As filed with the Securities and Exchange Commission on March 31, 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. 51
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 52
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
Christopher Kelley, c/o Funds Distributor, Inc.
60 State Street, Suite 1300, Boston, Massachusetts 02109
(Name and Address of Agent for Service)
Copy to:Stephen K. West, Esq.
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
It is proposed that this filing will become effective (check appropriate box):
[X] Immediately upon filing pursuant to paragraph (b) [ ] on (date)
pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
The International Equity, Emerging Markets Equity, International Opportunities,
European Equity, and Japan Equity Portfolios have also executed this
registration statement.
<PAGE>
J.P. MORGAN FUNDS
(INTERNATIONAL EQUITY, EMERGING MARKETS EQUITY, INTERNATIONAL OPPORTUNITIES,
EUROPEAN EQUITY, AND JAPAN EQUITY
FUNDS)
CROSS-REFERENCE SHEET
(As Required by Rule 495)
PART A ITEM NUMBER: Prospectus Headings.
1. COVER PAGE: Cover Page.
2. SYNOPSIS: Introduction; Investor Expenses.
3. CONDENSED FINANCIAL INFORMATION: Financial Highlights.
4. GENERAL DESCRIPTION OF REGISTRANT: International Equity Investment
Process; Goal; Investment Approach; Potential Risks and Rewards;
Master/Feeder Structure; Risk and Reward Elements.
5. MANAGEMENT OF THE FUND: Cover Page; J.P. Morgan; Portfolio Management;
Management and Administration.
5A. MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE: Performance.
6. CAPITAL STOCK AND OTHER SECURITIES: Investing Directly; Account and
Transaction Policies; Dividends and Distributions; Tax Considerations;
Master/Feeder Structure.
7. PURCHASE OF SECURITIES BEING OFFERED: Introduction; Investing Directly;
Opening an Account; Adding to an Account; Account and Transaction
Policies.
8. REDEMPTION OR REPURCHASE: Selling Shares; Account and Transaction
Policies.
9. PENDING LEGAL PROCEEDINGS: Not Applicable.
PART B ITEM NUMBER: Statement of Additional Information Headings.
10. COVER PAGE: Cover Page.
11. TABLE OF CONTENTS: Table of Contents.
12. GENERAL INFORMATION AND HISTORY: General.
13. INVESTMENT OBJECTIVE AND POLICIES: Investment Objective and Policies;
Additional Investments; Investment Restrictions; Quality and
Diversification Requirements; Appendix A.
14. MANAGEMENT OF THE FUND: Trustees and Officers.
15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES: Description of
Shares.
16. INVESTMENT ADVISORY AND OTHER SERVICES: Investment Advisor;
Distributor; Co-Administrator; Services Agent; Custodian and Transfer Agent;
Shareholder Servicing; Eligible Institutions; Independent Accountants; Expenses.
17. BROKERAGE ALLOCATION AND OTHER PRACTICES: Portfolio Transactions.
18. CAPITAL STOCK AND OTHER SECURITIES: Massachusetts Trust; Description of
Shares.
19. PURCHASE, REDEMPTION AND PRICING OF SECURITIES BEING OFFERED: Net Asset
Value; Purchase of Shares; Redemption of Shares; Exchange of Shares;
Dividends and Distributions.
20. TAX STATUS: Taxes.
21. UNDERWRITERS: Distributor.
22. CALCULATION OF PERFORMANCE DATA: Performance Data.
23. FINANCIAL STATEMENTS: Financial Statements.
PART C. Information required to be included in Part C is set forth under the
appropriate items, so numbered, in Part C of this Registration Statement.
<PAGE>
EXPLANATORY NOTE
This post-effective amendment No. 51 (the "Amendment") to the
Registrant's registration statement on Form N-1A (File No. 033-54632) (the
"Registration Statement") is being filed to update the Registrant's disclosure
in the Prospectuses and Statements of Additional Information relating to the
Registrant's International Equity, Emerging Markets Equity, International
Opportunities, European Equity and Japan Equity Funds, separate series of shares
of the Registrant (the "funds") for the purpose of "simplifying" each fund's
Prospectus. With respect to the J.P. Morgan International Opportunities, J.P.
Morgan European Equity, and J.P. Morgan Japan Equity Funds, the filing is also
being made to update the Registrant's disclosure in the Prospectuses and
Statements of Additional Information with audited financial information for the
fiscal years ended November 30, 1997 and December 31, 1997. As a result, the
Amendment does not affect any of the Registrant's currently effective
prospectuses for each other series of shares of the Registrant.
<PAGE>
MARCH 31, 1998 PROSPECTUS
J.P. MORGAN INTERNATIONAL EQUITY FUND
-----------------------------
Seeking high total return
primarily from stocks outside
the United States
This prospectus contains essential information for anyone investing in the fund.
Please read it carefully and keep it for reference.
Shares in the fund are not bank deposits and are not guaranteed or insured by
any bank, government entity, or the FDIC.
As with all mutual funds, the fact that these shares are registered with the
Securities and Exchange Commission does not mean that the commission approves
them as an investment or guarantees that the information in this prospectus is
correct or adequate. It is a criminal offense to state or suggest otherwise.
Distributed by Funds Distributor, Inc. [Logo] JPMORGAN
<PAGE>
CONTENTS
- --------------------------------------------------------------------------------
2
- ----
INTERNATIONAL EQUITY MANAGEMENT APPROACH
International equity investment process. . . . . . . . . . . . . . . . . . . . 2
4
- ----
The fund's goal, investment approach, risks, expenses, performance, and
financial highlights
J.P. MORGAN INTERNATIONAL EQUITY FUND
Fund description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Investor expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Financial highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6
- ----
Investing in the J.P. Morgan International Equity Fund
YOUR INVESTMENT
Investing through a financial professional . . . . . . . . . . . . . . . . . . 6
Investing through an employer-sponsored retirement plan. . . . . . . . . . . . 6
Investing through an IRA or rollover IRA . . . . . . . . . . . . . . . . . . . 6
Investing directly . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Opening your account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Adding to your account . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Selling shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Account and transaction policies . . . . . . . . . . . . . . . . . . . . . . . 7
Dividends and distributions. . . . . . . . . . . . . . . . . . . . . . . . . . 8
Tax considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
9
- ----
More about risk and the fund's business operations
FUND DETAILS
Master/Feeder structure. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Management and administration. . . . . . . . . . . . . . . . . . . . . . . . . 9
Risk and reward elements . . . . . . . . . . . . . . . . . . . . . . . . . . .10
FOR MORE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . .back cover
<PAGE>
INTRODUCTION
- --------------------------------------------------------------------------------
J.P. MORGAN INTERNATIONAL EQUITY FUND
This fund invests primarily in stocks and other equity securities of
companies outside the U.S. through a master portfolio (another fund with the
same goal). As a shareholder, you should anticipate risks and rewards beyond
those of a typical U.S. stock fund.
WHO MAY WANT TO INVEST
The fund is designed for investors who:
- - are pursuing a long-term goal
- - want to add a non-U.S. investment with growth potential to further diversify a
portfolio
- - want a fund that seeks to consistently outperform the markets in which it
invests
The fund is NOT designed for investors who:
- - are uncomfortable with the risks of international investing
- - are looking for a less aggressive stock investment
- - require regular income or stability of principal
- - are pursuing a short-term goal or investing emergency reserves
J.P. MORGAN
Known for its commitment to proprietary research and its disciplined investment
strategies, J.P. Morgan is the asset management choice for many of the world's
most respected corporations, financial institutions, governments, and
individuals. Today, J.P. Morgan employs over 300 analysts and portfolio managers
around the world and has more than $250 billion in assets under management,
including assets managed by the fund's advisor, Morgan Guaranty Trust Company of
New York.
BEFORE YOU INVEST
Investors considering the fund should understand that:
- - The value of the fund's shares will fluctuate over time. You could lose money
if you sell when the fund's share price is lower than when you invested.
- - There is no assurance that the fund will meet its investment goals.
- - Future returns will not necessarily resemble past performance.
- - Foreign stocks are generally riskier than their domestic counterparts. You
should be prepared to ride out periods of underperformance.
- - The fund does not represent a complete investment program.
1
<PAGE>
INTERNATIONAL EQUITY MANAGEMENT APPROACH
- --------------------------------------------------------------------------------
The J.P. Morgan International Equity Fund invests primarily in stocks of
companies outside the U.S.
The fund's investment philosophy, developed by its advisor, focuses on
allocating assets by country, selecting stocks and managing currency exposure.
The fund largely avoids using sector or market-timing strategies. Under normal
market conditions, the fund will remain fully invested.
INTERNATIONAL EQUITY INVESTMENT PROCESS
Through its extensive global equity research and analytical systems, J.P. Morgan
seeks to generate an information advantage. Using fundamental analysis as well
as macro-economic models, J.P. Morgan develops proprietary research on
countries, companies, and currencies. In these processes, the analysts focus on
a relatively long period rather than on near-term expectations alone. The team
of analysts dedicated to international equities includes more than 90 members
around the world, with an average of nearly ten years of experience.
In managing the fund, J.P. Morgan employs a three-step process that combines
country allocation, fundamental research for identifying portfolio securities,
and currency management decisions:
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 the fund.
[GRAPHIC]
J.P. Morgan uses top-down analysis in determining which countries to emphasize
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. The fund's management team then buys and
sells stocks, using the research and valuation rankings as well as its
assessment of other factors, including:
- - catalysts that could trigger a change in a stock's price
- - potential reward compared to potential risk
- - temporary mispricings caused by market overreactions
[GRAPHIC]
Stocks in each industry are ranked with the help of models, then selected for
investment
CURRENCY MANAGEMENT The fund has access to J.P. Morgan's currency specialists
in determining the extent and nature of its exposure to various foreign
currencies.
[GRAPHIC] Morgan may adjust currency exposure to seek to manage risks
and enhance returns
2 INTERNATIONAL EQUITY MANAGEMENT APPROACH
<PAGE>
- --------------------------------------------------------------------------------
(THIS PAGE IS INTENTIONALLY LEFT BLANK)
3
<PAGE>
J.P. MORGAN INTERNATIONAL
EQUITY FUND TICKER SYMBOL: PPIEX
- --------------------------------------------------------------------------------
REGISTRANT: J.P. MORGAN FUNDS
(J.P. MORGAN INTERNATIONAL EQUITY FUND)
[GRAPHIC]
GOAL
The fund's goal is to provide high total return from a portfolio of foreign
company stocks.
[GRAPHIC]
INVESTMENT APPROACH
The fund invests primarily in equity securities from developed countries
included in the Morgan Stanley Capital International Europe, Australasia, and
Far East Index (EAFE), which is the fund's benchmark. The fund typically does
not invest in U.S. companies.
The fund's industry weightings generally approximate those of the EAFE Index,
although it does not seek to mirror the index in its choice of individual
securities, and may overweight or underweight countries relative to the EAFE
Index. In choosing stocks, the fund emphasizes those that are ranked as
undervalued according to J.P. Morgan's proprietary research, while
underweighting or avoiding those that appear overvalued. The fund makes its
currency management decisions as described on pages 2 and 10.
[GRAPHIC]
POTENTIAL RISKS AND REWARDS
The value of your investment in the fund will fluctuate in response to movements
in international stock markets and currency exchange rates. Fund performance
will also depend on the effectiveness of J.P. Morgan's research and the
management team's stock picking and currency management decisions.
In general, international investing involves higher risks than investing in
U.S. markets but offers attractive potential rewards and opportunities for
diversification. Foreign markets tend to be more volatile than those of the
U.S., and changes in currency exchange rates could reduce or increase market
performance. To the extent that the fund hedges its currency exposure into the
U.S. dollar, it may reduce the effects of currency fluctuations which could
protect the fund from losses but could also reduce opportunities for gains. The
fund may also hedge from one foreign currency to another which could result in
gains or losses.
By emphasizing undervalued stocks, the fund has the potential to outperform the
EAFE Index. At the same time, the fund seeks to limit its volatility to that of
the index.
The fund's investments and their main risks, as well as fund strategies, are
described in more detail on page 10.
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages over
$250 billion, including approximately $10.5 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 portfolio
manager at Brown Brothers Harriman and Co. and a portfolio manager at Gartmore
Investment Management.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
The current expenses you should expect to pay as an investor in the fund are
shown at right. The fund has no sales, redemption, exchange, or account fees,
although some institutions may charge you a fee for shares you buy through them.
The annual fund expenses shown are deducted from fund assets prior to
performance calculations.
Footnotes for this section are shown on next page.
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES(1) (%)
<S> <C>
Management fees (actual) 0.60
Marketing (12b-1) fees none
Other expenses 0.52
- ------------------------------------------------------
Total operating expenses 1.12
- ------------------------------------------------------
</TABLE>
EXPENSE EXAMPLE
The example below uses the same assumptions as other fund prospectuses: $1,000
initial investment, 5% annual total return, expenses unchanged, all shares sold
at the end of each time period. The example is for comparison only; the fund's
actual return and expenses will be different.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
<S> <C> <C> <C> <C>
Your cost($) 11 36 62 136
- ------------------------------------------------------------------------
</TABLE>
4 J.P. MORGAN INTERNATIONAL EQUITY FUND
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE (UNAUDITED)
<TABLE>
<<Caption>
AVERAGE ANNUAL TOTAL RETURN (%) Shows performance over time, for periods ended
December 31, 1997
- -------------------------------------------------------------------------------------------
1 yr. 5 yrs.(2) Since Inception(2)
<S> <C> <C> <C>
J.P. MORGAN INTERNATIONAL EQUITY FUND (after expenses) 1.17 9.17 4.42
- -------------------------------------------------------------------------------------------
EAFE INDEX(3) (no expenses) 1.78 11.39 5.09
- -------------------------------------------------------------------------------------------
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN (%) Shows changes in returns by calendar year
- --------------------------------------------------------------------------------------------------------------
[GRAPH]
1991 1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
J.P. MORGAN INTERNATIONAL EQUITY FUND 10.58 (10.77) 24.37 5.65 7.59 8.41 1.17
- --------------------------------------------------------------------------------------------------------------
EAFE INDEX(3) 12.13 (12.17) 32.56 7.78 11.21 6.05 1.78
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA For fiscal periods ended October 31
- --------------------------------------------------------------------------------------------------------------------------------
1990(4) 1991(4) 1992(4) 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ($) 10.00 9.33 9.69 8.58 11.15 11.50 10.68 11.38
- --------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.05 0.11 0.04 0.01 0.05 0.09 0.12 0.15
Net realized and unrealized gain (loss)
on investment and foreign currency ($) (0.72) 0.42 (1.11) 2.64 0.57 (0.42) 1.16 0.23
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS ($) (0.67) 0.53 (1.07) 2.65 0.62 (0.33) 1.28 0.38
- --------------------------------------------------------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) -- (0.05) (0.04) (0.08) (0.04) -- (0.24) (0.25)
Net realized gain ($) -- (0.12) -- -- (0.23) (0.49) (0.34) (0.54)
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS ($) -- (0.17) (0.04) (0.08) (0.27) (0.49) (0.58) (0.79)
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD ($) 9.33 9.69 8.58 11.15 11.50 10.68 11.38 10.97
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) (6.70) 5.89 (11.08) 31.18 5.73 (2.71) 12.31 3.46
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD ($ thousands) 19,358 27,426 41,484 182,822 210,435 185,541 200,720 146,659
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
EXPENSES (%) 1.36 1.38 1.38 1.38 1.38 1.28 1.14 1.12
- --------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (%) 1.49 1.34 1.03 0.79 0.46 0.80 1.00 1.11
- --------------------------------------------------------------------------------------------------------------------------------
DECREASE REFLECTED IN EXPENSE RATIO DUE
TO EXPENSE REIMBURSEMENT (%) 1.52 0.66 0.45 0.13 0.07 0.005 -- --
- --------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER (%) 0.00 18.84 30.12 34.15(6) -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Financial Highlights above have been audited by Price Waterhouse LLP, the
fund's independent accountants.
(1) The fund has a master/feeder structure as described on page 9. This table
shows the fund's expenses and its share of master portfolio expenses for
the past fiscal year expressed as a percentage of the fund's average net
assets.
(2) The fund commenced operations on 6/1/90 and performance is calculated as of
6/30/90. This data is based on historical earnings and is not intended to
indicate future performance.
(3) The EAFE Index is an unmanaged index used to track the average performance
of over 900 securities listed on the stock exchanges of countries in
Europe, Australasia and the Far East.
(4) Financial highlights were audited by Ernst & Young LLP for the fiscal
periods ended October 31, 1990, 1991 and 1992 and by the Price Waterhouse
LLP thereafter.
(5) Less than 0.01%.
(6) 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.
J.P. MORGAN INTERNATIONAL EQUITY FUND 5
<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:
- - Determine the amount you are investing. The minimum amount for initial
investments in the fund is $2,500 and for additional investments $500,
although these minimums may be less for some investors. For more information
on minimum investments, call 1-800-521-5411.
- - Complete the application, indicating how much of your investment you want to
allocate to which fund(s). Please apply now for any account privileges you may
want to use in the future, in order to avoid the delays associated with adding
them later on.
- - Mail in your application, making your initial investment as shown at right.
For answers to any questions, please speak with a J.P. Morgan Funds Services
Representative at 1-800-521-5411.
OPENING YOUR ACCOUNT
BY WIRE
- - Mail your completed application to the Shareholder Services Agent.
- - Call the Shareholder Services Agent to obtain an account number and to place a
purchase order. FUNDS THAT ARE WIRED WITHOUT A PURCHASE ORDER WILL BE RETURNED
UNINVESTED.
- - After placing your purchase order, instruct your bank to wire the amount of
your investment to:
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
- - Make out a check for the investment amount payable to J.P. Morgan Funds.
- - Mail the check with your completed application to the Transfer Agent.
BY EXCHANGE
- - Call the Shareholder Services Agent to effect an exchange.
ADDING TO YOUR ACCOUNT
BY WIRE
- - Call the Shareholder Services Agent to place a purchase order. FUNDS THAT ARE
WIRED WITHOUT A PURCHASE ORDER WILL BE RETURNED UNINVESTED.
- - Once you have placed your purchase order, instruct your bank to wire the
amount of your investment as described above.
BY CHECK
- - Make out a check for the investment amount payable to J.P. Morgan Funds.
- - 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
- - Call the Shareholder Services Agent to effect an exchange.
6 YOUR INVESTMENT
<PAGE>
- --------------------------------------------------------------------------------
SELLING SHARES
BY PHONE--WIRE PAYMENT
- - Call the Shareholder Services Agent to verify that the wire redemption
privilege is in place on your account. If it is not, a representative can help
you add it.
- - Place your wire request. If you are transferring money to a non-Morgan
account, you will need to provide the representative with the personal
identification number (PIN) that was provided to you when you opened your fund
account.
BY PHONE--CHECK PAYMENT
- - Call the Shareholder Services Agent and place your request. Once your request
has been verified, a check for the net amount, payable to the registered
owner(s), will be mailed to the address of record. For checks payable to any
other party or mailed to any other address, please make your request in
writing (see below).
IN WRITING
- - Write a letter of instruction that includes the following information: The
name of the registered owner(s) of the account; the account number; the fund
name; the amount you want to sell; and the recipient's name and address or
wire information, if different from those of the account registration.
- - Indicate whether you want the proceeds sent by check or by wire.
- - Make sure the letter is signed by an authorized party.
The Shareholder Services Agent may require additional information, such as a
signature guarantee.
- - Mail the letter to the Shareholder Services Agent.
BY EXCHANGE
- - Call the Shareholder Services Agent to effect an exchange.
ACCOUNT AND TRANSACTION POLICIES
TELEPHONE ORDERS The fund accepts telephone orders from all shareholders. To
guard against fraud, the fund requires shareholders to use a PIN, and may record
telephone orders or take other reasonable precautions. However, if the fund does
take such steps to ensure the authenticity of an order, you may bear any loss if
the order later proves fraudulent.
EXCHANGES You may exchange shares in this fund for shares in any other J.P.
Morgan 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.
The fund may alter, limit, or suspend its exchange policy at any time.
BUSINESS HOURS AND NAV CALCULATIONS The fund's regular business days and hours
are the same as those of the New York Stock Exchange (NYSE). The fund calculates
its net asset value per share (NAV) every business day as of the close of
trading on the NYSE(normally 4:00 p.m. eastern time).
TIMING OF ORDERS Orders to buy or sell shares are executed at the next
NAVcalculated after the order has been accepted. Orders are accepted until the
close of trading on the NYSE every business day and are executed the same day,
at that day's NAV. The fund has the right to suspend redemption of shares and to
postpone payment of proceeds for up to seven days or as permitted by law.
TIMING OF SETTLEMENTS When you buy shares, you will become the owner of record
when the fund receives your payment, generally the day following execution. When
you sell shares, proceeds are generally available the day following execution
and will be forwarded according to your instructions.
- --------------------------------------------------------------------------------
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 7
<PAGE>
- --------------------------------------------------------------------------------
When you sell shares that you recently purchased by check, your order will be
executed at the next NAV but the proceeds will not be available until your check
clears. This may take up to 15 days.
STATEMENTS AND REPORTS The fund sends monthly account statements as well as
confirmations after each purchase or sale of shares (except reinvestments).
Every six months, the fund sends out an annual or semi-annual report containing
information on the fund's holdings and a discussion of recent and anticipated
market conditions and fund performance.
ACCOUNTS WITH BELOW-MINIMUM BALANCES If your account balance falls below the
minimum for 30 days as a result of selling shares (and not because of
performance), the fund reserves the right to request that you buy more shares or
close your account. If your account balance is still below the minimum 60 days
after notification, the fund reserves the right to close out your account and
send the proceeds to the address of record.
DIVIDENDS AND DISTRIBUTIONS
The fund typically pays income dividends and makes capital gains distributions,
if any, once a year. The fund may declare an additional income dividend in a
given year, depending on its tax situation. However, the fund may also make
fewer payments in a given year, depending on its investment results. Dividends
and distributions consist of substantially all of the fund's net investment
income and realized capital gains.
Dividends and distributions are reinvested in additional fund shares.
Alternatively, you may instruct your financial professional or J.P. Morgan Funds
Services to have them sent to you by check, credited to a separate account, or
invested in another J.P. Morgan 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 the fund is about to declare a long-term capital
gains distribution.
Every January, the fund issues tax information on its distributions for the
previous year.
Any investor for whom the fund does not have a valid taxpayer identification
number will be subject to backup withholding for taxes.
The tax considerations described in this section do not apply to tax-deferred
accounts or other non-taxable entities.
Because each investor's tax circumstances are unique, please consult your tax
professional about your fund investment.
8 YOUR INVESTMENT
<PAGE>
FUND DETAILS
- --------------------------------------------------------------------------------
MASTER/FEEDER STRUCTURE
As noted earlier, the fund is a "feeder" fund that invests in a master
portfolio. (Except where indicated, this prospectus uses the term "the fund" to
mean the feeder fund and its master portfolio taken together.)
The master portfolio accepts investments from other feeder funds, and the
feeders 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 the master
portfolio seeks a vote, the feeder fund will hold a shareholder meeting and cast
its vote proportionately, as instructed by its shareholders. Fund shareholders
are entitled to one vote per fund share.
The fund and its master portfolio expect to maintain consistent goals, but if
they do not, the fund will withdraw from the master portfolio, receiving its
assets either in cash or securities. The fund's trustees would then consider
whether the fund should hire its own investment adviser, invest in a different
master portfolio, or take other action.
MANAGEMENT AND ADMINISTRATION
The fund and its master portfolio are governed by the same trustees. The
trustees are responsible for overseeing all business activities. The
trustees are assisted by Pierpont Group, Inc., which they own and operate on a
cost basis; costs are shared by all funds governed by these trustees. Funds
Distributor, Inc., as co-administrator, along with J.P. Morgan, provides fund
officers. J.P. Morgan, as co-administrator, oversees the fund's other service
providers.
J.P. Morgan receives the following fees for investment advisory and other
services:
- --------------------------------------------------------------------------------
ADVISORY SERVICES 0.60% of the master portfolio's
average net assets
- --------------------------------------------------------------------------------
ADMINISTRATIVE SERVICES Master portfolio's and fund's pro-
(fee shared with Funds rata portions of 0.09% of the
Distributor, Inc.) first $7 billion in J.P. Morgan-advised
portfolios, plus 0.04% of average net
assets over $7 billion
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICES 0.25% 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 the fund.
FUND DETAILS 9
<PAGE>
- --------------------------------------------------------------------------------
RISK AND REWARD ELEMENTS
This table identifies the main elements that make up the fund's overall risk and
reward characteristics (described on page 4). It also outlines the fund's
policies toward various investments, including those that are designed to help
the fund manage risk.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
POTENTIAL RISKS POTENTIAL REWARDS POLICIES TO BALANCE RISK AND REWARD
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FOREIGN AND OTHER MARKET
CONDITIONS
- - The fund's share price and - Stocks have generally - Under normal circumstances the fund plans to remain
performance will fluctuate outperformed more stable fully invested, with at least 65% in stocks; stock
in response to stock investments (such as bonds investments may include convertible securities,
market movements and cash equivalents) over preferred stocks, depository receipts (such as ADRs
the long term and EDRs), trust or partnership interests, warrants,
rights, and investment company securities
- - The fund could lose money - Foreign investments, which - The fund seeks to limit risk and enhance performance
because of foreign government represent a major portion through active management, country allocation
actions, political instability, of the world's securities, and diversification
or lack of adequate and/or offer attractive potential
accurate information performance and opportunities - During severe market downturns, the fund has the
for diversification option of investing up to 100% of assets in
investment-grade short-term securities
- -----------------------------------------------------------------------------------------------------------------------------------
MANAGEMENT CHOICES
- - The fund could underperform - The fund could outperform its - J.P. Morgan focuses its active management on securities
its benchmark due to its benchmark due to these same selection, the area where it believes its commitment
securities choices and other choices to research can most enhance returns
management decisions
- -----------------------------------------------------------------------------------------------------------------------------------
FOREIGN CURRENCIES
- - Currency exchange rate - Favorable exchange rate - The fund manages the currency exposure of its
movements could reduce movements could generate gains foreign investments relative to its benchmark, and
gains or create losses or reduce losses may hedge a portion of its foreign currency exposure into
the U.S. dollar from time to time (see also "Derivatives")
- -----------------------------------------------------------------------------------------------------------------------------------
10 FUND DETAILS
<PAGE>
- -----------------------------------------------------------------------------------------------------------------------------------
POTENTIAL RISKS POTENTIAL REWARDS POLICIES TO BALANCE RISK AND REWARD
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
DERIVATIVES
- - Derivatives such as - Hedges that correlate well - The fund uses derivatives, such as futures, options,
futures, options, and with underlying positions can and forward foreign currency contracts for
forward foreign currency reduce or eliminate losses at hedging (i.e., to establish or adjust exposure
contracts(1) that are used low cost to particular securities, markets or currencies)
for hedging the portfolio or
specific securities may not - The fund could make money and - The fund only establishes hedges that it expects
fully offset the underlying protect against losses if will be highly correlated with underlying positions
positions and this could the investment analysis proves
result in losses to the correct - While the fund may use derivatives that incidentally
fund that would not have involve leverage, it does not use them for the
otherwise occurred specific purpose of leveraging its portfolio
- Derivatives that involve
leverage could generate
substantial gains at low cost
- - The counterparty to a derivatives
contract could default
- - Derivatives that involve
leverage could magnify
losses
- - Certain types of derivatives
involve costs to the fund
which can reduce returns
- -----------------------------------------------------------------------------------------------------------------------------------
ILLIQUID HOLDINGS
- - The fund could have - These holdings may offer more - The fund may not invest more than 15% of net assets
difficulty valuing these attractive yields or potential in illiquid holdings
holdings precisely growth than comparable widely
traded securities - To maintain adequate liquidity, the fund may hold
- - The fund could be unable to investment-grade short-term securities (including
sell these holdings at the repurchase agreements) and, for temporary or
time or price it desired extraordinary purposes, may borrow from banks up to
30% of the value of its net assets
- -----------------------------------------------------------------------------------------------------------------------------------
WHEN-ISSUED AND DELAYED
DELIVERY SECURITIES
- - When the fund buys securities - The fund can take advantage - The fund uses segregated accounts to offset leverage
before issue or for delayed of attractive transaction risk
delivery, it could be exposed opportunities
to leverage risk if it does
not use segregated accounts
- -----------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM TRADING
- - Increased trading could - The fund could realize - The fund anticipates that its portfolio turnover rate
raise the fund's brokerage gains in a short period will not exceed 100%
and related costs of time
- The fund generally avoids short-term trading, except
- - Increased short-term capital - The fund could protect to take advantage of attractive or unexpected
gains distributions could against losses if a opportunities or to meet demands generated by
raise shareholders' income stock is overvalued and shareholder activity
tax liability its value later falls
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) A futures contract is an agreement to buy or sell a set quantity of an
underlying instrument at a future date, or to make or receive a cash payment
based on changes in the value of a securities index. An option is the right to
buy or sell a set quantity of an underlying instrument at a predetermined price.
A forward foreign currency contract is an obligation to buy or sell a given
currency on a future date and at a set price.
FUND DETAILS 11
<PAGE>
- --------------------------------------------------------------------------------
(THIS PAGE IS INTENTIONALLY LEFT BLANK)
12
<PAGE>
- --------------------------------------------------------------------------------
(THIS PAGE IS INTENTIONALLY LEFT BLANK)
13
<PAGE>
FOR MORE INFORMATION
- --------------------------------------------------------------------------------
For investors who want more information on the fund, the following documents are
available free upon request:
Annual/Semi-annual Reports Contain financial statements, performance data,
information on portfolio holdings, and a written analysis of market conditions
and fund performance for the fund's most recently completed fiscal year or
half-year.
Statement of Additional Information (SAI) Provides a fuller technical and legal
description of the fund's policies, investment restrictions, and business
structure. This prospectus incorporates the fund's SAI by reference.
Copies of the current versions of these documents may be obtained by contacting:
J.P. MORGAN INTERNATIONAL EQUITY FUND
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 from the
Public Reference Room of the Securities and Exchange Commission in Washington,
D.C. (1-800-SEC-0330) and may be viewed on-screen or downloaded from the SEC's
Internet site at http://www.sec.gov. The fund's investment company and 1933 Act
registration numbers are 811-07340 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.
[ Logo] JPMORGAN
- --------------------------------------------------------------------------------
J.P. MORGAN FUNDS
ADVISOR DISTRIBUTOR
Morgan Guaranty Trust Company of New York Funds Distributor, Inc.
522 Fifth Avenue 60 State Street
New York, NY 10036 Boston, MA 02109
1-800-521-5411 1-800-221-7930
Pros 296-983
<PAGE>
MARCH 31, 1998 PROSPECTUS
J.P. MORGAN EUROPEAN EQUITY FUND
-------------------------
Seeking high total return
primarily from stocks
outside the United States
This prospectus contains essential information for anyone investing in the fund.
Please read it carefully and keep it for reference.
Shares in the fund are not bank deposits and are not guaranteed or insured by
any bank, government entity, or the FDIC.
As with all mutual funds, the fact that these shares are registered with the
Securities and Exchange Commission does not mean that the commission approves
them as an investment or guarantees that the information in this prospectus is
correct or adequate. It is a criminal offense to state or suggest otherwise.
Distributed by Funds Distributor, Inc. [Logo] JPMORGAN
<PAGE>
CONTENTS
- --------------------------------------------------------------------------------
2
- ---
INTERNATIONAL EQUITY MANAGEMENT APPROACH
International equity investment process. . . . . . . . . . . . . . . . . 2
4
- ---
The fund's goal, investment approach, risks, expenses, performance, and
financial highlights
J.P. MORGAN EUROPEAN EQUITY FUND
Fund description . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Investor expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Financial highlights . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6
- ---
Investing in the J.P. Morgan European Equity Fund
YOUR INVESTMENT
Investing through a financial professional . . . . . . . . . . . . . . . 6
Investing through an employer-sponsored retirement plan. . . . . . . . . 6
Investing through an IRA or rollover IRA . . . . . . . . . . . . . . . . 6
Investing directly . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Opening your account . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Adding to your account . . . . . . . . . . . . . . . . . . . . . . . . . 6
Selling shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Account and transaction policies . . . . . . . . . . . . . . . . . . . . 7
Dividends and distributions. . . . . . . . . . . . . . . . . . . . . . . 8
Tax considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
9
- ---
More about risk and the fund's business operations
FUND DETAILS
Master/Feeder structure. . . . . . . . . . . . . . . . . . . . . . . . . 9
Management and administration. . . . . . . . . . . . . . . . . . . . . . 9
Risk and reward elements . . . . . . . . . . . . . . . . . . . . . . . . 10
FOR MORE INFORMATION . . . . . . . . . . . . . . . . . . . . . . back cover
<PAGE>
INTRODUCTION
- --------------------------------------------------------------------------------
J.P. MORGAN EUROPEAN EQUITY FUND
This fund invests primarily in stocks and other equity securities of European
companies through a master portfolio (another fund with the same goal). As a
shareholder, you should anticipate risks and rewards beyond
those of a typical U.S. stock fund.
WHO MAY WANT TO INVEST
The fund is designed for investors who:
- - are pursuing a long-term goal
- - want to add a non-U.S. investment with growth potential to further
diversify a portfolio
- - want a fund that seeks to consistently outperform the markets in which it
invests
The fund is NOT designed for investors who:
- - are uncomfortable with the risks of international investing
- - are looking for a less aggressive stock investment
- - require regular income or stability of principal
- - are pursuing a short-term goal or investing emergency reserves
J.P. MORGAN
Known for its commitment to proprietary research and its disciplined investment
strategies, J.P. Morgan is the asset management choice for many of the world's
most respected corporations, financial institutions, governments, and
individuals. Today, J.P. Morgan employs over 300 analysts and portfolio managers
around the world and has more than $250 billion in assets under management,
including assets managed by the fund's advisor, Morgan Guaranty Trust Company of
New York.
BEFORE YOU INVEST
Investors considering the fund should understand that:
- - The value of the fund's shares will fluctuate over time. You could lose
money if you sell when the fund's share price is lower than when you
invested.
- - There is no assurance that the fund will meet its investment goals.
- - Future returns will not necessarily resemble past performance.
- - Foreign stocks are generally riskier than their domestic counterparts. You
should be prepared to ride out periods of underperformance.
- - The fund does not represent a complete investment program.
1
<PAGE>
INTERNATIONAL EQUITY MANAGEMENT APPROACH
- --------------------------------------------------------------------------------
The J.P. Morgan European Equity Fund invests primarily in stocks of European
companies.
The fund's investment philosophy, developed by its advisor, focuses on
allocating assets by country (where relevant), selecting stocks and managing
currency exposure. The fund largely avoids using sector or market-timing
strategies. Under normal market conditions, the fund will remain fully invested.
INTERNATIONAL EQUITY INVESTMENT PROCESS
Through its extensive global equity research and analytical systems, J.P. Morgan
seeks to generate an information advantage. Using fundamental analysis as well
as macro-economic models, J.P. Morgan develops proprietary research on
countries, companies, and currencies. In these processes, the analysts focus on
a relatively long period rather than on near-term expectations alone. The team
of analysts dedicated to international equities includes more than 90 members
around the world, with an average of nearly ten years of experience.
In managing the fund, J.P. Morgan employs a three-step process that combines
country allocation, fundamental research for identifying portfolio securities,
and currency management decisions:
[GRAPHIC] J.P. Morgan uses fundamental analysis in determining which
countries to emphasize
COUNTRY ALLOCATION The fund's country weightings primarily result from its
stock selection decisions and may differ significantly from the MSCI Europe
Index. In addition, the fund makes active allocations to certain countries.
[GRAPHIC]
J.P. Morgan makes a determination as to the appropriate allocation among
European countries.
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. The fund's management team then buys and
sells stocks, using the research and valuation rankings as well as its
assessment of other factors, including:
- - catalysts that could trigger a change in a stock's price
- - potential reward compared to potential risk
- - temporary mispricings caused by market overreactions
[GRAPHIC]
Morgan may adjust currency exposure to seek to manage risks and enhance returns
CURRENCY MANAGEMENT The fund has access to J.P. Morgan's currency specialists
in determining the extent and nature of its exposure to various foreign
currencies.
2 INTERNATIONAL EQUITY MANAGEMENT APPROACH
<PAGE>
- --------------------------------------------------------------------------------
(THIS PAGE IS INTENTIONALLY LEFT BLANK)
3
<PAGE>
J.P. MORGAN EUROPEAN EQUITY FUND
- --------------------------------------------------------------------------------
REGISTRANT: J.P. MORGAN FUNDS
(J.P. MORGAN EUROPEAN EQUITY FUND)
[GRAPHIC]
GOAL
The fund's goal is to provide high total return from a portfolio of European
company stocks.
[GRAPHIC]
INVESTMENT APPROACH
The fund invests primarily in equity securities from the 14 countries included
in the Morgan Stanley Capital International (MSCI) Europe Index, which is the
fund's benchmark. The fund typically does not invest in U.S. companies.
The fund focuses on stock picking, emphasizing those stocks that are ranked as
undervalued according to J.P. Morgan's proprietary research, while
underweighting or avoiding those that appear overvalued. The fund generally
keeps its industry weightings similar to those of the MSCI Europe Index,
although it does not seek to mirror the index in its choice of individual
securities. The fund makes its country allocations and currency management
decisions as described on pages 2 and 10.
[GRAPHIC]
POTENTIAL RISKS AND REWARDS
The value of your investment in the fund will fluctuate in response to movements
in European stock markets and currency exchange rates. Fund performance will
also depend on the effectiveness of J.P. Morgan's research and the management
team's stock picking and currency management decisions.
In general, international investing involves higher risks than investing in U.S.
markets but offers attractive potential rewards and opportunities for
diversification. Foreign markets tend to be more volatile than those of the
U.S., and changes in currency exchange rates could reduce or increase market
performance. To the extent that the fund hedges its currency exposure into the
U.S. dollar, it may reduce the effects of currency fluctuations which could
protect the fund from losses but could also reduce opportunities for gains. The
fund may also hedge from one foreign currency to another which could result in
gains or losses.
By emphasizing undervalued stocks, the fund has the potential to outperform the
MSCI Europe Index. At the same time, the fund seeks to limit its volatility to
that of the index.
The fund's investments and their main risks, as well as fund strategies, are
described in more detail on page 10.
