemed to be separate
industries and wholly owned finance companies are considered to be in the
industry of their parents if their activities are primarily related to financing
the activities of their parents.
TRUSTEES AND OFFICERS
Trustees
The Trustees of the Trust, who are also the Trustees of each of the
Portfolios, and the other Master Portfolios, as defined below, their business
addresses, principal occupations during the past five years and dates of birth
are set forth below.
FREDERICK S. ADDYAATrustee; Retired; Prior to April 1994, Executive Vice
President and Chief Financial Officer, Amoco Corporation. His address is 5300
Arbutus Cove, Austin, Texas 78746, and his date of birth is January 1, 1932.
<PAGE>
WILLIAM G. BURNSAATrustee; Retired, Former Vice Chairman and Chief
Financial Officer, NYNEX. His address is 2200 Alaqua Drive, Longwood, Florida
32779, and his date of birth is November 2, 1932.
ARTHUR C. ESCHENLAUERAATrustee; Retired; Former Senior Vice President,
Morgan Guaranty Trust Company of New York. His address is 14 Alta Vista Drive,
RD #2, Princeton, New Jersey 08540, and his date of birth is May 23, 1934.
MATTHEW HEALEY1AATrustee, Chairman and Chief Executive Officer;
Chairman, Pierpont Group, Inc., since prior to 1993. His address is Pine Tree
Club Estates, 10286 Saint Andrews Road, Boynton Beach, Florida 33436, and his
date of birth is August 23, 1937.
MICHAEL P. MALLARDIAATrustee; Retired; Prior to April 1996, Senior Vice
President, Capital Cities/ABC, Inc. and President, Broadcast Group. His address
is 10 Charnwood Drive, Suffern, New York 10910, and his date of birth is March
17, 1934.
The Trustees of the Trust are the same as the Trustees of each of the
Portfolios. A majority of the disinterested Trustees have adopted written
procedures reasonably appropriate to deal with potential conflicts of interest
arising from the fact that the same individuals are Trustees of the Trust, each
of the Portfolios and the J.P. Morgan Institutional Funds, up to and including
creating a separate board of trustees.
Each Trustee is currently paid an annual fee of $75,000 (adjusted as of
April 1, 1997) for serving as Trustee of the Trust, each of the Master
Portfolios (as defined below), J.P. Morgan Institutional Funds and J.P. Morgan
Series Trust and is reimbursed for expenses incurred in connection with service
as a Trustee. The Trustees may hold various other directorships unrelated to
these funds.
Trustee compensation expenses paid by the Trust for the calendar year ended
December 31, 1997 are set forth below.
------------------------------------------------ -----------------------------
TOTAL TRUSTEE
COMPENSATION ACCRUED
BY THE MASTER
PORTFOLIOS (*), J.P.
AGGREGATE TRUSTEE MORGAN INSTITUTIONAL
COMPENSATION FUNDS, J.P. MORGAN
PAID BY THE SERIES TRUST AND THE
NAME OF TRUSTEE TRUST DURING 1997 TRUST DURING 1997(**)
---------------------------------- --------------------- ----------------------
---------------------------------- --------------------- ----------------------
Frederick S. Addy, Trustee $12,641.75 $72,500
---------------------------------- --------------------- ----------------------
---------------------------------- --------------------- ----------------------
William G. Burns, Trustee $12,644.75 $72,500
---------------------------------- --------------------- ----------------------
---------------------------------- --------------------- ----------------------
Arthur C. Eschenlauer, Trustee $12,644.75 $72,500
---------------------------------- --------------------- ----------------------
---------------------------------- --------------------- ----------------------
Matthew Healey, Trustee (***) $12,644.75 $72,500
Chairman and Chief Executive
Officer
---------------------------------- --------------------- ----------------------
---------------------------------- --------------------- ----------------------
Michael P. Mallardi, Trustee $12,644.75 $72,500
---------------------------------- --------------------- ----------------------
<PAGE>
(*) Includes the Portfolios and 17 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 18 investment companies (15 investment
companies comprising the Master Portfolios, the Trust, J.P. Morgan Institutional
Funds and J.P. Morgan Series Trust) in the fund complex.
(***) During 1997, Pierpont Group, Inc. paid Mr. Healey, in his role as
Chairman of Pierpont Group, Inc., compensation in the amount of $147,500,
contributed $21,100 to a defined contribution plan on his behalf and paid
$20,500 in insurance premiums for his benefit.
The Trustees decide upon general policies and are responsible for
overseeing the Trust's and Portfolio's business affairs. Each of the Portfolios
and the Trust has entered into a Fund Services Agreement with Pierpont Group,
Inc. to assist the Trustees in exercising their overall supervisory
responsibilities over the affairs of the Portfolios and the Trust. Pierpont
Group, Inc. was organized in July 1989 to provide services for The Pierpont
Family of Funds (now the J.P. Morgan Family of Funds), and the Trustees are the
equal and sole shareholders of Pierpont Group, Inc. The Trust and the Portfolios
have agreed to pay Pierpont Group, Inc. a fee in an amount representing its
reasonable costs in performing these services to the Trust, the Portfolios and
certain other registered investment companies subject to similar agreements with
Pierpont Group, Inc. These costs are periodically reviewed by the Trustees. The
principal offices of Pierpont Group, Inc. are located at 461 Fifth Avenue, New
York, New York 10017.
The aggregate fees paid to Pierpont Group, Inc. by each Fund and its
corresponding Portfolio during the indicated fiscal years are set forth below:
Disciplined Equity Fund -- For the period December 31, 1997 (commencement of
operations) through May 31, 1998: $58.
Disciplined Equity Portfolio -- For the period December 30, 1996
(commencement of operations) through May 31, 1997: $607. For the fiscal year
ended May 31, 1998: $5,818.
U.S. Equity Fund -- For the fiscal year ended May 31, 1996: $20,190. For
the fiscal year ended May 31, 1997: $11,747. For the fiscal year ended May 31,
1998: $14,143.
The U.S. Equity Portfolio -- For the fiscal year ended May 31, 1996:
$46,626. For the fiscal year ended May 31, 1997: $26,486. For the fiscal year
ended May 31, 1998: $30,613.
U.S. Small Company Fund -- For the fiscal year ended May 31, 1996: $13,451.
For the fiscal year ended May 31, 1997: $7,545. For the fiscal year ended May
31, 1998: $9,146.
The U.S. Small Company Portfolio -- For the fiscal year ended May 31, 1996:
$48,688. For the fiscal year ended May 31, 1997: $31,320. For the fiscal year
ended May 31, 1998: $36,011.
U.S. Small Company Opportunities Fund -- For the period June 16, 1997
(commencement of operations) through May 31, 1998: $3,084.
The U.S. Small Company Opportunities Portfolio -- For the period June 16,
1997 (commencement of operations) through May 31, 1998: $3,088.
<PAGE>
Officers
The Trust's and Portfolios' executive officers (listed below), other
than the Chief Executive Officer and the officers who are employees of the
Advisor, are provided and compensated by Funds Distributor, Inc. ("FDI"), a
wholly owned indirect subsidiary of Boston Institutional Group, Inc. The
officers conduct and supervise the business operations of the Trust and the
Portfolios. The Trust and the Portfolios have no employees.
The officers of the Trust and the Portfolios, their principal
occupations during the past five years and dates of birth are set forth below.
Unless otherwise specified, each officer holds the same position with the Trust,
each Portfolio and the other Master Portfolios. The business address of each of
the officers unless otherwise noted is Funds Distributor, Inc., 60 State Street,
Suite 1300, Boston, Massachusetts 02109.
MATTHEW HEALEY; Chief Executive Officer; Chairman, Pierpont Group,
since prior to 1993. His address is Pine Tree Club Estates, 10286 Saint Andrews
Road, Boynton Beach, Florida 33436. His date of birth is August 23, 1937.
MARGARET W. CHAMBERS; Vice President and Secretary. Senior Vice President
and General Counsel of FDI since April, 1998. From August 1996 to March 1998,
Ms. Chambers was Vice President and Assistant General Counsel for Loomis, Sayles
& Company, L.P. From January 1986 to July 1996, she was an associate with the
law firm of Ropes & Gray. Her date of birth is October 12, 1959.
MARIE E. CONNOLLY; Vice President and Assistant Treasurer. President,
Chief Executive Officer, Chief Compliance Officer and Director of FDI, Premier
Mutual Fund Services, Inc., an affiliate of FDI ("Premier Mutual") and an
officer of certain investment companies distributed or administered by FDI.
Prior to July 1994, she was President and Chief Compliance Officer of FDI. Her
date of birth is August 1, 1957.
DOUGLAS C. CONROY; Vice President and Assistant Treasurer. Assistant Vice
President and Assistant Department Manager of Treasury Services and
Administration of FDI and an officer of certain investment companies distributed
or administered by FDI. Prior to April 1997, Mr. Conroy was Supervisor of
Treasury Services and Administration of FDI. From April 1993 to January 1995,
Mr. Conroy was a Senior Fund Accountant for Investors Bank & Trust Company. His
date of birth is March 31, 1969.
JACQUELINE HENNING; Assistant Secretary and Assistant Treasurer of the
Portfolios only. Managing Director, State Street Cayman Trust Company, Ltd.
since October 1994. Prior to October 1994, Mrs. Henning was head of mutual funds
at Morgan Grenfell in Cayman and was Managing Director of Bank of Nova Scotia
Trust Company (Cayman) Limited prior to September 1993. Address: P.O. Box 2508
GT, Elizabethan Square, 2nd Floor, Shedden Road, George Town, Grand Cayman,
Cayman Islands, BWI. Her date of birth is March 24, 1942.
KAREN JACOPPO-WOOD; Vice President and Assistant Secretary. Vice President
and Senior Counsel of FDI and an officer of certain investment companies
distributed or administered by FDI. From June 1994 to January 1996, Ms.
Jacoppo-Wood was a Manager of SEC Registration at Scudder, Stevens & Clark, Inc.
Prior to May 1994, Ms. Jacoppo-Wood was a senior paralegal at The Boston Company
Advisors, Inc. ("TBCA"). Her date of birth is December 29, 1966.
<PAGE>
CHRISTOPHER J. KELLEY; Vice President and Assistant Secretary. Vice
President and Senior Associate General Counsel of FDI and Premier Mutual and an
officer of certain investment companies distributed or administered by FDI. From
April 1994 to July 1996, Mr. Kelley was Assistant Counsel at Forum Financial
Group. Prior to April 1994, Mr. Kelley was employed by Putnam Investments in
legal and compliance capacities. His date of birth is December 24, 1964.
KATHLEEN K. MORRISEY; Vice President and Assistant Secretary. Vice
President and Assistant Secretary of FDI. Manager of Treasury Services
Administration and an officer of certain investment companies advised or
administered by Montgomery Asset Management, L.P. and Dresdner RCM Global
Investors, Inc., and their respective affiliates. From July 1994 to November
1995, Ms. Morrisey was a Fund Accountant II for Investors Bank & Trust Company.
Prior to July 1994 she was a finance student at Stonehill College. Her date of
birth is July 5, 1972.
MARY A. NELSON; Vice President and Assistant Treasurer. Vice President and
Manager of Treasury Services and Administration of FDI and Premier Mutual and an
officer of certain investment companies distributed or administered by FDI.
Prior to August 1994, Ms. Nelson was an Assistant Vice President and Client
Manager for The Boston Company, Inc. Her date of birth is April 22, 1964.
MARY JO PACE; Assistant Treasurer. Vice President, Morgan Guaranty Trust
Company of New York. Ms. Pace serves in the Funds Administration group as a
Manager for the Budgeting and Expense Processing Group. Prior to September 1995,
Ms. Pace served as a Fund Administrator for Morgan Guaranty Trust Company of New
York. Her address is 60 Wall Street, New York, New York 10260. Her date of birth
is March 13, 1966.
MICHAEL S. PETRUCELLI; Vice President and Assistant Secretary. Senior Vice
President and Director of Strategic Client Initiatives for FDI since December
1996. From December 1989 through November 1996, Mr. Petrucelli was employed with
GE Investments where he held various financial, business development and
compliance positions. He also served as Treasurer of the GE Funds and as
Director of GE Investment Services. Address: 200 Park Avenue, New York, New
York, 10166. His date of birth is May 18, 1961.
STEPHANIE D. PIERCE; Vice President and Assistant Secretary. Vice President
and Client Development Manager for FDI since April 1998. From April 1997 to
March 1998, Ms. Pierce was employed by Citibank, NA as an officer of Citibank
and Relationship Manager on the Business and Professional Banking team handling
over 22,000 clients. Address: 200 Park Avenue, New York, New York 10166. Her
date of birth is August 18, 1968.
GEORGE A. RIO; President and Treasurer. Executive Vice President and Client
Service Director of FDI since April 1998. From June 1995 to March 1998, Mr. Rio
was Senior Vice President and Senior Key Account Manager for Putnam Mutual
Funds. From May 1994 to June 1995, Mr. Rio was Director of Business Development
for First Data Corporation. From September 1983 to May 1994, Mr. Rio was Senior
Vice President & Manager of Client Services and Director of Internal Audit at
The Boston Company. His date of birth is January 2, 1955.
CHRISTINE ROTUNDO; Assistant Treasurer. Vice President, Morgan Guaranty
Trust Company of New York. Ms. Rotundo serves in the Funds Administration group
as a Manager of the Tax Group and is responsible for U.S. mutual fund tax
matters. Prior to September 1995, Ms. Rotundo served as a Senior Tax
<PAGE>
Manager in the Investment Company Services Group of Deloitte & Touche LLP. Her
address is 60 Wall Street, New York, New York 10260. Her date of birth is
September 26, 1965.
JOSEPH F. TOWER III; Vice President and Assistant Treasurer. Senior Vice
President, Treasurer and Chief Financial Officer, Chief Administrative Officer
and Director of FDI. Senior Vice President, Treasurer and Chief Financial
Officer, Chief Administrative Officer and Director of Premier Mutual and an
officer of certain investment companies distributed or administered by FDI.
Prior to November 1993, Mr. Tower was Financial Manager of The Boston Company,
Inc. His date of birth is June 13, 1962.
INVESTMENT ADVISOR
The Funds have not retained the services of an investment adviser
because each Fund seeks to achieve its investment objective by investing all of
its investable assets in a corresponding Portfolio. Subject to the supervision
of each Portfolio's Trustees, the Advisor makes each Portfolio's day-to-day
investment decisions, arranges for the execution of portfolio transactions and
generally manages each Portfolio's investments. Effective October 1, 1998 each
Portfolio's Investment Advisor is JPMIM. Prior to that date, Morgan was the
Investment Advisor.
JPMIM, a wholly owned subsidiary of J.P. Morgan & Co. Incorporated
("J.P. Morgan"), is a registered investment adviser under the Investment
Advisers Act of 1940, as amended, 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 more than $275 billion.
J.P. Morgan has a long history of service as adviser, underwriter and
lender to an extensive roster of major companies and as a financial advisor to
national governments. The firm, through its predecessor firms, has been in
business for over a century and has been managing investments since 1913.
The basis of the Advisor's investment process is fundamental investment
research as the firm believes that fundamentals should determine an asset's
value over the long term. J.P. Morgan currently employs over 100 full time
research analysts, among the largest research staffs in the money management
industry, in its investment management divisions located in New York, London,
Tokyo, Frankfurt and Singapore to cover companies, industries and countries on
site. In addition, the investment management divisions employ approximately 300
capital market researchers, portfolio managers and traders. The conclusions of
the equity analysts' fundamental research is quantified into a set of projected
returns for individual companies through the use of a dividend discount model.
These returns are projected for 2 to 5 years to enable analysts to take a longer
term view. These returns, or normalized earnings, are used to establish relative
values among stocks in each industrial sector. These values may not be the same
as the markets' current valuations of these companies. This provides the basis
for ranking the attractiveness of the companies in an industry according to five
distinct quintiles or rankings. This ranking is one of the factors considered in
determining the stocks purchased and sold in each sector.
<PAGE>
The investment advisory services the Advisor provides to the Portfolios
are not exclusive under the terms of the Advisory Agreements. The Advisor is
free to and does render similar investment advisory services to others. The
Advisor serves as investment advisor to personal investors and other investment
companies and acts as fiduciary for trusts, estates and employee benefit plans.
Certain of the assets of trusts and estates under management are invested in
common trust funds for which the Advisor serves as trustee. The accounts which
are managed or advised by the Advisor have varying investment objectives and the
Advisor invests assets of such accounts in investments substantially similar to,
or the same as, those which are expected to constitute the principal investments
of the Portfolios. Such accounts are supervised by officers and employees of the
Advisor who may also be acting in similar capacities for the Portfolios. See
"Portfolio Transactions."
Sector weightings are generally similar to a benchmark with the
emphasis on security selection as the method to achieve investment performance
superior to the benchmark. The benchmarks for the Portfolios in which the Funds
invest are currently: The Disciplined Equity Portfolio and The U.S. Equity
Portfolio--S&P 500 Index; The U.S. Small Company Portfolio--Russell 2000 Index;
The U.S. Small Company Opportunities Portfolio -- Russell 2000 Growth 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 Portfolios are managed by officers of the Advisor who, in acting
for their customers, including the Portfolios, do not discuss their investment
decisions with any personnel of J.P. Morgan or any personnel of other divisions
of the Advisor or with any of its affiliated persons, with the exception of
certain 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
Agreements, the Portfolio corresponding to each Fund has agreed to pay the
Advisor a fee, which is computed daily and may be paid monthly, equal to the
annual rates of each Portfolio's average daily net assets shown below.
Disciplined Equity: 0.35%
U.S. Equity: 0.40%
U.S. Small Company: 0.60%
U.S. Small Company Opportunities : 0.60%
The table below sets forth for each Fund listed the advisory fees paid
by its corresponding Portfolio to Morgan for the fiscal periods indicated. See
also the Fund's financial statements which are incorporated herein by reference.
The Disciplined Equity Portfolio (Disciplined Equity Fund) -- For the period
December 30, 1996 (commencement of operations) through May 31, 1997: $73,985.
For the fiscal year ended May 31, 1998: $628,965.
<PAGE>
The U.S. Equity Portfolio (U.S. Equity Fund) -- For the fiscal year ended
May 31, 1996: $2,744,054. For the fiscal year ended May 31, 1997: $3,049,388.
For the fiscal year ended May 31, 1998: $3,534,791.
The U.S. Small Company Portfolio (U.S. Small Company Fund) -- For the
fiscal year ended May 31, 1996: $4,286,311. For the fiscal year ended May 31,
1997: $5,424,514. For the fiscal year ended May 31, 1998: 6,161,868.
The U.S. Small Company Opportunities Portfolio (U.S. Small Company
Opportunities Fund) -- For the period June 16, 1997 (commencement of operations)
through May 31, 1998: $596,695.
The Investment Advisory Agreements provide that they will continue in
effect for a period of two years after execution only if specifically approved
thereafter annually in the same manner as the Distribution Agreement. See
"Distributor" below. Each of the Investment Advisory Agreements will terminate
automatically if assigned and is terminable at any time without penalty by a
vote of a majority of the Portfolio's Trustees, or by a vote of the holders of a
majority of the Portfolio's outstanding voting securities, on 60 days' written
notice to the Advisor and by the Advisor on 90 days' written notice to the
Portfolio. See "Additional Information."
The Glass-Steagall Act and other applicable laws generally prohibit
banks and their subsidiaries, such as the Advisor, from engaging in the business
of underwriting or distributing securities, and the Board of Governors of the
Federal Reserve System has issued an interpretation to the effect that under
these laws a bank holding company registered under the federal Bank Holding
Company Act or certain subsidiaries thereof may not sponsor, organize, or
control a registered open-end investment company continuously engaged in the
issuance of its shares, such as the Trust. The interpretation does not prohibit
a holding company or a subsidiary thereof from acting as investment advisor and
custodian to such an investment company. The Advisor believes that it may
perform the services for the Portfolios contemplated by the Advisory Agreements
without violation of the Glass-Steagall Act or other applicable banking laws or
regulations. State laws on this issue may differ from the interpretation of
relevant federal law, and banks and financial institutions may be required to
register as dealers pursuant to state securities laws. However, it is possible
that future changes in either federal or state statutes and regulations
concerning the permissible activities of banks or trust companies, as well as
further judicial or administrative decisions and interpretations of present and
future statutes and regulations, might prevent the Advisor from continuing to
perform such services for the Portfolios.
If the Advisor were prohibited from acting as investment advisor to any
Portfolio, it is expected that the Trustees of the Portfolios would recommend to
investors that they approve the Portfolios' entering into a new investment
advisory agreement with another qualified investment advisor selected by the
Trustees.
Under separate agreements, Morgan provides certain financial, fund
accounting and administrative services to the Trust and the Portfolios and
shareholder services for the Trust. See "Services Agent" and "Shareholder
Servicing" below.
DISTRIBUTOR
FDI serves as the Trust's exclusive Distributor and holds itself
available to receive purchase orders for each of the Fund's shares. In that
<PAGE>
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 each Portfolio. FDI currently provides
administration and distribution services for a number of other investment
companies.
The Distribution Agreement shall continue in effect with respect to
each of the Funds for a period of two years after execution only if it is
approved at least annually thereafter (i) by a vote of the holders of a majority
of each Fund's outstanding shares or by its Trustees and (ii) by a vote of a
majority of the Trustees of the Trust who are not "interested persons" (as
defined by the 1940 Act) of the parties to the Distribution Agreement, cast in
person at a meeting called for the purpose of voting on such approval (see
"Trustees and Officers"). The Distribution Agreement will terminate
automatically if assigned by either party thereto and is terminable at any time
without penalty by a vote of a majority of the Trustees of the Trust, a vote of
a majority of the Trustees who are not "interested persons" of the Trust, or by
a vote of the holders of a majority of the Fund's outstanding shares as defined
under "Additional Information," in any case without payment of any penalty on 60
days' written notice to the other party. The principal offices of FDI are
located at 60 State Street, Suite 1300, Boston, Massachusetts 02109.
CO-ADMINISTRATOR
Under Co-Administration Agreements with the Trust and the Portfolios
dated August 1, 1996, FDI also serves as the Trust's and the Portfolios'
Co-Administrator. The Co-Administration Agreements may be renewed or amended by
the respective Trustees without a shareholder vote. The Co-Administration
Agreements are terminable at any time without penalty by a vote of a majority of
the Trustees of the Trust or the Portfolios, as applicable, on not more than 60
days' written notice nor less than 30 days' written notice to the other party.
The Co-Administrator may subcontract for the performance of its obligations,
provided, however, that unless the Trust or the Portfolios, as applicable,
expressly agrees in writing, the Co-Administrator shall be fully responsible for
the acts and omissions of any subcontractor as it would for its own acts or
omissions. See "Services Agent" below.
FDI (i) provides office space, equipment and clerical personnel for
maintaining the organization and books and records of the Trust and the
Portfolio; (ii) provides officers for the Trust and the Portfolio; (iii)
prepares and files documents required for notification of state securities
administrators; (iv) reviews and files marketing and sales literature; (v) files
Portfolio regulatory documents and mails Portfolio communications to Trustees
and investors; and (vi) maintains related books and records.
For its services under the Co-Administration Agreements, each Fund and
Portfolio has agreed to pay FDI fees equal to its allocable share of an annual
complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The amount
allocable to each Fund or Portfolio is based on the ratio of its net assets to
the aggregate net assets of the Trust, the Master Portfolios and other
investment companies subject to similar agreements with FDI.
<PAGE>
The table below sets forth for each Fund listed and its corresponding
Portfolio the administrative fees paid to FDI for the fiscal periods indicated.
Disciplined Equity Fund -- For the period December 31, 1997(commencement of
operations) through May 31, 1998: $47.
The Disciplined Equity Portfolio -- For the period December 30, 1996
(commencement of operations) through May 31, 1997: $520. For the fiscal year
ended May 31, 1998: $3,742.
U.S. Equity Fund -- For the period August 1, 1996 through May 31, 1997:
$9,811. For the fiscal year ended May 31, 1998: $10,661.
The U.S. Equity Portfolio -- For the period August 1, 1996 through May 31,
1997: $16,536. For the fiscal year ended May 31, 1998: $18,971.
U.S. Small Company Fund -- For the period August 1, 1996 through May 31,
1997: $6,272. For the fiscal year ended May 31, 1998: $6,881.
The U.S. Small Company Portfolio -- For the period August 1, 1996 through
May 31, 1997: $19,652. For the fiscal year ended may 31, 1998: 22,248.
U.S. Small Company Opportunities Fund -- For the period June 16, 1997
(commencement of operations) through May 31, 1998: $2,410.
The U.S. Small Company Opportunities Portfolio -- For the period June 16,
1997 (commencement of operations) through May 31, 1998: $2,036.
The table below sets forth for each Fund listed and its corresponding
Portfolio the administrative fees paid to Signature Broker-Dealer Services, Inc.
(which provided distribution and administrative services to the Trust and
placement agent and administrative services to the Portfolios prior to August 1,
1996) for the fiscal periods indicated.
U.S. Equity Fund -- For the fiscal year ended May 31, 1996: $59,656. For
the period June 1, 1996 through July 31, 1996: $6,776.
The U.S. Equity Portfolio -- For the fiscal year ended May 31, 1996:
$62,404. For the period June 1, 1996 through July 31, 1996: $14,675.
U.S. Small Company Fund -- For the fiscal year ended May 31, 1996: $39,053.
For the period June 1, 1996 through July 31, 1996: $4,383.
The U.S. Small Company Portfolio -- For the fiscal year ended May 31, 1996:
$65,079. For the period June 1, 1996 through July 31, 1996: $17,162.
SERVICES AGENT
The Trust, on behalf of each Fund, and the Portfolios have entered into
Administrative Services Agreements (the "Services Agreements") with Morgan
effective December 29, 1995, as amended August 1, 1996, pursuant to which Morgan
is responsible for certain administrative and related services provided to each
Fund and its corresponding Portfolio. The Services Agreements may be terminated
at any time, without penalty, by the Trustees or Morgan, in each case on not
more than 60 days' nor less than 30 days' written notice to the other party.
<PAGE>
Under the Services Agreements, Morgan provides certain administrative
and related services to the Funds and the Portfolios, including services related
to tax compliance, preparation of financial statements, calculation of
performance data, oversight of service providers and certain regulatory and
Board of Trustee matters.
Under the amended Services Agreements, the Funds and the Portfolios
have agreed to pay Morgan fees equal to its allocable share of an annual
complex-wide charge. This charge is calculated daily based on the aggregate net
assets of the Master Portfolios and J.P. Morgan Series Trust in accordance with
the following annual schedule: 0.09% of the first $7 billion of their aggregate
average daily net assets and 0.04% of their aggregate average daily net assets
in excess of $7 billion, less the complex-wide fees payable to FDI. The portion
of this charge payable by each Fund and Portfolio is determined by the
proportionate share that its net assets bear to the total net assets of the
Trust, the Master Portfolios, the other investors in the Master Portfolios for
which Morgan provides similar services and J.P. Morgan Series Trust.
Under Administrative Services Agreements in effect from December 29,
1995 through July 31, 1996, with Morgan, each Fund and its corresponding
Portfolio paid Morgan a fee equal to its proportionate share of an annual
complex-wide charge. This charge was calculated daily based on the aggregate net
assets of the Master Portfolios in accordance with the following schedule: 0.06%
of the first $7 billion of the Master Portfolios' aggregate average daily net
assets, and 0.03% of the Master Portfolios' aggregate average daily net assets
in excess of $7 billion.
Prior to December 29, 1995, the Trust and each Portfolio had entered
into Financial and Fund Accounting Services Agreements with Morgan, the
provisions of which included certain of the activities described above and,
prior to September 1, 1995, also included reimbursement of usual and customary
expenses. The table below sets forth for each Fund listed and its corresponding
Portfolio the fees paid to Morgan, net of fee waivers and reimbursements, as
Services Agent.
Disciplined Equity Fund - For the period December 31, 1997 (commencement of
operations) through May 31, 1998: $626.
The Disciplined Equity Portfolio -- For the period December 30, 1996
(commencement of operations) through May 31, 1997: $6,614. For the fiscal year
ended May 31, 1998: $53,654.
U.S. Equity Fund -- For the fiscal year ended May 31, 1996: $76,406. For
the fiscal year ended May 31, 1997: $102,534. For the fiscal year ended May 31,
1998: $123,735.
The U.S. Equity Portfolio -- For the fiscal year ended May 31, 1996:
$138,134. For the fiscal year ended May 31, 1997: $232,617. For the fiscal year
ended May 31, 1998: 265,956.
U.S. Small Company Fund -- For the fiscal year ended May 31, 1996: $46,662.
For the fiscal year ended May 31, 1997: $65,674. For the fiscal year ended May
31, 1998: $79,620.
The U.S. Small Company Portfolio -- For the fiscal year ended May 31, 1996:
$144,277. For the fiscal year ended May 31, 1997: $275,962. For the fiscal year
ended May 31, 1998: $309,695.
<PAGE>
U.S. Small Company Opportunities Fund -- For the period June 16, 1997
(commencement of operations) through May 31, 1998: $29,555.
The U.S. Small Company Opportunities Portfolio -- For the period June 16,
1997 (commencement of operations) through May 31, 1998: $29,566.
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02110, serves as the Trust's and each of the
Portfolio's custodian and fund accounting agent and each Fund's transfer and
dividend disbursing agent. Pursuant to the Custodian Contracts, State Street is
responsible for maintaining the books of account and records of portfolio
transactions and holding portfolio securities and cash. In the case of foreign
assets held outside the United States, the Custodian employs various
subcustodians who were approved by the Trustees of the Portfolios in accordance
with the regulations of the SEC. The custodian maintains portfolio transaction
records. As transfer agent and dividend disbursing agent, State Street is
responsible for maintaining account records detailing the ownership of Fund
shares and for crediting income, capital gains and other changes in share
ownership to shareholder accounts.
SHAREHOLDER SERVICING
The Trust on behalf of each of the Funds has entered into a Shareholder
Servicing Agreement with Morgan pursuant to which Morgan acts as shareholder
servicing agent for its customers and for other Fund investors who are customers
of a financial professional. Under this agreement, Morgan is responsible for
performing shareholder account, administrative and servicing functions, which
include but are not limited to, answering inquiries regarding account status and
history, the manner in which purchases and redemptions of Fund shares may be
effected, and certain other matters pertaining to a Fund; assisting customers in
designating and changing dividend options, account designations and addresses;
providing necessary personnel and facilities to coordinate the establishment and
maintenance of shareholder accounts and records with the Funds' transfer agent;
transmitting purchase and redemption orders to the Funds' transfer agent and
arranging for the wiring or other transfer of funds to and from customer
accounts in connection with orders to purchase or redeem Fund shares; verifying
purchase and redemption orders, transfers among and changes in accounts;
informing the Distributor of the gross amount of purchase orders for Fund
shares; and providing other related services.
Under the Shareholder Servicing Agreement, each Fund has agreed to pay
Morgan for these services at an annual rate of 0.25% (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 table below sets forth for each Fund listed the shareholder
servicing fees paid by each Fund to Morgan, net of fee waivers and
reimbursements, for the fiscal periods indicated.
Disciplined Equity Fund -- For the period December 31, 1997 (commencement of
operations) through May 31, 1998: $5,379.
U.S. Equity Fund -- For the fiscal year ended May 31, 1996: $742,283. For
the fiscal year ended May 31, 1997: $843,099. For the fiscal year ended May 31,
1998: $1,030,062.
<PAGE>
U.S. Small Company Fund -- For the fiscal year ended May 31, 1996:
$488,236. For the fiscal year ended May 31, 1997: $540,244. For the fiscal year
ended May 31, 1998: $662,385.
U.S. Small Company Opportunities Fund -- For the period June 16, 1997
(commencement of operations) through May 31, 1998: $248,525.
As discussed under "Investment Advisor," the Glass-Steagall Act and
other applicable laws and regulations limit the activities of bank holding
companies and certain of their subsidiaries in connection with registered
open-end investment companies. The activities of Morgan in acting as shareholder
servicing agent for Fund shareholders under the Shareholder Servicing Agreement
and providing administrative services to the Funds and the Portfolios under the
Services Agreements, and JPMIM in acting as Advisor to the Portfolios under the
Investment Advisory Agreements, may raise issues under these laws. However,
Morgan and JPMIM believe that they may properly perform these services and the
other activities described herein without violation of the Glass-Steagall Act or
other applicable banking laws or regulations.
If Morgan were prohibited from providing any of the services under the
Shareholder Servicing Agreement and the Services Agreements, the Trustees would
seek an alternative provider of such services. In such event, changes in the
operation of the Funds or the Portfolios might occur and a shareholder might no
longer be able to avail himself or herself of any services then being provided
to shareholders by Morgan.
The 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.
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 a Fund, financial
professionals may establish their own terms and conditions for providing their
services and may charge investors a transaction-based or other fee for their
services. Such charges may vary among financial professionals but in all cases
will be retained by the financial professional and not be remitted to a Fund or
J.P. Morgan.
<PAGE>
Each Fund has authorized one or more brokers to accept purchase and
redemption orders on its behalf. Such brokers are authorized to designate other
intermediaries to accept purchase and redemption orders on a Fund's behalf. A
Fund will be deemed to have received a purchase or redemption order when an
authorized broker or, if applicable, a broker's authorized designee, accepts the
order. These orders will be priced at the Fund's net asset value next calculated
after they are so accepted.
INDEPENDENT ACCOUNTANTS
The independent accountants of the Trust and the Portfolios are
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York
10036. PricewaterhouseCoopers LLP conducts an annual audit of the financial
statements of each of the Funds and the Portfolios, assists in the preparation
and/or review of each of the Fund's and the Portfolio's federal and state income
tax returns and consults with the Funds and the Portfolios as to matters of
accounting and federal and state income taxation.
EXPENSES
In addition to the fees payable to Pierpont Group, Inc., JPMIM, Morgan
and FDI under various agreements discussed under "Trustees and Officers,"
"Investment Advisor," "Co-Administrator," "Distributor," "Services Agent" and
"Shareholder Servicing" above, the Funds and the Portfolios are responsible for
usual and customary expenses associated with their respective operations. Such
expenses include organization expenses, legal fees, accounting and audit
expenses, insurance costs, the compensation and expenses of the Trustees,
registration fees under federal securities laws, and extraordinary expenses
applicable to the Funds or the Portfolios. For the Funds, such expenses also
include transfer, registrar and dividend disbursing costs, the expenses of
printing and mailing reports, notices and proxy statements to Fund shareholders,
and filing fees under state securities laws. For the Portfolios, such expenses
also include applicable registration fees under foreign securities laws,
custodian fees and brokerage expenses. Under fee arrangements prior to September
1, 1995, Morgan as Services Agent was responsible for reimbursements to the
Trust and certain Portfolios and the usual and customary expenses described
above (excluding organization and extraordinary expenses, custodian fees and
brokerage expenses).
PURCHASE OF SHARES
Method of Purchase. Investors may open accounts with a Fund only
through the Distributor. All purchase transactions in Fund accounts are
processed by Morgan as shareholder servicing agent and the Fund is authorized to
accept any instructions relating to a Fund account from Morgan as shareholder
servicing agent for the customer. All purchase orders must be accepted by the
Distributor. Prospective investors who are not already customers of Morgan may
apply to become customers of Morgan for the sole purpose of Fund transactions.
There are no charges associated with becoming a Morgan customer for this
purpose. Morgan reserves the right to determine the customers that it will
accept, and the Trust reserves the right to determine the purchase orders that
it will accept.
References in the Prospectus and this Statement of Additional
Information to customers of Morgan or a financial professional include customers
of their affiliates and references to transactions by customers with Morgan or a
financial professional include transactions with their affiliates. Only Fund
investors who are using the services of a financial institution
<PAGE>
acting as shareholder servicing agent pursuant to an agreement with the Trust on
behalf of a Fund may make transactions in shares of a Fund.
Each Fund may, at its own option, accept securities in payment for
shares. The securities delivered in such a transaction are valued by the method
described in "Net Asset Value" as of the day the Fund receives the securities.
This is a taxable transaction to the shareholder. Securities may be accepted in
payment for shares only if they are, in the judgment of the Advisor, appropriate
investments for a Fund's corresponding Portfolio. In addition, securities
accepted in payment for shares must: (i) meet the investment objective and
policies of the acquiring Fund's corresponding Portfolio; (ii) be acquired by
the applicable Fund for investment and not for resale (other than for resale to
the Fund's corresponding Portfolio); (iii) be liquid securities which are not
restricted as to transfer either by law or liquidity of market; and (iv) if
stock, have a value which is readily ascertainable as evidenced by a listing on
a stock exchange, OTC market or by readily available market quotations from a
dealer in such securities. Each Fund reserves the right to accept or reject at
its own option any and all securities offered in payment for its shares.
Prospective investors may purchase shares with the assistance of a
financial professional, and the financial professional may establish its own
minimums and charge the investor a fee for this service and other services it
provides to its customers. 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 a Fund and its corresponding Portfolio
determine that it would be detrimental to the best interest of the remaining
shareholders of a Fund to make payment wholly or partly in cash, payment of the
redemption price may be made in whole or in part by a distribution in kind of
securities from a 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 all of the Funds and their corresponding Portfolios have
elected to be governed by Rule 18f-1 under the 1940 Act pursuant to which the
Funds and their corresponding Portfolios are obligated to redeem shares solely
in cash up to the lesser of $250,000 or one percent of the net asset value of a
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 a
corresponding Portfolio and therefore shareholders of a Fund that receive
redemptions in kind will receive securities of a Portfolio. The Portfolios have
advised the Trust that the Portfolios will not redeem in-kind except in
circumstances in which a Fund is permitted to redeem in-kind.
Further Redemption Information. Investors should be aware that
redemptions from a Fund may not be processed if a redemption request is not
submitted in proper form. To be in proper form, a Fund must have received the
shareholder's taxpayer identification number and address. In addition, if a
shareholder sends a check for the purchase of fund shares and shares are
purchased before the check has cleared, the transmittal of redemption proceeds
from the shares will occur upon clearance of the check which may take up to 15
days. The Trust, on behalf of a Fund, and the Portfolios reserve the right to
suspend the right of redemption and to postpone the date of payment upon
redemption as follows: (i) for up to seven days, (ii) during periods when the
<PAGE>
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 a 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 Fund into any
other J.P. Morgan Fund or J.P. Morgan Institutional Fund without charge. An
exchange may be made so long as after the exchange the investor has shares, in
each fund in which he or she remains an investor, with a value of at least that
fund's minimum investment amount. Shareholders should read the prospectus of the
fund into which they are exchanging and may only exchange between fund accounts
that are registered in the same name, address and taxpayer identification
number. Shares are exchanged on the basis of relative net asset value per share.
Exchanges are in effect redemptions from one fund and purchases of another fund
and the usual purchase and redemption procedures and requirements are applicable
to exchanges. Shareholders subject to federal income tax who exchange shares in
one fund for shares in another fund may recognize capital gain or loss for
federal income tax purposes. Shares of 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
Each Fund declares and pays dividends and distributions as described in
the Prospectus.
Dividends and capital gains distributions paid by the Fund are
reinvested in additional shares of a 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
Each of the Funds 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
<PAGE>
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 Funds and the Portfolios may also close for purchases and redemptions at
such other times as may be determined by the Board of Trustees to the extent
permitted by applicable law. The days on which net asset value is determined are
the Fund's business days.
The net asset value of each Fund is equal to the value of a Fund's
investment in its corresponding Portfolio (which is equal to a Fund's pro rata
share of the total investment of a Fund and of any other investors in a
Portfolio less the Fund's pro rata share of the Portfolio's liabilities) less a
Fund's liabilities. The following is a discussion of the procedures used by the
Portfolio corresponding to each Fund in valuing its assets.
The value of investments listed on a domestic securities exchange,
other than options on stock indexes, is based on the last sale prices on such
exchange. Securities listed on a foreign exchange are valued at the last quoted
sale prices on such exchange. Unlisted securities are valued at the last average
of the quoted bid and asked prices in the OTC market. The value of each security
for which readily available market quotations exist is based on a decision as to
the broadest and most representative market for such security. For purposes of
calculating net asset value all assets and liabilities initially expressed in
foreign currencies will be converted into U.S. dollars at the prevailing rate
currency 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.
Securities or other assets for which market quotations are not readily available
(including certain restricted and illiquid securities) are valued at fair value
in accordance with procedures established by and under the general supervision
and responsibility of the Trustees. Such procedures include the use of
independent pricing services which use prices based upon yields or prices of
securities of comparable quality, coupon, maturity and type; indications as to
values from dealers; and general market conditions. Short-term investments which
mature in 60 days or less are valued at amortized cost if their original
maturity was 60 days or less, or by amortizing their value on the 61st day prior
to maturity, if their original maturity when acquired by the Portfolio was more
than 60 days, unless this is determined not to represent fair value by the
Trustees.
Trading in securities on most foreign exchanges and OTC markets is
normally completed before the close of the New York Stock Exchange (normally
4:00 p.m.) and may also take place on days on which the New York Stock Exchange
is closed. If events materially affecting the value of securities occur between
the time when the exchange on which they are traded closes and the time when a
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 Funds 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.
<PAGE>
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 Funds for a period is computed by assuming a
hypothetical initial payment of $1,000. It is then assumed that all of the
dividends and distributions by the Fund over the period are reinvested. It is
then assumed that at the end of the period, the entire amount is redeemed. The
annualized total return is then calculated by determining the annual rate
required for the initial payment to grow to the amount which would have been
received upon redemption.
Aggregate total returns, reflecting the cumulative percentage change
over a measuring period, may also be calculated.
Historical performance information for periods prior to the
establishment of the U.S. Equity and U.S. Small Company funds will be that of
their respective predecessor free-standing funds and will be presented in
accordance with applicable SEC staff interpretations.
Below is set forth historical return information for the Funds or their
predecessors for the periods indicated:
Disciplined Equity Fund (5/31/98): Average annual total return, 1 year: N/A;
average annual total return, 5 years: N/A; average annual total return,
commencement of operations (December 31, 1997) to period end: N/A; aggregate
total return, 1 year: N/A; aggregate total return, 5 years: N/A; aggregate total
return, commencement of operations (December 31, 1997) to period end: 15.33%.
U.S. Equity Fund (5/31/98): Average annual total return, 1 year: 28.35%;
average annual total return, 5 years: 20.19%; average annual total return, 10
years: 18.36%; aggregate total return, 1 year: 28.35%; aggregate total return, 5
years: 150.85%; aggregate total return, 10 years: 439.50%.
U.S. Small Company Fund (5/31/98): Average annual total return, 1 year:
23.37%; average annual total return, 5 years: 15.76%; average annual total
return, 10 years: 15.21%; aggregate total return, 1 year: 23.37%; aggregate
total return, 5 years: 107.83%; aggregate total return, 10 years: 312.16%.
U.S. Small Company Opportunities Fund (5/31/98): Average annual total
return, 1 year: N/A; average annual total return, 5 years: N/A; average annual
total return, commencement of operations (June 16, 1997) to period end: 25.70%;
aggregate total return, 1 year: N/A; aggregate total return, 5 years: N/A'
aggregate total return, commencement of operations (June 16, 199 ) to period
end: 25.70%.
General. A Fund's performance will vary from time to time depending
upon market conditions, the composition of its corresponding Portfolio, and its
operating expenses. Consequently, any given performance quotation should not be
considered representative of a Fund's performance for any specified period in
the future. In addition, because performance will fluctuate, it may not provide
a basis for comparing an investment in a Fund with certain bank deposits or
other investments that pay a fixed yield or return for a stated period of time.
Comparative performance information may be used from time to time in
advertising the Funds' shares, including appropriate market indices including
<PAGE>
the benchmarks indicated under "Investment Advisor" above or data from Lipper
Analytical Services, Inc., Micropal, Inc., Ibbotson Associates, Morningstar
Inc., the Dow Jones Industrial Average and other industry publications.
From time to time, the Funds may, in addition to any other permissible
information, include the following types of information in advertisements,
supplemental sales literature and reports to shareholders: (1) discussions of
general economic or financial principles (such as the effects of compounding and
the benefits of dollar-cost averaging); (2) discussions of general economic
trends; (3) presentations of statistical data to supplement such discussions;
(4) descriptions of past or anticipated portfolio holdings for one or more of
the Funds; (5) descriptions of investment strategies for one or more of the
Funds; (6) descriptions or comparisons of various savings and investment
products (including, but not limited to, qualified retirement plans and
individual stocks and bonds), which may or may not include the Funds; (7)
comparisons of investment products (including the Funds) with relevant markets
or industry indices or other appropriate benchmarks; (8) discussions of Fund
rankings or ratings by recognized rating organizations; and (9) discussions of
various statistical methods quantifying the Fund's volatility relative to its
benchmark or to past performance, including risk adjusted measures. The Funds
may also include calculations, such as hypothetical compounding examples, which
describe hypothetical investment results in such communications. Such
performance examples will be based on an express set of assumptions and are not
indicative of the performance of any of the Funds.
PORTFOLIO TRANSACTIONS
The Advisor places orders for all Portfolios for all purchases and sales of
portfolio securities, enters into repurchase agreements, and may enter into
reverse repurchase agreements and execute loans of portfolio securities on
behalf of all the Portfolios. See "Investment Objectives and Policies."
Fixed income and debt securities 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 each Portfolio review regularly the
reasonableness of commissions and other transaction costs incurred by the
Portfolios in light of facts and circumstances deemed relevant from time to
time, and, in that connection, will receive reports from the Advisor and
published data concerning transaction costs incurred by institutional investors
generally. Research services provided by brokers to which the Advisor has
allocated brokerage business in the past include economic statistics and
forecasting services, industry and company analyses, portfolio strategy
services, quantitative data, and
<PAGE>
consulting services from economists and political analysts. Research services
furnished by brokers are used for the benefit of all the Advisor's clients and
not solely or necessarily for the benefit of an individual Portfolio. The
Advisor believes that the value of research services received is not
determinable and does not significantly reduce its expenses. The Portfolios do
not reduce their fee to the Advisor by any amount that might be attributable to
the value of such services.
The Portfolios corresponding to the Funds paid the following
approximate brokerage commissions for the indicated periods:
Disciplined Equity (May 31): 1998 $175,629; (for the period December 30,
1996 (commencement of operations) through May 31, 1997): $25,351.
U.S. Equity (May 31): 1998: $1,594,078; 1997: $1,614,293; 1996: $1,375,696.
U.S. Small Company (May 31): 1998: $1,662,968; 1997: $2,174,321; 1996:
$1,554,459.
U.S. Small Company Opportunities (for the period June 16, 1997
(commencement of operations) through May 31, 1998): $126,261.
The increases in brokerage commissions reflected above were due to
increased portfolio activity and an increase in net investments by investors in
a Portfolio or its predecessor.
Subject to the overriding objective of obtaining the best execution of
orders, the Advisor may allocate a portion of a Portfolio's brokerage
transactions to affiliates of the Advisor. In order for affiliates of the
Advisor to effect any portfolio transactions for a Portfolio, the commissions,
fees or other remuneration received by such affiliates must be reasonable and
fair compared to the commissions, fees, or other remuneration paid to other
brokers in connection with comparable transactions involving similar securities
being purchased or sold on a securities exchange during a comparable period of
time. Furthermore, the Trustees of each Portfolio, including a majority of the
Trustees who are not "interested persons," have adopted procedures which are
reasonably designed to provide that any commissions, fees, or other remuneration
paid to such affiliates are consistent with the foregoing standard.
Portfolio securities will not be purchased from or through or sold to
or through the Co-Administrator, the Distributor or the Advisor or any other
"affiliated person" (as defined in the 1940 Act) of the Co-Administrator,
Distributor or Advisor when such entities are acting as principals, except to
the extent permitted by law. In addition, the Portfolios will not purchase
securities during the existence of any underwriting group relating thereto of
which the Advisor or an affiliate of the Advisor is a member, except to the
extent permitted by law.
On those occasions when the Advisor deems the purchase or sale of a
security to be in the best interests of a Portfolio as well as other customers
including other Portfolios, the Advisor to the extent permitted by applicable
laws and regulations, may, but is not obligated to, aggregate the securities to
be sold or purchased for a Portfolio with those to be sold or purchased for
other customers in order to obtain best execution, including lower brokerage
commissions if appropriate. In such event, allocation of the securities so
purchased or sold as well as any expenses incurred in the transaction will be
made by the Advisor in the manner it considers to be most equitable and
<PAGE>
consistent with its fiduciary obligations to a Portfolio. In some instances,
this procedure might adversely affect a Portfolio.
If a Portfolio that writes options effects a closing purchase
transaction with respect to an option written by it, normally such transaction
will be executed by the same broker-dealer who executed the sale of the option.
The writing of options by a Portfolio will be subject to limitations established
by each of the exchanges governing the maximum number of options in each class
which may be written by a single investor or group of investors acting in
concert, regardless of whether the options are written on the same or different
exchanges or are held or written in one or more accounts or through one or more
brokers. The number of options which a Portfolio may write may be affected by
options written by the Advisor for other investment advisory clients. An
exchange may order the liquidation of positions found to be in excess of these
limits, and it may impose certain other sanctions.
MASSACHUSETTS TRUST
The Trust is a trust fund of the type commonly known as a
"Massachusetts business trust" of which each Fund is a separate and distinct
series. A copy of the Declaration of Trust for the Trust is on file in the
office of the Secretary of The Commonwealth of Massachusetts. The Declaration of
Trust and the By-Laws of the Trust are designed to make the Trust similar in
most respects to a Massachusetts business corporation. The principal distinction
between the two forms concerns shareholder liability described below.
Effective October 10, 1996, the name of the Trust was changed from "The
Pierpont Funds" to "The JPM Pierpont Funds," and each Fund's name changed
accordingly. Effective May 12, 1997, the name of the U.S. Equity Fund was
changed from "The JPM Pierpont Equity Fund" to "The JPM Pierpont U.S. Equity
Fund", and the Fund's corresponding portfolio changed its name accordingly.
Effective May 12, 1997, the name of the U.S. Small Company Fund was changed from
"The JPM Pierpont Capital Appreciation Fund" to "The JPM Pierpont U.S. Small
Company Fund". Effective January 1, 1998, the name of the Trust was changed from
"The JPM Pierpont Funds" to "J.P. Morgan Funds", and each Fund's name changed
accordingly.
Under Massachusetts law, shareholders of such a trust may, under
certain circumstances, be held personally liable as partners for the obligations
of the trust which is not the case for a corporation. However, the Trust's
Declaration of Trust provides that the shareholders shall not be subject to any
personal liability for the acts or obligations of any Fund and that every
written agreement, obligation, instrument or undertaking made on behalf of any
Fund shall contain a provision to the effect that the shareholders are not
personally liable thereunder.
No personal liability will attach to the shareholders under any
undertaking containing such provision when adequate notice of such provision is
given, except possibly in a few jurisdictions. With respect to all types of
claims in the latter jurisdictions, (i) tort claims, (ii) contract claims where
the provision referred to is omitted from the undertaking, (iii) claims for
taxes, and (iv) certain statutory liabilities in other jurisdictions, a
shareholder may be held personally liable to the extent that claims are not
satisfied by the Fund. However, upon payment of such liability, the shareholder
will be entitled to reimbursement from the general assets of the Fund. The
Trustees intend to conduct the operations of the Trust in such a way so as to
avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the Funds.
<PAGE>
The Trust's Declaration of Trust further provides that the name of the
Trust refers to the Trustees collectively as Trustees, not as individuals or
personally, that no Trustee, officer, employee or agent of a Fund is liable to a
Fund or to a shareholder, and that no Trustee, officer, employee, or agent is
liable to any third persons in connection with the affairs of a Fund, except as
such liability may arise from his or its own bad faith, willful misfeasance,
gross negligence or reckless disregard of his or its duties to such third
persons. It also provides that all third persons shall look solely to Fund
property for satisfaction of claims arising in connection with the affairs of a
Fund. With the exceptions stated, the Trust's Declaration of Trust provides that
a Trustee, officer, employee, or agent is entitled to be indemnified against all
liability in connection with the affairs of a Fund.
The Trust shall continue without limitation of time subject to the
provisions in the Declaration of Trust concerning termination by action of the
shareholders or by action of the Trustees upon notice to the shareholders.
DESCRIPTION OF SHARES
The Trust is an open-end management investment company organized as a
Massachusetts business trust in which each Fund represents a separate series of
shares of beneficial interest. See "Massachusetts Trust."
The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares ($0.001 par value) of one or more series
and classes within any series and to divide or combine the shares (of any
series, if applicable) without changing the proportionate beneficial interest of
each shareholder in a Fund (or in the assets of other series, if applicable). To
date shares of 18 series have been authorized and are available for sale to the
public. Each share represents an equal proportional interest in a Fund with each
other share. Upon liquidation of a Fund, holders are entitled to share pro rata
in the net assets of a Fund available for distribution to such shareholders. See
"Massachusetts Trust." Shares of a Fund have no preemptive or conversion rights
and are fully paid and 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
<PAGE>
$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 20 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".
<PAGE>
As of August 31, 1998, the following owned of record or, to the
knowledge of management, beneficially owned more than 5% of the outstanding
shares of:
Disciplined Equity Fund - National Financial Services Corp. for the
exclusive benefit of Customers (49.39%); Investors Fiduciary Trust Company for
the benefit of Centurian Trust Company (20.75%);
U.S. Equity Fund -- Forest Laboratories Inc. (6.21%);
U.S. Small Company Fund -- Forest Laboratories Inc. (7.76%).
The address of each owner listed above is c/o JPMIM, 522 Fifth Avenue,
New York, New York 10036. As of the date of this Statement of Additional
Information, the officers and Trustees as a group owned less than 1% of the
shares of each Fund.
SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE
Unlike other mutual funds which directly acquire and manage their own
portfolio of securities, each Fund is an open-end management investment company
which seeks to achieve its investment objective by investing all of its
investable assets in a corresponding Master Portfolio, a separate registered
investment company with the same investment objective and policies as the Fund.
Generally when a corresponding 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 a Fund, a Portfolio may
sell beneficial interests to other mutual funds or institutional investors. Such
investors will invest in the Portfolio on the same terms and conditions and will
bear a proportionate share of the Portfolio's expenses. However, the other
investors investing in the Portfolio may sell shares of their own fund using a
different pricing structure than the Fund. Such different pricing structures may
result in differences in returns experienced by investors in other funds that
invest in the Portfolio. Such differences in returns are not uncommon and are
present in other mutual fund structures. Information concerning other holders of
interests in the Portfolio is available from Morgan at (800) 521-5411.