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages over $250
billion, including more than $3.6 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 portfolio
manager at Brown Brothers Harriman and Co. and a portfolio manager at Gartmore
Investment Management.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
The current expenses you should expect to pay as an investor in the fund are
shown at right. The fund has no sales, redemption, exchange, or account fees,
although some institutions may charge you a fee for shares you buy through them.
The annual fund expenses shown are deducted from fund assets prior to
performance calculations.
Footnotes for this section are shown on next page.
<TABLE>
<CAPTION>
<S> <C>
ANNUAL FUND OPERATING EXPENSES(1) (%)
Management fees (actual) 0.65
Marketing (12b-1) fees none
Other expenses(2)
(after reimbursement) 0.77
- ------------------------------------------------------
TOTAL OPERATING EXPENSES(2)
(AFTER REIMBURSEMENT) 1.42
- ------------------------------------------------------
</TABLE>
EXPENSE EXAMPLE
The example below uses the same assumptions as other fund prospectuses: $1,000
initial investment, 5% annual total return, expenses unchanged, all shares sold
at the end of each time period. The example is for comparison only; the fund's
actual return and expenses will be different.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
<S> <C> <C> <C> <C>
YOUR COST($) 14 45 78 170
- ---------------------------------------------------------------------------
</TABLE>
4 J.P. MORGAN EUROPEAN EQUITY FUND
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE (UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN (%) Shows performance over time, for periods ended December 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
1 yr. Since Inception(3)
<S> <C> <C>
J.P. MORGAN EUROPEAN EQUITY FUND (after expenses) 22.10 21.70
- ------------------------------------------------------------------------------------------------------------------------------------
MSCI EUROPE INDEX(4) (no expenses) 23.80 22.98
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
TOTAL RETURN (%) Shows changes in return by calendar year
- ------------------------------------------------------------------------------------------------------------------------------------
[GRAPH]
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
J.P. MORGAN EUROPEAN EQUITY FUND 22.10
- ------------------------------------------------------------------------------------------------------------------------------------
MSCI EUROPE INDEX(4) 23.80
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------------------------------------------------------------
PER-SHARE DATA For fiscal periods ended December 31
- ------------------------------------------------------------------------------------------------------------------------------------
1996 1997
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ($) 10.00 11.61
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 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(5) (0.74)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS ($) 0.00(5) (0.81)
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD ($) 11.61 13.35
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) 16.10(6) 22.10
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD ($ THOUSANDS) 2,072 4,832
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
EXPENSES (%) 1.42(7) 1.42
- ------------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (%) 0.29(7) 0.91
- ------------------------------------------------------------------------------------------------------------------------------------
DECREASE REFLECTED IN EXPENSE RATIO DUE
TO EXPENSE REIMBURSEMENT (%) 1.08(8) 2.36
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Financial Highlights above have been audited by Price Waterhouse LLP, the
fund's independent accountants.
(1) The fund has a master/feeder structure as described on page 9. This table
shows the fund's expenses and its share of master portfolio expenses for
the past fiscal year, expressed as a percentage of the fund's average net
assets and reflecting reimbursement for ordinary expenses over 1.42%.
(2) Without reimbursement, other expenses and total operating expenses would
have been 3.13% and 3.78%, respectively. There is no guarantee that
reimbursement will continue beyond 4/30/99.
(3) The fund commenced operations on 5/10/96. Returns reflect performance of
the J.P. Morgan Institutional European Equity Fund (a separate feeder fund
investing in the same master portfolio) from 2/29/96 through 5/9/96. This
data is based on historical earnings and is not intended to indicate future
performance.
(4) The MSCI Europe Index is an unmanaged index comprised of more than 600
companies in 14 European countries.
(5) Less than 0.01.
(6) Not annualized.
(7) Annualized.
(8) After consideration of then applicable state limitations.
J.P. MORGAN EUROPEAN EQUITY FUND 5
<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:
- Determine the amount you are investing. The minimum amount for initial
investments in the fund is $2,500 and for additional investments $500,
although these minimums may be less for some investors. For more
information on minimum investments, call 1-800-521-5411.
- Complete the application, indicating how much of your investment you want
to allocate to which fund(s). Please apply now for any account privileges
you may want to use in the future, in order to avoid the delays associated
with adding them later on.
- Mail in your application, making your initial investment as shown at right.
For answers to any questions, please speak with a J.P. Morgan Funds Services
Representative at 1-800-521-5411.
OPENING YOUR ACCOUNT
BY WIRE
- - Mail your completed application to the Shareholder Services Agent.
- - Call the Shareholder Services Agent to obtain an account number and to
place a purchase order. FUNDS THAT ARE WIRED WITHOUT A PURCHASE ORDER WILL
BE RETURNED UNINVESTED.
- - After placing your purchase order, instruct your bank to wire the amount of
your investment to:
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
- - Make out a check for the investment amount payable to J.P. Morgan Funds.
- - Mail the check with your completed application to the Transfer Agent.
BY EXCHANGE
- - Call the Shareholder Services Agent to effect an exchange.
ADDING TO YOUR ACCOUNT
BY WIRE
- - Call the Shareholder Services Agent to place a purchase order. FUNDS THAT
ARE WIRED WITHOUT A PURCHASE ORDER WILL BE RETURNED UNINVESTED.
- - Once you have placed your purchase order, instruct your bank to wire the
amount of your investment as described above.
BY CHECK
- - Make out a check for the investment amount payable to J.P. Morgan Funds.
- - 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
- - Call the Shareholder Services Agent to effect an exchange.
6 YOUR INVESTMENT
<PAGE>
- --------------------------------------------------------------------------------
SELLING SHARES
BY PHONE--WIRE PAYMENT
- - Call the Shareholder Services Agent to verify that the wire redemption
privilege is in place on your account. If it is not, a representative can
help you add it.
- - Place your wire request. If you are transferring money to a non-Morgan
account, you will need to provide the representative with the personal
identification number (PIN) that was provided to you when you opened your
fund account.
BY PHONE--CHECK PAYMENT
- - Call the Shareholder Services Agent and place your request. Once your
request has been verified, a check for the net amount, payable to the
registered owner(s), will be mailed to the address of record. For checks
payable to any other party or mailed to any other address, please make your
request in writing (see below).
IN WRITING
- - Write a letter of instruction that includes the following information: The
name of the registered owner(s) of the account; the account number; the
fund name; the amount you want to sell; and the recipient's name and
address or wire information, if different from those of the account
registration.
- - Indicate whether you want the proceeds sent by check or by wire.
- - Make sure the letter is signed by an authorized party. The Shareholder
Services Agent may require additional information, such as a signature
guarantee.
- - Mail the letter to the Shareholder Services Agent.
BY EXCHANGE
- - Call the Shareholder Services Agent to effect an exchange.
ACCOUNT AND TRANSACTION POLICIES
TELEPHONE ORDERS The fund accepts telephone orders from all shareholders. To
guard against fraud, the fund requires shareholders to use a PIN, and may record
telephone orders or take other reasonable precautions. However, if the fund does
take such steps to ensure the authenticity of an order, you may bear any loss if
the order later proves fraudulent.
EXCHANGES You may exchange shares in this fund for shares in any other J.P.
Morgan 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.
The fund may alter, limit, or suspend its exchange policy at any time.
BUSINESS HOURS AND NAV CALCULATIONS The fund's regular business days and hours
are the same as those of the New York Stock Exchange (NYSE). The fund calculates
its net asset value per share (NAV) every business day as of the close of
trading on the NYSE (normally 4:00 p.m. eastern time).
TIMING OF ORDERS Orders to buy or sell shares are executed at the next
NAV calculated after the order has been accepted. Orders are accepted until the
close of trading on the NYSE every business day and are executed the same day,
at that day's NAV. The fund has the right to suspend redemption of shares and to
postpone payment of proceeds for up to seven days or as permitted by law.
TIMING OF SETTLEMENTS When you buy shares, you will become the owner of record
when the fund receives your payment, generally the day following execution. When
you sell shares, proceeds are generally available the day following execution
and will be forwarded according to your instructions.
- --------------------------------------------------------------------------------
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 7
<PAGE>
- --------------------------------------------------------------------------------
When you sell shares that you recently purchased by check, your order will be
executed at the next NAV but the proceeds will not be available until your check
clears. This may take up to 15 days.
STATEMENTS AND REPORTS The fund sends monthly account statements as well as
confirmations after each purchase or sale of shares (except reinvestments).
Every six months, the fund sends out an annual or semi-annual report containing
information on the fund's holdings and a discussion of recent and anticipated
market conditions and fund performance.
ACCOUNTS WITH BELOW-MINIMUM BALANCES If your account balance falls below the
minimum for 30 days as a result of selling shares (and not because of
performance), the fund reserves the right to request that you buy more shares or
close your account. If your account balance is still below the minimum 60 days
after notification, the fund reserves the right to close out your account and
send the proceeds to the address of record.
DIVIDENDS AND DISTRIBUTIONS
The fund typically pays income dividends and makes capital gains distributions,
if any, once a year. The fund may declare an additional income dividend in a
given year, depending on its tax situation. However, the fund may also make
fewer payments in a given year, depending on its investment results. Dividends
and distributions consist of substantially all of the fund's net investment
income and realized capital gains.
Dividends and distributions are reinvested in additional fund shares.
Alternatively, you may instruct your financial professional or J.P. Morgan Funds
Services to have them sent to you by check, credited to a separate account, or
invested in another J.P. Morgan 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 the fund is about to declare a long-term capital
gains distribution.
Every January, the fund issues tax information on its distributions for the
previous year.
Any investor for whom the fund does not have a valid taxpayer identification
number will be subject to backup withholding for taxes.
The tax considerations described in this section do not apply to tax-deferred
accounts or other non-taxable entities.
Because each investor's tax circumstances are unique, please consult your tax
professional about your fund investment.
8 YOUR INVESTMENT
<PAGE>
FUND DETAILS
- --------------------------------------------------------------------------------
MASTER/FEEDER STRUCTURE
As noted earlier, the fund is a "feeder" fund that invests in a master
portfolio. (Except where indicated, this prospectus uses the term "the fund" to
mean the feeder fund and its master portfolio taken together.)
The master portfolio accepts investments from other feeder funds, and the
feeders 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 the master
portfolio seeks a vote, the feeder fund will hold a shareholder meeting and cast
its vote proportionately, as instructed by its shareholders. Fund shareholders
are entitled to one vote per fund share.
The fund and its master portfolio expect to maintain consistent goals, but if
they do not, the fund will withdraw from the master portfolio, receiving its
assets either in cash or securities. The fund's trustees would then consider
whether the fund should hire its own investment adviser, invest in a different
master portfolio, or take other action.
MANAGEMENT AND ADMINISTRATION
The fund and its master portfolio are governed by the same trustees. The
trustees are responsible for overseeing all business activities. The trustees
are assisted by Pierpont Group, Inc., which they own and operate on a cost
basis; costs are shared by all funds governed by these trustees. Funds
Distributor, Inc., as co-administrator, along with J.P. Morgan, provides fund
officers. J.P. Morgan, as co-administrator, oversees the fund's other service
providers.
J.P. Morgan, subject to the expense reimbursements described earlier in this
prospectus, receives the following fees for investment advisory and other
services:
- --------------------------------------------------------------------------------
ADVISORY SERVICES 0.65% of the master portfolio's
average net assets
- --------------------------------------------------------------------------------
ADMINISTRATIVE SERVICES Master portfolio's and fund's pro-
(fee shared with Funds rata portions of 0.09% of the
Distributor, Inc.) first $7 billion in J.P. Morgan-
advised portfolios, plus 0.04%
of average net assets over
$7 billion
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICES 0.25% 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 the fund.
FUND DETAILS 9
<PAGE>
- --------------------------------------------------------------------------------
RISK AND REWARD ELEMENTS
This table identifies the main elements that make up the fund's overall risk
and reward characteristics (described on page 4). It also outlines the fund's
policies toward various investments, including those that are designed to
help the fund manage risk.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
POTENTIAL RISKS POTENTIAL REWARDS POLICIES TO BALANCE RISK AND REWARD
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
FOREIGN AND OTHER MARKET
CONDITIONS
- - The fund's share price and - Stocks have generally - Under normal circumstances the fund
performance will fluctuate outperformed more stable plans to remain fully invested, with at
in response to stock market investments (such as bonds least 65% in stocks; stock investments
movements and cash equivalents) over may include convertible securities,
the long term preferred stocks, depository receipts
- - The fund could lose money (such as ADRs and EDRs), trust or
because of foreign government - Foreign investments, which partnership interests, warrants,
actions, political instability, represent a major portion rights, and investment company
or lack of adequate and/or of the world's securities, securities
accurate information offer attractive potential
performance and - The fund seeks to limit risk and enhance
opportunities for performance through active management,
diversification country allocation and diversification
- During severe market downturns, the
fund has the option of investing up to
100% of assets in investment-grade
short-term securities
- -----------------------------------------------------------------------------------------------------------------------------------
MANAGEMENT CHOICES
- - The fund could underperform its - The fund could outperform - J.P. Morgan focuses its active
benchmark due to its securities its benchmark due to these management on securities selection, the
choices and other management same choices area where it believes its commitment
decisions to research can most enhance returns
- -----------------------------------------------------------------------------------------------------------------------------------
FOREIGN CURRENCIES
- - Currency exchange rate - Favorable exchange rate - The fund manages the currency exposure of
movements could reduce movements could generate its foreign investments relative to its
gains or create losses gains or reduce losses benchmark, and may hedge a portion of its
foreign currency exposure into the U.S.
dollar from time to time (see also
"Derivatives")
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
10 FUND DETAILS
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
POTENTIAL RISKS POTENTIAL REWARDS POLICIES TO BALANCE RISK AND REWARD
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
DERIVATIVES
- - Derivatives such as - Hedges that correlate well - The fund uses derivatives, such as
futures, options, and with underlying positions futures, options, and forward foreign
forward foreign currency can reduce or eliminate currency contracts, for hedging and
contracts(1) that are used losses at low cost for risk management (i.e., to
for hedging the portfolio establish or adjust exposure to
or specific securities may - The fund could make money particular securities, markets or
not fully offset the and protect against losses currencies); risk management may
underlying positions and if the investment analysis include management of the fund's
this could result in losses proves correct exposure relative to its benchmark
to the fund that would not
have otherwise occurred - Derivatives that involve - The fund only establishes hedges that
leverage could generate it expects will be highly correlated
substantial gains at low cost with underlying positions
- - Derivatives used for risk management
may not have the intended effects and
may result in losses or missed - While the fund may use derivatives
opportunities that incidentally involve leverage,
it does not use them for the specific
- - The counterparty to a derivatives purpose of leveraging its portfolio
contract could default
- - Derivatives that involve
leverage could magnify
losses
- - Certain types of
derivatives involve costs
to the fund which can
reduce returns
- -----------------------------------------------------------------------------------------------------------------------------------
ILLIQUID HOLDINGS
- - The fund could have - These holdings may offer - The fund may not invest more than 15%
difficulty valuing these more attractive yields or of net assets in illiquid holdings
holdings precisely potential growth than
comparable widely traded - To maintain adequate liquidity, the
- - The fund could be unable to securities fund may hold investment-grade
sell these holdings at the short-term securities (including
time or price it desired repurchase agreements) and, for
temporary or extraordinary purposes,
may borrow from banks up to 33 1/3% of
the value of its total assets
- -----------------------------------------------------------------------------------------------------------------------------------
WHEN-ISSUED AND DELAYED
DELIVERY SECURITIES
- - When the fund buys - The fund can take advantage - The fund uses segregated accounts to
securities before issue or of attractive transaction offset leverage risk
for delayed delivery, it opportunities
could be exposed to
leverage risk if it does
not use segregated accounts
- -----------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM TRADING
- - Increased trading could - The fund could realize - The fund anticipates that its
raise the fund's brokerage gains in a short period of portfolio turnover rate will not
and related costs time exceed 100%
- - Increased short-term capital gains - The fund could protect - The fund generally avoids short-term
distributions could raise shareholders' against losses if a stock trading, except to take advantage of
income tax liability is overvalued and its value attractive or unexpected
later falls opportunities or to meet demands
generated by shareholder activity
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) A futures contract is an agreement to buy or sell a set quantity of an
underlying instrument at a future date, or to make or receive a cash
payment based on changes in the value of a securities index. An option
is the right to buy or sell a set quantity of an underlying instrument
at a predetermined price. A forward foreign currency contract is an
obligation to buy and sell a given currency on a future date and at a set
price.
FUND DETAILS 11
<PAGE>
- --------------------------------------------------------------------------------
(THIS PAGE IS INTENTIONALLY LEFT BLANK)
12
<PAGE>
- --------------------------------------------------------------------------------
(THIS PAGE IS INTENTIONALLY LEFT BLANK)
13
<PAGE>
FOR MORE INFORMATION
- --------------------------------------------------------------------------------
For investors who want more information on the fund, the following documents are
available free upon request:
Annual/Semi-annual Reports Contain financial statements, performance data,
information on portfolio holdings, and a written analysis of market conditions
and fund performance for the fund's most recently completed fiscal year or half-
year.
Statement of Additional Information (SAI) Provides a fuller technical and legal
description of the fund's policies, investment restrictions, and business
structure. This prospectus incorporates the fund's SAI by reference.
Copies of the current versions of these documents may be obtained by contacting:
J.P. MORGAN EUROPEAN EQUITY FUND
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 from
the Public Reference Room of the Securities and Exchange Commission in
Washington, D.C. (1-800-SEC-0330) and may be viewed on-screen or downloaded from
the SEC's Internet site at http://www.sec.gov. The fund's investment company and
1933 Act registration numbers are 811-07340 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.
[Logo] JPMORGAN
- --------------------------------------------------------------------------------
J.P. MORGAN FUNDS
ADVISOR DISTRIBUTOR
Morgan Guaranty Trust Company of New York Funds Distributor, Inc.
522 Fifth Avenue 60 State Street
1-800-521-5411 1-800-221-7930
PROS 232-983
<PAGE>
MARCH 31, 1998 PROSPECTUS
J.P. MORGAN JAPAN EQUITY FUND
------------------------------
Seeking high total return
primarily from stocks outside
the United States
This prospectus contains essential information for anyone investing in the fund.
Please read it carefully and keep it for reference.
Shares in the fund are not bank deposits and are not guaranteed or insured by
any bank, government entity, or the FDIC.
As with all mutual funds, the fact that these shares are registered with the
Securities and Exchange Commission does not mean that the commission approves
them as an investment or guarantees that the information in this prospectus is
correct or adequate. It is a criminal offense to state or suggest otherwise.
Distributed by Funds Distributor, Inc. [Logo] JPMORGAN
<PAGE>
CONTENTS
- --------------------------------------------------------------------------------
2
- ----
INTERNATIONAL EQUITY MANAGEMENT APPROACH
International equity investment process. . . . . . . . . . . . . . . . . 2
4
- ----
The fund's goal, investment approach, risks, expenses, performance, and
financial highlights
J.P. MORGAN JAPAN EQUITY FUND
Fund description . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Investor expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Financial highlights . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6
- ----
Investing in the J.P. Morgan Japan Equity Fund
YOUR INVESTMENT
Investing through a financial professional . . . . . . . . . . . . . . . 6
Investing through an employer-sponsored retirement plan. . . . . . . . . 6
Investing through an IRA or rollover IRA . . . . . . . . . . . . . . . . 6
Investing directly . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Opening your account . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Adding to your account . . . . . . . . . . . . . . . . . . . . . . . . . 6
Selling shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Account and transaction policies . . . . . . . . . . . . . . . . . . . . 7
Dividends and distributions. . . . . . . . . . . . . . . . . . . . . . . 8
Tax considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
9
- ----
More about risk and the fund's business operations
FUND DETAILS
Master/Feeder structure. . . . . . . . . . . . . . . . . . . . . . . . . 9
Management and administration. . . . . . . . . . . . . . . . . . . . . . 9
Risk and reward elements . . . . . . . . . . . . . . . . . . . . . . . . 10
FOR MORE INFORMATION . . . . . . . . . . . . . . . . . . . . . . back cover
<PAGE>
INTRODUCTION
- --------------------------------------------------------------------------------
J.P. MORGAN JAPAN EQUITY FUND
This fund invests primarily in stocks and other equity securities of Japanese
companies through a master portfolio (another fund with the same goal). As a
shareholder, you should anticipate risks and rewards beyond those of a typically
U.S. stock fund.
WHO MAY WANT TO INVEST
The fund is designed for investors who:
- are pursuing a long-term goal
- want to add a non-U.S. investment with growth potential to further diversify
a portfolio
- want a fund that seeks to consistently outperform the market in which it
invests
The fund is not designed for investors who:
- are uncomfortable with the risks of international investing
- are looking for a less aggressive stock investment
- require regular income or stability of principal
- are pursuing a short-term goal or investing emergency reserves
J.P. MORGAN
Known for its commitment to proprietary research and its disciplined
investment strategies, J.P. Morgan is the asset management choice for many of
the world's most respected corporations, financial institutions, governments,
and individuals. Today, J.P. Morgan employs over 300 analysts and portfolio
managers around the world and has more than $250 billion in assets under
management, including assets managed by the fund's advisor, Morgan Guaranty
Trust Company of New York.
BEFORE YOU INVEST
Investors considering the fund should understand that:
- - The value of the fund's shares will fluctuate over time. You could lose money
if you sell when the fund's share price is lower than when you invested.
- - There is no assurance that the fund will meet its investment goals.
- - Future returns will not necessarily resemble past performance.
- - Foreign stocks are generally riskier than their domestic counterparts. You
should be prepared to ride out periods of underperformance.
- - The fund does not represent a complete investment program.
1
<PAGE>
INTERNATIONAL EQUITY MANAGEMENT APPROACH
- --------------------------------------------------------------------------------
The J.P. Morgan Japan Equity Fund invests primarily in stocks of companies in
Japan.
The fund's investment philosophy, developed by its advisor, focuses on selecting
stocks and managing currency exposure. The fund largely avoids using sector or
market-timing strategies. Under normal market conditions, the fund will remain
fully invested.
INTERNATIONAL EQUITY INVESTMENT PROCESS
Through its extensive global equity research and analytical systems, J.P. Morgan
seeks to generate an information advantage. Using fundamental analysis as well
as macro-economic models, J.P. Morgan develops proprietary research on
companies and currencies. In these processes, the analysts focus on a relatively
long period rather than on near-term expectations alone. The team of analysts
dedicated to international equities includes more than 90 members around the
world, with an average of nearly ten years of experience.
In managing the fund, J.P. Morgan employs a process that combines fundamental
research for identifying portfolio securities and currency management decisions:
[GRAPHIC]
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. The fund's management team then buys and
sells stocks, using the research and valuation rankings as well as its
assessment of other factors, including:
- - catalysts that could trigger a change in a stock's price
- - potential reward compared to potential risk
- - temporary mispricings caused by market overreactions
[GRAPHIC]
Morgan may adjust currency exposure to seek to manage risks and enhance returns
CURRENCY MANAGEMENT The fund has access to J.P. Morgan's currency specialists
in determining the extent and nature of its exposure to foreign currencies. The
fund typically maintains full currency exposure to the market in which it
invests.
2 INTERNATIONAL EQUITY MANAGEMENT APPROACH
<PAGE>
- --------------------------------------------------------------------------------
(THIS PAGE IS INTENTIONALLY LEFT BLANK)
3
<PAGE>
J.P. MORGAN JAPAN EQUITY FUND
- --------------------------------------------------------------------------------
REGISTRANT: J.P. MORGAN FUNDS
(J.P. MORGAN JAPAN EQUITY FUND)
[GRAPHIC]
GOAL
The fund's goal is to provide high total return from a portfolio of Japanese
company stocks.
[GRAPHIC]
INVESTMENT APPROACH
The fund invests primarily in equity securities from Japan. The fund's benchmark
is the Tokyo Stock Price Index (TOPIX), which includes all First Section (large)
stocks on the Tokyo Stock Exchange. The fund typically does not invest in U.S.
companies.
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 generally keeps its market
capitalization and industry weightings in line with those of the TOPIX, although
it does not seek to mirror the index in its choice or weightings of individual
securities. The fund typically maintains full exposure to the yen. However,
the fund may from time to time hedge a portion of its exposure to the yen into
the U.S. dollar.
[GRAPHIC]
POTENTIAL RISKS AND REWARDS
The value of your investment in the fund will fluctuate in response to movements
in Japanese stock markets and currency exchange rates. Investors should note
that Japanese stock prices remain substantially below their historical peaks of
1989-90 and may continue to underperform. Fund performance will also depend on
the effectiveness of J.P. Morgan's research and the management team's stock
picking decisions.
In general, international investing involves higher risks than investing in U.S.
markets but offers attractive potential rewards and opportunities for
diversification. Foreign markets tend to be more volatile than those of the
U.S., and changes in currency exchange rates could reduce or increase market
performance. To the extent that the fund hedges its currency exposure into the
U.S. dollar, it may reduce the effects of currency fluctuations which could
protect th fund from losses but could also reduce opportunities for gains.
Because the fund is classified as non-diversified, its performance may be more
strongly affected by the performance of individual stocks.
By emphasizing undervalued stocks, the fund has the potential to outperform the
TOPIX. At the same time, the fund seeks to limit its volatility to that of the
index.
The fund's securities and their main risks, as well as fund strategies, are
described in more detail on page 10.
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages over $250
billion, including more than $2.1 billion using the same strategy as this fund.
The portfolio management team is led by Yukiko Sugimoto, managing director, who
joined the team in March of 1995 and has been at J.P. Morgan since 1985 and
by Masato Degawa, vice president, who joined the team in August of 1995 and who
came to J.P. Morgan from Morgan Stanley in September of 1993.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
The current expenses you should expect to pay as an investor in the fund are
shown at right. The fund has no sales, redemption, exchange, or account fees,
although some institutions may charge you a fee for shares you buy through them.
The annual fund expenses shown are deducted from fund assets prior to
performance calculations.
Footnotes for this section are shown on next page.
<TABLE>
<CAPTION>
<S> <C>
ANNUAL FUND OPERATING EXPENSES(1) (%)
Management fees (actual) 0.65
Marketing (12b-1) fees none
Other expenses(2)
(after reimbursement) 0.77
- ------------------------------------------------------
TOTAL OPERATING EXPENSES(2)
(AFTER REIMBURSEMENT) 1.42
- ------------------------------------------------------
</TABLE>
EXPENSE EXAMPLE
The example below uses the same assumptions as other fund prospectuses: $1,000
initial investment, 5% annual total return, expenses unchanged, all shares sold
at the end of each time period. The example is for comparison only; the fund's
actual return and expenses will be different.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
<S> <C> <C> <C> <C>
YOUR COST($) 14 45 78 170
- -------------------------------------------------------------------------------
</TABLE>
4 J.P. MORGAN JAPAN EQUITY FUND
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE (UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN (%) Shows performance over time, for periods ended December 31, 1997
- -------------------------------------------------------------------------------------------------
1 yr. Since Inception(3)
<S> <C> <C>
J.P. MORGAN JAPAN EQUITY FUND (after expenses) (30.53) (24.66)
- -------------------------------------------------------------------------------------------------
TOPIX(4) (no expenses) (28.19) (23.20)
- -------------------------------------------------------------------------------------------------
<CAPTION>
TOTAL RETURN (%) Shows changes in returns by calendar year
- -------------------------------------------------------------------------------------------------
[GRAPH]
1997
<S> <C>
- -------------------------------------------------------------------------------------------------
J.P. MORGAN JAPAN EQUITY FUND (30.53)
- -------------------------------------------------------------------------------------------------
TOPIX(4) (28.19)
- -------------------------------------------------------------------------------------------------
<CAPTION>
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------------------------
PER-SHARE DATA For fiscal periods ended December 31
- -------------------------------------------------------------------------------------------------
1996 1997
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ($) 10.00 7.83
- -------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment (loss) ($) (0.03) (0.02)
Net realized and unrealized loss
on investment and foreign currency ($) (2.14) (2.37)
- -------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS ($) (2.17) (2.39)
- -------------------------------------------------------------------------------------------------
DISTRIBUTION TO SHAREHOLDERS -- (0.02)
- -------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD ($) 7.83 5.42
- -------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- -------------------------------------------------------------------------------------------------
TOTAL RETURN (%) (21.70)(5) (30.53)
- -------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD ($ thousands) 619 790
- -------------------------------------------------------------------------------------------------
RATIO TO AVERAGE NET ASSETS:
EXPENSES (%) 1.42 (6) 1.42
- -------------------------------------------------------------------------------------------------
NET INVESTMENT LOSS (%) (0.93)(6) (0.45)
- -------------------------------------------------------------------------------------------------
DECREASE REFLECTED IN EXPENSE RATIO DUE
TO EXPENSE REIMBURSEMENT (%) 1.08 (7) 8.22
- -------------------------------------------------------------------------------------------------
</TABLE>
The Financial Highlights above have been audited by Price Waterhouse LLP, the
fund's independent accountants.
(1) The fund has a master/feeder structure as described on page 9. This table
shows the fund's expenses and its share of master portfolio expenses for
the past fiscal year, expressed as a percentage of the fund's average net
assets and reflecting reimbursement for ordinary expenses over 1.42%.
(2) Without reimbursement, other expenses and total operating expenses would
have been 8.99% and 9.64%, respectively. There is no guarantee that
reimbursement will continue beyond 4/30/99.
(3) The fund commenced operations on 5/6/96. Returns reflect performance of the
J.P. Morgan Institutional Japan Equity Fund (a separate feeder fund
investing in the same master portfolio)from 2/29/96 through 5/5/96. This
data is based on historical earnings and is not intended to indicate future
performance.
(4) The TOPIX is an unmanaged market capitalization - weighted index comprising
the largest stocks of the Tokyo Stock Exchange
(5) Not annualized.
(6) Annualized.
(7) After consideration of certain state limitations.
J.P. MORGAN JAPAN EQUITY FUND 5
<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:
- - Determine the amount you are investing. The minimum amount for initial
investments in the fund is $2,500 and for additional investments $500,
although these minimums may be less for some investors. For more
information on minimum investments, call 1-800-521-5411.
- - Complete the application, indicating how much of your investment you want
to allocate to which fund(s). Please apply now for any account privileges
you may want to use in the future, in order to avoid the delays associated
with adding them later on.
- - Mail in your application, making your initial investment as shown at right.
For answers to any questions, please speak with a J.P. Morgan Funds Services
Representative at 1-800-521-5411.
OPENING YOUR ACCOUNT
BY WIRE
- - Mail your completed application to the Shareholder Services Agent.
- - Call the Shareholder Services Agent to obtain an account number and to
place a purchase order. FUNDS THAT ARE WIRED WITHOUT A PURCHASE ORDER WILL
BE RETURNED UNINVESTED.
- - After placing your purchase order, instruct your bank to wire the amount of
your investment to:
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
- - Make out a check for the investment amount payable to J.P. Morgan Funds.
- - Mail the check with your completed application to the Transfer Agent.
BY EXCHANGE
- - Call the Shareholder Services Agent to effect an exchange.
ADDING TO YOUR ACCOUNT
BY WIRE
- - Call the Shareholder Services Agent to place a purchase order. FUNDS THAT
ARE WIRED WITHOUT A PURCHASE ORDER WILL BE RETURNED UNINVESTED.
- - Once you have placed your purchase order, instruct your bank to wire the
amount of your investment as described above.
BY CHECK
- - Make out a check for the investment amount payable to J.P. Morgan Funds.
- - 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
- - Call the Shareholder Services Agent to effect an exchange.
6 YOUR INVESTMENT
<PAGE>
- --------------------------------------------------------------------------------
SELLING SHARES
BY PHONE--WIRE PAYMENT
- - Call the Shareholder Services Agent to verify that the wire redemption
privilege is in place on your account. If it is not, a representative can
help you add it.
- - Place your wire request. If you are transferring money to a non-Morgan
account, you will need to provide the representative with the personal
identification number (PIN) that was provided to you when you opened your
fund account.
BY PHONE--CHECK PAYMENT
- - Call the Shareholder Services Agent and place your request. Once your
request has been verified, a check for the net amount, payable to the
registered owner(s), will be mailed to the address of record. For checks
payable to any other party or mailed to any other address, please make your
request in writing (see below).
IN WRITING
- - Write a letter of instruction that includes the following information: The
name of the registered owner(s) of the account; the account number; the
fund name; the amount you want to sell; and the recipient's name and
address or wire information, if different from those of the account
registration.
- - Indicate whether you want the proceeds sent by check
or by wire.
- - Make sure the letter is signed by an authorized party. The Shareholder
Services Agent may require additional information, such as a signature
guarantee.
- - Mail the letter to the Shareholder Services Agent.
BY EXCHANGE
- - Call the Shareholder Services Agent to effect an exchange.
ACCOUNT AND TRANSACTION POLICIES
TELEPHONE ORDERS The fund accepts telephone orders from all shareholders. To
guard against fraud, the fund requires shareholders to use a PIN, and may record
telephone orders or take other reasonable precautions. However, if the fund does
take such steps to ensure the authenticity of an order, you may bear any loss if
the order later proves fraudulent.
EXCHANGES You may exchange shares in this fund for shares in any other J.P.
Morgan 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.
The fund may alter, limit, or suspend its exchange policy at any time.
BUSINESS HOURS AND NAV CALCULATIONS The fund's regular business days and hours
are the same as those of the New York Stock Exchange (NYSE). The fund calculates
its net asset value per share (NAV) every business day as of the close of
trading on the NYSE(normally 4:00 p.m. eastern time).
TIMING OF ORDERS Orders to buy or sell shares are executed at the next NAV
calculated after the order has been accepted. Orders are accepted until the
close of trading on the NYSE every business day and are executed the same day,
at that day's NAV. The fund has the right to suspend redemption of shares and to
postpone payment of proceeds for up to seven days or as permitted by law.
TIMING OF SETTLEMENTS When you buy shares, you will become the owner of record
when the fund receives your payment, generally the day following execution. When
you sell shares, proceeds are generally available the day following execution
and will be forwarded according to your instructions.
- --------------------------------------------------------------------------------
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 7
<PAGE>
When you sell shares that you recently purchased by check, your order will be
executed at the next NAV but the proceeds will not be available until your check
clears. This may take up to 15 days.
STATEMENTS AND REPORTS The fund sends monthly account statements as well as
confirmations after each purchase or sale of shares (except reinvestments).
Every six months, the fund sends out an annual or semi-annual report containing
information on the fund's holdings and a discussion of recent and anticipated
market conditions and fund performance.
ACCOUNTS WITH BELOW-MINIMUM BALANCES If your account balance falls below the
minimum for 30 days as a result of selling shares (and not because of
performance), the fund reserves the right to request that you buy more shares or
close your account. If your account balance is still below the minimum 60 days
after notification, the fund reserves the right to close out your account and
send the proceeds to the address of record.
DIVIDENDS AND DISTRIBUTIONS
The fund typically pays income dividends and makes capital gains distributions,
if any, once a year. The fund may declare an additional income dividend in a
given year, depending on its tax situation. However, the fund may also make
fewer payments in a given year, depending on its investment results. Dividends
and distributions consist of substantially all of the fund's net investment
income and realized capital gains.
Dividends and distributions are reinvested in additional fund shares.
Alternatively, you may instruct your financial professional or J.P. Morgan Funds
Services to have them sent to you by check, credited to a separate account, or
invested in another J.P. Morgan Fund.
TAX CONSIDERATIONS
In general, selling shares, exchanging shares, and receiving distributions
(whether reinvested or taken in cash) are all taxable events. These transactions
typically create the following tax liabilities for taxable accounts:
<TABLE>
<CAPTION>
<S> <C>
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
- --------------------------------------------------------------------------------
</TABLE>
Because long-term capital gains distributions are taxable as capital gains
regardless of how long you have owned your shares, you may want to avoid making
a substantial investment when the fund is about to declare a long-term capital
gains distribution.
Every January, the fund issues tax information on its distributions for the
previous year.
Any investor for whom the fund does not have a valid taxpayer identification
number will be subject to backup withholding for taxes.
The tax considerations described in this section do not apply to tax-deferred
accounts or other non-taxable entities.
Because each investor's tax circumstances are unique, please consult your tax
professional about your fund investment.
8 YOUR INVESTMENT
<PAGE>
FUND DETAILS
- --------------------------------------------------------------------------------
MASTER/FEEDER STRUCTURE
As noted earlier, the fund is a "feeder" fund that invests in a master
portfolio. (Except where indicated, this prospectus uses the term "the fund" to
mean the feeder fund and its master portfolio taken together.)
The master portfolio accepts investments from other feeder funds, and the
feeders 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 the master
portfolio seeks a vote, the feeder fund will hold a shareholder meeting and cast
its vote proportionately, as instructed by its shareholders. Fund shareholders
are entitled to one vote per fund share.
The fund and its master portfolio expect to maintain consistent goals, but if
they do not, the fund will withdraw from the master portfolio, receiving its
assets either in cash or securities. The fund's trustees would then consider
whether the fund should hire its own investment adviser, invest in a different
master portfolio, or take other action.
MANAGEMENT AND ADMINISTRATION
The fund and its master portfolio are governed by the same trustees. The
trustees are responsible for overseeing all business activities. The trustees
are assisted by Pierpont Group, Inc., which they own and operate on a cost
basis; costs are shared by all funds governed by these trustees. Funds
Distributor, Inc., as co-administrator, along with J.P. Morgan, provides fund
officers. J.P. Morgan, as co-administrator, oversees the fund's other service
providers.
J.P. Morgan, subject to the expense reimbursements described earlier in this
prospectus, receives the following fees for investment advisory and other
services:
<TABLE>
<CAPTION>
<S> <C>
- --------------------------------------------------------------------------------
ADVISORY SERVICES 0.65% of the master portfolio's
average net assets
- --------------------------------------------------------------------------------
ADMINISTRATIVE SERVICES Master portfolio's and fund's pro-
(fee shared with Funds rata portions of 0.09% of the
Distributor, Inc.) first $7 billion in J.P. Morgan-
advised portfolios, plus 0.04%
of average net assets over
$7 billion
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICES 0.25% of the fund's average
net assets
- --------------------------------------------------------------------------------
</TABLE>
J.P. Morgan may pay fees to certain firms and professionals for providing
recordkeeping or other services in connection with investments in the fund.