The Trust may withdraw the investment of a Fund from a Portfolio at any
time if the Board of Trustees of the Trust determines that it is in the best
interests of the Fund to do so. Upon any such withdrawal, the Board of Trustees
would consider what action might be taken, including the investment of all the
assets of the Fund in another pooled investment entity having the same
investment objective and restrictions in accordance with the investment policies
with respect to the Portfolio described above and in each Fund's Prospectus.
Certain changes in a Portfolio's fundamental investment policies or
restrictions, or a failure by a Fund's shareholders to approve such change in a
Portfolio's investment restriction, may require withdrawal of a 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 a Portfolio which
may or may not be readily marketable. The distribution in-kind may result in a
Fund having a less diversified portfolio of investments or adversely affect a
Fund's liquidity, and a Fund could incur brokerage, tax or
<PAGE>
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 a Portfolio. For example, if a large
fund withdraws from a Portfolio, the remaining funds may subsequently experience
higher pro rata operating expenses, thereby producing lower returns.
Additionally, because a Portfolio would become smaller, it may become
less diversified, resulting in potentially increased portfolio risk (however,
these possibilities also exist for traditionally structured funds which have
large or institutional investors who may withdraw from a fund). Also, funds with
a greater pro rata ownership in a Portfolio could have effective voting control
of the operations of a Portfolio. Whenever a Fund is requested to vote on
matters pertaining to its corresponding Portfolio (other than a vote by a Fund
to continue the operation of its corresponding Portfolio upon the withdrawal of
another investor in a Portfolio), the Trust will hold a meeting of shareholders
of a Fund and will cast all of its votes proportionately as instructed by a
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 a Fund who do not
vote will have no effect on the outcome of such matters.
TAXES
Each Fund intends to continue to qualify as a regulated investment
company under Subchapter M of the Code. As a regulated investment company, a
Fund must, among other things, (a) derive at least 90% of its gross income from
dividends, interest, payments with respect to loans of stock and securities,
gains from the sale or other disposition of stock, securities or foreign
currency and other income (including but not limited to gains from options,
futures, and forward contracts) derived with respect to its business of
investing in such stock, securities or foreign currency; and (b) diversify its
holdings so that, at the end of each quarter of its taxable year, (i) at least
50% of the value of the Fund's total assets is represented by cash, cash items,
U.S. Government securities, securities of other regulated investment companies,
and other securities limited, in respect of any one issuer, to an amount not
greater than 5% of the Fund's total assets, and 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its total
assets is invested in the securities of any one issuer (other than U.S.
Government securities or securities of other regulated investment companies).
As a regulated investment company, a Fund (as opposed to its
shareholders) will not be subject to federal income taxes on the net investment
income and capital gain that it distributes to its shareholders, provided that
at least 90% of its net investment income and realized net short-term capital
gain in excess of net long-term capital loss for the taxable year is distributed
in accordance with the Code's timing requirements.
Under the Code, a Fund will be subject to a 4% excise tax on a portion
of its undistributed taxable income and capital gains if it fails to meet
certain distribution requirements by the end of the calendar year. Each Fund
intends to make distributions in a timely manner and accordingly does not expect
to be subject to the excise tax.
<PAGE>
For federal income tax purposes, dividends that are declared by a Fund
in October, November or December as of a record date in such month and actually
paid in January of the following year will be treated as if they were paid on
December 31 of the year declared. Therefore, such dividends will be taxable to a
shareholder in the year declared rather than the year paid.
Distributions of net investment income, 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 Funds as ordinary income whether such distributions are taken in cash or
reinvested in additional shares. The Funds expect 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 a Fund, the over distribution would
be considered a return of capital rather than a dividend payment. The Funds
intend to pay dividends in such a manner so as to minimize the possibility of a
return of capital. Distributions of net long-term capital gain (i.e., net
long-term capital gain in excess of net short-term capital loss) are taxable to
shareholders of a Fund as long-term capital gain, regardless of whether such
distributions are taken in cash or reinvested in additional shares and
regardless of how long a shareholder has held shares in the Fund. In general,
long-term capital gain of an individual shareholder will be subject to a reduced
rate of tax. Investors should consult their tax advisors concerning the
treatment of capital gains and losses.
Gains or losses on sales of portfolio securities will be treated as
long-term capital gains or losses if the securities have been held for more than
one year except in certain cases where a put is acquired or a call option is
written thereon or the straddle rules described below are otherwise applicable.
Other gains or losses on the sale of securities will be short-term capital gains
or losses. Gains and losses on the sale, lapse or other termination of options
on securities will be treated as gains and losses from the sale of securities.
Except as described below, if an option written by a Portfolio lapses or is
terminated through a closing transaction, such as a repurchase by the Portfolio
of the option from its holder, the Portfolio will realize a short-term capital
gain or loss, depending on whether the premium income is greater or less than
the amount paid by the Portfolio in the closing transaction. If securities are
purchased by a Portfolio pursuant to the exercise of a put option written by it,
the Portfolio will subtract the premium received from its cost basis in the
securities purchased.
Any distribution of net investment income or capital gains will have
the effect of reducing the net asset value of Fund shares held by a shareholder
by the same amount as the distribution. If the net asset value of the shares is
reduced below a shareholder's cost as a result of such a distribution, the
distribution, although constituting a return of capital to the shareholder, will
be taxable as described above.
Any gain or loss realized on the redemption or exchange of Fund shares
by a shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held for more than one year, and
otherwise as short-term capital gain or loss. However, any loss realized by a
shareholder upon the redemption or exchange of shares in the Fund held for six
months or less will be treated as a long-term capital loss to the extent of any
long-term capital gain distributions received by the shareholder with respect to
such shares. 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
<PAGE>
days after such date, the shareholder acquires (such as through dividend
reinvestment) securities that are substantially identical to shares of the Fund.
Under the Code, gains or losses attributable to disposition of foreign
currency or to certain foreign currency contracts, or to fluctuations in
exchange rates between the time a Portfolio accrues income or receivables or
expenses or other liabilities denominated in a foreign currency and the time a
Portfolio actually collects such income or pays such liabilities, are generally
treated as ordinary income or ordinary loss. Similarly, gains or losses on the
disposition of debt securities held by a Portfolio, if any, denominated in
foreign currency, to the extent attributable to fluctuations in exchange rates
between the acquisition and disposition dates are also treated as ordinary
income or loss.
Forward currency contracts, options and futures contracts entered into
by a Portfolio may create "straddles" for U.S. federal income tax purposes and
this may affect the character and timing of gains or losses realized by the
Portfolio on forward currency contracts, options and futures contracts or on the
underlying securities.
Certain options, futures and foreign currency contracts held by a
Portfolio at the end of each taxable year will be required to be "marked to
market" for federal income tax purposes -- i.e., treated as having been sold at
market value. For options and futures contracts, 60% of any gain or loss
recognized on these deemed sales and on actual dispositions will be treated as
long-term capital gain or loss, and the remainder will be treated as short-term
capital gain or loss regardless of how long the Portfolio has held such options
or futures. However, gain or loss recognized on certain foreign currency
contracts will be treated as ordinary income or loss.
The Funds may invest in Equity Securities of foreign issuers. If a
Portfolio purchases shares in certain foreign corporations (referred to as
passive foreign investment companies ("PFICs") under the Code), the
corresponding fund may be subject to federal income tax on a portion of an
"excess distribution" from such foreign corporation, including any gain from the
disposition of such shares, even though a portion of such income may have to be
distributed as a taxable dividend by the Fund to its shareholders. In addition,
certain interest charges may be imposed on a Fund as a result of such
distributions. Alternatively, a Fund may in some cases be permitted to include
each year in its income and distribute to shareholders a pro rata portion of the
foreign investment fund's income, whether or not distributed to the Fund.
The Portfolios will be permitted to "mark to market" any marketable
stock held by a Portfolio in a PFIC. If a Portfolio made such an election, the
corresponding Fund would include in income each year an amount equal to its
share of the excess, if any, of the fair market value of the PFIC stock as of
the close of the taxable year over the adjusted basis of such stock. The Fund
would be allowed a deduction for its share of the excess, if any, of the
adjusted basis of the PFIC stock over its fair market value as of the close of
the taxable year, but only to the extent of any net mark-to-market gains with
respect to the stock included by the Fund for prior taxable years.
If a correct and certified taxpayer identification number is not on
file, the Fund is required, subject to certain exemptions, to withhold 31% of
certain payments made or distributions declared to non-corporate shareholders.
<PAGE>
Foreign Shareholders. Dividends of net investment income and
distributions of realized net short-term gain in excess of net long-term loss to
a shareholder who, as to the United States, is a nonresident alien individual,
fiduciary of a foreign trust or estate, foreign corporation or foreign
partnership (a "foreign shareholder") will be subject to U.S. withholding tax at
the rate of 30% (or lower treaty rate) unless the dividends are effectively
connected with a U.S. trade or business of the shareholder, in which case the
dividends will be subject to tax on a net income basis at the graduated rates
applicable to U.S. individuals or domestic corporations. Distributions treated
as long term capital gains to foreign shareholders will not be subject to U.S.
tax unless the distributions are effectively connected with the shareholder's
trade or business in the United States or, in the case of a shareholder who is a
nonresident alien individual, the shareholder was present in the United States
for more than 182 days during the taxable year and certain other conditions are
met.
In the case of a foreign shareholder who is a nonresident alien
individual or foreign entity, a Fund may be required to withhold U.S. federal
income tax as "backup withholding" at the rate of 31% from distributions treated
as long-term capital gains and from the proceeds of redemptions, exchanges or
other dispositions of Fund shares unless IRS Form W-8 is provided. Transfers by
gift of shares of a Fund by a foreign shareholder who is a nonresident alien
individual will not be subject to U.S. federal gift tax, but the value of shares
of the Fund held by such a shareholder at his or her death will be includible in
his or her gross estate for U.S. federal estate tax purposes.
Foreign Taxes. It is expected that the Funds may be subject to foreign
withholding taxes or other foreign taxes with respect to income (possibly
including, in some cases, capital gains) received from sources within foreign
countries.
State and Local Taxes. Each Fund may be subject to state or local taxes
in jurisdictions in which the Fund is deemed to be doing business. In addition,
the treatment of a Fund and its shareholders in those states which have income
tax laws might differ from treatment under the federal income tax laws.
Shareholders should consult their own tax advisors with respect to any state or
local taxes.
Other Taxation. The Trust is organized as a Massachusetts business
trust and, under current law, neither the Trust nor any Fund is liable for any
income or franchise tax in The Commonwealth of Massachusetts, provided that each
Fund continues to qualify as a regulated investment company under Subchapter M
of the Code. The Portfolios are organized as New York trusts. The Portfolios are
not subject to any federal income taxation or income or franchise tax in the
State of New York or The Commonwealth of Massachusetts. The investment by a Fund
in its corresponding Portfolio does not cause the Fund to be liable for any
income or franchise tax in the State of New York.
ADDITIONAL INFORMATION
As used in this Statement of Additional Information and the Prospectus,
the term "majority of the outstanding voting securities" means the vote of (i)
67% or more of the Fund's shares or the Portfolio's outstanding voting
securities present at a meeting, if the holders of more than 50% of a Fund's
outstanding shares or the Portfolio's outstanding voting securities are present
or represented by proxy, or (ii) more than 50% of a Fund's outstanding shares or
the Portfolio's outstanding voting securities, whichever is less.
<PAGE>
Telephone calls to the Funds, J.P. Morgan or Financial Professionals as
shareholder servicing agent may be tape recorded. With respect to the securities
offered hereby, this Statement of Additional Information and the Prospectus do
not contain all the information included in the Trust's registration statement
filed with the SEC under the 1933 Act and the 1940 Act and the Portfolios'
registration statements filed under the 1940 Act. Pursuant to the rules and
regulations of the SEC, certain portions have been omitted. The registration
statements including the exhibits filed therewith may be examined at the office
of the SEC in Washington, D.C.
Statements contained in this Statement of Additional Information and
the Prospectus concerning the contents of any contract or other document are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the applicable
Registration Statements.
Each such statement is qualified in all respects by such reference.
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in the
Prospectus and this Statement of Additional Information, in connection with the
offer contained therein and, if given or made, such other information or
representations must not be relied upon as having been authorized by any of the
Trust, the Funds or the Distributor. The Prospectus and this Statement of
Additional Information do not constitute an offer by any Fund or by the
Distributor to sell or solicit any offer to buy any of the securities offered
hereby in any jurisdiction to any person to whom it is unlawful for the Fund or
the Distributor to make such offer in such jurisdictions.
The Year 2000 Initiative
With the new millennium rapidly approaching, organizations are
examining their computer systems to ensure they are year 2000 compliant. The
issue, in simple terms, is that many existing computer systems use only two
numbers to identify a year in the date field with the assumption that the first
two digits are always 19. As the century is implied in the date, on January 1,
2000, computers that are not year 2000 compliant will assume the year is 1900.
Systems that calculate, compare, or sort using the incorrect date will cause
erroneous results, ranging from system malfunctions to incorrect or incomplete
transaction processing. If not remedied, potential risks include business
interruption or shutdown, financial loss, reputation loss, and/or legal
liability.
J.P. Morgan has undertaken a firmwide initiative to address the year
2000 issue and has developed a comprehensive plan to prepare, as appropriate,
its computer systems. Each business line has taken responsibility for
identifying and fixing the problem within its own area of operation and for
addressing all interdependencies. A multidisciplinary team of internal and
external experts supports the business teams by providing direction and firmwide
coordination. Working together, the business and multidisciplinary teams have
completed a thorough education and awareness initiative and a global inventory
and assessment of J.P. Morgan's technology and application portfolio to
understand the scope of the year 2000 impact at J.P. Morgan. J.P. Morgan
presently is renovating and testing these technologies and applications in
partnership with external consulting and software development organizations, as
well as with year 2000 tool providers. J.P. Morgan is on target with its plan to
substantially complete renovation, testing, and validation of its key systems by
year-end 1998 and to participate in industry-wide testing (or streetwide
testing) in 1999. J.P. Morgan is also working with key external parties,
including clients, counterparties, vendors,
<PAGE>
exchanges, depositories, utilities, suppliers, agents and regulatory agencies,
to stem the potential risks the year 2000 problem poses to J.P. Morgan and to
the global financial community.
Costs associated with efforts to prepare J.P. Morgan's systems for the
year 2000 approximated $95 million in 1997. In 1998, J.P. Morgan will continue
its efforts to prepare its systems for the year 2000. The total cost to become
year-2000 compliant is estimated at $250 million, for internal systems
renovation and testing, testing equipment, and both internal and external
resources working on the project. Remaining costs will be incurred primarily in
1998. The costs associated with J.P. Morgan becoming year-2000 compliant will be
borne by J.P. Morgan and not the Funds.
FINANCIAL STATEMENTS
The following financial statements of the Funds and the report thereon
of PricewaterhouseCoopers LLP are incorporated herein by reference from their
respective annual report filings made with the SEC pursuant to Section 30(b) of
the 1940 Act and Rule 30b2-1 thereunder. Any of the following financial reports
are available without charge upon request by calling J.P. Morgan Funds Services
at (800) 521-5411. Each Fund's financial statements include the financial
statements of the Fund's corresponding Portfolio.
- --------------------------------------------------- ----------------------------
Date of Annual Report;
Date Annual Report Filed;
Name of Fund and Accession Number
- --------------------------------------------------- ----------------------------
- --------------------------------------------------- ----------------------------
J.P. Morgan Disciplined Equity Fund 5/31/98; 7/31/98;
0001047469-98-028836
- --------------------------------------------------- ----------------------------
- --------------------------------------------------- ----------------------------
J.P. Morgan U.S. Equity Fund 5/31/98; 7/31/98;
0001047469-98-028915
- --------------------------------------------------- ----------------------------
- --------------------------------------------------- ----------------------------
J.P. Morgan U.S. Small Company Fund 5/31/98; 7/28/98;
0001047469-98-028532
- --------------------------------------------------- ----------------------------
- --------------------------------------------------- ----------------------------
J.P. Morgan U.S. Small Company Opportunities Fund 5/31/98; 7/30/98;
0001047469-98-028814
- --------------------------------------------------- ----------------------------
<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.
<PAGE>
Short-Term Tax-Exempt Notes
SP-1 - The short-term tax-exempt note rating of SP-1 is the highest
rating assigned by Standard & Poor's and has a very strong or
strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics are
given a "plus" (+) designation.
SP-2 - The short-term tax-exempt note rating of SP-2 has a satisfactory
capacity to pay principal and interest.
MOODY'S
Corporate and Municipal Bonds
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long term risks
appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
Ba - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection
of interest and principal payments may be very moderate, and thereby
not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or
of maintenance of other terms of the contract over any long period of
time may be small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca - Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
<PAGE>
C - Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
Commercial Paper, including Tax Exempt
Prime-1 - Issuers rated Prime-1 (or related supporting institutions)
have a superior capacity for repayment of short-term
promissory obligations. Prime-1 repayment capacity will
normally be evidenced by the following characteristics:
- Leading market positions in well established industries.
- High rates of return on funds employed.
- Conservative capitalization structures with moderate
reliance on debt and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.
- Well established access to a range of financial markets
and assured sources of alternate liquidity.
Short-Term Tax Exempt Notes
MIG-1 - The short-term tax-exempt note rating MIG-1 is the highest
rating assigned by Moody's for notes judged to be the best
quality. Notes with this rating enjoy strong protection from
established cash flows of funds for their servicing or from
established and broad-based access to the market for
refinancing, or both.
MIG-2 - MIG-2 rated notes are of high quality but with margins of
protection not as large as MIG-1.
- --------
1 Mr. Healey is an "interested person" of the Trust, the Advisor and each
Portfolio as that term is defined in the 1940 Act.
<PAGE>
J.P. MORGAN FUNDS
J.P. MORGAN INTERNATIONAL EQUITY FUND
J.P. MORGAN EMERGING MARKETS EQUITY FUND
J.P. MORGAN INTERNATIONAL OPPORTUNITIES FUND
STATEMENT OF ADDITIONAL INFORMATION
MARCH 1, 1999
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT CONTAINS
ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS
DATED MARCH 1, 1999 FOR THE FUNDS LISTED ABOVE, AS SUPPLEMENTED FROM TIME TO
TIME. ADDITIONALLY, THIS STATEMENT OF ADDITIONAL INFORMATION INCORPORATES BY
REFERENCE THE FINANCIAL STATEMENTS INCLUDED IN THE SHAREHOLDER REPORTS DATED
OCTOBER 31, 1998 (FOR THE INTERNATIOANL EQUITY AND EMERGING MARKETS EQUITY
FUNDS) AND NOVEMBER 30, 1998 (FOR THE INTERNATIONAL OPPORTUNITIES FUND). THE
PROSPECTUS AND THESE FINANCIAL STATEMENTS, INCLUDING THE AUDITOR'S REPORT
THEREON, ARE AVAILABLE, WITHOUT CHARGE UPON REQUEST FROM FUNDS DISTRIBUTOR,
INC., ATTENTION: J.P. MORGAN FUNDS (800)221-7930.
<PAGE>
Table of Contents
Page
General . . . . . . . . . . . . . . . . . . . 1
Investment Objective and Policies . . . . . . 1
Investment Restrictions . . . . . . . . . . . 17
Trustees . . . . . . . . . . . . . . . . . . .. 19
Officers . . . . . . . . . . . . . . . . . . . 21
Investment Advisor . . . . . . . . . . . . . . 23
Distributor . . . . . . . . . . . . . . . . . 26
Co-Administrator . . . . . . . . . . . . . . . 26
Services Agent . . . . . . . . . . . . . . . . 27
Custodian and Transfer Agent . . . . . . . . . 29
Shareholder Servicing . . . . . . . . . . . . 29
Financial Professionals. . . . . . . . . . . . 30
Independent Accountants . . . . . . . . . . . 31
Expenses . . . . . . . . . . . . . . . . . . . 31
Purchase of Shares . . . . . . . . . . . . . . 31
Redemption of Shares . . . . . . . . . . . . . 32
Exchange of Shares . . . . . . . . . . . . . . 33
Dividends and Distributions . . . . . . . . . 33
Net Asset Value . . . . . . . . . . . . . . . 33
Performance Data . . . . . . . . . . . . . . . 34
Portfolio Transactions . . . . . . . . . . . . 36
Massachusetts Trust . . . . . . . . . . . . . 37
Description of Shares . . . . . . . . . . . . 38
Special Information Concerning
Investment Structure . . . . . . . . . . . . . 40
Taxes . . . . . . . . . . . . . . . . . . . . 41
Additional Information . . . . . . . . . . . 46
Appendix A - Description of Securities
Ratings . . . . . . . . . . . . . . . . . . . A-1
<PAGE>
GENERAL
This Statement of Additional Information relates only to the J.P. Morgan
International Equity Fund, the J.P. Morgan Emerging Markets Equity Fund and the
J.P. Morgan International Opportunities Fund (the "Funds"). The Funds are a
series of shares of beneficial interest of the J.P. Morgan Funds, an open-end
management investment company formed as a Massachusetts business trust (the
"Trust"). In addition to the Funds, the Trust consists of other series
representing separate investment funds (each a J.P. Morgan Fund). The other J.P.
Morgan Funds are covered by separate Statements of Additional Information.
This Statement of Additional Information describes the financial
history, investment objectives and policies, management and operation of each of
the Funds in order to enable investors to select the Fund or Funds which best
suit their needs. The J.P. Morgan Funds operate through a two-tier master-feeder
investment fund structure. Formerly, the J.P. Morgan International Equity Fund
operated as a free-standing mutual fund and not through the master-feeder
structure. Where indicated in this Statement of Additional Information,
historical information for this Fund includes information for its predecessor
entity.
This Statement of Additional Information provides additional
information with respect to the Funds and should be read in conjunction with the
relevant Fund's current Prospectus (the "Prospectus"). Capitalized terms not
otherwise defined herein have the meanings accorded to them in the Prospectus.
The Funds' executive offices are located at 60 State Street, Suite 1300, Boston,
Massachusetts 02109.
Unlike other mutual funds which directly acquire and manage their own
portfolio of securities, the Funds seek to achieve their investment objectives
by investing all of their investable assets in separate Master Portfolios (each
a "Portfolio"), a corresponding diversified open-end management investment
company having the same investment objective as the corresponding Fund. Each
Fund invests in a Portfolio through a two-tier master-feeder investment fund
structure. See "Special Information Concerning Investment Structure."
Each Portfolio is advised by J.P. Morgan Investment Management Inc.
("JPMIM" or the "Advisor").
Investments in the Funds are not deposits or obligations of, or
guaranteed or endorsed by, Morgan Guaranty Trust Company of New York ("Morgan"),
an affiliate of the Advisor, or any other bank. Shares of the Funds are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other governmental agency. An investment in a Fund is
subject to risk that may cause the value of the investment to fluctuate, and
when the investment is redeemed, the value may be higher or lower than the
amount originally invested by the investor.
INVESTMENT OBJECTIVE AND POLICIES
The J.P. Morgan International Equity Fund (the "International Equity
Fund") is designed for investors with a long term investment horizon who want to
diversify their portfolios by investing in an actively managed portfolio of
non-U.S. securities that seeks to outperform the Morgan Stanley Capital
International ("MSCI") Europe, Australasia and Far East Index (the "EAFE
Index"). The Fund's investment objective is to provide high total return from a
portfolio of equity securities of foreign corporations. The Fund attempts to
achieve its investment objective by investing all of its investable assets in
The International Equity Portfolio (the "Portfolio"), a diversified open-end
management investment company having the same investment objective as the
International Equity Fund.
The Portfolio seeks to achieve its investment objective by investing
primarily in the equity securities of foreign corporations. Equity securities
consist of common stocks and other securities with equity characteristics such
as preferred stocks, depository receipts, warrants, rights, convertible
securities, trust or limited partnership interests and equity participations
(collectively, "Equity Securities". Under normal circumstances, the Portfolio
expects to invest at least 65% of its total assets in such securities. The
Portfolio does not intend to invest in U.S. securities (other than money market
instruments), except temporarily, when extraordinary circumstances prevailing at
the same time in a significant number of developed foreign countries render
investments in such countries inadvisable.
Investment Process for the International Equity Portfolio
Country allocation: JPMIM's country allocation decision begins with a
forecast of equity risk premiums, which provide a valuation signal by measuring
the relative attractiveness of stocks. Using a proprietary approach, JPMIM
calculates this risk premium for each of the nations in the Portfolio's
universe, determines the extent of its deviation -- if any -- from its
historical norm, and then ranks countries according to the size of those
deviations. Countries with high (low) rankings are overweighted (underweighted)
in comparisons to the EAFE Index to reflect the above-average (below-average)
attractiveness of their stock markets. In determining weightings, JPMIM analyzes
a variety of qualitative factors as well -- including the liquidity, earnings
momentum and interest rate climate of the market at hand. These qualitative
assessments can change the magnitude but not the direction of the country
allocations called for by the risk premium forecast. JPMIM places limits on the
total size of the Portfolio's country over- and under-weightings relative to the
EAFE Index.
Stock selection: JPMIM's more than 90 international equity analysts,
each an industry and country specialist with an average of nearly ten years of
experience, forecast normalized earnings and dividend payouts for roughly 1,200
non-U.S. companies -- taking a long-term perspective rather than the short time
frame common to consensus estimates. These forecasts are converted into
comparable expected returns by a dividend discount model, and then companies are
ranked from most to least attractive by industry and country. A diversified
portfolio is constructed using disciplined buy and sell rules. The portfolio
manager's objective is to concentrate the purchases in the stocks deemed most
undervalued, and to keep sector weightings close to those of the EAFE Index, the
Fund's benchmark. Once a stock falls into the bottom half of the rankings, it
generally becomes a candidate for sale. Where available, warrants and
convertibles may be purchased instead of common stock if they are deemed a more
attractive means of investing in an undervalued company.
Currency management: Currency is actively managed, in conjunction with
country and stock allocation, with the goal of protecting and possibly enhancing
the Fund's return. JPMIM's currency decisions are supported by a proprietary
tactical model which forecasts currency movements based on an analysis of four
fundamental factors -- trade balance trends, purchasing power parity, real
short-term interest differentials and real bond yields -- plus a technical
factor designed to improve the timing of transactions. Combining the output of
this model with a subjective assessment of economic, political and market
factors, JPMIM's currency specialists recommend currency strategies that are
implemented in conjunction with the Portfolio's investment strategy.
The J.P. Morgan Emerging Markets Equity Fund (the "Emerging Markets
Equity Fund") is designed for investors with a long term investment horizon who
want exposure to the rapidly growing emerging markets. The Emerging Markets
Equity Fund's investment objective is to achieve a high total return from a
portfolio of equity securities of companies in emerging markets. The Fund
attempts to achieve its investment objective by investing all of its investable
assets in The Emerging Markets Equity Portfolio (the "Portfolio"), a diversified
open-end management investment company having the same investment objective as
the Emerging Markets Equity Fund.
The Portfolio seeks to achieve its investment objective by investing
primarily in Equity Securities of emerging markets issuers. Under normal
circumstances, the Portfolio expects to invest at least 65% of its total assets
in such securities. The Portfolio does not intend to invest in U.S. securities
(other than money market instruments), except temporarily, when extraordinary
circumstances prevailing at the same time in a significant number of emerging
markets countries render investments in such countries inadvisable.
Investment Process for the Emerging Markets Equity Portfolio
Country allocation: JPMIM's country allocation decision begins with a
forecast of the expected return of each market in the Portfolio's universe.
These expected returns are calculated using a proprietary valuation method that
is forward looking in nature rather than based on historical data. JPMIM then
evaluates these expected returns from two different perspectives: first, it
identifies those countries that have high real expected returns relative to
their own history and other nations in their universe. Second, it identifies
those countries that it expects will provide high returns relative to their
currency risk. Countries that rank highly on one or both of these scores are
overweighted relative to the Fund's benchmark, the MSCI Emerging Markets Free
Index, while those that rank poorly are underweighted.
Stock selection: JPMIM's 25 emerging markets equity analysts -- each an
industry specialist -- monitor a universe of approximately 325 companies in
these countries, developing forecasts of earnings and cash flows for the most
attractive among them. Companies are ranked from most to least attractive based
on this research, and then a diversified portfolio is constructed using
disciplined buy and sell rules. The portfolio manager's objective is to
concentrate the Portfolio's holdings in the stocks deemed most undervalued, and
to keep sector weightings relatively close to those of the index. Stocks are
generally held until they fall into the bottom half of JPMIM's rankings.
J.P. Morgan International Opportunities Fund (the "International
Opportunities Fund") is designed for long-term investors who want to invest in
an actively managed portfolio of common stocks and other equity securities of
non-U.S. companies, including companies located in emerging markets. The
International Opportunities Fund's investment objective is to provide high total
return from a portfolio of equity securities of foreign companies in developed
and, to a lesser extent, developing markets. The Fund attempts to achieve its
investment objective by investing all of its investable assets in The
International Opportunities Portfolio (the "Portfolio"), a diversified open-end
management investment company having the same investment objective as the
International Opportunities Fund.
The Portfolio invests primarily in Equity Securities of non-U.S.
issuers in developed and developing countries. Under normal circumstances, the
Portfolio expects to invest at least 65% of its total assets in such securities.
The Portfolio does not intend to invest in U.S. securities (other than money
market instruments), except temporarily, when extraordinary circumstances
prevailing at the same time in a significant number of foreign countries render
investments in such countries inadvisable.
Investment Process for The International Opportunities Portfolio
Stock selection: JPMIM's approximately 90 international equity analysts
and 23 emerging markets equity analysts, each an industry and country
specialist, forecast normalized earnings, dividend payouts and cash flows for
roughly 1,200 non-U.S. companies -- taking a long-term perspective rather than
the short time frame common to consensus estimates. These forecasts are
converted into comparable expected returns by a dividend discount model, and
then companies are ranked from most to least attractive by industry. A
diversified portfolio is constructed using disciplined buy and sell rules. The
portfolio manager's objective is to concentrate the Portfolio's purchases in the
stocks deemed most undervalued. Stocks generally become a candidate for sale
when they fall into the bottom half of JPMIM's rankings. Where available,
warrants and convertibles may be purchased instead of common stock if they are
deemed a more attractive means of investing in an undervalued company.
Currency management: JPMIM actively manages the currency exposure of
the Portfolio's investments in developed countries, in conjunction with country
and stock allocation, with the goal of protecting and possibly enhancing the
Fund's return. JPMIM's currency decisions are supported by a proprietary
tactical model which forecasts currency movements based on an analysis of four
fundamental factors -- trade balance trends, purchasing power parity, real
short-term interest differentials and real bond yields -- plus a technical
factor designed to improve the timing of transactions. Combining the output of
this model with a subjective assessment of economic, political and market
factors, JPMIM's currency specialists recommend currency strategies that are
implemented in conjunction with the Portfolio's investment strategy.
Country allocation (developed countries): The Portfolio's country
weightings primarily result from its stock selection decisions and may vary
significantly from the MSCI All Country World Index Free (ex-U.S.), the
Portfolio's benchmark.
Equity Investments
The Portfolios for each of the Funds invest primarily in Equity
Securities. The Equity Securities in which the Funds invest include those listed
on any domestic or foreign securities exchange or traded in the over-the-counter
(OTC) market as well as certain restricted or unlisted securities.
Equity Securities. The Equity Securities in which the Funds may invest may
or may not pay dividends and may or may not carry voting rights. Common stock
occupies the most junior position in a company's capital structure.
The convertible securities in which the Funds may invest include any
debt securities or preferred stock which may be converted into common stock or
which carry the right to purchase common stock. Convertible securities entitle
the holder to exchange the securities for a specified number of shares of common
stock, usually of the same company, at specified prices within a certain period
of time.
The terms of any convertible security determine its ranking in a
company's capital structure. In the case of subordinated convertible debentures,
the holders' claims on assets and earnings are subordinated to the claims of
other creditors, and are senior to the claims of preferred and common
shareholders. In the case of convertible preferred stock, the holders' claims on
assets and earnings are subordinated to the claims of all creditors and are
senior to the claims of common shareholders.
Common Stock Warrants
The Funds may invest in common stock warrants that entitle the holder
to buy common stock from the issuer of the warrant at a specific price (the
strike price) for a specific period of time. The market price of warrants may be
substantially lower than the current market price of the underlying common
stock, yet warrants are subject to similar price fluctuations. As a result,
warrants may be more volatile investments than the underlying common stock.
Warrants generally do not entitle the holder to dividends or voting
rights with respect to the underlying common stock and do not represent any
rights in the assets of the issuer company. A warrant will expire worthless if
it is not exercised on or prior to the expiration date.
Foreign Investments
The Funds make substantial investments in foreign countries. Investors
should realize that the value of the Funds' investments in foreign securities
may be adversely affected by changes in political or social conditions,
diplomatic relations, confiscatory taxation, expropriation, nationalization,
limitation on the removal of funds or assets, or imposition of (or change in)
exchange control or tax regulations in those foreign countries. In addition,
changes in government administrations or economic or monetary policies in the
United States or abroad could result in appreciation or depreciation of
portfolio securities and could favorably or unfavorably affect the Funds'
operations. Furthermore, the economies of individual foreign nations may differ
from the U.S. economy, whether favorably or unfavorably, in areas such as growth
of gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position; it may also be more difficult
to obtain and enforce a judgment against a foreign issuer. Any foreign
investments made by the Funds must be made in compliance with U.S. and foreign
currency restrictions and tax laws restricting the amounts and types of foreign
investments.
Generally, investment in securities of foreign issuers involves
somewhat different investment risks from those affecting securities of U.S.
domestic issuers. There may be limited publicly available information with
respect to foreign issuers, and foreign issuers are not generally subject to
uniform accounting, auditing and financial standards and requirements comparable
to those applicable to domestic companies. Dividends and interest paid by
foreign issuers may be subject to withholding and other foreign taxes which may
decrease the net return on foreign investments as compared to dividends and
interest paid to the Portfolio by domestic companies.
In addition, while the volume of transactions effected on foreign stock
exchanges has increased in recent years, in most cases it remains appreciably
below that of domestic security exchanges. Accordingly, a Portfolio's foreign
investments may be less liquid and their prices may be more volatile than
comparable investments in securities of U.S. companies. Moreover, the settlement
periods for foreign securities, which are often longer than those for securities
of U.S. issuers, may affect portfolio liquidity. In buying and selling
securities on foreign exchanges, purchasers normally pay fixed commissions that
are generally higher than the negotiated commissions charged in the United
States. In addition, there is generally less government supervision and
regulation of securities exchanges, brokers and issuers located in foreign
countries than in the United States.
Foreign investments may be made directly in securities of foreign
issuers or in the form of American Depositary Receipts ("ADRs"), European
Depositary Receipts ("EDRs") and Global Depositary Receipts ("GDRs") or other
similar securities of foreign issuers. ADRs are securities, typically issued by
a U.S. financial institution (a "depositary"), that evidence ownership interests
in a security or a pool of securities issued by a foreign issuer and deposited
with the depositary. ADRs include American Depositary Shares and New York
Shares. EDRs are receipts issued by a European financial institution. GDRs,
which are sometimes referred to as Continental Depositary Receipts ("CDRs"), are
securities, typically issued by a non-U.S. financial institution, that evidence
ownership interests in a security or a pool of securities issued by either a
U.S. or foreign issuer. ADRs, EDRs, GDRs and CDRs may be available for
investment through "sponsored" or "unsponsored" facilities. A sponsored facility
is established jointly by the issuer of the security underlying the receipt and
a depositary, whereas an unsponsored facility may be established by a depositary
without participation by the issuer of the receipt's underlying security.
Holders of an unsponsored depositary receipt generally bear all costs
of the unsponsored facility. The depositary of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited security or to pass through to the
holders of the receipts voting rights with respect to the deposited securities.
Since investments in foreign securities may involve foreign currencies,
the value of a Fund's assets as measured in U.S. dollars may be affected
favorably or unfavorably by changes in currency rates and in exchange control
regulations, including currency blockage. The Funds may enter into forward
commitments for the purchase or sale of foreign currencies in connection with
the settlement of foreign securities transactions or to manage the Funds'
currency exposure related to foreign investments.
The Funds may also invest in countries with emerging economies or
securities markets. Political and economic structures in many of such countries
may be undergoing significant evolution and rapid development, and such
countries may lack the social, political and economic stability characteristic
of more developed countries. Certain of such countries may have in the past
failed to recognize private property rights and have at times nationalized or
expropriated the assets of private companies. As a result, the risks described
above, including the risks of nationalization or expropriation of assets, may be
heightened. In addition, unanticipated political or social developments may
affect the values of the Funds investments in those countries and the
availability to such Fund of additional investments in those countries. The
small size and inexperience of the securities markets in certain of such
countries and the limited volume of trading in securities in those countries may
make the Funds investments in such countries illiquid and more volatile than
investments in more developed countries, and such Fund may be required to
establish special custodial or other arrangements before making certain
investments in those countries. There may be little financial or accounting
information available with respect to issuers located in certain of such
countries, and it may be difficult as a result to assess the value or prospects
of an investment in such issuers.
Foreign Currency Exchange Transactions. Because the Portfolios buy and
sell securities and receive interest and dividends in currencies other than the
U.S. dollar, the Portfolios may enter from time to time into foreign currency
exchange transactions. The Portfolios either enter into these transactions on a
spot (i.e., cash) basis at the spot rate prevailing in the foreign currency
exchange market, or use forward contracts to purchase or sell foreign
currencies. The cost of a Portfolio's spot currency exchange transactions is
generally the difference between the bid and offer spot rate of the currency
being purchased or sold.
A forward foreign currency exchange contract is an obligation by a
Portfolio to purchase or sell a specific currency at a future date, which may be
any fixed number of days from the date of the contract. Forward foreign currency
exchange contracts establish an exchange rate at a future date. These contracts
are derivative instruments, as their value derives from the spot exchange rates
of the currencies underlying the contracts. These contracts are entered into in
the interbank market directly between currency traders (usually large commercial
banks) and their customers. A forward foreign currency exchange contract
generally has no deposit requirement, and is traded at a net price without
commission. Neither spot transactions nor forward foreign currency exchange
contracts eliminate fluctuations in the prices of the Portfolio's securities or
in foreign exchange rates, or prevent loss if the prices of these securities
should decline.
The Portfolios may enter into forward foreign currency exchange
contracts in connection with settlements of securities transactions and other
anticipated payments or receipts. In addition, from time to time, the Advisor
may reduce a Portfolio's foreign currency exposure by entering into forward
foreign currency exchange contracts to sell a foreign currency in exchange for
the U.S. dollar. The Portfolios may also enter into forward foreign currency
exchange contracts to adjust their currency exposure relative to their
benchmarks. Forward foreign currency exchange contracts may involve the purchase
or sale of a foreign currency in exchange for U.S.
dollars or may involve two foreign currencies.
Although these transactions are intended to minimize the risk of loss
due to a decline in the value of the hedged currency, at the same time they
limit any potential gain that might be realized should the value of the hedged
currency increase. In addition, forward contracts that convert a foreign
currency into another foreign currency will cause the Portfolio to assume the
risk of fluctuations in the value of the currency purchased vis a vis the hedged
currency and the U.S. dollar. The precise matching of the forward contract
amounts and the value of the securities involved will not generally be possible
because the future value of such securities in foreign currencies will change as
a consequence of market movements in the value of such securities between the
date the forward contract is entered into and the date it matures. The
projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly uncertain.
Money Market Instruments
Although the Funds intend under normal circumstances and to the extent
practicable, to be fully invested in Equity Securities, each Fund may invest in
money market instruments to the extent consistent with its investment objective
and policies. The Funds may make money market investments pending other
investment or settlement, for liquidity or in adverse market conditions. A
description of the various types of money market instruments that may be
purchased by the Funds appears below. Also see "Quality and Diversification
Requirements."
U.S. Treasury Securities. Each of the Funds may invest in direct
obligations of the U.S. Treasury, including Treasury bills, notes and bonds, all
of which are backed as to principal and interest payments by the full faith and
credit of the United States.
Additional U.S. Government Obligations. Each of the Funds may invest in
obligations issued or guaranteed by U.S. Government agencies or
instrumentalities. These obligations may or may not be backed by the "full faith
and credit" of the United States. Securities which are backed by the full faith
and credit of the United States include obligations of the Government National
Mortgage Association, the Farmers Home Administration, and the Export-Import
Bank. In the case of securities not backed by the full faith and credit of the
United States, each Fund must look principally to the federal agency issuing or
guaranteeing the obligation for ultimate repayment and may not be able to assert
a claim against the United States itself in the event the agency or
instrumentality does not meet its commitments. Securities in which each Fund may
invest that are not backed by the full faith and credit of the United States
include, but are not limited to: (i) obligations of the Tennessee Valley
Authority, the Federal Home Loan Mortgage Corporation, the Federal Home Loan
Bank and the U.S. Postal Service, each of which has the right to borrow from the
U.S. Treasury to meet its obligations; (ii) securities issued by the Federal
National Mortgage Association, which are supported by the discretionary
authority of the U.S. Government to purchase the agency's obligations; and (iii)
obligations of the Federal Farm Credit System and the Student Loan Marketing
Association, each of whose obligations may be satisfied only by the individual
credits of the issuing agency.
Foreign Government Obligations. Each of the Funds, subject to its
applicable investment policies, may also invest in short-term obligations of
foreign sovereign governments or of their agencies, instrumentalities,
authorities or political subdivisions. These securities may be denominated in
the U.S. dollar or in another currency. See "Foreign Investments."
Bank Obligations. Each of the Funds may invest in negotiable
certificates of deposit, time deposits and bankers' acceptances of (i)banks,
savings and loan associations and savings banks which have more than $2 billion
in total assets and are organized under the laws of the United States or any
state, (ii)foreign branches of these banks or of foreign banks of equivalent
size (Euros) and (iii)U.S. branches of foreign banks of equivalent size
(Yankees). The Funds will not invest in obligations for which the Advisor, or
any of its affiliated persons, is the ultimate obligor or accepting bank. Each
of the Funds may also invest in international banking institutions designated or
supported by national governments to promote economic reconstruction,
development or trade between nations (e.g., the European Investment Bank, the
Inter-American Development Bank, or the World Bank).
Commercial Paper. Each of the Funds may invest in commercial paper,
including master demand obligations. Master demand obligations are obligations
that provide for a periodic adjustment in the interest rate paid and permit
daily changes in the amount borrowed. Master demand obligations are governed by
agreements between the issuer and Morgan acting as agent, for no additional fee.
The monies loaned to the borrower come from accounts managed by the 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 Funds
may invest in such unrated obligations only if at the time of an investment the
obligation is determined by the Advisor to have a credit quality which satisfies
the Fund's quality restrictions. See "Quality and Diversification Requirements."
Although there is no secondary market for master demand obligations, such
obligations are considered by the Funds to be liquid because they are payable
upon demand. The Funds do not have any specific percentage limitation on
investments in master demand obligations. It is possible that the issuer of a
master demand obligation could be a client of Morgan to whom Morgan, in its
capacity as a commercial bank, has made a loan.
Repurchase Agreements. Each of the Funds may enter into repurchase
agreements with brokers, dealers or banks that meet the credit guidelines
approved by the Funds' Trustees. In a repurchase agreement, a Fund buys a
security from a seller that has agreed to repurchase the same security at a
mutually agreed upon date and price. The resale price normally is in excess of
the purchase price, reflecting an agreed upon interest rate. This interest rate
is effective for the period of time the Fund is invested in the agreement and is
not related to the coupon rate on the underlying security. A repurchase
agreement may also be viewed as a fully collateralized loan of money by a Fund
to the seller. The period of these repurchase agreements will usually be short,
from overnight to one week, and at no time will the Funds invest in repurchase
agreements for more than thirteen months. The securities which are subject to
repurchase agreements, however, may have maturity dates in excess of thirteen
months from the effective date of the repurchase agreement. The Funds will
always receive securities as collateral whose market value is, and during the
entire term of the agreement remains, at least equal to 100% of the dollar
amount invested by the Funds in each agreement plus accrued interest, and the
Funds will make payment for such securities only upon physical delivery or upon
evidence of book entry transfer to the account of the Custodian. If the seller
defaults, a Fund might incur a loss if the value of the collateral securing the
repurchase agreement declines and might incur disposition costs in connection
with liquidating the collateral. In addition, if bankruptcy proceedings are
commenced with respect to the seller of the security, realization upon disposal
of the collateral by a Fund may be delayed or limited.
Each of the Funds may make investments in other debt securities with
remaining effective maturities of not more than thirteen months, including
without limitation corporate and foreign bonds, asset-backed securities and
other obligations described in this Statement of Additional Information.
Additional Investments
When-Issued and Delayed Delivery Securities. Each of the Portfolios may
purchase securities on a when-issued or delayed delivery basis. For example,
delivery of and payment for these securities can take place a month or more
after the date of the purchase commitment. The purchase price and the interest
rate payable, if any, on the securities are fixed on the purchase commitment
date or at the time the settlement date is fixed. The value of such securities
is subject to market fluctuation and for money market instruments and other
fixed income securities no interest accrues to a Portfolio until settlement
takes place. At the time a Portfolio makes the commitment to purchase securities
on a when-issued or delayed delivery basis, it will record the transaction,
reflect the value each day of such securities in determining its net asset value
and calculate the maturity for the purposes of average maturity from that date.
At the time of settlement a when-issued security may be valued at less than the
purchase price. To facilitate such acquisitions, each Portfolio will maintain
with the Custodian a segregated account with liquid assets, consisting of cash,
U.S. Government securities or other appropriate securities, in an amount at
least equal to such commitments. On delivery dates for such transactions, each
Portfolio will meet its obligations from maturities or sales of the securities
held in the segregated account and/or from cash flow. If a Portfolio chooses to
dispose of the right to acquire a when-issued security prior to its acquisition,
it could, as with the disposition of any other portfolio obligation, incur a
gain or loss due to market fluctuation. Also, a Fund may be disadvantaged if the
other party to the transaction defaults. It is the current policy of each
Portfolio not to enter into when-issued commitments exceeding in the aggregate
15% of the market value of the Portfolio's total assets, less liabilities other
than the obligations created by when-issued commitments.
Investment Company Securities. Securities of other investment companies
may be acquired by each of the Funds and their corresponding Portfolio to the
extent permitted under the 1940 Act or any order pursuant thereto. These limits
currently require that, as determined immediately after a purchase is made,
(i)not more than 5% of the value of a Fund's total assets will be invested in
the securities of any one investment company, (ii) not more than 10% of the
value of its total assets will be invested in the aggregate in securities of
investment companies as a group, and (iii) not more than 3% of the outstanding
voting stock of any one investment company will be owned by a Fund, provided
however, that a Fund may invest all of its investable assets in an open-end
investment company that has the same investment objective as the Fund (its
corresponding Portfolio). As a shareholder of another investment company, a Fund
or Portfolio would bear, along with other shareholders, its pro rata portion of
the other investment company's expenses, including advisory fees. These expenses
would be in addition to the advisory and other expenses that a Fund or Portfolio
bears directly in connection with its own operations.
Reverse Repurchase Agreements. Each of the Portfolios may enter into
reverse repurchase agreements. In a reverse repurchase agreement, a Portfolio
sells a security and agrees to repurchase the same security at a mutually agreed
upon date and price reflecting the interest rate effective for the term of the
agreement. For purposes of the 1940 Act a reverse repurchase agreement is also
considered as the borrowing of money by a Portfolio and, therefore, a form of
leverage. Leverage may cause any gains or losses for a Fund to be magnified. The
Portfolio will invest the proceeds of borrowings under reverse repurchase
agreements. In addition, a Portfolio will enter into a reverse repurchase
agreement only when the interest income to be earned from the investment of the
proceeds is greater than the interest expense of the transaction. Investors
should keep in mind that the counterparty to a contract could default on its
obligation. No Portfolio will invest the proceeds of a reverse repurchase
agreement for a period which exceeds the duration of the reverse repurchase
agreement. Each Portfolio will establish and maintain with the Custodian a
separate account with a segregated portfolio of securities in an amount at least
equal to its purchase obligations under its reverse repurchase agreements. See
"Investment Restrictions" for each Portfolio's limitations on reverse repurchase
agreements and bank borrowings.
Loans of Portfolio Securities. Each of the Portfolios may lend its
securities if such loans are secured continuously by cash or equivalent
collateral or by a letter of credit in favor of the Portfolio at least equal at
all times to 100% of the market value of the securities loaned, plus accrued
interest. While such securities are on loan, the borrower will pay the Portfolio
any income accruing thereon. Loans will be subject to termination by the
Portfolio in the normal settlement time, generally three business days after
notice, or by the borrower on one day's notice. Borrowed securities must be
returned when the loan is terminated. Any gain or loss in the market price of
the borrowed securities which occurs during the term of the loan inures to a
Portfolio and its respective investors. The Portfolios may pay reasonable
finders' and custodial fees in connection with a loan. In addition, a Portfolio
will consider all facts and circumstances before entering into such an
agreement, including the creditworthiness of the borrowing financial
institution, and no Portfolio will make any loans in excess of one year. The
Portfolios will not lend their securities to any officer, Trustee, Director,
employee or other affiliate of the Portfolios, the Advisor or the Distributor,
unless otherwise permitted by applicable law.
Privately Placed and Certain Unregistered Securities. A Portfolio may
not acquire any illiquid securities if, as a result thereof, more than 15% of
the Portfolio's net assets would be in illiquid investments. Subject to this
non-fundamental policy limitation, the Portfolios may acquire investments that
are illiquid or have limited liquidity, such as private placements or
investments that are not registered under the 1933 Act and cannot be offered for
public sale in the United States without first being registered under the 1933
Act. An illiquid investment is any investment that cannot be disposed of within
seven days in the normal course of business at approximately the amount at which
it is valued by a Portfolio. The price a Portfolio pays for illiquid securities
or receives upon resale may be lower than the price paid or received for similar
securities with a more liquid market. Accordingly the valuation of these
securities will reflect any limitations on their liquidity.
The Portfolios may also purchase Rule 144A securities sold to
institutional investors without registration under the 1933 Act. These
securities may be determined to be liquid in accordance with guidelines
established by the Advisor and approved by the Trustees. The Trustees will
monitor the Advisor's implementation of these guidelines on a periodic basis.
As to illiquid investments, a Portfolio is subject to a risk that
should the Portfolio decide to sell them when a ready buyer is not available at
a price the Portfolio deems representative of their value, the value of the
Portfolio's net assets could be adversely affected. Where an illiquid security
must be registered under the 1933 Act, before it may be sold, a Portfolio may be
obligated to pay all or part of the registration expenses, and a considerable
period may elapse between the time of the decision to sell and the time the
Portfolio may be permitted to sell a holding under an effective registration
statement. If, during such a period, adverse market conditions were to develop,
a Portfolio might obtain a less favorable price than prevailed when it decided
to sell.
Quality and Diversification Requirements
Each of the Funds intends to meet the diversification requirements of
the 1940 Act. Current 1940 Act diversification requirements require that with
respect to 75% of the assets of the Fund: (1) the Fund may not invest more than
5% of its total assets in the securities of any one issuer, except obligations
of the U.S. Government, its agencies and instrumentalities, and (2) the Fund may
not own more than 10% of the outstanding voting securities of any one issuer. As
for the other 25% of the Fund's assets not subject to the limitation described
above, there is no limitation on investment of these assets under the 1940 Act,
so that all of such assets may be invested in securities of any one issuer.
Investments not subject to the limitations described above could involve an
increased risk to the Fund should an issuer, or a state or its related entities,
be unable to make interest or principal payments or should the market value of
such securities decline.
The Funds will also comply with the diversification requirements imposed by
the Internal Revenue Code of 1986, as amended (the "Code"), for qualification as
a regulated investment company. See "Taxes."
The Funds may invest in convertible debt securities, for which there
are no specific quality requirements. In addition, at the time a Fund invests in
any commercial paper, bank obligation or repurchase agreement, the issuer must
have outstanding debt rated A or higher by Moody's or Standard & Poor's, the
issuer's parent corporation, if any, must have outstanding commercial paper
rated Prime-1 by Moody's or A-1 by Standard & Poor's, or if no such ratings are
available, the investment must be of comparable quality in the Advisor's
opinion. At the time a Fund invests in any other short-term debt securities,
they must be rated A or higher by Moody's or Standard & Poor's, or if unrated,
the investment must be of comparable quality in the Advisor's opinion.
In determining suitability of investment in a particular unrated
security, the Advisor takes into consideration asset and debt service coverage,
the purpose of the financing, history of the issuer, existence of other rated
securities of the issuer, and other relevant conditions, such as comparability
to other issuers.
Options and Futures Transactions
Exchange Traded and OTC Options. All options purchased or sold by the
Portfolios will be traded on a securities exchange or will be purchased or sold
by securities dealers (OTC options) that meet creditworthiness standards
approved by the Portfolios' Board of Trustees. While exchange-traded options are
obligations of the Options Clearing Corporation, in the case of OTC options, a
Portfolio relies on the dealer from which it purchased the option to perform if
the option is exercised. Thus, when a Portfolio purchases an OTC option, it
relies on the dealer from which it purchased the option to make or take delivery
of the underlying securities. Failure by the dealer to do so would result in the
loss of the premium paid by the Portfolio as well as loss of the expected
benefit of the transaction.
Provided that a Portfolio has arrangements with certain qualified
dealers who agree that the Portfolio may repurchase any option it writes for a
maximum price to be calculated by a predetermined formula, a Portfolio may treat
the underlying securities used to cover written OTC options as liquid. In these
cases, the OTC option itself would only be considered illiquid to the extent
that the maximum repurchase price under the formula exceeds the intrinsic value
of the option.
Futures Contracts and Options on Futures Contracts. The Portfolios may
purchase or sell (write) futures contracts and may purchase and sell (write) put
and call options, including put and call options on futures contracts. Futures
contracts obligate the buyer to take and the seller to make delivery at a future
date of a specified quantity of a financial instrument or an amount of cash
based on the value of a securities index. Currently, futures contracts are
available on various types of fixed income securities, including but not limited
to U.S. Treasury bonds, notes and bills, Eurodollar certificates of deposit and
on indexes of fixed income securities and indexes of equity securities.