FUND DETAILS 9
<PAGE>
- --------------------------------------------------------------------------------
RISK AND REWARD ELEMENTS
This table identifies the main elements that make up the fund's overall risk and
reward characteristics (described on page 4). It also outlines the fund's
policies toward various investments, including those that are designed to
help the fund manage risk.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
POTENTIAL RISKS POTENTIAL REWARDS POLICIES TO BALANCE RISK AND REWARD
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
FOREIGN AND OTHER MARKET
CONDITIONS
- - The fund's share price - Stocks have generally - Under normal circumstances the fund plans to
and performance will outperformed more stable remain fully invested, with at least 65% in
fluctuate in response to investments (such as stocks; stock investments may include
stock market movements bonds and cash convertible securities, preferred stocks,
equivalents) over the depository receipts (such as ADRs and EDRs),
- - The fund could lose long term trust or partnership interests, warrants,
money because of foreign rights, and investment company securities
government actions,
political instability, or - Foreign investments, - The fund seeks to limit risk and enhance
lack of adequate and/or which represent a major performance through active management
accurate information portion of the world's
securities, offer
attractive potential - During severe market downturns, the fund has
performance and the option of investing up to 100% of assets
opportunities for in investment-grade short-term securities
diversification
- -----------------------------------------------------------------------------------------------------------------------
NON-DIVERSIFICATION
- - The fund invests in a - These same stocks could - The fund's market capitalization and economic
relatively small number outperform the general sector weightings are generally kept in line
of stocks. If these market and provide with the TOPIX
stocks underperform the greater returns than a
general market, the fund more diversified fund
could underperform more
diversified funds
- -----------------------------------------------------------------------------------------------------------------------
MANAGEMENT CHOICES
- - The fund could - The fund could outperform - J.P. Morgan focuses its active management on
underperform its its benchmark due to securities selection, the area where it
benchmark due to its these same choices believes its commitment to research can most
securities choices and enhance returns
other management
decisions
- -----------------------------------------------------------------------------------------------------------------------
FOREIGN CURRENCIES
- - Currency exchange rate - Favorable exchange rate - The fund typically maintains full exposure
movements could reduce movements could generate to the yen but may hedge a portion of its
gains or create losses gains or reduce losses yen exposure into the U.S. dollar from
time to time (see also "Derivatives")
- -----------------------------------------------------------------------------------------------------------------------
10 FUND DETAILS
<PAGE>
- -----------------------------------------------------------------------------------------------------------------------
POTENTIAL RISKS POTENTIAL REWARDS POLICIES TO BALANCE RISK AND REWARD
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
DERIVATIVES
- - Derivatives such as - Hedges that correlate - The fund uses derivatives, such as futures,
futures, options, and well with underlying options, and forward foreign currency
forward foreign currency positions can reduce or contracts, for hedging and for risk
contracts1 that are used eliminate losses at low management (i.e., to establish or adjust
for hedging the portfolio cost exposure to particular securities, markets or
or specific securities currencies); risk management may include
may not fully offset the - The fund could make money management of the fund's exposure relative to
underlying positions and and protect against its benchmark
this could result in losses if the investment
losses to the fund that analysis proves correct - The fund only establishes hedges that it
would not have otherwise expects will be highly correlated with
occurred - Derivatives that involve underlying positions
leverage could generate
- - Derivatives used for risk substantial gains at low - While the fund may use derivatives that
management may not have cost incidentally involve leverage, it does not
the intended effects and use them for the specific purpose of
may result in losses or leveraging its portfolio
missed opportunities
- - The counterparty to a
derivatives contract
could default
- - Derivatives that involve
leverage could magnify
losses
- - Certain types of
derivatives involve costs
to the fund which can
reduce returns
- -----------------------------------------------------------------------------------------------------------------------
ILLIQUID HOLDINGS
- - The fund could have - These holdings may offer - The fund may not invest more than 15% of net
difficulty valuing these more attractive yields or assets in illiquid holdings
holdings precisely potential growth than
comparable widely traded - To maintain adequate liquidity, the fund may
- - The fund could be unable securities hold investment-grade short-term securities
to sell these holdings at (including repurchase agreements) and, for
the time or price it temporary or extraordinary purposes, may
desired borrow from banks up to 331/3% of the value
of its total assets
- -----------------------------------------------------------------------------------------------------------------------
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
- - When the fund buys - The fund can take - The fund uses segregated accounts to offset
securities before issue advantage of attractive leverage risk
or for delayed delivery, transaction opportunities
it could be exposed to
leverage risk if it does
not use segregated
accounts
- -----------------------------------------------------------------------------------------------------------------------
SHORT-TERM TRADING
- - Increased trading could - The fund could realize - The fund anticipates that its portfolio
raise the fund's gains in a short period turnover rate will not exceed 100%
brokerage and related of time
costs - The fund generally avoids short-term trading,
- The fund could protect except to take advantage of attractive or
- - Increased short-term against losses if a stock unexpected opportunities or to meet demands
capital gains is overvalued and its generated by shareholder activity
distributions could raise value later falls
shareholders' income tax
liability
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) A futures contract is an agreement to buy or sell a set quantity of an
underlying instrument at a future date, or to make or receive a cash
payment based on changes in the value of a securities index. An option is
the right to buy or sell a set quantity of an underlying instrument at a
predetermined price. A forward foreign currency contract is an obligation
to buy or sell a given currency on a future date and at a set price.
FUND DETAILS 11
<PAGE>
- --------------------------------------------------------------------------------
(THIS PAGE IS INTENTIONALLY LEFT BLANK)
12
<PAGE>
- --------------------------------------------------------------------------------
(THIS PAGE IS INTENTIONALLY LEFT BLANK)
13
<PAGE>
FOR MORE INFORMATION
- --------------------------------------------------------------------------------
For investors who want more information on the fund, the following documents are
available free upon request:
Annual/Semi-annual Reports Contain financial statements, performance data,
information on portfolio holdings, and a written analysis of market conditions
and fund performance for the fund's most recently completed fiscal year or
half-year.
Statement of Additional Information (SAI) Provides a fuller technical and legal
description of the fund's policies, investment restrictions, and business
structure. This prospectus incorporates the fund's SAI by reference.
Copies of the current versions of these documents may be obtained by contacting:
J.P. MORGAN JAPAN EQUITY FUND
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 from the
Public Reference Room of the Securities and Exchange Commission in Washington,
D.C. (1-800-SEC-0330) and may be viewed on-screen or downloaded from the SEC's
Internet site at http://www.sec.gov. The fund's investment company and 1933 Act
registration numbers are 811-07340 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.
[Logo] JPMORGAN
- --------------------------------------------------------------------------------
J.P. MORGAN FUNDS
ADVISOR DISTRIBUTOR
Morgan Guaranty Trust Company of New York Funds Distributor, Inc.
522 Fifth Avenue 60 State Street
New York, NY 10036 Boston, MA 02109
1-800-521-5411 1-800-221-7930
PROS 231-983
<PAGE>
MARCH 31, 1998 PROSPECTUS
J.P. MORGAN INTERNATIONAL
OPPORTUNITIES FUND
------------------------------
Seeking high total return
primarily from stocks outside
the United States
This prospectus contains essential information for anyone investing in the fund.
Please read it carefully and keep it for reference.
Shares in the fund are not bank deposits and are not guaranteed or insured by
any bank, government entity, or the FDIC.
As with all mutual funds, the fact that these shares are registered with the
Securities and Exchange Commission does not mean that the commission approves
them as an investment or guarantees that the information in this prospectus is
correct or adequate. It is a criminal offense to state or suggest otherwise.
Distributed by Funds Distributor, Inc. [Logo] JPMORGAN
<PAGE>
CONTENTS
- --------------------------------------------------------------------------------
2
- ----
INTERNATIONAL EQUITY MANAGEMENT APPROACH
International equity investment process. . . . . . . . . . . . . . . . . 2
4
- ----
The fund's goal, investment approach, risks, expenses, performance, and
financial highlights
J.P. MORGAN INTERNATIONAL OPPORTUNITIES FUND
Fund description . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Investor expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Financial highlights . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6
- ----
Investing in the J.P. Morgan International Opportunities Fund
YOUR INVESTMENT
Investing through a financial professional . . . . . . . . . . . . . . . 6
Investing through an employer-sponsored retirement plan. . . . . . . . . 6
Investing through an IRA or rollover IRA . . . . . . . . . . . . . . . . 6
Investing directly . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Opening your account . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Adding to your account . . . . . . . . . . . . . . . . . . . . . . . . . 6
Selling shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Account and transaction policies . . . . . . . . . . . . . . . . . . . . 7
Dividends and distributions. . . . . . . . . . . . . . . . . . . . . . . 8
Tax considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
9
- ----
More about risk and the fund's business operations
FUND DETAILS
Master/Feeder structure. . . . . . . . . . . . . . . . . . . . . . . . . 9
Management and administration. . . . . . . . . . . . . . . . . . . . . . 9
Risk and reward elements . . . . . . . . . . . . . . . . . . . . . . . . 10
FOR MORE INFORMATION . . . . . . . . . . . . . . . . . . . . . . back cover
<PAGE>
INTRODUCTION
- --------------------------------------------------------------------------------
J.P. MORGAN INTERNATIONAL OPPORTUNITIES FUND
This fund invests primarily in stocks and other equity securities of
companies in developed and, to a lesser extent, developing markets through a
master portfolio (another fund with the foreign same goal). As a shareholder,
you should anticipate risks and rewards beyond those of a typical U.S. stock
fund.
WHO MAY WANT TO INVEST
The fund is designed for investors who:
- are pursuing a long-term goal such as retirement
- want to add a non-U.S. investment with growth potential to further diversify
a portfolio
- want a fund that seeks to consistently outperform the markets in which it
invests
The fund is NOT designed for investors who:
- are uncomfortable with the risks of international investing
- are looking for a less aggressive stock investment
- require regular income or stability of principal
- are pursuing a short-term goal or investing emergency reserves
J.P. MORGAN
Known for its commitment to proprietary research and its disciplined investment
strategies, J.P. Morgan is the asset management choice for many of the world's
most respected corporations, financial institutions, governments, and
individuals. Today, J.P. Morgan employs over 300 analysts and portfolio managers
around the world and has more than $250 billion in assets under management,
including assets managed by the fund's advisor, Morgan Guaranty Trust Company of
New York.
BEFORE YOU INVEST
Investors considering the fund should understand that:
- - The value of the fund's shares will fluctuate over time. You could lose money
if you sell when the fund's share price is lower than when you invested.
- - There is no assurance that the fund will meet its investment goals.
- - Future returns will not necessarily resemble past performance.
- - Foreign stocks are generally riskier than their domestic counterparts. You
should be prepared to ride out periods of underperformance.
- - The fund does not represent a complete investment program.
1
<PAGE>
INTERNATIONAL EQUITY MANAGEMENT APPROACH
- --------------------------------------------------------------------------------
The J.P. Morgan International Opportunities Fund invests primarily in stocks of
foreign companies in developed and, to a lesser extent, developing markets.
The fund's investment philosophy, developed by its advisor, focuses on
allocating assets by country, selecting stocks and managing currency exposure.
The fund largely avoids using sector or market-timing strategies. Under normal
market conditions, the fund will remain fully invested.
INTERNATIONAL EQUITY INVESTMENT PROCESS
Through its extensive global equity research and analytical systems, J.P. Morgan
seeks to generate an information advantage. Using fundamental analysis as well
as macro-economic models, J.P. Morgan develops proprietary research on
countries, companies, and currencies. In these processes, the analysts focus on
a relatively long period rather than on near-term expectations alone. The team
of analysts dedicated to international equities includes more than 90 members
around the world, with an average of nearly ten years of experience.
In managing the fund, J.P. Morgan employs a three-step process that combines
country allocation, fundamental research for identifying portfolio securities,
and currency management decisions:
[GRAPHIC]
J.P. Morgan uses top-down analysis 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 the fund.
[GRAPHIC]
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. The fund's management team then buys and
sells stocks, using the research and valuation rankings as well as its
assessment of other factors, including:
- - catalysts that could trigger a change in a stock's price
- - potential reward compared to potential risk
- - temporary mispricings caused by market overreactions
[GRAPHIC]
Morgan may adjust currency exposure to seek to manage risks and enhance returns
CURRENCY MANAGEMENT The fund has access to J.P. Morgan's currency specialists
in determining the extent and nature of its exposure to various foreign
currencies.
2 INTERNATIONAL EQUITY MANAGEMENT APPROACH
<PAGE>
- --------------------------------------------------------------------------------
(THIS PAGE IS INTENTIONALLY LEFT BLANK)
3
<PAGE>
J.P. MORGAN INTERNATIONAL
OPPORTUNITIES FUND TICKER SYMBOL: PPIOX
- --------------------------------------------------------------------------------
REGISTRANT: J.P. MORGAN FUNDS
(J.P. MORGAN INTERNATIONAL OPPORTUNITIES FUND)
[GRAPHIC]
GOAL
The fund's goal is to provide high total return from a portfolio of stocks of
foreign companies in developed and, to a lesser extent, emerging markets.
[GRAPHIC]
INVESTMENT APPROACH
Under normal market conditions, approximately 80% of the fund's assets are
invested in companies from developed markets other than the U.S., with the
balance 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 2, its country allocations and
sector weightings may differ significantly from those of the Morgan Stanley
Capital International (MSCI) All Country World ex-U.S. Index, which is the
fund's benchmark. The fund makes its currency management decisions as described
on pages 2 and 10.
[GRAPHIC]
POTENTIAL RISKS AND REWARDS
The value of your investment in the fund will fluctuate in response to movements
in international stock markets and currency exchange rates. Fund performance
will also depend on the effectiveness of J.P. Morgan's research and the
management team's country allocation, stock picking, and currency management
decisions.The fund may be more volatile than the Index due to its country
allocation and sector weighting decisions.
In general, international investing involves higher risks than investing in U.S.
markets but offers attractive potential rewards and opportunities for
diversification. Foreign markets tend to be more volatile than those of the
U.S., and changes in currency exchange rates could reduce or increase market
performance. These risks are higher in emerging markets. To the extent that the
fund hedges its currency exposure into the U.S. dollar, it may reduce the
effects of currency fluctuations which could protect the fund from losses but
could also reduce opportunities for gains. The fund may also hedge from one
foreign currency to another which could result in gains or losses. However, the
fund does not typically use this strategy for its emerging markets currency
exposure.
The fund's investments and their main risks, as well as fund strategies, are
described in more detail on page 10.
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages over $250
billion, including approximately $10.5 billion using international equity
strategies.
The portfolio management team is led by Paul A. Quinsee, managing director, who
has been at J.P. Morgan since 1992, Andrew C. Cormie, vice president, who has
been on the team since March of 1998, and at 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 portfolio
manager at Brown Brothers Harriman and Co. and a portfolio manager at Gartmore
Investment Management.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
The current expenses you should expect to pay as an investor in the fund are
shown at right. The fund has no sales, redemption, exchange, or account fees,
although some institutions may charge you a fee for shares you buy through them.
The annual fund expenses shown are deducted from fund assets prior to
performance calculations.
Footnotes for this section are shown on next page
<TABLE>
<CAPTION>
<S> <C>
ANNUAL FUND OPERATING EXPENSES(1) (%)
Management fees (actual) 0.60
Marketing (12b-1) fees none
Other expenses(2)
(after reimbursement) 0.60
- ------------------------------------------------------
TOTAL OPERATING EXPENSES(2)
(AFTER REIMBURSEMENT) 1.20
- ------------------------------------------------------
</TABLE>
EXPENSE EXAMPLE
The example below uses the same assumptions as other fund prospectuses: $1,000
initial investment, 5% annual total return, expenses unchanged, all shares sold
at the end of each time period. The example is for comparison only; the fund's
actual return and expenses will be different.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
YOUR COST($) 12 38 66 145
- ------------------------------------------------------------------------
</TABLE>
4 J.P. MORGAN INTERNATIONAL OPPORTUNITIES FUND
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE (UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN (%) Shows performance over time, for period ended December 31, 1997
- ----------------------------------------------------------------------------------------------------
Since inception(3)
<S> <C>
J.P. MORGAN INTERNATIONAL OPPORTUNITIES FUND (after expenses) 1.91
- ----------------------------------------------------------------------------------------------------
MSCI ALL COUNTRY WORLD EX-U.S. INDEX(4) (no expenses) 1.62
- ----------------------------------------------------------------------------------------------------
<CAPTION>
TOTAL RETURN (%) Shows changes in returns for period ended December 31, 1997
- ----------------------------------------------------------------------------------------------------
Since inception(3)
<S> <C>
- ----------------------------------------------------------------------------------------------------
J.P. MORGAN INTERNATIONAL OPPORTUNITIES FUND 1.91
- ----------------------------------------------------------------------------------------------------
MSCI All Country World ex-U.S. Index(4) 1.62
- ----------------------------------------------------------------------------------------------------
<CAPTION>
FINANCIAL HIGHLIGHTS
- ----------------------------------------------------------------------------------------------------
PER-SHARE DATA For fiscal period ended November 30
- ----------------------------------------------------------------------------------------------------
1997
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ($) 10.00
- ----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.06
Net realized and unrealized loss
on investment and foreign currency ($) (0.14)
- ----------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS ($) (0.08)
- ----------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD ($) 9.92
- ----------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------
TOTAL RETURN (%) (0.80)(5)
- ----------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD ($ thousands) 62,939
- ----------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
EXPENSES (%) 1.20(6)
- ----------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (%) 1.08(6)
- ----------------------------------------------------------------------------------------------------
DECREASE REFLECTED IN EXPENSE RATIO DUE
TO EXPENSE REIMBURSEMENT (%) 0.31(6)
- ----------------------------------------------------------------------------------------------------
</TABLE>
The Financial Highlights above have been audited by Price Waterhouse LLP, the
fund's independent accountants.
(1) The fund has a master/feeder structure as described on page 9. This table
shows the fund's expenses and its share of master portfolio expenses for
the past fiscal period, expressed as a percentage of the fund's average net
assets after reimbursement for ordinary expenses over 1.20%.
(2) Without reimbursement other expenses and total operating expenses would
have been 0.91% and 1.51% respectively. There is no guarantee that
reimbursement will continue beyond 3/30/99.
(3) The fund commenced operations on 2/26/97 and performance is calculated as
of 2/28/97. This data is based on historical earnings and is not intended
to indicate future performance.
(4) The MSCI All Country World ex-U.S. Index is an unmanaged index that
measures developed and emerging foreign stock market performance.
(5) Not annualized.
(6) Annualized.
J.P. MORGAN INTERNATIONAL OPPORTUNITIES FUND 5
<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:
- - Determine the amount you are investing. The minimum amount for initial
investments in the fund is $2,500 and for additional investments $500,
although these minimums may be less for some investors. For more
information on minimum investments, call 1-800-521-5411.
- - Complete the application, indicating how much of your investment you want
to allocate to which fund(s). Please apply now for any account privileges
you may want to use in the future, in order to avoid the delays associated
with adding them later on.
- - Mail in your application, making your initial investment as shown at right.
For answers to any questions, please speak with a J.P. Morgan Funds Services
Representative at 1-800-521-5411.
OPENING YOUR ACCOUNT
BY WIRE
- - Mail your completed application to the Shareholder Services Agent.
- - Call the Shareholder Services Agent to obtain an account number and to
place a purchase order. FUNDS THAT ARE WIRED WITHOUT A PURCHASE ORDER WILL
BE RETURNED UNINVESTED.
- - After placing your purchase order, instruct your bank to wire the amount of
your investment to:
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
- - Make out a check for the investment amount payable to J.P. Morgan Funds.
- - Mail the check with your completed application to the Transfer Agent.
BY EXCHANGE
- - Call the Shareholder Services Agent to effect an exchange.
ADDING TO YOUR ACCOUNT
BY WIRE
- - Call the Shareholder Services Agent to place a purchase order. FUNDS THAT
ARE WIRED WITHOUT A PURCHASE ORDER WILL BE RETURNED UNINVESTED.
- - Once you have placed your purchase order, instruct your bank to wire the
amount of your investment as described above.
BY CHECK
- - Make out a check for the investment amount payable to J.P. Morgan Funds.
- - 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
- - Call the Shareholder Services Agent to effect an exchange.
6 YOUR INVESTMENT
<PAGE>
- --------------------------------------------------------------------------------
SELLING SHARES
BY PHONE--WIRE PAYMENT
- - Call the Shareholder Services Agent to verify that the wire redemption
privilege is in place on your account. If it is not, a representative can
help you add it.
- - Place your wire request. If you are transferring money to a non-Morgan
account, you will need to provide the representative with the personal
identification number (PIN) that was provided to you when you opened your
fund account.
BY PHONE--CHECK PAYMENT
- - Call the Shareholder Services Agent and place your request. Once your
request has been verified, a check for the net amount, payable to the
registered owner(s), will be mailed to the address of record. For checks
payable to any other party or mailed to any other address, please make your
request in writing (see below).
IN WRITING
- - Write a letter of instruction that includes the following information: The
name of the registered owner(s) of the account; the account number; the
fund name; the amount you want to sell; and the recipient's name and
address or wire information, if different from those of the account
registration.
- - Indicate whether you want the proceeds sent by check or by wire.
- - Make sure the letter is signed by an authorized party. The Shareholder
Services Agent may require additional information, such as a signature
guarantee.
- - Mail the letter to the Shareholder Services Agent.
BY EXCHANGE
- - Call the Shareholder Services Agent to effect an exchange.
ACCOUNT AND TRANSACTION POLICIES
TELEPHONE ORDERS The fund accepts telephone orders from all shareholders. To
guard against fraud, the fund requires shareholders to use a PIN, and may record
telephone orders or take other reasonable precautions. However, if the fund does
take such steps to ensure the authenticity of an order, you may bear any loss if
the order later proves fraudulent.
EXCHANGES You may exchange shares in this fund for shares in any other J.P.
Morgan 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.
The fund may alter, limit, or suspend its exchange policy at any time.
BUSINESS HOURS AND NAV CALCULATIONS The fund's regular business days and hours
are the same as those of the New York Stock Exchange (NYSE). The fund calculates
its net asset value per share (NAV) every business day as of the close of
trading on the NYSE (normally 4:00 p.m. eastern time).
TIMING OF ORDERS Orders to buy or sell shares are executed at the next NAV
calculated after the order has been accepted. Orders are accepted until the
close of trading on the NYSE every business day and are executed the same day,
at that day's NAV. The fund has the right to suspend redemption of shares and to
postpone payment of proceeds for up to seven days or as permitted by law.
TIMING OF SETTLEMENTS When you buy shares, you will become the owner of record
when the fund receives your payment, generally the day following execution. When
you sell shares, proceeds are generally available the day following execution
and will be forwarded according to your instructions.
- --------------------------------------------------------------------------------
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 7
<PAGE>
- --------------------------------------------------------------------------------
When you sell shares that you recently purchased by check, your order will be
executed at the next NAV but the proceeds will not be available until your check
clears. This may take up to 15 days.
STATEMENTS AND REPORTS The fund sends monthly account statements as well as
confirmations after each purchase or sale of shares (except reinvestments).
Every six months, the fund sends out an annual or semi-annual report containing
information on the fund's holdings and a discussion of recent and anticipated
market conditions and fund performance.
ACCOUNTS WITH BELOW-MINIMUM BALANCES If your account balance falls below the
minimum for 30 days as a result of selling shares (and not because of
performance), the fund reserves the right to request that you buy more shares or
close your account. If your account balance is still below the minimum 60 days
after notification, the fund reserves the right to close out your account and
send the proceeds to the address of record.
DIVIDENDS AND DISTRIBUTIONS
The fund typically pays income dividends and makes capital gains distributions,
if any, once a year. The fund may declare an additional income dividend in a
given year, depending on its tax situation. However, the fund may also make
fewer payments in a given year, depending on its investment results. Dividends
and distributions consist of substantially all of the fund's net investment
income and realized capital gains.
Dividends and distributions are reinvested in additional fund shares.
Alternatively, you may instruct your financial professional or J.P. Morgan Funds
Services to have them sent to you by check, credited to a separate account, or
invested in another J.P. Morgan Fund.
TAX CONSIDERATIONS
In general, selling shares, exchanging shares, and receiving distributions
(whether reinvested or taken in cash) are all taxable events. These transactions
typically create the following tax liabilities for taxable accounts:
<TABLE>
<CAPTION>
<S> <C>
- --------------------------------------------------------------------------------
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 income;
owned for one year or less losses are subject to special rules
- --------------------------------------------------------------------------------
</TABLE>
Because long-term capital gains distributions are taxable
as capital gains regardless of how long you have owned your shares, you may want
to avoid making a substantial investment when the fund is about to declare a
long-term capital gains distribution.
Every January, the fund issues tax information on its distributions for the
previous year.
Any investor for whom the fund does not have a valid taxpayer identification
number will be subject to backup withholding for taxes.
The tax considerations described in this section do not apply to tax-deferred
accounts or other non-taxable entities.
Because each investor's tax circumstances are unique, please consult your tax
professional about your fund investment.
8 YOUR INVESTMENT
<PAGE>
FUND DETAILS
- --------------------------------------------------------------------------------
MASTER/FEEDER STRUCTURE
As noted earlier, the fund is a "feeder" fund that invests in a master
portfolio. (Except where indicated, this prospectus uses the term "the fund" to
mean the feeder fund and its master portfolio taken together.)
The master portfolio accepts investments from other feeder funds, and the
feeders 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 the master
portfolio seeks a vote, the feeder fund will hold a shareholder meeting and cast
its vote proportionately, as instructed by its shareholders. Fund shareholders
are entitled to one vote per fund share.
The fund and its master portfolio expect to maintain consistent goals, but if
they do not, the fund will withdraw from the master portfolio, receiving its
assets either in cash or securities. The fund's trustees would then consider
whether the fund should hire its own investment adviser, invest in a different
master portfolio, or take other action.
MANAGEMENT AND ADMINISTRATION
The fund and its master portfolio are governed by the same trustees. The
trustees are responsible for overseeing all business activities. The trustees
are assisted by Pierpont Group, Inc., which they own and operate on a cost
basis; costs are shared by all funds governed by these trustees. Funds
Distributor, Inc., as co-administrator, along with J.P. Morgan, provides fund
officers. J.P. Morgan, as co-administrator, oversees the fund's other service
providers.
J.P. Morgan, subject to the expense reimbursements described earlier in this
prospectus, receives the following fees for investment advisory and other
services:
<TABLE>
<CAPTION>
<S> <C>
- --------------------------------------------------------------------------------
ADVISORY SERVICES 0.60% of the master portfolio's
average net assets
- --------------------------------------------------------------------------------
ADMINISTRATIVE SERVICES Master portfolio's and fund's pro-
(fee shared with Funds rata portions of 0.09% of the
Distributor, Inc.) first $7 billion in J.P. Morgan-
advised portfolios, plus 0.04%
of average net assets over
$7 billion
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICES 0.25% of the fund's average
net assets
- --------------------------------------------------------------------------------
</TABLE>
J.P. Morgan may pay fees to certain firms and professionals for providing
recordkeeping or other services in connection with investments in the fund.
FUND DETAILS 9
<PAGE>
- --------------------------------------------------------------------------------
RISK AND REWARD ELEMENTS
This table identifies the main elements that make up the fund's overall risk and
reward characteristics (described on page 4. It also outlines the fund's
policies toward various investments, including those that are designed to help
the fund manage risk.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
POTENTIAL RISKS POTENTIAL REWARDS POLICIES TO BALANCE RISK AND REWARD
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
FOREIGN AND OTHER MARKET
CONDITIONS
- - The fund's share price - Stocks have generally - Under normal circumstances the fund plans to
and performance will outperformed more stable remain fully invested, with at least 65% in
fluctuate in response to investments (such as stocks; stock investments may include
stock market movements bonds and cash convertible securities, preferred stocks,
equivalents) over the depository receipts (such as ADRs and EDRs),
- - The fund could lose money long term trust or partnership interests, warrants,
because of foreign rights, and investment company securities
government actions, - Foreign investments,
political instability, or which represent a major - The fund seeks to limit risk and enhance
lack of adequate and/or portion of the world's performance through active management,
accurate information securities, offer country allocation and diversification
attractive potential
- - Investment risks tend to performance and
be higher in emerging opportunities for - During severe market downturns, the fund has
markets. These markets diversification the option of investing up to 100% of assets
also present higher in investment-grade short-term securities
liquidity and valuation - Emerging markets can
risks offer higher returns
- -----------------------------------------------------------------------------------------------------------------------
MANAGEMENT CHOICES
- - The fund could - The fund could outperform - J.P. Morgan focuses its active management on
underperform its its benchmark due to securities selection, the area where it
benchmark due to its these same choices believes its commitment to research can most
securities choices and enhance returns
other management
decisions
- -----------------------------------------------------------------------------------------------------------------------
FOREIGN CURRENCIES
- - Currency exchange rate - Favorable exchange rate - The fund manages the currency exposure of its
movements could reduce movements could generate foreign investments relative to its benchmark,
gains or create losses gains or reduce losses and may hedge a portion of its foreign currency
exposure into the U.S. dollar from time to time
- - Currency risks tend to be (see also "Derivatives")
higher in emerging
markets - The fund does not typically hedge its emerging
markets currency exposure
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
10 FUND DETAILS
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
POTENTIAL RISKS POTENTIAL REWARDS POLICIES TO BALANCE RISK AND REWARD
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
DERIVATIVES
- - Derivatives such as - Hedges that correlate - The fund uses derivatives, such as futures,
futures, options, and well with underlying options, and forward foreign currency
forward foreign currency positions can reduce or contracts, for hedging and for risk
contracts(1) that are used eliminate losses at low management (i.e., to establish or adjust
for hedging the portfolio cost exposure to particular securities, markets or
or specific securities currencies); risk management may include
may not fully offset the - The fund could make money management of the fund's exposure relative to
underlying positions and and protect against its benchmark
this could result in losses if the investment
losses to the fund that analysis proves correct - The fund only establishes hedges that it
would not have otherwise expects will be highly correlated with
occurred - Derivatives that involve underlying positions
leverage could generate
- - Derivatives used for risk substantial gains at low - While the fund may use derivatives that
management may not have cost incidentally involve leverage, it does not
the intended effects and use them for the specific purpose of
may result in losses or leveraging its portfolio
missed opportunities
- - The counterparty to a
derivatives contract could
default
- - Derivatives that involve
leverage could magnify
losses
- - Certain types of
derivatives involve costs
to the fund which can
reduce returns
- -----------------------------------------------------------------------------------------------------------------------
ILLIQUID HOLDINGS
- - The fund could have - These holdings may offer - The fund may not invest more than 15% of net
difficulty valuing these more attractive yields or assets in illiquid holdings
holdings precisely potential growth than
comparable widely traded - To maintain adequate liquidity, the fund may
- - The fund could be unable securities hold investment-grade short-term securities
to sell these holdings at (including repurchase agreements) and, for
the time or price it temporary or extraordinary purposes, may
desired borrow from banks up to 33 1/3% of the value
of its total assets
- -----------------------------------------------------------------------------------------------------------------------
WHEN-ISSUED AND DELAYED
DELIVERY SECURITIES
- - When the fund buys - The fund can take - The fund uses segregated accounts to offset
securities before issue advantage of attractive leverage risk
or for delayed delivery, transaction opportunities
it could be exposed to
leverage risk if it does
not use segregated
accounts
- -----------------------------------------------------------------------------------------------------------------------
SHORT-TERM TRADING
- - Increased trading could - The fund could realize - The fund anticipates that its portfolio
raise the fund's gains in a short period turnover rate will not exceed 100%
brokerage and related of time
costs - The fund generally avoids short-term trading,
- The fund could protect except to take advantage of attractive or
- - Increased short-term against losses if a stock unexpected opportunities or to meet demands
capital gains is overvalued and its generated by shareholder activity
distributions could value later falls
raise shareholders'
income tax liability
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) A futures contract is an agreement to buy or sell a set quantity of an
underlying instrument at a future date, or to make or receive a cash payment
based on changes in the value of a securities index. An option is the right to
buy or sell a set quantity of an underlying instrument at a predetermined price.
A forward foreign currency contract is an obligation to buy or sell a given
currency on a future date and at a set price.
FUND DETAILS 11
<PAGE>
- --------------------------------------------------------------------------------
(THIS PAGE IS INTENTIONALLY LEFT BLANK)
12
<PAGE>
- --------------------------------------------------------------------------------
(THIS PAGE IS INTENTIONALLY LEFT BLANK)
13
<PAGE>
FOR MORE INFORMATION
- --------------------------------------------------------------------------------
For investors who want more information on the fund, the following documents are
available free upon request:
Annual/Semi-annual Reports Contain financial statements, performance data,
information on portfolio holdings, and a written analysis of market conditions
and fund performance for the fund's most recently completed fiscal year or
half-year.
Statement of Additional Information (SAI) Provides a fuller technical and legal
description of the fund's policies, investment restrictions, and business
structure. This prospectus incorporates the fund's SAI by reference.
Copies of the current versions of these documents may be obtained by contacting:
J.P. MORGAN INTERNATIONAL OPPORTUNITIES FUND
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 from the
Public Reference Room of the Securities and Exchange Commission in Washington,
D.C. (1-800-SEC-0330) and may be viewed on-screen or downloaded from the SEC's
Internet site at http://www.sec.gov. The fund's investment company and 1933 Act
registration numbers are 811-07340 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
Morgan Guaranty Trust Company of New York Funds Distributor, Inc.
522 Fifth Avenue 60 State Street
New York, NY 10036 Boston, MA 02109
1-800-521-5411 1-800-221-7930
PROS 239-983
<PAGE>
MARCH 31, 1998 PROSPECTUS
J.P. MORGAN EMERGING MARKETS
EQUITY FUND
----------------------------
Seeking high total return
primarily from stocks outside
the United States
This prospectus contains essential information for anyone investing in the fund.
Please read it carefully and keep it for reference.
Shares in the fund are not bank deposits and are not guaranteed or insured by
any bank, government entity, or the FDIC.
As with all mutual funds, the fact that these shares are registered with the
Securities and Exchange Commission does not mean that the commission approves
them as an investment or guarantees that the information in this prospectus is
correct or adequate. It is a criminal offense to state or suggest otherwise.
Distributed by Funds Distributor, Inc. [Logo] JPMORGAN
<PAGE>
CONTENTS
- --------------------------------------------------------------------------------
2
- ---
INTERNATIONAL EQUITY MANAGEMENT APPROACH
International equity investment process..................................... 2
4
- ---
The fund's goal, investment approach, risks, expenses, performance, and
financial highlights
J.P. MORGAN EMERGING MARKETS EQUITY FUND
Fund description............................................................ 4
Investor expenses........................................................... 4
Performance................................................................. 5
Financial highlights........................................................ 5
6
- ---
Investing in the J.P. Morgan Emerging Markets Equity Fund
YOUR INVESTMENT
Investing through a financial professional.................................. 6
Investing through an employer-sponsored retirement plan..................... 6
Investing through an IRA or rollover IRA.................................... 6
Investing directly.......................................................... 6
Opening your account........................................................ 6
Adding to your account...................................................... 6
Selling shares.............................................................. 7
Account and transaction policies............................................ 7
Dividends and distributions................................................. 8
Tax considerations.......................................................... 8
9
- ---
More about risk and the fund's business operations
FUND DETAILS
Master/Feeder structure..................................................... 9
Management and administration............................................... 9
Risk and reward elements................................................... 10
FOR MORE INFORMATION............................................... back cover
<PAGE>
INTRODUCTION
- --------------------------------------------------------------------------------
J.P. MORGAN EMERGING MARKETS EQUITY FUND
This fund invests primarily in stocks and other equity securities of companies
in emerging markets through a master portfolio (another fund with the same
goal). As a shareholder, you should anticipate risks and rewards beyond those
of a typical U.S. stock fund.
WHO MAY WANT TO INVEST
The fund is designed for investors who:
- - are pursuing a long-term goal
- - want to add a non-U.S. investment with growth potential to further diversify
a portfolio
- - want a fund that seeks to consistently outperform the markets in which it
invests
The fund is NOT designed for investors who:
- - are uncomfortable with the risks of international investing
- - are looking for a less aggressive stock investment
- - require regular income or stability of principal
- - are pursuing a short-term goal or investing emergency reserves
J.P. MORGAN
Known for its commitment to proprietary research and its disciplined
investment strategies, J.P. Morgan is the asset management choice for many of
the world's most respected corporations, financial institutions, governments,
and individuals. Today, J.P. Morgan employs over 300 analysts and portfolio
managers around the world and has more than $250 billion in assets under
management, including assets managed by the fund's advisor, Morgan Guaranty
Trust Company of New York.
BEFORE YOU INVEST
Investors considering the fund should understand that:
- - The value of the fund's shares will fluctuate over time. You could lose money
if you sell when the fund's share price is lower than when you invested.
- - There is no assurance that the fund will meet its investment goals.
- - Future returns will not necessarily resemble past performance.
- - Foreign stocks are generally riskier than their domestic counterparts. You
should be prepared to ride out periods of underperformance.
- - The fund does not represent a complete investment program.
<PAGE>
INTERNATIONAL EQUITY MANAGEMENT APPROACH
- --------------------------------------------------------------------------------
The J.P. Morgan Emerging Markets Equity Fund invests primarily in stocks of
companies.
The fund's investment philosophy, developed by its advisor, focuses on
allocating assets by country, selecting stocks and managing currency exposure.
The fund largely avoids using sector or market-timing strategies. Under normal
market conditions, the fund will remain fully invested.
INTERNATIONAL EQUITY INVESTMENT PROCESS
Through its extensive global equity research and analytical systems, J.P.
Morgan seeks to generate an information advantage. Using fundamental analysis as
well as macro-economic models, J.P. Morgan develops proprietary research on
countries, companies, and currencies. In these processes, the analysts focus on
a relatively long period rather than on near-term expectations alone. The team
of analysts dedicated to international equities includes more than 90 members
around the world, with an average of nearly ten years of experience.
In managing the fund, J.P. Morgan employs a three-step process that combines
country allocation, fundamental research for identifying portfolio securities,
and currency management decisions:
[GRAPHIC]
J.P. Morgan uses top-down analysis 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 the fund.
[GRAPHIC]
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. The fund's management team then buys and
sells stocks, using the research and valuation rankings as well as its
assessment of other factors, including:
- - catalysts that could trigger a change in a stock's price
- - potential reward compared to potential risk
- - temporary mispricings caused by market overreactions
[GRAPHIC]
Morgan may adjust currency exposure to seek to manage risks and enhance returns
CURRENCY MANAGEMENT The fund has access to J.P. Morgan's currency
specialists in determining the extent and nature of its exposure to various
foreign currencies. The fund typically maintains full currency exposure to those
markets in which it invests.