Unlike a futures contract, which requires the parties to buy and sell a
security or make a cash settlement payment based on changes in a financial
instrument or securities index on an agreed date, an option on a futures
contract entitles its holder to decide on or before a future date whether to
enter into such a contract. If the holder decides not to exercise its option,
the holder may close out the option position by entering into an offsetting
transaction or may decide to let the option expire and forfeit the premium
thereon. The purchaser of an option on a futures contract pays a premium for the
option but makes no initial margin payments or daily payments of cash in the
nature of "variation" margin payments to reflect the change in the value of the
underlying contract as does a purchaser or seller of a futures contract.
The seller of an option on a futures contract receives the premium paid
by the purchaser and may be required to pay initial margin. Amounts equal to the
initial margin and any additional collateral required on any options on futures
contracts sold by a Portfolio are paid by the Portfolio into a segregated
account, in the name of the Futures Commission Merchant, as required by the 1940
Act and the SEC's interpretations thereunder.
Combined Positions. The Portfolios may purchase and write options in
combination with each other, or in combination with futures or forward
contracts, to adjust the risk and return characteristics of the overall
position. For example, a Portfolio may purchase a put option and write a call
option on the same underlying instrument, in order to construct a combined
position whose risk and return characteristics are similar to selling a futures
contract. Another possible combined position would involve writing a call option
at one strike price and buying a call option at a lower price, in order to
reduce the risk of the written call option in the event of a substantial price
increase. Because combined options positions involve multiple trades, they
result in higher transaction costs and may be more difficult to open and close
out.
Correlation of Price Changes. Because there are a limited number of
types of exchange-traded options and futures contracts, it is likely that the
standardized options and futures contracts available will not match a
Portfolio's current or anticipated investments exactly. A Portfolio may invest
in options and futures contracts based on securities with different issuers,
maturities, or other characteristics from the securities in which it typically
invests, which involves a risk that the options or futures position will not
track the performance of the Portfolio's other investments.
Options and futures contracts prices can also diverge from the prices
of their underlying instruments, even if the underlying instruments match the
Portfolio's investments well. Options and futures contracts prices are affected
by such factors as current and anticipated short term interest rates, changes in
volatility of the underlying instrument, and the time remaining until expiration
of the contract, which may not affect security prices the same way. Imperfect
correlation may also result from differing levels of demand in the options and
futures markets and the securities markets, from structural differences in how
options and futures and securities are traded, or from imposition of daily price
fluctuation limits or trading halts. A Portfolio may purchase or sell options
and futures contracts with a greater or lesser value than the securities it
wishes to hedge or intends to purchase in order to attempt to compensate for
differences in volatility between the contract and the securities, although this
may not be successful in all cases. If price changes in a Portfolio's options or
futures positions are poorly correlated with its other investments, the
positions may fail to produce anticipated gains or result in losses that are not
offset by gains in other investments.
Liquidity of Options and Futures Contracts. There is no assurance a
liquid market will exist for any particular option or futures contract at any
particular time even if the contract is traded on an exchange. In addition,
exchanges may establish daily price fluctuation limits for options and futures
contracts and may halt trading if a contract's price moves up or down more than
the limit in a given day. On volatile trading days when the price fluctuation
limit is reached or a trading halt is imposed, it may be impossible for a
Portfolio to enter into new positions or close out existing positions. If the
market for a contract is not liquid because of price fluctuation limits or
otherwise, it could prevent prompt liquidation of unfavorable positions, and
could potentially require a Portfolio to continue to hold a position until
delivery or expiration regardless of changes in its value. As a result, the
Portfolio's access to other assets held to cover its options or futures
positions could also be impaired. (See "Exchange Traded and OTC Options" above
for a discussion of the liquidity of options not traded on an exchange.)
Position Limits. Futures exchanges can limit the number of futures and
options on futures contracts that can be held or controlled by an entity. If an
adequate exemption cannot be obtained, a Portfolio or the Advisor may be
required to reduce the size of its futures and options positions or may not be
able to trade a certain futures or options contract in order to avoid exceeding
such limits.
Asset Coverage for Futures Contracts and Options Positions. The
Portfolios intend to comply with Section 4.5 of the regulations under the
Commodity Exchange Act, which limits the extent to which the Portfolio can
commit assets to initial margin deposits and option premiums. In addition, the
Portfolios will comply with guidelines established by the SEC with respect to
coverage of options and futures contracts by mutual funds, and if the guidelines
so require, will set aside appropriate liquid assets in a segregated custodial
account in the amount prescribed. Securities held in a segregated account cannot
be sold while the futures contract or option is outstanding, unless they are
replaced with other suitable assets. As a result, there is a possibility that
segregation of a large percentage of the Portfolio's assets could impede
portfolio management or the Portfolio's ability to meet redemption requests or
other current obligations.
Swaps and Related Swap Products
Each of the Funds may engage in swap transactions, including, but not
limited to, interest rate, currency, securities index, basket, specific security
and commodity swaps, interest rate caps, floors and collars and options on
interest rate swaps (collectively defined as "swap transactions").
Each Fund may enter into swap transactions for any legal purpose
consistent with its investment objective and policies, such as for the purpose
of attempting to obtain or preserve a particular return or spread at a lower
cost than obtaining that return or spread through purchases and/or sales of
instruments in cash markets, to protect against currency fluctuations, as a
duration management technique, to protect against any increase in the price of
securities a Fund anticipates purchasing at a later date, or to gain exposure to
certain markets in the most economical way possible. A Fund will not sell
interest rate caps, floors or collars if it does not own securities with coupons
which provide the interest that a Fund may be required to pay.
Swap agreements are two-party contracts entered into primarily by
institutional counterparties for periods ranging from a few weeks to several
years. In a standard swap transaction, two parties agree to exchange the returns
(or differentials in rates of return) that would be earned or realized on
specified notional investments or instruments. The gross returns to be exchanged
or "swapped" between the parties are calculated by reference to a "notional
amount," i.e., the return on or increase in value of a particular dollar amount
invested at a particular interest rate, in a particular foreign currency or
commodity, or in a "basket" of securities representing a particular index. The
purchaser of an interest rate cap or floor, upon payment of a fee, has the right
to receive payments (and the seller of the cap is obligated to make payments) to
the extent a specified interest rate exceeds (in the case of a cap) or is less
than (in the case of a floor) a specified level over a specified period of time
or at specified dates. The purchaser of an interest rate collar, upon payment of
a fee, has the right to receive payments (and the seller of the collar is
obligated to make payments) to the extent that a specified interest rate falls
outside an agreed upon range over a specified period of time or at specified
dates. The purchaser of an option on an interest rate swap, upon payment of a
fee (either at the time of purchase or in the form of higher payments or lower
receipts within an interest rate swap transaction) has the right, but not the
obligation, to initiate a new swap transaction of a pre-specified notional
amount with pre-specified terms with the seller of the option as the
counterparty.
The "notional amount" of a swap transaction is the agreed upon basis
for calculating the payments that the parties have agreed to exchange. For
example, one swap counterparty may agree to pay a floating rate of interest
(e.g., 3 month LIBOR) calculated based on a $10 million notional amount on a
quarterly basis in exchange for receipt of payments calculated based on the same
notional amount and a fixed rate of interest on a semi-annual basis. In the
event a Fund is obligated to make payments more frequently than it receives
payments from the other party, it will incur incremental credit exposure to that
swap counterparty. This risk may be mitigated somewhat by the use of swap
agreements which call for a net payment to be made by the party with the larger
payment obligation when the obligations of the parties fall due on the same
date. Under most swap agreements entered into by a Fund, payments by the parties
will be exchanged on a "net basis", and a Fund will receive or pay, as the case
may be, only the net amount of the two payments.
The amount of a Fund's potential gain or loss on any swap transaction
is not subject to any fixed limit. Nor is there any fixed limit on a Fund's
potential loss if it sells a cap or collar. If the Fund buys a cap, floor or
collar, however, the Fund's potential loss is limited to the amount of the fee
that it has paid. When measured against the initial amount of cash required to
initiate the transaction, which is typically zero in the case of most
conventional swap transactions, swaps, caps, floors and collars tend to be more
volatile than many other types of instruments.
The use of swap transactions, caps, floors and collars involves
investment techniques and risks which are different from those associated with
portfolio security transactions. If the Advisor is incorrect in its forecasts of
market values, interest rates, and other applicable factors, the investment
performance of a Fund will be less favorable than if these techniques had not
been used. These instruments are typically not traded on exchanges. Accordingly,
there is a risk that the other party to certain of these instruments will not
perform its obligations to a Fund or that a Fund may be unable to enter into
offsetting positions to terminate its exposure or liquidate its position under
certain of these instruments when it wishes to do so. Such occurrences could
result in losses to a Fund.
The Advisor will, however, consider such risks and will enter into
swap and other derivatives transactions only when it believes that the risks are
not unreasonable.
Each Fund will maintain cash or liquid assets in a segregated account
with its custodian in an amount sufficient at all times to cover its current
obligations under its swap transactions, caps, floors and collars. If a Fund
enters into a swap agreement on a net basis, it will segregate assets with a
daily value at least equal to the excess, if any, of a Fund's accrued
obligations under the swap agreement over the accrued amount a Fund is entitled
to receive under the agreement. If a Fund enters into a swap agreement on other
than a net basis, or sells a cap, floor or collar, it will segregate assets with
a daily value at least equal to the full amount of a Fund's accrued obligations
under the agreement.
Each Fund will not enter into any swap transaction, cap, floor, or
collar, unless the counterparty to the transaction is deemed creditworthy by the
Advisor. If a counterparty defaults, a Fund may have contractual remedies
pursuant to the agreements related to the transaction. The swap markets in which
many types of swap transactions are traded have grown substantially in recent
years, with a large number of banks and investment banking firms acting both as
principals and as agents utilizing standardized swap documentation. As a result,
the markets for certain types of swaps (e.g., interest rate swaps) have become
relatively liquid. The markets for some types of caps, floors and collars are
less liquid.
The liquidity of swap transactions, caps, floors and collars will be as
set forth in guidelines established by the Advisor and approved by the Trustees
which are based on various factors, including (1) the availability of dealer
quotations and the estimated transaction volume for the instrument, (2) the
number of dealers and end users for the instrument in the marketplace, (3) the
level of market making by dealers in the type of instrument, (4) the nature of
the instrument (including any right of a party to terminate it on demand) and
(5) the nature of the marketplace for trades (including the ability to assign or
offset a Fund's rights and obligations relating to the instrument). Such
determination will govern whether the instrument will be deemed within the 15%
restriction on investments in securities that are not readily marketable.
During the term of a swap, cap, floor or collar, changes in the value
of the instrument are recognized as unrealized gains or losses by marking to
market to reflect the market value of the instrument. When the instrument is
terminated, a Fund will record a realized gain or loss equal to the difference,
if any, between the proceeds from (or cost of) the closing transaction and a
Fund's basis in the contract.
The federal income tax treatment with respect to swap transactions,
caps, floors, and collars may impose limitations on the extent to which a Fund
may engage in such transactions.
Risk Management
The Portfolios may employ non-hedging risk management techniques.
Examples of risk management strategies include synthetically altering a
portfolio's exposure to the equity markets of particular countries by purchasing
futures contracts on the stock indices of those countries to increase exposure
to their equity markets. Such non-hedging risk management techniques are not
speculative, but because they involve leverage include, as do all leveraged
transactions, the possibility of losses as well as gains that are greater than
if these techniques involved the purchase and sale of the securities themselves
rather than their synthetic derivatives.
Portfolio Turnover
The table below sets forth the portfolio turnover rates for the
Portfolios corresponding to the Funds. A rate of 100% indicates that the
equivalent of all of the Portfolio's assets have been sold and reinvested in a
year. High portfolio turnover may result in the realization of substantial net
capital gains or losses. To the extent net short term capital gains are
realized, any distributions resulting from such gains are considered ordinary
income for federal income tax purposes. See "Taxes" below.
The International Equity Portfolio (International Equity Fund) For the
fiscal year ended October 31, 1995: 59%. For the fiscal year ended October 31,
1996: 57%. For the fiscal year ended October 31, 1997: 67%.
The Emerging Markets Equity Portfolio (Emerging Markets Equity Fund) For
the fiscal year ended October 31, 1995: 41%. For the fiscal year ended October
31, 1996: 31%. For the fiscal year ended October 31, 1997: 55%.
The International Opportunities Portfolio (International Equity Fund) For the
period February 26, 1997 (commencement of operations) through November 30, 1997:
72%.
INVESTMENT RESTRICTIONS
The investment restrictions of each Fund and its corresponding
Portfolio are identical, unless otherwise specified. Accordingly, references
below to a Fund also include the Fund's corresponding Portfolio unless the
context requires otherwise; similarly, references to a Portfolio also include
its corresponding Fund unless the context requires otherwise.
Unless Sections 8(b)(1) and 13(a) of the 1940 Act or any SEC or SEC
staff interpretations thereof, are amended or modified, each Fund and its
corresponding Portfolio:
1. May not make any investment inconsistent with the Fund's classification as a
diversified investment company under the Investment Company Act of 1940.
2. May not purchase any security which would cause the Fund to concentrate its
investments in the securities of issuers primarily engaged in any particular
industry except as permitted by the SEC;
3. May not issue senior securities, except as permitted under the Investment
Company Act of 1940 or any rule, order or interpretation thereunder;
4. May not borrow money, except to the extent permitted by applicable law;
5. May not underwrite securities of other issuers, except to the extent that the
Fund, in disposing of portfolio securities, may be deemed an underwriter within
the meaning of the 1933 Act;
6. May not purchase or sell real estate, except that, to the extent permitted by
applicable law, the Fund may (a) invest in securities or other instruments
directly or indirectly secured by real estate, and (b) invest in securities or
other instruments issued by issuers that invest in real estate;
7. May not purchase or sell commodities or commodity contracts unless acquired
as a result of ownership of securities or other instruments issued by persons
that purchase or sell commodities or commodities contracts; but this shall not
prevent the Fund from purchasing, selling and entering into financial futures
contracts (including futures contracts on indices of securities, interest rates
and currencies), options on financial futures contracts (including futures
contracts on indices of securities, interest rates and currencies), warrants,
swaps, forward contracts, foreign currency spot and forward contracts or other
derivative instruments that are not related to physical commodities; and
8. May make loans to other persons, in accordance with the Fund's investment
objective and policies and to the extent permitted by applicable law.
Non-Fundamental Investment Restrictions. The investment restrictions
described below are not fundamental policies of the Funds and their
corresponding Portfolios and may be changed by their Trustees. These
non-fundamental investment policies require that the Funds and their
corresponding Portfolios:
(i) May not acquire any illiquid securities, such as repurchase agreements with
more than seven days to maturity or fixed time deposits with a duration of over
seven calendar days, if as a result thereof, more than 15% of the market value
of the Fund's net assets would be in investments which are illiquid;
(ii) May not purchase securities on margin, make short sales of securities, or
maintain a short position, provided that this restriction shall not be deemed to
be applicable to the purchase or sale of when-issued or delayed delivery
securities, or to short sales that are covered in accordance with SEC rules; and
(iii) May not acquire securities of other investment companies, except as
permitted by the 1940 Act or any order pursuant thereto.
There will be no violation of any investment restriction if that
restriction is complied with at the time the relevant action is taken
notwithstanding a later change in market value of an investment, in net or total
assets, in the securities rating of the investment, or any other later change.
For purposes of fundamental investment restrictions regarding industry
concentration, JPMIM may classify issuers by industry in accordance with
classifications set forth in the Directory of Companies Filing Annual Reports
With The Securities and Exchange Commission or other sources. In the absence of
such classification or if JPMIM determines in good faith based on its own
information that the economic characteristics affecting a particular issuer make
it more appropriately considered to be engaged in a different industry, JPMIM
may classify an issuer accordingly. For instance, personal credit finance
companies and business credit finance companies are deemed to be separate
industries and wholly owned finance companies are considered to be in the
industry of their parents if their activities are primarily related to financing
the activities of their parents.
TRUSTEES
The Trustees of the Trust, who are also the Trustees of each of the
Portfolios and the other Master Portfolios, as defined below, their business
addresses, principal occupations during the past five years and dates of birth
are set forth below.
Frederick S. Addy -- Trustee; Retired; Prior to April 1994, Executive
Vice President and Chief Financial Officer, Amoco Corporation. His address is
5300 Arbutus Cove, Austin, Texas 78746, and his date of birth is January 1,
1932.
William G. Burns -- Trustee; Retired; Former Vice Chairman and Chief
Financial Officer, NYNEX. His address is 2200 Alaqua Drive, Longwood, Florida
32779, and his date of birth is November 2, 1932.
Arthur C. Eschenlauer -- Trustee; Retired; Former Senior Vice
President, Morgan Guaranty Trust Company of New York. His address is 14 Alta
Vista Drive, RD #2, Princeton, New Jersey 08540, and his date of birth is May
23, 1934.
Matthew Healey (*) -- Trustee; Chairman and Chief Executive Officer;
Chairman, Pierpont Group, Inc. ("Pierpont Group") since prior to 1993. His
address is Pine Tree Club Estates, 10286 Saint Andrews Road, Boynton Beach,
Florida 33436, and his date of birth is August 23, 1937.
Michael P. Mallardi -- Trustee; Retired; Prior to April 1996, Senior Vice
President, Capital Cities/ABC, Inc. and President, Broadcast Group. His address
is 10 Charnwood Drive, Suffern, New York 10910, and his date of birth is March
17, 1934.
The Trustees of the Trust are the same as the Trustees of each of the
Portfolios. A majority of the disinterested Trustees have adopted written
procedures reasonably appropriate to deal with potential conflicts of interest
arising from the fact that the same individuals are Trustees of the Trust, each
of the Portfolios and the J.P. Morgan 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 Institutional Funds and J.P.
Morgan Series Trust and is reimbursed for expenses incurred in connection with
service as a Trustee. The Trustees may hold various other directorships
unrelated to these funds.
- ----------------------
* Mr. Healey is an "interested person" (as defined in the 1940 Act) of the
Trust. Mr. Healey is also an "interested person" (as defined in the 1940 Act) of
the advisor due to his son's affiliation with JPMIM.
<PAGE>
Trustee compensation expenses paid by the Trust for the calendar year
ended December 31, 1997 are set forth below.
- -------------------------------------------------- ------------------------
TOTAL TRUSTEE COMPENSATION
AGGREGATE TRUSTEE ACCRUED BY THE MASTER
COMPENSATION PORTFOLIOS(*), J.P. MORGAN
PAID BY THE TRUST INSTITUTIONAL FUNDS, J.P.
DURING 1997 MORGAN SERIES TRUST AND
THE TRUST DURING 1997(**)
-------------- ----------------
NAME OF TRUSTEE
- ------------------------------- -------------------------------------------
- ------------------------------- -------------------------------------------
Frederick S. Addy, Trustee $12,641.75 $72,500
- ------------------------------- -------------------------------------------
- ------------------------------- -------------------------------------------
William G. Burns, Trustee $12,644.75 $72,500
- ------------------------------- -------------------------------------------
- ------------------------------- -------------------------------------------
Arthur C. Eschenlauer, Trustee $12,644.75 $72,500
- ------------------------------- -------------------------------------------
- ------------------------------- -------------------------------------------
Matthew Healey, Trustee (***) $12,644.75 $72,500
Chairman and Chief Executive
Officer
- ------------------------------- -------------------------------------------
- ------------------------------- -------------------------------------------
Michael P. Mallardi, Trustee $12,644.75 $72,500
- ------------------------------- -------------------------------------------
- ------------------------------------------------- -------------------------
- --------------------------------------------- ------------------------------
(*) Includes the Portfolios and 17 other portfolios (collectively, the "Master
Portfolios") for which JPMIM or MGT acts as investment adviser.
(**) No investment company within the fund complex has a pension or
retirement plan. Currently there are 18 investment companies (15 investment
companies comprising the Master Portfolios, J.P. Morgan Institutional Funds, the
Trust and J.P. Morgan Series Trust) in the fund complex.
(***) During 1997, Pierpont Group, Inc. paid Mr. Healey, in his role as
Chairman of Pierpont Group, Inc., compensation in the amount of $147,500,
contributed $22,100 to a defined contribution plan on his behalf and paid
$20,500 in insurance premiums for his benefit.
The Trustees decide upon general policies and are responsible for
overseeing the Trust's and Portfolio's business affairs. Each of the Portfolios
and the Trust has entered into a Fund Services Agreement with Pierpont Group,
Inc. to assist the Trustees in exercising their overall supervisory
responsibilities over the affairs of the Portfolios and the Trust. Pierpont
Group, Inc. was organized in July 1989 to provide services for the J.P. Morgan
Family of Funds (formerly "The Pierpont Family of Funds"), and the Trustees are
the equal and sole shareholders of Pierpont Group, Inc. The Trust and the
Portfolios have agreed to pay Pierpont Group, Inc. a fee in an amount
representing its reasonable costs in performing these services. These costs are
periodically reviewed by the Trustees. The principal offices of Pierpont Group,
Inc. are located at 461 Fifth Avenue, New York, New York 10017.
The aggregate fees paid to Pierpont Group, Inc. by each Fund and its
corresponding Portfolio during the indicated fiscal periods are set forth below:
International Equity Fund -- For the fiscal year ended October 31, 1995:
$18,131. For the fiscal year ended October 31, 1996: $9,577. For the fiscal year
ended October 31, 1997: $6,713.
International Equity Portfolio -- For the fiscal year ended October 31,
1995: $48,442. For the fiscal year ended October 31, 1996: $39,391. For the
fiscal year ended October 31, 1997: $32,439.
Emerging Markets Equity Fund -- For the fiscal year ended October 31, 1995:
$4,544. For the fiscal year ended October 31, 1996: $2,818. For the fiscal year
ended October 31, 1997: $2,169.
Emerging Markets Equity Portfolio -- For the fiscal year ended October 31,
1995: $53,162. For the fiscal year ended October 31, 1996: $36,851. For the
fiscal year ended October 31, 1997: $34,045.
International Opportunities Fund -- For the period February 26, 1997
(commencement of operations) through November 30, 1997: $1,143.
International Opportunities Portfolio -- For the period February 26, 1997
(commencement of operations) through November 30, 1997: $5,110.
OFFICERS
The Trust's and Portfolios' executive officers (listed below), other
than the Chief Executive Officer and the officers who are employees of the
Advisor, are provided and compensated by Funds Distributor, Inc. ("FDI"), a
wholly owned indirect subsidiary of Boston Institutional Group, Inc. The
officers conduct and supervise the business operations of the Trust and the
Portfolios. The Trust and the Portfolios have no employees.
The officers of the Trust and the Portfolios, their principal occupations during
the past five years and dates of birth are set forth below. Unless otherwise
specified, each officer holds the same position with the Trust, the Portfolio
and the other Master Portfolios. The business address of each of the officers
unless otherwise noted is Funds Distributor, Inc., 60 State Street, Suite 1300,
Boston, Massachusetts 02109.
Officers
The Trust's and Portfolio's executive officers (listed below), other
than the Chief Executive Officer and the officers who are employees of the
Advisor, are provided and compensated by Funds Distributor, Inc. ("FDI"), a
wholly owned indirect subsidiary of Boston Institutional Group, Inc. The
officers conduct and supervise the business operations of the Trust and the
Portfolio. The Trust and the Portfolio have no employees.
The officers of the Trust and the Portfolio, their principal
occupations during the past five years and dates of birth are set forth below.
Unless otherwise specified, each officer holds the same position with the Trust
and the Portfolio. The business address of each of the officers unless otherwise
noted is Funds Distributor, Inc., 60 State Street, Suite 1300, Boston,
Massachusetts 02109.
MATTHEW HEALEY; Chief Executive Officer; Chairman, Pierpont Group,
since prior to 1993. His address is Pine Tree Club Estates, 10286 Saint Andrews
Road, Boynton Beach, Florida 33436. His date of birth is August 23, 1937.
MARGARET W. CHAMBERS; Vice President and Secretary. Senior Vice President
and General Counsel of FDI since April, 1998. From August 1996 to March 1998,
Ms. Chambers was Vice President and Assistant General Counsel for Loomis, Sayles
& Company, L.P. From January 1986 to July 1996, she was an associate with the
law firm of Ropes & Gray. Her date of birth is October 12, 1959.
MARIE E. CONNOLLY; Vice President and Assistant Treasurer. President,
Chief Executive Officer, Chief Compliance Officer and Director of FDI, Premier
Mutual Fund Services, Inc., an affiliate of FDI ("Premier Mutual") and an
officer of certain investment companies distributed or administered by FDI.
Prior to July 1994, she was President and Chief Compliance Officer of FDI. Her
date of birth is August 1, 1957.
DOUGLAS C. CONROY; Vice President and Assistant Treasurer. Assistant Vice
President and Assistant Department Manager of Treasury Services and
Administration of FDI and an officer of certain investment companies distributed
or administered by FDI. Prior to April 1997, Mr. Conroy was Supervisor of
Treasury Services and Administration of FDI. From April 1993 to January 1995,
Mr. Conroy was a Senior Fund Accountant for Investors Bank & Trust Company. His
date of birth is March 31, 1969.
JACQUELINE HENNING; Assistant Secretary and Assistant Treasurer of the
Portfolio only. Managing Director, State Street Cayman Trust Company, Ltd. since
October 1994. Prior to October 1994, Mrs. Henning was head of mutual funds at
Morgan Grenfell in Cayman and was Managing Director of Bank of Nova Scotia Trust
Company (Cayman) Limited prior to September 1993. Address: P.O. Box 2508 GT,
Elizabethan Square, 2nd Floor, Shedden Road, George Town, Grand Cayman, Cayman
Islands, BWI. Her date of birth is March 24, 1942.
KAREN JACOPPO-WOOD; Vice President and Assistant Secretary. Vice President
and Senior Counsel of FDI and an officer of certain investment companies
distributed or administered by FDI. From June 1994 to January 1996, Ms.
Jacoppo-Wood was a Manager of SEC Registration at Scudder, Stevens & Clark, Inc.
Prior to May 1994, Ms. Jacoppo-Wood was a senior paralegal at The Boston Company
Advisors, Inc. ("TBCA"). Her date of birth is December 29, 1966.
CHRISTOPHER J. KELLEY; Vice President and Assistant Secretary. Vice
President and Senior Associate General Counsel of FDI and Premier Mutual and an
officer of certain investment companies distributed or administered by FDI. From
April 1994 to July 1996, Mr. Kelley was Assistant Counsel at Forum Financial
Group. Prior to April 1994, Mr. Kelley was employed by Putnam Investments in
legal and compliance capacities. His date of birth is December 24, 1964.
KATHLEEN K. MORRISEY. Vice President and Assistant Secretary. Vice
President and Assistant Secretary of FDI. Manager of Treasury Services
Administration and an officer of certain investment companies advised or
administered by Montgomery Asset Management, L.P. and Dresdner RCM Global
Investors, Inc., and their respective affiliates. From July 1994 to November
1995, Ms. Morrisey was a Fund Accountant II for Investors Bank & Trust Company.
Prior to July 1994 she was a Finance student at Stonehill College in North
Easton, Massachusetts. Her date of birth is July 5, 1972.
MARY A. NELSON; Vice President and Assistant Treasurer. Vice President and
Manager of Treasury Services and Administration of FDI and Premier Mutual and an
officer of certain investment companies distributed or administered by FDI.