2 INTERNATIONAL EQUITY MANAGEMENT APPROACH
<PAGE>
- --------------------------------------------------------------------------------
(THIS PAGE IS INTENTIONALLY LEFT BLANK)
3
<PAGE>
J.P. MORGAN EMERGING
MARKETS EQUITY FUND TICKER SYMBOL: PPEEX
- --------------------------------------------------------------------------------
REGISTRANT: J.P. MORGAN FUNDS
(J.P. MORGAN EMERGING MARKETS EQUITY FUND)
[GRAPHIC]
GOAL
The fund's goal is to provide high total return from a portfolio of equity
securities from emerging markets issuers.
[GRAPHIC]
INVESTMENT APPROACH
The fund invests primarily in equity securities from countries whose economies
or stock markets are less developed. This designation currently includes most
countries in the world except Australia, Canada, Japan, New Zealand, the
United Kingdom, the U.S., and most of the countries of western Europe.
The fund makes its country allocation decisions as described on page 2 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
exposure to those markets in which it invests. However, the fund may from time
to time hedge a portion of its foreign currency exposure into the U.S. dollar.
[GRAPHIC]
POTENTIAL RISKS AND REWARDS
The value of your investment in the fund will fluctuate in response to movements
in international stock markets and currency exchange rates. Fund performance
will also depend on the effectiveness of J.P. Morgan's research and the
management team's country allocation and stock picking decisions.
In general, international investing involves higher risks than investing in U.S.
markets but offers attractive potential rewards and opportunities for
diversification. Because emerging markets carry higher risks than developed
markets, the fund's performance is likely to be more volatile than that of many
other international equity funds. To the extent that the fund hedges its
currency exposure into the U.S. dollar, it may reduce the effects of currency
fluctuations which could protect the fund from losses but could also reduce
opportunities for gains.
By emphasizing undervalued stocks, the fund has the potential to produce returns
that exceed those of the fund's benchmark. At the same time, the fund seeks to
limit its volatility to that of the benchmark.
The fund's investments and their main risks, as well as fund strategies, are
described in more detail on page 10.
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages over $250
billion, including more than $3.8 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, and by Satyen Mehta, vice president, who has been at
J.P. Morgan since 1984. Both have been on the team since the fund's inception.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
The current expenses you should expect to pay as an investor in the fund are
shown at right. The fund has no sales, redemption, exchange, or account fees,
although some institutions may charge you a fee for shares you buy through them.
The annual fund expenses shown are deducted from fund assets prior to
performance calculations.
Footnotes for this section are shown on next page.
ANNUAL FUND OPERATING EXPENSES(1) (%)
Management fees (actual) 1.00
Marketing (12b-1) fees none
Other expenses(2)
(after reimbursement) 0.74
- --------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES(2)
(AFTER REIMBURSEMENT) 1.74
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
The example below uses the same assumptions as other fund prospectuses: $1,000
initial investment, 5% annual total return, expenses unchanged, all shares sold
at the end of each time period. The example is for comparison only; the fund's
actual return and expenses will be different.
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
YOUR COST($) 18 55 94 205
- --------------------------------------------------------------------------------
4 J.P. MORGAN EMERGING MARKETS EQUITY FUND
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE (UNAUDITED)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN (%) Shows performance over time, for periods ended December 31, 1997
- -------------------------------------------------------------------------------------------------
1 yr. 3 yrs. Since Inception(2)
<S> <C> <C> <C>
J.P. MORGAN EMERGING MARKETS EQUITY FUND (after expenses) (7.63) (3.39) (1.05)
- -------------------------------------------------------------------------------------------------
MSCI EMERGING MARKETS FREE INDEX(3) (no expenses) (11.56) (5.64) (3.43)
- -------------------------------------------------------------------------------------------------
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN (%) Shows changes in returns by calendar year
- -------------------------------------------------------------------------------------------------
[GRAPH]
1994 1995 1996 1997
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
J.P. MORGAN EMERGING MARKETS EQUITY FUND (7.58) (10.03) (8.50) (7.63)
- -------------------------------------------------------------------------------------------------
MSCI Emerging Markets Free Index(3) (11.96) (10.44) (6.08) (11.56)
- -------------------------------------------------------------------------------------------------
<CAPTION>
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------------------------
PER-SHARE DATA For fiscal periods ended October 31
- ------------------------------------------------------------------------------------------------
1994 1995 1996 1997
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ($) 10.00 12.43 9.65 10.18
- ------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) ($) 0.02 0.05 0.08 0.08
Net realized and unrealized gain (loss)
on investment and foreign currency ($) 2.41 (2.66) 0.53 (0.42)
- ------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS ($) 2.43 (2.61) 0.61 (0.34)
- ------------------------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) -- (0.03) (0.08) (0.06)
Net realized gain ($) -- (0.14) -- --
- ------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS ($) -- (0.17) (0.08) (0.06)
- ------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD ($) 12.43 9.65 10.18 9.78
- ------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------
TOTAL RETURN (%) 24.30(4) (21.15) 6.31 (3.34)
- ------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD ($ thousands) 53,431 49,295 59,107 45,444
- ------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
- ------------------------------------------------------------------------------------------------
EXPENSES (%) 1.84(5) 1.80 1.69 1.65
- ------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (%) 0.25(5) 0.55 0.68 0.62
- ------------------------------------------------------------------------------------------------
DECREASE REFLECTED IN EXPENSE RATIO DUE TO
EXPENSE REIMBURSEMENT (%) 0.12(5) -- -- --
- ------------------------------------------------------------------------------------------------
</TABLE>
The Financial Highlights above have been audited by Price Waterhouse LLP, the
fund's independent accountants.
(1) The fund has a master/feeder structure as described on page 9. Due to the
reorganization of the offshore feeder fund, the master portfolio received a
substantial redemption request on January 23, 1998. Therefore, this table
shows the fund's estimated expenses and its share of estimated master
portfolio expenses for the current fiscal year, expressed as a percentage
of the fund's estimated average net assets. Total operating expenses may
vary, but in any event will not exceed 1.75% of the fund's average daily
net assets. The Advisor has agreed to reimburse the fund for ordinary
expenses over 1.75% until further notice.
(2) The fund commenced operations on 11/15/93. Returns reflect performance of
the fund from 11/30/93 through 12/31/97. This data is based on historical
earnings and is not intended to indicate future performance.
(3) The MSCI Emerging Markets Free Index is an unmanaged index which measures
emerging markets equity performance.
(4) Not annualized.
(5) Annualized.
J.P. MORGAN EMERGING MARKETS EQUITY FUND 5
<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:
- - Determine the amount you are investing. The minimum amount for initial
investments in the fund is $2,500 and for additional investments $500,
although these minimums may be less for some investors. For more
information on minimum investments, call 1-800-521-5411.
- - Complete the application, indicating how much of your investment you want
to allocate to which fund(s). Please apply now for any account privileges
you may want to use in the future, in order to avoid the delays associated
with adding them later on.
- - Mail in your application, making your initial investment as shown at right.
For answers to any questions, please speak with a J.P. Morgan Funds Services
Representative at 1-800-521-5411.
OPENING YOUR ACCOUNT
BY WIRE
- - Mail your completed application to the Shareholder Services Agent.
- - Call the Shareholder Services Agent to obtain an account number and to
place a purchase order. FUNDS THAT ARE WIRED WITHOUT A PURCHASE ORDER WILL
BE RETURNED UNINVESTED.
- - After placing your purchase order, instruct your bank to wire the amount of
your investment to:
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
- - Make out a check for the investment amount payable to J.P. Morgan Funds.
- - Mail the check with your completed application to the Transfer Agent.
BY EXCHANGE
- - Call the Shareholder Services Agent to effect an exchange.
ADDING TO YOUR ACCOUNT
BY WIRE
- - Call the Shareholder Services Agent to place a purchase order. FUNDS THAT
ARE WIRED WITHOUT A PURCHASE ORDER WILL BE RETURNED UNINVESTED.
- - Once you have placed your purchase order, instruct your bank to wire the
amount of your investment as described above.
BY CHECK
- - Make out a check for the investment amount payable to J.P. Morgan Funds.
- - 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
- - Call the Shareholder Services Agent to effect an exchange.
6 YOUR INVESTMENT
<PAGE>
SELLING SHARES
BY PHONE--WIRE PAYMENT
- - Call the Shareholder Services Agent to verify that the wire redemption
privilege is in place on your account. If it is not, a representative can
help you add it.
- - Place your wire request. If you are transferring money to a non-Morgan
account, you will need to provide the representative with the personal
identification number (PIN) that was provided to you when you opened your
fund account.
BY PHONE--CHECK PAYMENT
- - Call the Shareholder Services Agent and place your request. Once your
request has been verified, a check for the net amount, payable to the
registered owner(s), will be mailed to the address of record. For checks
payable to any other party or mailed to any other address, please make your
request in writing (see below).
IN WRITING
- - Write a letter of instruction that includes the following information: The
name of the registered owner(s) of the account; the account number; the
fund name; the amount you want to sell; and the recipient's name and
address or wire information, if different from those of the account
registration.
- - Indicate whether you want the proceeds sent by check or by wire.
- - Make sure the letter is signed by an authorized party. The Shareholder
Services Agent may require additional information, such as a signature
guarantee.
- - Mail the letter to the Shareholder Services Agent.
BY EXCHANGE
- - Call the Shareholder Services Agent to effect an exchange.
ACCOUNT AND TRANSACTION POLICIES
TELEPHONE ORDERS The fund accepts telephone orders from all shareholders. To
guard against fraud, the fund requires shareholders to use a PIN, and may record
telephone orders or take other reasonable precautions. However, if the fund does
take such steps to ensure the authenticity of an order, you may bear any loss if
the order later proves fraudulent.
EXCHANGES You may exchange shares in this fund for shares in any other J.P.
Morgan 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.
The fund may alter, limit, or suspend its exchange policy at any time.
BUSINESS HOURS AND NAV CALCULATIONS The fund's regular business days and hours
are the same as those of the New York Stock Exchange (NYSE). The fund calculates
its net asset value per share (NAV) every business day as of the close of
trading on the NYSE (normally 4:00 p.m. eastern time).
TIMING OF ORDERS Orders to buy or sell shares are executed at the next
NAV calculated after the order has been accepted. Orders are accepted until the
close of trading on the NYSE every business day and are executed the same day,
at that day's NAV. The fund has the right to suspend redemption of shares and to
postpone payment of proceeds for up to seven days or as permitted by law.
TIMING OF SETTLEMENTS When you buy shares, you will become the owner of record
when the fund receives your payment, generally the day following execution. When
you sell shares, proceeds are generally available the day following execution
and will be forwarded according to your instructions.
- --------------------------------------------------------------------------------
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 7
<PAGE>
- --------------------------------------------------------------------------------
When you sell shares that you recently purchased by check, your order will be
executed at the next NAV but the proceeds will not be available until your check
clears. This may take up to 15 days.
STATEMENTS AND REPORTS The fund sends monthly account statements as well as
confirmations after each purchase or sale of shares (except reinvestments).
Every six months, the fund sends out an annual or semi-annual report containing
information on the fund's holdings and a discussion of recent and anticipated
market conditions and fund performance.
ACCOUNTS WITH BELOW-MINIMUM BALANCES If your account balance falls below the
minimum for 30 days as a result of selling shares (and not because of
performance), the fund reserves the right to request that you buy more shares or
close your account. If your account balance is still below the minimum 60 days
after notification, the fund reserves the right to close out your account and
send the proceeds to the address of record.
DIVIDENDS AND DISTRIBUTIONS
The fund typically pays income dividends and makes capital gains distributions,
if any, once a year. The fund may declare an additional income dividend in a
given year, depending on its tax situation. However, the fund may also make
fewer payments in a given year, depending on its investment results. Dividends
and distributions consist of substantially all of the fund's net investment
income and realized capital gains.
Dividends and distributions are reinvested in additional fund shares.
Alternatively, you may instruct your financial professional or J.P. Morgan Funds
Services to have them sent to you by check, credited to a separate account, or
invested in another J.P. Morgan 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 the fund is about to declare a long-term capital
gains distribution.
Every January, the fund issues tax information on its distributions for the
previous year.
Any investor for whom the fund does not have a valid taxpayer identification
number will be subject to backup withholding for taxes.
The tax considerations described in this section do not apply to tax-deferred
accounts or other non-taxable entities.
Because each investor's tax circumstances are unique, please consult your tax
professional about your fund investment.
8 YOUR INVESTMENT
<PAGE>
FUND DETAILS
- --------------------------------------------------------------------------------
MASTER/FEEDER STRUCTURE
As noted earlier, the fund is a "feeder" fund that invests in a master
portfolio. (Except where indicated, this prospectus uses the term "the fund" to
mean the feeder fund and its master portfolio taken together.)
The master portfolio accepts investments from other feeder funds, and the
feeders 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 the master
portfolio seeks a vote, the feeder fund will hold a shareholder meeting and cast
its vote proportionately, as instructed by its shareholders. Fund shareholders
are entitled to one vote per fund share.
The fund and its master portfolio expect to maintain consistent goals, but if
they do not, the fund will withdraw from the master portfolio, receiving its
assets either in cash or securities. The fund's trustees would then consider
whether the fund should hire its own investment adviser, invest in a different
master portfolio, or take other action.
MANAGEMENT AND ADMINISTRATION
The fund and its master portfolio are governed by the same trustees. The
trustees are responsible for overseeing all business activities. The trustees
are assisted by Pierpont Group, Inc., which they own and operate on a cost
basis; costs are shared by all funds governed by these trustees. Funds
Distributor, Inc., as co-administrator, along with J.P. Morgan, provides fund
officers. J.P. Morgan, as co-administrator, oversees the fund's other service
providers.
J.P. Morgan, subject to the expense reimbursements described earlier in this
prospectus, receives the following fees for investment advisory and other
services:
- --------------------------------------------------------------------------------
ADVISORY SERVICES 1.00% of the master portfolio's
average net assets
- --------------------------------------------------------------------------------
ADMINISTRATIVE SERVICES Master portfolio's and fund's pro-
(fee shared with Funds rata portions of 0.09% of the
Distributor, Inc.) first $7 billion in J.P. Morgan-
advised portfolios, plus 0.04% of
average net assets over $7 billion
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICES 0.25% 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 the fund.
FUND DETAILS 9
<PAGE>
- --------------------------------------------------------------------------------
RISK AND REWARD ELEMENTS
This table identifies the main elements that make up the fund's overall risk and
reward characteristics (described on page 4). It also outlines the fund's
policies toward various investments, including those that are designed to help
the fund manage risk.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
POTENTIAL RISKS POTENTIAL REWARDS POLICIES TO BALANCE RISK AND REWARD
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
FOREIGN AND OTHER MARKET
CONDITIONS
- - The fund's share price and - Stocks have generally - Under normal circumstances the fund plans to remain
performance will fluctuate outperformed more stable fully invested, with at least 65% in stocks; stock
in response to stock market investments (such as investments may include convertible securities,
movements bonds and cash equivalents) preferred stocks, depository receipts (such as ADRs
over the long term and EDRs), trust or partnership interests, warrants,
- - The fund could lose money rights, and investment company securities
because of foreign govern- - Foreign investments, which
ment actions, political represent a major portion - The fund seeks to limit risk and enhance performance
instability, or lack of of the world's securities, through active management, country allocation and
adequate and/or accurate offer attractive potential diversification
information performance and opportunities
for - During severe market downturns, the fund has the
- - Investment risks tend to option of investing up to 100% of assets in
be higher in emerging - Emerging markets can offer investment-grade short-term securities
markets. These markets higher returns
also present higher
liquidity and valuation
risks
- ----------------------------------------------------------------------------------------------------------------------------------
MANAGEMENT CHOICES
- - The fund could underperform - The fund could outperform - J.P. Morgan focuses its active management on
its benchmark due to its its benchmark due to these securities selection, the area where it believes
securities choices and same choices its commitment to research can most enhance returns
other management
decisions
- ----------------------------------------------------------------------------------------------------------------------------------
FOREIGN CURRENCIES
- - Currency exchange rate - Favorable exchange rate - The fund typically maintains full currency exposure to
movements could reduce movements could generate those markets in which it invests. However, the fund may
gains or create losses gains or reduce losses hedge a portion of its foreign currency exposure into the
U.S. dollar from time to time (see also "Derivatives")
- - Currency risks tend to
be higher in emerging
markets
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
10 FUND DETAILS
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
POTENTIAL RISKS POTENTIAL REWARDS POLICIES TO BALANCE RISK AND REWARD
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
DERIVATIVES
- - Derivatives such as futures, - Hedges that correlate well - The fund uses derivatives, such as futures, options,
options, and forward foreign with underlying positions and forward foreign currency contracts, for hedging
currency contracts(1) that can reduce or eliminate and for risk management (i.e., to establish or
are used for hedging the losses at low cost adjust exposure to particular securities, markets
portfolio or specific or currencies); risk management may include
securities may not fully - The fund could make money management of the fund's exposure relative to its
offset the underlying and protect against losses benchmark
positions and this could if the investment analysis
result in losses to the fund proves correct - The fund only establishes hedges that it expects
that would not have other- will be highly correlated with underlying positions
wise occurred - Derivatives that involve
leverage could generate - While the fund may use derivatives that
- - Derivatives used for risk substantial gains at low incidentally involve leverage, it does not use
management may not have the cost them for the specific purpose of leveraging its
intended effects and may portfolio
result in losses or missed
opportunities
- - The counterparty to a
derivatives contract could
default
- - Derivatives that involve
leverage could magnify
losses
- - Certain types of derivatives
involve costs to the fund
which can reduce returns
- ----------------------------------------------------------------------------------------------------------------------------------
ILLIQUID HOLDINGS
- - The fund could have - These holdings may offer - The fund may not invest more than 15% of net
difficulty valuing these more attractive yields or assets in illiquid holdings
holdings precisely potential growth than
comparable widely traded - To maintain adequate liquidity, the fund may hold
- - The fund could be unable securities investment-grade short-term securities (including
to sell these holdings at repurchase agreements) and, for temporary or
the time or price it desired extraordinary purposes, may borrow from banks up
to 33 1/3% of the value of its total assets
- ----------------------------------------------------------------------------------------------------------------------------------
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
- - When the fund buys - The fund can take advantage - The fund uses segregated accounts to offset leverage
securities before issue of attractive transaction risk
or for delayed delivery, opportunities
it could be exposed to
leverage risk if it does
not use segregated accounts
- ----------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM TRADING
- - Increased trading could - The fund could realize gains - The fund anticipates that its portfolio turnover
raise the fund's brokerage in a short period of time rate will not exceed 100%
and related costs
- The fund could protect - The fund generally avoids short-term trading,
- - Increased short-term capital against losses if a stock except to take advantage of attractive or
gains distributions could is overvalued and its value unexpected opportunities or to meet demands
raise shareholders' income later falls generated by shareholder activity
tax liability
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) A futures contract is an agreement to buy or sell a set quantity of an
underlying instrument at a future date, or to make or receive a cash
payment based on changes in the value of a securities index. An option is
the right to buy or sell a set quantity of an underlying instrument at a
predetermined price. A forward foreign currency contract is an obligation
to buy or sell a given currency on a future date and at a set price.
FUND DETAILS 11
<PAGE>
- --------------------------------------------------------------------------------
(THIS PAGE IS INTENTIONALLY LEFT BLANK)
12
<PAGE>
- --------------------------------------------------------------------------------
(THIS PAGE IS INTENTIONALLY LEFT BLANK)
13
<PAGE>
FOR MORE INFORMATION
- --------------------------------------------------------------------------------
For investors who want more information on the fund, the following documents are
available free upon request:
Annual/Semi-annual Reports Contain financial statements, performance data,
information on portfolio holdings, and a written analysis of market conditions
and fund performance for the fund's most recently completed fiscal year or
half-year.
Statement of Additional Information (SAI) Provides a fuller technical and legal
description of the fund's policies, investment restrictions, and business
structure. This prospectus incorporates the fund's SAI by reference.
Copies of the current versions of these documents may be obtained by contacting:
J.P. MORGAN EMERGING MARKETS EQUITY FUND
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 from the
Public Reference Room of the Securities and Exchange Commission in Washington,
D.C. (1-800-SEC-0330) and may be viewed on-screen or downloaded from the SEC's
Internet site at http://www.sec.gov. The fund's investment company and 1933 Act
registration numbers are 811-07340 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
Morgan Guaranty Trust Company of New York Funds Distributor, Inc.
522 Fifth Avenue 60 State Street
New York, NY 10036 Boston, MA 02109
1-800-521-5411 1-800-221-7930
PROS 235-983
<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 31, 1998
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT CONTAINS
ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS
DATED MARCH 31, 1998 FOR THE FUNDS LISTED ABOVE, AS SUPPLEMENTED FROM TIME TO
TIME, WHICH MAY BE OBTAINED UPON REQUEST FROM FUNDS DISTRIBUTOR, INC.,
ATTENTION: J.P. MORGAN FUNDS (800)221-7930.
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Table of Contents
Page
General . . . . . . . . . . . . . . . . . . . 1
Investment Objective and Policies . . . . . . 1
Investment Restrictions . . . . . . . . . . . 19
Trustees and Officers . . . . . . . . . . . . 24
Investment Advisor . . . . . . . . . . . . . . 28
Distributor . . . . . . . . . . . . . . . . . 31
Co-Administrator . . . . . . . . . . . . . . . 31
Services Agent . . . . . . . . . . . . . . . . 33
Custodian and Transfer Agent . . . . . . . . . 34
Shareholder Servicing . . . . . . . . . . . . 34
Financial Professionals. . . . . . . . . . . . 35
Independent Accountants . . . . . . . . . . . 36
Expenses . . . . . . . . . . . . . . . . . . . 36
Purchase of Shares . . . . . . . . . . . . . . 36
Redemption of Shares . . . . . . . . . . . . . 37
Exchange of Shares . . . . . . . . . . . . . . 38
Dividends and Distributions . . . . . . . . . 38
Net Asset Value . . . . . . . . . . . . . . . 39
Performance Data . . . . . . . . . . . . . . . 40
Portfolio Transactions . . . . . . . . . . . . 41
Massachusetts Trust . . . . . . . . . . . . . 43
Description of Shares . . . . . . . . . . . . 44
Special Information Concerning
Investment Structure . . . . . . . . . . . . . 44
Taxes . . . . . . . . . . . . . . . . . . . . 45
Additional Information . . . . . . . . . . . 50
Appendix A - Description of Securities
Ratings . . . . . . . . . . . . . . . . . . . A-51
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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 to enable investors to select the 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"). 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 Morgan Guaranty Trust Company of New York
("Morgan" or the "Advisor").
Investments in the Funds are not deposits or obligations of, or
guaranteed or endorsed by, Morgan 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: Morgan'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, Morgan
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, Morgan
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. Morgan places
limits on the total size of the Portfolio's country over- and under-weightings
relative to the EAFE Index.
Stock selection: Morgan'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. Morgan's currency decisions are supported by a proprietary
tactical model which forecasts currency movements based on an analysis of four
fundamental factors -- trade balance trends, purchasing power parity, real
short-term interest differentials and real bond yields -- plus a technical
factor designed to improve the timing of transactions. Combining the output of
this model with a subjective assessment of economic, political and market
factors, Morgan's currency specialists recommend currency strategies that are
implemented in conjunction with the Portfolio's investment strategy.
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: Morgan'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. Morgan 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. To help contain risk,
Morgan places limits on the total size of the Portfolio's country over- and
under-weightings.
Stock selection: Morgan'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 Morgan'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
Country allocation (developed countries): Morgan's country allocation
decision for securities issued in developed countries begins with a forecast of
equity risk premiums, which provide a valuation signal by measuring the relative
attractiveness of stocks. Using a proprietary approach, Morgan calculates this
risk premium for each of the developed countries 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 emphasized (de-emphasized) to reflect the above-average
(below-average) attractiveness of their stock markets. In determining these
weightings, Morgan 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.
Country allocation (emerging countries): Morgan's country allocation
decision for emerging markets securities begins with a forecast of the expected
return of each emerging 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. Morgan 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, while those that rank poorly are underweighted.
Stock selection: Morgan's more than 90 international equity analysts
and 25 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 and country.
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 Morgan'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: Morgan 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. Morgan's currency decisions are supported by a proprietary
tactical model which forecasts currency movements based on an analysis of four
fundamental factors -- trade balance trends, purchasing power parity, real
short-term interest differentials and real bond yields -- plus a technical
factor designed to improve the timing of transactions. Combining the output of
this model with a subjective assessment of economic, political and market
factors, Morgan's currency specialists recommend currency strategies that are
implemented in conjunction with the Portfolio's investment strategy.
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 Guaranty Trust Company of New York
acting as agent, for no additional fee, in its capacity as investment advisor to
the Portfolios and as fiduciary for other clients for whom it exercises
investment discretion. The monies loaned to the borrower come from accounts
managed by the Advisor or its affiliates, pursuant to arrangements with such
accounts. Interest and principal payments are credited to such accounts. The
Advisor, acting as a fiduciary on behalf of its clients, has the right to
increase or decrease the amount provided to the borrower under an obligation.
The borrower has the right to pay without penalty all or any part of the
principal amount then outstanding on an obligation together with interest to the
date of payment. Since these obligations typically provide that the interest
rate is tied to the Federal Reserve commercial paper composite rate, the rate on
master demand obligations is subject to change. Repayment of a master demand
obligation to participating accounts depends on the ability of the borrower to
pay the accrued interest and principal of the obligation on demand which is
continuously monitored by the Advisor. Since master demand obligations typically
are not rated by credit rating agencies, the 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. 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. These limits require that, as determined
immediately after a purchase is made, (i)not more than 5% of the value of a
Fund's total assets will be invested in the securities of any one investment
company, (ii) not more than 10% of the value of its total assets will be
invested in the aggregate in securities of investment companies as a group, and
(iii) not more than 3% of the outstanding voting stock of any one investment
company will be owned by a Fund, provided however, that a Fund may invest all of
its investable assets in an open-end investment company that has the same
investment objective as the Fund (its corresponding Portfolio). As a shareholder
of another investment company, a Fund or Portfolio would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund or Portfolio bears directly in connection with its
own operations.
Reverse Repurchase Agreements. Each of the 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. 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. The Portfolio will invest the proceeds of borrowings under
reverse repurchase agreements. In addition, a Portfolio will enter into a
reverse repurchase agreement only when the interest income to be earned from the
investment of the proceeds is greater than the interest expense of the
transaction. Investors should keep in mind that the counterparty to a contract
could default on its obligation. No Portfolio will invest the proceeds of a
reverse repurchase agreement for a period which exceeds the duration of the
reverse repurchase agreement. Each Portfolio will establish and maintain with
the Custodian a separate account with a segregated portfolio of securities in an
amount at least equal to its purchase obligations under its reverse repurchase
agreements. See "Investment Restrictions" for each Portfolio's limitations on
reverse repurchase agreements and bank borrowings.
Loans of Portfolio Securities. Each of the Portfolios may lend its
securities if such loans are secured continuously by cash or equivalent
collateral or by a letter of credit in favor of the Portfolio at least equal at
all times to 100% of the market value of the securities loaned, plus accrued
interest. While such securities are on loan, the borrower will pay the Portfolio
any income accruing thereon. Loans will be subject to termination by the
Portfolio in the normal settlement time, generally three business days after
notice, or by the borrower on one day's notice. Borrowed securities must be
returned when the loan is terminated. Any gain or loss in the market price of
the borrowed securities which occurs during the term of the loan inures to a
Portfolio and its respective investors. The Portfolios may pay reasonable
finders' and custodial fees in connection with a loan. In addition, a Portfolio
will consider all facts and circumstances before entering into such an
agreement, including the creditworthiness of the borrowing financial
institution, and no Portfolio will make any loans in excess of one year. The
Portfolios will not lend their securities to any officer, Trustee, Director,
employee or other affiliate of the Portfolios, the Advisor or the Distributor,
unless otherwise permitted by applicable law.
Privately Placed and Certain Unregistered Securities. A Portfolio may
not acquire any illiquid holdings if, as a result thereof, more than 15% of the
Portfolio's net assets would be in illiquid investments. Subject to this
non-fundamental policy limitation, the Portfolios may acquire investments that
are illiquid or have limited liquidity, such as private placements or
investments that are not registered under the 1933 Act and cannot be offered for
public sale in the United States without first being registered under the 1933
Act. An illiquid investment is any investment that cannot be disposed of within
seven days in the normal course of business at approximately the amount at which
it is valued by a Portfolio. The price a Portfolio pays for illiquid holdings or
receives upon resale may be lower than the price paid or received for similar
holdings with a more liquid market. Accordingly the valuation of these holdings
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. To meet these requirements, 75% of the assets of a Fund are
subject to the following fundamental limitations: (1) the Fund may not invest
more than 5% of its total assets in the securities of any one issuer, except
obligations of the U.S. Government, its agencies and instrumentalities, and (2)
the Fund may not own more than 10% of the outstanding voting securities of any
one issuer. As for the other 25% of the Fund's assets not subject to the
limitation described above, there is no limitation on investment of these assets
under the 1940 Act, so that all of such assets may be invested in securities of
any one issuer. Investments not subject to the limitations described above could
involve an increased risk to the Fund should an issuer, or a state or its
related entities, be unable to make interest or principal payments or should the
market value of such securities decline.
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 purchase put and call options,
including put and call options on futures contracts. In addition, the Portfolios
for the Emerging Markets Equity and the International Opportunities Funds may
sell (write) put and call options, including options on futures. Futures
contracts obligate the buyer to take and the seller to make delivery at a future
date of a specified quantity of a financial instrument or an amount of cash
based on the value of a securities index. Currently, futures contracts are
available on various types of fixed income securities, including but not limited
to U.S. Treasury bonds, notes and bills, Eurodollar certificates of deposit and
on 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 that are permitted to purchase and
write options may do so 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.
Risk Management
The Portfolios for the Emerging Markets Equity and International
Opportunities Funds 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.
Anticipatory hedging. The Portfolio for the International Equity Fund
may purchase futures contracts on stock indices in anticipation of purchasing
securities. Such transactions are considered anticipatory hedging if all
transactions are entered into with the intent of completion and at least 75% of
all anticipatory hedge transactions entered into are completed. The Portfolio
may not use futures to increase country allocation/security exposure that is not
in anticipation of securities purchases.
Portfolio Turnover
The table below sets forth the portfolio turnover rates for the
Portfolios corresponding to the Funds. A rate of 100% indicates that the
equivalent of all of the Portfolio's assets have been sold and reinvested in a
year. High portfolio turnover may result in the realization of substantial net
capital gains or losses. To the extent net short term capital gains are
realized, any distributions resulting from such gains are considered ordinary
income for federal income tax purposes. See "Taxes" below.
The International Equity Portfolio (International Equity Fund) For the
fiscal year ended October 31, 1995: 59%. For the fiscal year ended October 31,
1996: 57%. For the fiscal year ended October 31, 1997: 67%.
The Emerging Markets Equity Portfolio (Emerging Markets Equity Fund) For
the fiscal year ended October 31, 1995: 41%. For the fiscal year ended October
31, 1996: 31%. For the fiscal year ended October 31, 1997: 55%.
The International Opportunities Portfolio (International Equity Fund) For the
period February 26, 1997 (commencement of operations) through November 30, 1997:
72%.
INVESTMENT RESTRICTIONS
The investment restrictions of each Fund and its corresponding
Portfolio are identical, unless otherwise specified. Accordingly, references
below to a Fund also include the Fund's corresponding Portfolio unless the
context requires otherwise; similarly, references to a Portfolio also include
its corresponding Fund unless the context requires otherwise.
The investment restrictions below have been adopted by the Trust with
respect to each Fund and by each corresponding Portfolio. Except where otherwise
noted, these investment restrictions are "fundamental" policies which, under the
1940 Act, may not be changed without the vote of a majority of the outstanding
voting securities of the Fund or Portfolio, as the case may be. A "majority of
the outstanding voting securities" is defined in the 1940 Act as the lesser of
(a) 67% or more of the voting securities present at a security holders meeting
if the holders of more than 50% of the outstanding voting securities are present
or represented by proxy, or (b) more than 50% of the outstanding voting
securities. The percentage limitations contained in the restrictions below apply
at the time of the purchase of securities. Whenever a Fund is requested to vote
on a change in the fundamental investment restrictions of its corresponding
Portfolio, the Trust will hold a meeting of Fund shareholders and will cast its
votes as instructed by the Fund's shareholders.
The International Equity Fund and its corresponding Portfolio may not:
1. Borrow money, except from banks for extraordinary or emergency purposes and
then only in amounts up to 30% of the value of the Fund's net assets at the time
of borrowing, and except in connection with reverse repurchase agreements and
then only in amounts up to 33 1/3% of the value of the Fund's net assets; or
purchase securities while borrowings, including reverse repurchase agreements,
exceed 5% of the Fund's total assets; provided, however, that the Fund may
increase its interest in an open-end management investment company with the same
investment objective and restrictions as the Fund's while such borrowings are
outstanding. The Fund will not mortgage, pledge, or hypothecate any assets
except in connection with any such borrowing and in amounts not to exceed 30% of
the value of the Fund's net assets at the time of such borrowing;
2. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in securities or other obligations of any one such
issuer; provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with the same
investment objective and restrictions as the Fund's. This limitation shall not
apply to securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities or to permitted investments of up to 25% of the Fund's total
assets;
3. Purchase the securities of an issuer if, immediately after such purchase, the
Fund owns more than 10% of the outstanding voting securities of such issuer;
provided, however, that the Fund may invest all or part of its investable assets
in an open-end management investment company with the same investment objective
and restrictions as the Fund's. This limitation shall not apply to permitted
investments of up to 25% of the Fund's total assets;
4. Purchase the securities or other obligations of issuers conducting their
principal business activity in the same industry if, immediately after such
purchase, the value of its investments in such industry would exceed 25% of the
value of the Fund's total assets; provided, however, that the Fund may invest
all or part of its investable assets in an open-end management investment
company with the same investment objective and restrictions as the Fund's. For
purposes of industry concentration, there is no percentage limitation with
respect to investments in U.S. Government securities;
5. Make loans, except through the purchase or holding of debt obligations
(including restricted securities), or the entering into of repurchase
agreements, or loans of portfolio securities in accordance with the Fund's
investment objective and policies, see "Additional Investment Information" in
the Prospectus and "Investment Objectives and Policies" in this Statement of
Additional Information;
6. Purchase or sell puts, calls, straddles, spreads, or any combination thereof,
real property, including limited partnership interests, commodities, or
commodity contracts, except for the Fund's interests in hedging and foreign
exchange activities as described under "Additional Investment Information" in
the Prospectus; or interests in oil, gas, mineral or other exploration or
development programs or leases. However, the Fund may purchase securities or
commercial paper issued by companies that invest in real estate or interests
therein including real estate investment trusts;
7. Purchase securities on margin, make short sales of securities, or maintain a
short position in securities, except to obtain such shortUterm credit as
necessary for the clearance of purchases and sales of securities, provided that
this restriction shall not be deemed to apply to the purchase or sale of
when-issued securities or delayed delivery securities;
8. Acquire securities of other investment companies, except as permitted by the
1940 Act;
9. Act as an underwriter of securities, except insofar as the Fund may be deemed
to be an underwriter under the 1933 Act by virtue of disposing of portfolio
securities; or
10. Issue any senior security, except as appropriate to evidence indebtedness
which the Fund is permitted to incur pursuant to Investment Restriction No. 1.
The Fund's arrangements in connection with its hedging activities as described
in "Additional Investment Information" in the Prospectus shall not be considered
senior securities for purposes hereof.
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 Emerging Markets Equity
Fund and its corresponding Portfolio may not:
1. Purchase any security if, as a result, more than 25% of the value of the
Fund's total assets would be invested in securities of issuers having their
principal business activities in the same industry. This limitation shall not
apply to obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities;
2. Borrow money, except that the Fund may (i) borrow money from banks for
temporary or emergency purposes (not for leveraging purposes) and (ii) enter
into reverse repurchase agreements for any purpose; provided that (i) and (ii)
in total do not exceed 33 1/3% of the value of the Fund's total assets
(including the amount borrowed) less liabilities (other than borrowings). If at
any time any borrowings come to exceed 33 1/3% of the value of the Fund's total
assets, the Fund will reduce its borrowings within three business days to the
extent necessary to comply with the 33 1/3% limitation;
3. With respect to 75% of its total assets, purchase any security if, as a
result, (a) more than 5% of the value of the Fund's total assets would be
invested in securities or other obligations of any one issuer; or (b) the Fund
would hold more than 10% of the outstanding voting securities of that issuer.
This limitation shall not apply to Government securities (as defined in the 1940
Act);
4. Make loans to other persons, except through the purchase of debt obligations,
loans of portfolio securities, and participation in repurchase agreements;
5. Purchase or sell physical commodities or contracts thereon, unless acquired
as a result of the ownership of securities or instruments, but the Fund may
purchase or sell futures contracts or options (including options on futures
contracts, but excluding options or futures contracts on physical commodities)
and may enter into forward foreign currency contracts;
6. Purchase or sell real estate, but the Fund may purchase or sell securities
that are secured by real estate or issued by companies (including real estate
investment trusts) that invest or deal in real estate;
7. Underwrite securities of other issuers, except to the extent the Fund, in
disposing of portfolio securities, may be deemed an underwriter within the
meaning of the 1933 Act;
8. Issue senior securities, except as permitted under the 1940 Act or any rule,
order or interpretation thereunder; and
9. Notwithstanding any other investment restriction of the Fund, the Fund may
invest all of its investable assets in an open-end management investment company
having the same investment objective and restrictions as the Fund.
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 International Opportunities
Fund and its corresponding Portfolio may not:
1. Purchase any security if, as a result, more than 25% of its total assets
would be invested in securities of issuers in any single industry. This
limitation shall not apply to securities issued or guaranteed as to principal or
interest by the U.S. Government, its agencies or instrumentalities.
2. Issue senior securities. For purposes of this restriction, borrowing money in
accordance with paragraph 3 below, making loans in accordance with paragraph 7
below, the issuance of shares of beneficial interest in multiple classes or
series, the purchase or sale of options, futures contracts, forward commitments,
swaps and transactions in repurchase agreements are not deemed to be senior
securities.
3. Borrow money, except in amounts not to exceed one third of the Fund's total
assets (including the amount borrowed) (i) from banks for temporary or
short-term purposes or for the clearance of transactions, (ii) in connection
with the redemption of Fund shares or to finance failed settlements of portfolio
trades without immediately liquidating portfolio securities or other assets,
(iii) in order to fulfill commitments or plans to purchase additional securities
pending the anticipated sale of other portfolio securities or assets and (iv)
pursuant to reverse repurchase agreements entered into by the Fund.
4. Underwrite the securities of other issuers, except to the extent that, in
connection with the disposition of portfolio securities, the Fund may be deemed
to be an underwriter under the 1933 Act.
5. Purchase or sell real estate except that the Fund may (i) acquire or lease
office space for its own use, (ii) invest in securities of issuers that invest
in real estate or interests therein, (iii) invest in securities that are secured
by real estate or interests therein, (iv) purchase and sell mortgage-related
securities and (v) hold and sell real estate acquired by the Fund as a result of
the ownership of securities.
6. Purchase or sell commodities or commodity contracts, except the Fund may
purchase and sell financial futures contracts, options on financial futures
contracts and warrants and may enter into swap and forward commitment
transactions.
7. Make loans, except that the Fund (1) may lend portfolio securities with a
value not exceeding one-third of the Fund's net assets, (2) enter into
repurchase agreements, and (3) purchase all or a portion of an issue of debt
securities (including privately issued debt securities), bank loan participation
interests, bank certificates of deposit, bankers' acceptances, debentures or
other securities, whether or not the purchase is made upon the original issuance
of the securities.
8. With respect to 75% of its total assets, purchase securities of an issuer
(other than the U.S. Government, its agencies, instrumentalities or authorities
or repurchase agreements collateralized by U.S.
Government securities), if:
a. such purchase would cause more than 5% of the Fund's total assets to be
invested in the securities of such issuer; or
b. such purchase would cause the Fund to hold more than 10% of the
outstanding voting securities of such issuer.
(Although permitted to do so by restriction No. 3 above, the Fund has no
current intention to engage in borrowing
for financial leverage.)
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS - International Equity Fund - The
investment restriction described below is not a fundamental policy of the Fund
or the Portfolio and may be changed by their respective Trustees. This
non-fundamental investment policy requires that the Fund may not:
(i) acquire any illiquid securities, such as repurchase agreements with more
than seven days to maturity or fixed time deposits with a duration of over seven
calendar days, if as a result thereof, more than 15% of the market value of the
Fund's net assets would be in investments that are illiquid.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS - Emerging Markets Equity Fund. The
investment restrictions described below are not fundamental policies of the Fund
or the Portfolio and may be changed by their respective Trustees.
These non-fundamental investment policies require that the Fund may not:
(i) Acquire securities of other investment companies, except as permitted by the
1940 Act or any rule, order or interpretation thereunder, or in connection with
a merger, consolidation, reorganization, acquisition of assets or an offer of
exchange;
(ii) Acquire any illiquid securities, such as repurchase agreements with more
than seven days to maturity or fixed time deposits with a duration of over seven
calendar days, if as a result thereof, more than 15% of the market value of the
Fund's net assets would be in investments that are illiquid;
(iii) Sell any security short, unless it owns or has the right to obtain
securities equivalent in kind and amount to the securities sold or unless it
covers such short sales as required by the current rules or positions of the SEC
or its staff. Transactions in futures contracts and options shall not constitute
selling securities short; or
(iv) Purchase securities on margin, but the Fund may obtain such short term
credits as may be necessary for the clearance of transactions.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS - International Opportunities Fund. The
investment restrictions described below are not fundamental policies of the Fund
and its corresponding Portfolio and may be changed by the Trustees. These
non-fundamental investment policies require that the Fund may not:
(i) Acquire securities of other investment companies, except as permitted by the
1940 Act or any rule, order or interpretation thereunder, or in connection with
a merger, consolidation, reorganization, acquisition of assets or an offer of
exchange;
(ii) Acquire any illiquid securities, such as repurchase agreements with more
than seven days to maturity or fixed time deposits with a duration of over seven
calendar days, if as a result thereof, more than 15% of the market value of the
Fund's net assets would be in investments that are illiquid;
(iii) Sell any security short, except to the extent permitted by the 1940 Act.
Transactions in futures contracts and options shall not constitute selling
securities short;
(iv) Purchase securities on margin, but the Fund may obtain such short term
credits as may be necessary for the clearance of transactions.
All Funds. 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
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, TX 78746, and his date of birth is January 1, 1932.
William G. Burns -- Trustee; Retired; Former Vice Chairman and Chief
Financial Officer, NYNEX. His address is 2200 Alaqua Drive, Longwood, FL 32779,
and his date of birth is November 2, 1932.
Arthur C. Eschenlauer -- Trustee; Retired; Former Senior Vice
President, Morgan Guaranty Trust Company of New York. His address is 14 Alta
Vista Drive, RD #2, Princeton, NJ 08540, and his date of birth is May 23, 1934.
Matthew 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, FL
33436, and his date of birth is August 23, 1937.
- ----------------------
* Mr. Healey is an "interested person" of the Trust, the Advisor and each
Portfolio as that term is defined in the 1940 Act.
Michael P. Mallardi -- Trustee; Retired; Prior to April 1996, Senior Vice
President, Capital Cities/ABC, Inc. and President, Broadcast Group. His address
is 10 Charnwood Drive, Suffern, NY 10910, and his date of birth is March 17,
1934.
The Trustees of the Trust are the same as the Trustees of each of the
Portfolios. 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.
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 19 other portfolios (collectively, the "Master
Portfolios") for which Morgan 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, 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, in addition to reviewing actions of the Trust's and the
Portfolios' various service providers, decide upon matters of general policy.
Each of the Portfolios and the Trust has entered into a Fund Services Agreement
with Pierpont Group, Inc. to assist the Trustees in exercising their overall
supervisory responsibilities over the affairs of the Portfolios and the Trust.
Pierpont Group, Inc. was organized in July 1989 to provide services for the J.P.
Morgan 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 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.
MATTHEW HEALEY; Chief Executive Officer; Chairman, Pierpont Group, since prior
to 1993. His address is Pine Tree Club Estates, 10286 Saint Andrews Road,
Boynton Beach, FL 33436. His date of birth is August 23, 1937.
MARIE E. CONNOLLY; Vice President and Assistant Treasurer. President, Chief
Executive Officer, Chief Compliance Officer and Director of FDI, Premier Mutual
Fund Services, Inc., an affiliate of FDI ("Premier Mutual") and an officer of
certain investment companies advised or administered by the Dreyfus Corporation
("Dreyfus") or its affiliates. From December 1991 to July 1994, she was
President and Chief Compliance Officer of FDI. Her date of birth is August 1,
1957.
DOUGLAS C. CONROY; Vice President and Assistant Treasurer. Assistant Vice
President and Manager of Treasury Services and Administration of FDI and an
officer of certain investment companies advised or administered by Dreyfus or
its affiliates. Prior to April 1997, Mr. Conroy was Supervisor of Treasury
Services and Administration of FDI. From April 1993 to January 1995, Mr. Conroy
was a Senior Fund Accountant for Investors Bank & Trust Company. Prior to March
1993, Mr. Conroy was employed as a fund accountant at The Boston Company, Inc.
His date of birth is March 31, 1969.
JACQUELINE HENNING; Assistant Secretary and Assistant Treasurer. Managing
Director, State Street Cayman Trust Company, Ltd. since October 1994. Prior to
October 1994, Mrs. Henning was head of mutual funds at Morgan Grenfell in Cayman
and for five years was Managing Director of Bank of Nova Scotia Trust Company
(Cayman) Limited from September 1988 to September 1993. Address: P.O. Box 2508
GT, Elizabethan Square, 2nd Floor, Shedden Road, George Town, Grand Cayman,
Cayman Islands. Her date of birth is March 24, 1942.
RICHARD W. INGRAM; President and Treasurer. Executive Vice President and
Director of Client Services and Treasury Administration of FDI, Senior Vice
President of Premier Mutual and an officer of RCM Capital Funds, Inc., RCM
Equity Funds, Inc. (together "RCM"), Waterhouse Investors Cash Management Fund,
Inc. ("Waterhouse") and certain investment companies advised or administered by
Dreyfus or Harris Trust and Savings Bank ("Harris") or their respective
affiliates. Prior to April 1997, Mr. Ingram was Senior Vice President and
Director of Client Services and Treasury Administration of FDI. From March 1994
to November 1995, Mr. Ingram was Vice President and Division Manager of First
Data Investor Services Group, Inc. From 1989 to 1994, Mr. Ingram was Vice
President, Assistant Treasurer and Tax Director - Mutual Funds of The Boston
Company, Inc. His date of birth is September 15, 1955.
KAREN JACOPPO-WOOD; Vice President and Assistant Secretary. Assistant Vice
President of FDI and an officer of RCM, Waterhouse and Harris or their
respective affiliates. From June 1994 to January 1996, Ms. Jacoppo-Wood was a
Manager, SEC Registration, Scudder, Stevens & Clark, Inc. From 1988 to May 1994,
Ms. Jacoppo-Wood was a senior paralegal at The Boston Company Advisors, Inc.
("TBCA"). Her date of birth is December 29, 1966.
CHRISTOPHER J. KELLEY; Vice President and Assistant Secretary. Vice
President and Associate General Counsel of FDI and Premier Mutual and an officer
of Waterhouse and certain investment companies advised or administered by Harris
or its affiliates. From April 1994 to July 1996, Mr. Kelley was Assistant
Counsel at Forum Financial Group. From 1992 to 1994, Mr. Kelley was employed by
Putnam Investments in legal and compliance capacities. Prior to September 1992,
Mr. Kelley was enrolled at Boston College Law School and received his JD in May
1992. His date of birth is December 24, 1964.
LENORE J. MCCABE; Assistant Secretary and Assistant Treasurer. Assistant
Vice President, State Street Bank and Trust Company since November 1994.
Assigned as Operations Manager, State Street Cayman Trust Company, Ltd. since
February 1995. Prior to November, 1994, employed by Boston Financial Data
Services, Inc. as Control Group Manager. Address: P.O. Box 2508 GT, Elizabethan
Square, 2nd Floor, Shedden Road, George Town, Grand Cayman, Cayman Islands. Her
date of birth is May 31, 1961.
MARY A. NELSON; Vice President and Assistant Treasurer. Vice President and
Manager of Treasury Services and Administration of FDI and Premier Mutual, an
officer of RCM, Waterhouse and certain investment companies advised or
administered by Dreyfus or Harris or their respective affiliates. From 1989 to
1994, Ms. Nelson was an Assistant Vice President and Client Manager for The
Boston Company, Inc. Her date of birth is April 22, 1964.
MARY JO PACE; Assistant Treasurer. Vice President, Morgan Guaranty Trust
Company of New York. Ms. Pace serves in the Funds Administration group as a
Supervisor for the Budgeting and Expense Division. Prior to September 1995, Ms.
Pace served as a Funds 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.
CHRISTINE ROTUNDO; Assistant Treasurer. Vice President, Morgan Guaranty
Trust Company of New York. Ms. Rotundo serves in the Funds Administration group
and is responsible for U.S. mutual fund tax matters. Prior to September 1995,
Ms. Rotundo served as a Senior Tax Manager in the Investment Company Services
Group of Deloitte & Touche LLP. Her address is 60 Wall Street, New York, New
York 10260. Her date of birth is September 26, 1965.
JOSEPH F. TOWER III; Vice President and Assistant Treasurer. Executive Vice
President, Treasurer and Chief Financial Officer, Chief Administrative Officer
and Director of FDI. Senior Vice President, Treasurer and Chief Financial
Officer, Chief Administrative Officer and Director of Premier Mutual and an
officer of Waterhouse and certain investment companies advised or administered
by Dreyfus or its affiliates. Prior to April 1997, Mr. Tower was Senior Vice
President, Treasurer and Chief Financial Officer, Chief Administrative Officer
and Director of FDI. From July 1988 to November 1993, Mr. Tower was Financial
Manager of The Boston Company, Inc. His date of birth is June 13, 1962.
INVESTMENT ADVISOR
The Funds have not retained the services of an investment adviser
because each Fund seeks to achieve its investment objective by investing all of
its investable assets in a corresponding Portfolio. Subject to the supervision
of the Portfolio's Trustees, Morgan makes each Portfolio's day-to-day investment
decisions, arranges for the execution of portfolio transactions and generally
manages the Portfolio's investments. Morgan is a wholly owned subsidiary of J.P.
Morgan & Co. Incorporated ("J.P. Morgan"), a bank holding company organized
under the laws of the State of Delaware. The Advisor, whose principal offices
are at 60 Wall Street, New York, New York 10260, is a New York trust company
which conducts a general banking and trust business. The Advisor is subject to
regulation by the New York State Banking Department and is a member bank of the
Federal Reserve System.
Through offices in New York City and abroad, the Advisor offers a wide
range of services, primarily to governmental, institutional, corporate and high
net worth individual customers in the United States and throughout the world.
J.P. Morgan, through the Advisor and other subsidiaries, acts as
investment advisor to individuals, governments, corporations, employee benefit
plans, mutual funds and other institutional investors with combined assets under
management of approximately $250 billion.
J.P. Morgan has a long history of service as adviser, underwriter and
lender to an extensive roster of major companies and as a financial advisor to
national governments. The firm, through its predecessor firms, has been in
business for over a century and has been managing investments since 1913.
The basis of the Advisor's investment process is fundamental investment
research as the firm believes that fundamentals should determine an asset's
value over the long term. J.P. Morgan currently employs over 100 full time
research analysts, among the largest research staffs in the money management
industry, in its investment management divisions located in New York, London,
Tokyo, Frankfurt, Melbourne and Singapore to cover companies, industries and
countries on site. In addition, the investment management divisions employ
approximately 300 capital market researchers, portfolio managers and traders.
The 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 ex-U.S.
Index.
J.P. Morgan Investment Management Inc., also a wholly owned subsidiary
of J.P. Morgan, is a registered investment adviser under the Investment Advisers
Act of 1940, as amended, which manages employee benefit funds of corporations,
labor unions and state and local governments and the accounts of other
institutional investors, including investment companies. Certain of the assets
of employee benefit accounts under its management are invested in commingled
pension trust funds for which the Advisor serves as trustee. J.P. Morgan
Investment Management Inc. advises the Advisor on investment of the commingled
pension trust funds.
The Portfolios are managed by officers of the Advisor who, in acting for
their customers, including the Portfolios, do not discuss their investment
decisions with any personnel of J.P. Morgan or any personnel of other divisions
of the Advisor or with any of its affiliated persons, with the exception of J.P.
Morgan Investment Management Inc. and certain other investment management
affiliates of J.P. Morgan.
As compensation for the services rendered and related expenses such as
salaries of advisory personnel borne by the Advisor under the Investment
Advisory Agreements, the Portfolio corresponding to each Fund has agreed to pay
the Advisor a fee, which is computed daily and may be paid monthly, equal to the
annual rates of 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 the Advisor for the fiscal period indicated. See
the Funds financial statements which are incorporated herein by reference.
International Equity Portfolio -- For the fiscal year ended October 31,
1995: $3,174,965. For the fiscal year ended October 31, 1996: $5,007,993. For
the fiscal year ended October 31, 1997: $5,305,885.
Emerging Markets Equity Portfolio -- For the fiscal year ended October 31,
1995: $5,713,506. For the fiscal year ended October 31, 1996 : $7,825,873. For
the fiscal year ended October 31, 1997: $9,422,758.
International Opportunities Portfolio -- For the period February 26, 1997
(commencement of operations) through November 30, 1997: $904,113.
The Investment Advisory Agreements provide that they will continue in
effect for a period of two years after execution only if specifically approved
thereafter annually in the same manner as the Distribution Agreement. See
"Distributor" below. Each of the Investment Advisory Agreements will terminate
automatically if assigned and is terminable at any time without penalty by a
vote of a majority of the Portfolio's Trustees, or by a vote of the holders of a
majority of the Portfolio's outstanding voting securities, on 60 days' written
notice to the Advisor and by the Advisor on 90 days' written notice to the
Portfolio. See "Additional Information."
The Glass-Steagall Act and other applicable laws generally prohibit
banks such as the Advisor from engaging in the business of underwriting or
distributing securities, and the Board of Governors of the Federal Reserve
System has issued an interpretation to the effect that under these laws a bank
holding company registered under the federal Bank Holding Company Act or certain
subsidiaries thereof may not sponsor, organize, or control a registered open-end
investment company continuously engaged in the issuance of its shares, such as
the Trust. The interpretation does not prohibit a holding company or a
subsidiary thereof from acting as investment advisor and custodian to such an
investment company. The Advisor believes that it may perform the services for
the Portfolios contemplated by the Advisory Agreements without violation of the
Glass-Steagall Act or other applicable banking laws or regulations. State laws
on this issue may differ from the interpretation of relevant federal law, and
banks and financial institutions may be required to register as dealers pursuant
to state securities laws. However, it is possible that future changes in either
federal or state statutes and regulations concerning the permissible activities
of banks or trust companies, as well as further judicial or administrative
decisions and interpretations of present and future statutes and regulations,
might prevent the Advisor from continuing to perform such services for the
Portfolios.
If the Advisor were prohibited from acting as investment advisor to any
Portfolio, it is expected that the Trustees of the Portfolio would recommend to
investors that they approve the Portfolio's entering into a new investment
advisory agreement with another qualified investment advisor selected by the
Trustees.
Under separate agreements, Morgan also provides certain financial, fund
accounting 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 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% on the first $7 billion of their aggregate
average daily net assets and 0.04% of their 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 in acting as Advisor to the Portfolios under the
Investment Advisory Agreements may raise issues under these laws. However,
Morgan believes that it may properly perform these services and the other
activities described 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 Morgan ("financial professionals"), including financial
institutions and broker-dealers, that may be paid fees by Morgan or its
affiliates for services provided to their clients that invest in the Funds. See
"Financial Professionals" below. Organizations that provide recordkeeping or
other services to certain employee benefit or retirement plans that include the
Funds as an investment alternative may also be paid a fee.
FINANCIAL PROFESSIONALS
The services provided by financial professionals may include
establishing and maintaining shareholder accounts, processing purchase and
redemption transactions, arranging for bank wires, performing shareholder
subaccounting, answering client inquiries regarding the Trust, assisting clients
in changing dividend options, account designations and addresses, providing
periodic statements showing the client's account balance and integrating these
statements with those of other transactions and balances in the client's other
accounts serviced by the financial professional, transmitting proxy statements,
periodic reports, updated prospectuses and other communications to shareholders
and, with respect to meetings of shareholders, collecting, tabulating and
forwarding executed proxies and obtaining such other information and performing
such other services as Morgan or the financial professional's clients may
reasonably request and agree upon with the financial professional.
Although there is no sales charge levied directly by 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 remitted to the Fund or
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 Price
Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036. Price
Waterhouse LLP conducts an annual audit of the financial statements of each of
the Funds and the Portfolios, assists in the preparation and/or review of each
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., Morgan and FDI
under various agreements discussed under "Trustees and Officers," "Investment
Advisor," "Co-Administrator and Distributor," "Services Agent" and "Shareholder
Servicing" above, the Funds and the Portfolios are responsible for usual and
customary expenses associated with their respective operations. Such expenses
include organization expenses, legal fees, accounting 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 Morgan, appropriate
investments for the Fund's corresponding Portfolio. In addition, securities
accepted in payment for shares must: (i) meet the investment objective and
policies of the acquiring Fund's corresponding Portfolio; (ii) be acquired by
the applicable Fund for investment and not for resale (other than for resale to
the Fund's corresponding Portfolio); (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 Morgan
at (800) 521-5411.
The Fund may make historical performance information available and may
compare its performance to other investments or relevant indexes, including the
benchmark indicated under "Investment Advisor" above or data from Lipper
Analytical Services, Inc., Micropal Inc., Morningstar Inc., Ibbotson Associates,
Standard & Poor's 500 Composite Stock Price Index, the Dow Jones Industrial
Average, the Frank Russell Index and other industry publications.
Composite performance information shown in the prospectus has been
calculated in accordance with Performance Presentation Standards of the
Association for Investment Management and Research ("AIMR").
Total Return Quotations. As required by regulations of the SEC, the
average annual total return of the 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.
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 19 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 a full vote for each full
share held and to a fractional vote for each fractional share. Subject to the
1940 Act, the Trustees themselves have the power to alter the number and the
terms of office of the Trustees, to lengthen their own terms, or to make their
terms of unlimited duration subject to certain removal procedures, and appoint
their own successors, provided, however, that immediately after such appointment
the requisite majority of the Trustees have been elected by the shareholders of
the Trust. The voting rights of shareholders are not cumulative so that holders
of more than 50% of the shares voting can, if they choose, elect all Trustees
being selected while the shareholders of the remaining shares would be unable to
elect any Trustees. It is the intention of the Trust not to hold meetings of
shareholders annually. The Trustees may call meetings of shareholders for action
by shareholder vote as may be required by either the 1940 Act or the Trust's
Declaration of Trust.
Shareholders of the Trust have the right, upon the declaration in
writing or vote of more than two-thirds of its outstanding shares, to remove a
Trustee. The Trustees will call a meeting of shareholders to vote on removal of
a Trustee upon the written request of the record holders of 10% of the Trust's
shares. In addition, whenever ten or more shareholders of record who have been
such for at least six months preceding the date of application, and who hold in
the aggregate either shares having a net asset value of at least $25,000 or at
least 1% of the Trust's outstanding shares, whichever is less, shall apply to
the Trustees in writing, stating that they wish to communicate with other
shareholders with a view to obtaining signatures to request a meeting for the
purpose of voting upon the question of removal of any Trustee or Trustees and
accompanied by a form of communication and request which they wish to transmit,
the Trustees shall within five business days after receipt of such application
either: (1) afford to such applicants access to a list of the names and
addresses of all shareholders as recorded on the books of the Trust; or (2)
inform such applicants as to the approximate number of shareholders of record,
and the approximate cost of mailing to them the proposed communication and form
of request. If the Trustees elect to follow the latter course, the Trustees,
upon the written request of such applicants, accompanied by a tender of the
material to be mailed and of the reasonable expenses of mailing, shall, with
reasonable promptness, mail such material to all shareholders of record at their
addresses as recorded on the books, unless within five business days after such
tender the Trustees shall mail to such applicants and file with the SEC,
together with a copy of the material to be mailed, a written statement signed by
at least a majority of the Trustees to the effect that in their opinion either
such material contains untrue statements of fact or omits to state facts
necessary to make the statements contained therein not misleading, or would be
in violation of applicable law, and specifying the basis of such opinion. After
opportunity for hearing upon the objections specified in the written statements
filed, the SEC may, and if demanded by the Trustees or by such applicants shall,
enter an order either sustaining one or more of such objections or refusing to
sustain any of them. If the SEC shall enter an order refusing to sustain any of
such objections, or if, after the entry of an order sustaining one or more of
such objections, the SEC shall find, after notice and opportunity for hearing,
that all objections so sustained have been met, and shall enter an order so
declaring, the Trustees shall mail copies of such material to all shareholders
with reasonable promptness after the entry of such order and the renewal of such
tender.
The Trustees have authorized the issuance and sale to the public of
shares of 19 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".
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 Portfolio, a separate registered investment
company with the same investment objective as the Fund. The investment objective
of the Funds or Portfolios may be changed only with the approval of the holders
of the outstanding shares of each Fund and each Portfolio.
In addition to selling a beneficial interest to a Fund, a Portfolio may
sell beneficial interests to other mutual funds or institutional investors. Such
investors will invest in the Portfolio on the same terms and conditions and will
bear a proportionate share of the Portfolio's expenses. However, the other
investors investing in the Portfolio may sell shares of their own fund using a
different pricing structure than the Fund. Such different pricing structures may
result in differences in returns experienced by investors in other funds that
invest in the Portfolio. Such differences in returns are not uncommon and are
present in other mutual fund structures. Information concerning other holders of
interests in the Portfolio is available from Morgan at (800) 521-5411.
The Trust may withdraw the investment of a Fund from a Portfolio at any
time if the Board of Trustees of the Trust determines that it is in the best
interests of the Fund to do so. Upon any such withdrawal, the Board of Trustees
would consider what action might be taken, including the investment of all the
assets of the Fund in another pooled investment entity having the same
investment objective and restrictions as the Fund or the retaining of an
investment adviser to manage the Fund's assets in accordance with the investment
policies described below with respect to the Portfolio.
Certain changes in a Portfolio's investment objective, policies or
restrictions, or a failure by a Fund's shareholders to approve a change in the
Portfolio's investment objective or restrictions, may require withdrawal of the
Fund's interest in the Portfolio. Any such withdrawal could result in a
distribution in kind of portfolio securities (as opposed to a cash distribution)
from the Portfolio which may or may not be readily marketable. The distribution
in kind may result in the Fund having a less diversified portfolio of
investments or adversely affect the Fund's liquidity, and the Fund could incur
brokerage, tax or other charges in converting the securities to cash.
Notwithstanding the above, there are other means for meeting shareholder
redemption requests, such as borrowing.
Smaller funds investing in a Portfolio may be materially affected by
the actions of larger funds investing in the Portfolio. For example, if a large
fund withdraws from the Portfolio, the remaining funds may subsequently
experience higher pro rata operating expenses, thereby producing lower returns.
Additionally, because a Portfolio would become smaller, it may become
less diversified, resulting in potentially increased portfolio risk (however,
these possibilities also exist for traditionally structured funds which have
large or institutional investors who may withdraw from a fund). Also, funds with
a greater pro rata ownership in the Portfolio could have effective voting
control of the operations of the Portfolio. Whenever the Fund is requested to
vote on matters pertaining to the Portfolio (other than a vote by the Fund to
continue the operation of the Portfolio upon the withdrawal of another investor
in the Portfolio), the Trust will hold a meeting of shareholders of the Fund and
will cast all of its votes proportionately as instructed by the Fund's
shareholders. The Trust will vote the shares held by Fund shareholders who do
not give voting instructions in the same proportion as the shares of Fund
shareholders who do give voting instructions. Shareholders of the Fund who do
not vote will have no effect on the outcome of such matters.
TAXES
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.
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
are generally taxable to shareholders of the Funds as ordinary income whether
such distributions are taken in cash or reinvested in additional shares. If
dividend payments exceed income earned by a Fund, the over distribution would be
considered a return of capital rather than a dividend payment. The Funds intend
to pay dividends in such a manner so as to minimize the possibility of a return
of capital. Distributions of net long-term capital gain (i.e., net long-term
capital gain in excess of net short-term capital loss) are taxable to
shareholders of a Fund as long-term capital gain, regardless of whether such
distributions are taken in cash or reinvested in additional shares and
regardless of how long a shareholder has held shares in the Fund. As a result of
the enactment of the Taxpayer Relief Act of 1997 (the "Act"), long-term capital
gain of an individual is generally subject to a maximum rate of 28% in respect
of a capital asset held directly by such individual for more than one year but
not more than eighteen months, and the maximum rate is reduced to 20% in respect
of a capital asset held in excess of 18 months. The Act authorizes the Treasury
department to promulgate regulations that would apply these rules in the case of
long-term capital gain distributions made by a Fund. The Treasury department has
indicated that, under such regulations, individual shareholders will be taxed at
a maximum rate of 28% in respect of capital gains distributions designated as
28% rate gain distributions and will be taxed at a maximum rate of 20% in
respect of capital gains distributions designated as 20% rate gain
distributions, regardless of how long they have held their shares in a Fund. No
loss will be allowed on the redemption or exchange of shares of a Fund if,
within a period beginning 30 days before the date of such redemption or exchange
and ending 30 days after such date, the shareholder acquires (such as through
dividend reinvestment) securities that are substantially identical to shares of
the Fund.
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. 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. As noted above, long-term capital
gain of an individual holder is subject to a maximum tax rate of 28% in respect
of shares held for more than one year. The maximum rate is reduced to 20% in
respect of shares held for more than 18 months. However, any loss realized by a
shareholder upon the redemption or exchange of shares in the Fund held for six
months or less will be treated as a long-term capital loss to the extent of any
long-term capital gain distributions received by the shareholder with respect to
such shares. In addition, no loss will be allowed on the redemption or exchange
of shares of the Fund, if within a period beginning 30 days before the date of
such redemption or exchange and ending 30 days after such date, the shareholder
acquires (such as through dividend reinvestment) securities that are
substantially identical to shares of the Fund.
Under the Code, gains or losses attributable to disposition of foreign
currency or to certain foreign currency contracts, or to fluctuations in
exchange rates between the time a Portfolio accrues income or receivables or
expenses or other liabilities denominated in a foreign currency and the time a
Portfolio actually collects such income or pays such liabilities, are generally
treated as ordinary income or ordinary loss. Similarly, gains or losses on the
disposition of debt securities held by a Portfolio, if any, denominated in
foreign currency, to the extent attributable to fluctuations in exchange rates
between the acquisition and disposition dates are also treated as ordinary
income or loss.
Forward currency contracts, options and futures contracts entered into
by a Portfolio may create "straddles" for U.S. federal income tax purposes and
this may affect the character and timing of gains or losses realized by the
Portfolio on forward currency contracts, options and futures contracts or on the
underlying securities.
Certain options, futures and foreign currency contracts held by a
Portfolio at the end of each taxable year will be required to be "marked to
market" for federal income tax purposes -- i.e., treated as having been sold at
market value. For options and futures contracts, 60% of any gain or loss
recognized on these deemed sales and on actual dispositions will be treated as
long-term capital gain or loss, and the remainder will be treated as short-term
capital gain or loss regardless of how long the Portfolio has held such options
or futures. However, gain or loss recognized on certain foreign currency
contracts will be treated as ordinary income or loss.
The Funds may invest in Equity Securities of foreign issuers. If a
Portfolio purchases shares in certain foreign corporations (referred to as
passive foreign investment companies ("PFICs") under the Code), the
corresponding fund may be subject to federal income tax on a portion of an
"excess distribution" from such foreign corporation, including any gain from the
disposition of such shares, even though a portion of such income may have to be
distributed as a taxable dividend by the Fund to its shareholders. In addition,
certain interest charges may be imposed on a Fund as a result of such
distributions. Alternatively, a Fund may in some cases be permitted to include
each year in its income and distribute to shareholders a pro rata portion of the
foreign investment fund's income, whether or not distributed to the Fund.
For taxable years of the Portfolios beginning after 1997, the
Portfolios will be permitted to "mark to market" any marketable stock held by a
Portfolio in a PFIC. If a Portfolio made such an election, the corresponding
Fund would include in income each year an amount equal to its share of the
excess, if any, of the fair market value of the PFIC stock as of the close of
the taxable year over the adjusted basis of such stock. The Fund would be
allowed a deduction for its share of the excess, if any, of the adjusted basis
of the PFIC stock over its fair market value as of the close of the taxable
year, but only to the extent of any net mark-to-market gains with respect to the
stock included by the Fund for prior taxable years.
Foreign Shareholders. Dividends of net investment income and
distributions of realized net short-term gain in excess of net long-term loss to
a shareholder who, as to the United States, is a nonresident alien individual,
fiduciary of a foreign trust or estate, foreign corporation or foreign
partnership (a "foreign shareholder") will be subject to U.S. withholding tax at
the rate of 30% (or lower treaty rate) unless the dividends are effectively
connected with a U.S. trade or business of the shareholder, in which case the
dividends will be subject to tax on a net income basis at the graduated rates
applicable to U.S. individuals or domestic corporations. Distributions treated
as long term capital gains to foreign shareholders will not be subject to U.S.
tax unless the distributions are effectively connected with the shareholder's
trade or business in the United States or, in the case of a shareholder who is a
nonresident alien individual, the shareholder was present in the United States
for more than 182 days during the taxable year and certain other conditions are
met.
If a correct and certified taxpayer identification number is not on
file, the Fund is required, subject to certain exemptions, to withhold 31% of
certain payments made or distributions declared to non-corporate shareholders.
In the case of a foreign shareholder who is a nonresident alien
individual or foreign entity, a Fund may be required to withhold U.S. federal
income tax as "backup withholding" at the rate of 31% from distributions treated
as long-term capital gains and from the proceeds of redemptions, exchanges or
other dispositions of Fund shares unless IRS Form W-8 is provided. Transfers by
gift of shares of a Fund by a foreign shareholder who is a nonresident alien
individual will not be subject to U.S. federal gift tax, but the value of shares
of the Fund held by such a shareholder at his or her death will be includible in
his or her gross estate for U.S. federal estate tax purposes.
Foreign Taxes. It is expected that the Funds may be subject to foreign
withholding taxes or other foreign taxes with respect to income (possibly
including, in some cases, capital gains) received from sources within foreign
countries. So long as more than 50% in value of the total assets of a Fund
(including its share of the assets of the corresponding Portfolio) at the close
of any taxable year consists of stock or securities of foreign corporations, the
Fund may elect to treat any foreign income taxes deemed paid by it as paid
directly by its shareholders. A Fund will make such an election only if it deems
it to be in the best interest of its shareholders. A Fund will notify its
shareholders in writing each year if it makes the election and of the amount of
foreign income taxes, if any, to be treated as paid by the shareholders and the
amount of foreign taxes, if any, for which shareholders of the Fund will not be
eligible to claim a foreign tax credit because the holding period requirements
(described below) have not been satisfied. If a Fund makes the election, each
shareholder will be required to include in his income (in addition to the
dividends and distributions he receives) his proportionate share of the amount
of foreign income taxes deemed paid by the Fund and will be entitled to claim
either a credit (subject to the limitations discussed below) or, if he itemizes
deductions, a deduction for his share of the foreign income taxes in computing
federal income tax liability. (No deduction will be permitted in computing an
individual's alternative minimum tax liability.) Effective for dividends paid
after September 5, 1997, shareholders of a Fund will not be eligible to claim a
foreign tax credit with respect to taxes paid by the Fund (notwithstanding that
the Fund elects to treat the foreign taxes deemed paid by it as paid directly by
its shareholders) unless certain holding period requirements are met. A
shareholder who is a nonresident alien individual or a foreign corporation may
be subject to U.S. withholding tax on the income resulting from the election
described in this paragraph, but may not be able to claim a credit or deduction
against such U.S. tax for the foreign taxes treated as having been paid by such
shareholder. A tax-exempt shareholder will not ordinarily benefit from this
election. Shareholders who choose to utilize a credit (rather than a deduction)
for foreign taxes will be subject to the limitation that the credit may not
exceed the shareholder's U.S. tax (determined without regard to the availability
of the credit) attributable to his or her total foreign source taxable income.
For this purpose, the portion of dividends and distributions paid by a Fund from
its foreign source net investment income will be treated as foreign source
income. A Fund's gains and losses from the sale of securities will generally be
treated as derived from U.S. sources, however, and certain foreign currency
gains and losses likewise will be treated as derived from U.S. sources. The
limitation on the foreign tax credit is applied separately to foreign source
"passive income," such as the portion of dividends received from the Fund which
qualifies as foreign source income. In addition, the foreign tax credit is
allowed to offset only 90% of the alternative minimum tax imposed on
corporations and individuals. Because of these limitations, if the election is
made, shareholders may nevertheless be unable to claim a credit for the full
amount of their proportionate shares of the foreign income taxes paid by a Fund.
Effective for taxable years of a shareholder beginning after December 31, 1997,
individual shareholders of the Fund with $300 or less of creditable foreign
taxes ($600 in the case of an individual shareholder filing jointly) may elect
to be exempt from the foreign tax credit limitation rules described above (other
than the 90% limitation applicable for purposes of the alternative minimum tax),
provided that all of such individual shareholder's foreign source income is
"qualified passive income" (which generally includes interest, dividends, rents,
royalties and certain other types of income) and further provided that all of
such foreign source income is shown on one or more payee statements furnished to
the shareholder. Shareholders making this election will not be permitted to
carry over any excess foreign taxes to or from a tax year to which such an
election applies.
State and Local Taxes. Each Fund may be subject to state or local taxes
in jurisdictions in which the Fund is deemed to be doing business. In addition,
the treatment of a Fund and its shareholders in those states which have income
tax laws might differ from treatment under the federal income tax laws.
Shareholders should consult their own tax advisors with respect to any state or
local taxes.
Other Taxation. The Trust is organized as a Massachusetts business
trust and, under current law, neither the Trust nor any Fund is liable for any
income or franchise tax in The Commonwealth of Massachusetts, provided that each
Fund continues to qualify as a regulated investment company under Subchapter M
of the Code. The Portfolios are organized as New York trusts. The Portfolios are
not subject to any federal income taxation or income or franchise tax in the
State of New York or The Commonwealth of Massachusetts. The investment by a Fund
in its corresponding Portfolio does not cause the Fund to be liable for any
income or franchise tax in the State of New York.
ADDITIONAL INFORMATION
As used in this Statement of Additional Information and the Prospectus,
the term "majority of the outstanding voting securities" means the vote of (i)
67% or more of the Fund's shares or the Portfolio's outstanding voting
securities present at a meeting, if the holders of more than 50% of the Fund's
outstanding shares or the Portfolio's outstanding voting securities are present
or represented by proxy, or (ii) more than 50% of the Fund's outstanding shares
or the Portfolio's outstanding voting securities, whichever is less.
Telephone calls to the Funds, 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 Trust's and the Portfolios'
Registration Statements filed under the 1940 Act. Pursuant to the rules and
regulations of the SEC, certain portions have been omitted. The Registration
Statements including the exhibits filed therewith may be examined at the office
of the SEC in Washington D.C.
Statements contained in this Statement of Additional Information and the
Prospectus concerning the contents of any contract or other document are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the applicable
Registration Statements. Each such statement is qualified in all respects by
such reference.
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in the
Prospectus and this Statement of Additional Information, in connection with the
offer contained therein and, if given or made, such other information or
representations must not be relied upon as having been authorized by any of the
Trust, the Funds or the Distributor. The Prospectus and this Statement of
Additional Information do not constitute an offer by any Fund or by the
Distributor to sell or solicit any offer to buy any of the securities offered
hereby in any jurisdiction to any person to whom it is unlawful for the Fund or
the Distributor to make such offer in such jurisdictions.