Prior to August 1994, Ms. Nelson was an Assistant Vice President and Client
Manager for The Boston Company, Inc. Her date of birth is April 22, 1964.
MARY JO PACE; Assistant Treasurer. Vice President, Morgan Guaranty Trust
Company of New York. Ms. Pace serves in the Funds Administration group as a
Manager for the Budgeting and Expense Processing Group. Prior to September 1995,
Ms. Pace served as a Fund Administrator for Morgan Guaranty Trust Company of New
York. Her address is 60 Wall Street, New York, New York 10260. Her date of birth
is March 13, 1966.
MICHAEL S. PETRUCELLI; Vice President and Assistant Secretary. Senior Vice
President and Director of Strategic Client Initiatives for FDI since December
1996. From December 1989 through November 1996, Mr. Petrucelli was employed with
GE Investments where he held various financial, business development and
compliance positions. He also served as Treasurer of the GE Funds and as
Director of GE Investment Services. Address: 200 Park Avenue, New York, New
York, 10166. His date of birth is May 18, 1961.
STEPHANIE D. PIERCE; Vice President and Assistant Secretary. Vice President
and Client Development Manager for FDI since April 1998. From April 1997 to
March 1998, Ms. Pierce was employed by Citibank, NA as an officer of Citibank
and Relationship Manager on the Business and Professional Banking team handling
over 22,000 clients. Address: 200 Park Avenue, New York, New York 10166. Her
date of birth is August 18, 1968.
GEORGE A. RIO; President and Treasurer. Executive Vice President and Client
Service Director of FDI since April 1998. From June 1995 to March 1998, Mr. Rio
was Senior Vice President and Senior Key Account Manager for Putnam Mutual
Funds. From May 1994 to June 1995, Mr. Rio was Director of Business Development
for First Data Corporation. From September 1983 to May 1994, Mr. Rio was Senior
Vice President & Manager of Client Services and Director of Internal Audit at
The Boston Company. His date of birth is January 2, 1955.
CHRISTINE ROTUNDO; Assistant Treasurer. Vice President, Morgan Guaranty
Trust Company of New York. Ms. Rotundo serves in the Funds Administration group
as a Manager of the Tax Group and is responsible for U.S. mutual fund tax
matters. Prior to September 1995, Ms. Rotundo served as a Senior Tax Manager in
the Investment Company Services Group of Deloitte & Touche LLP. Her address is
60 Wall Street, New York, New York 10260. Her date of birth is September 26,
1965.
INVESTMENT ADVISOR
The Funds have not retained the services of an investment adviser
because each Fund seeks to achieve its investment objective by investing all of
its investable assets in a corresponding Portfolio. Subject to the supervision
of the Portfolio's Trustees, the Advisor makes each Portfolio's day-to-day
investment decisions, arranges for the execution of portfolio transactions and
generally manages the Portfolio's investments. Prior to October 1, 1998, Morgan
was each Portfolio's investment advisor. JPMIM, a wholly owned subsidiary of
J.P. Morgan & Co. Incorporated ("J.P. Morgan"), is a registered investment
adviser under the Investment Advisers Act of 1940, as amended, manages employee
benefit funds of corporations, labor unions and state and local governments and
the accounts of other institutional investors, including investment companies.
Certain of the assets of employee benefit accounts under its management are
invested in commingled pension trust funds for which Morgan serves as trustee.
J.P. Morgan, through the Advisor and other subsidiaries, acts as
investment advisor to individuals, governments, corporations, employee benefit
plans, mutual funds and other institutional investors with combined assets under
management of approximately $275 billion.
J.P. Morgan has a long history of service as adviser, underwriter and
lender to an extensive roster of major companies and as a financial advisor to
national governments. The firm, through its predecessor firms, has been in
business for over a century and has been managing investments since 1913.
The basis of the Advisor's investment process is fundamental investment
research as the firm believes that fundamentals should determine an asset's
value over the long term. J.P. Morgan currently employs over 100 full time
research analysts, among the largest research staffs in the money management
industry, in its investment management divisions located in New York, London,
Tokyo, Frankfurt, and Singapore to cover companies, industries and countries on
site. In addition, the investment management divisions employ approximately 300
capital market researchers, portfolio managers and traders.
The investment advisory services the Advisor provides to the Portfolios
are not exclusive under the terms of the Advisory Agreements. The Advisor is
free to and does render similar investment advisory services to others. The
Advisor serves as investment advisor to personal investors and other investment
companies and acts as fiduciary for trusts, estates and employee benefit plans.
Certain of the assets of trusts and estates under management are invested in
common trust funds for which the Advisor serves as trustee. The accounts which
are managed or advised by the Advisor have varying investment objectives and the
Advisor invests assets of such accounts in investments substantially similar to,
or the same as, those which are expected to constitute the principal investments
of the Portfolios. Such accounts are supervised by officers and employees of the
Advisor who may also be acting in similar capacities for the Portfolios. See
"Portfolio Transactions."
Sector weightings are generally similar to a benchmark with the
emphasis on security selection as the method to achieve investment performance
superior to the benchmark. The benchmark for the Portfolios in which the Funds
invest are currently: The International Equity Portfolio -- EAFE; The Emerging
Markets Equity Portfolio -- MSCI Emerging Markets Free Index; The International
Opportunities Portfolio -- MSCI All Country World Index Free (ex-U.S.).
Morgan, also a wholly owned subsidiary of J.P. Morgan, is a bank
holding company organized under the laws of the State of Delaware. Morgan, whose
principal offices are at 60 Wall Street, New York, New York 10260, is a New York
trust company which conducts a general banking and trust business. Morgan is
subject to regulation by the New York State Banking Department and is a member
bank of the Federal Reserve System. Through offices in New York City and abroad,
Morgan offers a wide range of services, primarily to governmental,
institutional, corporate and high net worth individual customers in the United
States and throughout the world.
The Portfolios are managed by officers of the Advisor who, in acting
for their customers, including the Portfolios, do not discuss their investment
decisions with any personnel of J.P. Morgan or any personnel of other divisions
of the Advisor or with any of its affiliated persons, with the exception of
certain other investment management affiliates of J.P. Morgan.
As compensation for the services rendered and related expenses such as
salaries of advisory personnel borne by the Advisor under the Investment
Advisory Agreements, the Portfolio corresponding to each Fund has agreed to pay
the Advisor a fee, which is computed daily and may be paid monthly, equal to the
annual rates of each Portfolio's average daily net assets shown below.
International Equity: .60%
Emerging Markets Equity: 1.00%
International Opportunities: .60%
The table below sets forth for each Fund listed the advisory fees paid by
its corresponding Portfolio to Morgan, each Portfolio's advisor prior to October
1, 1998 for the fiscal period indicated. See the Funds financial statements
which are incorporated herein by reference.
International Equity Portfolio -- For the fiscal year ended October 31,
1995: $3,174,965. For the fiscal year ended October 31, 1996: $5,007,993. For
the fiscal year ended October 31, 1997: $5,305,885.
Emerging Markets Equity Portfolio -- For the fiscal year ended October 31,
1995: $5,713,506. For the fiscal year ended October 31, 1996 : $7,825,873. For
the fiscal year ended October 31, 1997: $9,422,758.
International Opportunities Portfolio -- For the period February 26, 1997
(commencement of operations) through November 30, 1997: $904,113.
The Investment Advisory Agreements provide that they will continue in
effect for a period of two years after execution only if specifically approved
thereafter annually in the same manner as the Distribution Agreement. See
"Distributor" below. Each of the Investment Advisory Agreements will terminate
automatically if assigned and is terminable at any time without penalty by a
vote of a majority of the Portfolio's Trustees, or by a vote of the holders of a
majority of the Portfolio's outstanding voting securities, on 60 days' written
notice to the Advisor and by the Advisor on 90 days' written notice to the
Portfolio. See "Additional Information."
The Glass-Steagall Act and other applicable laws generally prohibit
banks such as the Advisor from engaging in the business of underwriting or
distributing securities, and the Board of Governors of the Federal Reserve
System has issued an interpretation to the effect that under these laws a bank
holding company registered under the federal Bank Holding Company Act or certain
subsidiaries thereof may not sponsor, organize, or control a registered open-end
investment company continuously engaged in the issuance of its shares, such as
the Trust. The interpretation does not prohibit a holding company or a
subsidiary thereof from acting as investment advisor and custodian to such an
investment company. The Advisor believes that it may perform the services for
the Portfolios contemplated by the Advisory Agreements without violation of the
Glass-Steagall Act or other applicable banking laws or regulations. State laws
on this issue may differ from the interpretation of relevant federal law, and
banks and financial institutions may be required to register as dealers pursuant
to state securities laws. However, it is possible that future changes in either
federal or state statutes and regulations concerning the permissible activities
of banks or trust companies, as well as further judicial or administrative
decisions and interpretations of present and future statutes and regulations,
might prevent the Advisor from continuing to perform such services for the
Portfolios.
If the Advisor were prohibited from acting as investment advisor to any
Portfolio, it is expected that the Trustees of the Portfolio would recommend to
investors that they approve the Portfolio's entering into a new investment
advisory agreement with another qualified investment advisor selected by the
Trustees.
Under separate agreements, Morgan provides certain financial, fund
accounting and administrative services to the Trust and the Portfolios and
shareholder services for the Trust. See "Services Agent" and "Shareholder
Servicing" below.
DISTRIBUTOR
FDI serves as the Trust's exclusive Distributor and holds itself
available to receive purchase orders for each of the Fund's shares. In that
capacity, FDI has been granted the right, as agent of the Trust, to solicit and
accept orders for the purchase of each of the Fund's shares in accordance with
the terms of the Distribution Agreement between the Trust and FDI. Under the
terms of the Distribution Agreement between FDI and the Trust, FDI receives no
compensation in its capacity as the Trust's distributor. FDI is a wholly owned
indirect subsidiary of Boston Institutional Group, Inc. FDI also serves as
exclusive placement agent for the Portfolio. FDI currently provides
administration and distribution services for a number of other investment
companies.
The Distribution Agreement shall continue in effect with respect to
each of the Funds for a period of two years after execution only if it is
approved at least annually thereafter (i) by a vote of the holders of a majority
of the Fund's outstanding shares or by its Trustees and (ii) by a vote of a
majority of the Trustees of the Trust who are not "interested persons" (as
defined by the 1940 Act) of the parties to the Distribution Agreement, cast in
person at a meeting called for the purpose of voting on such approval (see
"Trustees and Officers"). The Distribution Agreement will terminate
automatically if assigned by either party thereto and is terminable at any time
without penalty by a vote of a majority of the Trustees of the Trust, a vote of
a majority of the Trustees who are not "interested persons" of the Trust, or by
a vote of the holders of a majority of the Fund's outstanding shares as defined
under "Additional Information," in any case without payment of any penalty on 60
days' written notice to the other party. The principal offices of FDI are
located at 60 State Street, Suite 1300, Boston, Massachusetts 02109.
CO-ADMINISTRATOR
Under Co-Administration Agreements with the Trust and the Portfolios
dated August 1, 1996, FDI also serves as the Trust's and the Portfolios'
Co-Administrator. The Co-Administration Agreements may be renewed or amended by
the respective Trustees without a shareholder vote. The Co-Administration
Agreements are terminable at any time without penalty by a vote of a majority of
the Trustees of the Trust or the Portfolios, as applicable, on not more than 60
days' written notice nor less than 30 days' written notice to the other party.
The Co-Administrator may subcontract for the performance of its obligations,
provided, however, that unless the Trust or the Portfolios, as applicable,
expressly agrees in writing, the Co-Administrator shall be fully responsible for
the acts and omissions of any subcontractor as it would for its own acts or
omissions. See "Services Agent" below.
FDI (i) provides office space, equipment and clerical personnel for
maintaining the organization and books and records of the Trust and the
Portfolio; (ii) provides officers for the Trust and the Portfolio; (iii)
prepares and files documents required for notification of state securities
administrators; (iv) reviews and files marketing and sales literature; (v) files
Portfolio regulatory documents and mails Portfolio communications to Trustees
and investors; and (vi) maintains related books and records.
For its services under the Co-Administration Agreements, each Fund and
Portfolio has agreed to pay FDI fees equal to its allocable share of an annual
complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The amount
allocable to each Fund or Portfolio is based on the ratio of its net assets to
the aggregate net assets of the Trust, the Master Portfolios and other
investment companies subject to similar agreements with FDI.
The table below sets forth for each Fund and its corresponding
Portfolio the administrative fees paid to FDI for the fiscal periods indicated.
International Equity Fund -- For the period August 1, 1996 through October
31, 1996: $1,859. For the fiscal year ended October 31, 1997: $5,802.
International Equity Portfolio -- For the period August 1, 1996 through
October 31, 1996: $6,212. For the fiscal year ended October 31, 1997: $21,379.
Emerging Markets Equity Fund -- For the period August 1, 1996 through
October 31, 1996 : $564. For the fiscal year ended October 31, 1997: $1,882.
Emerging Markets Equity Portfolio -- For the period August 1, 1996 through
October 31, 1996: $5,719. For the fiscal year ended October 31, 1997: $22,642.
International Opportunities Fund -- For the period from February 26, 1997
(commencement of operations) to November 30, 1997: $966.
International Opportunities Portfolio -- For the period from February 26, 1997
(commencement of operations) to November 30, 1997: $3,446.
The table below sets forth for each Fund listed and its corresponding
Portfolio the administrative fees paid to Signature Broker-Dealer Services, Inc.
(which provided distribution and administrative services to the Trust and
placement agent and administrative services to the Portfolios prior to August 1,
1996) for the fiscal periods indicated.
International Equity Fund -- For the fiscal year ended October 31, 1994:
$55,782. For the fiscal year ended October 31, 1995: $52,698. For the period
November 1, 1995 through July 31, 1996: $22,991.
International Equity Portfolio -- For the fiscal year ended October 31,
1994: $22,024. For the fiscal year ended October 31, 1995: $31,500. For the
period November 1, 1995 through July 31, 1996: $70,197.
Emerging Markets Equity Fund -- For the period November 15, 1993
(commencement of operations) through October 31, 1994: $11,373. For the fiscal
year ended October 31, 1995: $12,990. For the period November 1, 1995 through
July 31, 1996: $6,556.
The Emerging Markets Equity Portfolio -- For the period November 15, 1993
(commencement of operations) through October 31, 1994: $30,828. For the fiscal
year ended October 31, 1995: $35,189. For the period November 1, 1995 through
July 31, 1996: $66,251.
SERVICES AGENT
The Trust, on behalf of each Fund, and each Fund's corresponding
Portfolio have entered into Administrative Services Agreements (the "Services
Agreements") with Morgan effective December 29, 1995, as amended August 1, 1996
pursuant to which Morgan is responsible for certain administrative and related
services provided to each Fund and its corresponding Portfolio. The Services
Agreements may be terminated at any time, without penalty, by the Trustees or
Morgan, in each case on not more than 60 days' nor less than 30 days' written
notice to the other party.
Under the Services Agreements, Morgan provides certain administrative
and related services to the Fund and the Portfolio, including services related
to tax compliance, preparation of financial statements, calculation of
performance data, oversight of service providers and certain regulatory and
Board of Trustee matters.
Under the amended Services Agreements, the Funds and the Portfolios
have agreed to pay Morgan fees equal to its allocable share of an annual
complex-wide charge. This charge is calculated daily based on the aggregate net
assets of the Master Portfolios and J.P. Morgan Series Trust in accordance with
the following annual schedule: 0.09% of the first $7 billion of their aggregate
average daily net assets and 0.04% of their aggregate average daily net assets
in excess of $7 billion, less the complex-wide fees payable to FDI. The portion
of this charge payable by each Fund and Portfolio is determined by the
proportionate share that its net assets bear to the total net assets of the
Trust, the Master Portfolios, the other investors in the Master Portfolios for
which Morgan provides similar services and J.P. Morgan Series Trust.
Under administrative services agreements in effect from
December 29, 1995 through July 31, 1996, with Morgan, each Fund and its
corresponding Portfolio paid Morgan a fee equal to its proportionate share of an
annual complex-wide charge. This charge was calculated daily based on the
aggregate net assets of the Master Portfolios in accordance with the following
schedule: 0.06% of the first $7 billion of the Master Portfolios' aggregate
average daily net assets, and 0.03% of the Master Portfolios' average daily net
assets in excess of $7 billion. Prior to December 29, 1995, the Trust and each
Portfolio had entered into Financial and Fund Accounting Services Agreements
with Morgan, the provisions of which included certain of the activities
described above and, prior to September 1, 1995, also included reimbursement of
usual and customary expenses.
The table below sets forth for each Fund and its corresponding
Portfolio the fees paid to Morgan, as Services Agent.
International Equity Fund -- For the fiscal year ended October 31, 1995:
$210,123. For the fiscal year ended October 31, 1996: $45,247. For the fiscal
year ended October 31, 1997: $56,612.
International Equity Portfolio -- For the fiscal year ended October 31,
1995: $349,443. For the fiscal year ended October 31, 1996: $196,299. For the
fiscal year ended October 31, 1997: $274,750.
Emerging Markets Equity Fund -- For the fiscal year ended October 31, 1995:
$5,847. For the fiscal year ended October 31, 1996: $13,747. For the fiscal year
ended October 31, 1997: $18,465.
Emerging Markets Equity Portfolio -- For the fiscal year ended October 31,
1995: $337,050. For the fiscal year ended October 31, 1996: $183,498. For the
fiscal year ended October 31, 1997: $292,269.
International Opportunities Fund -- For the period February 26, 1997
(commencement of operations) through November 30, 1997: $10,235.
International Opportunities Portfolio -- For the period February 26, 1997
(commencement of operations) through November 30, 1997: $46,055.
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02110, serves as the Trust's and each of the
Portfolio's custodian and fund accounting agent and each Fund transfer and
dividend disbursing agent. Pursuant to the Custodian Contracts, State Street is
responsible for maintaining the books of account and records of portfolio
transactions and holding portfolio securities and cash. In addition, the
Custodian has entered into subcustodian agreements on behalf of the Fund with
Bankers Trust Company for the purpose of holding TENR Notes and with Bank of New
York and Chemical Bank, N.A. for the purpose of holding certain variable rate
demand notes. In the case of foreign assets held outside the United States, the
Custodian employs various subcustodians who were approved by the Trustees of the
Portfolios in accordance with the regulations of the SEC. The custodian
maintains portfolio transaction records. As transfer agent and dividend
disbursing agent, State Street is responsible for maintaining account records
detailing the ownership of Fund shares and for crediting income, capital gains
and other changes in share ownership to shareholder accounts.
SHAREHOLDER SERVICING
The Trust on behalf of each of the Funds has entered into a Shareholder
Servicing Agreement with Morgan pursuant to which Morgan acts as shareholder
servicing agent for its customers and for other Fund investors who are customers
of a financial professional. Under this agreement, Morgan is responsible for
performing shareholder account, administrative and servicing functions, which
include but are not limited to, answering inquiries regarding account status and
history, the manner in which purchases and redemptions of Fund shares may be
effected, and certain other matters pertaining to a Fund; assisting customers in
designating and changing dividend options, account designations and addresses;
providing necessary personnel and facilities to coordinate the establishment and
maintenance of shareholder accounts and records with the Funds' transfer agent;
transmitting purchase and redemption orders to the Funds' transfer agent and
arranging for the wiring or other transfer of funds to and from customer
accounts in connection with orders to purchase or redeem Fund shares; verifying
purchase and redemption orders, transfers among and changes in accounts;
informing the Distributor of the gross amount of purchase orders for Fund
shares; and providing other related services.
Under the Shareholder Servicing Agreement, each Fund has agreed to pay
Morgan for these services a fee at the following annual rate of 0.25% (expressed
as a percentage of the average daily net asset values of Fund shares owned by or
for shareholders for whom Morgan is acting as shareholder servicing agent).
Morgan acts as shareholder servicing agent for all shareholders.
The table below sets forth for each Fund listed the shareholder
servicing fees paid by each Fund to Morgan, net of fee waivers and
reimbursements, for the fiscal periods indicated.
International Equity Fund -- For the fiscal year ended October 31, 1995:
$479,112. For the fiscal year ended October 31, 1996: $497,175. For the fiscal
year ended October 31, 1997: $455,302.
Emerging Markets Equity Fund -- For the fiscal year ended October 31, 1995:
$121,502. For the fiscal year ended October 31, 1996: $146,876. For the fiscal
year ended October 31, 1997: $148,687.
International Opportunities Fund -- For the period from February 26, 1997
(commencement of operations) to November 30, 1997: $83,769.
As discussed under "Investment Advisor," the Glass-Steagall Act and
other applicable laws and regulations limit the activities of bank holding
companies and certain of their subsidiaries in connection with registered
open-end investment companies. The activities of Morgan in acting as shareholder
servicing agent for Fund shareholders under the Shareholder Servicing Agreement
and providing administrative services to the Funds and the Portfolios under the
Services Agreements, and the activities of JPMIM in acting as Advisor to the
Portfolios under the Investment Advisory Agreements may raise issues under these
laws. However, JPMIM and Morgan believe that they may properly perform these
services and the other activities described herein without violation of the
Glass-Steagall Act or other applicable banking laws or regulations.
If Morgan were prohibited from providing any of the services under the
Shareholder Servicing Agreement and the Services Agreements, the Trustees would
seek an alternative provider of such services. In such event, changes in the
operation of the Funds or the Portfolios might occur and a shareholder might no
longer be able to avail himself or herself of any services then being provided
to shareholders by Morgan.
The Funds may be sold to or through financial intermediaries who are
customers of J.P. Morgan ("financial professionals"), including financial
institutions and broker-dealers, that may be paid fees by J.P. Morgan or its
affiliates for services provided to their clients that invest in the Funds. See
"Financial Professionals" below. Organizations that provide recordkeeping or
other services to certain employee benefit or retirement plans that include the
Funds as an investment alternative may also be paid a fee.
FINANCIAL PROFESSIONALS
The services provided by financial professionals may include
establishing and maintaining shareholder accounts, processing purchase and
redemption transactions, arranging for bank wires, performing shareholder
subaccounting, answering client inquiries regarding the Trust, assisting clients
in changing dividend options, account designations and addresses, providing
periodic statements showing the client's account balance and integrating these
statements with those of other transactions and balances in the client's other
accounts serviced by the financial professional, transmitting proxy statements,
periodic reports, updated prospectuses and other communications to shareholders
and, with respect to meetings of shareholders, collecting, tabulating and
forwarding executed proxies and obtaining such other information and performing
such other services as Morgan or the financial professional's clients may
reasonably request and agree upon with the financial professional.
Although there is no sales charge levied directly by a Fund, financial
professionals may establish their own terms and conditions for providing their
services and may charge investors a transaction-based or other fee for their
services. Such charges may vary among financial professionals but in all cases
will be retained by the financial professional and not be remitted to the Fund
or J.P. Morgan.
Each Fund has authorized one or more brokers to accept purchase and
redemption orders on its behalf. Such brokers are authorized to designate other
intermediaries to accept purchase and redemption orders on a Fund's behalf. A
Fund will be deemed to have received a purchase or redemption order when an
authorized broker or, if applicable, a broker's authorized designee, accepts the
order. These orders will be priced at the Fund's net asset value next calculated
after they are so accepted.
INDEPENDENT ACCOUNTANTS
The independent accountants of the Trust and the Portfolios are
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York
10036. PricewaterhouseCoopers LLP conducts an annual audit of the financial
statements of each of the Funds and the Portfolios, assists in the preparation
and/or review of each Fund's and Portfolio's federal and state income tax
returns and consults with the Funds and the Portfolios as to matters of
accounting and federal and state income taxation.
EXPENSES
In addition to the fees payable to Pierpont Group, Inc., JPMIM, Morgan
and FDI under various agreements discussed under "Trustees and Officers,"
"Investment Advisor," "Co-Administrator", "Distributor," "Services Agent" and
"Shareholder Servicing" above, the Funds and the Portfolios are responsible for
usual and customary expenses associated with their respective operations. Such
expenses include organization expenses, legal fees, accounting and audit
expenses, insurance costs, the compensation and expenses of the Trustees,
registration fees under federal securities laws, and extraordinary expenses
applicable to the Funds or the Portfolios. For the Funds, such expenses also
include transfer, registrar and dividend disbursing costs, the expenses of
printing and mailing reports, notices and proxy statements to Fund shareholders,
and filing fees under state securities laws. For the Portfolios, such expenses
also include applicable registration fees under foreign securities laws,
custodian fees and brokerage expenses. Under fee arrangements prior to September
1, 1995, Morgan as Services Agent was responsible for reimbursements to the
Trust and certain Portfolios and the usual and customary expenses described
above (excluding organization and extraordinary expenses, custodian fees and
brokerage expenses).
PURCHASE OF SHARES
Method of Purchase. Investors may open accounts with a Fund only
through the Distributor. All purchase transactions in Fund accounts are
processed by Morgan as shareholder servicing agent and the Fund is authorized to
accept any instructions relating to a Fund account from Morgan as shareholder
servicing agent for the customer. All purchase orders must be accepted by the
Distributor. Prospective investors who are not already customers of Morgan may
apply to become customers of Morgan for the sole purpose of Fund transactions.
There are no charges associated with becoming a Morgan customer for this
purpose. Morgan reserves the right to determine the customers that it will
accept, and the Trust reserves the right to determine the purchase orders that
it will accept.
References in the Prospectus and this Statement of Additional
Information to customers of Morgan or a financial professional include customers
of their affiliates and references to transactions by customers with Morgan or a
financial professional include transactions with their affiliates. Only Fund
investors who are using the services of a financial institution acting as
shareholder servicing agent pursuant to an agreement with the Trust on behalf of
a Fund may make transactions in shares of a Fund.
Each Fund may, at its own option, accept securities in payment for
shares. The securities delivered in such a transaction are valued by the method
described in "Net Asset Value" as of the day the Fund receives the securities.
This is a taxable transaction to the shareholder. Securities may be accepted in
payment for shares only if they are, in the judgment of the Advisor, appropriate
investments for the Fund's corresponding Portfolio. In addition, securities
accepted in payment for shares must: (i) meet the investment objective and
policies of the acquiring Fund's corresponding Portfolio; (ii) be acquired by
the applicable Fund for investment and not for resale (other than for resale to
the Fund's corresponding Portfolio); (iii) be liquid securities which are not
restricted as to transfer either by law or liquidity of market; and (iv) if
stock, have a value which is readily ascertainable as evidenced by a listing on
a stock exchange, OTC market or by readily available market quotations from a
dealer in such securities. Each Fund reserves the right to accept or reject at
its own option any and all securities offered in payment for its shares.
Prospective investors may purchase shares with the assistance of a
financial professional, and the financial professional may establish its own
minimums and charge the investor a fee for this service and other services it
provides to its customers. Morgan may pay fees to financial professionals for
services in connection with fund investments. See "Financial Professionals"
above.
REDEMPTION OF SHARES
If the Trust on behalf of a Fund and its corresponding Portfolio
determine that it would be detrimental to the best interest of the remaining
shareholders of a Fund to make payment wholly or partly in cash, payment of the
redemption price may be made in whole or in part by a distribution in kind of
securities from the Portfolio, in lieu of cash, in conformity with the
applicable rule of the SEC. If shares are redeemed in kind, the redeeming
shareholder might incur transaction costs in converting the assets into cash.