FINANCIAL STATEMENTS
The following financial statements and the reports thereon of Price
Waterhouse 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>
J.P. MORGAN FUNDS
J.P. MORGAN EUROPEAN EQUITY FUND
J.P. MORGAN JAPAN EQUITY FUND
STATEMENT OF ADDITIONAL INFORMATION
March 31, 1998
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT CONTAINS
ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS
DATED MARCH 31, 1998 FOR THE FUNDS LISTED ABOVE, AS SUPPLEMENTED FROM TIME TO
TIME, WHICH MAY BE OBTAINED 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 . . . . . . . . . . . 19
Trustees and Officers . . . . . . . . . . . . 22
Investment Advisor . . . . . . . . . . . . . . 27
Distributor . . . . . . . . . . . . . . . . . 30
Co-Administrator . . . . . . . . . . . . . . . 30
Services Agent . . . . . . . . . . . . . . . . 31
Custodian and Transfer Agent . . . . . . . . . 32
Shareholder Servicing . . . . . . . . . . . . 33
Financial Professionals. . . . . . . . . . . . 34
Independent Accountants . . . . . . . . . . . 35
Expenses . . . . . . . . . . . . . . . . . . . 35
Purchase of Shares . . . . . . . . . . . . . . 35
Redemption of Shares . . . . . . . . . . . . . 36
Exchange of Shares . . . . . . . . . . . . . . 37
Dividends and Distributions . . . . . . . . . 37
Net Asset Value . . . . . . . . . . . . . . . 38
Performance Data . . . . . . . . . . . . . . . 39
Portfolio Transactions . . . . . . . . . . . . 40
Organization . . . . . . . . . . . . . . . . 42
Description of Shares . . . . . . . . . . . . 43
Special Information Concerning
Investment Structure . . . . . . . . . . . . 45
Taxes . . . . . . . . . . . . . . . . . . . . 46
Additional Information . . . . . . . . . . . 51
Appendix A - Description of Securities
Ratings . . . . . . . . . . . . . . . . . . . A-1
<PAGE>
GENERAL
This Statement of Additional Information relates only to the J.P.
Morgan European Equity Fund and the J.P. Morgan Japan Equity Fund (the "Funds").
The Funds are 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 to enable investors to select the Funds which best suit their needs.
The J.P. Morgan Funds operate through a two-tier master-feeder investment fund
structure.
This Statement of Additional Information provides additional
information with respect to the Funds and should be read in conjunction with the
relevant Fund's current Prospectus (the "Prospectus"). 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 Morgan Guaranty Trust Company of New York
("Morgan" or the "Advisor").
Investments in the Funds are not deposits or obligations of, or
guaranteed or endorsed by, Morgan 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 European Equity Fund (the "European Equity Fund") is
designed for investors who want an actively managed portfolio of European equity
securities that seeks to outperform the Morgan Stanley Capital International
Europe Index which is comprised of more than 670 companies in 25 European
countries. The European Equity Fund's investment objective is to provide high
total return from a portfolio of European company stocks. The European Equity
Fund attempts to achieve its investment objective by investing all of its
investable assets in The European Equity Portfolio (the "Portfolio"), a
diversified open-end management investment company having the same investment
objective as the European Equity Fund.
The Portfolio seeks to achieve its investment objective by investing
primarily in the equity securities of European companies. Equity securities
consist of common stocks and other securities with equity characteristics such
as preferred stocks, depository receipts, warrants, rights, convertible
securities, trust or limited partnership interests and equity participations
(collectively, "Equity Securities". Under normal circumstances, the Portfolio
expects to invest at least 65% of its total assets in such securities. The
Portfolio does not intend to invest in U.S. securities (other than money market
instruments), except temporarily, when extraordinary circumstances prevailing at
the same time in a significant number of European countries render investments
in such countries inadvisable.
Investment Process for the European Equity Portfolio
Country allocation: Morgan's country allocation decision begins with a
forecast of equity risk premiums, which provide a valuation signal by measuring
the relative attractiveness of stocks versus bonds. Using a proprietary
approach, Morgan 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. In determining weightings, Morgan 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. In an effort to contain risk, Morgan places limits on the
total size of the Portfolio's country over- and under-weightings.
<PAGE>
Stock selection: Morgan's more than 20 European equity analysts, each
an industry and country specialist, forecast normalized earnings and dividend
payouts for roughly 600 companies, taking a long-term perspective rather than
the short time frame common to consensus estimates. The analysts' 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 purchases in the top third of
the rankings, and to keep sector weightings close to those of the benchmark.
Once a stock falls into the bottom third of the rankings -- because its price
has risen or its fundamentals have deteriorated -- it generally becomes a
candidate for sale.
J.P. Morgan Japan Equity Fund (the "Japan Equity Fund") is designed for
investors who want an actively managed portfolio of Japanese Equity Securities
that seeks to outperform the Tokyo Stock Price Index ("TOPIX"), a composite
market-capitalization weighted-index of all common stocks listed on the First
Section of the Tokyo Stock Exchange. The Japan Equity Fund's investment
objective is to provide high total return from a portfolio of Japanese company
stocks. The Japan Equity Fund attempts to achieve its investment objective by
investing all of its investable assets in The Japan Equity Portfolio (the
"Portfolio"), a non-diversified open-end management investment company having
the same investment objective as the Japan Equity Fund. For additional
information, see "Investing in Japan."
The Portfolio seeks to achieve its investment objective by investing
primarily in the Equity Securities of Japanese companies. 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 in Japan render investments there inadvisable.
Investment Process for the Japan Equity Portfolio
Stock selection: Morgan's 16 Japanese equity analysts, in Tokyo, each
an industry specialist, forecast normalized earnings and dividend payouts for
more than 300 companies, taking a long-term perspective rather than the short
time frame common to consensus estimates. The analysts' 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.
Warrant/convertible strategy: Once a company has been identified as a
buy candidate, the portfolio manager analyzes the yields on the company's
available equity vehicles -- stocks, warrants and convertibles -- to determine
which appears the most attractive means of purchase. In an effort to enhance
potential returns, the Portfolio also trades among these vehicles -- a strategy
that seeks to capitalize on the inefficiencies that pervade the Japanese equity
market. If the Portfolio invests in a warrant, it will set aside cash in an
amount approximately equal to the difference in the price of the warrant and the
market value of the underlying common stock. The cash is invested in money
market instruments.
Disciplined portfolio construction: The Portfolio is constructed using
disciplined buy and sell rules. The portfolio manager's objective is to
concentrate purchases in the top 20% of the rankings; the specific companies
selected reflect the portfolio manager's judgment concerning the liquidity of an
issue, the soundness of the underlying forecasts, 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 strives to hold market capitalization
and sector weightings close to those of the benchmark in an effort to contain
risk.
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.
<PAGE>
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 invest primarily 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 higher
risks than investing in securities of U.S. domestic issuers. There may be
limited publicly available information with respect to foreign issuers, and
foreign issuers are not generally subject to uniform accounting, auditing and
financial standards and requirements comparable to those applicable to domestic
companies. Dividends and interest paid by foreign issuers may be subject to
withholding and other foreign taxes which may decrease the net return on foreign
investments as compared to dividends and interest paid to the Portfolio by
domestic companies.
In addition, while the volume of transactions effected on foreign stock
exchanges has increased in recent years, in most cases it remains appreciably
below that of domestic security exchanges. Accordingly, a Portfolio's foreign
investments may be less liquid and their prices may be more volatile than
comparable investments in securities of U.S. companies. Moreover, the settlement
periods for foreign securities, which are often longer than those for securities
of U.S. issuers, may affect portfolio liquidity. In buying and selling
securities on foreign exchanges, purchasers normally pay fixed commissions that
are generally higher than the negotiated commissions charged in the United
States. In addition, there is generally less government supervision and
regulation of securities exchanges, brokers and issuers located in foreign
countries than in the United States.
Foreign investments may be made directly in securities of foreign
issuers or in the form of American Depositary Receipts ("ADRs"), European
Depositary Receipts ("EDRs") and Global Depositary Receipts ("GDRs") or other
similar securities of foreign issuers. ADRs are securities, typically issued by
a U.S. financial institution (a "depositary"), that evidence ownership interests
in a security or a pool of securities issued by a foreign issuer and deposited
with the depositary. ADRs include American Depositary Shares and New York
Shares. EDRs are receipts issued by a European financial institution. GDRs,
which are sometimes referred to as Continental Depositary Receipts ("CDRs"), are
securities, typically issued by a non-U.S. financial institution, that evidence
ownership interests in a security or a pool of securities issued by either a
U.S. or foreign issuer. ADRs, EDRs, GDRs and CDRs may be available for
investment through "sponsored" or "unsponsored" facilities. A sponsored facility
is established jointly by the issuer of the security underlying the receipt and
a depositary, whereas an unsponsored facility may be established by a depositary
without participation by the issuer of the receipt's underlying security.
<PAGE>
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 European Equity Fund may also invest in countries with emerging
economies or securities markets. Political and economic structures in many of
such countries may be undergoing significant evolution and rapid development,
and such countries may lack the social, political and economic stability
characteristic of more developed countries. Certain of such countries may have
in the past failed to recognize private property rights and have at times
nationalized or expropriated the assets of private companies. As a result, the
risks described above, including the risks of nationalization or expropriation
of assets, may be heightened. In addition, unanticipated political or social
developments may affect the values of the Portfolio's investments in those
countries and the availability to such Portfolio 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 Portfolio's investments in such countries illiquid
and more volatile than investments in more developed countries, and the
Portfolio 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 the effects of currency fluctuations by entering into forward foreign
currency exchange contracts to sell a foreign currency in exchange for the U.S.
dollar which could protect the Portfolios from losses but could also reduce the
opportunities for gains. The European Equity Portfolio may also hedge from one
foreign currency to another which could result in gains or losses to the
Portfolio. The Portfolios may also enter into forward foreign currency exchange
contracts to adjust their currency exposure relative to their benchmarks.
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.
<PAGE>
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 Guaranty Trust Company of New York
acting as agent, for no additional fee, in its capacity as investment advisor to
the Portfolios and as fiduciary for other clients for whom it exercises
investment discretion. The monies loaned to the borrower come from accounts
managed by the Advisor or its affiliates, pursuant to arrangements with such
accounts. Interest and principal payments are credited to such accounts. The
Advisor, acting as a fiduciary on behalf of its clients, has the right to
increase or decrease the amount provided to the borrower under an obligation.
The borrower has the right to pay without penalty all or any part of the
principal amount then outstanding on an obligation together with interest to the
date of payment. Since these obligations typically provide that the interest
rate is tied to the Federal Reserve commercial paper composite rate, the rate on
master demand obligations is subject to change. Repayment of a master demand
obligation to participating accounts depends on the ability of the borrower to
pay the accrued interest and principal of the obligation on demand which is
continuously monitored by the Advisor. Since master demand obligations typically
are not rated by credit rating agencies, the 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.
<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.
Corporate Bonds and Other Debt Securities. The Portfolio for the European
Equity Fund may invest in bonds and other debt securities of domestic and
foreign issuers to the extent consistent with its investment objective and
policies. A description of these investments appears below. See Quality and
Diversification Requirements. For information on short-term investments in these
securities, see "Money Market Instruments."
Asset-backed Securities. Asset-backed securities directly or indirectly
represent a participation interest in, or are secured by and payable from, a
stream of payments generated by particular assets such as motor vehicle or
credit card receivables or other asset-backed securities collateralized by such
assets. Payments of principal and interest may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution unaffiliated with the entities issuing the securities. The
asset-backed securities in which a Portfolio may invest are subject to the
Portfolio'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.
INVESTING IN JAPAN. Investing in Japanese securities may involve the
risks associated with investing in foreign securities generally. In addition,
because the Portfolio invests in equities of Japanese issuers it will be subject
to the general economic and political conditions in Japan.
In recent months, Japanese Growth forecasts have gone from
trends/slightly above trend growth, to stagnation. Current forecasts of the
Japanese economy predict zero growth this year followed by 1.75% in 1999.
Growth last year was around 1 percent, down from around 4% in 1996.
Banking sector problems in Japan lead to a further tightening of credit
conditions. The fiscal tightening in 1997 appears to have had a magnified impact
on the economy. The latest move to cut taxes is positive, but will not be
sufficient to significantly affect the course of the economy, particularly given
the temporary nature of the tax cut.
Share prices of companies listed on Japanese stock exchanges and on the
Japanese OTC market reached historical peaks (which were later referred to as
the "bubble") as well as historically high trading volumes in 1989 and 1990.
Since then, stock prices in both markets decreased significantly. There can be
no assurance that additional market corrections will not occur.
The common stocks of many Japanese companies continue to trade at high
price earnings ratios in comparison with those in the United States, even after
the market declined. Differences in accounting methods make it difficult to
compare the earnings of Japanese companies with those of companies in other
countries, especially the United States.
<PAGE>
Since the Portfolio invests in securities denominated in yen, changes in
exchange rates between the U.S. dollar and the yen affect the U.S. dollar value
of its respective assets. Although the Japanese economy has grown substantially
over the past four decades, recently the rate of growth had slowed
substantially. See "Foreign Currency Exchange Transactions."
Japan's success in exporting its products has generated a sizable trade
surplus. Such trade surplus has caused tensions at times between Japan and some
of its trading partners. In particular, Japan's trade relations with the United
States have recently been the subject of discussion and negotiation between the
two nations. The United States has imposed certain measures designed to address
trade issues in specific industries. These measures and similar measures in the
future may adversely affect the performance of the Portfolio.
Japan has a parliamentary form of government. In 1993 a coalition
government was formed which, for the first time since 1955, did not include the
Liberal Democratic Party. Since mid-1993, there have been several changes in
leadership in Japan. What, if any, effect the current political situation will
have on prospective regulatory reforms of the economy in Japan cannot be
predicted. Recent and future developments in Japan and neighboring Asian
countries may lead to changes in policy that might adversely affect the
Portfolio.
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, the Portfolio 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. These limits require that, as determined
immediately after a purchase is made, (i)not more than 5% of the value of a
Fund's total assets will be invested in the securities of any one investment
company, (ii) not more than 10% of the value of its total assets will be
invested in the aggregate in securities of investment companies as a group, and
(iii) not more than 3% of the outstanding voting stock of any one investment
company will be owned by a Fund, provided however, that a Fund may invest all of
its investable assets in an open-end investment company that has the same
investment objective as the Fund (its corresponding Portfolio). As a shareholder
of another investment company, a Fund or Portfolio would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund or Portfolio bears directly in connection with its
own operations.
Reverse Repurchase Agreements. Each of the 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 the Portfolio 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.
<PAGE>
Loans of Portfolio Securities. Each of the Portfolios may lend its
securities in an amount up to 33 1/3% of the value of the Portfolio's net
assets. A Portfolio may lend its securities if such loans are secured
continuously by cash or equivalent collateral or by a letter of credit in favor
of the Portfolio at least equal at all times to 100% of the market value of the
securities loaned, plus accrued interest. While such securities are on loan, the
borrower will pay the Portfolio any income accruing thereon. Loans will be
subject to termination by the Portfolio in the normal settlement time, generally
three business days after notice, or by the borrower on one day's notice.
Borrowed securities must be returned when the loan is terminated. Any gain or
loss in the market price of the borrowed securities which occurs during the term
of the loan inures to a Portfolio and its respective investors. The Portfolios
may pay reasonable finders' and custodial fees in connection with a loan. In
addition, a Portfolio will consider all facts and circumstances before entering
into such an agreement, including the creditworthiness of the borrowing
financial institution, and no Portfolio will make any loans in excess of one
year. The Portfolios will not lend their securities to any officer, Trustee,
Director, employee or other affiliate of the Portfolios, the Advisor or the
Distributor, unless otherwise permitted by applicable law.
Privately Placed and Certain Unregistered Securities. A Portfolio may
not acquire any illiquid holdings if, as a result thereof, more than 15% of the
Portfolio's net assets would be in illiquid investments. Subject to this
non-fundamental policy limitation, the Portfolios may acquire investments that
are illiquid or have limited liquidity, such as private placements or
investments that are not registered under the 1933 Act and cannot be offered for
public sale in the United States without first being registered under the 1933
Act. An illiquid investment is any investment that cannot be disposed of within
seven days in the normal course of business at approximately the amount at which
it is valued by a Portfolio. The price a Portfolio pays for illiquid holdings or
receives upon resale may be lower than the price paid or received for similar
holdings with a more liquid market. Accordingly the valuation of these holdings
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
The European Equity Fund intends to meet the diversification
requirements of the 1940 Act. To meet these requirements, 75% of the assets of
the fund are subject to the following fundamental limitations: (1) the Fund may
not invest more than 5% of its total assets in the securities of any one issuer,
except obligations of the U.S. Government, its agencies and instrumentalities,
and (2) the Fund may not own more than 10% of the outstanding voting securities
of any one issuer. As for the other 25% of the Fund's assets not subject to the
limitation described above, there is no limitation on investment of these assets
under the 1940 Act, so that all of such assets may be invested in securities of
any one issuer. Investments not subject to the limitations described above could
involve an increased risk to the Fund should an issuer, or a state or its
related entities, be unable to make interest or principal payments or should the
market value of such securities decline.
Although the Japan Equity Fund is not limited by the diversification
requirements of the 1940 Act, the Fund (and the European Equity Fund) will
comply with the diversification requirements imposed by the Internal Revenue
Code of 1986, as amended (the "Code"), for qualification as a regulated
investment company. See "Taxes." To meet these requirements, the Fund must
diversify its holdings so that, with respect to 50% of the Fund's assets, no
more than 5% of its assets are invested in the securities of any one issuer
other than the U.S. Government at the close of each quarter of the Fund's
taxable year. The Fund may, with respect to the remaining 50% of its assets,
invest up to 25% of its assets in the securities of any one issuer (except this
limitation does not apply to U.S. Government securities).
<PAGE>
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 futures contracts and purchase and sell (write) put and call
options, including put and call options on futures contracts. Futures contracts
obligate the buyer to take and the seller to make delivery at a future date of a
specified quantity of a financial instrument or an amount of cash based on the
value of a securities index.
Unlike a futures contract, which requires the parties to buy and sell a
security or make a cash settlement payment based on changes in a financial
instrument or securities index on an agreed date, an option on a futures
contract entitles its holder to decide on or before a future date whether to
enter into such a contract. If the holder decides not to exercise its option,
the holder may close out the option position by entering into an offsetting
transaction or may decide to let the option expire and forfeit the premium
thereon. The purchaser of an option on a futures contract pays a premium for the
option but makes no initial margin payments or daily payments of cash in the
nature of "variation" margin payments to reflect the change in the value of the
underlying contract as does a purchaser or seller of a futures contract.
The seller of an option on a futures contract receives the premium paid
by the purchaser and may be required to pay initial margin. Amounts equal to the
initial margin and any additional collateral required on any options on futures
contracts sold by 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 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 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.
<PAGE>
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.
Risk Management
The Portfolios for the Funds 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 European Equity Portfolio (European Equity Fund) -- For the period
March 28, 1995 (commencement of operations) through December 31, 1995: 36%. For
the fiscal year ended December 31, 1996: 57%. For the fiscal year ended December
31, 1997: 65%.
The Japan Equity Portfolio (Japan Equity Fund) -- For the period March 28,
1995 (commencement of operations) through December 31, 1995: 60%. For the fiscal
year ended December 31, 1996: 86%. For the fiscal year ended December 31, 1997:
93%.
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.
<PAGE>
The investment restrictions below have been adopted by the Trust with
respect to each Fund and by each corresponding Portfolio. Except where otherwise
noted, these investment restrictions are "fundamental" policies which, under the
1940 Act, may not be changed without the vote of a majority of the outstanding
voting securities of the Fund or Portfolio, as the case may be. A "majority of
the outstanding voting securities" is defined in the 1940 Act as the lesser of
(a) 67% or more of the voting securities present at a security holders meeting
if the holders of more than 50% of the outstanding voting securities are present
or represented by proxy, or (b) more than 50% of the outstanding voting
securities. The percentage limitations contained in the restrictions below apply
at the time of the purchase of securities. Whenever a Fund is requested to vote
on a change in the fundamental investment restrictions of its corresponding
Portfolio, the Trust will hold a meeting of Fund shareholders and will cast its
votes as instructed by the Fund's shareholders.
Unless Sections 8(b)(1) and 13(a) of the 1940 Act, or any SEC or SEC
staff interpretations thereof, are amended or modified, each of the European
Equity Fund and its corresponding Portfolio may not:
1. Purchase any security if, as a result, more than 25% of the value of the
Fund's total assets would be invested in securities of issuers having their
principal business activities in the same industry. This limitation shall not
apply to obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities;
2. Borrow money, except that the Fund may (i) borrow money from banks for
temporary or emergency purposes (not for leveraging purposes) and (ii) enter
into reverse repurchase agreements for any purpose; provided that (i) and (ii)
in total do not exceed 33 1/3% of the value of the Fund's total assets
(including the amount borrowed) less liabilities (other than borrowings). If at
any time any borrowings come to exceed 33 1/3% of the value of the Fund's total
assets, the Fund will reduce its borrowings within three business days to the
extent necessary to comply with the 33 1/3% limitation;
3. With respect to 75% of its total assets, purchase any security if, as a
result, (a) more than 5% of the value of the Fund's total assets would be
invested in securities or other obligations of any one issuer; or (b) the Fund
would hold more than 10% of the outstanding voting securities of that issuer.
This limitation shall not apply to Government securities (as defined in the 1940
Act);
4. Make loans to other persons, except through the purchase of debt obligations,
loans of portfolio securities, and participation in repurchase agreements;
5. Purchase or sell physical commodities or contracts thereon, unless acquired
as a result of the ownership of securities or instruments, but the Fund may
purchase or sell futures contracts or options (including options on futures
contracts, but excluding options or futures contracts on physical commodities)
and may enter into foreign currency forward contracts;
6. Purchase or sell real estate, but the Fund may purchase or sell securities
that are secured by real estate or issued by companies (including real estate
investment trusts) that invest or deal in real estate;
7. Underwrite securities of other issuers, except to the extent the Fund, in
disposing of portfolio securities, may be deemed an underwriter within the
meaning of the 1933 Act;
8. Issue senior securities, except as permitted under the 1940 Act or any rule,
order or interpretation thereunder; and
9. Notwithstanding any other investment restriction of the Fund, the Fund may
invest all of its investable assets in an open-end management investment company
having the same investment objective and restrictions as the Fund.
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 of the Japan Equity
Fund and its corresponding the Portfolio may not:
1. Purchase any security if, as a result, more than 25% of the value of the
Fund's total assets would be invested in securities of issuers having their
principal business activities in the same industry. This limitation shall not
apply to obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities. In addition, and while subject to changing
interpretations, so long as a single foreign government or supranational
organization is considered to be an "industry" for the purposes of this 25%
limitation, the Portfolio will comply therewith. The staff of the SEC considers
all supranational organizations (as a group) to be a single industry for
concentration purposes;
<PAGE>
2. Borrow money, except that the Fund may (i) borrow money from banks for
temporary or emergency purposes (not for leveraging purposes) and (ii) enter
into reverse repurchase agreements for any purpose; provided that (i) and (ii)
in total do not exceed 33 1/3% of the value of the Fund's total assets
(including the amount borrowed) less liabilities (other than borrowings). If at
any time any borrowings come to exceed 33 1/3% of the value of the Fund's total
assets, the Fund will reduce its borrowings within three business days to the
extent necessary to comply with the 33 1/3% limitation;
3. Make loans to other persons, except through the purchase of debt obligations,
loans of portfolio securities, and participation in repurchase agreements;
4. Purchase or sell physical commodities or contracts thereon, unless acquired
as a result of the ownership of securities or instruments, but the Fund may
purchase or sell futures contracts or options (including options on futures
contracts, but excluding options or futures contracts on physical commodities)
and may enter into foreign currency forward contracts;
5. Purchase or sell real estate, but the Fund may purchase or sell securities
that are secured by real estate or issued by companies (including real estate
investment trusts) that invest or deal in real estate;
6. Underwrite securities of other issuers, except to the extent the Fund, in
disposing of portfolio securities, may be deemed an underwriter within the
meaning of the 1933 Act;
7. Issue senior securities, except as permitted under the 1940 Act or any rule,
order or interpretation thereunder; and
8. Notwithstanding any other investment restriction of the Fund, the Fund may
invest all of its investable assets in an open-end management investment company
having substantially the same investment objective and restrictions as the Fund.
Non-Fundamental Investment Restrictions - European Equity Fund. The
investment restrictions described below are not fundamental policies of the Fund
or its corresponding Portfolio and may be changed by their respective Trustees.
These non-fundamental investment policies require that the Fund may not:
(i) Acquire securities of other investment companies, except as permitted by the
1940 Act or any rule, order or interpretation thereunder, or in connection with
a merger, consolidation, reorganization, acquisition of assets or an offer of
exchange; (ii) Acquire any illiquid securities, such as repurchase agreements
with more than seven days to maturity or fixed time deposits with a duration of
over seven calendar days, if as a result thereof, more than 15% of the market
value of the Fund's net assets would be in investments that are illiquid;
(iii) Sell any security short, unless it owns or has the right to obtain
securities equivalent in kind and amount to the securities sold or unless it
covers such short sales as required by the current rules or positions of the SEC
or its staff. Transactions in futures contracts and options shall not constitute
selling securities short; or
(iv) Purchase securities on margin, but the Fund may obtain such short term
credits as may be necessary for the clearance of transactions.
Non-Fundamental Investment Restrictions - Japan Equity Fund. The
investment restrictions described below are not fundamental policies of the Fund
or its corresponding Portfolio and may be changed by their respective Trustees.
These non-fundamental investment policies require that the Fund may not:
(i) Acquire securities of other investment companies, except as permitted by the
1940 Act or any rule, order or interpretation thereunder, or in connection with
a merger, consolidation, reorganization, acquisition of assets or an offer of
exchange;
(ii) Acquire any illiquid securities if as a result thereof, more than 15% of
the market value of the Fund's net assets would be in investments that are
illiquid;
(iii) Sell any security short, unless it owns or has the right to obtain
securities equivalent in kind and amount to the securities sold or unless it
covers such short sales as required by the current rules or positions of the
Securities and Exchange Commission or its staff. Transactions in futures
contracts and options shall not constitute selling securities short; or
(iv) Purchase securities on margin, but the Fund may obtain such short term
credits as may be necessary for the clearance of transactions.
All Funds. 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.
<PAGE>
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
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, TX 78746, and his date of birth is January 1, 1932.
William G. Burns -- Trustee; Retired; Former Vice Chairman and Chief
Financial Officer, NYNEX. His address is 2200 Alaqua Drive, Longwood, FL 32779,
and his date of birth is November 2, 1932.
Arthur C. Eschenlauer -- Trustee; Retired; Former Senior Vice
President, Morgan Guaranty Trust Company of New York. His address is 14 Alta
Vista Drive, RD #2, Princeton, NJ 08540, and his date of birth is May 23, 1934.
Matthew 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, FL
33436, and his date of birth is August 23, 1937.
Michael P. Mallardi -- Trustee; Retired; Prior to April 1996, Senior Vice
President, Capital Cities/ABC, Inc. and President, Broadcast Group. His address
is 10 Charnwood Drive, Suffern, NY 10910, and his date of birth is March 17,
1934.
The Trustees of the Trust are the same as the Trustees of each of the
Portfolios. A majority of the disinterested Trustees have adopted written
procedures reasonably appropriate to deal with potential conflicts of interest
arising from the fact that the same individuals are Trustees of the Trust, each
of the Portfolios and the J.P. Morgan Funds up to and including creating a
separate board of trustees.
Each Trustee is currently paid an annual fee of $75,000 for serving as
Trustee of the Trust, each of the Master Portfolios (as defined below), the J.P.
Morgan Funds and J.P. Morgan Series Trust and is reimbursed for expenses
incurred in connection with service as a Trustee. The Trustees may hold various
other directorships unrelated to these funds.
- ----------------------
* Mr. Healey is an "interested person" of the Trust, the Advisor and each
Portfolio as that term is defined in the 1940 Act.
<PAGE>
Trustee compensation expenses paid by the Trust for the calendar year
ended December 31, 1997 are set forth below.
- -------------------------------------------------- ------------------------
TOTAL TRUSTEE COMPENSATION
AGGREGATE TRUSTEE ACCRUED BY THE MASTER
COMPENSATION PORTFOLIOS(*), J.P. MORGAN
PAID BY THE TRUST FUNDS, J.P. MORGAN SERIES
DURING 1997 TRUST AND THE TRUST 1997(**)
NAME OF TRUSTEE
- ------------------------------- ------------------------------------------------
- ------------------------------- ------------------------------------------------
Frederick S. Addy, Trustee $12,641.75 $72,500
- ------------------------------- ------------------------------------------------
- ------------------------------- ------------------------------------------------
William G. Burns, Trustee $12,644.75 $72,500
- ------------------------------- ------------------------------------------------
- ------------------------------- ------------------------------------------------
Arthur C. Eschenlauer, Trustee $12,641.75 $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 20 other portfolios (collectively, the "Master
Portfolios") for which Morgan 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, J.P. Morgan Funds, the Trust and J.P. Morgan
Series Trust) in the fund complex.
(***) During 1997, Pierpont Group, Inc. paid Mr. Healey, in his role as
Chairman of Pierpont Group, Inc., compensation in the amount of $147,500,
contributed $22,100 to a defined contribution plan on his behalf and paid
$20,500 in insurance premiums for his benefit.
The Trustees, in addition to reviewing actions of the Trust's and the
Portfolios' various service providers, decide upon matters of general policy.
Each of the Portfolios and the Trust has entered into a Fund Services Agreement
with Pierpont Group, Inc. to assist the Trustees in exercising their overall
supervisory responsibilities over the affairs of the Portfolios and the Trust.
Pierpont Group, Inc. was organized in July 1989 to provide services for the J.P.
Morgan 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 aggregate fees paid to Pierpont Group, Inc. by each Fund and its
corresponding Portfolio during the indicated fiscal periods are set forth below:
European Equity Fund -- For the period May 13, 1996 (commencement of
operations) through December 31, 1996: $12. For the fiscal year ended
December 31, 1997: $117.
European Equity Portfolio -- For the period March 28, 1995 (commencement of
operations) through December 31, 1995: $19,953. For the fiscal year ended
December 31, 1996: $25,144. For the fiscal year ended December 31, 1997:
$21,837.
Japan Equity Fund -- For the period May 6, 1996 (commencement of
operations) through December 31, 1996: $8. For the fiscal year ended
December 31, 1997: $31.
Japan Equity Portfolio -- For the period March 28, 1995 (commencement of
operations) through December 31, 1995: $21,727. For the fiscal year ended
December 31, 1996: $21,646. For the fiscal year ended December 31, 1997:
$11,246.
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.
<PAGE>
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 Portfolios
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, FL 33436. His date of birth is August 23, 1937.
MARIE E. CONNOLLY; Vice President and Assistant Treasurer. President, Chief
Executive Officer, Chief Compliance Officer and Director of FDI, Premier Mutual
Fund Services, Inc., an affiliate of FDI ("Premier Mutual") and an officer of
certain investment companies advised or administered by the Dreyfus Corporation
("Dreyfus") or its affiliates. From December 1991 to July 1994, she was
President and Chief Compliance Officer of FDI. Her date of birth is August 1,
1957.
DOUGLAS C. CONROY; Vice President and Assistant Treasurer. Assistant Vice
President and Manager of Treasury Services and Administration of FDI and an
officer of certain investment companies advised or administered by Dreyfus or
its affiliates. Prior to April 1997, Mr. Conroy was Supervisor of Treasury
Services and Administration of FDI. From April 1993 to January 1995, Mr. Conroy
was a Senior Fund Accountant for Investors Bank & Trust Company. Prior to March
1993, Mr. Conroy was employed as a fund accountant at The Boston Company, Inc.
His date of birth is March 31, 1969.
JACQUELINE HENNING; Assistant Secretary and Assistant Treasurer. Managing
Director, State Street Cayman Trust Company, Ltd. since October 1994. Prior to
October 1994, Mrs. Henning was head of mutual funds at Morgan Grenfell in Cayman
and for five years was Managing Director of Bank of Nova Scotia Trust Company
(Cayman) Limited from September 1988 to September 1993. Address: P.O. Box 2508
GT, Elizabethan Square, 2nd Floor, Shedden Road, George Town, Grand Cayman,
Cayman Islands. Her date of birth is March 24, 1942.
RICHARD W. INGRAM; President and Treasurer. Executive Vice President and
Director of Client Services and Treasury Administration of FDI, Senior Vice
President of Premier Mutual and an officer of RCM Capital Funds, Inc., RCM
Equity Funds, Inc. (together "RCM"), Waterhouse Investors Cash Management Fund,
Inc. ("Waterhouse") and certain investment companies advised or administered by
Dreyfus or Harris Trust and Savings Bank ("Harris") or their respective
affiliates. Prior to April 1997, Mr. Ingram was Senior Vice President and
Director of Client Services and Treasury Administration of FDI. From March 1994
to November 1995, Mr. Ingram was Vice President and Division Manager of First
Data Investor Services Group, Inc. From 1989 to 1994, Mr. Ingram was Vice
President, Assistant Treasurer and Tax Director - Mutual Funds of The Boston
Company, Inc. His date of birth is September 15, 1955.
KAREN JACOPPO-WOOD; Vice President and Assistant Secretary. Assistant Vice
President of FDI and an officer of RCM, Waterhouse and Harris or their
respective affiliates. From June 1994 to January 1996, Ms. Jacoppo-Wood was a
Manager, SEC Registration, Scudder, Stevens & Clark, Inc. From 1988 to May 1994,
Ms. Jacoppo-Wood was a senior paralegal at The Boston Company Advisors, Inc.
("TBCA"). Her date of birth is December 29, 1966.
CHRISTOPHER J. KELLEY; Vice President and Assistant Secretary. Vice
President and Associate General Counsel of FDI and Premier Mutual and an officer
of Waterhouse and certain investment companies advised or administered by Harris
or its affiliates. From April 1994 to July 1996, Mr. Kelley was Assistant
Counsel at Forum Financial Group. From 1992 to 1994, Mr. Kelley was employed by
Putnam Investments in legal and compliance capacities. Prior to September 1992,
Mr. Kelley was enrolled at Boston College Law School and received his JD in May
1992. His date of birth is December 24, 1964.
LENORE J. MCCABE; Assistant Secretary and Assistant Treasurer. Assistant
Vice President, State Street Bank and Trust Company since November 1994.
Assigned as Operations Manager, State Street Cayman Trust Company, Ltd. since
February 1995. Prior to November, 1994, employed by Boston Financial Data
Services, Inc. as Control Group Manager. Address: P.O. Box 2508 GT, Elizabethan
Square, 2nd Floor, Shedden Road, George Town, Grand Cayman, Cayman Islands. Her
date of birth is May 31, 1961.
MARY A. NELSON; Vice President and Assistant Treasurer. Vice President and
Manager of Treasury Services and Administration of FDI and Premier Mutual, an
officer of RCM, Waterhouse and certain investment companies advised or
administered by Dreyfus or Harris or their respective affiliates. From 1989 to
1994, Ms. Nelson was an Assistant Vice President and Client Manager for The
Boston Company, Inc. Her date of birth is April 22, 1964.
MARY JO PACE; Assistant Treasurer. Vice President, Morgan Guaranty Trust
Company of New York. Ms. Pace serves in the Funds Administration group as a
Supervisor for the Budgeting and Expense Division. Prior to September 1995, Ms.
Pace served as a Funds 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.
<PAGE>
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.
CHRISTINE ROTUNDO; Assistant Treasurer. Vice President, Morgan Guaranty
Trust Company of New York. Ms. Rotundo serves in the Funds Administration group
and is responsible for U.S. mutual fund tax matters. Prior to September 1995,
Ms. Rotundo served as a Senior Tax Manager in the Investment Company Services
Group of Deloitte & Touche LLP. Her address is 60 Wall Street, New York, New
York 10260. Her date of birth is September 26, 1965.
JOSEPH F. TOWER III; Vice President and Assistant Treasurer. Executive Vice
President, Treasurer and Chief Financial Officer, Chief Administrative Officer
and Director of FDI. Senior Vice President, Treasurer and Chief Financial
Officer, Chief Administrative Officer and Director of Premier Mutual and an
officer of Waterhouse and certain investment companies advised or administered
by Dreyfus or its affiliates. Prior to April 1997, Mr. Tower was Senior Vice
President, Treasurer and Chief Financial Officer, Chief Administrative Officer
and Director of FDI. From July 1988 to November 1993, Mr. Tower was Financial
Manager of The Boston Company, Inc. His date of birth is June 13, 1962.
INVESTMENT ADVISOR
The Funds have not retained the services of an investment adviser
because each Fund seeks to achieve its investment objective by investing all of
its investable assets in a corresponding Portfolio. Subject to the supervision
of the Portfolio's Trustees, Morgan makes each Portfolio's day-to-day investment
decisions, arranges for the execution of portfolio transactions and generally
manages the Portfolio's investments. Morgan is a wholly owned subsidiary of J.P.
Morgan & Co. Incorporated ("J.P. Morgan"), a bank holding company organized
under the laws of the State of Delaware. The Advisor, whose principal offices
are at 60 Wall Street, New York, New York 10260, is a New York trust company
which conducts a general banking and trust business. The Advisor is subject to
regulation by the New York State Banking Department and is a member bank of the
Federal Reserve System.
Through offices in New York City and abroad, the Advisor offers a wide
range of services, primarily to governmental, institutional, corporate and high
net worth individual customers in the United States and throughout the world.
J.P. Morgan, through the Advisor and other subsidiaries, acts as
investment advisor to individuals, governments, corporations, employee benefit
plans, mutual funds and other institutional investors with combined assets under
management of approximately $250 billion.
J.P. Morgan has a long history of service as adviser, underwriter and
lender to an extensive roster of major companies and as a financial advisor to
national governments. The firm, through its predecessor firms, has been in
business for over a century and has been managing investments since 1913.
The basis of the Advisor's investment process is fundamental investment
research as the firm believes that fundamentals should determine an asset's
value over the long term. J.P. Morgan currently employs over 100 full time
research analysts, among the largest research staffs in the money management
industry, in its investment management divisions located in New York, London,
Tokyo, Frankfurt, Melbourne and Singapore to cover companies, industries and
countries on site. In addition, the investment management divisions employ
approximately 300 capital market researchers, portfolio managers and traders.
The 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 European Equity Portfolio--the MSCI Europe Index; The
Japan Equity Portfolio--the TOPIX.
<PAGE>
J.P. Morgan Investment Management Inc., also a wholly owned subsidiary
of J.P. Morgan, is a registered investment adviser under the Investment Advisers
Act of 1940, as amended, which manages employee benefit funds of corporations,
labor unions and state and local governments and the accounts of other
institutional investors, including investment companies. Certain of the assets
of employee benefit accounts under its management are invested in commingled
pension trust funds for which the Advisor serves as trustee. J.P. Morgan
Investment Management Inc. advises the Advisor on investment of the commingled
pension trust funds.