The method of valuing portfolio securities is described under "Net Asset Value,"
and such valuation will be made as of the same time the redemption price is
determined. The Trust on behalf of all of the Funds and their corresponding
Portfolios have elected to be governed by Rule 18f-1 under the 1940 Act pursuant
to which the Funds and their corresponding Portfolios are obligated to redeem
shares solely in cash up to the lesser of $250,000 or one percent of the net
asset value of the Fund during any 90 day period for any one shareholder. The
Trust will redeem Fund shares in kind only if it has received a redemption in
kind from the corresponding Portfolio and therefore shareholders of the Fund
that receive redemptions in kind will receive securities of the Portfolio. The
Portfolios have advised the Trust that the Portfolios will not redeem in kind
except in circumstances in which a Fund is permitted to redeem in kind.
Further Redemption Information. Investors should be aware that
redemptions from the Fund may not be processed if a redemption request is not
submitted in proper form. To be in proper form, the Fund must have received the
shareholder's taxpayer identification number and address. In addition, if a
shareholder sends a check for the purchase of fund shares and shares are
purchased before the check has cleared, the transmittal of redemption proceeds
from the shares will occur upon clearance of the check which may take up to 15
days. The Trust, on behalf of a Fund, and the Portfolios reserve the right to
suspend the right of redemption and to postpone the date of payment upon
redemption as follows: (i) for up to seven days, (ii) during periods when the
New York Stock Exchange is closed for other than weekends and holidays or when
trading on such Exchange is restricted as determined by the SEC by rule or
regulation, (iii) during periods in which an emergency, as determined by the
SEC, exists that causes disposal by the Portfolio of, or evaluation of the net
asset value of, its portfolio securities to be unreasonable or impracticable, or
(iv) for such other periods as the SEC may permit.
For information regarding redemption orders placed through a financial
professional, please see "Financial Professionals" above.
EXCHANGE OF SHARES
An investor may exchange shares from any Fund into shares of any other
J.P. Morgan Fund or J.P. Morgan Institutional Fund without charge. An exchange
may be made so long as after the exchange the investor has shares, in each fund
in which he or she remains an investor, with a value of at least that fund's
minimum investment amount. Shareholders should read the prospectus of the fund
into which they are exchanging and may only exchange between fund accounts that
are registered in the same name, address and taxpayer identification number.
Shares are exchanged on the basis of relative net asset value per share.
Exchanges are in effect redemptions from one fund and purchases of another fund
and the usual purchase and redemption procedures and requirements are applicable
to exchanges. Shareholders subject to federal income tax who exchange shares in
one fund for shares in another fund may recognize capital gain or loss for
federal income tax purposes. Shares of the Fund to be acquired are purchased for
settlement when the proceeds from redemption become available. In the case of
investors in certain states, state securities laws may restrict the availability
of the exchange privilege. The Trust reserves the right to discontinue, alter or
limit the exchange privilege at any time.
DIVIDENDS AND DISTRIBUTIONS
Each Fund declares and pays dividends and distributions as described
under "Dividends and Distributions" in the Prospectus.
Dividends and capital gains distributions paid by a Fund are
automatically reinvested in additional shares of the Fund unless the shareholder
has elected to have them paid in cash. Dividends and distributions to be paid in
cash are credited to the shareholder's account at Morgan or at his financial
professional or, in the case of certain Morgan customers, are mailed by check in
accordance with the customer's instructions. The Funds reserve the right to
discontinue, alter or limit the automatic reinvestment privilege at any time.
If a shareholder has elected to receive dividends and/or capital gain
distributions in cash and the postal or other delivery service is unable to
deliver checks to the shareholder's address of record, such shareholder's
distribution option will automatically be converted to having all dividend and
other distributions reinvested in additional shares. No interest will accrue on
amounts represented by uncashed distribution or redemption checks.
NET ASSET VALUE
Each of the Funds computes its net asset value once daily on Monday
through Friday at the time in the Prospectus. The net asset value will not be
computed on the day the following legal holidays are observed: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. The Funds and
the Portfolios may also close for purchases and redemptions at such other times
as may be determined by the Board of Trustees to the extent permitted by
applicable law. The days on which net asset value is determined are the Funds'
business days.
The net asset value of each Fund is equal to the value of the Fund's
investment in its corresponding Portfolio (which is equal to the Fund's pro rata
share of the total investment of the Fund and of any other investors in the
Portfolio less the Fund's pro rata share of the Portfolio's liabilities) less
the Fund's liabilities. The following is a discussion of the procedures used by
the Portfolios corresponding to each Fund in valuing their assets.
The value of investments listed on a domestic securities exchange, is
based on the last sale prices on such exchange. In the absence of recorded
sales, investments are valued at the average of readily available closing bid
and asked prices on such exchange. Securities listed on a foreign exchange are
valued at the last quoted sale prices on such exchange. Unlisted securities are
valued at the average of the quoted bid and asked prices in the OTC market. The
value of each security for which readily available market quotations exist is
based on a decision as to the broadest and most representative market for such
security. For purposes of calculating net asset value, all assets and
liabilities initially expressed in foreign currencies will be converted into
U.S.
dollars at the prevailing currency exchange rate on the valuation date.
Securities or other assets for which market quotations are not readily
available (including certain restricted and illiquid securities) are valued at
fair value in accordance with procedures established by and under the general
supervision and responsibility of the Trustees. Such procedures include the use
of independent pricing services which use prices based upon yields or prices of
securities of comparable quality, coupon, maturity and type; indications as to
values from dealers; and general market conditions. Short-term investments which
mature in 60 days or less are valued at amortized cost if their original
maturity was 60 days or less, or by amortizing their value on the 61st day prior
to maturity, if their original maturity when acquired by the Portfolio was more
than 60 days, unless this is determined not to represent fair value by the
Trustees.
Trading in securities on most foreign exchanges and OTC markets is
normally completed before the close of trading of the New York Stock Exchange
(normally 4:00 p.m.)and may also take place on days on which the New York Stock
Exchange is closed. If events materially affecting the value of securities occur
between the time when the exchange on which they are traded closes and the time
when a Portfolio's net asset value is calculated, such securities will be valued
at fair value in accordance with procedures established by and under the general
supervision of the Trustees.
PERFORMANCE DATA
From time to time, the Funds may quote performance in terms of actual
distributions, average annual and aggregate annual total returns or capital
appreciation in reports, sales literature and advertisements published by the
Trust. Shareholders may obtain current performance information by calling the
number provided on the cover page of this Statement of Additional Information.
Composite performance information shown in the prospectus has been
calculated in accordance with Performance Presentation Standards of the
Association for Investment Management and Research ("AIMR").
Total Return Quotations. As required by regulations of the SEC, the
average annual total return of the Funds for a period is computed by assuming a
hypothetical initial payment of $1,000. It is then assumed that all of the
dividends and distributions by the Fund over the period are reinvested. It is
then assumed that at the end of the period, the entire amount is redeemed. The
annualized total return is then calculated by determining the annual rate
required for the initial payment to grow to the amount which would have been
received upon redemption.
Aggregate total returns, reflecting the cumulative percentage change
over a measuring period, may also be calculated.
Historical performance information for periods prior to the
establishment of the International Equity Fund will be that of its free-standing
predecessor fund and will be presented in accordance with applicable SEC staff
interpretations.
Below is set forth historical return information for the Funds or their
predecessors for the periods indicated:
International Equity Fund: 12/31/97: Average annual total return, 1 year:
1.17%; average annual total return, 5 years: 9.17%; average annual total return,
commencement of operations to period end: 4,42%; aggregate total return, 1 year:
1.17%; aggregate total return, 5 years: 55.06%; aggregate total return,
commencement of operations to period end: 38.84%.
Emerging Markets Equity Fund: 12/31/97: Average annual total return, 1
year: 7.63%; average annual total return, 5 years: N/A; average annual total
return, commencement of operations(*) to period end: 0.45%; aggregate total
return, 1 year: 7.63%; aggregate total return, 5 years: N/A; aggregate total
return, commencement of operations(*) to period end: 1.84%.
International Opportunities Fund: 12/31/97: Average annual total return, 1
year: N/A; average annual total return, 5 years: N/A; average annual total
return, commencement of operations(**) to period end: 1.51%; aggregate total
return, 1 year: N/A; aggregate total return, 5 years: N/A; aggregate total
return, commencement of operations(**) to period end: 1.51%.
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*Emerging Markets Equity Fund commenced operations on November 15, 1993.
**International Opportunities Fund commenced operations on February 26, 1997.
General. A Fund's performance will vary from time to time depending
upon market conditions, the composition of its corresponding Portfolio, and its
operating expenses. Consequently, any given performance quotation should not be
considered representative of a Fund's performance for any specified period in
the future. In addition, because performance will fluctuate, it may not provide
a basis for comparing an investment in a Fund with certain bank deposits or
other investments that pay a fixed yield or return for a stated period of time.
Comparative performance information may be used from time to time in
advertising the Funds' shares, including appropriate market indices including
the benchmarks indicated under "Investment Advisor" above or data from Lipper
Analytical Services, Inc., Micropal, Inc., Ibbotson Associates, Morningstar
Inc., the Dow Jones Industrial Average and other industry publications.
From time to time, the funds may, in addition to any other permissible
information, include the following types of information in advertisements,
supplemental sales literature and reports to shareholders: (1) discussions of
general economic or financial principles (such as the effects of compounding and
the benefits of dollar-cost averaging); (2) discussions of general economic
trends; (3) presentations of statistical data to supplement such discussions;
(4) descriptions of past or anticipated portfolio holdings for one or more of
the funds; (5) descriptions of investment strategies for one or more of the
funds; (6) descriptions or comparisons of various savings and investment
products (including, but not limited to, qualified retirement plans and
individual stocks and bonds), which may or may not include the funds; (7)
comparisons of investment products (including the funds) with relevant markets
or industry indices or other appropriate benchmarks; (8) discussions of fund
rankings or ratings by recognized rating organizations; and (9) discussions of
various statistical methods quantifying the fund's volatility relative to its
benchmark or to past performance, including risk adjusted measures. The funds
may also include calculations, such as hypothetical compounding examples, which
describe hypothetical investment results in such communications. Such
performance examples will be based on an express set of assumptions and are not
indicative of the performance of any of the funds.
PORTFOLIO TRANSACTIONS
The Advisor places orders for all Portfolios for all purchases and sales of
portfolio securities, enters into repurchase agreements, and may enter into
reverse repurchase agreements and execute loans of portfolio securities on
behalf of all Portfolios. See "Investment Objectives and Policies."
Portfolio transactions for a Portfolio will be undertaken principally
to accomplish the Portfolio's objective in relation to expected movements in the
general level of interest rates. The Portfolios may engage in short-term trading
consistent with their objectives. See "Investment Objectives and Policies --
Portfolio Turnover".
In connection with portfolio transactions, the overriding objective is
to obtain the best execution of purchase and sales orders.
In selecting a broker, the Advisor considers a number of factors
including: the price per unit of the security; the broker's reliability for
prompt, accurate confirmations and on-time delivery of securities; the firm's
financial condition; as well as the commissions charged. A broker may be paid a
brokerage commission in excess of that which another broker might have charged
for effecting the same transaction if, after considering the foregoing factors,
the Advisor decides that the broker chosen will provide the best execution. The
Advisor monitors the reasonableness of the brokerage commissions paid in light
of the execution received. The Trustees of each Portfolio review regularly the
reasonableness of commissions and other transaction costs incurred by the
Portfolios in light of facts and circumstances deemed relevant from time to
time, and, in that connection, will receive reports from the Advisor and
published data concerning transaction costs incurred by institutional investors
generally. Research services provided by brokers to which the Advisor has
allocated brokerage business in the past include economic statistics and
forecasting services, industry and company analyses, portfolio strategy
services, quantitative data, and consulting services from economists and
political analysts. Research services furnished by brokers are used for the
benefit of all the Advisor's clients and not solely or necessarily for the
benefit of an individual Portfolio. The Advisor believes that the value of
research services received is not determinable and does not significantly reduce
its expenses. The Portfolios do not reduce their fee to the Advisor by any
amount that might be attributable to the value of such services.
The Portfolios or their predecessors corresponding to the International
Equity, Emerging Markets Equity, and International Opportunities Funds paid the
following brokerage commissions for the indicated fiscal periods:
International Equity (October): 1997: $2,008,842; 1996: $2,303,648; 1995:
$1,691,642.
Emerging Markets Equity (October): 1997: $2,855,850; 1996: $1,840,532;
1995: $1,475,147.
International Opportunities (For the period February 26, 1997 (commencement of
operations) through November 30, 1997): $1,027,285.
The increases in brokerage commissions reflected above were due to
increased portfolio activity and an increase in net investments by investors in
a Portfolio or its predecessor.
Subject to the overriding objective of obtaining the best execution of
orders, the Advisor may allocate a portion of a Portfolio's brokerage
transactions to affiliates of the Advisor. In order for affiliates of the
Advisor to effect any portfolio transactions for a Portfolio, the commissions,
fees or other remuneration received by such affiliates must be reasonable and
fair compared to the commissions, fees, or other remuneration paid to other
brokers in connection with comparable transactions involving similar securities
being purchased or sold on a securities exchange during a comparable period of
time. Furthermore, the Trustees of each Portfolio, including a majority of the
Trustees who are not "interested persons," have adopted procedures which are
reasonably designed to provide that any commissions, fees, or other remuneration
paid to such affiliates are consistent with the foregoing standard.
Portfolio securities will not be purchased from or through or sold to
or through the Co-Administrator, the Distributor or the Advisor or any other
"affiliated person" (as defined in the 1940 Act) of the Co-Administrator,
Distributor or Advisor when such entities are acting as principals, except to
the extent permitted by law. In addition, the Portfolios will not purchase
securities during the existence of any underwriting group relating thereto of
which the Advisor or an affiliate of the Advisor is a member, except to the
extent permitted by law.
On those occasions when the Advisor deems the purchase or sale of a
security to be in the best interests of a Portfolio as well as other customers
including other Portfolios, the Advisor to the extent permitted by applicable
laws and regulations, may, but is not obligated to, aggregate the securities to
be sold or purchased for a Portfolio with those to be sold or purchased for
other customers in order to obtain best execution, including lower brokerage
commissions if appropriate. In such event, allocation of the securities so
purchased or sold as well as any expenses incurred in the transaction will be
made by the Advisor in the manner it considers to be most equitable and
consistent with its fiduciary obligations to a Portfolio. In some instances,
this procedure might adversely affect a Portfolio.
If a Portfolio that writes options effects a closing purchase
transaction with respect to an option written by it, normally such transaction
will be executed by the same broker-dealer who executed the sale of the option.
The writing of options by a Portfolio will be subject to limitations established
by each of the exchanges governing the maximum number of options in each class
which may be written by a single investor or group of investors acting in
concert, regardless of whether the options are written on the same or different
exchanges or are held or written in one or more accounts or through one or more
brokers. The number of options which a Portfolio may write may be affected by
options written by the Advisor for other investment advisory clients. An
exchange may order the liquidation of positions found to be in excess of these
limits, and it may impose certain other sanctions.
MASSACHUSETTS TRUST
The Trust is a trust fund of the type commonly known as a
"Massachusetts business trust" of which each Fund is a separate and distinct
series. A copy of the Declaration of Trust for the Trust is on file in the
office of the Secretary of The Commonwealth of Massachusetts. The Declaration of
Trust and the By-Laws of the Trust are designed to make the Trust similar in
most respects to a Massachusetts business corporation. The principal distinction
between the two forms concerns shareholder liability described below.
Effective January 1, 1998, the name of the Trust was changed from "The
JPM Pierpont Funds" to "J.P. Morgan Funds". Effective January 1, 1998, the name
of the funds were changed from "The JPM Pierpont International Equity Fund" to
the "J.P. Morgan International Equity Fund", "The JPM Pierpont Emerging Markets
Equity Fund" to the "J.P. Morgan Emerging Markets Equity Fund" and the "JPM
Pierpont International Opportunities Fund" to the "J.P. Morgan International
Opportunities Fund".
Under Massachusetts law, shareholders of such a trust may, under
certain circumstances, be held personally liable as partners for the obligations
of the trust which is not the case for a corporation. However, the Trust's
Declaration of Trust provides that the shareholders shall not be subject to any
personal liability for the acts or obligations of any Fund and that every
written agreement, obligation, instrument or undertaking made on behalf of any
Fund shall contain a provision to the effect that the shareholders are not
personally liable thereunder.
No personal liability will attach to the shareholders under any
undertaking containing such provision when adequate notice of such provision is
given, except possibly in a few jurisdictions. With respect to all types of
claims in the latter jurisdictions, (i) tort claims, (ii) contract claims where
the provision referred to is omitted from the undertaking, (iii) claims for
taxes, and (iv) certain statutory liabilities in other jurisdictions, a
shareholder may be held personally liable to the extent that claims are not
satisfied by the Fund. However, upon payment of such liability, the shareholder
will be entitled to reimbursement from the general assets of the Fund. The
Trustees intend to conduct the operations of the Trust in such a way so as to
avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the Funds.
The Trust's Declaration of Trust further provides that the name of the
Trust refers to the Trustees collectively as Trustees, not as individuals or
personally, that no Trustee, officer, employee or agent of a Fund is liable to a
Fund or to a shareholder, and that no Trustee, officer, employee, or agent is
liable to any third persons in connection with the affairs of a Fund, except as
such liability may arise from his or its own bad faith, willful misfeasance,
gross negligence or reckless disregard of his or its duties to such third
persons. It also provides that all third persons shall look solely to Fund
property for satisfaction of claims arising in connection with the affairs of a
Fund. With the exceptions stated, the Trust's Declaration of Trust provides that
a Trustee, officer, employee, or agent is entitled to be indemnified against all
liability in connection with the affairs of a Fund.
The Trust shall continue without limitation of time subject to the
provisions in the Declaration of Trust concerning termination by action of the
shareholders or by action of the Trustees upon notice to the shareholders.
DESCRIPTION OF SHARES
The Trust is an open-end management investment company organized as a
Massachusetts business trust in which each Fund represents a separate series of
shares of beneficial interest. See "Massachusetts Trust."
The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares ($0.001 par value) of one or more series
and classes within any series and to divide or combine the shares (of any
series, if applicable) without changing the proportionate beneficial interest of
each shareholder in a Fund (or in the assets of other series, if applicable). To
date shares of 18 series are currently available for sale to the public. Each
share represents an equal proportional interest in a Fund with each other share.
Upon liquidation of a Fund, holders are entitled to share pro rata in the net
assets of a Fund available for distribution to such shareholders. See
"Massachusetts Trust." Shares of a Fund have no preemptive or conversion rights
and are fully paid and non-assessable. The rights of redemption and exchange are
described in the Prospectus and elsewhere in this Statement of Additional
Information.
The shareholders of the Trust are entitled to one vote for each dollar
of net asset value (or a proportionate fractional vote in respect of a
fractional dollar amount), on matters on which shares of the Fund shall be
entitled to vote. Subject to the 1940 Act, the Trustees themselves have the
power to alter the number and the terms of office of the Trustees, to lengthen
their own terms, or to make their terms of unlimited duration subject to certain
removal procedures, and appoint their own successors, provided, however, that
immediately after such appointment the requisite majority of the Trustees have
been elected by the shareholders of the Trust. The voting rights of shareholders
are not cumulative so that holders of more than 50% of the shares voting can, if
they choose, elect all Trustees being selected while the shareholders of the
remaining shares would be unable to elect any Trustees. It is the intention of
the Trust not to hold meetings of shareholders annually. The Trustees may call
meetings of shareholders for action by shareholder vote as may be required by
either the 1940 Act or the Trust's Declaration of Trust.
Shareholders of the Trust have the right, upon the declaration in
writing or vote of more than two-thirds of its outstanding shares, to remove a
Trustee. The Trustees will call a meeting of shareholders to vote on removal of
a Trustee upon the written request of the record holders of 10% of the Trust's
shares. In addition, whenever ten or more shareholders of record who have been
such for at least six months preceding the date of application, and who hold in
the aggregate either shares having a net asset value of at least $25,000 or at
least 1% of the Trust's outstanding shares, whichever is less, shall apply to
the Trustees in writing, stating that they wish to communicate with other
shareholders with a view to obtaining signatures to request a meeting for the
purpose of voting upon the question of removal of any Trustee or Trustees and
accompanied by a form of communication and request which they wish to transmit,
the Trustees shall within five business days after receipt of such application
either: (1) afford to such applicants access to a list of the names and
addresses of all shareholders as recorded on the books of the Trust; or (2)
inform such applicants as to the approximate number of shareholders of record,
and the approximate cost of mailing to them the proposed communication and form
of request. If the Trustees elect to follow the latter course, the Trustees,
upon the written request of such applicants, accompanied by a tender of the
material to be mailed and of the reasonable expenses of mailing, shall, with
reasonable promptness, mail such material to all shareholders of record at their
addresses as recorded on the books, unless within five business days after such
tender the Trustees shall mail to such applicants and file with the SEC,
together with a copy of the material to be mailed, a written statement signed by
at least a majority of the Trustees to the effect that in their opinion either
such material contains untrue statements of fact or omits to state facts
necessary to make the statements contained therein not misleading, or would be
in violation of applicable law, and specifying the basis of such opinion. After
opportunity for hearing upon the objections specified in the written statements
filed, the SEC may, and if demanded by the Trustees or by such applicants shall,
enter an order either sustaining one or more of such objections or refusing to
sustain any of them. If the SEC shall enter an order refusing to sustain any of
such objections, or if, after the entry of an order sustaining one or more of
such objections, the SEC shall find, after notice and opportunity for hearing,
that all objections so sustained have been met, and shall enter an order so
declaring, the Trustees shall mail copies of such material to all shareholders
with reasonable promptness after the entry of such order and the renewal of such
tender.
The Trustees have no current intention to create any classes within the
initial series or any subsequent series. The Trustees may, however, authorize
the issuance of shares of additional series and the creation of classes of
shares within any series with such preferences, privileges, limitations and
voting and dividend rights as the Trustees may determine. The proceeds from the
issuance of any additional series would be invested in separate, independently
managed portfolios with distinct investment objectives, policies and
restrictions, and share purchase, redemption and net asset valuation procedures.
Any additional classes would be used to distinguish among the rights of
different categories of shareholders, as might be required by future regulations
or other unforeseen circumstances. All consideration received by the Trust for
shares of any additional series or class, and all assets in which such
consideration is invested, would belong to that series or class, subject only to
the rights of creditors of the Trust and would be subject to the liabilities
related thereto. Shareholders of any additional series or class will approve the
adoption of any management contract or distribution plan relating to such series
or class and of any changes in the investment policies related thereto, to the
extent required by the 1940 Act.
For information relating to mandatory redemption of Fund shares or
their redemption at the option of the Trust under certain circumstances, see
"Redemption of Shares".
As of March 2, 1998, the following owned of record or, to the knowledge
of management, beneficially owned more than 5% of the outstanding shares of:
Emerging Markets Equity Fund: Batrus & Co. (25.97%); Guadi & Co. (6.10%).
The address of each owner listed above is c/o Morgan, 522 Fifth Avenue,
New York, New York 10036. As of the date of this Statement of Additional
Information, the officers and Trustees as a group owned less than 1% of the
shares of each Fund.
SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE
Unlike other mutual funds which directly acquire and manage their own
portfolio of securities, each Fund is an open-end management investment company
which seeks to achieve its investment objective by investing all of its
investable assets in a corresponding Master Portfolio, a separate registered
investment company with the same investment objective and policies as the Fund.
Generally, when a Master Portfolio seeks a vote to change a fundamental
investment restriction, its feeder fund(s) will hold a shareholder meeting and
cast its vote proportionately, as instructed by its shareholders. Fund
shareholders are entitled to one vote for each dollar of net asset value (or a
proportionate fractional vote in respect of a fractional dollar amount), on
matters on which shares of the Fund shall be entitled to vote.
In addition to selling a beneficial interest to a Fund, a Portfolio may
sell beneficial interests to other mutual funds or institutional investors. Such
investors will invest in the Portfolio on the same terms and conditions and will
bear a proportionate share of the Portfolio's expenses. However, the other
investors investing in the Portfolio may sell shares of their own fund using a
different pricing structure than the Fund. Such different pricing structures may
result in differences in returns experienced by investors in other funds that
invest in the Portfolio. Such differences in returns are not uncommon and are
present in other mutual fund structures. Information concerning other holders of
interests in the Portfolio is available from Morgan at (800) 521-5411.
The Trust may withdraw the investment of a Fund from a Portfolio at any
time if the Board of Trustees of the Trust determines that it is in the best
interests of the Fund to do so. Upon any such withdrawal, the Board of Trustees
would consider what action might be taken, including the investment of all the
assets of the Fund in another pooled investment entity having the same
investment objective and restrictions in accordance with the investment policies
described below with respect to the Portfolio.
Certain changes in a Portfolio's fundamental investment policies or
restrictions, or a failure by a Fund's shareholders to approve such change in
the Portfolio's investment 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 a Portfolio may be materially affected by
the actions of larger funds investing in the Portfolio. For example, if a large
fund withdraws from the Portfolio, the remaining funds may subsequently
experience higher pro rata operating expenses, thereby producing lower returns.
Additionally, because a Portfolio would become smaller, it may become
less diversified, resulting in potentially increased portfolio risk (however,
these possibilities also exist for traditionally structured funds which have
large or institutional investors who may withdraw from a fund). Also, funds with
a greater pro rata ownership in the Portfolio could have effective voting
control of the operations of the Portfolio. Whenever the Fund is requested to
vote on matters pertaining to the Portfolio (other than a vote by the Fund to
continue the operation of the Portfolio upon the withdrawal of another investor
in the Portfolio), the Trust will hold a meeting of shareholders of the Fund and
will cast all of its votes proportionately as instructed by the Fund's
shareholders. The Trust will vote the shares held by Fund shareholders who do
not give voting instructions in the same proportion as the shares of Fund
shareholders who do give voting instructions. Shareholders of the Fund who do
not vote will have no effect on the outcome of such matters.
TAXES
Each Fund intends to qualify and remain qualified as a regulated
investment company under Subchapter M of the Code. As a regulated investment
company, a Fund must, among other things, (a) derive at least 90% of its gross
income from dividends, interest, payments with respect to loans of stock and
securities, gains from the sale or other disposition of stock, securities or
foreign currency and other income (including but not limited to gains from
options, futures, and forward contracts) derived with respect to its business of
investing in such stock, securities or foreign currency; and (b) diversify its
holdings so that, at the end of each fiscal quarter of its taxable year, (i) at
least 50% of the value of the Fund's total assets is represented by cash, cash
items, U.S. Government securities, investments in other regulated investment
companies, and other securities limited, in respect of any one issuer, to an
amount not greater than 5% of the Fund's total assets, and 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its total assets is invested in the securities of any one issuer (other
than U.S. Government securities or the securities of other regulated investment
companies).
As a regulated investment company, a Fund (as opposed to its
shareholders) will not be subject to federal income taxes on the net investment
income and capital gains that it distributes to its shareholders, provided that
at least 90% of its net investment income and realized net short-term capital
gains in excess of net long-term capital losses for the taxable year is
distributed in accordance with the Code's timing requirements.