The Portfolios are managed by officers of the Advisor who, in acting for
their customers, including the Portfolios, do not discuss their investment
decisions with any personnel of J.P. Morgan or any personnel of other divisions
of the Advisor or with any of its affiliated persons, with the exception of J.P.
Morgan Investment Management Inc. and certain other investment management
affiliates of J.P. Morgan.
As compensation for the services rendered and related expenses such as
salaries of advisory personnel borne by the Advisor under the Investment
Advisory Agreements, the Portfolio corresponding to each Fund has agreed to pay
the Advisor a fee, which is computed daily and may be paid monthly, equal to the
annual rates of each Portfolio's average daily net assets shown below.
European Equity: .65%
Japan Equity: .65%
The table below sets forth for each Fund listed the advisory fees paid by
its corresponding Portfolio to the Advisor for the fiscal period indicated. See
the Funds' financial statements which are incorporated herein by reference.
EUROPEAN EQUITY PORTFOLIO--For the period March 28, 1995 (commencement of
operations) through December 31, 1995: $1,675,355. For the fiscal year ended
December 31, 1996: $3,735,998. For the fiscal year ended December 31, 1997:
$3,879,040.
JAPAN EQUITY PORTFOLIO--For the period March 28, 1995 (commencement of
operations) through December 31, 1995: $1,777,126. For the fiscal year ended
December 31, 1996: $3,053,033. For the fiscal year ended December 31, 1997:
$2,031,363.
The Investment Advisory Agreements provide that they will continue in
effect for a period of two years after execution only if specifically approved
thereafter annually in the same manner as the Distribution Agreement. See
"Distributor" below. Each of the Investment Advisory Agreements will terminate
automatically if assigned and is terminable at any time without penalty by a
vote of a majority of the Portfolio's Trustees, or by a vote of the holders of a
majority of the Portfolio's outstanding voting securities, on 60 days' written
notice to the Advisor and by the Advisor on 90 days' written notice to the
Portfolio. See "Additional Information."
The Glass-Steagall Act and other applicable laws generally prohibit
banks such as the Advisor from engaging in the business of underwriting or
distributing securities, and the Board of Governors of the Federal Reserve
System has issued an interpretation to the effect that under these laws a bank
holding company registered under the federal Bank Holding Company Act or certain
subsidiaries thereof may not sponsor, organize, or control a registered open-end
investment company continuously engaged in the issuance of its shares, such as
the Trust. The interpretation does not prohibit a holding company or a
subsidiary thereof from acting as investment advisor and custodian to such an
investment company. The Advisor believes that it may perform the services for
the Portfolios contemplated by the Advisory Agreements without violation of the
Glass-Steagall Act or other applicable banking laws or regulations. State laws
on this issue may differ from the interpretation of relevant federal law, and
banks and financial institutions may be required to register as dealers pursuant
to state securities laws. However, it is possible that future changes in either
federal or state statutes and regulations concerning the permissible activities
of banks or trust companies, as well as further judicial or administrative
decisions and interpretations of present and future statutes and regulations,
might prevent the Advisor from continuing to perform such services for the
Portfolios.
If the Advisor were prohibited from acting as investment advisor to any
Portfolio, it is expected that the Trustees of the Portfolio would recommend to
investors that they approve the Portfolio's entering into a new investment
advisory agreement with another qualified investment advisor selected by the
Trustees.
Under separate agreements, Morgan also provides certain financial, fund
accounting and administrative services to the Trust and the Portfolios and
shareholder services for the Trust. See "Services Agent" and "Shareholder
Servicing" below.
<PAGE>
DISTRIBUTOR
FDI serves as the Trust's exclusive Distributor and holds itself
available to receive purchase orders for each of the Fund's shares. In that
capacity, FDI has been granted the right, as agent of the Trust, to solicit and
accept orders for the purchase of each of the Fund's shares in accordance with
the terms of the Distribution Agreement between the Trust and FDI. Under the
terms of the Distribution Agreement between FDI and the Trust, FDI receives no
compensation in its capacity as the Trust's distributor. FDI is a wholly owned
indirect subsidiary of Boston Institutional Group, Inc. FDI also serves as
exclusive placement agent for the Portfolio. FDI currently provides
administration and distribution services for a number of other investment
companies.
The Distribution Agreement shall continue in effect with respect to
each of the Funds for a period of two years after execution only if it is
approved at least annually thereafter (i) by a vote of the holders of a majority
of the Fund's outstanding shares or by its Trustees and (ii) by a vote of a
majority of the Trustees of the Trust who are not "interested persons" (as
defined by the 1940 Act) of the parties to the Distribution Agreement, cast in
person at a meeting called for the purpose of voting on such approval (see
"Trustees and Officers"). The Distribution Agreement will terminate
automatically if assigned by either party thereto and is terminable at any time
without penalty by a vote of a majority of the Trustees of the Trust, a vote of
a majority of the Trustees who are not "interested persons" of the Trust, or by
a vote of the holders of a majority of the Fund's outstanding shares as defined
under "Additional Information," in any case without payment of any penalty on 60
days' written notice to the other party. The principal offices of FDI are
located at 60 State Street, Suite 1300, Boston, Massachusetts 02109.
CO-ADMINISTRATOR
Under Co-Administration Agreements with the Trust and the Portfolios
dated August 1, 1996, FDI also serves as the Trust's and the Portfolios'
Co-Administrator. The Co-Administration Agreements may be renewed or amended by
the respective Trustees without a shareholder vote. The Co-Administration
Agreements are terminable at any time without penalty by a vote of a majority of
the Trustees of the Trust or the Portfolios, as applicable, on not more than 60
days' written notice nor less than 30 days' written notice to the other party.
The Co-Administrator may subcontract for the performance of its obligations,
provided, however, that unless the Trust or the Portfolios, as applicable,
expressly agrees in writing, the Co-Administrator shall be fully responsible for
the acts and omissions of any subcontractor as it would for its own acts or
omissions. See "Services Agent" below.
FDI (i) provides office space, equipment and clerical personnel for
maintaining the organization and books and records of the Trust and the
Portfolio; (ii) provides officers for the Trust and the Portfolio; (iii)
prepares and files documents required for notification of state securities
administrators; (iv) reviews and files marketing and sales literature; (v) files
Portfolio regulatory documents and mails Portfolio communications to Trustees
and investors; and (vi) maintains related books and records.
For its services under the Co-Administration Agreements, each Fund and
Portfolio has agreed to pay FDI fees equal to its allocable share of an annual
complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The amount
allocable to each Fund or Portfolio is based on the ratio of its net assets to
the aggregate net assets of the Trust, the Master Portfolios and 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.
See "Expenses" below for applicable expense limitations.
European Equity Fund-- For the period August 1, 1996 through December 31,
1996: $13. For the fiscal year ended December 31, 1997: $105.
European Equity Portfolio--For the period August 1, 1996 through December
31, 1996: $7,060. For the fiscal year ended December 31, 1997: $14,117.
Japan Equity Fund--For the period August 1, 1996 through December 31, 1996:
$6. For the fiscal year ended December 31, 1997: $27.
Japan Equity Portfolio--For the period August 1, 1996 through December 31,
1996: $4,885. For the fiscal year ended December 31, 1997: $7,389.
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.
European Equity Fund -- For the period May 13, 1996 (commencement of
operations) through July 31, 1996: $4. European Equity Portfolio -- For
the period March 28, 1995 (commencement of operations) through December
31, 1995: $15,623. For the period January 1, 1996 through July 31, 1996:
$38,675.
Japan Equity Fund -- For the period May 6, 1996 (commencement of
operations) through July 31, 1996: $8. Japan Equity Portfolio -- For the
period March 28, 1995 (commencement of operations) through December 31,
1995: $17,418. For the period January 1, 1996 through July 31, 1996:
$35,898.
<PAGE>
SERVICES AGENT
The Trust, on behalf of each Fund and 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% on the first $7 billion of their aggregate
average daily net assets and 0.04% of their average daily net assets in excess
of $7 billion, less the complex-wide fees payable to FDI. The portion of this
charge payable by each Fund and Portfolio is determined by the proportionate
share that its net assets bear to the total net assets of the Trust, the Master
Portfolios, the other investors in the Master Portfolios for which Morgan
provides similar services and J.P. Morgan Series Trust.
Under administrative services agreements in effect from
December 29, 1995 through July 31, 1996, with Morgan, each Fund and its
corresponding Portfolio paid Morgan a fee equal to its proportionate share of an
annual complex-wide charge. This charge was calculated daily based on the
aggregate net assets of the Master Portfolios in accordance with the following
schedule: 0.06% of the first $7 billion of the Master Portfolios' aggregate
average daily net assets, and 0.03% of the Master Portfolios' average daily net
assets in excess of $7 billion. Prior to December 29, 1995, the Trust and each
Portfolio had entered into Financial and Fund Accounting Services Agreements
with Morgan, the provisions of which included certain of the activities
described above and, prior to September 1, 1995, also included reimbursement of
usual and customary expenses.
The table below sets forth for each Fund and its corresponding Portfolio the
fees paid to Morgan, net of applicable fee waivers and reimbursements, as
Services Agent.
European Equity Fund - European Equity Fund -- For the period May 13, 1996
(commencement of operations) through December 31, 1996: $(83,803)*. For the
fiscal year ended December 31, 1997: $(62,428)*. The European Equity Portfolio--
For the period March 28, 1995 (commencement of operations) through December 31,
1995: $128,335. For the fiscal year ended December 31, 1996: $161,993. For the
fiscal year ended December 31, 1997: $184,239.
Japan Equity Fund - For the period May 6, 1996 (commencement of operations)
through December 31, 1996: $(78,138)*. For the fiscal year ended December 31,
1997: $(74,012)*. The Japan Equity Portfolio -- For the period March 28, 1995
(commencement of operations) through December 31, 1995: $147,974. For the fiscal
year ended December 31, 1996: $130,108. For the fiscal year ended December 31,
1997: $96,448.
-----------------------------
(*) Indicates a reimbursement by Morgan for expenses in excess of its fees under
the Services Agreements. No fees were paid for the fiscal period.
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company ("State Street"), 225 Franklin Street,
Boston, Massachusetts 02110, serves as the Trust's and each of the Portfolio's
custodian and fund accounting agent and each Fund transfer and dividend
disbursing agent. Pursuant to the Custodian Contracts, State Street is
responsible for maintaining the books of account and records of portfolio
transactions and holding portfolio securities and cash. In addition, the
Custodian has entered into subcustodian agreements on behalf of the Fund with
Bankers Trust Company for the purpose of holding TENR Notes and with Bank of New
York and Chemical Bank, N.A. for the purpose of holding certain variable rate
demand notes. In the case of foreign assets held outside the United States, the
Custodian employs various subcustodians who were approved by the Trustees of the
Portfolios in accordance with the regulations of the SEC. The Custodian
maintains portfolio transaction records. As Transfer Agent and Dividend
Disbursing Agent, State Street is responsible for maintaining account records
detailing the ownership of Fund shares and for crediting income, capital gains
and other changes in share ownership to shareholder accounts.
<PAGE>
SHAREHOLDER SERVICING
The Trust on behalf of each of the Funds has entered into a Shareholder
Servicing Agreement with Morgan pursuant to which Morgan acts as shareholder
servicing agent for its customers and for other Fund investors who are customers
of a financial professional. Under this agreement, Morgan is responsible for
performing shareholder account, administrative and servicing functions, which
include but are not limited to, answering inquiries regarding account status and
history, the manner in which purchases and redemptions of Fund shares may be
effected, and certain other matters pertaining to a Fund; assisting customers in
designating and changing dividend options, account designations and addresses;
providing necessary personnel and facilities to coordinate the establishment and
maintenance of shareholder accounts and records with the Funds' transfer agent;
transmitting purchase and redemption orders to the Funds' transfer agent and
arranging for the wiring or other transfer of funds to and from customer
accounts in connection with orders to purchase or redeem Fund shares; verifying
purchase and redemption orders, transfers among and changes in accounts;
informing the Distributor of the gross amount of purchase orders for Fund
shares; 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. See "Expenses" below for applicable expense
limitations.
European Equity Fund -- For the period May 13, 1996 (commencement of operations)
through December 31, 1996: $1,002. For the fiscal year ended December 31, 1997:
$8,926.
Japan Equity Fund -- For the period May 6, 1996 (commencement of
operations) through December 31, 1996: $561. For the fiscal year ended
December 31, 1997: $2,260.
As discussed under "Investment Advisor," the Glass-Steagall Act and
other applicable laws and regulations limit the activities of bank holding
companies and certain of their subsidiaries in connection with registered
open-end investment companies. The activities of Morgan in acting as shareholder
servicing agent for Fund shareholders under the Shareholder Servicing Agreement
and providing administrative services to the Funds and the Portfolios under the
Services Agreements and in acting as Advisor to the Portfolios under the
Investment Advisory Agreements may raise issues under these laws. However,
Morgan believes that it may properly perform these services and the other
activities described 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 Morgan ("financial professionals"), including financial
institutions and broker-dealers, that may be paid fees by Morgan or its
affiliates for services provided to their clients that invest in the Funds. See
"Financial Professionals" below. Organizations that provide recordkeeping or
other services to certain employee benefit or retirement plans that include the
Funds as an investment alternative may also be paid a fee.
FINANCIAL PROFESSIONALS
The services provided by financial professionals may include
establishing and maintaining shareholder accounts, processing purchase and
redemption transactions, arranging for bank wires, performing shareholder
subaccounting, answering client inquiries regarding the Trust, assisting clients
in changing dividend options, account designations and addresses, providing
periodic statements showing the client's account balance and integrating these
statements with those of other transactions and balances in the client's other
accounts serviced by the financial professional, transmitting proxy statements,
periodic reports, updated prospectuses and other communications to shareholders
and, with respect to meetings of shareholders, collecting, tabulating and
forwarding executed proxies and obtaining such other information and performing
such other services as Morgan or the financial professional's clients may
reasonably request and agree upon with the financial professional.
Although there is no sales charge levied directly by 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 remitted to the Fund or
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 Price
Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036. Price
Waterhouse LLP conducts an annual audit of the financial statements of each of
the Funds and the Portfolios, assists in the preparation and/or review of each
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., Morgan and FDI
under various agreements discussed under "Trustees and Officers," "Investment
Advisor," "Co-Administrator and Distributor," "Services Agent" and "Shareholder
Servicing" above, the Funds and the Portfolios are responsible for usual and
customary expenses associated with their respective operations. Such expenses
include organization expenses, legal fees, accounting 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 Morgan, appropriate
investments for the Fund's corresponding Portfolio. In addition, securities
accepted in payment for shares must: (i) meet the investment objective and
policies of the acquiring Fund's corresponding Portfolio; (ii) be acquired by
the applicable Fund for investment and not for resale (other than for resale to
the Fund's corresponding Portfolio); (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.
<PAGE>
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.
<PAGE>
NET ASSET VALUE
Each of the Funds computes its net asset value once daily on Monday
through Friday at the time stated in the Prospectus. The net asset value will
not be computed on the day the following legal holidays are observed: New Year's
Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. The 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 total returns or capital
appreciation in reports, sales literature and advertisements published by the
Trust. Shareholders may obtain current performance information by calling Morgan
at (800) 521-5411.
The Funds may make historical performance information available and may
compare its performance to other investments or relevant indexes, including the
benchmark indicated under "Investment Advisor" above or data from Lipper
Analytical Services, Inc., Micropal Inc., Morningstar Inc., Ibbotson Associates,
Standard & Poor's 500 Composite Stock Price Index, the Dow Jones Industrial
Average, the Frank Russell Index and other industry publications.
Composite performance information shown in the prospectus has been
calculated in accordance with Performance Presentation Standards of the
Association for Investment Management and Research ("AIMR").
Total Return Quotations. As required by regulations of the SEC, the
average annual total return of the 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
average annual total return is then calculated by determining the annual rate
required for the initial payment to grow to the amount which would have been
received upon redemption.
Aggregate total returns, reflecting the cumulative percentage change
over a measuring period, may also be calculated.
<PAGE>
Historical performance information for periods prior to the
establishment of the Funds will be that of its corresponding predecessor J.P.
Morgan Institutional 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:
European Equity Fund: 12/31/97: Average annual total return, 1 year: 22.10%;
average annual total return, 5 years: N/A%; average annual total return,
commencement of operations to period end1: 21.70%; aggregate total return, 1
year: 22.10%; aggregate total return, 5 years: N/A%; aggregate total return,
commencement of operations to period end1: 43.47%.
Japan Equity Fund: 12/31/97: Average annual total return, 1 year: (30.53%);
average annual total return, 5 years: N/A; average annual total return,
commencement of operations to period end2: (24.66%); aggregate total return, 1
year: (30.53%); aggregate total return, 5 years: N/A; aggregate total return,
commencement of operations(*) to period end2: (40.49%).
- ---------------------------
1 J.P. Morgan Institutional European Equity Fund commenced operations on
February 28, 1996 2 J.P. Morgan Institutional Japan Equity Fund commenced
operations on February 28, 1996.
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.
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.
<PAGE>
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 European
Equity and Japan Equity Funds paid the following brokerage commissions for the
indicated fiscal periods:
EUROPEAN EQUITY (December): 1995: $143,417; 1996: $1,189,817; 1997: $1,562,672
JAPAN EQUITY (December): 1995: $0; 1996: $1,245,419; 1997: $401,184
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.
<PAGE>
ORGANIZATION
The Trust was organized on November 4, 1992 as an unincorporated
business trust under Massachusetts law and is an entity commonly known as a
"Massachusetts business trust" of which each Fund is a separate and distinct
series. A copy of the Declaration of Trust for the Trust is on file in the
office of the Secretary of The Commonwealth of Massachusetts. The Declaration of
Trust and the By-Laws of the Trust are designed to make the Trust similar in
most respects to a Massachusetts business corporation. The principal distinction
between the two forms concerns shareholder liability described below.
Effective January 1, 1998, the name of the Trust was changed from "The
JPM Funds" to "J.P. Morgan Funds". Effective January 1, 1998, the name of the
Funds were changed from "The JPM European Equity Fund" to the "J.P. Morgan
European Equity Fund", and the "JPM Japan Equity Fund" to the "J.P. Morgan Japan
Equity Fund".
Under Massachusetts law, shareholders of such a trust may, under
certain circumstances, be held personally liable as partners for the obligations
of the trust which is not the case for a corporation. However, the Trust's
Declaration of Trust provides that the shareholders shall not be subject to any
personal liability for the acts or obligations of any Fund and that every
written agreement, obligation, instrument or undertaking made on behalf of any
Fund shall contain a provision to the effect that the shareholders are not
personally liable thereunder.
No personal liability will attach to the shareholders under any
undertaking containing such provision when adequate notice of such provision is
given, except possibly in a few jurisdictions. With respect to all types of
claims in the latter jurisdictions, (i) tort claims, (ii) contract claims where
the provision referred to is omitted from the undertaking, (iii) claims for
taxes, and (iv) certain statutory liabilities in other jurisdictions, a
shareholder may be held personally liable to the extent that claims are not
satisfied by the Fund. However, upon payment of such liability, the shareholder
will be entitled to reimbursement from the general assets of the Fund. The
Trustees intend to conduct the operations of the Trust in such a way so as to
avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the 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 "Organization."
The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares ($0.001 par value) of one or more series
and classes within any series and to divide or combine the shares (of any
series, if applicable) without changing the proportionate beneficial interest of
each shareholder in a Fund (or in the assets of other series, if applicable). To
date shares of 21 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
"Organization." 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 a full vote for each full
share held and to a fractional vote for each fractional share. Subject to the
1940 Act, the Trustees themselves have the power to alter the number and the
terms of office of the Trustees, to lengthen their own terms, or to make their
terms of unlimited duration subject to certain removal procedures, and appoint
their own successors, provided, however, that immediately after such appointment
the requisite majority of the Trustees have been elected by the shareholders of
the Trust. The voting rights of shareholders are not cumulative so that holders
of more than 50% of the shares voting can, if they choose, elect all Trustees
being selected while the shareholders of the remaining shares would be unable to
elect any Trustees. It is the intention of the Trust not to hold meetings of
shareholders annually. The Trustees may call meetings of shareholders for action
by shareholder vote as may be required by either the 1940 Act or the Trust's
Declaration of Trust.
<PAGE>
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 21 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.
Each Portfolio is a series (subtrust) of The Series Portfolio, a trust
organized under the laws of the State of New York. The Series Portfolio's
Declaration of Trust provides that the Funds and other entities investing in the
Portfolios (e.g., other investment companies, insurance company separate
accounts and common and commingled trust funds) will each be liable for all
obligations of the Portfolios. However, the risk of each Fund incurring
financial loss on account of such liability is limited to circumstances in which
both inadequate insurance existed and each respective Portfolio was unable to
meet its obligations. Accordingly, the Trustees of the Trust believe that
neither the Funds nor their shareholders will be adversely affected by reason of
the Funds' investing in the Portfolios.
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:
European Equity Fund: V. Madrigal (21.87%); Charles Schwab & Co. Special Custody
Account for Benefit of Customers (18.34%); E. Boulot JPME (5.90%); J.P. Morgan
(Suisse) SA as agent of The American Hospital of Paris (5.38%).
Japan Equity Fund: State Street Bank & Trust Co. as agent for D. Feuerstein
(31.02%); Johol & Co. (15.47%); The D.O. Marston Trust (8.89%); Mr. R. A.
McGimpsey (6.66%); Morgan Guaranty Trust Co. of NY as agent for T.R. Lamia
(6.25%); Morgan Guaranty Trust Co. of NY as agent for Dr. G.A. Falk (5.46%);
State Street Bank & Trust Co. as agent for J. Benson (6.09%); Morgan Guaranty
Trust Co. of NY as agent for (5.02%); National Financial Services Corp for the
Exclusive Benefit of (15.33%)
<PAGE>
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 Portfolio, a separate registered investment
company with the same investment objective as the Fund. The investment objective
of the Funds or Portfolios may be changed only with the approval of the holders
of the outstanding shares of each Fund and each Portfolio.
In addition to selling a beneficial interest to a Fund, a Portfolio may
sell beneficial interests to other mutual funds or institutional investors. Such
investors will invest in the Portfolio on the same terms and conditions and will
bear a proportionate share of the Portfolio's expenses. However, the other
investors investing in the Portfolio may sell shares of their own fund using a
different pricing structure than the Fund. Such different pricing structures may
result in differences in returns experienced by investors in other funds that
invest in the Portfolio. Such differences in returns are not uncommon and are
present in other mutual fund structures. Information concerning other holders of
interests in the Portfolio is available from Morgan at (800) 521-5411.
The Trust may withdraw the investment of a Fund from a Portfolio at any
time if the Board of Trustees of the Trust determines that it is in the best
interests of the Fund to do so. Upon any such withdrawal, the Board of Trustees
would consider what action might be taken, including the investment of all the
assets of the Fund in another pooled investment entity having the same
investment objective and restrictions as the Fund or the retaining of an
investment adviser to manage the Fund's assets in accordance with the investment
policies described below with respect to the Portfolio.
Certain changes in a Portfolio's investment objective, policies or
restrictions, or a failure by a Fund's shareholders to approve a change in the
Portfolio's investment objective or restrictions, may require withdrawal of the
Fund's interest in the Portfolio. Any such withdrawal could result in a
distribution in kind of portfolio securities (as opposed to a cash distribution)
from the Portfolio which may or may not be readily marketable. The distribution
in kind may result in the Fund having a less diversified portfolio of
investments or adversely affect the Fund's liquidity, and the Fund could incur
brokerage, tax or other charges in converting the securities to cash.
Notwithstanding the above, there are other means for meeting shareholder
redemption requests, such as borrowing.
Smaller funds investing in a Portfolio may be materially affected by
the actions of larger funds investing in the Portfolio. For example, if a large
fund withdraws from the Portfolio, the remaining funds may subsequently
experience higher pro rata operating expenses, thereby producing lower returns.
Additionally, because a Portfolio would become smaller, it may become
less diversified, resulting in potentially increased portfolio risk (however,
these possibilities also exist for traditionally structured funds which have
large or institutional investors who may withdraw from a fund). Also, funds with
a greater pro rata ownership in the Portfolio could have effective voting
control of the operations of the Portfolio. Whenever the Fund is requested to
vote on matters pertaining to the Portfolio (other than a vote by the Fund to
continue the operation of the Portfolio upon the withdrawal of another investor
in the Portfolio), the Trust will hold a meeting of shareholders of the Fund and
will cast all of its votes proportionately as instructed by the Fund's
shareholders. The Trust will vote the shares held by Fund shareholders who do
not give voting instructions in the same proportion as the shares of Fund
shareholders who do give voting instructions. Shareholders of the Fund who do
not vote will have no effect on the outcome of such matters.
TAXES
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).
<PAGE>
As a regulated investment company, a Fund (as opposed to its
shareholders) will not be subject to federal income taxes on the net investment
income and capital gain that it distributes to its shareholders, provided that
at least 90% of its net investment income and realized net short-term capital
gain in excess of net long-term capital loss for the taxable year is distributed
in accordance with the Code's timing requirements.
Under the Code, a Fund will be subject to a 4% excise tax on a portion
of its undistributed taxable income and capital gains if it fails to meet
certain distribution requirements by the end of the calendar year. Each Fund
intends to make distributions in a timely manner and accordingly does not expect
to be subject to the excise tax.
For federal income tax purposes, dividends that are declared by a Fund
in October, November or December as of a record date in such month and actually
paid in January of the following year will be treated as if they were paid on
December 31 of the year declared. Therefore, such dividends will be taxable to a
shareholder in the year declared rather than the year paid.
Distributions of net investment income, certain foreign currency gains,
and realized net short-term capital gain in excess of net long-term capital loss
are generally taxable to shareholders of the Funds as ordinary income whether
such distributions are taken in cash or reinvested in additional shares. If
dividend payments exceed income earned by a Fund, the over distribution would be
considered a return of capital rather than a dividend payment. The Funds intend
to pay dividends in such a manner so as to minimize the possibility of a return
of capital. Distributions of net long-term capital gain (i.e., net long-term
capital gain in excess of net short-term capital loss) are taxable to
shareholders of a Fund as long-term capital gain, regardless of whether such
distributions are taken in cash or reinvested in additional shares and
regardless of how long a shareholder has held shares in the Fund. As a result of
the enactment of the Taxpayer Relief Act of 1997 (the "Act"), long-term capital
gain of an individual is generally subject to a maximum rate of 28% in respect
of a capital asset held directly by such individual for more than one year but
not more than eighteen months, and the maximum rate is reduced to 20% in respect
of a capital asset held in excess of 18 months. The Treasury department has
indicated that, under forthcoming regulations, individual shareholders will be
taxed at a maximum rate of 28% in respect of capital gains distributions
designated as 28% rate gain distributions and will be taxed at a maximum rate of
20% in respect of capital gains distributions designated as 20% rate gain
distributions, regardless of how long they have held their shares in a Fund. The
Japan Equity Fund had a capital loss carryforward at December 31, 1997 of
$49,245. No capital gains distribution is expected to be paid to shareholders
until future gains have been realized in excess of such carryforward.
Gains or losses on sales of portfolio securities will be treated as
long-term capital gains or losses if the securities have been held for more than
one year except in certain cases where 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. Investors should thus consider the consequences
of purchasing shares in a fund shortly before the fund declares a sizable
dividend distribution.
Any gain or loss realized on the redemption or exchange of Fund shares
by a shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held for more than one year, and
otherwise as short-term capital gain or loss. As noted above, long-term capital
gain of an individual holder is subject to a maximum tax rate of 28% in respect
of shares held for more than one year. The maximum rate is reduced to 20% in
respect of shares held for more than 18 months. However, any loss realized by a
shareholder upon the redemption or exchange of shares in the Fund held for six
months or less will be treated as a long-term capital loss to the extent of any
long-term capital gain distributions received by the shareholder with respect to
such shares. In addition, no loss will be allowed on the redemption or exchange
of shares of the Fund, if within a period beginning 30 days before the date of
such redemption or exchange and ending 30 days after such date, the shareholder
acquires (such as through dividend reinvestment) securities that are
substantially identical to shares of the Fund.
<PAGE>
Under the Code, gains or losses attributable to disposition of foreign
currency or to certain foreign currency contracts, or to fluctuations in
exchange rates between the time a Portfolio accrues income or receivables or
expenses or other liabilities denominated in a foreign currency and the time a
Portfolio actually collects such income or pays such liabilities, are generally
treated as ordinary income or ordinary loss. Similarly, gains or losses on the
disposition of debt securities held by a Portfolio, if any, denominated in
foreign currency, to the extent attributable to fluctuations in exchange rates
between the acquisition and disposition dates are also treated as ordinary
income or loss.
Forward currency contracts, options and futures contracts entered into
by a Portfolio may create "straddles" for U.S. federal income tax purposes and
this may affect the character and timing of gains or losses realized by the
Portfolio on forward currency contracts, options and futures contracts or on the
underlying securities.
Certain options, futures and foreign currency contracts held by a
Portfolio at the end of each taxable year will be required to be "marked to
market" for federal income tax purposes -- i.e., treated as having been sold at
market value. For options and futures contracts, 60% of any gain or loss
recognized on these deemed sales and on actual dispositions will be treated as
long-term capital gain or loss, and the remainder will be treated as short-term
capital gain or loss regardless of how long the Portfolio has held such options
or futures. However, gain or loss recognized on certain foreign currency
contracts will be treated as ordinary income or loss.
The Funds may invest in Equity Securities of foreign issuers. If a
Portfolio purchases shares in certain foreign corporations (referred to as
passive foreign investment companies ("PFICs") under the Code), the
corresponding fund may be subject to federal income tax on a portion of an
"excess distribution" from such foreign corporation, including any gain from the
disposition of such shares, even though a portion of such income may have to be
distributed as a taxable dividend by the Fund to its shareholders. In addition,
certain interest charges may be imposed on a Fund as a result of such
distributions. Alternatively, a Fund may in some cases be permitted to include
each year in its income and distribute to shareholders a pro rata portion of the
foreign investment fund's income, whether or not distributed to the Fund.
For taxable years of the Portfolios beginning after 1997, the
Portfolios will be permitted to "mark to market" any marketable stock held by a
Portfolio in a PFIC. If a Portfolio made such an election, the corresponding
Fund would include in income each year an amount equal to its share of the
excess, if any, of the fair market value of the PFIC stock as of the close of
the taxable year over the adjusted basis of such stock. The Fund would be
allowed a deduction for its share of the excess, if any, of the adjusted basis
of the PFIC stock over its fair market value as of the close of the taxable
year, but only to the extent of any net mark-to-market gains with respect to the
stock included by the Fund for prior taxable years.
Foreign Shareholders. Dividends of net investment income and
distributions of realized net short-term gain in excess of net long-term loss to
a shareholder who, as to the United States, is a nonresident alien individual,
fiduciary of a foreign trust or estate, foreign corporation or foreign
partnership (a "foreign shareholder") will be subject to U.S. withholding tax at
the rate of 30% (or lower treaty rate) unless the dividends are effectively
connected with a U.S. trade or business of the shareholder, in which case the
dividends will be subject to tax on a net income basis at the graduated rates
applicable to U.S. individuals or domestic corporations. Distributions treated
as long term capital gains to foreign shareholders will not be subject to U.S.
tax unless the distributions are effectively connected with the shareholder's
trade or business in the United States or, in the case of a shareholder who is a
nonresident alien individual, the shareholder was present in the United States
for more than 182 days during the taxable year and certain other conditions are
met.
If a correct and certified taxpayer identification number is not on
file, the Fund is required, subject to certain exemptions, to withhold 31% of
certain payments made or distributions declared to non-corporate shareholders.
In the case of a foreign shareholder who is a nonresident alien
individual or foreign entity, a Fund may be required to withhold U.S. federal
income tax as "backup withholding" at the rate of 31% from distributions treated
as long-term capital gains and from the proceeds of redemptions, exchanges or
other dispositions of Fund shares unless IRS Form W-8 is provided. Transfers by
gift of shares of a Fund by a foreign shareholder who is a nonresident alien
individual will not be subject to U.S. federal gift tax, but the value of shares
of the Fund held by such a shareholder at his or her death will be includible in
his or her gross estate for U.S. federal estate tax purposes.
<PAGE>
Foreign Taxes. It is expected that the Funds may be subject to foreign
withholding taxes or other foreign taxes with respect to income (possibly
including, in some cases, capital gains) received from sources within foreign
countries. So long as more than 50% in value of the total assets of a Fund
(including its share of the assets of the corresponding Portfolio) at the close
of any taxable year consists of stock or securities of foreign corporations, the
Fund may elect to treat any foreign income taxes deemed paid by it as paid
directly by its shareholders. A Fund will make such an election only if it deems
it to be in the best interest of its shareholders. A Fund will notify its
shareholders in writing each year if it makes the election and of the amount of
foreign income taxes, if any, to be treated as paid by the shareholders and the
amount of foreign taxes, if any, for which shareholders of the Fund will not be
eligible to claim a foreign tax credit because the holding period requirements
(described below) have not been satisfied. If a Fund makes the election, each
shareholder will be required to include in his income (in addition to the
dividends and distributions he receives) his proportionate share of the amount
of foreign income taxes deemed paid by the Fund and will be entitled to claim
either a credit (subject to the limitations discussed below) or, if he itemizes
deductions, a deduction for his share of the foreign income taxes in computing
federal income tax liability. (No deduction will be permitted in computing an
individual's alternative minimum tax liability.) Effective for dividends paid
after September 5, 1997, shareholders of a Fund will not be eligible to claim a
foreign tax credit with respect to taxes paid by the Fund (notwithstanding that
the Fund elects to treat the foreign taxes deemed paid by it as paid directly by
its shareholders) unless certain holding period requirements are met. A
shareholder who is a nonresident alien individual or a foreign corporation may
be subject to U.S. withholding tax on the income resulting from the election
described in this paragraph, but may not be able to claim a credit or deduction
against such U.S. tax for the foreign taxes treated as having been paid by such
shareholder. A tax-exempt shareholder will not ordinarily benefit from this
election. Shareholders who choose to utilize a credit (rather than a deduction)
for foreign taxes will be subject to the limitation that the credit may not
exceed the shareholder's U.S. tax (determined without regard to the availability
of the credit) attributable to his or her total foreign source taxable income.
For this purpose, the portion of dividends and distributions paid by a Fund from
its foreign source net investment income will be treated as foreign source
income. A Fund's gains and losses from the sale of securities will generally be
treated as derived from U.S. sources, however, and certain foreign currency
gains and losses likewise will be treated as derived from U.S. sources. The
limitation on the foreign tax credit is applied separately to foreign source
"passive income," such as the portion of dividends received from the Fund which
qualifies as foreign source income. In addition, the foreign tax credit is
allowed to offset only 90% of the alternative minimum tax imposed on
corporations and individuals. Because of these limitations, if the election is
made, shareholders may nevertheless be unable to claim a credit for the full
amount of their proportionate shares of the foreign income taxes paid by a Fund.
Effective for taxable years of a shareholder beginning after December 31, 1997,
individual shareholders of the Fund with $300 or less of creditable foreign
taxes ($600 in the case of an individual shareholder filing jointly) may elect
to be exempt from the foreign tax credit limitation rules described above (other
than the 90% limitation applicable for purposes of the alternative minimum tax),
provided that all of such individual shareholder's foreign source income is
"qualified passive income" (which generally includes interest, dividends, rents,
royalties and certain other types of income) and further provided that all of
such foreign source income is shown on one or more payee statements furnished to
the shareholder. Shareholders making this election will not be permitted to
carry over any excess foreign taxes to or from a tax year to which such an
election applies.
State and Local Taxes. Each Fund may be subject to state or local taxes
in jurisdictions in which the Fund is deemed to be doing business. In addition,
the treatment of a Fund and its shareholders in those states which have income
tax laws might differ from treatment under the federal income tax laws.
Shareholders should consult their own tax advisors with respect to any state or
local taxes.
Other Taxation. The Trust is organized as a Massachusetts business
trust and, under current law, neither the Trust nor any Fund is liable for any
income or franchise tax in The Commonwealth of Massachusetts, provided that each
Fund continues to qualify as a regulated investment company under Subchapter M
of the Code. The Portfolios are organized as New York trusts. The Portfolios are
not subject to any federal income taxation or income or franchise tax in the
State of New York or The Commonwealth of Massachusetts. The investment by a Fund
in its corresponding Portfolio does not cause the Fund to be liable for any
income or franchise tax in the State of New York.
ADDITIONAL INFORMATION
As used in this Statement of Additional Information and the Prospectus,
the term "majority of the outstanding voting securities" means the vote of (i)
67% or more of the Fund's shares or the Portfolio's outstanding voting
securities present at a meeting, if the holders of more than 50% of the Fund's
outstanding shares or the Portfolio's outstanding voting securities are present
or represented by proxy, or (ii) more than 50% of the Fund's outstanding shares
or the Portfolio's outstanding voting securities, whichever is less.
<PAGE>
Telephone calls to the Funds, 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 Trust's and the Portfolios'
Registration Statements filed under the 1940 Act. Pursuant to the rules and
regulations of the SEC, certain portions have been omitted. The Registration
Statements including the exhibits filed therewith may be examined at the office
of the SEC in Washington D.C.
Statements contained in this Statement of Additional Information and the
Prospectus concerning the contents of any contract or other document are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the applicable
Registration Statements. Each such statement is qualified in all respects by
such reference.
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in the
Prospectus and this Statement of Additional Information, in connection with the
offer contained therein and, if given or made, such other information or
representations must not be relied upon as having been authorized by any of the
Trust, the Funds or the Distributor. The Prospectus and this Statement of
Additional Information do not constitute an offer by any Fund or by the
Distributor to sell or solicit any offer to buy any of the securities offered
hereby in any jurisdiction to any person to whom it is unlawful for the Fund or
the Distributor to make such offer in such jurisdictions.
<PAGE>
FINANCIAL STATEMENTS
The following financial statements and the reports thereon of Price
Waterhouse LLP of the European Equity and Japan Equity 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
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; and
Accession Number
Name of Fund
- ------------------------------------------------- ------------------------------
- ------------------------------------------------- ------------------------------
J.P. Morgan European Equity Fund 12/31/97;
3/3/98
0001047469-98-008430
- ------------------------------------------------- ------------------------------
- ------------------------------------------------- ------------------------------
J.P. Morgan Japan Equity Fund 12/31/97;
3/3/98;
0001047469-98-008359
- ------------------------------------------------- ------------------------------
- ------------------------------------------------- ------------------------------
- ------------------------------------------------- ------------------------------
<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.