Under the Code, a Fund will be subject to a 4% excise tax on a portion
of its undistributed taxable income and capital gains if it fails to meet
certain distribution requirements by the end of the calendar year. Each Fund
intends to make distributions in a timely manner and accordingly does not expect
to be subject to the excise tax.
For federal income tax purposes, dividends that are declared by a Fund
in October, November or December as of a record date in such month and actually
paid in January of the following year will be treated as if they were paid on
December 31 of the year declared. Therefore, such dividends generally will be
taxable to a shareholder in the year declared rather than the year paid.
Distributions of net investment income, certain foreign currency gains,
and realized net short-term capital gains in excess of net long-term capital
losses are generally taxable to shareholders of the Funds as ordinary income
whether such distributions are taken in cash or reinvested in additional shares.
If dividend payments exceed income earned by a Fund, the over distribution would
be considered a return of capital rather than a dividend payment. The Funds
intend to pay dividends in such a manner so as to minimize the possibility of a
return of capital. Distributions of net long-term capital gain (i.e., net
long-term capital gain in excess of net short-term capital loss) are taxable to
shareholders of a Fund as long-term capital gain, regardless of whether such
distributions are taken in cash or reinvested in additional shares and
regardless of how long a shareholder has held shares in the Fund. In general,
long-term capital gain of an individual shareholder will be subject to a reduced
rate of tax. Investors should consult their tax advisors concerning the
treatment of capital gains and losses.
Gains or losses on sales of portfolio securities will be treated as
long-term capital gains or losses if the securities have been held for more than
one year except in certain cases where, if applicable, a put is acquired or a
call option is written thereon or the straddle rules described below are
otherwise applicable. Other gains or losses on the sale of securities will be
short-term capital gains or losses. Gains and losses on the sale, lapse or other
termination of options on securities will be treated as gains and losses from
the sale of securities. If an option written by a Portfolio lapses or is
terminated through a closing transaction, such as a repurchase by the Portfolio
of the option from its holder, the Portfolio will realize a short-term capital
gain or loss, depending on whether the premium income is greater or less than
the amount paid by the Portfolio in the closing transaction. If securities are
purchased by a Portfolio pursuant to the exercise of a put option written by it,
the Portfolio will subtract the premium received from its cost basis in the
securities purchased.
Any distribution of net investment income or capital gains will have
the effect of reducing the net asset value of Fund shares held by a shareholder
by the same amount as the distribution. If the net asset value of the shares is
reduced below a shareholder's cost as a result of such a distribution, the
distribution, although constituting a return of capital to the shareholder, will
be taxable as described above. Investors should thus consider the consequences
of purchasing shares in the Fund shortly before the Fund declares a sizable
dividend distribution.
Any gain or loss realized on the redemption or exchange of Fund shares
by a shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held for more than one year, and
otherwise as short-term capital gain or loss. However, any loss realized by a
shareholder upon the redemption or exchange of shares in the Fund held for six
months or less will be treated as a long-term capital loss to the extent of any
long-term capital gain distributions received by the shareholder with respect to
such shares. In addition, no loss will be allowed on the redemption or exchange
of shares of the Fund, if within a period beginning 30 days before the date of
such redemption or exchange and ending 30 days after such date, the shareholder
acquires (such as through dividend reinvestment) securities that are
substantially identical to shares of the Fund.
Under the Code, gains or losses attributable to disposition of foreign
currency or to certain foreign currency contracts, or to fluctuations in
exchange rates between the time a Portfolio accrues income or receivables or
expenses or other liabilities denominated in a foreign currency and the time a
Portfolio actually collects such income or pays such liabilities, are generally
treated as ordinary income or ordinary loss. Similarly, gains or losses on the
disposition of debt securities held by a Portfolio, if any, denominated in
foreign currency, to the extent attributable to fluctuations in exchange rates
between the acquisition and disposition dates are also treated as ordinary
income or loss.
Forward currency contracts, options and futures contracts entered into
by a Portfolio may create "straddles" for U.S. federal income tax purposes and
this may affect the character and timing of gains or losses realized by the
Portfolio on forward currency contracts, options and futures contracts or on the
underlying securities.
Certain options, futures and foreign currency contracts held by a
Portfolio at the end of each taxable year will be required to be "marked to
market" for federal income tax purposes -- i.e., treated as having been sold at
market value. For options and futures contracts, 60% of any gain or loss
recognized on these deemed sales and on actual dispositions will be treated as
long-term capital gain or loss, and the remainder will be treated as short-term
capital gain or loss regardless of how long the Portfolio has held such options
or futures. However, gain or loss recognized on certain foreign currency
contracts will be treated as ordinary income or loss.
The Funds may invest in Equity Securities of foreign issuers. If a
Portfolio purchases shares in certain foreign corporations (referred to as
passive foreign investment companies ("PFICs") under the Code), the
corresponding fund may be subject to federal income tax on a portion of an
"excess distribution" from such foreign corporation, including any gain from the
disposition of such shares, even though a portion of such income may have to be
distributed as a taxable dividend by the Fund to its shareholders. In addition,
certain interest charges may be imposed on a Fund as a result of such
distributions. Alternatively, a Fund may in some cases be permitted to include
each year in its income and distribute to shareholders a pro rata portion of the
foreign investment fund's income, whether or not distributed to the Fund.
The Portfolios will be permitted to "mark to market" any marketable
stock held by a Portfolio in a PFIC. If a Portfolio made such an election, the
corresponding Fund would include in income each year an amount equal to its
share of the excess, if any, of the fair market value of the PFIC stock as of
the close of the taxable year over the adjusted basis of such stock. The Fund
would be allowed a deduction for its share of the excess, if any, of the
adjusted basis of the PFIC stock over its fair market value as of the close of
the taxable year, but only to the extent of any net mark-to-market gains with
respect to the stock included by the Fund for prior taxable years.
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, a Fund may be required to withhold U.S. federal
income tax as "backup withholding" at the rate of 31% from distributions treated
as long-term capital gains and from the proceeds of redemptions, exchanges or
other dispositions of Fund shares unless IRS Form W-8 is provided. Transfers by
gift of shares of a Fund by a foreign shareholder who is a nonresident alien
individual will not be subject to U.S. federal gift tax, but the value of shares
of the Fund held by such a shareholder at his or her death will be includible in
his or her gross estate for U.S. federal estate tax purposes.
Foreign Taxes. It is expected that the Funds may be subject to foreign
withholding taxes or other foreign taxes with respect to income (possibly
including, in some cases, capital gains) received from sources within foreign
countries. So long as more than 50% in value of the total assets of a Fund
(including its share of the assets of the corresponding Portfolio) at the close
of any taxable year consists of stock or securities of foreign corporations, the
Fund may elect to treat any foreign income taxes deemed paid by it as paid
directly by its shareholders. A Fund will make such an election only if it deems
it to be in the best interest of its shareholders. A Fund will notify its
shareholders in writing each year if it makes the election and of the amount of
foreign income taxes, if any, to be treated as paid by the shareholders and the
amount of foreign taxes, if any, for which shareholders of the Fund will not be
eligible to claim a foreign tax credit because the holding period requirements
(described below) have not been satisfied. If a Fund makes the election, each
shareholder will be required to include in his income (in addition to the
dividends and distributions he receives) his proportionate share of the amount
of foreign income taxes deemed paid by the Fund and will be entitled to claim
either a credit (subject to the limitations discussed below) or, if he itemizes
deductions, a deduction for his share of the foreign income taxes in computing
federal income tax liability. (No deduction will be permitted in computing an
individual's alternative minimum tax liability.) Effective for dividends paid
after September 5, 1997, shareholders of a Fund will not be eligible to claim a
foreign tax credit with respect to taxes paid by the Fund (notwithstanding that
the Fund elects to treat the foreign taxes deemed paid by it as paid directly by
its shareholders) unless certain holding period requirements are met. A
shareholder who is a nonresident alien individual or a foreign corporation may
be subject to U.S. withholding tax on the income resulting from the election
described in this paragraph, but may not be able to claim a credit or deduction
against such U.S. tax for the foreign taxes treated as having been paid by such
shareholder. A tax-exempt shareholder will not ordinarily benefit from this
election. Shareholders who choose to utilize a credit (rather than a deduction)
for foreign taxes will be subject to the limitation that the credit may not
exceed the shareholder's U.S. tax (determined without regard to the availability
of the credit) attributable to his or her total foreign source taxable income.
For this purpose, the portion of dividends and distributions paid by a Fund from
its foreign source net investment income will be treated as foreign source
income. A Fund's gains from the sale of securities will generally be treated as
derived from U.S. sources, however, and certain foreign currency gains and
losses likewise will be treated as derived from U.S. sources. The limitation on
the foreign tax credit is applied separately to foreign source "passive income,"
such as the portion of dividends received from the Fund which qualifies as
foreign source income. In addition, the foreign tax credit is allowed to offset
only 90% of the alternative minimum tax imposed on corporations and individuals.
Because of these limitations, if the election is made, shareholders may
nevertheless be unable to claim a credit for the full amount of their
proportionate shares of the foreign income taxes paid by a Fund. Effective for
taxable years of a shareholder beginning after December 31, 1997, individual
shareholders of the Fund with $300 or less of creditable foreign taxes ($600 in
the case of an individual shareholder filing jointly) may elect to be exempt
from the foreign tax credit limitation rules described above (other than the 90%
limitation applicable for purposes of the alternative minimum tax), provided
that all of such individual shareholder's foreign source income is "qualified
passive income" (which generally includes interest, dividends, rents, royalties
and certain other types of income) and further provided that all of such foreign
source income is shown on one or more payee statements furnished to the
shareholder. Shareholders making this election will not be permitted to carry
over any excess foreign taxes to or from a tax year to which such an election
applies.
State and Local Taxes. Each Fund may be subject to state or local taxes
in jurisdictions in which the Fund is deemed to be doing business. In addition,
the treatment of a Fund and its shareholders in those states which have income
tax laws might differ from treatment under the federal income tax laws.
Shareholders should consult their own tax advisors with respect to any state or
local taxes.
Other Taxation. The Trust is organized as a Massachusetts business
trust and, under current law, neither the Trust nor any Fund is liable for any
income or franchise tax in The Commonwealth of Massachusetts, provided that each
Fund continues to qualify as a regulated investment company under Subchapter M
of the Code. The Portfolios are organized as New York trusts. The Portfolios are
not subject to any federal income taxation or income or franchise tax in the
State of New York or The Commonwealth of Massachusetts. The investment by a Fund
in its corresponding Portfolio does not cause the Fund to be liable for any
income or franchise tax in the State of New York.
ADDITIONAL INFORMATION
As used in this Statement of Additional Information and the Prospectus,
the term "majority of the outstanding voting securities" means the vote of (i)
67% or more of the Fund's shares or the Portfolio's outstanding voting
securities present at a meeting, if the holders of more than 50% of the Fund's
outstanding shares or the Portfolio's outstanding voting securities are present
or represented by proxy, or (ii) more than 50% of the Fund's outstanding shares
or the Portfolio's outstanding voting securities, whichever is less.
Telephone calls to the Funds, J.P. Morgan or a Financial Professional
as shareholder servicing agent may be tape recorded. With respect to the
securities offered hereby, this Statement of Additional Information and the
Prospectus do not contain all the information included in the Trust's
registration statement filed with the SEC under the 1933 Act and the 1940 Act
and the Portfolios' registration statements filed under the 1940 Act. Pursuant
to the rules and regulations of the SEC, certain portions have been omitted. The
registration statements including the exhibits filed therewith may be examined
at the office of the SEC in Washington D.C.
Statements contained in this Statement of Additional Information and
the Prospectus concerning the contents of any contract or other document are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the applicable
Registration Statements.
Each such statement is qualified in all respects by such reference.
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in the
Prospectus and this Statement of Additional Information, in connection with the
offer contained therein and, if given or made, such other information or
representations must not be relied upon as having been authorized by any of the
Trust, the Funds or the Distributor. The Prospectus and this Statement of
Additional Information do not constitute an offer by any Fund or by the
Distributor to sell or solicit any offer to buy any of the securities offered
hereby in any jurisdiction to any person to whom it is unlawful for the Fund or
the Distributor to make such offer in such jurisdictions.
The Year 2000 Initiative
With the new millennium rapidly approaching, organizations are
examining their computer systems to ensure they are year 2000 compliant. The
issue, in simple terms, is that many existing computer systems use only two
numbers to identify a year in the date field with the assumption that the first
two digits are always 19. As the century is implied in the date, on January 1,
2000, computers that are not year 2000 compliant will assume the year is 1900.
Systems that calculate, compare, or sort using the incorrect date will cause
erroneous results, ranging from system malfunctions to incorrect or incomplete
transaction processing. If not remedied, potential risks include business
interruption or shutdown, financial loss, reputation loss, and/or legal
liability.
J.P. Morgan has undertaken a firmwide initiative to address the year
2000 issue and has developed a comprehensive plan to prepare, as appropriate,
its computer systems. Each business line has taken responsibility for
identifying and fixing the problem within its own area of operation and for
addressing all interdependencies. A multidisciplinary team of internal and
external experts supports the business teams by providing direction and firmwide
coordination. Working together, the business and multidisciplinary teams have
completed a thorough education and awareness initiative and a global inventory
and assessment of J.P. Morgan's technology and application portfolio to
understand the scope of the year 2000 impact at J.P. Morgan. J.P. Morgan
presently is renovating and testing these technologies and applications in
partnership with external consulting and software development organizations, as
well as with year 2000 tool providers. J.P. Morgan is on target with its plan to
substantially complete renovation, testing, and validation of its key systems by
year-end 1998 and to participate in industry-wide testing (or streetwide
testing) in 1999. J.P. Morgan is also working with key external parties,
including clients, counterparties, vendors, exchanges, depositories, utilities,
suppliers, agents and regulatory agencies, to stem the potential risks the year
2000 problem poses to J.P. Morgan and to the global financial community.
Costs associated with efforts to prepare J.P. Morgan's systems for the
year 2000 approximated $95 million in 1997. In 1998, J.P. Morgan will continue
its efforts to prepare its systems for the year 2000. The total cost to become
year-2000 compliant is estimated at $250 million, for internal systems
renovation and testing, testing equipment, and both internal and external
resources working on the project. Remaining costs will be incurred primarily in
1998. The costs associated with J.P. Morgan becoming year-2000 compliant will be
borne by J.P. Morgan and not the Fund nor the Portfolio.
The Euro
Effective January 1, 1999 the euro, a single multinational currency, will
replace the national currencies of certain countries in the Economic Monetary
Union (EMU). Conversion rates among EMU countries will be fixed on December 31,
1998, however, existing currencies will still be used through July 1, 2002.
During this transition period, transactions may be settled in either euro or
existing currencies, but financial markets and payment systems are expected to
use the euro exclusively. Beginning January 1, 1999, J.P. Morgan intends to
conduct and settle all fund transactions, where appropriate, in the euro.
J.P. Morgan has identified the following potential risks to the Funds, after the
conversion: The risk that valuation of assets are not properly redenominated;
currency risk resulting from increased volatility in exchange rates between EMU
countries and non-participating countries; the inability any of the Funds, their
service providers and the issuers of the Funds' portfolio securities to make
information technology updates timely; and the potential unenforceability of
contracts. There have been recent laws and regulations designed to ensure the
continuity of contracts, however there is a risk that the valuation of contracts
will be negatively impacted after the Funds' conversion. J.P. Morgan is working
to avoid these problems and to obtain assurances from other service providers
that they are taking similar steps. However, it is not certain that these
actions will be sufficient to prevent problems associated with the conversion
from adversely impacting fund operations and shareholders.
The I.R.S has concluded that euro conversion will not cause a U.S. taxpayer to
realize gain or loss to the extent taxpayer's rights and obligations are altered
solely by reason of the conversion.
FINANCIAL STATEMENTS
The following financial statements and the reports thereon of
PricewaterhouseCoopers LLP of the International Equity, Emerging Markets Equity
and International Opportunities Funds are incorporated herein by reference to
their respective annual report filings made with the SEC pursuant to Section
30(b) of the 1940 Act and Rule 30b2-1 thereunder. Any of the following financial
reports are available without charge upon request by calling JP Morgan Funds
Services at (800) 521-5411. Each Fund's financial statements include the
financial statements of the Fund's corresponding Portfolio.
- ------------------------------------------------- ------------------------------
Date of Annual Report; Date
Annual Report Filed; and
Accession Number
Name of Fund
- ------------------------------------------------- ------------------------------
- ------------------------------------------------- ------------------------------
J.P. Morgan International Equity Fund 10/31/97;
12/31/97;
0001047469-97-009227
- ------------------------------------------------- ------------------------------
- ------------------------------------------------- ------------------------------
J.P. Morgan Emerging Markets Equity Fund 10/31/97;
12/31/97;
0001047469-97-009260
- ------------------------------------------------- ------------------------------
- ------------------------------------------------- ------------------------------
J.P. Morgan International Opportunities Fund 11/30/97;
1/26/98;
0001047469-98-002292
- ------------------------------------------------- ------------------------------
<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.
<PAGE>
PART C
ITEM 23. EXHIBITS.
(a) Declaration of Trust, as amended, was filed as Exhibit No. 1 to
Post-Effective Amendment No. 26 to the Registration Statement filed on September
27, 1996 (Accession Number 0000912057-96-021331).
(a)1 Amendment No. 5 to Declaration of Trust; Amendment and Fifth Amended
and Restated Establishment and Designation of Series of Shares of Beneficial
Interest.*
(a)2 Amendment No. 6 to Declaration of Trust; Amendment and Sixth Amended
and Restated Establishment and Designation of Series of Shares of Beneficial
Interest was filed as Exhibit No. 1(b) to Post-Effective Amendment No. 32 to the
Registration Statement on February 28, 1997 (Accession Number
0001016964-97-000038).
(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. 34 to the
Registration Statement on April 30, 1997 (Accession Number
0001019694-97-000063).
(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. 41 to the
Registration Statement on October 21, 1997 (Accession Number
0001042058-97-000006).
(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. 45 to the
Registration Statement on December 29, 1997 (Accession Number
0001041455-97-000013).
(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 (filed herewith)
(b) Restated By-Laws of Registrant.*
(e) Distribution Agreement between Registrant and Funds Distributor, Inc.
("FDI").*
(g) Custodian Contract between Registrant and State Street Bank and Trust
Company ("State Street").*
(h)1 Co-Administration Agreement between Registrant and FDI.*
(h)2 Restated Shareholder Servicing Agreement between Registrant and Morgan
Guaranty Trust Company of New York ("Morgan Guaranty") filed as Exhibit (h)2 to
Post-Effective Amendment No. 53 to the Registration Statement on August 25, 1998
(Accession No. 0001041455-98-000052).
(h)3 Transfer Agency and Service Agreement between Registrant and State
Street.*
(h)4 Restated Administrative Services Agreement between Registrant and
Morgan Guaranty.*
(h)5 Fund Services Agreement, as amended, between Registrant and Pierpont
Group, Inc.*
(i) Opinion and consent of Sullivan & Cromwell.*
(j) Consent of independent accountants (not applicable).
(l) Purchase agreements with respect to Registrant's initial shares.*
(n) Financial Data Schedules (no applicable).
- ------------------------
* Incorporated herein by reference to Post-Effective Amendment No. 30 to
the Registration Statement filed on December 27, 1996 (Accession Number
0001016964-96-000066).
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 Institutional 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
Senior Vice President: Michael S. Petrucelli
Director, Senior Vice President, Treasurer and
Chief Financial Officer: Joseph F. Tower, III
Senior Vice President: Paula R. David
Senior Vice President: Allen B. Closser
Senior Vice President: Bernard A. Whalen
Director: William J. Nutt
(c) Not applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
PIERPONT GROUP, INC.: 461 Fifth Avenue, New York, New York 10017 (records
relating to its assisting the Trustees in carrying out their duties in
supervising the Registrant's affairs).
MORGAN GUARANTY TRUST COMPANY OF NEW YORK: 60 Wall Street, New York, New York
10260-0060, 522 Fifth Avenue, New York, New York 10036 or 9 West 57th Street,
New York, New York 10019 (records relating to its functions as shareholder
servicing agent and administrative services agent).
STATE STREET BANK AND TRUST COMPANY: 1776 Heritage Drive, North Quincy,
Massachusetts 02171 and 40 King Street West, Toronto, Ontario, Canada M5H 3Y8
(records relating to its functions as fund accountant, custodian, transfer agent
and dividend disbursing agent).
FUNDS DISTRIBUTOR, INC.: 60 State Street, Suite 1300, Boston, Massachusetts
02109 (records relating to its functions as distributor and co-administrator).
ITEM 29. MANAGEMENT SERVICES.
Not Applicable.
ITEM 30. UNDERTAKINGS.
(a) If the information called for by Item 5A of Form N-1A is contained in
the latest annual report to shareholders, the Registrant shall
furnish each person to whom a prospectus is delivered with a copy of
the Registrant's latest annual report to shareholders upon request
and without charge.
(b) The Registrant undertakes to comply with Section 16(c) of the 1940
Act as though such provisions of the 1940 Act were applicable to the
Registrant, except that the request referred to in the third full
paragraph thereof may only be made by shareholders who hold in the
aggregate at least 10% of the outstanding shares of the Registrant,
regardless of the net asset value of shares held by such requesting
shareholders.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this registration statement
to be signed on its behalf by the undersigned, thereto duly authorized, in the
City of New York and State of New York on the 30th day of December, 1998.
J.P. MORGAN FUNDS, THE FEDERAL MONEY MARKET PORTFOLIO, THE TAX EXEMPT MONEY
MARKET PORTFOLIO, THE PRIME MONEY MARKET PORTFOLIO, THE U.S. EQUITY PORTFOLIO,
THE U.S. SMALL COMPANY PORTFOLIO, THE INTERNATIONAL EQUITY PORTFOLIO, THE
EMERGING MARKETS EQUITY PORTFOLIO, THE SERIES PORTFOLIO
By /s/ Michael S. Petrucelli
-----------------------------
Michael S. Petrucelli
Vice President and Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed below by the following persons in the capacities
indicated on December 30, 1998.
George Rio*
- ------------------------------
George Rio
President and Treasurer
Officer of the Portfolios
Matthew Healey*
- -----------------------------
Matthew Healey
Trustee, Chairman and Chief Executive Officer (Principal Executive Officer)
Frederick S. Addy*
- ------------------------------
Frederick S. Addy
Trustee
William G. Burns*
- ------------------------------
William G. Burns
Trustee
Arthur C. Eschenlauer*
- ------------------------------
Arthur C. Eschenlauer
Trustee
Michael P. Mallardi*
- ------------------------------
Michael P. Mallardi
Trustee
*By /s/ Michael S. Petrucelli
----------------------------
Michael S. Petrucelli
as attorney-in-fact pursuant to a power of attorney.
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
- ------------- ----------------------
EX-99.a6 Amendment 10 to declaration of trust
J.P. MORGAN FUNDS
(formerly The JPM Pierpont Funds)
AMENDMENT NO. 10 TO DECLARATION OF TRUST
Amendment and
Tenth Amended and Restated Establishment and
Designation of Series of Shares of
Beneficial Interest (par value $0.001 per share)
dated October 1, 1998
Pursuant to Section 9.3 of the Declaration of Trust, dated as of
November 4, 1992, as amended (the "Declaration of Trust"), of the J.P. Morgan
Funds (the "Trust"), the Trustees of the Trust hereby change the method of
calculating voting rights for all shareholder votes from one vote per share to
one vote for each dollar of net asset value invested.
Section 6.8 of the Declaration of Trust is replaced in its entirety
with the following:
Section 6.8. Voting Powers The Shareholder shall have power to vote only (i) for
removal of Trustees as provided in Section 2.2 hereof, (ii) with respect to any
investment advisory or management contract as provided in Section 4.1 hereof,
(iii) with respect to termination of the Trust as provided in Section 9.2
hereof, (iv) with respect to any amendment of this Declaration to the extent and
as provided in Section 9.3 hereof, (v) with respect to any merger, consolidation
or sale of assets as provided in Sections 9.4 and 9.6 hereof, (vi) with respect
to incorporation of the Trust or any series to the extent and as provided in
Sections 9.5 and 9.6 hereof, (vii) to the same extent as the stockholders of a
Massachusetts business corporation as to whether or not a court action,
proceeding or claim should or should not be brought or maintained derivatively
or as a class action on behalf of the Trust or the Shareholders, and (viii) with
respect to such additional matters relating to the Trust as may be required by
the Declaration, the By-Laws or any registration of the Trust with the
Commission (or any successor agency) or any state, or as the Trustees may
consider necessary or desirable. Each share of a Fund shall be 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. Shares shall be voted by individual series on any
matter submitted to a vote of the Shareholders of the Trust except as provided
in Section 6.9(g) hereof. There shall be no cumulative voting in the election of
Trustees. Until shares are issued, the Trustees may exercise all rights of
Shareholders and may take any action required by law, the Declaration or the
By-Laws to be taken by Shareholders. At any meeting of Shareholders of the Trust
or of any series of the Trust, a Shareholder Servicing Agent may vote any shares
as to which such Shareholder Servicing Agent is the agent of record and which
are not otherwise represented in person or by proxy at the meeting,
proportionately in accordance with the votes cast by holders of all shares
otherwise represented at the meeting in person or by proxy as to which such
Shareholder Servicing Agent is the agent of record. Any shares so voted by a
Shareholder Servicing Agent will be deemed represented at the meeting for quorum
purposes. The By-Laws may include further provisions for Shareholder votes and
meetings and related matters.
In addition, Pursuant to Sections 6.9 and 9.3 of the Declaration of Trust,
the Trustees of the Trust hereby amend and restate the Ninth Amended
<PAGE>
and Restated Establishment and Designation of Series appended to the
Declaration of Trust to change the name of J.P. Morgan New York Total Return
Bond Fund to J.P. Morgan New York Tax Exempt Bond, effective November 2, 1998.
1. The Funds shall be renamed and redesignated as follows:
J.P. Morgan Federal Money Market Fund
J.P. Morgan Prime Money Market Fund
J.P. Morgan Tax Exempt Money Market Fund
J.P. Morgan Bond Fund
J.P. Morgan Tax Exempt Bond Fund
J.P. Morgan U.S. Equity Fund
J.P. Morgan U.S. Small Company Fund
J.P. Morgan International Equity Fund
J.P. Morgan Short Term Bond Fund
J.P. Morgan Diversified Fund
J.P. Morgan Emerging Markets Equity Fund
J.P. Morgan New York Tax Exempt Bond Fund
J.P. Morgan Asia Growth Fund
J.P. Morgan Japan Equity Fund
J.P. Morgan European Equity Fund
J.P. Morgan Global Strategic Income Fund
J.P. Morgan International Opportunities Fund
J.P. Morgan U.S. Small Company Opportunities Fund
J.P. Morgan Emerging Markets Debt Fund
J.P. Morgan Latin American Equity Fund
J.P. Morgan Disciplined Equity Fund
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
<PAGE>
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 October 1, 1998 and only when
signed by a majority of the Trustees.
/s/Frederick S. Addy
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Frederick S. Addy
/s/William G. Burns
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William G. Burns
/s/Arthur C. Eschenlauer
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Arthur C. Eschenlauer
/s/Matthew Healey
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Matthew Healey
/s/Michael P. Mallardi
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Michael P. Mallardi