<PAGE>
Aa - Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
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 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements
The following financial statements are included in Part A:
Financial Highlights: J.P. Morgan International Equity Fund
J.P. Morgan Emerging Markets Equity Fund
J.P. Morgan International Opportunities Fund
J.P. Morgan European Equity Fund
J.P. Morgan Japan Equity Fund
The following financial statements are incorporated by reference into Part B:
J.P. MORGAN INTERNATIONAL EQUITY FUND
Statement of Assets and Liabilities at October 31, 1997
Statement of Operations for the fiscal year ended October 31, 1997
Statement of Changes in Net Assets for the fiscal years ended October 31, 1997
and 1996
Financial Highlights
Notes to Financial Statements October 31, 1997
THE INTERNATIONAL EQUITY PORTFOLIO Schedule of Investments at October 31, 1997
Statement of Assets and Liabilities at October 31, 1997
Statement of Operations for the fiscal year ended October 31, 1997
Statement of Changes in Net Assets for the fiscal years ended October 31, 1997
and 1996
Supplementary Data
Notes to Financial Statements October 31, 1997
J.P. MORGAN EMERGING MARKETS EQUITY FUND
Statement of Assets and Liabilities at October 31, 1997
Statement of Operations for the fiscal year ended October 31, 1997
Statement of Changes in Net Assets for the fiscal years ended October 31, 1997
and 1996 Financial Highlights
Notes to Financial Statements October 31, 1997
THE EMERGING MARKETS EQUITY PORTFOLIO Schedule of Investments at October 31,
1997
Statement of Assets and Liabilities at October 31, 1997
Statement of Operations for the fiscal year ended October 31, 1997
Statement of Changes in Net Assets for the fiscal years ended October 31, 1997
and 1996
Supplementary Data
Notes to Financial Statements October 31, 1997
J.P. MORGAN INTERNATIONAL OPPORTUNITIES FUND
Statement of Assets and Liabilities at November 30, 1997
Statement of Operations for the period February 26, 1997 (commencement of
operations) to November 30, 1997
Statement of Changes in Net Assets for the period February 26, 1997
(commencement of operations) to November 30, 1997
Financial Highlights
Notes to Financial Statements November 30, 1997
THE INTERNATIONAL OPPORTUNITIES PORTFOLIO Schedule of Investments at November
30, 1997
Statement of Assets and Liabilities at November 30, 1997
Statement of Operations for the period February 26, 1997 (commencement of
operations) to November 30, 1997
Statement of Changes in Net Assets for the period February 26, 1997
(commencement of operations) to November 30, 1997
Supplementary Data
Notes to Financial Statements November 30, 1997
J.P. MORGAN EUROPEAN EQUITY FUND
Statement of Assets and Liabilities at December 31, 1997
Statement of Operations for the fiscal year ended December 31, 1997
Statement of Changes in Net Assets for the fiscal years ended December 31, 1997
and 1996
Financial Highlights
Notes to Financial Statements December 31, 1997
THE EUROPEAN EQUITY PORTFOLIO Schedule of Investments at December 31, 1997
Statement of Assets and Liabilities at December 31, 1997
Statement of Operations for the fiscal year ended December 31, 1997
Statement of Changes in Net Assets for the fiscal years ended December 31, 1997
and 1996 Supplementary Data
Notes to Financial Statements December 31, 1997
J.P. MORGAN JAPAN EQUITY FUND
Statement of Assets and Liabilities at December 31, 1997
Statement of Operations for the fiscal year ended December 31, 1997
Statement of Changes in Net Assets for the fiscal years ended December 31, 1997
and 1996
Financial Highlights
Notes to Financial Statements December 31, 1997
THE JAPAN EQUITY PORTFOLIO Schedule of Investments at December 31, 1997
Statement of Assets and Liabilities at December 31, 1997
Statement of Operations for the fiscal year ended December 31, 1997
Statement of Changes in Net Assets for the fiscal years ended December 31, 1997
and 1996
Supplementary Data
Notes to Financial Statements December 31, 1997
(b) Exhibits
Exhibit Number
1. 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).
1(a). Amendment No. 5 to Declaration of Trust; Amendment and Fifth Amended
and Restated Establishment and Designation of Series of Shares of Beneficial
Interest.*
1(b). 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 February 28, 1997 (Accession Number
0001016964-97-000038).
1(c). 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 filed on April 30, 1997 (Accession Number
0001019694-97-000063).
1(d) 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 filed on October 21, 1997 (Accession Number
0001042058-97-000006).
1(e) Amendment No. 9 to Declaration of Trust; Amendment and Ninth Amended
and Restated Establishment and Designation of Series of Shares of Beneficial
Interest. (Accession Number 001041455-97-000013)
2. Restated By-Laws of Registrant.*
6. Distribution Agreement between Registrant and Funds Distributor, Inc.
("FDI").*
8. Custodian Contract between Registrant and State Street Bank and Trust
Company ("State Street").*
9(a). Co-Administration Agreement between Registrant and FDI.*
9(b). Restated Shareholder Servicing Agreement between Registrant and Morgan
Guaranty Trust Company of New York ("Morgan Guaranty") was filed as
Exhibit No. 9(b) to Post-Effective Amendment No. 33 to the Registration
Statement filed on March 6, 1997 (Accession Number
0001019694-97-000048).
9(c). Transfer Agency and Service Agreement between Registrant and State
Street.*
9(d). Restated Administrative Services Agreement between Registrant and
Morgan Guaranty.*
9(e). Fund Services Agreement, as amended, between Registrant and Pierpont
Group, Inc.*
10. Opinion and consent of Sullivan & Cromwell.*
11. Consents of independent accountants. Filed herewith
13. Purchase agreements with respect to Registrant's initial shares.*
16. Schedule for computation of performance quotations.*
18. Powers of Attorney were filed as Exhibit No. 18 to Post-Effective
Amendment No. 41 to the Registration Statement filed on October 21, 1997
(Accession Number 0001042058-97-000006).
27. Financial Data Schedules. (filed herewith)
- ------------------------
* Incorporated herein by reference to Post-Effective Amendment No. 30 to
the Registration Statement filedon December 27, 1996 (Accession Number
0001016964-96-000066).
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Not applicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
Shares of Beneficial Interest ($0.001 par value).
Title of Class: Number of Record Holders as of February 27, 1998.
J.P. Morgan Prime Money Market Fund: 5,077
J.P. Morgan Tax Exempt Money Market Fund: 311
J.P. Morgan Federal Money Market Fund: 660
J.P. Morgan Short Term Bond Fund: 163
J.P. Morgan Bond Fund: 922
J.P. Morgan Tax Exempt Bond Fund: 1,281
J.P. Morgan New York Total Return Bond Fund: 286
J.P. Morgan Diversified Fund: 816
J.P. Morgan U.S. Equity Fund: 2,688
J.P. Morgan U.S. Small Company Fund: 2,159
J.P. Morgan U.S. Tax Aware Equity Fund: 292
J.P. Morgan Disciplined Equity Fund: 39
J.P. Morgan International Equity Fund: 1,536
J.P. Morgan Emerging Markets Equity Fund: 1,443
J.P. Morgan European Equity Fund: 166
J.P. Morgan Asia Growth Fund:77
J.P. Morgan Japan Equity Fund: 78
J.P. Morgan International Opportunities Fund: 564
J.P. Morgan Global Strategic Income Fund: 73
J.P. Morgan Latin American Equity Fund: 14
J.P. Morgan Emerging Markets Debt Fund: 95
J.P. Morgan U.S. Small Company Opportunities Fund: 877
ITEM 27. 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 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Not Applicable.
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) FDI, located at 60 State Street, Suite 1300, Boston, Massachusetts 02109, is
the principal underwriter of the Registrant's shares.
FDI acts as principal underwriter of the following investment companies other
than the Registrant:
BJB Investment Funds
Burridge Funds
Foreign Fund, Inc.
Fremont Mutual Funds, Inc.
Harris Insight Funds Trust
H.T. Insight Funds, Inc. d/b/a Harris Insight Funds
LKCM Fund
Monetta Fund, Inc.
Monetta Trust
The Munder Framlington Funds Trust
The Munder Funds, Inc.
The Munder Funds Trust
The PanAgora Institutional Funds
RCM Capital Funds, Inc.
RCM Equity Funds, Inc.
The Skyline Funds
St. Clair Money Market Fund
Waterhouse Investors Cash Management Funds, Inc.
J.P. Morgan Institutional Funds
J.P. Morgan Series Trust
J.P. Morgan Series Trust II
FDI does not act as depositor or investment adviser of any investment companies.
FDI is registered with the Securities and Exchange Commission as a broker-dealer
and is a member of the National Association of Securities Dealers. FDI 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 information required by this Item 29(b) with respect to each director,
officer and partner of FDI is incorporated herein by reference to Schedule A of
Form BD filed by FDI with the Securities and Exchange Commission pursuant to the
Securities Act of 1934 (SEC File No. 8-20518).
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
PIERPONT GROUP, INC.: 461 Fifth Avenue, New York, New York 10017 (records relat
ing 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 31. MANAGEMENT SERVICES.
Not Applicable.
ITEM 32. 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.
(c) The Registrant undertakes to file a Post-Effective Amendment on
behalf of J.P. Morgan Global Strategic Income Fund, J.P. Morgan Latin
American Equity Fund and J.P. Morgan Disciplined Equity Fund using
financial statements which need not be certified, within four to six
months from the commencement of public investment operations of such
funds.
<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 Boston and Commonwealth of Massachusetts on the 30th day of March, 1998.
J.P. MORGAN FUNDS
By /s/Richard W. Ingram
-----------------------
Richard W. Ingram
President and Treasurer
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 March 30, 1998.
/s/ Richard W. Ingram
- ------------------------------
Richard W. Ingram
President and Treasurer (Principal Financial and Accounting Officer)
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/Richard W. Ingram
----------------------------
Richard W. Ingram
as attorney-in-fact pursuant to a power of attorney previously filed.
<PAGE>
SIGNATURES
Each Portfolio has duly caused this registration statement on Form N-1A
("Registration Statement") of the J.P. Morgan Funds (the "Trust") (File No.
033-54632) to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of George Town, and Grand Cayman, on the 30th day of
March, 1998.
THE INTERNATIONAL EQUITY PORTFOLIO, THE EMERGING MARKETS EQUITY PORTFOLIO,
THE INTERNATIONAL OPPORTUNITIES PORTFOLIO, THE EUROPEAN EQUITY PORTFOLIO, THE
JAPAN EQUITY PORTFOLIO
/s/Lenore J. McCabe
By -------------------------
Lenore J. McCabe
Assistant Secretary and Assistant Treasurer
Pursuant to the requirements of the Securities Act of 1933, the Trust's
Registration Statement has been signed below by the following persons in the
capacities indicated on March 30, 1998.
Richard W. Ingram*
- ----------------------------
Richard W. Ingram
President and Treasurer (Principal Financial and Accounting Officer) of the
Portfolios
Matthew Healey*
- ----------------------------
Matthew Healey
Trustee, Chairman and Chief Executive Officer (Principal Executive Officer) of
the Portfolios
Frederick S. Addy*
- ----------------------------
Frederick S. Addy
Trustee of the Portfolios
William G. Burns*
- ----------------------------
William G. Burns
Trustee of the Portfolios
Arthur C. Eschenlauer*
- ----------------------------
Arthur C. Eschenlauer
Trustee of the Portfolios
Michael P. Mallardi*
- ----------------------------
Michael P. Mallardi
Trustee of the Portfolios
/s/
*By ------------------------
Lenore J. McCabe
as attorney-in-fact pursuant to a power of attorney previously filed.
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
- ------------- ----------------------
Ex-11 Consents of Independent Accountants
EX-27.1-27.18 Financial Data Schedules
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 51 to the registration statement on Form N-1A (the "Registration
Statement") of our reports dated February 23, 1998, relating to the financial
statements and financial highlights of J.P. Morgan European Equity Fund
(formerly The JPM European Equity Fund and J.P. Morgan Japan Equity Fund
(formerly The JPM Japan Equity Fund) and the financial statements and
supplementary data of the European Equity Portfolio and The Japan Equity
Portfolio appearing in the December 31, 1997 Annual Reports, which are also
incorporated by reference into the Registration Statement.
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of the Registration
Statement of our reports dated January 20, 1998, relating to the financial
statements and financial highlights of J.P. Morgan International Opportunities
Fund (formerly The JPM International Opportunities Fund) and the financial
statements and supplementary data of The International Opportunities Portfolio
appearing in the November 30, 1997 Annual Report, which are also incorporated by
reference into the Registration Statement.
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of the Registration
Statement of our reports dated December 22, 1997, relating to the financial
statements and financial highlights of J.P. Morgan Emerging Markets Equity Fund
(formerly The JPM Emerging Markets Equity Fund) and the financial statements and
supplementary data of The Emerging Markets Equity Portfolio appearing in the
October 31, 1997 Annual Report, which are also incorporated by reference into
the Registration Statement.
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of the Registration
Statement of our reports dated December 19, 1997, relating to the financial
statements and financial highlights of J.P. Morgan International Equity Fund
(formerly, The JPM International Equity Fund) and the financial statements and
supplementary data of The International Equity Portfolio appearing in the
October 31, 1997 Annual Report, which are also incorporated by reference into
the Registration Statement.
We also consent to the references to us under the heading "Financial Highlights"
in the Prospectus an under the headings "Independent Accountants" and "Financial
Statements" in the Statement of Additional Information.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York 10036
March 30, 1998
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE
REPORT ON FORM N-SAR DATED NOVEMBER 30, 1997 FOR J.P. MORGAN PRIME MONEY
MARKET FUND AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
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<DISTRIBUTIONS-OF-INCOME> 118741
<DISTRIBUTIONS-OF-GAINS> 615
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<NUMBER-OF-SHARES-SOLD> 13832381
<NUMBER-OF-SHARES-REDEEMED> 13772211
<SHARES-REINVESTED> 103579
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<PER-SHARE-NII> .052
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<PER-SHARE-DISTRIBUTIONS> .000
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE REPORT ON
FORM-SAR DATED AUGUST 31, 1997 FOR THE JPM PIERPONT TAX EXEMPT MONEY MARKET
FUND AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
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<INVESTMENTS-AT-VALUE> 1104691
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<OTHER-ITEMS-ASSETS> 0
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<OTHER-ITEMS-LIABILITIES> 738
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<PAID-IN-CAPITAL-COMMON> 1104268
<SHARES-COMMON-STOCK> 1103923
<SHARES-COMMON-PRIOR> 1050312
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (313)
<OVERDISTRIBUTION-GAINS> 0
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<EXPENSES-NET> 2299
<NET-INVESTMENT-INCOME> 33598
<REALIZED-GAINS-CURRENT> (27)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 33572
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 33598
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4142253
<NUMBER-OF-SHARES-REDEEMED> 4117141
<SHARES-REINVESTED> 28499
<NET-CHANGE-IN-ASSETS> 53584
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2299
<AVERAGE-NET-ASSETS> 1072924
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .031
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .031
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .46
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE REPORT ON
FORM-SAR DATED OCTOBER 31, 1997 FOR THE JPM PIERPONT FEDERAL MONEY MARKET
FUND AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
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<PERIOD-TYPE> 12-MOS
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<PERIOD-END> OCT-31-1997
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<INVESTMENTS-AT-VALUE> 239510
<RECEIVABLES> 15
<ASSETS-OTHER> 6
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 239531
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 456
<TOTAL-LIABILITIES> 456
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 239073
<SHARES-COMMON-STOCK> 239073
<SHARES-COMMON-PRIOR> 185318
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 239074
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 11448
<OTHER-INCOME> 0
<EXPENSES-NET> 439
<NET-INVESTMENT-INCOME> 11009
<REALIZED-GAINS-CURRENT> 22
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 11031
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 11009
<DISTRIBUTIONS-OF-GAINS> 128
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2065113
<NUMBER-OF-SHARES-REDEEMED> 2019613
<SHARES-REINVESTED> 8255
<NET-CHANGE-IN-ASSETS> 53650
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 538
<AVERAGE-NET-ASSETS> 220305
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .050
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> .050
<PER-SHARE-DISTRIBUTIONS> .001
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE REPORT ON
FORM-SAR DATED OCTOBER 31, 1997 FOR THE JPM PIERPONT SHORT TERM BOND FUND AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000894089
<NAME> THE JPM PIERPONT FUNDS
<SERIES>
<NUMBER> 002
<NAME> THE JPM PIERPONT SHORT TERM BOND FUND
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 14540
<RECEIVABLES> 30
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 14570
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 51
<TOTAL-LIABILITIES> 51
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 14554
<SHARES-COMMON-STOCK> 1474
<SHARES-COMMON-PRIOR> 833
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 49
<ACCUM-APPREC-OR-DEPREC> 14
<NET-ASSETS> 14519
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 777
<OTHER-INCOME> 0
<EXPENSES-NET> 31
<NET-INVESTMENT-INCOME> 746
<REALIZED-GAINS-CURRENT> 26
<APPREC-INCREASE-CURRENT> (44)
<NET-CHANGE-FROM-OPS> 729
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 746
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10364
<NUMBER-OF-SHARES-REDEEMED> 4588
<SHARES-REINVESTED> 553
<NET-CHANGE-IN-ASSETS> 6313
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 75
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 103
<AVERAGE-NET-ASSETS> 12559
<PER-SHARE-NAV-BEGIN> 9.86
<PER-SHARE-NII> .58
<PER-SHARE-GAIN-APPREC> (.01)
<PER-SHARE-DIVIDEND> (.58)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.85
<EXPENSE-RATIO> .50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE REPORT ON
FORM-SAR DATED OCTOBER 31, 1997 FOR THE JPM PIERPONT BOND FUND AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000894089
<NAME> THE JPM PIERPONT FUNDS
<SERIES>
<NUMBER> 003
<NAME> THE JPM PIERPONT BOND FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 169321
<RECEIVABLES> 105
<ASSETS-OTHER> 4
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 169431
<PAYABLE-FOR-SECURITIES> 75
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 122
<TOTAL-LIABILITIES> 197
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 166032
<SHARES-COMMON-STOCK> 16244
<SHARES-COMMON-PRIOR> 14487
<ACCUMULATED-NII-CURRENT> 72
<OVERDISTRIBUTION-NII> (15)
<ACCUMULATED-NET-GAINS> 3145
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3145
<NET-ASSETS> 169233
<DIVIDEND-INCOME> 206
<INTEREST-INCOME> 10832
<OTHER-INCOME> 0
<EXPENSES-NET> 1052
<NET-INVESTMENT-INCOME> 9986
<REALIZED-GAINS-CURRENT> 1034
<APPREC-INCREASE-CURRENT> 1912
<NET-CHANGE-FROM-OPS> 12932
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 9936
<DISTRIBUTIONS-OF-GAINS> 1045
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6399
<NUMBER-OF-SHARES-REDEEMED> 5632
<SHARES-REINVESTED> 990
<NET-CHANGE-IN-ASSETS> 20027
<ACCUMULATED-NII-PRIOR> (15)
<ACCUMULATED-GAINS-PRIOR> (930)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1052
<AVERAGE-NET-ASSETS> 155703
<PER-SHARE-NAV-BEGIN> 10.30
<PER-SHARE-NII> .66
<PER-SHARE-GAIN-APPREC> .18
<PER-SHARE-DIVIDEND> .65
<PER-SHARE-DISTRIBUTIONS> .07
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.42
<EXPENSE-RATIO> .68
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE REPORT ON
FORM-SAR DATED AUGUST 31, 1997 FOR THE JPM PIERPONT TAX EXEMPT BOND FUND AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000894089
<NAME> THE JPM PIERPONT FUNDS
<SERIES>
<NUMBER> 006
<NAME> THE JPM PIERPONT TAX EXEMPT BOND FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> AUG-31-1997
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 401363
<RECEIVABLES> 192
<ASSETS-OTHER> 1
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 401556
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 550
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 550
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 381561
<SHARES-COMMON-STOCK> 33828
<SHARES-COMMON-PRIOR> 32541
<ACCUMULATED-NII-CURRENT> 2
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 287
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 19156
<NET-ASSETS> 401506
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 18542
<OTHER-INCOME> 0
<EXPENSES-NET> 996
<NET-INVESTMENT-INCOME> 17546
<REALIZED-GAINS-CURRENT> 807
<APPREC-INCREASE-CURRENT> 6508
<NET-CHANGE-FROM-OPS> 24861
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 17546
<DISTRIBUTIONS-OF-GAINS> 702
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 14822
<NUMBER-OF-SHARES-REDEEMED> 14047
<SHARES-REINVESTED> 1190
<NET-CHANGE-IN-ASSETS> 31019
<ACCUMULATED-NII-PRIOR> 2
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 996
<AVERAGE-NET-ASSETS> 375379
<PER-SHARE-NAV-BEGIN> 11.63
<PER-SHARE-NII> .55
<PER-SHARE-GAIN-APPREC> .24
<PER-SHARE-DIVIDEND> .55
<PER-SHARE-DISTRIBUTIONS> .02
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.85
<EXPENSE-RATIO> .64
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE REPORT ON
FORM-SAR DATED SEPTEMBER 30, 1997 FOR THE JPM PIERPONT NEW YORK TOTAL RETURN
BOND FUND AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000894089
<NAME> THE JPM PIERPONT FUNDS
<SERIES>
<NUMBER> 013
<NAME> THE JPM PIERPONT NEW YORK TOTAL RETURN BOND FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 67598
<RECEIVABLES> 1
<ASSETS-OTHER> 5
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 67604
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 114
<TOTAL-LIABILITIES> 114
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 64510
<SHARES-COMMON-STOCK> 6355
<SHARES-COMMON-PRIOR> 5465
<ACCUMULATED-NII-CURRENT> 21
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 226
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2733
<NET-ASSETS> 67490
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1455
<OTHER-INCOME> 0
<EXPENSES-NET> 98
<NET-INVESTMENT-INCOME> 1357
<REALIZED-GAINS-CURRENT> 226
<APPREC-INCREASE-CURRENT> 1690
<NET-CHANGE-FROM-OPS> 3273
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1357
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 17935
<NUMBER-OF-SHARES-REDEEMED> 9553
<SHARES-REINVESTED> 995
<NET-CHANGE-IN-ASSETS> 11293
<ACCUMULATED-NII-PRIOR> 21
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 102
<AVERAGE-NET-ASSETS> 61319
<PER-SHARE-NAV-BEGIN> 10.28
<PER-SHARE-NII> .23
<PER-SHARE-GAIN-APPREC> .34
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> .23
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.62
<EXPENSE-RATIO> .72
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE REPORT ON
FORM N-SAR DATED NOVEMBER 30, 1997 FOR J.P. MORGAN U.S. EQUITY FUND AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000894089
<NAME> J.P. MORGAN FUNDS
<SERIES>
<NUMBER> 010
<NAME> J.P. MORGAN U.S. EQUITY FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 330,720
<INVESTMENTS-AT-VALUE> 399,517
<RECEIVABLES> 50
<ASSETS-OTHER> 42
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 399,609
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 129
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 290,137
<SHARES-COMMON-STOCK> 16,236
<SHARES-COMMON-PRIOR> 14,722
<ACCUMULATED-NII-CURRENT> 1,364
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 39,182
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 68,797
<NET-ASSETS> 399,480
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 2,000
<EXPENSES-NET> 636
<NET-INVESTMENT-INCOME> 1,364
<REALIZED-GAINS-CURRENT> 40,446
<APPREC-INCREASE-CURRENT> (1,900)
<NET-CHANGE-FROM-OPS> 39,910
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,269
<DISTRIBUTIONS-OF-GAINS> 39,061
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 37,950
<NUMBER-OF-SHARES-REDEEMED> 38,329
<SHARES-REINVESTED> 37,676
<NET-CHANGE-IN-ASSETS> 36,877
<ACCUMULATED-NII-PRIOR> 1,269
<ACCUMULATED-GAINS-PRIOR> 37,796
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 636
<AVERAGE-NET-ASSETS> 397,942
<PER-SHARE-NAV-BEGIN> 24.63
<PER-SHARE-NII> 0.08
<PER-SHARE-GAIN-APPREC> 2.57
<PER-SHARE-DIVIDEND> 0.08
<PER-SHARE-DISTRIBUTIONS> 2.60
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 24.60
<EXPENSE-RATIO> 0.79
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE REPORT ON
FORM N-SAR DATED NOVEMBER 30, 1997 FOR J.P. MORGAN U.S. SMALL COMPANY FUND
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000894089
<NAME> J.P. MORGAN FUNDS
<SERIES>
<NUMBER> 011
<NAME> J.P. MORGAN U.S. SMALL COMPANY FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 221371
<INVESTMENTS-AT-VALUE> 265842
<RECEIVABLES> 0
<ASSETS-OTHER> 388
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 266230
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 93
<TOTAL-LIABILITIES> 93
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 196978
<SHARES-COMMON-STOCK> 9508
<SHARES-COMMON-PRIOR> 9140
<ACCUMULATED-NII-CURRENT> 625
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 24063
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 44471
<NET-ASSETS> 266137
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 943
<EXPENSES-NET> 316
<NET-INVESTMENT-INCOME> 627
<REALIZED-GAINS-CURRENT> 24376
<APPREC-INCREASE-CURRENT> 13372
<NET-CHANGE-FROM-OPS> 38375
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (595)
<DISTRIBUTIONS-OF-GAINS> (19079)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 26045
<NUMBER-OF-SHARES-REDEEMED> (31086)
<SHARES-REINVESTED> 14493
<NET-CHANGE-IN-ASSETS> 28153
<ACCUMULATED-NII-PRIOR> 593
<ACCUMULATED-GAINS-PRIOR> 18766
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 445
<AVERAGE-NET-ASSETS> 263588
<PER-SHARE-NAV-BEGIN> 26.04
<PER-SHARE-NII> .07
<PER-SHARE-GAIN-APPREC> 4.05
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 2.17
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 27.99
<EXPENSE-RATIO> .92
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REPORT
ON FORM N-SAR DATED OCTOBER 31, 1997 FOR THE JPM PIERPONT INTERNATIONAL EQUITY
FUND AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000894089
<NAME> THE JPM PIERPONT FUNDS
<SERIES>
<NUMBER> 004
<NAME> THE JPM PIERPONT INTERNATIONAL EQUITY FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 147747
<RECEIVABLES> 27
<ASSETS-OTHER> 4
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 147778
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1119
<TOTAL-LIABILITIES> 1119
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 131009
<SHARES-COMMON-STOCK> 13371
<SHARES-COMMON-PRIOR> 17642
<ACCUMULATED-NII-CURRENT> 3833
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 5082
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6735
<NET-ASSETS> 146659
<DIVIDEND-INCOME> 3443
<INTEREST-INCOME> 614
<OTHER-INCOME> 0
<EXPENSES-NET> 3041
<NET-INVESTMENT-INCOME> 2016
<REALIZED-GAINS-CURRENT> 6944
<APPREC-INCREASE-CURRENT> (1417)
<NET-CHANGE-FROM-OPS> 7543
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4419
<DISTRIBUTIONS-OF-GAINS> 9302
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3087
<NUMBER-OF-SHARES-REDEEMED> 8221
<SHARES-REINVESTED> 863
<NET-CHANGE-IN-ASSETS> (54061)
<ACCUMULATED-NII-PRIOR> 4380
<ACCUMULATED-GAINS-PRIOR> 9296
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2041
<AVERAGE-NET-ASSETS> 182214
<PER-SHARE-NAV-BEGIN> 11.38
<PER-SHARE-NII> .15
<PER-SHARE-GAIN-APPREC> .23
<PER-SHARE-DIVIDEND> .25
<PER-SHARE-DISTRIBUTIONS> .54
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.97
<EXPENSE-RATIO> 1.12
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REPORT
ON FORM N-SAR DATED OCTOBER 31, 1997 FOR THE JPM PIERPONT EMERGING MARKETS
EQUITY FUND AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000894089
<NAME> THE JPM PIERPONT FUNDS
<SERIES>
<NUMBER> 005
<NAME> THE JPM PIERPONT EMERGING MARKETS EQUITY FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 45701
<RECEIVABLES> 3
<ASSETS-OTHER> 20
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 45724
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 280
<TOTAL-LIABILITIES> 280
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 52261
<SHARES-COMMON-STOCK> 4648
<SHARES-COMMON-PRIOR> 5806
<ACCUMULATED-NII-CURRENT> 49
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1184)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (5682)
<NET-ASSETS> 45444
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 634
<EXPENSES-NET> 265
<NET-INVESTMENT-INCOME> 369
<REALIZED-GAINS-CURRENT> 4134
<APPREC-INCREASE-CURRENT> (5359)
<NET-CHANGE-FROM-OPS> (855)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 323
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2229
<NUMBER-OF-SHARES-REDEEMED> 3413
<SHARES-REINVESTED> 26
<NET-CHANGE-IN-ASSETS> (1158)
<ACCUMULATED-NII-PRIOR> 87
<ACCUMULATED-GAINS-PRIOR> (5402)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 265
<AVERAGE-NET-ASSETS> 59501
<PER-SHARE-NAV-BEGIN> 10.18
<PER-SHARE-NII> 0.08
<PER-SHARE-GAIN-APPREC> (0.42)
<PER-SHARE-DIVIDEND> (0.06)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.78
<EXPENSE-RATIO> 1.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE REPORT ON FORM
N-SAR DATED JUNE 30, 1997 FOR THE JPM PIERPONT DIVERSIFIED FUND AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK>0000894089
<NAME> THE JPM PIERPONT FUNDS
<SERIES>
<NUMBER> 008
<NAME> THE JPM PIERPONT DIVERSIFIED FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 70343
<RECEIVABLES> 53
<ASSETS-OTHER> 10
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 70406
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 68
<TOTAL-LIABILITIES> 68
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 56623
<SHARES-COMMON-STOCK> 5065
<SHARES-COMMON-PRIOR> 4354
<ACCUMULATED-NII-CURRENT> 1143
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2581
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 9991
<NET-ASSETS> 70338
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 2024
<EXPENSES-NET> 200
<NET-INVESTMENT-INCOME> 1824
<REALIZED-GAINS-CURRENT> 3370
<APPREC-INCREASE-CURRENT> 6452
<NET-CHANGE-FROM-OPS> 11646
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1471
<DISTRIBUTIONS-OF-GAINS> 1828
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1823
<NUMBER-OF-SHARES-REDEEMED> 1375
<SHARES-REINVESTED> 263
<NET-CHANGE-IN-ASSETS> 17140
<ACCUMULATED-NII-PRIOR> 690
<ACCUMULATED-GAINS-PRIOR> 1140
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 761
<AVERAGE-NET-ASSETS> 60790
<PER-SHARE-NAV-BEGIN> 12.22
<PER-SHARE-NII> .37
<PER-SHARE-GAIN-APPREC> 2.02
<PER-SHARE-DIVIDEND> .32
<PER-SHARE-DISTRIBUTIONS> .40
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.89
<EXPENSE-RATIO> .98
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE REPORT ON FORM
N-SAR DATED DECEMBER 31, 1997 FOR J.P. MORGAN EUROPEAN EQUITY FUND AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK>0000894089
<NAME> J.P. MORGAN FUNDS
<SERIES>
<NUMBER> 014
<NAME> J.P. MORGAN EUROPEAN EQUITY FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 4840
<RECEIVABLES> 6
<ASSETS-OTHER> 5
<OTHER-ITEMS-ASSETS> 0000
<TOTAL-ASSETS> 4851
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 19
<TOTAL-LIABILITIES> 19
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5271
<SHARES-COMMON-STOCK> 362
<SHARES-COMMON-PRIOR> 178
<ACCUMULATED-NII-CURRENT> (1)
<OVERDISTRIBUTION-NII> (567)
<ACCUMULATED-NET-GAINS> 000
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 129
<NET-ASSETS> 4832
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 51
<EXPENSES-NET> 18
<NET-INVESTMENT-INCOME> 33
<REALIZED-GAINS-CURRENT> 633
<APPREC-INCREASE-CURRENT> (6)
<NET-CHANGE-FROM-OPS> 660
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 24
<DISTRIBUTIONS-OF-GAINS> 233
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 594
<NUMBER-OF-SHARES-REDEEMED> 18
<SHARES-REINVESTED> 428
<NET-CHANGE-IN-ASSETS> 2760
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (2)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 81
<AVERAGE-NET-ASSETS> 3570
<PER-SHARE-NAV-BEGIN> 11.61
<PER-SHARE-NII> 0.10
<PER-SHARE-GAIN-APPREC> 2.45
<PER-SHARE-DIVIDEND> (0.07)
<PER-SHARE-DISTRIBUTIONS> (0.74)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.35
<EXPENSE-RATIO> 1.42
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMERY FINANCIAL DATA EXTRACTED FROM THE REPORT
ON FORM N-SAR DATED DECEMBER 31, 1997 FOR J.P. MORGAN JAPAN EQUITY FUND
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK>0000894089
<NAME> J.P. MORGAN FUNDS
<SERIES>
<NUMBER> 016
<NAME> J.P. MORGAN JAPAN EQUITY FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 841
<RECEIVABLES> 13
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 854
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 64
<TOTAL-LIABILITIES> 64
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1180
<SHARES-COMMON-STOCK> 146
<SHARES-COMMON-PRIOR> 79
<ACCUMULATED-NII-CURRENT> (4)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (187)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (199)
<NET-ASSETS> 790
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 1
<EXPENSES-NET> (5)
<NET-INVESTMENT-INCOME> (4)
<REALIZED-GAINS-CURRENT> (162)
<APPREC-INCREASE-CURRENT> (127)
<NET-CHANGE-FROM-OPS> (293)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 196
<NUMBER-OF-SHARES-REDEEMED> 130
<SHARES-REINVESTED> 1
<NET-CHANGE-IN-ASSETS> 171
<ACCUMULATED-NII-PRIOR> (1)
<ACCUMULATED-GAINS-PRIOR> (23)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 79
<AVERAGE-NET-ASSETS> 904
<PER-SHARE-NAV-BEGIN> 7.83
<PER-SHARE-NII> (.02)
<PER-SHARE-GAIN-APPREC> (2.37)
<PER-SHARE-DIVIDEND> (.02)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 5.42
<EXPENSE-RATIO> 1.42
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REPORT
ON FORM N-SAR DATED NOVEMBER 30, 1997 FOR J.P. MORGAN INTERNATIONAL
OPPORTUNITIES FUND AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
REPORT.
</LEGEND>
<CIK> 0000894089
<NAME> J.P. MORGAN FUNDS
<SERIES>
<NUMBER> 017
<NAME> J.P. MORGAN INTERNATIONAL OPPORTUNITIES FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> NOV-30-1997
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 62921
<RECEIVABLES> 23
<ASSETS-OTHER> 85
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 63029
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 90
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 65843
<SHARES-COMMON-STOCK> 6345
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 446
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1095)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (2256)
<NET-ASSETS> 62939
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 466
<EXPENSES-NET> 104
<NET-INVESTMENT-INCOME> 362
<REALIZED-GAINS-CURRENT> (1012)
<APPREC-INCREASE-CURRENT> (2256)
<NET-CHANGE-FROM-OPS> 2906
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7280
<NUMBER-OF-SHARES-REDEEMED> 935
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 62939
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 200
<AVERAGE-NET-ASSETS> 44153
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.06
<PER-SHARE-GAIN-APPREC> (0.14)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.92
<EXPENSE-RATIO> 1.20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REPORT
ON FORM N-SAR DATED DECEMBER 31, 1997 FOR J.P. MORGAN EMERGING MARKETS DEBT
FUND AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<CIK> 0000894089
<NAME> J.P. MORGAN FUNDS
<SERIES>
<NUMBER> 018
<NAME> J.P. MORGAN EMERGING MARKETS DEBT FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-17-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 12146
<RECEIVABLES> 4
<ASSETS-OTHER> 15
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 12165
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 187
<TOTAL-LIABILITIES> 187
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11935
<SHARES-COMMON-STOCK> 1227
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 60
<ACCUMULATED-NET-GAINS> 739
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (636)
<NET-ASSETS> 11978
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 562
<EXPENSES-NET> 25
<NET-INVESTMENT-INCOME> 537
<REALIZED-GAINS-CURRENT> 556
<APPREC-INCREASE-CURRENT> (636)
<NET-CHANGE-FROM-OPS> 457
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 552
<DISTRIBUTIONS-OF-GAINS> 196
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1189
<NUMBER-OF-SHARES-REDEEMED> 37
<SHARES-REINVESTED> 75
<NET-CHANGE-IN-ASSETS> 11978
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 88
<AVERAGE-NET-ASSETS> 7817
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.58
<PER-SHARE-GAIN-APPREC> (0.05)
<PER-SHARE-DIVIDEND> 0.60
<PER-SHARE-DISTRIBUTIONS> 0.17
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.76
<EXPENSE-RATIO> 1.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE INTERIM
FINANCIAL STATEMENTS DATED OCTOBER 31, 1997 FOR THE JPM PIERPONT U.S. SMALL
COMPANY OPPORTUNITIES FUND AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
REPORT.
</LEGEND>
<CIK> 0000894089
<NAME> THE JPM PIERPONT FUNDS
<SERIES>
<NUMBER> 19
<NAME> THE JPM PIERPONT U.S. SMALL COMPANY OPPORTUNITIES FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> JUN-16-1997
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 83,350
<RECEIVABLES> 7,646
<ASSETS-OTHER> 14
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 91,010
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 71
<TOTAL-LIABILITIES> 71
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 88,856
<SHARES-COMMON-STOCK> 7,892
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (53)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (42)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,178
<NET-ASSETS> 90,939
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> (0)
<OTHER-INCOME> (7)
<EXPENSES-NET> (46)
<NET-INVESTMENT-INCOME> (53)
<REALIZED-GAINS-CURRENT> (42)
<APPREC-INCREASE-CURRENT> 2,178
<NET-CHANGE-FROM-OPS> 2,083
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,035
<NUMBER-OF-SHARES-REDEEMED> 143
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 90,939
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 74
<AVERAGE-NET-ASSETS> 41,364
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (0.01)
<PER-SHARE-GAIN-APPREC> 1.53
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.52
<EXPENSE-RATIO> 1.19
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>